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Johnson's Russia List


July 13, 1998  
This Date's Issues: 2261  2262

Johnson's Russia List
13 July 1998

[Note from David Johnson:
1. Reuters: Anatoly Verbin, Russian PM, IMF reach no concrete 
loan deal.

2. Christian Science Monitor: Judith Matloff, Russia's Financial 
Woes Grow Into Social Unrest.

3. The Times (UK): Michael Evans, False alarm took Russia to brink 
of nuclear war.

4. Financial Times (UK): EUROPE: Russia's troubles fuel German fears.
Nightmare tales of contacts with Germany's biggest trading partner 
underlie the anxieties, writes Frederick Stüdemann.

5. Ekonomika i Zhizn: N. Panchenko and A. Surinov, WORK FORCE IN THE 
ECONOMY'S POTHOLES. (Employment data).

6. San Francisco Examiner: Nick Selby, RUSSIA'S TECH PIRATES.
7. AP: Doug Mellgren, Money Splits Nordic, Russian Arctic.
(Kola Peninsula).

8. BBC News: Dynasty wedding for Central Asia.


Russian PM, IMF reach no concrete loan deal
By Anatoly Verbin

MOSCOW (Reuters) - Talks between top Russian officials and a delegation of the
International Monetary Fund failed on Sunday to produce a multi-billion-dollar
loan deal sought by Moscow to ease a financial and economic crisis. 

But the government press service put a brave face on the outcome of some five
hours of talks between Prime Minister Sergei Kiriyenko and John Odling-Smee,
head of the IMF department responsible for the former Soviet Union. 

``The sides have achieved agreement on all major questions of principal
importance,'' Russian news agencies quoted the press service as saying. 

Neither the press service nor officials were available for official comment
but a senior government source told Reuters on condition of anonymity: ``There
is no reason for panic. I think they are close and may reach a deal very

Itar-Tass news agency said Kiriyenko and Odling-Smee had agreed that
``representatives of Russia and the IMF will report in detail on Monday on
concrete agreements which has been reached and practical steps which will be
taken soon.'' 

The optimistic government statement appeared aimed at calming financial
markets, which have been anxiously awaiting the outcome of the talks. 

Earlier, both Russian negotiators and IMF sources said a deal could be reached
on Sunday. 

``Today is most important -- it is a final stage, talks between Odling-Smee
and Kiriyenko,'' Andrei Trapeznikov, an aide to chief Russian loan negotiator
Anatoly Chubais, told Reuters. 

The New York Times reported on Sunday that the IMF had told Moscow it was
prepared to lend it $11 billion, nearly double the $5.6 billion loan initially

Negotiators expect to finish talks by Monday and are nearing agreement on the
crucial issue of how quickly to cut the federal budget deficit, the newspaper

Half of the $11 billion the IMF had pledged to Russia would be given up front
and half over the rest of the year. 

The newspaper said Russia also worked out a parallel deal on Saturday with the
World Bank for between $1 billion and $1.5 billion. It said Russian officials
are also hoping to negotiate another $10 billion in loans from Western
commercial banks. 

The Russian government, beset by poor tax revenues, low world oil prices,
financial market turmoil and the need to pay huge amounts of short-term
domestic debt, says it urgently needs $10 billion to $15 billion in loans. 

Moscow has also dipped heavily into its own coffers, depleting its foreign
currency and gold reserves to $15.1 billion by July 3 from $25 billion in the
middle of last year. 

Deputy Prime Minister Boris Nemtsov this week estimated Russia's total state
debt at $200 billion and said every third ruble of the budget goes towards
servicing debt. 


Christian Science Monitor
JULY 13, 1998 
[for personal use only]
Russia's Financial Woes Grow Into Social Unrest
Byt Judith Matloff 


Every few hours in front of the White House, where Russia's main 
government offices are located, a circle of striking coal miners pound 
their helmets in a rhythmic din on the cobblestone ground.

Office workers, grandmothers, and an array of opposition politicians pay 
visits to the tent city where the protesters have camped for a month, 
giving them sandwiches and handshakes in support.

"We will be here until they listen," says miner Andrei Lodazev. "We'll 
stay here until [President Boris Yeltsin] steps down."

The miners' vigil calling for the resignation of Mr. Yeltsin is the most 
visible sign of rumbling popular discontent. Russia is teetering on the 
edge of a financial collapse, which some say the likely emergency loan 
from the International Monetary Fund (IMF) won't avert.

This week, negotiators hope to wrap up discussions on approximately $11 
billion in loans from the IMF - and between $1 billion and $1.5 billion 
from the World Bank.

Underlying this financial crisis is social unrest, which some analysts 
say could threaten the free-market and democratic reforms that Yeltsin 
has tentatively embraced.

