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Johnson's Russia List


August 8, 1998   
This Date's Issues: 2302    

Johnson's Russia List
8 August 1998

[Note from David Johnson:
1. Reuters: Gorbachev sees early Russian polls to oust Yeltsin.
2. Ben Slay: "Value subtracting."
3. Gordon Hahn: on recent items. (the Nizhnii Novgorod Group).
4. Dimitri Simes: “The Russian Crisis: Implications for U.S. Policy.”
5. Investor's Business Daily: Brian Mitchell, Is Russia A Beggar Or 
A Bully? West Fears Economic Woes Could Lead To Chaos.

6. Reuters: IMF says Russia must work hard on budget. (Views of
IMF's Martin Gilman.)

7. Journal of Commerce: James Meek, Moscow's bright lights.
8. Moscow Times EDITORIAL: Frightening Letters Need Explanation.
(Re financial crisis).

9. AP: Russia To Crack Down on Tax Debtors.
10. Reuters: Taleban thrust raises alarm in Central Asia.]


Gorbachev sees early Russian polls to oust Yeltsin

MOSCOW, Aug 8 (Reuters) - Former Soviet president Mikhail Gorbachev said on
Saturday that early parliamentary and presidential elections were the only way
to haul Russia out of crisis and avoid nationwide labour unrest. 

Gorbachev, who has scant influence in Russian politics despite his popularity
abroad for ending the Cold War, told Interfax news agency he considered
President Boris Yeltsin to be a barrier to progress in Russia. 

``Russia needs a new president, a new government and a new parliament,'' he
said in the interview. 

He was quoted as saying he believed the joint elections should be held later
this year or early next year along with a simultaneous referendum to alter the
constitution to water down extensive presidential powers. 

The next parliamentary election is scheduled for December next year and the
presidential vote for mid-2000. 

Gorbachev said he did not rule out mass strike action by workers fed up with
waiting for back pay and for tangible results from economic reforms. He said
the strikes could press for Yeltsin to resign and the government to step down.

``It's all heading in that direction,'' he told Interfax. 

``Without the credit of trust it will not be possible to lead the country out
of crisis,'' Gorbachev said, playing on Russia's reliance on rescue credits
from the International Monetary Fund. ``Once Yeltsin enjoyed that trust but
not any more.'' 

Gorbachev himself came to power in 1985 and initially earned the people's
trust by embarking on a reform course after decades of hardline Communist
rule. But as reforms limped along and living standards fell, people turned
against him. 

He was effectively ousted in 1991 when a failed coup by Communist hardliners
led to the demise of the superpower. Since then he has worked the world
lecture circuit and founded a research foundation. He stood in the last
presidential election but came nowhere. 


Date: Fri, 07 Aug 1998 
From: Ben Slay <> 
Subject: "Value subtracting"

In response to Dorothy Rosenberg's recent piece on "In praise of Soviet
refrigeration", I would like to address her argument that the Central
European economies that have recovered "have done so - at least
according to the December 1997 issue of the World Bank Transition
Newsletter - on the basis of a revival of domestic demand."
This formulation suggests that all transition economies need to do to
start growing is crank up domestic spending and let those wonderful
refrigerators rip forth. (This might be described as the Lukashenko
approach to economic development . . . ) This is in my view
fundamentally at odds with what has happened in Central Europe, and
indeed in most transition economies, in a number of respects.
First, growth in domestic demand in Central Europe has been accompanied
-- if not made possible -- by rapid increases in the extent of
integration into the international economy. The most obvious
manifestations of this are rapid growth in imports and exports, as well
as increases in foreign direct investment. While it is true that imports
have tended to grow faster than exports in Central Europe, this is how
Central European businesses have obtained the modern machinery and
equipment they need to become competitive in the world economy. It is
also how Central European consumers have gained access to consumer goods
that were unobtainable ten years ago.
Second, it is true that domestic demand has generally been growing
rapidly in those countries for the past five years. But excessively
rapid growth in domestic demand is probably the key threat to
maintaining high rates of economic growth in these countries. For
example, Hungary during 1993-1994 ran trade deficits (i.e., imports
exceeding exports) equal to 10% of GDP, due to booming domestic demand.
In order to prevent the meltdown of the country's foreign exchange
reserves, and the collapse of imports and then production, the forint
had to be devalued in March 1995 and domestic demand was throttled back.
GDP growth was kept low (under 2% per year) until the trade deficit
shrank. A similar story can be told for the Czech Republic during
1997-1998 and Romania in 1996-1997. 
The question of whether or not we as individuals prefer certain
low-tech Soviet-era products to more expensive "Western" goods should be
kept separate from what works in economic transition.

