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Johnson's Russia List
 

 

July 21, 1998   
This Date's Issues: 2275  2276  


Johnson's Russia List
#2276
21 July 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Jonas Bernstein: re: Harley Balzer's response to Peter Reddaway, JRL, 
#2274, July 20.

2. Edwin Dolan: IMF Bailout.
3. Ronjon: re: running in moscow
4. Thomas Goltz: New Evidence That Life Is Not Totally Rotten.
5. Izvestia: Andrei Kolesnikov, GOVERNMENT'S DEBTS TO BE REPAID BY 
PEOPLE.

6. The Independent (UK): Helen Womack, Street Life - Clean-up casts out
'untidy' 
Lydia.

7. Rossiyskaya Gazeta: Crimes by Foreigners in Moscow Described.
8. Komsomolskaya Pravda: Tax Police Raids Detailed; Fedorov Cited. 
9. Journal of Commerce: John Helmer, Unilever, P&G in battle to be Russia's 
Mr. Clean. Nation represents the world's fastest growing home-care market.

10. Nezavisimaya Gazeta: Mikhail Gorshkov, FEW RUSSIANS BELIEVE IN 
"ECONOMIC MIRACLE." Most people are preparing for the worst.]

********

#1
From: "jonas bernstein" <bernsteinj@hotmail.com>
Subject: re: Harley Balzer's response to Peter Reddaway, JRL, #2274, July 20.
Date: Mon, 20 Jul 1998 

Harley Balzer, in his response to the op-ed by Peter Reddaway and Dmitri 
Glinski (JRL, #2272, July 19), sets up various straw men, in my view. 
Mr. Reddaway and his co-author did not say that "crime, corruption and 
the amoral ethos pervading Russia" were created by Yeltsin and Western 
aid, at least by my reading of their piece. It can be argued, however, 
that these evils have continued unabated or even become more virulent in 
the post-Soviet period, and that the Yeltsin administration has, at 
best, done little to fight them, and, at worst, actually encouraged 
them. 

To wit: 1) In 1993, Yeltsin fired Yuri Boldyrev, his chief government 
inspector, after Boldyrev brought the president compelling evidence of 
massive military corruption (which would later be verified by, among 
others, Dmitri Kholodov, which would cost the journalist his life) and 
asked permission to investigate the Moscow city government. 2) In 1993, 
Yeltsin signed decrees exempting various "charitable" organizations like 
the National Sports Fund from paying import/export duties. These created 
huge black holes in the budget, costing the state at least a billion 
dollars, and helped bring about today’s arrears in pensions and salaries 
for federal workers and servicemen. In the case of the disabled Afghan 
war veterans fund, the exemptions triggered murderous in-fighting, 
culminating in the autumn 1996 cemetery bombing that killed fourteen 
people. 3) In 1995, Yeltsin signed a decree approving the 
loans-for-shares privatization scheme, which handed the insider banks 
such goodies as Norilsk Nickel and the Yukos, Sibneft and Sidanko oil 
giants, literally for nothing.

This is a partial list.

As for Western aid and its relationship to the "crime, corruption and 
the amoral ethos pervading Russia": I don’t recall USAID, the World Bank 
or the IMF publicly condemning the loans-for-shares scheme, a textbook 
case of crony capitalism, back when those auctions were taking place. 
Or, for that matter, afterward. And while both the IMF and the World 
Bank last year pledged to take the issue of corruption into account when 

making loans, the IMF last August suspended a $220 million to Kenya over 
high-level corruption, but has never publicly taken Russia to task over 
the same issue (the emphasis here is on
"high-level"). This despite the fact that Russia scored far worse than 
Kenya on Transparency International’s corruption list. So while Western 
aid didn’t create crime, corruption and amorality in Russia, it has done 
little to discourage them.

Which leads to a final point. Mr. Balzer ends his comments by equating 
opposition to the latest IMF loan package with a desire to "punish the 
Russian people." If, however, Clifford Gaddy and Barry Ickes are correct 
in asserting that Russia’s economy is a "virtual" one (see JRL #2275, 
July 21) - a system as value-subtracting and divorced from market 
economics as its Soviet predecessor - then this puts quite a different 
spin on bailing it out, in both practical and moral terms.(The 
Gaddy/Ickes thesis deserves a full-blown discussion and debate, and the 
JRL would be the perfect place for it.)

PS. I don’t think Mr. Reddaway and Mr. Glinski endorsed ruble 
devaluation, as Mr. Balzer seems to imply. They simply wrote that it was 
inevitable.

*********

#2
From: aibec@knight-hub.com (Edwin G. Dolan)
Date: Tue, 21 Jul 1998 
Subject: IMF Bailout

Dear David:

I have enjoyed the excellent comments by Peter Reddaway, Harley Balzer, and
others on the IMF bailout. Let me add a couple of points that I think need
emphasis:

(1) What is the bailout about? Today's (July 21) Washington Post says that
the bailout will avert a "crisis that could destroy the value of Russia's
currency." Hmm. Let's think about this.

In a market economy, the "value" of something depends on what people are
willing to pay for it under market-clearing conditions. Suppose an offer is
made of 1 million rubles in exchange for $160,000, that is, at the current
exchange rate of about 6.25 per dollar. The million rubles will, in turn,
purchase a certain package of goods, services, and assets: so many GKOs, so
many shares in Avtovaz, so many kilos of butter, so many hours of labor
services, and so on. If more people line up to sell rubles on these terms
than to buy them, that means the market isn't clearing. We conclude that the
"value" of $160,000 is in fact already less than $160,000. It follows that
the IMF bailout can't be about averting a crisis that threatens to destroy
the value of the ruble, but must, rather, be intended to continue to hold
the price of the ruble above its market value, which has, evidently, already
been undermined by a crisis that can no longer be averted since it has
already taken place. Another way to look at it would be to say that they
bailout aims to sweeten the package that can be purchased with the 1 million
rubles by throwing in some claims on Western resources (in addition to the
GKOs, butter, etc.) that the rubles wouldn't otherwise be able to purchase.

(2) A number of commentators implicitly or explicitly take the point of view
that the West ought to make this grand gesture to help Russia even if there
is no certainty that the bailout will solve the country's underlying

problem. The idea seems to be that even if the the bailout fails, we will be
seen at least to have tried. No harm and some help might be done.

However, it is not clear that no harm will be done. Suppose, as seems to be
the plan, the IMF funds are used to restructure the government debt by
exchanging ruble-denominated GKOs for debt denominated in foreign currency.
If that is done, there is a short-term saving in debt-service costs, but in
exchange, there is an escalation in the potential cost of any future
exchange rate adjustment. The larger the foreign debt, the bigger the
increment of debt service costs associated with any devaluation. Therefore,
if the bailout is tried and failed, and the ruble is ultimately devalued
anyhow, Russia will be in worse shape than if the ruble were just devalued
now. 
Furthermore, the bailout comes with conditions attached. Chief among the
conditions are extremely tight monetary and fiscal policies: Very high real
interest rates, probably a continuation of the year-long decline in the M2
money supply, certainly tax increases and spending cuts. You only need the
first couple weeks of Econ 101 to be able to figure out that those
conditions doom any hope for real growth of the economy any time soon. It is
not only economic hardship that is at stake here, but also the conditions
under which upcoming elections will take place. 

The point is that there IS a big downside to the IMF's helping hand, and
that should be factored into the decision as to whether the bailout is a
good idea.

(3) With all due respect, Harley Balzer, in his otherwise cogent comment,
greatly simplifies the distributional effect of a devaluation in suggesting
that the winners from a devaluation are the oligarchs while the losers would
be ordinary Russians who would have to pay more for imported food. It's not
quite that simple.

First, the impact of a devaluation on the oligarchs would be very uneven. As
Balzer points out, those whose empires are natural-resource-based could well
gain, since they sell in dollars while the dollar value of their ruble
production costs would fall. However, other oligarchs, especially those
whose empires are bank-based, could end up big losers from a devaluation.
The reason is that Russian banks, on average, have dollar liabilities that
exceed their dollar assets.

Second, the impact of a devaluation on ordinary Russians would also be
mixed. True, the price of imported foods would go up, but there is a flip
side to that same coin. Why do Russians eat imported food in the first
place? The reason is that, at the current exchange rate, Finnish butter is
cheaper (at least when adjusted for quality) than Russian butter. It follows
that a devaluation of the ruble would increase the demand for Russian butter
(and of course lots of other food and nonfood goods), thereby helping
farmers and employees of industries that produce import-competing
manufactured goods. In short, the argument can be made that Russia has been
a victim of the "Dutch Disease" in which raw materials exports have pushed
up the real exchange rate to a point where farms and factories lose
competitiveness on international markets. The drop in world oil prices could

be viewed as a chance to recover from the Dutch disease, but the curative
effects are being stymied by the policy of holding the ruble at an
artificially high rate.

Edwin G. Dolan
American Institute of Business and Economics
Moscow

*********

#3
Date: Mon, 20 Jul 1998
From: Ronjon67@aol.com 
Subject: re: running in moscow

Fili Park and Krylatskoye are two of the best places I have ever run anywhere.
I ran there in all seasons while living in Moscow. You have the option there
of running on flat terrain (on pavement or on trails) down by the river, which
will take you all the way to Krylatskoye, or, if you want a real workout, you
can billy goat up and down the hills, which provide a kind of wilderness
feeling generally lacking in Moscow.

Of course, there are some drawbacks. If you're not careful, you can come
flying around a corner and threw somone's shashlik fire. Also, during a snow
run one evening I ran into a belligerant drunk who sicked his albino
rottweiler on me (I still have the scars, but fortunately only the owner was
rabid). Oh yeah, the guy also threatened to kill me. After that, I started
carrying a CS ballonka on every run, and, of course, never ran into trouble
again.

Fili and Krylatskoye also offer fantastic mountain biking -- but that's
another story.

Another pretty good place -- again, lots of up and down with nice easy-on-the-
knees trails -- is that green space between MGU and the Moskva. 

*********

#4
Date: Tue, 21 Jul 1998 
From: goltz@alpinet.net (Thomas Goltz)
Subject: New Evidence That Life Is Not Totally Rotten

Dear David, 

I would like to alert your list members to New Evidence That Life Need Not
Be A Series Of Swift Kicks To The Shin. In other words, I would like to
direct them to the review of my book on Azerbaijan that appeared in today's
(July 21st) US edition of the Wall Street Journal. The other book reviewed,
The Devil's Garden, seems pretty cool, too.

*********

#5
>From RIA Novosti
Izvestia
July 18, 1998
GOVERNMENT'S DEBTS TO BE REPAID BY PEOPLE
By Andrei KOLESNIKOV

As we know, the left-wing majority of the Duma are ready to
sell anything, with the exception of their banner. And when
secret mechanisms are into operation, the government nearly
always breaks the parliament's resistance, as it happened with
the sales tax. Now each region may establish its own sales tax
rate, but no more than 5%. This tax will be levied on all goods,
less bread, milk and children's commodities, with the revenues
going to the regional budgets. 
At the same time, the Duma approved the 15% tax on the
deposits exceeding 10 minimum wages of 835 roubles. The President
also signed a law raising the tax on the purchase of foreign
currency from 0.5% to 1%.
These taxes will increase budgetary revenues, at the expense
of the people. The sales tax can hardly send inflation galloping,
but we must expect a certain growth of prices. The deposit tax
will close the door to investments, as it will kill the desire to
keep money in the bank. And the tax on the purchase of hard
currency will hit hard at the low-income families, which prefer
to insure their token earnings by buying dollars. 

The attempts to speedily increase the budget created a
strange and distorted tax system. It includes the general
provisions of the Tax Code, which stipulates the fundamental
principles of relatively delicate relations between the state and
the taxpayers. And there is the global idea according to which
the tax burden must be reduced. 
Nobody has renounced the rule of the classical tax law,
under which tax is a means of limiting the interference of the
state into the private life of citizens. In practice, everything
looks different. The state uses taxes to get very deep into the
private life of its citizens, while the citizens, who should
voluntarily pay the income tax, do their best to evade it. 
This is violating another major principle of a normal tax
system: By pay taxes to the state, citizens get in return
services which the state is obliged to render. Swedish economist
Knut Wixell wrote back in 1896: "It is a glaring injustice that
the people are forced to pay taxes which are spent on activities
which contradict the interests of the taxpayers." 
This is what is happening in this country now, and few
citizens understand why they pay taxes if the state does not
fulfil its obligations.

*******

#6
The Independent (UK)
21 July 1998
[for personal use only]
Street Life - Clean-up casts out 'untidy' Lydia
Samotechny Lane, Moscow 
By Helen Womack

This episode of Samotechny Lane has a terrible Russian inevitability 
about it. I had hoped to give Lydia Ivanovna a rest, for a successful 
soap opera should have a wide cast of characters, and no news about my 
local bag lady, featured three weeks ago, would have been good news. But 
when I warned you how her newfound comfort in a disused workman's hut 
could be threatened by the social clean-up for the World Youth Games, it 
was not without reason that I told you to watch this space. 

Indeed, everything happened according to a predictable old script 
written way back in Soviet times. The Asian and Caucasian street traders 
had already been put on trains back to their republics so they would not 
make Moscow look "dirty" while the foreign athletes were in town. Lydia, 
60, a former physiotherapist tricked out of her flat by real-estate 
sharks, looked as if she might be allowed to stay on in her hut on a 
piece of waste ground that she was transforming into a garden. But no. 


Last Monday, just hours before the junior Olympics opened with pomp and 
circumstance in a different district of the city, this most respectable 
of Muscovites was dragged from her home and caged like an animal because 
she upset mayor Yuri Luzhkov's ideas of tidiness. 

All countries have homeless people. In New York and London, they doss in 
cardboard boxes and beg for the price of a cuppa. Homelessness is, or 
should be, a source of shame to us all. But only the Russian language 
has the word "pokazukha", which means "show for the benefit of 
outsiders". Acting on this principle, the mayor has swept all "social 
undesirables" out of sight for the duration of the games. 

Lydia's good relations with the police - she used to wash their patrol 
cars and thereby make an honest living of up to £12 a day - could not 
help her, but naively she put her faith in the Western press. After she 
was arrested, she rang to say she was being held at police station 
number 64 and begged me to help her. 

I found her sitting quietly in the police station cage. She was dressed 
in her best red skirt and had put some lipstick on to cheer herself up. 

"Why are you holding her?" I asked the duty sergeant. He replied with 
his eyes: "We both know this is absurd and cruel but I have a job to 
do." 

In many countries, those carrying out orders will say it is "more than 
their job's worth" to use their initiative. But, owing to the fear of 
authority that is the legacy of Soviet times, it is especially hopeless 
to expect reason from most Russians, however fair-minded they normally 
are, once they have received a stupid order from on high. 

The only hope for Lydia was that the station chief, Lieutenant-Colonel 
Konstantin Golyshev, might have the authority to show a little more 
flexibility. What a small world this is. While I sat in the corridor 
waiting to speak to him, a detective led a boy I recognised as Lyosha, 
my neighbour's car-thieving son, down to the cells. Another jail 
sentence for him then, probably. 

Finally, Lt-Col Golyshev received me. Lydia Ivanovna had been arrested, 
he said, because there was a "danger her dogs might bite children". "You 
mean the young athletes?" I asked, and he smiled but persisted. Lydia 
"ought to live like a decent human being in a flat". Since she "failed" 
to do this, she would be taken away to a special reception centre where 
"competent organs" would sort out her problems. 

Off the record, I was told this was not really true, of course. She was 
being swept out of sight until the games were over, when the problem of 
homelessness would be with us just as before. 

Lydia had told me she did not mind leaving Moscow. "If the mayor thinks 
I lower the tone, I will go. I am willing to work on a collective farm. 
But what about my hut and my things?" 

On Lydia's behalf, I asked Lt-Col Golyshev if he could at least make 
sure she had something to come back to after the games. And here he made 
the only concession in his limited power. He gave permission for her to 
return briefly to the hut to pack her most valuable belongings. 

She chose to take a large Communist victory sign that had decorated her 
garden, as well as two suitcases. But the police could give no guarantee 
that her hut would be safe in her absence, and she had to release her 
four dogs, companions that never bit anyone, on to the street. 

"My babies, my babies," she cried. "It would be easier for me now if I 
was alone with nothing in the world." 

Her home-making instinct, which had made her a bourgeois among tramps, 
only increased her pain in this crisis, when what she needed was to be 
the classic wanderer, free from possessions and responsibilities. 

Lydia howled as she was put back into the cage to await transportation 
to the reception centre. She had placed too much hope in my ability to 

get her released. All I could do was observe, and I am afraid she came 
to see me, the journalist, as just another cog in the repressive machine 
bearing down on her. 

*********

#7
Crimes by Foreigners in Moscow Described 

Rossiyskaya Gazeta
July 17, 1998
[translation for personal use only]
Report by Anatoliy Yelizarov: "Heroin 'Welcome' From
Nigeria"-- all personal names and initials as transliterated

"Your money and your valuables" -- the stocky guy curtly demanded of
the well-dressed middle-aged man. Another five young men then appeared in
the street out of the semidarkness. The prosperous American businessman
Tarter Timoti tried to explain to the muggers that he was a foreigner, but
he was cut short by a series of brutal blows.
Within a minute the American's pockets had been cleaned out and the
attackers had disappeared into the night along with his briefcase. Luck
seemed to be smiling on them that day because their booty was $5,000. 
However, the victim was not born yesterday. The incident happened on
Dmitrovskoye Shosse [in Moscow] and, spotting a passing police patrol, the
battered foreigner ran to the car and asked for assistance. The patrolmen
started searching for the criminals immediately. They toured residential
districts, circling them and narrowing down the search area. Eventually,
the policemen arrested the gang of young muggers in a courtyard where they
had arranged to meet to divide the spoils.
I n the opinion of the capital's detectives, the number of crimes
involving foreigners has begun to increase in the runup to the World Youth
Games. For example, an Israeli citizen was murdered recently outside his
home on Klara Tsetkin Street. The criminals had been tempted by his jeep. 
They "merely" intended to rob, not kill him. They warned the victim and
demanded the car keys and documents. But when they met resistance they
used a knife. However, they failed to get the desired foreign car. And
they are today giving statements to investigators.
Incidentally, citizens of developed states are rarely targets of crime
in Russia and they commit crimes themselves even more rarely. Ninety nine
percent of all crime involving foreigners is accounted for by people from
the countries of Asia and Africa. If visitors from Western countries do
decide to transgress Russian laws, they usually play for big stakes. An
up-to-the-minute example. An unusual event took place at the "Butovo"
customs post. FSB [Federal Security Service] and Moscow Government Culture
Committee staffers and customs officials met with U.S. diplomats here. 
Representing the U.S. side were the military attache, D. Right, the U.S.
Embassy Personnel Department first secretary, K. Estvold [name as
transliterated], and the general service department customs section
attache, D. Ball. The grounds for the meeting were extremely distasteful
for the Americans: Those present had to witness a customs inspection of the
baggage of Philip Hatch, a civilian assistant to the military attache, who
had flown to the States several days earlier. The customs officials
suspected that the possessions left for expedition to the United States

contained contraband.
Their suspicions were confirmed by the inspection of the baggage. 
Among his things were found around 50 antiques and items of popular arts
and crafts which cannot be exported without special permission from the
Russian Culture Ministry. They included antique baskets, chests,
tableware, and samovars. The U.S. Embassy representatives confirmed that
their colleague had attempted to smuggle cultural treasures out of Russia
in the signed customs inspection document.
Africans and subjects of Asian states do not, as a rule, engage in
such things. They prefer other "business." Members of six crime gangs
from China formed on a regional basis (Beijing, Shanghai, and so forth)
regularly exact "tribute" from compatriots trading in Moscow. The gangs
are not large but everyone is in fear of them because they do not treat
those who oppose them with kid gloves. Recently six Chinese gangsters
selected victims among "shuttle traders" back home and then secretly
accompanied them to Moscow. They waited until the goods had been sold and
then demanded all the profit for themselves. The Chinese, like the
Vietnamese traders, are very skilled at concealing their takings. The
"shuttle traders" did not keep the money on them and refused to say where
it was. The gangsters then started torturing them. They began skinning one
of the victims with a knife.
Racketeers of criminal gangs from Southeast Asia running the
Vietnamese markets act just as brutally against their own people. But
Nigerians do not normally have conflicts among themselves. They get
involved in unpleasant incidents and become the targets of attacks mostly
through their own greed. The majority of them specialize in the supply and
sale of narcotics. Many have made a lot of money out of this. The more
they have, the more they want. Some drug-dealers have begun cheating their
customers by diluting the strength of the heroin. Customers, who pay $200
a "hit," do not forgive such things. To safeguard their own interests the
Nigerians are increasingly hiring Ukrainian prostitutes to transport the
drugs from Africa and distribute them in Russia.
People from Afghanistan specialize in helping their compatriots
illegally emigrate to Russia and then on to the West. They usually get
caught with forged visas and other documents. In the first half of the
year the capital's police recorded around 50 such cases. Incidentally, some
Chinese and Vietnamese engage in the same activity. They use, for example,
the following device to legalize the status of their compatriots. A
Chinese opens a small restaurant serving Chinese food. The establishment
has five small tables, but there are around 100 on the staff. The majority
of them spend their working hours elsewhere, of course, at the wholesale
markets, dealing in cheap consumer goods.
More than 150,000 foreigners are officially registered in the capital.
Illegal immigrants probably outnumber them. And this creates a special
kind of environment which is very conducive to crime. More than 800 crimes
were committed and investigated by the police there in the first six months
of the year. But no one except the criminals and their victims knows or

ever will know the exact number of crimes.
[Rossiyskaya Gazeta: Government daily newspaper.]

********

#8
Tax Police Raids Detailed; Fedorov Cited 

Komsomolskaya Pravda
July 14, 1998
[translation for personal use only]
Report by Aleksey Kartsev: "Fedorov Finds Miners' Wages!"

Baking in the hot sun, three mobile phones melted forlornly on the
roof of a Ford and beeped resentfully. Their owners were in no position to
answer: Legs wide apart and hands behind their heads, they lay mournfully
on the dusty asphalt of the Orion Closed-Type Joint-Stock Company yard,
waiting for the search of their warehouses to be completed. The operation
was being carried out by forces from the Federal Security Service [FSB] and
the State Tax Service.
These forces had had to take the gates of Orion by storm, because the
company's security guards had flatly refused to open them to the tax
officials. According to operational data, just 24 hours earlier Orion's
warehouses had been full of illegal vodka. However, having smashed the
locks from the iron doors with sledgehammers, the "inspection group" found
nothing apart from a couple of boxes of out- of-date mayonnaise: They had
obviously had time to smuggle out the vodka at night.... The haul proved
rather modest: Just a few unfamiliar seals and forged excise stamps on
production samples in the demonstration hall.
The FSB and the State Tax Service struck a massive blow at shady
operators that day: They checked out 16 separate premises all at the same
time! A neighboring group, operating in the settlement of Chernogolovka
near Noginsk, was more successful. It too had to break down the gates of a
plant in the Ost industrial group, and then the FSB special troops also had
to take an examination in hand- to-hand combat with the resident security
guards. When one of the losers had been taken to the trauma unit and the
others had been covered with plasters, it became clear why the security
guards had "not recognized" the special troops: The gates were blocked by
a pale colored Niva car on the point of bursting out, carrying a suitcase
stuffed with money -- as if it were in an American movie about the mafia. 
The thick wads of R100 and R500 notes (all new) ran into tens of thousands
of dollars. In the panic, counterfeit notes had also been stuffed into the
suitcase.
In a neighboring workshop behind a high fence, industrious women were
preparing top-quality vodka: They were peeling off suspicious labels from
full bottles by soaking them in huge vats in preparation for replacing them
with respectable Smirnoff labels. 
The "purge" was personally supervised by Russia's chief tax collector
Boris Fedorov, who immediately visited the Ost plant to see the ill-fated
suitcase for himself, which was given the preliminary classification of
"money for a rainy day."
"These are the miners' wages!," the minister angrily exclaimed,
shaking a thick wad of ruble notes. "They say there is no money in the
country! There is money, a lot of money -- it is just that no one wants to
pay their taxes!"
However, Boris Fedorov was strict in moderation: He did not demand

that heads roll and even listened kindly to the explanations of the local
manager, saying that the truth would be established by an investigation. 
Fedorov was also able to reassure all the other tax dodgers: These raids
are going to become a daily occurrence and will be carried out across the
country at least once a week....
[Komsomolskaya Pravda: One of Russia's largest-circulation and most
outspoken dailies, now controlled by Vladimir Potanin's Oneksimbank.]

********

#9
Journal of Commerce
July 21, 1998
[for personal use only]
Unilever, P&G in battle to be Russia's Mr. Clean
Nation represents the world's fastest growing home-care market
BY JOHN HELMER
JOURNAL OF COMMERCE SPECIAL

MOSCOW -- Cleaning up the dirt isn't something Russians have any con 
fidence their politicians can do.

So they are turning to imported bleaches and cleansers in a big way.

This has created enormous market opportunities for the world's two most 
powerful home-cleanser companies, Procter & Gamble of the United States 
and Unilever in London. With new Russian production lines, the global 
giants are going head to head to win over the Russian consumer in the 
fastest expanding dirt and germ market in the world. 

Funds lacking

In analyzing the Russian home-care market, analysts discovered that 
Russians were as educated about germ-killing and disinfection as 
homeowners in the United States and Europe. But they lacked the money 
Americans spend for cleansers and laundry bleaches.

"Russia is a very, very big bleach market," says Stephane Barral, 
director of the home and personal care products division at Unilever 
Moscow. "They like white, and they are very aware of germs. But money 
demand is lower. So the challenge for us was to launch something that 
was unique, effective and affordable."
Unilever traded with the Soviet Union for years. In 1992, it opened its 
first office in St. Petersburg, and since then, according to company 
documents, sales volume doubled every year. By 1997, Unilever claims 
all-product sales in Russia reached $300 million. Of that, house and 
personal care products accounted for about 40%, or $120 million. 
Although Unilever executives won't give precise figures, their laundry 
and cleanser sales appear to be running at about $60 million a year.

Procter & Gamble will divulge even less than Unilever. So estimating the 
value of the Russian market for cleansers is tricky. Including Germany's 
Henkel (Clorox brand), and a variety of Russian producers sharing a 
generic brand-name, sales are about $300 million a year.

In worldwide sales, Procter & Gamble and Unilever each have a 21% market 
share; Henkel, about 5%.

Starting in 1993, Procter & Gamble took over a Moscow-region detergent 
producer. Unilever followed in 1994 with acquisition of Severnoye 
Siyaniye ("Northern Lights"), Russia's oldest perfumery. Production 
lines there have also been converted slowly.

Until 1997, the two companies attacked the Russian cleanser market with 
fully imported products. 

'High business risks'

"Russia has high business risks, and you have to manage them prudently," 
says a Unilever executive. "Our strategy has been to start offshore, 

with distributors paying us for imports in U.S. dollars to eliminate the 
currency risk. Once we're comfortable with the market, we go on-shore 
with a production facility. Owing to the rapid growth of our business, 
our current policy is to acquire factories, rather than to build on 
green-field sites, which can take 18 months to construct."

Just how valuable that time is, and how intense the competition, is 
illustrated by the shift this year from imported to domestically 
produced cleansers. In 1996, Mr. Barral said, Unilever introduced a 
fully imported thick bleach called Domestos, which lasted longer and was 
less caustic than local brands.
Procter & Gamble introduced two lines of bleach, under the Ace 
brand-name. It was twice as expensive as the domestic products, but 
quickly outsold Unilever's Domestos, which was priced at 
three-and-a-half times the local price. 

According to Unilever executives, between 1996 and 1997 their market 
share dropped from 18% to 16%, while Ace jumped to 25%. Annualized sales 
for each product were between $20 million and $30 million; about $10 
million was the gap between them.

Both companies then decided to start domestic production in order to cut 
costs and expand sales. "Volume of sales has to reach a threshold," says 
Mr. Barral. 

He declined to estimate what the target rate of return is for Unilever's 
home products in Russia. But he doesn't dispute other marketers, who 
estimate retail margins at more than 50%. 

Domestic production

In April, Procter & Gamble started their Ace line at their Novomoskovsk 
factory. Ace-Gentle now has a 20% market share, said a marketing 
executive, Katerina Besnosenko. The stronger agent, Ace-Hypo, has a 30% 
share. 

Paul Brindley, Unilever marketing manager, says his company is meeting 
the challenge by introducing a multipurpose Domestos powder. This will 
be produced domestically by next year. To win consumers on tight 
budgets, the Domestos product is marketed as a germ-killer, a whitener 
and a clothes detergent.

So far, Unilever's Mr. Barral believes that market demand is continuing 
to grow, especially outside Moscow and St. Petersburg, where Unilever's 
logistical reach has grabbed a bigger market share for its home 
products.

*********

#10
>From RIA Novosti
Nezavisimaya Gazeta
July 18, 1998
FEW RUSSIANS BELIEVE IN "ECONOMIC MIRACLE"
Most people are preparing for the worst
By Mikhail GORSHKOV, Director General, Russian
Independent Institute of Social and National Problems

The Russian Independent Institute of Social and National
Problems has been monitoring the mood of Russians in conditions
of reforms for five years now. 
The latest poll, held in 12 territorial-economic regions of
the country, as well as Moscow and St. Petersburg on June 28-30,
involved 2,200 people over 18 years of age, who represent 11
large socio-professional groups, namely the staff of enterprises,
mines and construction sites; engineering and technological
intelligentsia; the staff of trade and services, transport and
communications establishments; humanitarian and creative
intelligentsia; the staff of state and private organisations and

enterprises; servicemen and the staff of Interior Ministry
agencies; small and medium businessmen; urban pensioners; higher
school students; agricultural workers; and jobless. 

Who Is Better?
Although summer usually stabilises the people's mood, the
poll registered an outburst of social discontent. As many as 90%
of the respondents (or about as many as in 1993) assess the
situation in the country as very negative. The most optimistic
assessments were given by young people, and among the 
socio-professional groups--by students, small and medium
businessmen, the staff of trade and services. The most critical
answers were given by senior citizens, agricultural and
industrial workers, jobless, pensioners and servicemen.
The hopes of the people, above all the staff of budget
dependent enterprises, are being replaced with pessimism. In
spring, nearly 50% of Russians welcomed the resignation of the
past cabinet, while today over a half of the respondents see no
difference between the old and the new governments.
It is indicative that twice as many respondents in the 18-25
age group that the average for the entire number of the
respondents have a better attitude to the Chernomyrdin
government. But in the age groups of over 45, on the contrary,
two to three times more respondents give a positive assessment to
the work of the Kiriyenko government. 
This trend is most probably based not so much on a rational
evaluation of the actions of the new government and its leaders,
as on the specific psychological features of different age
groups. In particular, young people want to have more experienced
leaders, while senior citizens want younger leaders who would not
be burdened with the problems of the past. 
This conclusion is reaffirmed by the replies given by
different socio-professional groups, most of whom highly assess
the work of the Kiriyenko government, with the exception of
servicemen, who have no sympathies for anyone. 
On the other hand, the poll showed that the people do not
tend to associate the work of Sergei Kiriyenko with the work of
the entire cabinet. Only 11% of the respondents evaluated his
work negatively, while 15% have a positive view of his efforts,
26% have a partially positive attitude, and 48% either could not
evaluate it or were indifferent. Like in the previous case, more
members of the senior groups (as compared to young ones) evaluate
Kiriyenko's work positively. 
As many as 44% of the respondents are convinced that the new
government will not be able to prevent the deterioration of the
socio-economic and financial situation this year. Only 14%, most
of them residents of the northern and Urals regions, think this
is possible. On the other hand, residents of West Siberia, East
Siberia and the Central Black Soil Zone do not believe that the
new government can be effective. 
This poll shows that the dominant evaluations of the current
situation and the work of the central executive authorities are
rather pessimistic. Most Russians assess the situation in the
country as hopelessly difficult, and see no difference between

the work of the past and the new governments. Consequently, they
are expecting a further deterioration of the financial and
socio-economic situation in the country. 

Expectations
The dull forecast for the near future is based on a
clearly-expressed material and economic aspect. It will suffice
to say that more than 90% of Russians consider as quite probable
social upheavals in the near future. More than half of them
believe that these upheavals will be the result of the acute
financial crisis. Although federal authorities are taking
enormous efforts to get ever new foreign credits, they have
failed so far to calm down society. This is really very difficult
to do, given the extremely low level of incomes of the majority
of the Russian population. Thus, according to budget
self-assessments of the population received during the poll, the
average monthly per capita income of an average Russian family in
June 1998 constituted 580 roubles or about $95. Moreover, the
average monthly income of one member of the family in
megalopolises ($182) is three times higher than in villages
($61). In regional centres this figure is $93 and in district
centres--$86.
The highest per capita income is witnessed in Moscow and St.
Petersburg, the lowest incomes are received by the residents of
the central district.
Attention should be paid to the following: the situation in
the country is considered as normal by those people whose average
monthly budget for a family of three members exceeds $450. Such
family income is possible if the average monthly pay of each of
the spouses exceeds 1,350 roubles. (Note how modest is the level
of financial claims of Russians!).
The respondents whose average family budget for three people
ranges from $310 to $400 (1,920-2,480 roubles) believe that the
situation in the country is critical, while those whose average
monthly family budget for three members constitutes from $230 to
$300 (1,430-1,860 roubles) consider the situation catastrophic.
This means that with the average monthly pay of 500 roubles
(besides, wage payments in the budget-financed sphere are
irregular) per member of the family, the economic position of the
family becomes critical, which, in turn, leads to extreme forms
of negative sentiments and social actions.

What Will Rail War Yield?
The attitude of Russians to various forms of protecting
their interests is not homogeneous. Some of them who constitute
the majority of the population (over 60%) believe that there are
no effective ways of exerting pressure on the government. Others
(33 per cent of the population) do believe that it is possible to
exert pressure on the authorities either by participating in the
elections or via strikes, demonstrations, hunger strikes and
appealing to courts. 
The latest months have generated among the most desperate
people such a form of exerting pressure on the authorities as the
rail war. The poll shows that the blockade of railway lines
introduced into the practice of economic (and now political)
struggle by miners has not left anyone indifferent. Only 5% of
the polled could not (or did not want to) express their attitude

to this form of social protest. As many as 15% of Russians
consider such actions erroneous as they infringe on the interests
of the employees in other sectors of the economy. However, a
considerably greater part of the population (36%) fully supported
the miners, considering the extreme measures justified, as in
their opinion, this is the only way to make the authorities
honour their commitments. However, the basic part of the
population (44%), although it supports the rail war, does not
expect any considerable results from it.

The sympathy for the participants in the blockade of
railways is great in all age and social and professional groups.
The greatest share of critically-minded people towards them is
witnessed among entrepreneurs, humanitarian intelligentsia,
servicemen and students. Aware of not only the voices of support
but also the voices of protest, in the course of the July
blockade of railway mainlines, the miners made an exception for
passenger trains.
Already during the May railway war there appeared the calls
for using all possible means against its participants. If this
happened, the reaction in society would be extremely negative.
About 80% of Russians consider as inadmissible under any
circumstances the use of force against the participants in the
railway blockade. Moreover, this position is shared even by those
who do not approve this form of economic and political struggle. 
It should be stressed that the greater part of the
population (40%) believes that television, newspapers and radio
have assumed an objective position in covering the actions of
protest by miners in recent months. At the same time, the poll
revealed the existence of offended people (19%) who believe that
the mass media have assumed a biased position mainly expressing
the interests of the government. Only 5% of the population
accuses the mass media of the excessive support for the
participants in the railway war. 
However, the most important thing is the degree of mass
awareness of what these overall railway blockades may lead to. A
contradiction is revealed here. Although most Russians basically
support rail attacks on the government, they believe that such
forms of protest cannot improve the life of people and the
country as a whole. 
Should these data be interpreted in the way that many our
citizens, not seeing any great use from the actions of protest by
miners, support them out of solidarity? Or, perhaps, for a part
of the population this support is akin to the expression of some
vengeance against the authorities for their misfortunes? In real
fact, both considerations are correct. The common basis for such
a contradictory position of people is their possible behaviour in
a situation similar to the miners'. As many as 42% of Russians
are determined today to personally participate in rail wars and
other forms of mass demonstrations against the authorities, if
they are not paid wages for a long time. 
Is it possible to call people's readiness to rise to an
active protest other than hopelessness, even if you understand
that it is useless for you and the country? It is known that

there is just one step from hopelessness to the unconscious forms
of mass behaviour, which are ruled by the laws of social and
psychological infection.

Politicians out of Favour
The pessimist character of the current economic sentiments
of Russians has also affected their political preferences. First
of all, this was revealed in the population's attitude to the
country's well-known politicians.
The ratings of Yuri Luzhkov, the leader for the past six
months in this nomination, Grigory Yavlinsky who seemed to have
received additional sympathy for his firmness during the
appointment of the new head of the Russian government, even Yegor
Stroyev who is known for his weighted political position, and
many other politicians, have noticeably decreased. Of course, it
is possible to say that for each politician there exist their own
explanations for the temporary or stable fall in popularity (for
example, for Yuri Luzhkov this is a series of tragic occurrences
in the capital). However, the data of the poll reveal that there
is a common trend: due to the increasing difficulties, the
population is beginning to turn away even from its former
political idols.
There can be clearly seen a considerable reduction in the
potential presidential rating of the leading politicians, with
the exception of Alexander Lebed. Moreover, after his victory at
the elections in the Krasnoyarsk Territory, he has come closer in
popularity ratings to Moscow mayor Yuri Luzhkov, and his
electoral support has increased two-fold. 
Judging by everything, the stake of the general on the
victory at the gubernatorial elections as a way of reviving the
former popularity has justified itself. In any case, only 17% of
Russians responded negatively to his election as governor of the
Krasnoyarsk Territory while 39% of people welcomed this fact.
Moreover, 38% of the population believe that after this election,
the chances of Alexander Lebed as the candidate for the
presidency have increased. However, one should not hurry with
forecasts. About 40% of electors believe that the next president
of the country will be a political figure known to the entire
country, while 13% believe that this will be a completely new and
little known figure. 

So, the basic part of the population expects the worse. Only
one out of ten citizens excludes the fact that social upheavals,
possible in the future, will affect him personally. At the same
time, 66% of citizens do not only consider it possible but are
also convinced of this. With such sentiments in society, it is
difficult to implement even the most reasonable economic policy.
That is why efforts to achieve a break in the psychological
perception by people of their life and to win back people's
confidence are considered as the key issues of Russian reforms. 

*******

 

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