Millions of workers have not been paid for months. Protesters have shut 
down mines and blocked the Trans-Siberian railroad. Several provincial 
towns are paralyzed, with electricity and gas shut off because of unpaid 
bills. Teachers and defense workers have joined the miners in protest. 
At least three regional governments have demanded that Yeltsin resign.

Most troubling are rumors circulating in the capital of plans for a coup 
d'état by security forces.

"The Crisis to End in Coup?" asked the July 7 front-page headline of 
Nezavizimaya Gazeta, a Moscow-based newspaper.

Yeltsin has appealed to the IMF for urgent help to cover a huge debt, 
avoid devaluing the ruble, and attract foreign investors, who have fled 
the country. His government is trying to push austerity measures and tax 
reforms demanded by the donors through a recalcitrant 
Communist-dominated parliament.

Yeltsin took several dramatic steps over the past several days to 
convince the world of the situation's gravity. He postponed his summer 
vacation. He telephoned leaders of the United States, Japan, Britain, 
Germany, and France to enlist their aid in staving off economic 
collapse. Then he assured the military that he was in control.

But all this only added to a general sense of alarm.

"We have enough force to cut short any extremist plans to seize power," 
he declared in televised remarks.

Analysts say that an IMF loan might pull Russia back from temporary 
financial collapse, but it could also sow the seeds of increased social 
unrest. The country will still have to continue paying billions of 
dollars for debt servicing, which accounts for about 35 percent of total 
budget spending. The stock market is unlikely to erase its 60 percent 
fall. Low world prices of oil, Russia's main export, will not rise.

The austerity package dumps much of the burden of financial survival on 
ordinary people by cutting social services and shifting the tax burden 
from companies to average citizens.

"The general economic crisis in Russia is causing social tensions. 
Austerity measures would make these tensions worse," says Iskander 
Hazimov, head of the politics department at the Expert Institute in 

Doomsday prophets also worry about the social and political dangers from 
nationalists or leftists who want to edge Yeltsin out before the 2000 
presidential elections. They cite a series of destabilizing factors, 
including Yeltsin's frail health and the weak political position of 
Prime Minister Sergei Kiriyenko, whose three-month-old government does 
not have the support of powerful oligarchs.

But while there may be considerable discontent, it is unlikely that one 
charismatic figure or party will be able to harness it. "The opposition 
is likely to intensify its political activities by autumn," says Boris 
Zhikharevich, vice president of the Institute for Social and Economic 
Issues in St. Petersburg. "But I believe these protests will be 
localized. There will be no general disorders."


The Times (UK)
July 13 1998  
[for personal use only]
False alarm took Russia to brink of nuclear war 

PRESIDENT YELTSIN activated his "nuclear briefcase" for a retaliatory 
attack against the West in 1995 when Russian early warning stations 
picked up what they thought was an approaching American Trident 
ballistic missile, according to a television documentary. 
A Moscow news agency report at the time announced that Russia had shot 
down an incoming missile launched from northern Europe. It turned out to 
be a Norwegian weather research rocket. 

However, in a reconstruction of the incident, including interviews with 
key Russian military officials, Channel 4's Equinox programme has 
discovered how close the world was to a ballistic missile launch by 

After the approaching missile was spotted, Moscow began a ten-minute 
countdown to launching a retaliatory strike in the belief that an 
American Trident submarine operating in the Norwegian Sea or Barents 
Sea, had launched a missile. 

At six minutes to impact, the Russians switched on a special 
communications circuit which connected military headquarters with 
silo-based missiles, missile-carrying trains and submarines. At five 
minutes to impact, President Yeltsin would have had to make a decision 
about transmitting "unblocking codes" to make a launch possible. 

Colonel Robert Bykov, a former commander of a mobile missile regiment, 
part of the Russian Strategic Rocket Forces, says in the documentary, 
Russian Roulette, which will be shown tomorrow: "These first few minutes 
caused a lot of alarm and a lot of tension." He reveals that orders were 
given to Russian ballistic missile submarines to go on battle stations. 

Bruce Blair, a former American nuclear forces commander and now a member 
of the Brookings Institute in Washington, says: "The military actually 
issued orders to the Strategic Rocket Forces to prepare to receive the 
next command which would have been the launch order." 

A decision to launch Russian missiles has to be made by three men, the 
President, the Defence Minister and the Chief of the General Staff. The 
nuclear briefcases, containing communication and missile launch 
terminals and carried by aides for all three, were activated "for the 
first time ever", the programme claims. 

The launch of the Norwegian Black Brent XXII rocket which took place on 
January 25, 1995, ended "successfully" when it crashed into the ocean 
near the Arctic archipelago of Spitsbergen, more than 600 miles from 
Russian territory. It was part of a joint Norwegian-American project 
investigating the Northern Lights. 

The Moscow news agency was wrong when it claimed that the missile had 
been shot down. However, as its burners fell to Earth, the Russians 
thought they were warheads heading south. Moscow abandoned the countdown 
when it realised the missile's trajectory was not on its territory. 

The Russian Ministry of Foreign Affairs had been forewarned by the 
Norwegian authorities six weeks earlier, but the information was not 
passed on to the appropriate military commanders. 

Colonel Bykov says the incident underlined the potential dangers posed 
by Russian missile forces because of the poor state of the early warning 


Financial Times (UK)
July 13, 1998
[for personal use only]
EUROPE: Russia's troubles fuel German fears
Nightmare tales of contacts with Germany's biggest trading partner 
underlie the anxieties, writes Frederick Stüdemann

As the latest bout of rumours from Moscow pushed the D-Mark down against 
the dollar, the diagnosis from the markets seemed clear: when Russia, or 
its president, catches a cold, Germany sneezes.

At first glance this link seems understandable. Germany has long been 
Russia's biggest trading partner and is today also its biggest creditor. 
Politically, both sides have traditionally placed a premium on good 
bilateral relations, often to the concern - and sometimes at the expense 
- of those central and eastern European countries which lie between 

On closer inspection, however, things are not so clear-cut. Trade with 
Russia has been growing steadily in recent years, rising by over 20 per 
cent in 1997 according to Deutsche Bank, Germany's biggest bank, which 
claims to handle around one-third of trade transactions.

But although trade between Germany and Russia totalled DM26.9bn 
($14.3bn) last year, Russia still accounts for only a small fraction of 
Germany's total trade. Exports to Russia are only 1.9 per cent of total 
German exports or less than 0.5 per cent of GDP.

Thomas Mayer, chief economist at Goldman Sachs, says that on this basis 
"all exports would have to be stopped for there to be an effect" on the 
German economy. He says Germany's financial exposure to Russia is more 
worrying as it is equivalent to roughly 13 per cent of the capital of 
German banks or one year's profits.

Germany accounted for $30.5bn, or 59 per cent, of Russia's total 
exposure to western banks of $72.2bn at the end of 1997, according to 
the Bank of International Settlements. Exposure of German banks to 
Russia is roughly double that to Indonesia, Thailand, Malaysia, South 
Korea and the Philippines together.

"I do not see a catastrophe if exports go down. But the [financial] 
exposure is very strong and that could be problematical," says Mr Mayer. 
But even then the problem would be "manageable", and he stresses that 
one would have to make several assumptions before directly linking 
problems Russia may have paying its debts toadrop in the D-Mark.

This does not, however, detract from the palpable mood of gloom which 
has descended on commercial relations between Germany and Russia.

The fears are not so much centred around trade, which still focuses on 
export of raw materials from Russia and import of finished goods from 
Germany. "This relationship has not really changed in the last 20 
years," says one Moscow-based German banker. What has changed, he says, 
are the numbers which have got bigger "even in a time when everyone 
thought the whole place [Russia] was falling apart. It is astonishing."

The problem is more the perceived risk of actually doing business in 
Russia. Nightmare anecdotes of strong-arm tactics by regional 
governments or criminals are a recurrent topic of discussion among 
Germans in Moscow.

Particular favourites include the tale of a German company which "lost 
control" of its joint venture when its Russian partner emerged as the 
dominant shareholder after a clandestine capital increase. Other 
examples involve the freezing of company accounts by zealous tax 
officials. In such cases resorting to the courts is a drawn-out, 
uncertain and costly process.

Worries about the legal and tax framework are not limited to German 
companies. But Germans are often more likely to be put off. "The Germans 
think more strategically and more long-term. For that they want 
everything to be in order before they start. It's different with the US 
companies who are prepared to get in and out quickly," says a German 
consultant in Moscow. Whether such fears will lead to a drop in direct 
investment by German companies is unclear. The economics ministry in 
Bonn says recently revised statistics actually show a rise in direct 
investment from DM149m in 1996 to DM218m in 1997.

Nevertheless, German investment in Russia still trails that of other 
western countries, and the German business community in Moscow says 
there is now a greater mood of caution.

This is particularly true for the Mittelstand, the small and 
medium-sized company sector, which lacks the financial punch and 
lobbying power of big groups, such as Siemens, Daimler Benz or Ruhrgas. 
"For the medium-sized companies the time is simply not right yet. The 
risks are too big," says a German diplomat.