Ben Slay
PlanEcon, Inc.
Washington D.C.


Date: Fri, 07 Aug 1998 
From: Gordon Hahn <> 
Subject: Gordon Hahn on recent items

Per the query from Robert McIntyre on Steve Solnick's response to Jerry
work in progress 'Komsomol Crooks', I can only add the following determined
from official documents distributed by Nizhegorod oblast administration in
November 1997 when Nemtsov was still governor. Some of this will appear in my
forthcoming article "From Chernomyrdin to Kirienko and the Rise of the Nizhnii
Novgorod Group" [Problems of Post-Communism, September-October 1998, pp. 1-15]
"... It seems Kirienko became one of late perestroika’s ‘millionery’ by buying
oil ‘low’, domestically, and selling it ‘high’ abroad. Kirienko’s “social,
commercial” Garantiya Bank in Nizhnii Novgorod eventually became an
‘authorized’ bank conducting financial operations for many of the Nemtsov
Nizhnii administration’s social programs. Garantiya and other authorized banks
were designated to assist in Nemtsov’s housing certificate program for
servicemen, the distribution of pension funds, handling ‘nemtsovki’ bonds, and
the auto leasing program designed to assist the auto giant and largest Nizhnii
employer, GAZ. In Nizhnii, as throughout Russia and the former Soviet Union,
the party-state’s former monopoly on all property has led to a close
relationship between business elites and government officials and their
institutions. Newspapers of national oligarchs such as Boris Berezovskii and
Vladimir Gusinskii extended their campaign against Nemtsov to his protege
turned boss Kirienko with a series of articles after his nomination, accusing
Kirienko of shady use of Nizhnii’s pension funds when he headed Garantiya.
accused him also of funneling profits of the oil company Norsi which he also
headed to Garantiya instead of paying off the company’s debts. Other observers
claim that Kirienko took a fundamentally insolvent Soviet-style oil enterprise
and turned it into a modestly profitable company. 
The fact is that both interpretations may be true. Kirienko, like many Russian
commercial bankers took advantage of inflation, his bank’s authorized status,
loopholes in, or the complete absence of governing laws in his financial
dealings, and cash flows from Garantiya and Norsi to profit from high-yield
state bonds; profits which were then reinvested into Nizhnii’s Pension Fund
and Norsi’s coffers. The picture is further confused, however, because of the
scheme implemented by Nemtsov whereby oil companies with payment arrears to
the regional pension fund could make their payments in oil, leading to
barterization of Nizhnii’s pension system. It is likely that this was
Kirienko’s idea given his having a foot in oil and, through Garantiya,
pensions. It also must be noted that Garantiya performed a service to
pensioners and Nemtsov’s administration alike in developing an efficient and
fast system for the distribution of monthly pensions. Both Garantiya and
NorsiBank, affiliated with Norsi Oil, also handled the regional low-yield
bonds, dubbed ‘nemtsovki’ by locals. However, they were among 12 other local
‘authorized’ banks participating in a program that produced earnings to
compensate for the bulk of the population’s savings at a time, when other
Russians’ savings were consumed by hyperinflation. Whether the financial ties
between Kirienko’s business operations and Nemtsov’s administration were more
or less oligarchic than those extant in Moscow and elsewhere in Russia is a
question that awaits investigation." 
That official administration documents disclosed that Bank 'Garantiya' was
given by the Nizhegoord Oblast Administration "the right to manage all
for accumulated pension funds and their distribution to cities and raions, and
that it (Bank 'Garantiya) has ensured the delivery of the funds (of
Nizhegorod's Pension Fund) toward the payment of pensions in the course of one
banking day," seems to indicate that Nemtsov and/or the administration
not particularly concerned about the fact or appearance of Garantiya's 
of this task. The documents do not say that the right to manage said funds was
given on a competitive basis, but only on a "contract basis" (na dogovornoi

Gordon M. Hahn, Hoover Institution, Stanford University. 


Date: Fri, 07 Aug 1998 
From: Nixon Center <> 
Subject: Dimitri Simes-“The Russian Crisis: Implications for U.S. Policy”

“The Russian Crisis: Implications for U.S. Policy” 
A Presentation by Nixon Center President Dimitri K. Simes 
July 22, 1998 
The Nixon Center, Washington, DC 

Speaking on his return from a series of meetings with senior Russian 
officials, politicians, and business 
leaders in Moscow, Nixon Center President Dimitri K. Simes argued that 
while Russia’s recent financial 
crisis was very real, it was quite different from the crises facing many 
Asian nations and “was not quite as 
cataclysmic as we were led to believe.” Until almost the last moment, 
Moscow could have addressed its debt 
squeeze through borrowing from private banks but strongly preferred IMF 
financing, which would be made 
available on much more favorable terms. Thus the crisis was both 
overstated and misdiagnosed by the 
Russian government and its benefactors in Washington alike in order to 
promote IMF assistance, he said. 
Simes emphasized that his remarks reflected strictly his personal views 
and did not represent an institutional 
position of The Nixon Center. Director of National Security Programs 
Peter W. Rodman moderated the 

Russia’s Economic Troubles 

Simes argued specifically that if Russia had sought to address its 
mounting debt problems earlier, it could 
have weathered the debt crisis through new loans from willing Western 
banks, using its large government-
held reserves of silver and palladium as collateral if necessary. 
However, such steps were considerably less 
attractive to Moscow than new IMF and World Bank credits with interest of 
only 4-5% — substantially 
below market rates. But the IMF assistance was not without cost; in 
contrast to commercial credits, aid was 
linked to Moscow’s strict adherence to IMF conditions which undermine 
Russia’s prospects for economic 
growth. Simes also noted that the Russian government cut short talks 
with potential Western creditors (and 
investors as well) once the announcement of the emergency IMF aid seemed 
While Simes acknowledged that in the short run the $22.6 billion rescue 
package offered to Moscow by the 
IMF, the World Bank, and Japan was a “victory for Russian markets” and 
would help the Central Bank to 
support the value of the ruble, he questioned its overall impact on 
Russia. In his view, the new credits serve 
largely to prop up the Yeltsin regime and the new government of Prime 
Minister Sergei Kirienko. Further, 
because of the IMF’s stringent conditionality, he saw little hope for a 
genuine economic recovery in the near 
future. In fact, Simes suggested, the IMF’s emphasis on budget-cutting 
has choked off investment in much 
of Russian industry and thereby contributed significantly to the 
government’s tax collection problems. “Even 
with IMF help, the Russian government cannot simultaneously milk and 
strangle the cow,” he said. The 
tough conditions also soured relations between the executive and 
legislative branches prompting new 
questions about the country’s stability and sapping investor confidence. 

The Yeltsin Regime 

Simes viewed the Yeltsin government as an impediment to further 
substantial economic and political 

progress in Russia. In his view, the arbitrary nature of Boris Yeltsin’s 
rule undermines Russia’s 
attractiveness to investors by creating an unpredictable environment in 
which the rules of the game — and 
their enforcement — are subject to frequent change. This disrespect for 
the rule of law has also facilitated 
rampant corruption and the creation of a new class of crony capitalists 
known in today’s Russia as oligarchs. 
In Russia’s 1996 election campaign, Simes argued, the oligarchs were 
united behind Yeltsin, whom they 
viewed as the only possible alternative to Communist leader Gennady 
Zyuganov and to untested mavericks, 
such as retired General Aleksandr Lebed, who seemed to threaten to 
reverse their division of the spoils of 
the collapsed Soviet state. As a result, the Russian president was able 
to mobilize vast financial resources and most of the country’s non-
governmental media to support his campaign. 
However, Simes continued, the presidential election of the year 2000 may 
be quite different for Yeltsin. 
Although Simes himself admitted going to Moscow with the view that 
Yeltsin could likely win again — “by 
hook or by crook” — he pointed out that the Russian officials (including 
many close to Yeltsin) and political 
and business leaders with whom he met were unanimous in stating that the 
Yeltsin will be unelectable in the 
next presidential race. They attributed this in part to the perception 
that there are now several credible 
alternatives, including former prime minister Viktor Chernomyrdin, Moscow 
Mayor Yuri Luzhkov, and 
Lebed, now governor of the wealthy Siberian region of Krasnoyarsk. 
Luzhkov and Lebed, once considered 
very dangerous to the status quo by the oligarchs, have each demonstrated 
a willingness to cooperate with the 
country’s economic elite. Russia’s tycoons have also themselves become 
frustrated with Yeltsin’s erratic conduct. 

A New Transition — Russia after Boris Yeltsin 

Simes argued that Yeltsin’s centrality to the current political system 
virtually ensures very significant changes 
upon his departure from the presidency. For example, the president’s 
relationship with the Russian 
parliament will likely be redefined with the legislature gaining a 
greater role. 
Moreover, while Russia is likely to muddle through economically without 
achieving growth under Yeltsin, 
his departure from power may facilitate an economic turnaround. Until 
that time, Simes argued, economic 
stability will be among Moscow’s paramount concerns and, as a result, the 
Kremlin will be reluctant to 
jeopardize its access to relatively cheap credits from international 
financial institutions by confronting the 
West and particularly the United States, which is perceived to be the 
behind the scenes master of the IMF. 
This is especially true when essentially peripheral matters such as the 
conflict in Kosovo are involved. 
Although there is a tactical advantage to the U.S. in this Russian 
accommodation to American interests, 
Simes suggested that it could carry a significant cost in the long run. 
The Yeltsin government’s frequent use 

of the IMF’s loan conditionality as an alibi for unpopular economic 
measures has led to the growth of anti-
IMF and anti-U.S. sentiment in Russia. For example, Simes said that even 
some of the country’s most pro-
American political leaders and commentators have begun to speculate 
privately whether the architect of 
Russia’s flawed system, Anatoly Chubais, is a Western agent. At minimum, 
many blame Washington for Russia’s economic woes. 
One participant in the discussion argued that if Russia does not recover 
from its economic collapse, even 
virulent anti-Americanism and an aggressive foreign policy would have 
relatively little operational meaning 
for the U.S. because of Moscow’s limited capabilities. While several 
others expressed doubt that Russia will 
experience significant economic growth in the next several years, Simes 
asserted that Russia’s educated 
workforce, vast resources, and growing entrepreneurial spirit make 
economic improvement quite likely once 
the artificial constraints of the current regime are removed. In such an 
environment, Russia may also benefit 
from significant foreign investment and, more important in the long run, 
real domestic investment. 
Regardless of the level of anti-Americanism in Russia, Simes said that a 
sense of economic revitalization in 
the country would likely contribute to the renewed assertiveness of 
Moscow’s foreign policy. Although 
Russia cannot hope to regain the U.S.S.R.’s superpower status, it could 
become a major power. Further, he 
added, an assertive Russian foreign policy could significantly complicate 
Washington’s pursuit of American 
interests even without being openly hostile. Competition over the vast 
energy reserves of the Caspian Basin 
is a case in point. Whatever the outcome of Russia’s transition to the 
post-Yeltsin era, Simes argued, the 
United States cannot expect to enjoy the same degree of cooperation 
manifest by Moscow in the 1990s. And, 
he concluded, it makes little strategic sense to conduct a policy toward 
Russia which simultaneously provides 
its government with billions of dollars and pushes its leaders and people 
in an anti-American direction.


Investor's Business Daily
Auguset 6, 1998
[for personal use only]
Is Russia A Beggar Or A Bully? 
West Fears Economic Woes Could Lead To Chaos
By Brian Mitchell

In the final days of the Soviet Union, a cartoon appeared in the West
showing Mikhail Gorbachev as a bank robber demanding money from the
International Monetary Fund.
Holding a gun to his own head, the Gorbachev caricature warned, ''Give me
the money, or I'll shoot!''
Little has changed since then, except the name of the leader and the size
of the IMF's loans.
The threat is the same: Unless Russia gets more money, the present
government will fail, and the country's vast nuclear arsenal will fall into
the hands of someone worse.
''This is extortion of money - 'Give us the money, or something really
bad (will) happen. Some very bad guy will come, and you will see what he will
do,' '' said Stanislav Lunev, ex- colonel of Russian military intelligence and
author of ''Through the Eyes of the Enemy.''
It's anyone's guess what would really happen. One thing is certain: the
depth of Russia's financial woes. Short-term interest rates have risen as high
as 150% from 21% last fall. The stock market has fallen 60% since December.
Millions of government workers have gone months without pay. Cities
unable to pay electric bills are without power. Coal miners have quit work and
held supervisors hostage. Traffic along the trans-Siberian railroad has been
President Boris Yeltsin's approval rating has dropped to a miserable 4%,
while his negative rating has hit 80%, a Russian poll finds.
No one expects the latest U.S.-engineered bailout to fix things. The $22
billion expected from the IMF, World Bank and Japan won't go to the needy.
What's not siphoned off by corrupt officials would go to Western lenders.
First in line are the German bankers who bailed out Gorbachev and who are
still owed some $30 billion of Russia's $130 billion in foreign debt.
But the latest bailout would at least put off a devaluation of the ruble.
''Previously Russia has not been on the verge of a big devaluation,''
said Anders Aslund, a former adviser to Russia who is now with the Carnegie
Endowment for International Peace. ''Either this (bailout) works, or it (the
economy) will collapse. If it collapses, the collapse will be massive.''
The devalued ruble would keep only 10% to 20% of its value now, Aslund
says. Most banks would be forced to close, and angry anti- government
protesters would likely fill the streets of Moscow. Yeltsin's shaky government
probably wouldn't survive.
Ukraine, Kazakhstan and the rest of the former Soviet Union also would be
forced to devalue. Their governments might fall as well.
Critics of the bailout say devaluation will happen sooner or later. Only
an economic upheaval will force the political changes necessary to correct
deep flaws in Russia's economy, they contend.
Russia has seen an explosion of wealth in recent years, but much of it is
in the hands of ex-communists who divvied up the country's assets among
themselves under the guise of ''privatization.''
''You have all these companies that really aren't companies in a Western
sense,'' said Michael McFaul, an expert on Russia at Stanford University.
''They don't have balance sheets. They don't have outside shareholders
pressuring them to make a profit. They would all be bankrupt in a real market
economy, but they don't go bankrupt because the state continues to support
''There are more bankruptcies in two weeks in America than there have
been all year in Russia,'' McFaul said.
McFaul supports the bailout as a ''stopgap measure'' to buy time for
Yeltsin's new reform-minded prime minister, Sergei Kiriyenko. But many
observers doubt that the inexperienced 35-year-old is a match for the post-
Soviet ''oligarchs'' who control the country's wealth.
The oligarchs often operate outside the law, with their own private
armies and enforcers drawn from the ranks of the former KGB.
''The only people that have the money to own Russian businesses are the
(Russian) mafia, with very, very rare exceptions,'' said Ira Winkler. He is a
security consultant, author of ''Corporate Espionage'' and co-author with
Lunev of ''Through the Eyes of the Enemy.''
As proof of Kiriyenko's weakness, Winkler cites the government's recent
failure to force Gazprom, Russia's natural-gas monopoly, to pay its $8 billion
tax bill. That failure is repeated across the economy, as businesses and
individuals evade taxes on a massive scale and keep the government starved for
Said Winkler, ''If Russia needed the money, all they'd have to do is take
it away from their industrial giants. Their businesses are not hurting.''
To satisfy the IMF, Kiriyenko has stepped up the collection effort, but
it's always easier to squeeze law-abiding foreign companies than racketeers.
In July, the Russian government began a criminal investigation of Johnson
& Johnson for allegedly failing to pay $19 million in back taxes. The company
has denied any wrongdoing and says it is paid up.

Many Western observers fear a ''Weimar syndrome'' - intense anger over the
loss of national greatness, such as occurred in Germany after World War I.
Even under Yeltsin, Russia may be looking for ways to regain its prestige.
''Under Yeltsin, many of the people that we would worry about are in
power,'' said Frank Gaffney, president of the Center for Security Policy.
Yeltsin's foreign minister, Yevgeny Primakov, recently arranged the $400
million sale of S-300 surface-to-air missiles to Greek Cyprus, just as the
U.S. was trying to persuade the Greeks to accept a permanent Turkish state on
part of the island.
''Everything he's trying to do is at cross-purposes with the U.S.,''
Gaffney said.
Others believe Russia is responding to recent U.S. moves that interfere
with legitimate Russian interests.
Russia, for instance, has long viewed the Caspian Sea as a Russian lake
and wants to build an oil pipeline from the region through Russia to Europe.
The U.S., though, favors a pipeline through its ally, