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CDI Library > Johnson's Russia List

Johnson's Russia List
 

 

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


Johnson's Russia List
#2262
13 July 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Greg Myre, Russia, IMF Agree on $17.1B Bailout.
2. Segodnya: RUSSIA'S DISMAL DEMOGRAPHIC STATISTICS.
3. Jamestown Foundation Monitor: BATTLE FOR YELTSIN SUCCESSION HEATS UP. 
4. Ira Straus: Re Russian Citizens Expect More Protest Actions - Poll
(Interfax, on 
JRL 2255).

5. Russky Telegraf: Yuri Golotyuk, NUCLEAR DISARMAMENT INEVITABLE. Russia Is
Already Disarming.

6. The Sunday Times (UK): Mark Franchetti, Inside Moscow.
7. Philadelphia Inquirer: Mitchell Landsberg (AP), With award, Siberian
museum receives
acclaim from Europe.

8. Executive Intelligence Review: Rachel Douglas, The Russian fight for
`national 
economy.']


*******

#1
Russia, IMF Agree on $17.1B Bailout 
By Greg Myre
July 13, 1998

MOSCOW (AP) -- After weeks of negotiations, the International Monetary Fund
and other lenders agreed today on a $17.1 billion loan package to help
stabilize Russia's financial markets, officials said. 
The tentative deal matches Russia's request for aid to see it through
the latest financial crisis and avoid a devaluation of the ruble, which
would raise prices. 
The Russian stock market jumped 9.16 percent on word of the accord. 
Millions of Russians have been pushed into poverty by the country's
shrinking economy during the 1990s, and the infusion of cash is designed to
ward off another big downturn. 
``We are convinced that these resources will allow us to significantly
strengthen the anti-crisis efforts of the government and will help to
stabilize and strengthen the Russian economy,'' Russia's lead negotiator
Anatoly Chubais said today. 
The agreement, which is spread over this year and next, calls for the
IMF to provide $11.6 billion, for the World Bank to chip in $4 billion and
for Japan to give $1.5 billion -- for a total of $17.1 billion, Chubais said. 
Russia already has existing loan deals with all three that will provide
an additional $5.5 billion dollars this year and next. That means that the
combined financial aid from existing loans, plus today's package, totals
$22.6 billion, Chubais said. 
The IMF's board must formally approve the agreement, and a meeting is
scheduled for July 20 in Washington, Chubais said. 
The Clinton administration hailed the accord. ``We view it as a major
step forward with Russia's reform efforts,'' White House press secretary
Mike McCurry said. 
Russia's latest economic crisis comes as many workers are receiving
their salaries months late and labor unrest is on the rise. The loan should
provide President Boris Yeltsin's government with some relief, if only
temporarily. 
``Without (the loan), it's impossible to bring the economy out of its
tailspin,'' said Alexander Zhukov, head of the budget affairs committee in
parliament. ``(But) if the government doesn't take urgent, radical steps,
it will soon run out of this money.'' 
The money could help restore confidence in the stock and bond markets,
which have taken heavy hits in recent months as foreign investors have
abandoned Russia. 
``This is good news, and the question is whether the excitement about
the loan will (outweigh) the other problems,'' said Dmitri Kryukov, trader
at Renaissance Capital brokerage in Moscow. 

Economists note the loan does nothing to address perennial problems
such as Russia's budget deficit and its porous tax collection system. 
The Yeltsin administration recently proposed more than 20 measures to
stabilize the economy, most aimed at reforming the unwieldy tax system. 
However, the Communists who lead parliament have balked at measures that
would raise taxes. Parliament plans a special session Wednesday to further
debate the measures. 

********

#2
>From RIA Novosti
Segodnya
July 13, 1998
RUSSIA'S DISMAL DEMOGRAPHIC STATISTICS
By Marina LATYSHEVA

The World Population Day was marked all over the globe
July 11. The United Nations had proclaimed July 11 as an
official holiday in 1987, when the global population had
reached the 5-billion mark. Russia has marked this holiday by
an unprecedented demographic crisis. The average life
expectancy in this country has declined by six years over the
1990-1996 period, currently totalling 59.6 years for men and
72.7 years for women. In fact, Russia now ranks somewhere
between Egypt and Brazil in terms of its average life
expectancy. Nationwide infant mortality has started
diminishing (albeit by a very small margin) over the last few
years. However, experts are now concerned over rising teenage
mortality. For example, 1,500 out of 15,000 teen-agers, who
annually graduate from local orphanages, commit suicide.
Children's lives were threatened on 17,000 occasions last
year, what with 200 teen-agers falling prey to their parents;
and another 2,000 had committed suicide. According to the
State Committee for Statistics, the number of mentally
retarded Russian children has soared 20-fold over the last
decade. About 1 million children are either crippled or
registered at all kinds of specialised outpatient clinics. 25
percent of all teen-agers being registered by
juvenile-delinquency boards, have been selected for drinking
alcohol. Besides, the number of teen-age drug addicts has
soared by 300 percent in 1997 compared with the 1993 level. 

*******

#3
Jamestown Foundation Monitor
July 13, 1998

BATTLE FOR YELTSIN SUCCESSION HEATS UP. President Boris Yeltsin reportedly
canceled plans to leave Moscow to go on vacation this week. The Russian
press continues to print rumors that unidentified extremists are planning to
take power in a coup as soon as Yeltsin departs from the capital. Yeltsin
fanned the flames on July 11, when he told a meeting of military and
security officials in the Kremlin that the government was fully equipped to
fight off any attempt to seize power by force. (Itar-Tass, July 11) 

More intriguing, however, was an article carried in Nezavisimaya
gazeta--flagship newspaper of Boris Berezovsky's empire--which suggested the
creation of a "Provisional State Council" on the principle of corporate
representation. (Nezavisimaya gazeta, July 10, quoted by Itar-Tass, July 11)
Berezovsky has long been associated with calls for an "economic politburo"
that would give leading financiers a direct say over the making of
government economic policy. Last week's article added two new twists to the
idea. First, it proposed that President Boris Yeltsin should be given a seat

on the council--on condition that he give up all idea of running for a third
term in office. Second, it proposed that the council be charged with
organizing new presidential and parliamentary elections within three months.
Berezovsky has made it clear that he does not believe Yeltsin should run for
a third term, but this latest article suggests that he may already have
decided on his own candidate to step into Yeltsin's shoes.

*******

#4
Date: Mon, 13 Jul 1998 12:13:13 +0200
From: Ira Straus <gorgo@tin.it>
Subject: Re: Russian Citizens Expect More Protest Actions - Poll 
(Interfax, on JRL 2255)

This article (Russian Citizens Expect More Protest Actions - Poll, Interfax,
on JRL 2255) on a public opinion poll has an intriguing conclusion:
" All of these figures characterize the Russian citizens' opinion of the
situation in Russia as a whole. Pessimism was less evident in answers to
questions about the situation in the respondents' own places of residence. 
Thirty percent of those polled said they anticipated a rise in protest
actions in their places of residence (compared to 36% in April 1997.)
Whereas in 1997 the ratio between pessimistically- and
optimistically-minded respondents in Russia as a whole and in individual
places was 36% to 45%, this year this ratio is 1:2. "

Here's a phenomenon that needs some investigation. People are much more
pessimistic about the whole country than about the parts they are close to
and familiar with. This phenomenon has been seen in some other polls that
have been reported on JRL, too.

That's not only true in Russia, it's sometimes true in America as well.
Polls have sometimes shown (e.g., toward the end of the Bush Administation)
massive pessimism about the economic situation of America as a whole, but
optimism on the personal level -- that one's own and/or family's economic
situation has been improving.

So which picture is correct -- the beliefs about the whole, or about the
familiar parts? Both are probably distorted, but on balance people's view on
the local situation is usually more accurate than their view of the whole. 

I think most economists would say that the widespread belief in the Bush
years about America's massive economic decline was a grossly misplaced
belief. Many said so at the time, and later developments seem to have shown
that they were right and there was just a minor cyclical downturn in the
Bush years, not a general "decline of America". The media seems to have
despised Bush very much on domestic policy and as a human being (here
reinforcing the rhetoric of the opposition party and the labor unions), and
to have respected him very much on foreign policy. Public opinion seems to
have been shaped to a great extent by the media in both regards. And it was
probably wrong in both regards.

Today in Russia, if "the ratio between pessimistically- and
optimistically-minded respondents in Russia as a whole and in individual
places ... is 1:2", then this shows a huge disparity (no matter how this
ambiguous sentence is construed). It's important to figure out which side of
the disparity is closer to the truth. 


This may help us in evaluating the diametrically opposite views we've seen
on JRL about economic conditions in Russia -- on the one side, that the
collapse has been catastrophic, a 40% - 80% decline in production, with even
worse conditions in most localities than the national statistics show, an
explosion around the corner; on the other side, that the downturn that has
bottomed out, things are getting better, it was a decline mostly in defense
production and useless products, there's a vast range of unreported income
and production and means of making do, the country's stable. It's worth
having some idea of how much truth is in these views, or how much to which
side the truth lies.

It's also worth figuring out how to construe the ratio "1:2". Does it mean
that on questions of national conditions, Russians are 2:1 pessimistic? Or
that twice as many Russians describe themselves as "pessimistic" about
national conditions as about local conditions? Or that on the question of
local conditions, Russians are 2:1 optimistic? Or that twice as many
Russians describe themselves as "optimistic" about local conditions as about
national conditions? (-- Dave, do you have the original Russian text? Is it
any clearer than the English translation?)
-----

A few notes on what are the likely biasing features on the national and
local levels:

1) For the whole, 
biasing features on the pessimistic side:
-- a free media which accentuates the negative (good news is no news)
-- an opposition that of course says how bad things are
-- awareness of national statistics, most of which inherently ignore
underground economy and personal arrangements and ways of getting ahead
-- media or intelligentsia that despise the government leaders; a culture
of discourse in which it's felt sophisticated to trash the government

biasing features on the optimistic side:
-- media or intelligentsia that support the government or think it's the
last hope to save the country

objective features:
-- lots of statistics, put out by agencies with sometimes real capabilities
and knowledge of methodologies
-- sophisticated methodological arguments about distortions in economic
statistics and how to correct for them
-- a view of the whole economy, not just some incidental local part of it

2) For the parts, 
biasing features on the pessimistic side:
-- personal suffering
-- the phenomenon that it's easier to notice economic suffering or loss or
insecurity or notice economic deprivation (absolute or relative) and to feel
it strongly, than to notice economic pleasure or gain or security or feel it
strongly
-- desire to get government help

biasing features on the optimistic side:
-- desire to say something nice about one's family and friends and locality
-- desire to put oneself in a good light
-- tendency to think in terms of the progress of one's life from year to year

objective features:
-- direct knowledge of one's real situation
-- holistic knowledge of one's situation

On balance, it looks like the main distorting features are for pessimism on
the national level -- overwhelmingly so when most of the media support the
opposition or are contemptuous of the government, but the distortion is

still considerable when the media are fairly well mixed in their views. On
the local and personal levels, the distorting features seem better balanced
(but still a bit weighted to the negative side!) and capabilities for
objectivity may be greater.
Of course, these are impressionistic statements. It would be useful to have
a scientific study of distortions in opinions about the national and local
economic situation, based on opinion polls in different countries, and
cross-comparisons against each other and against such objective evidence as
is by now available of what was the actual situation in each case.

********

#5
RIA Novosti
Russky Telegraf
July 11, 1998
NUCLEAR DISARMAMENT INEVITABLE
Russia Is Already Disarming
By Yuri GOLOTYUK

On July 10, the Defense Ministry made an unprecedented
statement following a meeting that its chief Marshal Sergeyev
had with Messrs. Popkovich and Lukin who chair the State
Duma's committees for defense and for international relations,
respectively. 
The crux of the statement is that the two prominent
law-makers were advised of a tangible process of unilateral
disarmament in Russia's strategic nuclear force. Its
disarmament plans are so scaled that they by far exceed the
format of the long-suffering START-2 treaty which the lower
house has refused to ratify. 
The Russian strategic nuclear force intends to undergo
reductions down to 2,000-2,500 charges which theoretically
corresponds to the format of a START-3 treaty the possibility
of whose conclusion was discussed at the March 1997
Russian-American summit meeting in Helsinki. 
But the July 10 statement of the Defense Ministry's press
service is not indicative of the Russian military's inherent
peaceableness. Rather, it proves that the top officials of the
Defense Ministry--frank soldiers as they are--are more open
than their colleagues in other structures tasked to protect
Russia's security interests. 
Marshal Sergeyev did not want to make the Defense
Ministry look holier than the Russian parliament's lower
house; indeed, he only advised Popkovich and Lukin of the
results of the July 3 session of the Russian Federation's
Security Council which approved a programme of developing the
national strategic nuclear force until the year 2010. 
All documents to the effect--a presidential decree, a
government resolution and a package of instructions for the
General Staff--that the Security Council discussed are top
secret. But SC secretary Andrei Kokoshin told this
correspondent after the session that "all Duma members who
have relevant clearance will be able to read them."
It seems that only Roman Popkovich and Vladimir Lukin
have the sufficient clearance. They were the ones in whom Igor
Sergeyev confided: the "programme of developing the strategic
nuclear force is cut according to the realistic financing but
will not exceed the limitations beyond which the general
purpose force may suffer or deteriorate."
With this aim in view, there are "plans, for the period
until 2010 and beyond, to bring the numerical strength of the
strategic nuclear force down to the limits instituted by the

Helsinki accords of the presidents of Russia and the USA for a
START-3 treaty (i.e. 2,000-2,500 nuclear charges)."
One can easily predict the reaction of the Duma majority
to this reaction which was effectively deprived of its
favourite lever of applying pressure on the executive
authority. Following the adoption of the programme of
developing Russia's strategic nuclear force, it has become
clear that the only thing that depends on whether the Duma
ratifies the START-2 treaty or not is Russia's image and
relations with the rest of the world, rather than the number
of nuclear missiles per se.
But then, the fear of spoiling relations with the lower
chamber has hardly been paramount in the Kremlin's mind while
making the decision on the strategic nuclear force: the
Russian leadership has certainly found it hard to make the
step. 
For the Kremlin continues to proceed from the premise
that nuclear weapons are the earnest of Russia's military
security and the only attribute of its great-power status. The
decision to radically reform the strategic nuclear force
serves to prove that there is no other way out. 
A graphic example to prove the point is the crisis state
of the Russian Mir orbiter. For years, Moscow has been
unwilling to remove it from its orbit because the Kremlin saw
it as a national symbol of sorts. As a result, debris of the
obsolete station can fall on the heads of a half of mankind,
and Russia has no resources to ward off the threat from itself
and all the others. 
Characteristically, the military do not think that
Russia's stance today is excessively pacifist. Colonel-General
Leonid Ivashov, chief of the Defense Ministry's department of
international cooperation who is known to be a staunch
opponent of NATO's enlargement to the East, told this
correspondent yesterday that the nuclear haves have made more
than one attempt to evaluate their MAD (mutual assured
destruction) capacity. 
Even the very notion of delivering "unacceptable damage"
to the opponent has been reviewed: nuclear weapons are now
seen exclusively as a deterrent against conventional
aggressions. A smaller but highly combat-ready and efficient
nuclear arsenal is much better in this capacity.

********

#6
The Sunday Times (UK)
July 12, 1998
[for personal use only]
Inside Moscow
Mark Franchetti 

Mayor makes the city come clean 

Moscow's bullish mayor, Yuri Luzhkov, is not a man to let anybody spoil 
his parties. Determined to shine with the spotlight of global attention 
on his city, he prepared for the World Youth Games, which opened 
yesterday, with a determined effort to clear potential gatecrashers from 
the capital's festivities. 
First to go were thousands of prostitutes and homeless people. They were 
arrested or forced out of the city centre, which has been meticulously 
repaved and adorned with flowers and flags only 10 months after a 
similar operation for Moscow's 850th anniversary. 
Then Luzhkov closed the chaotic markets around the city's stadiums, 
ordering out hundreds of traders for 20 days for fear they might impede 
the 10,000 athletes, 1,000 journalists and 200 guests of honour 

attending the games. 
Finally he issued an ultimatum to 200 striking coal miners from the far 
north of Russia to move away from the government's White House, outside 
which they have been camped under unsightly plastic sheets for three 
weeks. 
This last was a startling volte-face for the 61-year-old mayor with 
designs on the presidency. Sensing public sympathy for the miners, who 
have not been paid for more than a year and have demanded the 
resignation of President Boris Yeltsin, Luzhkov supported them at first. 
He even sent a truckload of food to help sustain their protest. 
To his dismay, they responded to his welcome by outstaying it, creating 
in the process what looks like a Third World shanty town at the heart of 
the capital. 
A serious rift between city hall and Rosgidromet, the state 
meteorological centre, has further upset Luzhkov's plans. During last 
year's anniversary celebrations, he famously spent a fortune on 
"seeding" clouds to release their rain before they reached Moscow. Some 
$400,000 has been allocated to repeat the procedure. 
However, officials at the meteorological centre are refusing to help 
this time. After record snowfall engulfed the city in March, Luzhkov 
threatened to fire the forecasters. Last month, when they failed to give 
sufficient warning of a violent storm, Luzhkov accused them of lying. 
The mayor's ambition has already made him the butt of many jokes: so 
eagerly does he seek the limelight, they say, that he would attend the 
opening of an envelope. 
But the most damaging blow to Luzhkov's stature last week was a 
disclosure about his kepka, the trademark black leather cap he retains 
to emphasise his proletarian origins. According to Moscow newspapers, 
Luzhkov's kepka has been fortified with thin steel plates to protect his 
bald head from any assailant. At least that should do the trick if it 
rains during the games. 

Tycoon loses his bottle 

The suave image of Vladimir Dovgan, the self-styled king of Russian 
franchising, was a familiar face on the labels of millions of bottles of 
vodka. 
One of a rising generation of entrepreneurs, Dovgan, 34, thrived by 
adding his name and portrait - in dinner jacket and bow tie - to an 
upmarket range of spirits. 
Last week, however, he vanished from the vodka bottles after it was 
pointed out that Russian law forbids anyone under 35 to promote alcohol. 
The flamboyant tycoon, who wakes himself up each morning by jumping into 
a pool of ice, is said to be looking forward even more eagerly than 
usual to his next birthday. 

Yeltsin just isn't himself 

Is Boris Yeltsin the ruler of Russia? Or is it his double? The question 
is being asked by Alexander Saly, a Communist deputy in the duma, the 
lower house of parliament, who has demanded a formal inquiry to 
establish the answer. 
The initiative follows a detailed article in a nationalist newspaper 
which claimed photographic "evidence" and contradictory reports on the 
president's state of health suggested he was so ill that aides had 
replaced him with a look-alike two years ago. 


Shutting up shop 

Despite tension among workers over months of unpaid wages, managers at a 
Siberian tractor factory believe they have found the secret of 
harmonious industrial relations: they have banned all talk of politics. 
Altur Defler, director of the Altral factory in Altai, Siberia, has 
forbidden staff to discuss any political topic or join political 
organisations, "to avoid any spontaneous movement by labour". In one 
outpost of the former Soviet Union, at least, the socialist worker is no 
more. 

•At last there is hope of respite for Muscovites fed up with broken-down 
taxis. Alexander Rokhlin, an enterprising 24- year-old, is the owner of 
the city's first rickshaw. "It's a great success," he said. "I don't 
have set fares and people just give me what they think is appropriate. 
The problem is that often people just jump off without paying." Rokhlin 
appears not to have foreseen another problem - how to attract custom 
when the winter snows return. 

********

#7
Philadelphia Inquirer
July 12, 1998
[for personal use only]
With award, Siberian museum receives acclaim from Europe 
By Mitchell Landsberg
ASSOCIATED PRESS

KRASNOYARSK, Russia -- Looking for the best European museum?

It might just be in Krasnoyarsk, this formerly closed city that is in 
Siberia -- which is, geographically and otherwise speaking, in Asia.

Moreover, it's a museum that began life as a propagandistic homage to 
Soviet founder Vladimir I. Lenin and hasn't entirely turned its back on 
its communist past.

At first blush, it might seem odd that the Council of Europe, a 
respected cultural and political organization, gave its European Museum 
of the Year Award for 1998 to the Krasnoyarsk Museum Center.

Past winners include the Miro museum in Barcelona, Spain, and the 
National Museum in Munich, Germany, which are indisputably in Europe and 
a bit more in the cultural swing of things.

Was it geographical ignorance? Leftist nostalgia? An error in 
translation?

Not at all.

"Though we are situated in the center of Asia and the center of Russia, 
the committee considered that we were very good at instilling the 
European ideal," said the museum's director, Mikhail Shubsky.

True, said Lord Russel Johnston, chairman of the committee that selected 
the museum. Anyway, he added, "Russia has become a member of the Council 
of Europe, so that's how that was resolved."

The museum that so appealed to Johnston and his cohorts sits on the 
banks of the mighty Yenisey River, the lifeline of Siberia, in the midst 
of a city better known for the aluminum smelter that fouls the air and 
the defense plants that once made the area off-limits to foreigners.

It opened in 1987 as the Lenin Museum, the last of 13 branches of the 
Central Lenin Museum in Moscow and one of the largest, at more than 
130,000 square feet. It was, as the name suggests, devoted to the life 
of the leader of the Bolshevik Revolution.
As luck would have it, the museum was designed by a local architect, 
Oleg Demerkhanov, who avoided the numbing conformity of most modern 
Soviet architecture. He created something striking instead: a bold 

outcropping of large blocks sheathed in the local, mocha-colored 
granite, with towering windows that command fine views of the river.

Inside, he gave it grand, soaring spaces -- as much as four stories high 
-- and interesting nooks and crannies. Oh yes, and lots of statues of 
Lenin, whose local claim to fame is having passed through Krasnoyarsk en 
route to Siberian exile under the czar.

The Lenin statues are mostly bagged in burlap now. But his presence is 
deeply felt anyway, not least in the presence of Shubsky, the director, 
who bears more than a passing resemblance to Lenin, with his shiny pate, 
graying goatee and piercing eyes.

Like Lenin, Shubsky can be called a revolutionary. How else to explain 
the changes he has brought to the museum since taking it over in 1991?

In its announcement of the prize, the Council of Europe said its jury 
decided to reward Krasnoyarsk "in recognition of the spirit of 
enterprise, creativity, and resourcefulness of this museum, which, 
despite financial constraints and an outlying location, has assumed a 
pivotal role within the vast Russian Federation."

The heart of the museum is its permanent exhibits, including a searing 
tribute to the victims of the three recent undeclared wars fought by the 
Soviet Union and then Russia -- in Afghanistan, Tajikistan and Chechnya.

Among the objects on display is a torn-open metal ammunition box 
surrounded and filled by photographs of the Soviet and Afghan leaders 
who prosecuted the Afghan war. Nearby, electric flames glow in little 
black boxes for each of the 165 local soldiers who died in the three 
wars.

Then there are the "red halls" containing Lenin memorabilia. They have 
been left as they were during the Soviet years, the walls still deep red 
-- "the color of the red flag and the color of blood," museum guide Nina 
Ushakova noted.

Why keep such obvious propaganda, when most Russian museums have either 
junked it or kept it around out of sheer laziness or conservatism?

"This is our principal position," Shubsky said, "that the history of the 
country shouldn't be bad or good, but it should be preserved. I should 
add that it is becoming more and more popular with the years."

A former philosophy professor, Shubsky strongly believes a museum 
"should be an active part of the cultural life of the city and the 
territory," and he has done what he can to pursue that goal.

In the central gallery recently was an exhibit by teachers and students 
of a Siberian art institute, part of the museum's goal of encouraging 
local artists. The surprise was the quality of the work, which was 
sophisticated, poignant and hip.

Another gallery contained a theatrical diorama of 19th-century Siberian 
life. Another held an exhibit of local photography that reflected 
post-Soviet life in all its weirdness and complexity -- as, for example, 
in the photo of a Russian Orthodox priest, fully robed, showing off his 
form at a bowling alley.

Yet another photo gallery exhibited the work of a local amateur, whose 
full-frontal male nudes would certainly have raised eyebrows in an 
earlier time. In fact, they still do.


"Some of the older women who work at the museum were shocked when they 
saw that," Ushakova confided.

Shubsky is especially proud of the two "biennales" that the museum has 
produced during his tenure. These expositions brought together works 
from dozens of museums.
Now he has other ideas, including an exhibit that would re-create part 
of an American children's museum for the children of Krasnoyarsk. One 
problem: He has not yet found a museum willing to cooperate.
Shubsky can measure his success in part in numbers. In 1990, he said, 
the museum attracted 60,000 people. Last year, it drew 500,000.

And then there's that award. A plaque from the Council of Europe hangs 
in one of the upper galleries now, telling all who come that they have 
stepped into the best European museum in all of Asia.

********

#8
From: cmgusa@mediasoft.net (Rachel Douglas)
Subject: The Russian fight for `national economy'
Date: Sun, 12 Jul 1998 

Executive Intelligence Review
Vol. 25, No. 28, July 17, 1998

The Russian fight for `national economy'
by Rachel Douglas

If the weekly parade of press conferences on economic and
financial crisis matters in Moscow were a competition in
the grotesque, one of the prizes would surely go to
Vladimir Mau of the Working Center for Economic Reforms,
who appeared at Moscow's National Press Institute on July 2,
with his associates from the Russian-European Center for
Economic Policy. Mau was one of the original Russian
cronies of Lord Harris of High Cross, the free trade
fanatic from the Mont Pelerin Society's Institute for
Economic Affairs (IEA), in London, who seized upon post-Soviet
Russia as a laboratory in which to test Hayekian theory
and practice. Mau worked with the first ``reform''
Premier, Yegor Gaidar, at the Institute for the Economy in
Transition, and has boasted, ``My institute contributed
the most to the government, when it was formed in November
1991, because a good part of the government was from the
institute.''
The Gaidar government got the ball rolling, downhill.
``Shock'' deregulation of prices produced the year of 2,600%
inflation, 1992, followed by one round after another of
monetarist prescriptions from the International Monetary
Fund (IMF) for how to ``control inflation'' by privatizing,
looting, and generally wrecking the Russian real economy.
Meanwhile, Russia's newborn capital markets were hitched
to the post-1987 phase of globalized world finance, the
domain of the greatest binge of currency speculation,
derivatives trading, and unsupported inflation of
financial aggregates in history.
Yet, on July 2, 1998, there was Mau, holding forth on
the likelihood that if Russia fails to receive new IMF
credits, and ``worse comes to worst, we will repeat the
fate of Albania and Indonesia.'' He prognosticated a
banking collapse, a political disaster when the
population's savings are wiped out for the second time in
a decade, and he blamed the whole on the ``gradualism'' of
the past six years--as if a more sudden, radical, and
untempered liberalization would have avoided the crisis.
Now, Mau proposed, the absence of oil revenues will force

Russia to accept more radical austerity.
Another of the IEA's stable of young Russian
economists, former Deputy Premier and administrator of
privatization Anatoli Chubais, was reinstated in the
government last month, as Russia's special envoy to the
IMF and World Bank.
But, theirs is not the only school of thought in town. In
the institutes of the Russian Academy of Sciences, and in
think-tanks attached to the Executive and Legislative
branches of government, a debate is under way, over how to
save the economy of Russia from destruction as the
country's financial pyramid (along with the rest of the
global financial bubble) collapses. Readers of {EIR} are
familiar with some of the terms of the discussion, from
the writings of Dr. Sergei Glazyev, Academician Dmitri
Lvov, and Lyndon LaRouche's published discussions with
members of the Academy of Sciences. These are members of
the Russian intelligentsia, looking for a national
salvation policy in the area where the scientist and
economist Dmitri Mendeleyev, and his younger colleague,
railroad-builder Count Sergei Witte, found it after the
ravages of the Crimean War and subsequent disorders during
the last century: in the heritage of the school of
``national economy,'' rooted in the American System of
political economy of Alexander Hamilton, Matthew and
Henry Carey, and Friedrich List.
During May and June, organizing around contemporary
versions of the ideas of ``national economy'' came into
greater prominence in Russia.

- The Petersburg Economic Forum -
Yegor Stroyev, the Governor of Oryol Province,
demands that Russia have an effective ``industrial policy,''
not merely financial crisis-management. Stroyev is the
leader of the Federation Council, the upper house of
Parliament, whose members are the elected executives of
the regions and major cities of the Russian Federation.
His economic advisory group is the Federation Council's
Center for Information and Analysis, headed by Sergei
Glazyev.
On June 17-19, the second annual Petersburg Economic
Forum was held under the aegis of the Federation Council.
Some 2,000 economists gathered at the Tauride Palace in
St. Petersburg. The Forum had no foreign or government
financing, but, as a report in the local paper {Nevskoye
Vremya} remarked, Stroyev succeeded in bringing much of
Russia's political elite. Premier Sergei Kiriyenko was
there, as were Finance Minister Mikhail Zadornov, Deputy
Head of the Presidential Administration Aleksandr
Livshits, Commonwealth for Independent States Secretary
Boris Berezovsky, and newly elected Governor of
Krasnoyarsk Territory Aleksandr Lebed. Kiriyenko unveiled
the draft of his ``anti-crisis'' program, which he would
officially present the following week in Moscow.
Speaking to the Forum, Glazyev attacked the
government's economic policy as a course of ``financial
degeneration,'' and the IMF as its effective author. So
did Leonid Abalkin, director of the Academy's Institute of
Economics, who called for a total shift of the country's
economic course, and vigorous measures against capital
flight, which, he documented, has beggared the nation.

Like the Thai scientists and nationalists who would
shortly meet on building the Kra Canal, to secure
Thailand's economic future, St. Petersburg Gov. Vladimir
Yakovlev told the Forum that infrastructure megaprojects
should be part of the solution for Russia. ``The
Trans-Siberian route should terminate in St. Petersburg,''
he said.
The other major event this spring that reviewed the
physical potential of the Russian economy, was a May 27-29
conference called ``An Assessment of Russia's National
Wealth,'' organized by Academician Dmitri Lvov in Moscow.
Lvov, the academic secretary of the Academy's economics
division, presided over an inventory of what Russia has
lost, and what it has left, after seven years of
``reform.'' The resulting estimate, according to an RIA
Novosti report, was that the country has lost the
equivalent of $1.2 trillion of its ``national wealth,'' or
triple the losses in industry and the economy during World
War II. In these seven years, more than 70,000 factories,
including 5,000 large facilities, shut down. Russia has
stopped farming 60% of its arable land, and the population has
shrunk by 3.8 million. In a May 21 interview with
{Finansovyye Izvestiya}, on the eve of his conference,
Lvov argued that an accurate physical economic estimate of
Russia's potential is an essential problem for the nation
to solve, since it shows that Russia should be a rich
nation, rather than slipping into the Third World.

- Stroyev addresses the government -
Yegor Stroyev brought some of
these themes onto the national stage again on June 23, in his
speech to the expanded government session where Kiriyenko
presented his new austerity plan. Stroyev recalled his
skepticism, due to ``the discrepancy between the tone and
the real situation,'' in early 1998, when the previous
government proclaimed that Russia was about to transit to
``sustained economic growth.''
``Unfortunately,'' said Stroyev, ``neither the critical
and constructive proposals made by the speakers nor the
series of concrete decisions passed by the Federation
Council on the role of the state in the emergence of the
market economy, industrial policy, the improvement of the
credit and financial system, on monopolies and excise
taxes, were heeded or adopted at the time we put forward
our program. As a result, in the first five months of this
year the budget has received 7 billion rubles less in
revenue, and spent 33 billion rubles more than last year
to service the government debt. For the first time, we
have a negative balance of payments. Arrears on wages and
allowances run into many months, an intolerable situation.
``We sought to establish an open economy, but it
turned out to be an economy opened wide up, and
unprotected, to external crises and criminal forces within
the country, which have come to dictate the rules of the
game and the rules of operating in the market.''
He attacked the sale of Russian manufactures abroad
as scrap metal, at dumping prices, ``at a time when all the
factories have stopped.'' When duty-free import of sugar
was allowed, he charged, it ruined beet-growing in Russia,

depriving people of jobs and the budget of revenue.
Russia must choose between debt slavery, and
development, said Stroyev. The country is at a crossroads,
where ``one way is to slide along the trajectory that has
led to the crisis: continued external borrowing, the
destruction of industrial and scientific capacities, and
the build-up of pyramids of short-term government bonds.''
Monthly spending for the ``upkeep'' of the bonded debt
pyramid (interest, and redemptions when necessary) already
exceeds monthly budget revenue.
What Russia must do, Stroyev said, using the language
of Glazyev's programmatic writings, is ``pursue a vigorous
industrial policy, support domestic producers, create
bridgeheads for entering the 21st century. Nothing will
happen by itself.'' He presented an investment scheme, in
which the regions would take initiative, as opposed to the
current concentration of 80% of Russia's financial capital
in Moscow. He proposed to deploy the deposits of the
Sberbank, the state savings bank, for investment in the
productive sector in each region.
``Even without foreign borrowing, it would suffice to
invest in the real sector of the economy at least the
money of Sberbank in each territory. This would make
possible a dramatic reactivation of the economy.... Not a
single region in the country has less than 1 trillion
rubles on deposit in Sberbank. Put it into production, and
the question will be resolved tomorrow.
``External debts, as well, should be incurred only for
the productive sector, not for the benefit of speculative
capital.... We should lay the foundation for long-term
projects based on the latest technologies, and with a high
rate of return. This will be for the benefit of our
children.... It is high time to set up a special
Presidential commission to unite domestic science, to
review the accumulated experience, and to encourage
domestic banks to take concrete actions, and gear toward
21st century technologies.''
At a press conference one week later, Stroyev
denounced the current ``tight money'' policy as a
prescription for permanent diversion of funds from the
productive sector, into the GKO pyramid. ``There is
another option: to make sure, despite all odds, that
advanced, 21st-century technologies are financed. This
would create a tax base that will stimulate the
development of domestic production.'' At present, he said,
funds from the regions flow to Moscow, and ``are used for
various purposes, most often the redemption of GKOs. Let
the regions keep the money, and direct it into production.
That money alone will be enough to bring about an economic
recovery, if the money goes to support progressive and
forward-looking programs in industry and agriculture.''

- The political dimension -
Scant press attention in the West notwithstanding,
Yegor Stroyev is a major national political figure in
Russia. An article in {Nezavisimaya Gazeta} of June 9, one
of many commentaries on the prospect of yet another
complete overhaul of the Russian power structure, focussed
on his potential role, if Kiriyenko turns out to have been

a ``temporary'' figure. Author Sergei Dunayev wrote that
Stroyev was probably offered the premiership in
April, but didn't want it, after Glazyev had warned him
that the financial pyramid was about to blow, and he
didn't want to be in charge when that happened. As ``the
new government's status and power capacities seem to have
tapered, the Oryol Governor discerns additional room for
maneuver, which is indicative of victory, rather than
defeat, in the government crisis.''
Glazyev's ideas came through another political
channel, in May, with the circulation of a ``program of
escape from the economic crisis,'' adopted by a new
political bloc, the Social Democratic Association (SDA).
The daily {Pravda} reported on June 4 that ``many
well-known economists, specifically, Sergei Glazyev, took
part in drafting it,'' in order to chart a way ``to
prevent the final breakdown of the economy of Russia and
the impoverishment of society, and [to create], before the
end of the 1990s, conditions for the country's extrication
from profound socioeconomic crisis.''
The SDA was proclaimed by its organizer, Oleg
Rumyantsev, as a ``third force,'' based on ``an alliance
of social democrats and progressive patriots.'' (In 1993,
Rumyantsev was chairman of the Supreme Soviet's
Constitutional Committee, when President Yeltsin abolished
the Parliament, and then crushed it by force.) Looking to
1999 parliamentary elections, Rumyantsev said he would try
to unite Sergei Baburin's Russian Public Union, Dmitri
Rogozin's Congress of Russian Communities (KRO), Glazyev's
section of the Democratic Party of Russia (DPR), and other
figures, such as Moscow Mayor Yuri Luzhkov.
The SDA draft program incorporates protectionist
measures in foreign trade, as well as drastic steps to
promote real investment, including creation of ``a state
financial and credit structure (an investment bank) for
the efficient concentration of funds, the pursuit of a
single resource policy, and supervision of the targetted
use of long-term investments.'' The SDA program addresses
``the menacing dimensions of the payments for servicing
the public debt,'' with a call to ``restructure the
domestic debt obligations, [incurred] as a result of the
thoughtless build-up of public financial pyramid
schemes.'' As opposed to ``blind following of the
prescriptions of the IMF,'' whose ``regular upheavals on
Russia's financial markets ... are acquiring an
increasingly menacing nature for the country's national
security,'' the SDA calls for monetary and credit policy
that supports ``the interests of the development of our
own production.''

- What can't be balanced -
Some Russian coverage of Kiriyenko's ``anti-crisis''
plan, dubbed it a return to ``statist'' economics. In the
middle of his June 23 speech, which presented drastic
budget cuts across the board, the Prime Minister expounded
the need ``to ensure the development of production.'' He
made hints in this direction, in his speeches to the Duma
during the confirmation process in April, where he
outlined a debt-moratorium plan for Russian industrial
firms, under which a portion of their old debts, from the

quadruple-digit inflation in the early 1990s, will be
segregated and deferred for a long time, if current
payments are made. There is also some tax relief for
manufacturers, relative to the raw materials-extracting
companies.
Kiriyenko told a June 21 TV interviewer, that he had
met with a ``working group of the Federation Council,''
while attending the Petersburg Economic Forum, which group
was also working on ``concrete proposals'' to get out of the
crisis. He added that, in addition to formalizing his
recent meetings with leading financial magnates, into ``a
council of representatives of government and big
business,'' he was ``conducting discussions with the
Academy of Sciences, about setting up a similar council
for consultations.''
In his crisis plan as a whole, however, Kiriyenko's
hopes about industrial revival took a back seat to his
insistence upon ``living within our means,'' i.e., cutting
budget spending by nearly one-third, laying off 20% of
government employees, slashing everything except for debt
service.
Foreign Minister Yevgeni Primakov reflected in a
June 25 speech in London, at the Royal Institute for
International Affairs, on the interface between Russia's
situation, and the global markets. ``Why did the Asian
crisis hit Russia so hard?'' asked Primakov, ``Because
foreign investment was mostly portfolio investment in
Russian government bonds. When the Asian crisis engulfed
such strong countries as Japan and South Korea, many of
those who had invested in Russian state bonds started to
plug their own loopholes, by taking money from Russia.''
Primakov said his country's priority had to be real
economic growth. ``We didn't pay enough attention to
economic growth, because we were focussed on macroeconomic
financial stability, at the request of the IMF.'' Now,
``There is no question of returning to the past. But we
can learn from the United States. During the process of
recovery from the Great Depression, Roosevelt took some
state measures, tax measures that benefitted the
development of industry. These are areas on which we plan
to focus.''

*******



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