>From RIA Novosti
Ekonomika i Zhizn, No. 21
July 1998

The difficulties of Russia's economic situation have a
direct impact on the character of labor trends, wage payments,
and the employment situation in the regions. Specialists from
the Center for Market Research under the Russian government
gives its evaluation of the fundamental tendencies for the
formation of the labor market in our country for the last five

There was an uneven character for labor movement in
Russia from 1993 to 1997. The highest level of mobility (the
total number of arrivals and departures compared to the
average number of workers for the last five years) was
observed in construction, housing/communal apartment
management, communications, trade and public catering, and the
oil extraction industry, while the lowest level of mobility
was noted in the oil refining industry, agriculture,
management, and education.
These processes enabled a change in the structure of
employment. From 1992 until 1996, industry, construction, the
sciences and scientific services' share of total employment
has continued to drop, while at the same time the shares of
trade and public catering, housing/communal apartment
management, and everyday service to the population and
education increased. While there was a constant growth of
electrical energy production and the extraction sectors' share
in total employment, the share of the machine-building, metal
working and light industries has fallen.

Go Where the Money Is

The tendency for workers to cross over to different
branches for the most part was based on the differentials in
pay for workers in different economic sectors.
According to data from selected inspections carried out
by Russia's State Statistics Committee, conducted for almost
88,000 major and middle-sized enterprises in all economic
sectors in May 1996, 60% of the work force's paychecks did not
exceed the Russian average, and for 2% the pay was at the
subsistence level or lower. With respect to the average
paycheck, 10% of the most highly paid workers took home pay
that exceeded the paychecks of the lowest-paid 10% 24-fold.
The largest in-branch pay gaps were recorded for banking
(26-fold), construction (25-fold), and agriculture (21-fold),
where the level of pay was the lowest.
In December 1997, according to official data, the average
wage, with consideration of payments made of a social
character, was around 2.7 times the subsistence minimum,
calculated for the work-capable population.
The highest indicator for this was in Tyumen Region,
including the Khanty-Mansy and the Yamal-Nenets autonomous
areas--5.4 subsistence minimum. For the Komi Republic, Samara
and Irkutsk region, the Krasnoyarsk Territory and the Republic
of Tatarstan the average wage was almost 33.4% lower, or more
than 3.7 subsistence minimum. Then there is Moscow, where the
subsistence minimum is practically at the level of the average
for Russia. The Republic of Tuva, the Altai Territory, the
Komi-Permyak Autonomous Area, the Republics of Mordovia, North
Ossetia-Alania, Daghestan, Mari El, along with
Kabardino-Balkar and Ingush republics and the Penza and Kirov
regions--from 2 to 1.6 times the subsistence minimum. 
Simultaneously with the cross-branch movement of labor,
the ratio of the number of workers at state-owned and those
employed at non-state-owned enterprises also changed. The
number of those working in the non-state sector increased in
1996, in comparison with 1992, by 19 million, and its relative
weight to the structure of the economy rose from 31% to 63%.
The largest share of those working at non-state
enterprises and organizations turned out to be in agriculture,
construction and trade. For state-owned enterprises the
majority are in industrial enterprises, organizations, and
institutions of education and science, culture and the arts,
health care and social welfare programs, transportation and

Fewer and Fewer Vacancies

A characteristic feature of the contemporary labor market
is the hidden (latent) unemployment. According to several
economists, two-thirds of Russia's industrial enterprises,
regardless of the form of property and their size, have a
surplus of labor. 
The most common form of hidden employment is partial
employment. The number of people working for less than a full
work day, or on required leave, was 10.9 million people in
1996 (almost 15% of the economically active population), and
7.8 million in 1997 (nearly 11% of the population).
Partial employment has two impacts on the country's
social condition: on the one hand, it can to some extent
reduce the severity of social tensions, on the other hand, it
retards the redistribution of labor between sectors of the
economy, produces a low level of "official" pay for labor and
forces workers to search for additional income, including on
the "shadow" market.
Payment arrears and difficulties with getting a job have
led to the appearance and proliferation of second jobs and
moonlighting. According to the estimates of the All-Russian
Center for the Study of Public Opinion (VTsIOM), nearly 8
million people had second jobs in 1997, versus 7 million in
1996. Nearly 7.5 million referred to their jobs in the
informal sector as their sole source of income. 
The calculations of Russia's State Statistics Committee
with respect to the system of national accounts of the
household sector for 1993-1995 indicate that the share of
hidden payments for labor, received by these owners in
relation to the GDP in current prices, has almost doubled from
5.3% in 1993 to 10.4% in 1995. This is taking place while the
share of payments for work in the GDP is falling. In 1993, for
every ruble paid for official labor, there were 18 kopecks
paid out for hidden pay, while in 1995 this ratio was 42
kopecks for every ruble.
One of the indicators characterizing the situation in the
labor market is the coefficient of pressure. The growth in
vacancies and job openings announced by enterprises and
organizations with employment services as a whole in 1997
comprised almost 114,000. But if from January to September the
demand for workers increased, then in the fourth quarter it
began to fall: by the end of December it, compared to
September, fell by 11%. Consequently, pressure on the labor
market also fell by the end of the year, until there were 6
people for each vacancy. 
Difficulty in finding work for the most part is
associated with the fact that the available vacancies do not
match the unemployed workers' professional qualifications, as
well as the territorial non-concurrence of demand for workers
and its offerings on the labor market. According to the
Russian Labor Ministry's data for 1994-1997, for job openings
announced by enterprises with employment services, working
specialists were in demand the most: at the end of 1997
announcements for these constituted 69% of all demand for
workers (in 1996--67%, in 1995--73%, in 1994--80%).

No Changes in the Regions

The regional differentials of the processes in the
employment sphere were determined in large part by their
demographic situation, the type of economic activity of those
enterprises located in the region, the financial possibilities
of local administration in independent resolutions of
social-economic problems and other factors.
The increase in the real (that is, calculated according
to International Labor Organization methods) unemployment took
place on account of territories, oriented toward the
production of machine-building and light industry. There is a
relatively better situation in regions where extraction
industries are located. At the same time, most of the
unemployment was recorded in regions with high population
densities--in the North Caucasus, the Urals, and in the
Central Region. In 1996, their share amounted to more than 2.8
million people, or 42% of all those unemployed. And the
highest level of unemployment (in percentages of the
economically active population) in 1996 was recorded in the
North Caucasus (12.7%), the Northern (11.9%), the Eastern
Siberia (11.2%) and the Far Eastern (10.8%) regions (for
Russia as a whole, the figure is 9.3%).
The dynamics of registered unemployment in the regions
are in accordance with the tendencies and characteristics of
real unemployment. Beginning in the middle of 1997, the number
of registered unemployed and the level of "officially"
unemployed fell in practically all of the regions. The
exceptions to this rule were the Krasnoyarsk Territory, the
Arkhangelsk, Vologoda, Samara, Kamchatka, and Magadan regions,
the Republics of Sakha (Yakutia), Komi, Altai, Tatarstan,
Bashkortostan and Buryatia, as well as the Khanty-Mansi,
Taimyr, Yamal-Nenets and the Koryak Autonomous Areas. 
The differentiation of territory by level of registered
unemployment was also quite large. The gap between the maximum
and minimum of its figures at the end of December of last year
was equal to 11.4 times. The highest level was in the
Arkhangelsk region (8% of the economically active portion of
the population), as well as in the Koryak Autonomous Area, the
Ivanovo and Kirov regions, the Republics of Daghestan,
Kalmykia and Komi (6.8-6.2%) and the lowest (less than 1%)
were in Moscow and the Orenburg, Lipetsk and Rostov regions.
Over the course of several years a large gap between the
workers needed and those available has been maintained in the
regions. According to data from Russia's Finance Ministry,
from 1993 to 1997 the coefficient of pressure for vacancies
has remained the highest and constantly grew in the Northern
Economic Region (from 2 times higher than the Russian average
at the end of 1993 to 6 times higher than the Russian average
at the end of 1997), and the Eastern Siberian Economic Region
(1.5 times to 3 times, respectively).
There was a relatively stable situation in this period in
the Central Economic Region, where the coefficient of pressure
did not exceed 60% of the average Russian figure. For Russian
Federation subjects at the end of 1997 the highest indicators
for pressure on the labor market were recorded in the Evenk
Autonomous Area (106 times the average for Russia), and the
Republic of Tuva (58.6 times) and the Ingush Republic (46.3

Distribution of Occupations of the Population by Sector
of the Economy (forms of property) in percentages

1992 1993 1994 1995 1996
All working 100 100 100 100 100 


At state-owned 
and municipal 
enterprises and
organizations 68.9 53.0 44.7 42.1 37.0

In public 
(foundations) 0.8 0.9 0.7 0.7 0.7

At enterprises
and organizations
of mixed ownership 11.7 17.6 21.1 22.2 23.4

In the private
sector 18.3 28.1 33.0 34.4 38.2

In joint
enterprises 0.3 0.4 0.5 0.6 0.7


San Francisco Examiner
July 12, 1998
[for personal use only]
By Nick Selby
Black market software rip-offs are a booming business across the country

ST. PETERSBURG, Russia - Every day here and in dozens of other Russian 
cities, pirate dealers sell copies of the world's most popular software 
titles at $5 per CD-ROM. 

U.S. software manufacturers claim this costs them almost $500 million a 
year in lost revenue as the bargains are too tempting for anyone - 
Russians and foreign residents alike - to resist. 

Despite fears about the economy, small and medium-sized businesses are 
flourishing in this elegant northwestern Russian city - and pirated 
software is installed on almost all of their computers. Nearly all 
high-end computer games, Encyclopaedia Britannicas and other educational 
and reference CDs are distributed through illegal sources. 

Bootlegged software use is certainly not limited to Russia. Industry 
analysts say that 27 percent of the software running on American 
computers is pirated. And the Business Software Alliance, which monitors 
business software piracy, says 43 percent of PC business applications 
installed in Western Europe are illegal copies. 

In Russia, however, the piracy rates are a stunning 91 percent for 
business applications and 93 percent for entertainment software, 
according to Eric Schwartz, counsel to the International Intellectual 
Property Association, a Washington, D.C.-based organization that lobbies 
internationally on behalf of the copyright industry. 

Schwartz said that piracy in Russia costs American entertainment 
software manufacturers $223 million a year and business software makers 
almost $300 million. The Business Software Alliance estimates worldwide 
revenue losses to the software industry from piracy at $11.4 billion. 

Under the 1992 agreement with the United States that guaranteed Most 
Favored Nation trading status, Russia is required to effectively enforce 
anti-piracy laws, but actual enforcement is virtually nonexistent. 

The dealers, who operate in stalls and kiosks around major 
transportation hubs or in full-scale markets usually 15 minutes from the 
city center, offer an enormous range of titles, usually bundled in a 
form their manufacturers would never dream of. 

"That's Windows 98, Front Page 98, Outlook 98, MS Office 97 SR1 and, uh, 
yeah, Adobe 5.0," said Pyotr R., a student at St. Petersburg Technical 
University, of a single CD-ROM. "On the disk there are files, like 
"crack' or "serial' or something, and that's where you'll find the CD 
keys," he said, referring to the codes that unlock CD-ROMs and allow 
users to install the programs. 

Pyotr (who spoke, as did all others interviewed for this article, on 
condition of anonymity) sold that disk, plus a second one containing 
Lotus Organizer 97, several anti-virus programs and some DOS utilities, 
for 60 rubles or about $10. 

Another dealer was offering Windows NT 4.0 for $5, and Back Office for 
$10. According to Microsoft, the recommended retail prices for these 
products are $1,609 and $5,599. 

Many Russians, who during the days of the Soviet Union bought most 
necessities through black market sources, think nothing of buying their 
software this way. They even defend the markets as providing a commodity 
that had been long-denied them. 

After the collapse of the Soviet Union, inexpensive computers began to 
flood into the country from Taiwan, Germany and the United States, 
increasing the importance of these illegal software markets. Spending at 
least $800 on a computer was an enormous investment for Russians, even 
relatively well-paid St Petersburgians who earn an average salary of 
around $350 a month. Those who did buy one were in no position to 
consider purchasing software legitimately, even if it were readily 
available, which it often wasn't. 

These days, though, legitimate outlets for hardware and software are 
popping up everywhere in Russia; computer magazines offer licensed 
versions of everything available in the United States and Western 
Europe, and software makers advertise in the city's well-established 
English-language media. 

The markets continue to thrive with an alarming degree of perceived 
legitimacy. Outside the Sennaya Square metro station in St. Petersburg, 
a police officer approached a pirate dealer (who offered, among other 
things, Adobe Font Folio and QuarkXPress) and angrily chastised him for 
not prominently displaying his license to operate the stall. When the 
dealer complied, the policeman moved on. 

What may appear to be just official apathy is actually something far 
more serious. While the source of the bootlegged software packages is 
often small groups of "crackers," the IIPA's Schwartz said that 
organized criminal groups in Russia control the commercial production, 
duplication and distribution of these CDs and cassettes, as well as 
music, films and books. 

Out of 10 disks bought from pirate markets, eight had fully functional 
programs, and none contained viruses. Customers are more worried, it 
seems, about imperfections in the surface of the CD itself than poorly 
functioning or virus-infected materials. The markets are teeming with 
potential buyers inspecting the surface of the CD against the sunlight. 

Customers feel secure that the pirated copies will work and that belief 
appears well-founded. Bootlegged titles come with a written guarantee - 
good for 15 days from the date of purchase - that they're virus-free and 
fully functional. And files on the CDs themselves boast of high-quality, 
code-cracking techniques: "When so many groups bring you non-working 
fakes, X-FORCE always gets you the Best of the Best. ACCEPT NO 
IMITATION!" boasts one. 

"There's a lot of viruses around in Russia," said Dima V., a system 
administrator who runs several small company networks in St. Petersburg 
using bootlegged copies of Windows NT 4.0, "but most of the disks you 
buy in the markets are clean. The guys are there every day and if they 
give you a virus you'll come back - it's just easier to sell you the 
real thing." 

Foreigners get in on the action

Russians are not by any means the only people installing the pirated 
programs. While employees of multinational companies or representatives 
of American companies would never dream of risking their job by 
violating copyright laws, self-employed Westerners, or ones who have 
established small Russian companies have no qualms about doing so. They 
also pose a question software manufacturers find difficult to answer: 
Who would buy a network operating system package for $5,000 when it's 
available for $5? 

"Nobody," said Todd M., an American business owner in St. Petersburg, 
whose 24-PC network runs a host of Microsoft applications that were all 
bootlegged. "There's just no financial incentive for me to pay the kind 
of prices that legitimate software costs," he said. "I mean, it would be 
nice to get customer service right from the source, but we have really 
excellent computer technicians and programmers in Russia and they can 
fix all the little problems that we have." 

Customer support and upgrades are just what the manufacturers point to 
as advantages of licensed software, even in markets like Russia. 

"There are enormous incentives," said Microsoft's Mark Thomas, "to 
buying legitimate software, and they start with excellent customer 
support and service and upgrades. We spend $3 billion a year on research 
and development and the money that we make goes right back into making 
products better and better products. The pirates don't make any 
investment in the industry." 

And local industry, Thomas pointed out, suffers disproportionately in 
the face of piracy. 

"A huge amount of our resources are put into making sure local industry 
builds on our platform," he said. "When a local company creates packages 
for, say, accounting firms, and somebody can come along and buy it for 
$5, these local companies can lose their shirts." 

Piracy getting worse

Despite heavy lobbying by industry representatives and government 
agencies, piracy has worsened. As CD copying technology becomes cheaper, 
large factories in Russia and other countries, including Bulgaria, churn 
out copies of software copied by increasingly sophisticated groups in 
countries around the world, especially in Asia. 

Encyclopaedia Britannica wrote off Malaysia as a market effectively 
destroyed by pirates, who sold 98 out of every 100 copies of its 
flagship Encyclopaedia three-CD set for a fraction of its recommended 
retail price of $125. The same disks, which have not officially even 
been offered for sale in Russia, are readily available in the St. 
Petersburg markets for $10. 

"For Encyclopaedia Britannica, the cost of piracy is millions a year," 
said James Strachan, EB's international product manager. "One hundred 
percent of the value of our product is an investment in the authority 
and depth of our content," he said. "Piracy causes us extreme concern 
and we do everything we can to root it out and prosecute." 

Todd M., the businessman with the 24-PC network, offers little hope that 
the situation will soon change in favor of manufacturers. "With all the 
problems I have running my business here in Russia, from armed tax 
police to Byzantine procedures and customs duties, software piracy just 
doesn't register with me," he said. "It's the one thing about doing 
business here that's somebody else's problem." 


Money Splits Nordic, Russian Arctic
July 12, 1998

MURMANSK, Russia (AP) - For the Kola Peninsula, the Iron Curtain was brought
down only to have a Silver Curtain close in its place.

It marks the chasm of wealth that splits Europe's Arctic between poor and
chaotic Russia and the wealthy, orderly Nordic states.

Since the collapse of the Soviet Union, the West's Cold War fears of nuclear
attack from the Kola have been replaced by anxiety about the spread of atomic
radiation, industrial pollution, disease and social unrest.

The peninsula, about 500 miles north of St. Petersburg and on the Barents Sea,
is home to strategically located military harbors as well as pristine forest
and stark tundra.

Offering the Russian navy a sea corridor to the North Atlantic, it is the only
place where Russia borders the European Union, at neutral Finland, or NATO, at

Few frontiers have a greater contrast in living standards. Finns and
Norwegians earn perhaps 30 times more than their Kola neighbors, in addition
to having generous education, health and welfare services.

Good jobs dried up on the Kola along with the decrease in Russian military
spending after the Cold War.

In an outdoor market, Fiina Torchinkova tries to make a living by selling
shoes, after working as a photographer for 12 years. ``I make enough to buy a
piece of bread, and maybe some butter if I am lucky,'' she says.

As the base for the once-powerful Russian North Fleet, the Kola still is home
to 155 nuclear submarines, although 71 of them are derelict. And it has eight
nuclear-powered icebreakers.

It is those deteriorating vessels that have the peninsula's Western neighbors
worried. In 1996, a report by the Norwegian environmental group Bellona said
about two-thirds of the nuclear waste ever dumped in the world's oceans lies
off the Kola.

Norway, the world's second largest oil exporter, has spent about $21 million
on Kola environmental projects. The European Union and the United States also
are involved in similar projects.

Nordic countries, notably Norway, are augmenting environmental projects with
programs to shore up the Kola's collapsed health and social services.

``The challenge is to show the public, not in the least on the Kola, that some
progress is being made,'' said Geir Hunneland, a Norwegian expert on the Kola.

For peninsula residents, immediate survival overshadows long-term dangers from
radiation and pollution. Even those with jobs often don't get paid. And there
is little of a social safety net for those without work.

Life on the tundra can be extremely harsh. Some homes lack heat on minus-40
degree winter nights. There are few jobs, money for food is short, and
medicine often is unavailable.

Life expectancy has plunged to 47 years for men and 48.9 years for women.
That's about 30 years less than their Nordic neighbors.

About 125 miles to the east of Murmansk, a rough road ends at the village of
Lovozero. There Europe's largest and most pristine wilderness stretches in
unbroken grandeur south to the shores of the White Sea.

Murmansk, on a long bay near the middle of the Kola, is the biggest city
anywhere in the Arctic. Its 500,000 people are a reminder of the days when
Soviet rulers sent thousands of soldiers, miners and others to the peninsula,
pushing the population from a few thousand to more than a million.

Nearly 10 percent of the Kola's population has deserted the area over the past
five years, and many more would go if they could.

An increasing number of those stuck on the Kola take cheap bus junkets to
nearby Norway, Sweden and Finland, often to sell trinkets or smuggled alcohol
and tobacco, engage in prostitution or - merchants charge - to shoplift.

Norwegian health officials, among others, now fear the spread of diseases like
cholera - considered eradicated in the Nordic countries but which hit the Kola
over the winter.

``We are especially concerned about the new and reemerging diseases that
threaten the public health situation in Europe,'' said Norway's deputy foreign
minister, Aaslaug Haga.


BBC News
July 11, 1998 
Dynasty wedding for Central Asia 

The wedding is set to take place high in the Kyrgyz mountains 

The foreign minister of Kyrgyzstan has confirmed earlier reports that 
the daughter of President Nazarbayev of Kazakhstan is to marry the son 
of President Akayev of neighbouring Kyrgyzstan. 

Officials say the ceremony will be held in Kyrgyzstan next week. 

The BBC's Central Asia correspondent, Louise Hidalgo reports on the 
making of a new dynastyA BBC correspondent in the region says it has all 
the ingredients of a fairy tale wedding. 

For the past few weeks the families of both presidents have been the 
focus of increasing media attention, and a wedding bringing them 
together is likely to inspire great interest across the region. 

Dominated by dynasties 

Family ties are seen as highly significant in Central Asian politics, 
which traditionally have been dominated by dynasties. 

In times gone past the joining of bloodlines often sealed a settling of 
feuds between rival clans, and correspondents say the match will further 
improve relations between the two Central Asian neighbours. 

Marriage of love 

This marriage, though, appears to be more than the result of political 
matchmaking. People who have seen Aliya Nazerbayeva and Aldar Akayev 
together insist that theirs will be a marriage of love. 

The couple's Western education also makes it more likely that they have 
made an independent decision. President Akayev's eldest son studied 
economics in Maryland, in the United States, following a tradition of 
higher education led by his parents, who both have doctorate degrees. 

Kazakh President Nursultan NazarbayevHis 18 year old wife to be, the 
youngest daughter of President Nazarbayev, was educated in Britain and 

According to agency reports the wedding ceremony will take place at 
Akayev's residence on the picturesque shores of Issyk-Kul lake in the 
mountains of Kyrgyzstan, shortly after four of the five formerly Soviet 
central Asian republics meet for a summit of the Central Asian Union, in 
the neighbouring resort town of Cholpon-Ata. 

Close ties 

Kyrgyz President Askar AkayevThe Kyrgyz president already has strong 
ties with the much larger northern neighbour: his mother was a Kazakh 
and one of his daughters married a Kazakh businessman last year. 

Kyrgyzstan is a mountainous former Soviet republic of 4.5 million people 
which is struggling to transform itself from a poor agricultural nation 
to a major gold producer and tourism destination. 

Kazakhstan is five times the size of France, with a population of only 
16 million. It is rich in natural resources and is pinning its economic 
hopes on oil production. 



and Yekaterina Istomina/. The Moscow city government has already
addressed the International Olympic Committee with a proposal to
hold the Olympic Games in the Russian capital, Mayor Yury

Luzhkov told the journalists on Saturday. He would not specify,
however, when exactly Moscow will be in a position to play host
to the Olympics. But according to the Mayor, Moscow's sports
infrastructure has already been fully prepared for hosting
events of such a scale. If it performs its role as host to the
World Youth Games, to be held under the patronage of the
International Olympic Committee, up to the mark, the Russian
capital will have the right to host Olympic Games among adults
as well, Luzhkov noted.
It will be remembered that the Olympics of the year 2000
are going to be held in Sydney, Australia, while the next, 2004
Games are to be hosted by Athens. So the nearest Olympic Games
that Moscow can aspire to play host to will be the 2008


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