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Johnson's Russia List


July 23, 1998   
This Date's Issues: 2278  2279 

Johnson's Russia List
23 July 1998

[Note from David Johnson:
1. Jana Howlett: black economy.
2. Matt Taibbi: Armstrong's questions re miners.
3. Steve Crowley: RE- miners' questions.
4. The Nation editorial: "Yeltsin's Deadend?"
5. Reuters: Chubais sees challenges ahead for Russia.
6. The Guardian (UK): James Meek, Communist offered cabinet job.
7. Interfax: Yavlinskiy: New Economic Strategy Needed To Beat Crisis
8. St. Petersburg Times: Brian Whitmore, Russia's Governors Rule 
Just Like Feudal Lords.

9. Sherman Garnett: Speaking the Truth to a Friend: Al Gore in Ukraine.
10. Reuters: U.S. ready to help with Russia military reform.]


Date: Wed, 22 Jul 1998 
From: (Jana Howlett) 
Subject: re 2276 and others

Re the Russian black economy, traditions of corruption and Satarov's claim
(Kathy Lally, 6 July) that 10 percent of the profits of small and medium
businesses are siphoned off into corrupt deals and $50 billion a year is
lost to corruption:
CA, the journal of the UK Institute of Chartered Accountants quotes
Prof Cowell of the LSE as saying that the black economy in the UK accounts
for 10% of GDP, worth 20 billion in VAT alone. Every IR investigation yields
large numbers of fraudulent social security claims.
It is a pity Satarov does not mention how much is lost to the Russian
economy through foundations set up by the Presidential Administration as
'warm seats' for ex-employees (eg Democracy Fund - Iakovlev; Information
Science for Democracy Fund -Satarov).
Dr. Jana Howlett, Jesus College, Cambridge


Date: Wed, 22 Jul 1998 
From: "matt taibbi" <>
Subject: armstrong questions re miners

Sorry I haven't replied to Patrick Armstrong's questions-- I've been a
little behind on my JRL reading.

Obviously, I thank Mr. Armstrong for his comments about the Vorkuta piece.
I'll do my best to answer his questions, but I also suggest that, if I
can't answer everything, he contact other journalists who've been in
Vorkuta and have covered this story.

1) If the miners have not been paid for a long
time (and not much money when they are paid), how
have they been living?

This was in my piece. The miners do get paid sporadically, small "advances"
against back wages. They are also given packets of food, called
"tormozhki", every day. Most of these guys are feeding their families with
these tormozhki, which are charged against their salaries when they do get

2) Why do they go down the mine and risk their
lives if they are not being paid?

Because they are getting something (see above), because they'll be
unemployed if they don't (and it takes means to move out of Vorkuta and
start over), because their unions won't organize strikes, and, most
importantly, because these guys aren't rocket scientists. I personally
would rather be unemployed than go down in those mines, but those guys
don't see it that way. 

3) The impression Mr Taibbi gives is that the mine
management is cheating the miners, if so, why do
they blame Yeltsin? Surely they know who's doing
it to them.

Most of the companies the miners are dealing with (both VorkutaUgol and its
clients) are majority state-owned companies, so they see the government,
ultimately, as the boss. They know who's cheating them, but they have
reason to see the company, the government, and the unions as a united front
against them, and nothing but a total change in leadership is going to wipe
that away.

Also, cynically, some of the unions are working with the company-- which
they know to be cheating the workers-- in protesting against Yeltsin. It's
a temporary alliance intended to extract money from the government. No one
has any illusions about the company being an innocent party in this.

4) What is the ownership structure at the mine?
Are the miners shareholders or were they swindled
out of their shares? If they are shareholders, are
they making any attempts to remove present

I had several miners tell me that the shares owned by miners in VorkutaUgol
amounted to less than 2% of the company, and that the state had the largest
share. But, to be honest, I don't know very much about this. I do know that
the miners feel their shares are worthless. As for exercising shareholders'
rights, I think that would seem like a fairy tale tactic to these people.
If they have to throw themselves into pits just to get paid money owed to
them by company rules, I doubt they would see working by those same company
rules to remove the ownership as a tactic with a high probability of


Date: Wed, 22 Jul 1998 
From: Steve Crowley <>
Subject: RE- miners' questions

Here are some thoughts on recent questions regarding coal miners. To
paraphrase Armstrong's questions(#2273), how do miners live and why do they
go to work if their not getting paid? Russia's miners, like others in Russia
who are poorly paid or not paid at all, are not so much living as surviving.
Though they might not get rubles, they do get whatever meager in-kind
benefits, including foodstuffs, are handed out at the mines, as detailed in
the Taibbi article (#3247). Miners are also afraid of losing even the awful
jobs they have -- the World Bank is pressing the Russian government for mine
closures, 60-some have closed already and as many as half of all mines are
slated to close altogether. In depressed mining areas like the Kuzbass and
especially Vorkuta, there is little alternative ways to make money either in
formal employment or the informal economy.There is also little alternative
to living in these increasingly desperate places either -- not only is there
a shortage of jobs throughout the country, there's still a shortage of
housing, and no housing market to speak of. 

As for ownership, most of the mines are still state owned -- they don't make
a profit, so who would buy them? -- and are effectively controlled by the
regional coal associations, again as documented in the article. (In any
case, I have seen little to suggest that "employee ownership" in Russia has
been anything more than a masquerade for insider control by management.)
Managers play paternalistic games to try to keep the miners in check, such
as handing out tidbits and chanting the threat of impending closures if the
miners don't keep in line, but miners trust in them by all indications is
nil. Miners protest to Moscow in part because responsibility traditionally
belonged to the "center," and it is much simpler to make demands there than
uncover who has the money from what a mysterious and often criminal
wholesale coal market. But miners make demands on Moscow and Yeltsin because
the state is ultimately responsible -- the mines are still state property,
and even if they were not, it is the state in a capitalist society that is
obligated to insure that contracts, including labor contracts, are
fulfilled. Little chance the state will intervene to the miners' benefit
however -- Russia accepted a $1.2 billion loan from the World Bank with the
understanding that subsidies would be eliminated entirely and as many as
half of the employees in the industry let go. In technical terms, the miners
are screwed, but they're not yet done trying to screw over those that have
screwed them. 

Concerning Mark Scheuer's questions about workers' support for the KPRF
(#2274), as far as the miners go, their support for the Communists is
lukewarm at best. Aman Tuleev is extremely popular in the Kuzbass, and the
Communist's have benefited in national party-list voting as a result. But
this is more a function of Tuleev's charisma than anything in the KPRF
program (which is post-communist at least in the sense that it no longer
aims its appeals to "the working class" above all). As ironic as it seems
now, the miners fought to bring down Communism and put Yeltsin in power. Any
support they give now to the KPRF is by default. Largely because of the
legacy of the CPSU, there simply are no parties of any stature that address
their appeals to labor as a group, despite the large numbers of workers,
their many grievances, and the long success of labor and social democratic
parties in western Europe. (Trade unions have been little help to date --
despite being the largest social organizations in Russia, they are at best
ignored and at worst despised by their membership; if the quotation's in
Taibbi's article on miners' views of their unions -- the most reformed in
Russia -- are accurate, then these views would be doubly true in other
industries.) Because of the ideological legacy of Communism and their brutal
experience with capitalism, Russia's miners, other workers and a large
segment of society are in a real bind: many are deeply dissatisfied and
angry, yet they lack effective political institutions that might channel
their grievances, and they lack an ideological alternative to fight for.
This does not mean that fascism looms on the horizon, but it does suggest
more wildcat protests, the continued appeal of "strong leaders," and the
unlikelihood of anything like the consolidation of meaningful democracy
anytime soon. For more on all this (here comes the shameless plug) see my
book "Hot Coal, Cold Steel: Russian and Ukrainian Workers from the end of
the Soviet Union to the Post-Communist Transformations" (Univ. of Michigan,

Steve Crowley
Oberlin College


The Nation 
August 10-17, 1998
"Yeltsin's Deadend?"

The West’s new $22.6 billion rescue package may buy Boris Yeltsin’s regime
some time, but it may not save his “reforms” or perhaps even his presidency.
It was clear to me during a three-week stay in Moscow in June and July that
the country’s deteriorating economic conditions are leading to increasingly
confrontational social protests. Certainly the country seethes with
resentment. Self-professed Russian “capitalism” treats its people in ways
Karl Marx never imagined. Millions of workers and middle-class professionals
haven’t been paid their salaries for months, in some cases years. As strikes
convulse key regions of the country, there is a strong undercurrent of
panic, even fear, in government circles, and Yeltsin himself recently hinted
darkly about the possibility of a coup. 
Rarely has the distance between Western perceptions and Russian reality been
so great. The insistence of the Yeltsin government and its Western patrons
that Russia’s crisis is merely financial and can be fixed by monetarist budget
cuts and improved tax collection is myopic. The country is in the depths of
the most severe economic depression of this century. Unlike Asia, whose crisis
followed decades of unprecedented economic growth and massive infrastructural
investments, Russia enters its crisis following a decade of infrastructural
collapse, capital flight and the kind of mass poverty not seen there since the
forties. Industrial production, according to one estimate, has dropped since
1991 by 80 percent, capital investment by nearly 90 percent. The government’s
“anti-crisis program”—dictated by the IMF and other international lending
institutions—will lead to painful consequences like those of the shock therapy
policies that already ravaged most citizens in the early nineties.
Furthermore, the IMF and other Western loans are saddling future generations
with massive debt. Even the moderate and generally pro-Yeltsin speaker of the
Parliament’s upper house warns, “We have chosen debt slavery over
The desperate attempt by the Russian government and its Western sponsors to
avoid devaluation of the ruble is as much about politics as economics. The
Clinton Administration and international lending institutions undoubtedly fear
being charged with “losing Russia” if the Yeltsin government collapses. The
only two economic achievements the government still claims after nearly seven
years and billions in Western aid are a stable ruble and low inflation. In
fact, both are pseudo-gains: The ruble has been artificially kept within a
currency corridor of roughly six to a dollar—well in excess of its actual
value—and inflation has been controlled in no small measure by the
government’s policies of depriving citizens of their salaries and not paying
its bills. Ironically, one consequence of the West’s vaunted monetarist
has been to demonetarize the economy: Barter now accounts for nearly half of
all economic transactions. As one Moscow economist told me, “Money is unknown
north of the Urals.” 
Since May, angry and increasingly radicalized miners and railway workers have
used tactics rarely seen since the Revolution—hostage-taking and the blocking
of railroad tracks—paralyzing major regions of the country. No less
important, the nature of strikes is changing from demands for back wages to
political demands that Yeltsin resign or be removed. Middle-class
professionals—doctors, teachers, defense workers—are joining the strikes, a
strong sign of the widespread distrust of the Yeltsin government.
“People are fed up,” says Boris Kagarlitsky, a leading activist and
intellectual who works with independent miners’ unions. “But for now, the
strikes sweeping the country are strong enough to challenge the government,
not to overthrow it.” Even so, this summer’s strikes are better organized,
more militant and more strategic, as illustrated by the synchronized shutting
down of railway lines in the Far East and Siberia. New strike leaders are
emerging across the country, as are “salvation committees” (which support
strikers with food and other supplies), reminiscent of the spontaneous
emergence of soviets in 1905 and 1917. 
A sign of workers’ resolve to confront the regime is the encampment of miners
alongside the Russian White House in the center of Moscow. Since June, these
miners from the Far East and Siberia have braved heat waves and a fierce
hurricane, living in makeshift plastic tents with clotheslines and cooking
grills. Talking with the miners, it is clear to me that they’re deeply
committed to the slogan emblazoned on banners flying over their encampment:
“We Won’t Go Until Boris Goes!” The confrontation may escalate. Several union
leaders have proposed cutting off the capital’s supply lines by blocking
incoming highways and rail traffic. “We want Moscow to feel our pain,” one
striker told me. “Our patience isn’t unlimited.”
It’s clear that the Yeltsin government is not counting on Western loans alone
to keep unrest from spiraling out of control. Russian analysts believe that
Yeltsin can no longer rely on most of the Interior Ministry or regular army
troops. According to well-placed sources, his government is preparing for
martial law—including the secret training of loyal paratroopers in the Far
East—in response to various contingencies. 
As all this suggests, for the first time in Moscow there is serious
that Yeltsin may be forced to resign before his term ends in 2000—for reasons
of politics rather than health. In Russia, he is no longer viewed as “the
guarantor of stability” (his self-proclaimed role) but as an increasingly
capricious and isolated autocrat whose behavior is destabilizing an already
fragile political system. A recent poll shows that only 4 percent would vote
for Yeltsin if elections were held now, and 51 percent want him to resign
before the end of his term. Equally important, virtually no Russian seems to
believe any longer in Yeltsin’s version of economic “reform.” Many of its
once-passionate adherents now concede that it has come to a “dead end.”
It was startling but no longer surprising to hear key political leaders speak
so openly of a sinking regime. On the influential Sunday evening news program,
Itogi, Prime Minister Sergei Kiriyenko admitted that many of Yeltsin’s leading
aides are “jumping ship.” An influential military analyst warned that “as
Yeltsin’s regime seems to hang in limbo, panic is apparently beginning to
undermine the loyalties of Russian military and civilian officials.” At the
Carnegie Foundation’s Moscow office, some of Russia’s own “best and brightest”
political experts, who only a year ago were so optimistic about the country’s
“transition,” seem to have lost hope, debating at a recent session whether
Russia now faces an Albanian- or Indonesian-style upheaval. Support for the
government is diminishing even among the financial-industrial oligarchs who
funded Yeltsin’s election in 1996. Several are openly seeking alternative
presidential candidates, like Gen. Aleksandr Lebed and Moscow Mayor Yuri
Luzhkov, who might protect their plunder and personal security. 
Nor is it true, contrary to virtually every Western media account, that
Yeltsin and his reforms are overwhelmingly supported by Russia’s young people.
Many of them are also experiencing the losses and pain of a collapsing
economy. After all, there are young people among the striking miners and among
the unpaid teachers and soldiers.
Most significant, perhaps, a university-based student movement is emerging in
Russia for the first time in decades. In April thousands of students
protesting cuts in their stipends and in the university budget battled local
police in Ekaterinburg. Similar skirmishes took place in Moscow, St.
Petersburg and Voronezh. Later that month a group called the Russian Students
Movement was formed by 350 student representatives from twenty-seven regions
and met in Moscow. The Komsomol, no longer the compliant youth wing of the
Communist Party, was one of the main organizers, and independent left-wing
groups have also emerged in the universities. National and local officials
worry that more severe budget cuts, like those demanded by the IMF, will
produce a larger and angrier student movement when universities reopen in the
The view that Yeltsin should leave office is so strong that there have
recently been private discussions between parliamentary leaders and Yeltsin’s
representatives about granting him immunity from prosecution for any alleged
abuses of power, perhaps by making him the equivalent of Senator for Life.
Meanwhile, Parliament has started impeachment proceedings against him.
Although the process is led by Communists and unlikely to succeed, it has
already gained more support among deputies and gone further than experts
thought possible only a few months ago.
It is impossible to predict who will be Yeltsin’s successor—or even how that
person will come to power. The most widely discussed candidates continue to be
the Communist Party leader Gennady Zyuganov; General Lebed, now governor of
the Krasnoyarsk region; and Moscow’s Mayor Luzhkov. Post-Yeltsinism will
almost certainly mean a fundamental change in economic course. The leading
presidential candidates are highly critical of the monetarist and
privatization policies followed by the Yeltsin regime, as well as the role of
the West in designing those policies. Almost all of them charge that the
country has been transformed into a raw-material outpost of the West and a
market for its goods—now estimated to be between 60 and 75 percent of all
consumer goods, including food. Protectionism is becoming a popular rallying
cry across the political spectrum. After all, leaders are as aware as average
citizens that the fabled shops full of goods are, as one Russian friend put
it, “like museums, where people come to look but not to buy.” 
In the same recent poll cited above, 72 percent of voters want the post-
Yeltsin leadership to adopt new economic policies. Indeed, experienced and
well-respected Russian economists, currently out of favor with the government,
are working with Parliament leaders to draft a variety of alternative
programs. “What Russia must do is pursue a vigorous industrial policy, adopt
protectionist measures in foreign trade and create a state investment bank to
support domestic producers,” said Sergei Glaziev, one of the key non-Communist
economic advisers to Russia’s upper house. Instead of the “blind following of
the IMF’s prescriptions, which are acquiring an increasingly menacing nature
for the country’s national security,” Glaziev said, “there should be monetary
and credit policy that supports the interests of our own development and
When the post-Yeltsin moment arrives, the West and particularly the United
States will be faced with an important decision —and a profound irony. Most
Russian opposition leaders today, from Communists to liberal Westernizers and
Social Democrats, are urging economic policies much closer to FDR’s New Deal
than to the monetarist orthodoxies urged on Russia by the Clinton
Administration, the IMF and legions of advisers. The West has now lent Russia
tens of billions of dollars for policies that have largely ruined the country.
Would it be prepared to give as much to a post-Yeltsin government committed to
undoing the damage? Katrina vanden Heuvel


Chubais sees challenges ahead for Russia
By Diane Craft

LONDON, July 22 (Reuters) - Russia's chief loan negotiator Anatoly Chubais
said on Wednesday he was optimistic about the the prospects for the
government's anti-crisis programme but added that country still faced many

"It's a unique programme. I do believe...we will be able to implement what
they announced," Chubais told reporters at a meeting in London. 

But Chubais said boosting tax collection, cutting interest rates and getting
the economy on a growth path were among the key problems needed to be

"The main task for the government is to increase tax collection immediately,"
Chubais said. 

Chubais said tax collection in June was three percent higher than in May but
he hoped July's tax collection would be "much greater than June." 

"An urgent problem is to diminish interest rates and restart economic growth,"
he added. 

The government's current forecast for economic growth is zero in 1998 and the
key refinancing rate is at 80 percent but out of line with the benchmark one
year Treasury bill yield which is around 50 percent. 

Chubais said both President Boris Yelstin and the State Duma, lower house of
Parliament know that key to the success of the anti-crisis plan is to increase

However, he said it could be a tougher battle convincing big Russian business
of the government austerity plan. 

Chubais acknowledged the new taxes would be a heavy burden for Russian
business, particulalry in the oil and gas industry, where profits have been
hurt by the slump in world oil prices. 

But he added: "If banks support it, I think It's a must that Russian oligarchs
must support it." 

His words come on the same day that Russian energy companies slammed the
government over its International Monetary Fund (IMF) approved plan for ending
the country's financial crisis. 

In a written appeal, they urged President Yeltsin and Prime Minister Sergei
Kiriyenko to rethink some of the austerity measures which helped Russia win an
$11.2 billion loan from the IMF on Monday. 

"We are obliged to declare that the economic policies of international
financial organisations towards the key sectors of industry are unreasonable
and irresponsible," said the appeal, which was sent to news organisations. 

"It deepens the crisis, aggravates the social situation and will lead to the
bankruptcy of those few enterprises that are capable of working efficiently,"
it said. 

Companies named at the end of the appeal were Lukoil <LKOH.RTS>, YUKOS,
SIDANKO, Sibneft, Surgutneftegaz <SNGS.RTS>, Tyumen Oil Company, Eastern Oil
Company and the huge Gazprom <GAZPq.L> natural gas monopoly. 

Gazprom denied it was party to the appeal and SIDANKO said it had not yet
signed it. 

Commenting on the IMF package, Chubais said the government's anti-crisis
package was key to securing the IMF loan. 

"Without it, I don't think we would have been able to reach a deal," he said. 

He said the IMF loan would be used mostly for stregnthening the currency and
central bank reserves. 

The IMF approved an $11.2 billion loan on Monday to help bail the country out
of its financial crisis but handed over only $4.8 billion immediately, $800
million less than expected becuase of delays in implementing some agreed

The loan is part of a $22.6 billion rescue package to help bolster Russia's
reserves and ease pressure on the rouble. 

Chubais reaffirmed that the government was planning to cut the budget deficit
to 2.8 percent of the country's gross domestic product in 1999, from 5.6
percent in 1998. This is in line with targets laid out under the IMF

Chubais also said Russia should be able to tap the international capital
markets in September but said the country should be "moderate in the markets."
He did not mention what the size would be. 

Asked what would happen if the anti-crisis programme was not implemented,
Chubais replied: "If the programme doesn't work, the IMF stops funding. We are
in a simple situation, yes or no." 


The Guardian (UK)
23 July 1998
[for personal use only]
Communist offered cabinet job 
By James Meek in Moscow

A communist MP who was the last head of the Soviet Union's discredited 
state planning organisation, Gosplan, was offered a senior government 
job yesterday by the prime minister, Sergei Kiriyenko. 

With the ink barely dry on the International Monetary Fund's emergency 
loan to Russia, granted on the promise of tougher economic reforms, Mr 
Kiriyenko said Yuri Maslyukov, aged 61, was to become the country's 
trade and industry minister.

There was uncertainty last night as to whether Mr Maslyukov, who played 
a key role in drafting the economic programme of the Communist leader, 
Gennady Zyuganov, was ready to take up the job in defiance of his party.

Yesterday he refused to comment until President Boris Yeltsin confirmed 
the appointment. If he accepts the post, it will be anything but good 
news for Mr Zyuganov.

Mr Kiriyenko's announcement bears the hallmarks of a classic Yeltsin 
manouevre, directed from the northern forests of Karelia where the 
president is holidaying.

Mr Maslyukov is one of the most prominent moderates in the Communist 
Party's 134-strong parliamentary group - he was among the party MPs who 
voted to confirm Mr Kiriyenko as prime minister in April. His move to 
the government could hasten the long-predicted Communist split between 
social democrats and radical Soviet revivalists.

The politician headed Gosplan in its darkest years, from 1988 to 1991, 
when the Soviet economic system under Mikhail Gorbachev was lurching 
towards breakdown.

He now favours the free market, in its controlled East Asian form, 
believes in limited protectionism and supports the latest IMF loan 
programme. As trade and industry minister, he would have wide 
responsibilities but little money to work with and limited access to the 
fragile triangle of financial, energy and welfare policy on which 
Russian stability depends.

"It's not such an important ministry. It doesn't determine 
macro-economic policy," said Andrei Piontkowski, a political analyst. 
"He will be involved in areas he is familiar with. The political 
advantages of his appointment outweigh any potential economic 

"He's from the social democratic wing of the party. This is a person who 
has openly challenged Zyuganov."

Mr Maslyukov's move will probably be followed by more job offers to 
regional leaders, as an isolated Mr Yeltsin and Mr Kiriyenko try to 
build political support against the radical opposition and, more 
dangerous to them, the clique of powerful industrial barons who see 
their patrimonies threatened by the new economic climate.

Hours before Mr Kiriyenko announced Mr Maslyukov's appointment, a group 
of Russia's biggest oil companies issued a joint statement warning the 
government of violence if it did not change course. "The irreversible 
socio-economic occurrences which could take place in the next two to 
three months will be a direct result of the actions of the government, 
which has had enough opportunities to change the situation," the 
statement said. "We insist measures are taken without delay to prevent 
the crisis getting worse."

Yavlinskiy: New Economic Strategy Needed To Beat Crisis 

St. Petersburg, July 18 (Interfax)--The leader of the pro-reform
Yabloko party, Grigoriy Yavlinskiy, has told Interfax Russia will be unable
to cope with its current financial and economic crisis without a new
economic strategy.
"Today's financial and economic crisis has proven that the 1992
guidelines don't work," said Yavlinskiy, who also heads Yabloko deputies in
the State Duma, the lower house of parliament. He said that as the result
of the 1992 principles three-quarters of Russia's turnover was based on
barter, bills of exchange and other surrogates while "the tax collection
rate is practically zero."
The Yabloko leader said the government was due to pay 46 billion
rubles to the population in August but was unlikely to raise more than 22
billion rubles as tax that month.
An economic stabilization program proposed by the government contains
"quite many useful things," Yavlinskiy said, meaning proposals on improving
the taxation system. But the program was unable to solve "either long-term
problems, on which stability in society depends today, or fundamental
It is "archimportant" for the Government that parliament should
approve the program because this would mean the legislature had confidence
in the Government, Yavlinskiy said. Such confidence is "one of the
conditions of the International Monetary Fund for cooperation with the
(Russian) Government," he said.


St. Petersburg Times
July 21, 1998
Russia's Governors Rule Just Like Feudal Lords
By Brian Whitmore 

IN A television interview broadcast Sunday on Channel 5, State Duma 
Deputy Grigory Yavlinsky, referring to the nepotism, intrigue and 
corruption characterizing Kremlin politics, said that Russia's 
presidency has become akin to an "elected monarchy."

Yavlinsky's analysis is true as far as it goes, but to complete the 
picture he should have taken his medieval analogy a step further. For 
any monarchy to survive, it needs a cadre of lords and vassals to keep 
the provinces in line.

Thus, politics in Russia's regions - including St. Petersburg - has 
regressed to an odd form of modern feudalism where the country's 
governors, untouchable and unaccountable while in office, are free to 
plunder their subjects as long as they pay homage to the federal center.

The origins of this situation lie in a decision by President Boris 
Yeltsin three years ago to have the Federation Council, the upper 
chamber of the Russian parliament, "formed" by sitting regional leaders, 
rather than directly elected. By making Russia's governors 
simultaneously into senators - as Federation Council deputies are called 
- Yeltsin gave them blanket immunity from prosecution.

In doing so, Yeltsin has created a monster that has run out of control. 
Russia's 89 regional chief executives are able to rule pretty much as 
they please without fear of legal reprisals.

What has this meant in St. Petersburg?

. A court system that appears to be bought and paid for by City Hall's 
political machine. I can't remember the last time City Hall has lost an 
important court case. Maybe this has to do with Governor Vladimir 
Yakovlev' illegal tripling of the courts' budgets last year to the tune 
of 14 billion old rubles (about $2.3 million).

. The ability and willingness of City Hall to use law-enforcement bodies 
to intimidate those journalists brave enough to criticize the governor 
in print. Just ask the old staff of the formerly feisty weekly newspaper 
MK v Pitere.

. As a result of Smolny intrigue, the Legislative Assembly has been 
completely de-stabilized and decapitated. Just ask the ex-speaker, Yury 
Kravtsov, what happens when you try to create a separation of powers and 
make the executive branch accountable to legislative oversight.

. Overwhelming corruption in City Hall that continually goes unpunished 
and costs the budget millions of dollars a year, leaving it unable to 
fulfill basic budgetary obligations. Just ask all those pensioners and 
veterans who can't get the medicine they need due to graft.

This neo-feudal lack of accountability is indeed costly. Costly in terms 
of the rule of law, human rights, democracy and fiscal health.


Date: Wed, 22 Jul 1998 
From: "Sherman Garnett" <> 
Subject: Speaking the Truth to a Friend: Al Gore in Ukraine

Carnegie Endowment for International Peace
Russian and Eurasian Program
Briefing on Ukraine

Speaking the Truth to a Friend: Al Gore in Ukraine
by Sherman W. Garnett
Sherman W. Garnett is a Senior Associate with the Carnegie Endowment 
Russian-Eurasian Program.
July 21, 1998

When Vice President Gore arrives in Ukraine this week, he will find a 
country on the verge of a major financial crisis and leading political 
figures jostling for position in next year+s presidential elections. As 
Ukraine+s key Western interlocutor and strategic partner, the United States 
will help shape perceptions within Ukraine on both these key issues. Both 
supporters and opponents of the incumbent president, Leonid Kuchma, will be 
looking to Gore to provide indications of the US approach to the near-term 
financial crisis and the long-term battle for the presidency. A consistent 
message of +tough love+ on both issues is in order, even as the Vice 
President articulates the underlying strategic realities that give Ukraine 
and strong US-Ukrainian ties their importance.

1. The Fiscal Crisis.

Perhaps as early as next month, the Ukrainian Government might not be able 
to meet its debt service obligations. This crisis threatens the Ukrainian 
Government+s gains in controlling inflation and establishing a relatively 
stable currency. A financial crisis will remove the prospect of real and 
sustained growth in the economy for some years to come, further eroding 
living standards and social conditions. Even if it avoids problems from 
the fiscal crisis, the Ukrainian economy is still threatened by a 
devaluation of The Russian rouble, which would cause an immediate 
devaluation in Ukraine as well. Whether singly or together, these two 
problems will present an already stagnant economy with further problems. In 
particular, the devaluation of the hryvna would expose key sectors of the 
Ukrainian economy to fire-sale exploitation by Ukrainian and Russian 
financial industrial groups. If there is anything the Ukrainian economy 
does not need at this juncture it is more oligarchs.
The source of this crisis is not solely bad economic policy. The 
Ukrainian political establishment has simply not seen political and economic 
reforms as an urgent matter. Nor is the system organized to implement 
whatever reform measures are passed by the parliament or decreed by the 
president. With the exception of the National Bank+which has struggled 
against the current to establish sound monetary policy+the main branches of 
the Ukrainian Government are engaged in a different kind of politics.
The most intense struggles in Ukrainian politics take place, not between 
parties, ideologies or branches of government, but among the political and 
economic leadership, in both Kiev and the regions. Various coalitions of 
leading politicians, bankers, new- and old-style business leaders and 
government bureaucrats struggle for control over the state+s wealth and 
especially for the positions of state power that control it (and which make 
the rules for its privatization). As long as Ukrainian politics is 
dominated by this still unfinished competition for power and property, 
without any link between this competition and the broader needs of the 
society at large, there will be little energy left over for sound economic 
Despite these facts, there is a widespread expectation in the Ukrainian 
Government that the United States+as a friend of Ukraine--will come to its 
aid, as Washington recently did for Russia. There are, however, widespread 
doubts throughout the West as to whether the Ukrainian Government can meet 
the conditions likely to be attached to any new rescue package.
The Vice President is likely to carry a message that, as in the case of 
Russia, any IMF rescue package will require aggressive reform steps on the 
part of the Ukrainian Government. Indeed, any package will be conditioned 
on these steps or there will be no package at all. In making this point, 
Gore will be helped by the final shape of the IMF deal with Russia. Many 
Ukrainian politicians expected the IMF-Russian agreement to come with few 
strings attached. Russia+s agreement to a sweeping set of conditions places 
any future IMF-Ukrainian package squarely within a strong conditional 
framework, though the Ukrainians will be watching Russian compliance closely 
to see whether they might find a way to wiggle out of the promises they may 
have to make.

2. Presidential Politics

Vice President Gore will also find that the October 1999 presidential 
elections already cast an especially long shadow. Kuchma desperately wants 
to hold on to his office. At least three others+two former Prime Ministers 
and a former Speaker of the Parliament+are expected to offer a serious 
challenge. Kuchma himself unseated incumbent, Leonid Kravchuk, in 1994, a 
credit to Ukrainian democracy he does not want to see repeated in 1999.
But Kuchma is vulnerable. Though he has real accomplishments to his 
credit-- especially in foreign policy and in the 1994 economic reform 
package that brought inflation down, liberalized prices and stabilized 
monetary policy-- Ukraine+s current economic stagnation has turned many 
voters against him. Kuchma has shown he understands the powers of 
incumbency, distributing some back wages and pensions in the run-up to the 
March 1998 parliamentary elections. He also controls television and has put 
pressure on opposition newspapers. But the consequences of the looming 
fiscal crisis could irreversibly tip the balance, turning what is for Kuchma 
already an uphill climb into a Sisyphean labor.
Most decisions taken in the last six months have been influenced by the 
Presidential struggle, and virtually all decisions in the next fifteen 
months will be dominated by that contest. The long row over the selection 
of a speaker for the new Ukrainian parliament elected in March is 
symptomatic. It ended on July 8th with the election of a member of the 
leftist Peasants Party, Oleksandr Tkachenko, by a vote of 231 to 37. All 
major centrist factions insisted they wanted to see a centrist occupy this 
key post. They also had the votes+despite leftist gains in the March 
elections-- to approve a centrist, if one acceptable to all could be found. 
However, the major factions in the center are led by Kuchma+s major rivals, 
save for the party supporting Kuchma himself. Kuchma did not want to cede 
the speakership to a rival. The rivals did not want to cede it to Kuchma. 
Given this political line-up, a leftist was the only possible choice from 
the very beginning.
Kuchma himself may be the biggest winner from the ascendancy of a 
leftist speaker in the Rada. He wants the voters and key outsiders like 
Vice President Gore to see Ukrainian politics as a battle between Kuchma the 
reformer and an old-fashioned left, concentrated in a do-nothing Rada. +Our 
Communists [in the Rada] are not like Poland+s,+ said one senior advisor 
during a recent interview with a private American delegation. +They are 
aiming to restore the old system and reintegrate with Russia.+ Kuchma+s 
basic campaign strategy will draw a stark contrast between himself and this 
left. He would like to run, as Yeltsin did in 1996, on the contrast between 
old and new. Unfortunately, Kuchma, whatever his virtues, has little real 
standing as a reformer. Nor is the left as ruthless and power-mad as he 
suggests. They want to retain their places in Kiev, not manage (and 
mismanage) the economy. They prefer to carp, rather than rule.
Moreover, given the structure of Ukrainian politics outlined above, the 
Rada is not the main obstacle to change. The Rada has obstructed 
presidential initiative at times, but the Ukrainian President has been able 
to obtain key decisions when he wanted them. The history of legislative 
action on nuclear disarmament, the 1994 economic reform package and the 1995 
and 1996 constitutional reforms demonstrates the power of the executive when 
it is applied consistently and with purpose. Senior officials in the Kuchma 
Administration want the world to believe that they sit atop a fully stoked 
locomotive, waiting to race down the track if only the parliament-engineer 
would loose the brake. However, the brake has often been loosed, and the 
train still has not moved.
Kuchma will press Gore hard for President Clinton+s endorsement. He 
will seek US financial assistance when the financial crisis strikes. But 
the US must remain in favor of reform and positive change, not a specific 
candidate or a bail-out simply to influence the upcoming elections.
3. Is Ukrainian Sovereignty at Risk?
Vice President Gore will hear from Kuchma and his senior advisors an 
additional impassioned argument for US and Western assistance to Ukraine and 
to Kuchma personally: the fiscal crisis and the resulting economic and 
political damage that will come in its wake threaten +the survival of the 
state itself.+ Yet it is precisely Ukraine+s survival that is not an issue. 
Even the staunchest left-wing politicians in eastern Ukraine dismiss the 
collapse of the Ukrainian State and its re-integration with Russia as an 
impossible scenario.
Rather, the question is now what kind of state Ukraine will become. 
The broad alternatives can be stated starkly as a choice between gradually 
becoming a part of Europe or remaining relegated to Europe's periphery. A 
European Ukraine requires bold choices and actions that have so far been 
beyond the ability of this or any Ukrainian government. A peripheral 
Ukraine comes by default: the leadership need only follow the political 
rules of the game already deeply ingrained in the country.
If this is the state of Ukrainian politics, why should the West care? 
If Ukraine+s leaders have been able to avoid hard choices to date, why not 
let them enjoy their spoils on Europe's periphery. Ukraine has successfully 
muddled through so far. Does the West really have much of a stake in a 
Ukraine that has no real intention to take the steps necessary to show it 
wants to belong to Europe? As tempting as such a conclusion is, Ukraine's 
choice between Europe and Europe's periphery matters to the continent as a 
A choice in favor of the status quo does not merely perpetuate Ukraine 
as it is today. It undermines the foundations that have made the current 
situation bearable inside the country and less dangerous for Ukraine's 
neighbors. It would certainly put in danger the policies that have 
dramatically lowered inflation and brought Ukraine a stable currency. It 
would exacerbate economic deprivation in the country as a whole, 
particularly along crucial ethnic and regional fault lines, such as in 
Crimea. A stagnant Ukraine will grow weaker and less coherent as a 
government, depriving it of the ability to handle future crises, whether 
inside the country or with its neighbors. A peripheral Ukraine would 
increase the danger that enlarging European institutions like NATO and the 
EU would find themselves on a much more unpredictable and unstable frontier. 
These strategic realities give the Vice President+s visit an additional 
importance. Senior US and Western officials, like Vice President Gore, 
cannot force the Ukrainian leadership to act against its immediate political 
interests. They cannot impose economic reforms on an unwilling country. 
Yet they must be a strong stimulus for these reforms by reminding Ukraine 
of the choice it faces and the consequences of failing to act. They must 
also sketch out+as they did so successfully to a Ukraine unsure of whether 
it should proceed with nuclear disarmament+the support Kiev can count on if 
it recognizes the seriousness of the situation and makes the hard reform 
decisions needed for the country to move forward.


U.S. ready to help with Russia military reform

MOSCOW, July 22 (Reuters) - The United States is willing to help Russia reform
its military in areas where Moscow will let it, Defence Secretary William
Cohen said in a newspaper interview. 

Cohen told Russian daily Nezavisimaya Gazeta that Washington had a stake in
the success of the reforms, which it sees as a way to achieve a more stable
world peace. 

President Boris Yeltsin ordered a massive overhaul in 1996 to turn the bloated
armed forces -- demoralised, underfunded and based largely on conscription --
into a slimmer and more effective professional military by the turn of the

``Understanding the importance of the success of this process, the U.S. is
ready to render possible help in those areas of the reform where the Russian
military authorities consider American aid to be the most reasonable,'' Cohen
said in the interview, published on Wednesday. 

He acknowledged that the reforms were hampered by very tough financial
conditions, but made clear he was not talking specifically about financial

``As in the U.S. armed forces in the 1970s, not all the problems the Russian
armed forces are facing now have purely economic solutions. Political vision
and guidance are also required, and we think a dialogue between professions is

Cohen said the two former Cold War rivals could cooperate in joint
peacekeeping and training missions and in building mutual trust, especially in
the field of nuclear weapons. 

He said Russian alarm over NATO plans to expand into former communist eastern
Europe was understandable, but he expected Russia eventually to recognise the
western alliance as ``a constructive force of peace and stability.'' 


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