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19 July 1998
[Note from David Johnson:
1. Reuters: Philippa Fletcher, Yeltsin fills budget holes before
2. Baltimore Sun: Kathy Lally and Will Englund, Corruption of coal
industry infuriates Russia's miners. International aid wasted in the
past; more pending from IMF Efforts to reform Russian coal industry
3. Los Angeles Times: Peter Reddaway and Dmitri Glinski, To Really
Bail Out Russia, West Must Deny the Loans.
4. Philadelphia Inquirer: Peter A. Rankin, Russia is a priority to
lenders. Dire global consequences are feared if its economic woes yield
to instability. So help is on the way.
5. Philadelphia Inquirer: Inga Saffron, Russians say they are not hurt
by economic woes. Polls indicate the events that precipitated the financial
crisis remain abstract to many.
6. Interfax: Zhirinovskiy Wants Communal Grave for All Russian Leaders.
7. Business Week editorial: A BAILOUT ALONE WON'T RESCUE RUSSIA.
8. RIA Novosti: CABINET IS READY TO BEAR RESPONSIBILITY FOR ITS STEPS
AS PROPOSING ITS ECONOMIC STABILISATION PACKAGE]
Yeltsin fills budget holes before IMF meets
By Philippa Fletcher
MOSCOW, July 19 (Reuters) - President Boris Yeltsin stepped in at the weekend
to repair some of the damage done by parliament to an anti-crisis plan sought
by the IMF.
The International Monetary Fund is due to decide in Washington on Monday
whether to give Russia $5.6 billion.
Alexander Livshits, deputy head of Yeltsin's administration, said on Sunday
Yeltsin had vetoed two laws passed by parliament to lower taxes and had also
introduced new land taxes by decree.
In doing so he risks a new confrontation with the Communist-dominated lower
house of parliament, which often accuses him of overstepping his vast
constitutional powers and kowtowing to the West at the expense of his
``No-one, neither the president nor the government, is planning to stand by
and watch the budget and the pension fund collapse into ruins,'' Livshits said
in explaining Yeltsin's move.
``The more so as the international community has met us half way for what I
think will be the last time. I mean supporting the rouble on financial
markets,'' he told a news briefing.
The International Monetary Fund and other lenders agreed last week to provide
Russia $22.6 billion this year and next to stabilise its shaky economy
provided it keeps up market reforms.
Miners protesting at unpaid wages and an economic crisis in their region gave
the government a breathing space on Sunday by lifting a two-week blockade of
the Trans-Siberian railway in return for promises of new steps to relieve the
The IMF board will meet in Washington on Monday to discuss the release of the
first $5.6 billion, which will go towards bolstering foreign currency
reserves, lifting pressure on the rouble and restoring foreign investor
confidence in Russia.
An aide to Anatoly Chubais, Russia's top negotiator with international lending
organisations has said Chubais would take part in the meeting. Chubais said
last week the $5.6 billion would be provided ``as soon as the agreed actions
of the Russian government have been taken, by legislation where necessary.''
On Friday the Duma and the upper house Federation Council approved some
government measures, including the main outlines of a long-awaited tax code, a
cut in profit tax and tighter controls on the production and sale of alcohol.
But the Duma, which is now in summer recess, rejected a proposed flat rate of
value-added tax and new land taxes.
Livshits said the combination of cutting some taxes while refusing to raise
others had led to a big revenue shortfall.
Yeltsin's decisions, taken on Saturday before he began a summer holiday in
north west Russia, filled more than half of the revenue gap, Livshits said,
adding more would follow.
``The total cost of the decisions not accepted is 78 billion roubles and I
have talked about decisions which cover 48 billion,'' Livshits said. ``There
are at least 30 billion uncovered, and decisions will be taken in that
He said Yeltsin had vetoed the cut in profit tax and a law lowering excise
duties on oil from 55 to 25 roubles a tonne and introduced a four-fold hike in
land taxes, rejected by the Duma, via presidential decree. If the Duma passed
the extra laws, he would withdraw his decisions, Livshits said.
The budget crisis Moscow is trying to overcome -- caused by a big shortfall in
tax collection -- has worsened long-running wage delays suffered by millions
of workers, raising the prospect of widespread industrial unrest.
On July 3 miners took things into their own hands for a second time by
blocking freight traffic on the Trans-Siberian, the world's longest railway
and the main artery for the world's biggest country which also supplies local
Alexander Kolesnikov, spokesman for Yeltsin's representative in the Kemerovo
coal-mining region, said the miners, who also blocked the line in May, had
freed it on Sunday morning.
``On Tuesday a government commission will arrive to start preparing a
government meeting here on the ground to deal with the problem. Until then, at
least, the line will be clear.''
July 19, 1998
[for personal use only]
Corruption of coal industry infuriates Russia's miners
International aid wasted in the past; more pending from IMF Efforts to
reform Russian coal industry fail miners
By Kathy Lally and Will Englund
Sun Foreign Staff
MOSCOW -- All across Russia, coal miners are stirring. The Vorkuta
miners are camped outside the Russian White House. In the east, miners
are periodically blocking the Trans Siberian Railroad. In Kizel, miners
have blocked the highway and the railroad. The week before last, they
took the mine director hostage for a day.
While impoverished miners have waited months and even years for their
pay, at least $240 million set aside to revitalize their industry has
disappeared, either stolen or squandered, according to World Bank
The coal industry has become a symbol of all that is wrong with reform
in Russia, of the corruption, the cronyism and the lack of political
will that have ravaged the national economy -- and contributed to the
panic that brought Russia to its knees last week, asking the
International Monetary Fund for a $22.6 billion loan.
Thousands of miners in the most bleak and inhospitable regions of Russia
are struggling to stay alive, owed an estimated $500 million in back
pay, trapped in dying towns and cities. Meanwhile, the insiders who
profited as government money and Western aid passed through their hands
have been enjoying their wealth, untouched by prosecution.
The World Bank has been working with Russia since 1993, trying to help
transform the grossly ineffi-cient Soviet industry. It granted Russia a
$500 million loan to help retrain miners, close unproductive mines and
revamp the remaining mines. Part of the more than $1.5 billion the
government budgeted for the coal industry in 1996, it had little effect.
"There was never proper control, and there was a serious conflict of
interest," says Vadim Voronin, deputy director of the World Banks Moscow
Bureau. "Unfortunately, some of the money was misused or mismanaged."
Despite growing protests and threats of social unrest from the miners,
there has been little public discussion and no complete accounting of
what happened to the money.
Russian officials do not dispute Voronin's assessment and confirm that
millions of dollars have gone missing.
Igor S. Kozhukhovsky, Russia's deputy minister of fuel and energy,
estimated that about $500 million was supposed to have been used to
retrain miners and help them find new jobs.
"Much of the one-third intended for social protection of the miners was
wasted and never reached them," he said. "That was where the scandal
`Extent is unprecedented'
Eight years ago, the miners were President Boris N. Yeltsin's most
ardent allies. They rallied loudly and enthusiastically for democracy,
giving Yeltsin the strength he needed to overwhelm the old system.
Today, some 300 of them sit outside the White House, banging their
helmets on the paving stones when they catch sight of an official,
demanding Yeltsin's resignation and shouting for him to curb the
policies that have caused them so much anguish.
Vladimir Stasyuk was among the protesting miners who set out from the
Arctic Circle coal town of Vorkuta in early June on the 40-hour train
journey to Moscow. He had just been paid about $660 -- his wages for
The government has largely ignored the encampment, except to prohibit
tents and grills.
"It was awfully hard here at first," said Stasyuk, 44, "but we're
getting used to it. The Russian people are very patient. We can work for
years without pay, and we can take any temperature. But when we run out
of patience, then comes the storm."
When the World Bank began consulting with Russia on the coal industry,
everyone understood the problems were huge.
"The peculiarity of the problem is the extent of it," Voronin said. "The
extent is unprecedented. The Soviet Union was the major producer of coal
in the world, and it wasn't regulated by the market."
Russia reached peak production in 1988, mining 425 million tons of coal
that year. The industry was so inefficient, however, that it cost more
to produce the coal than it was worth. By 1993 one of every three tons
was paid for by public subsidies, Voronin said.
In the early 1990s, the coal sector employed more than 1 million people
at 250 mines and open pits; by last January, that number had been
slashed to 466,000 employees. Ninety-four mines have stopped production,
but only 46 of those are officially considered closed. Sixty more are to
be closed this year. Only 144 of the mines are considered viable -- but
even those will have to lay off miners.
The World Bank agreed to lend Russia $500 million for the coal industry
in 1996, disbursed directly to the national budget rather than attached
to a specific program.
The loan was intended to help restructure the industry by determining
which mines were viable, closing those that were not, retraining miners
and relocating those who lived where there were no hopes of other jobs.
Money quickly began evaporating, Voronin said, as it entered the hands
of Rosugol, a private company the government created in 1992 to manage
the coal sector.
Rosugol ran the industry. It determined how much of a subsidy each mine
should get, then told the government how much was needed and took
control of the money allocated. It managed equipment and supplies and
"Obviously, this provided a lot of space for mismanagement, and
sometimes, I would say, corruption," Voronin said. "Obviously, Rosugol
was not interested in restructuring. The more inefficient the industry,
the more money would pass through it.
"Even money that did arrive at the mines was misused," Voronin said.
"Maybe the director would invest it in equipment instead of paying the
A network of private companies rose up around the coal industry, Voronin
said, some selling dubious pension insurance and others acting as
middlemen, buying coal from the mines for less than the cost to produce
it, then selling it for high prices. The middlemen were usually
relatives of the mine directors, Voronin said.
Miners like Vladimir Stasyuk, hunkered down outside the White House, and
Yuri Gainulin, stranded in the dying mining city of Kizel, are left to
pay the price.
Kizel lies nearly 1,000 miles east of Moscow, about 150 miles northeast
of Perm on the western slope of the Ural Mountains.
The pretty pastures and forests of birch and pine come to an abrupt end
as the road from Perm enters the Kizel coal basin.
Twelve of Kizel's 14 mines have closed in the last three years, and many
miners believe the other two soon will follow. Fifteen thousand jobs
have been lost since 1995. Thousands of miners are out of work, with no
money in the mattress, no way to make any and barely any hope of being
able to afford to move somewhere else.
Heroes of Soviet labor
"The Russian people are patient," said Gainulin, 41, who worked at the
Severnaya Mine for 18 years, until it was shut down in January. "We're
the children of people who survived Stalin. Probably somewhere in the
bottom of our hearts we're afraid of something. But when we finally lose
patience, we lose it all at once."
"Now probably someone will want to take up a knife or gun and kill
someone," said Alexander Dolganov, head of the largely ineffective coal
miners union in Kizel. "It could be me."
A decade ago the miners were heroes of Soviet labor; the vast
metallurgical and chemical industries needed their coal. Now most of the
coal is too expensive to dig because of huge transportation costs to
remote areas and aging, inefficient equipment.
The employment center in Kizel has received no money from Moscow to
retrain miners, despite promises of help. There aren't any jobs anyway.
Only 393 jobs were found for the thousands of unemployed Kizel miners in
the first six months of this year.
Moscow is still making promises, this time to begin an experimental
program in Kizel providing housing certificates to unemployed miners.
Recipients would be able to exchange the certificates for subsidized
apartments elsewhere in Russia.
The miners are wary and mistrustful, fearing some sort of trick.
And there's another drawback: the government is to pay 80 percent of the
cost of a new apartment. That leaves 20 percent for the miner. When an
average apartment in Perm, the nearest city, costs $13,000, that means
the would-be inhabitant has to come up with $2,600 of his own money --
which is far more than anyone here can afford.
The miners have little hopes of seeing any World Bank money.
"Everybody knows, even in the government, that the money the World Bank
gave for the coal industry went somewhere -- but where?" said Dolganov,
the union leader. "It was spent without making any effect on the
But no one is looking for the money, he said.
Last month, Russia's senior auditor told reporters that such waste and
corruption was typical. About a sixth of Russia's budget was misspent
last year, said Venyamin Sokolov, head of Russia's Chamber of Accounts,
a Communist-dominated agency which is deeply critical of the Yeltsin
Poor spending controls have been complicated by low tax collections. In
recent days, investor confidence has sagged.
So Russia finds itself asking for help again. And once again the West is
faced with decisions: Pay, or give up on Russia? Abandon miners like
Vladmir Stasyuk and Yuri Gainulin? Risk another revolution in Russia?
Tomorrow, the IMF expects to vote on whether to bail out Russia with a
$22.6 billion loan. Yeltsin has promised tough new financial controls,
and has been badgering the Russian parliament to fall in line behind
Los Angeles Times
July 19, 1998
[for personal use only]
To Really Bail Out Russia, West Must Deny the Loans
By PETER REDDAWAY, DMITRI GLINSKI
Peter Reddaway Is a Professor of Political Science at George Washington
University; Dmitri Glinski Is a Research Scholar There. They Are
Co-authors of "Yeltsinism: the Tragedy of Russia's Reforms," Due out
Early Next Year
WASHINGTON--For the sixth time in six years, the West has agreed to prop
up the Kremlin with billions of dollars. Each time, it would have been
wiser to refuse. That would have helped Russia by strengthening the
government's incentive to combat corruption and focus on real, not phony
economic reform. But each time the West has harmed Russia by ponying up.
The Kremlin thus has been able to go on feeding the country's crony
capitalism and neglecting the rule of law.
Each year, the amount of money lent by the International Monetary
Fund has been larger than the year before. Each year, bad things have
followed the loans, in politics as well as economics. For example, three
months after the IMF gave its second loan (of $1.5 billion) in 1993,
President Boris N. Yeltsin used tanks to disperse the democratically
elected Parliament that had brought him to power. Hundreds of people
were killed. Then, in 1994, after getting another $1.5 billion, Yeltsin
sent his tanks into Chechnya, launching a long war.
Much of 1995's loan of $6.8 billion went to finance the continuing
blood bath there. In 1996, a new loan of $10 billion helped fund
Yeltsin's reelection campaign.
Last year, the Kremlin promised repeatedly it would not ask for any
more IMF loans. Nonetheless, it has just begged for and been promised
not a small sum to fend off ripples from the Asian financial crisis, but
an extra $17.1 billion, including $11.6 billion from the IMF.
Need to print or save the entire story? Select the long format.
Given this pattern, Russians are wondering what new surprise
Yeltsin is preparing for them, apart from more financial austerity.
Could it be some new confrontation designed to keep him in power?
Certainly, there are signs that a crackdown may be coming, including the
murders of two oppositionists that the authorities may have been
In any case, the stakes are now far higher than before, for Russia
and the West. If, as many analysts expect, much of the new cash is used
for political purposes or embezzled, and the Russian economy continues
to, at best, stagnate, then the current worldwide criticism of the IMF
will turn into a flood. It will also affect the Clinton administration,
which, though the Kremlin's new reform program will probably work no
better than previous ones, effectively ordered the IMF to open its
In Russia, meanwhile, devaluation of the ruble will probably soon
be unavoidable, ordinary Russians will incur still more pain, and
Yeltsin and his government may well fall from power. The only silver
lining would be that Yeltsin's demise would at last give Russians hope
that there might be some light at the end of the tunnel. New leaders
would make a fresh start. This could hardly be worse for Russia, and
would probably be better.
Need to print or save the entire story? Select the long format.
Why do we believe the new loan package will postpone a far bigger
crisis only for a matter of months? Because the crisis is ultimately
more political than economic. The Kremlin is locked into patterns of
behavior it cannot change. It has lost its legitimacy in every sense
except the most formal. Yeltsin has none, nor do the governments he
appoints. The latter get no respect from the bureaucracy or the
alienated Russian people. The current government might have the most
perfect economic policies, as the IMF actually believes, but they will
not help. The government lacks any authority to implement policies,
perfect or imperfect, that involve painful change for the establishment.
A recent episode illustrates the regime's weakness and isolation.
Last fall, it decided to answer critics who contended, convincingly,
that Russia was a privatized state guided not by the national interest,
but by private interests. It started a campaign to do away with crony
capitalism--the very capitalism that Yeltsin and his U.S. advisors had
been creating since 1991. But who did the Kremlin turn to in the new
fiscal crisis? The very crony capitalists on whom it had declared war!
One of these, Boris A. Berezovsky, explained why: "The government has no
other real base of support."
So the two "have" groups in Russia, the government and the
"financial oligarchs," have forgotten their differences and called in
the IMF. They hope to pacify the millions of increasingly restive
have-nots for a few more months. But the latter will hardly be
impressed. Most of the pro-Western groups that brought Yeltsin to power
in 1990 now criticize the West sharply, precisely because Western aid
has played such a big role in advancing the narrow interests of the
ruling "oligarchs" at the expense of the rest of society. Ordinary
Russians know the new loans will do little except bail out the oligarchs
and Western speculators.
They are right. In the short term, at least, the following trends
will probably continue: Russia's gross domestic product will stagnate or
even decline (after dropping by about 50% since 1990); more illegal
capital will flow abroad than aid money flows in; most workers will be
paid months late; unemployment will continue to rise; pensions, social
payments and the minimum wage will fall still further in real terms;
investment will continue its downward path as financial markets remain
obsessed with bond and monetary speculation; much of the economy will
rely on barter instead of money; small and medium businesses will have
no protection from the mafia's unrelenting extortion; corrupt and
criminal elements will tighten their grip on political structures,
and--on an index monitored by the World Bank--Russia will continue to
challenge Colombia and Nigeria for the title of most corrupt country in
But one new wrinkle could be even more serious, at least for the
West. The Russian people could become so alienated from the West, from
the perverted capitalism it helped to impose on them and from the
democracy it compromised by applauding Yeltsin's decision to destroy the
Parliament, that it will no longer be able to reverse their alienation.
Then Russia might start to resemble Iran in the 1970s. That was when the
United States kept on arming and funding the widely unpopular shah
until, one day, the majority of Iranians could bear it no longer. They
rose up against both him and the United States. Americans are still
paying the price. It makes no sense to risk such an outcome. Even though
Russia is not Iran, it is unpredictable.
The West appears, too, to have fallen again for an old trick of
Yeltsin's. Fearing last month that the loan spigot might at last be
turned off, he started proclaiming that Russia was in imminent danger
from extremist forces. Whatever doubts we might have about him, we
should rush to his support. However, having long ago tamed the
communists, he could provide no evidence.
If the West had avoided these mistakes and declined to throw good
money after bad, Russian coal miners, teachers, health workers,
scientists and other groups that have been striking and demonstrating
would have known the West was listening. By indulging Yeltsin, however,
it conveyed the opposite message: that it knows nothing of recent polls
showing that the percentage of Russians prepared to support militant
anti-Yeltsin demonstrations has grown from 30% a year ago to 44% today,
and that Yeltsin's approval rating has fallen to a microscopic 4%, while
his negatives have soared to 80%.
We can only hope that the opposition will use this opportunity to
make Yeltsin give them some real representation in the government in
return for their cooperation in helping to avoid economic disaster.
What would have happened if the West had denied Yeltsin his new
loans? The West would have saved the money and not fed Russian
corruption. It would have shown its loss of confidence in Yeltsin, thus
pleasing ordinary Russians and helping their rulers to sober up and take
full responsibility for their rule. The Kremlin might have devalued the
ruble, though the recent predictions of devaluation may have primarily
been scare tactics to get the loans. Or, instead of devaluing, it might
have shut down the bond market and defaulted, as it may in the next
crisis. Living standards would have fallen, but perhaps less sharply
than they will next time. Groups of oligarchs, parliamentarians and
organized labor would have put mounting pressure on Yeltsin to resign
and perhaps succeeded. If so, three months later the voters would have
elected a new president, who would have appointed a new prime minister,
who would have had new ideas for reforms. Finally, the rising tensions
and even hostility between Westerners and many Russians would have been
By not encouraging this course, the West has probably erred. The
extra $17.1 billion may buy a few months of reduced chaos in Russia, but
when the bubble of Kremlin-induced financial speculation bursts, the
political and economic crisis will be bigger and more dangerous than it
would have been otherwise. Since the Yeltsin regime has lost its
legitimacy, it will use the cash mainly as a weapon against the rising
opposition of the Russian people.
July 19, 1998
[for personal use only]
Russia is a priority to lenders
Dire global consequences are feared if its economic woes yield to
instability. So help is on the way.
By Robert A. Rankin
INQUIRER WASHINGTON BUREAU
WASHINGTON -- The International Monetary Fund decided last week to lend
more money to Russia -- $22.6 billion this time.
That is a lot of money, and the loan has raised some questions: Where
does that money go? Haven't other big loans been made with little to
show for them? What does the United States have to gain from it?
"Well, Russia is a special case. Part of this is not economic. Part of
this is called 6,500 nuclear weapons," said Willard Workman, vice
president for international affairs at the U.S. Chamber of Commerce,
referring to Moscow's still-lethal arsenal.
In other words, Russia gets big Western loans partly because, without
them, it faces a great risk of financial breakdown and political
instability, possibly leading to a new, hostile government with nuclear
weapons and a return to tensions not felt since the Cold War.
Yet the loans also are intended to serve U.S. and global economic
interests -- and the loans are repaid.
"Someday the Russian market will be a wonderful market. It's not there
yet. But you have to start someplace. And I think we have an obligation
to help them make the kind of tough economic reforms they need to
transform their economy," Workman said. "The best way to do this,
probably the only way, is to work through the IMF mechanism. We don't
have a lot of tools for this."
President Clinton couldn't have said it better; Workman's words describe
The IMF was created in 1944 to help countries overcome the kinds of
destabilizing economic problems of the 1920s and 1930s that helped
foster the Great Depression and World War II. Over the last year, the
same kinds of difficulties -- plummeting currencies, balance-of-payments
crises, plunges in financial markets, and recessions -- have spread
across Asia and beyond. No nation outside Asia has been more seriously
affected than Russia.
Foreign investors -- who provide the money and know-how to build Russia
and other countries into modern economies -- were alarmed by Asia's
turmoil and cashed out of many risky emerging markets. Russia's
stock-market valuation has plummeted by 60 percent since last fall.
Russia also depended on foreign investors to finance its deep budget
deficits. To keep foreign cash coming in, Russia's Treasury sold bonds
valued in rubles by paying interest up to 150 percent.
Still, as investor confidence collapsed, so many people were dumping
rubles for dollars that Russia was depleting its scarce reserves of
"hard," or trusted, foreign currencies in an effort to maintain the
ruble's value. With reserves of only about $15 billion, by last weekend
Russia was spending $1 billion a month servicing old foreign debt and up
to another $1.5 billion a week redeeming recent high-interest bonds, the
finance minister told the Wall Street Journal.
It couldn't go on. Russia was under great pressure to let the ruble's
exchange value sink, but that would have soured foreign investors even
more and sent inflation soaring, risking social upheaval.
On July 10, after warning against coups, Russian President Boris Yeltsin
called Clinton for help, and three days later the IMF and Russian
authorities agreed on a bailout plan.
Russia will get $22.6 billion through next year -- $17 billion in new
loans, the rest previously approved but not yet sent -- provided the
government meets major conditions: Russia must overhaul its tax laws and
tax-collection systems, slash its budget deficit, and accept strict
oversight by IMF technicians as it proceeds.
The money will go to Russia's central bank and will be used to pay off
government debts both foreign and domestic, and to finance new trade and
The sheer presence of the IMF money stabilizes the ruble's value by
easing market fears that reserves will soon run out. And by restoring
financial confidence, such IMF packages often catalyze private
investment, leading to economic renewal.
The deal immediately restored confidence among foreign investors -- at
least for now -- and Russia's stock market and ruble have rebounded
strongly. Even the balky Russian parliament, the Duma, passed some of
the austerity measures needed to satisfy IMF loan requirements,
including a key bill imposing an additional 5 percent income tax. But
other proposals were rejected -- prompting Prime Minister Sergei
Kiriyenko to warn the lawmakers, before they headed off for their summer
recess, that he was prepared to satisfy the IMF by imposing austerity by
The IMF's action bought Yeltsin time to push reforms. His goal -- shared
by the IMF, Clinton and the West generally -- is to transform Russia
into a prosperous market economy with a democratic government.
Yet those have been Russia's goals since the Soviet Union collapsed in
1991, and skepticism is rising about whether Moscow can get there even
with the IMF's help.
Before approving last week's loan, the IMF had made five other big loans
to Russia since 1992, totaling $24 billion, and the World Bank had
chipped in almost $10 billion. What have they achieved?
The loans and technical aid financed reforms that helped control runaway
inflation. More than two-thirds of the economy, directed wholly by state
bureaucrats less than a decade ago, is now run as private enterprise.
And after traumatic production cutbacks in the early years of
transition, Russia's economy came close to actual growth in 1995 until
political stalemate stalled further reforms.
But reforms urged by the West in the tax and legal codes were not made.
Corruption, inefficiency and black-market transactions persist.
Skeptics say more IMF money will only be wasted.
"IMF loans and other government-backed capital transfers do not
contribute to new investment so much as they contribute to sustaining
old institutions," insisted Lt. Gen. William Odom, a former
national-security aide to President Reagan who is now with the Hudson
Institute, a think tank.
Much of the IMF money simply repays loans to Russia's new capitalist
oligarchs, he told a House committee last week, while Yeltsin's
government is too weak to impose the reforms necessary to restructure
"The only real beneficiaries of the IMF loans will probably be the
western investors, who hold about 60 percent of the foreign exposure,"
Other experts disagree.
"I think the notion that the money is wasted is a big mistake to
presume," said Al Fishlow, a senior fellow in international economics at
the New York-based Council on Foreign Relations.
For one thing, all IMF loans are repaid -- with interest. U.S. dues
cover 18.5 percent of IMF resources, but no IMF loan ever has cost
American taxpayers a dime. Even Russia, despite its difficulties, has
repaid about $10 billion to the IMF so far.
U.S. business interests worry that if Russia's economy collapses,
instability could flare up and spread beyond Russia's borders, even as
some investors are beginning to return to troubled Asian markets.
House Republicans who are skeptical about international agencies like
the IMF now seem to hear that warning. After months of blocking
additional U.S. donations to the IMF, a key House subcommittee approved
initial funds Wednesday, and House Majority Leader Richard Armey (R.,
Texas) said he thinks Congress will approve the full $18 billion sought
by the Clinton administration before adjourning this fall.
Rep. Lee Hamilton (D., Ind.) summed up the stakes for Americans at the
House International Relations Committee hearing.
"Russia should be seen as a work in progress. Destabilization in Russia
would have a negative impact across the world. Success is surely not
guaranteed, even if the IMF package (goes forward).
"But I think the risks are grave if the loans do not move forward:
devaluation, economic chaos and even a possible coup and the rise of a
hostile government. We risk the defeat of democratic and market reforms,
and a return to a Russia that opposes Western values. The stakes are
simply huge, and the interests of the United States in the outcome
19 July 1998
[for personal use only]
Russians say they are not hurt by economic woes
Polls indicate the events that precipitated the financial crisis remain
abstract to many.
By Inga Saffron
INQUIRER STAFF WRITER
MOSCOW -- The restaurants are still packed, the upscale American
designer Donna Karan has opened two sleek boutiques, and the aisles are
crowded at the new Turkish-built hypermarket. If Russia is in the middle
of a financial crisis, somebody forgot to tell a lot of Russians.
Since spring, when Russia's stock market was beginning its
record-breaking plunge and angry coal miners were blocking the
Trans-Siberian Railroad to protest wage delays, many Russians have been
oblivious to the looming crisis.
In a June survey, just as the situation was worsening, Russian pollster
Yury Polatayev was surprised to find that more than half the respondents
said they were not worried at all.
A month later, when the ruble was teetering on the brink of devaluation
and Western governments were bracing for another Russian revolution,
Polatayev's firm conducted another poll. The numbers had not budged.
Fifty-four percent said they didn't expect the crisis to affect their
lives. Eleven percent said they had not even heard about the stock
market crash. Only 27 percent said they were concerned about the future.
Russia is gripped by a financial crisis so serious that international
lenders were forced to offer a $22.6 billion bailout package last week.
Yet the events that precipitated it remain abstract to many people.
"It doesn't affect their everyday lives," explained Polatayev, who
tracks the spending habits of Russia's newly acquisitive consumers. They
see the latest market turmoil as part of the country's long economic
A shadowy crisis
The crisis may seem unreal to Russians because of the way it started.
Concerned about the government's inability to collect taxes and pay its
bills, foreign investors began pulling their money out of the stock
market around March. By June, the market had fallen by 80 percent. But
since few ordinary Russians invest in the stock market, they hardly
noticed the turmoil.
And unlike the troubled economies in Asia, where the bubble of success
burst suddenly, Russians have been living with hard times for a while.
They have learned to cope. According to market surveys, Russians appear
poorer than they actually are because they underreport their incomes by
half -- which is one reason the government has so much trouble
So even as Prime Minister Sergei V. Kiriyenko was calling for drastic
budget cuts and hefty new taxes, Russians continued to spend as if
nothing was amiss, especially in affluent Moscow. Sales of cars,
televisions and other pricey consumer goods have been unaffected,
What's more, those businesses that had adjusted to Russia's new market
economy are thriving.
"This financial crisis hasn't affected us at all. We're planning to
expand," gloated Nadezhda Kuzmina, a spokeswoman for Liaznozovsky Dairy,
one of Russia's most successful food-processing firms.
A sprawling Soviet-built white elephant on the edge of Moscow, the dairy
went private a few years ago and retooled with state-of-the-art
production lines. Today it operates round the clock, sells $500 million
worth of juice and milk products a year, and has managed to obtain the
dominant market share, despite fierce competition from Western brands.
Still, the lack of confidence in the Russian economy has forced several
successful companies, such as the petroleum giants Gazprom and Lukoil,
to call off plans for new share offerings. Analysts said the companies
feared suspicious buyers would offer too little money.
Last month, the central bank's hard currency reserves fell so
drastically that the government began talking about devaluing the ruble.
If that had happened, the crisis might have finally hit home for
ordinary Russians. Cutting the value of the national currency could have
reduced people's savings to almost nothing.
If devaluation had been necessary, "the political situation could have
easily spiraled out of control," said Marc Holtzman, president of ABN
Amro Corporate Finance, a Dutch bank that invests heavily in Russia.
President Boris N. Yeltsin even warned of an impending military coup if
the West didn't come up with money to shore up the ruble.
But there were segments of Russian society that were clearly aware of
the problem. As the situation worsened in June and wage arrears piled
up, public protests began to increase. About 200 coal miners set up a
tent city next to the Russian White House, the government's main office
building, to demand that the government pay their back wages. Many of
the miners said they had not been paid in a year.
Working three jobs
"I have to work three part-time jobs to survive," grumbled Lilia
Pimenova, a mining engineer from the Arctic city of Vorkuta. "I have a
higher education, but now I have to clean houses to get enough money for
milk and bread."
The miners' protests are shown regularly on the television news.
However, the reports rarely mention that the demonstrations are not
spontaneous: They are organized and funded by the Working Russia party,
an ally of the Communist Party.
Even as such protests spread, the International Monetary Fund and the
World Bank insisted the country could sort out its problems itself. They
had been critical of Russia for moving too slowly on economic reform and
were reluctant to commit more loans until the government reduced its
budget deficit. But under intense pressure from the United States and
Germany, the banks concluded that reforms would stop altogether if there
was massive unrest.
As Russian government officials lobbied hard for the bailout, many
Western economic analysts were on their side. Swedish economist Anders
Aslund, who helped introduce Russia's early shock therapy program,
argued Russia had been unfairly targeted as an economic basket case. He
maintained that the current situation was a short-term glitch caused by
the sharp drop in oil prices and the fallout from the Asian financial
Trouble with cash flow
Peter Boone, an economist at Brunswick Warburg in Moscow, agreed.
"Russia doesn't have a solvency crisis. It has a liquidity crisis," he
said. In other words, the country isn't bankrupt, it just has cash flow
The cash crunch is partly the result of outside factors, but analysts
agree Russia would not be nearly so strapped if it had pursued economic
reforms more vigorously.
For years, plans to streamline the tax system have languished while
Yeltsin and parliament bickered over the details. Only under intense
pressure from the IMF did the Duma finally agree Friday to adopt a
crucial 5 percent sales tax -- though it turned down other elements of
Daniel Wolfe, managing director of Troika-Dialogue, a Moscow investment
bank, said the combative Duma was finally beginning to acknowledge the
severity of the economic problems.
"One of the positive effects of this crisis is that maybe now ordinary
Russians will also begin to take an interest, too," he said.
Zhirinovskiy Wants Communal Grave for All Russian Leaders
MOSCOW, July 16 (Interfax) -- A communal grave for the remains of
tsar Nicholas II and all of Russia's subsequent rulers should be built in
St. Petersburg, leader of the Liberal Democratic Party of Russia faction
Vladimir Zhirinovskiy told Interfax.
The remains of Lenin, Stalin, Khrushchev, Brezhnev, Andropov and
Chernenko must be put into this grave and space should be reserved for
subsequent leaders, he said.
Member of the Communist faction Vasiliy Shandybin said that Lenin's
body should rest in the Mausoleum forever, because Lenin was "a great man
and the leader of the world's first socialist state."
Vice-Chairman of the Yabloko faction Sergey Ivanenko told Interfax
that "by human and Christian standards," Lenin should have been buried a
long time ago. But, he said, this is not the right time to bury Lenin as
it may provoke "an outbreak of social confrontation." Lenin's body can be
buried by the next generation, he said.
Independent deputy, Vice-Chairman of the Democratic Choice of Russia
party Sergey Yushenkov told Interfax that Lenin should have been buried
five or six years ago. "Then, this could have been done easily. Now it
will be strongly opposed by a large section of the population," he said.
He noted, however, that "as long as the corpse of the bloody butcher
(Lenin) is in the mausoleum in the center of Moscow, the country will not
be able to develop and advance in a civilized way." He explained that he
did not mean "any kind of mystical influence" exerted by Lenin's unburied
body on the nation. "This is a fact of our public mentality," he said. He
announced that representatives of the Democratic Choice of Russia faction
would attend the burial of the remains of tsar Nicholas II and members of
July 27, 1998
A BAILOUT ALONE WON'T RESCUE RUSSIA (int'l edition)
Did the West have any choice in bailing out Russia once again--this time to
the tune of $22 billion? Not much. Will it force Moscow to restructure the
economy, so that it will grow as fast as, say, Poland? Not really. Does it
matter much to the world? Yes, but not in any economic sense.
The truth is, the American- and German-backed bailout by the International
Monetary Fund was essentially a political act designed to steady a country
holding thousands of loose nukes. The luckiest benefactors of this cold war
legacy are the foreign and domestic investors in Russia's $70 billion
government Treasury-bill market, who sparked the crisis in the first place.
These highfliers will now be bailed out of their mistakes: In exchange for
their ruble T-bills, foreigners will be offered long-term Eurobonds
denominated in hard currency. If Russia had not received the IMF money and
been forced to devalue, they would have faced ruin. For these folks, it's no
risk and all reward.
Economically, it might make sense to bail these investors out and preserve
the government T-bill market if the IMF loan package led to a radical
restructuring of the Russian economy. Yet even with the most pro-reform
government since 1992, odds are that the Duma will not do what is necessary to
turn Russia into a growing market economy. In fact, the austerity that the IMF
is insisting on in exchange for its loans will discourage growth. Cutting the
budget deficit and collecting more taxes are good ideas in the abstract but
will deflate the economy in the short run.
What is needed is an end to Russia's lukewarm commitment to the market
economy. Call it a kleptocracy, an oligarchy, or anything else, but the
Russian economy is hardly capitalist. Before there can be real growth, all
property, especially land, must be privatized. Contracts and the rule of law
must be enforced. Barter must be replaced by a cash economy. Small businesses
must be encouraged to generate jobs. Right now, some of the world's most
literate people, with some of the best high-tech skills anywhere, are living
poor, stagnant lives because Russia's leaders can't cut the ties to an
Better tax collection and lower deficits are important to Russia. But they
are merely necessary, not sufficient.
CABINET IS READY TO BEAR RESPONSIBILITY FOR ITS STEPS AS
PROPOSING ITS ECONOMIC STABILISATION PACKAGE
MOSCOW, JULY 18. /FROM RIA NOVOSTI'S CORRESPONDENT/-- A
bill 'On additional powers of the Cabinet needed to stabilize
financial situation in the country' offered to the State Duma
Friday to extend Cabinet finance-stabilising competences is of
an essential importance, Prime Minister Sergei Kiriyenko
emphasised as he addressed mass media at a briefing in the
The bill envisages taxation rates raised by 10%, and MPs
appear reluctant to make this and other unpopular steps, though
they are fully aware of their necessity, while the government is
"ready to shoulder the responsibility", said the Premier.
The Duma must pass the bill, he stressed. If it is
torpedoed and has to be introduced by Cabinet resolution, it
will be only temporary, explained Kiriyenko.
He thanked both parliamentary houses for their work at the
Cabinet stabilisation package. "It is a huge job and an
unheard-of instance of smooth teamwork" by the two power
branches, of which the situation demands to meet each other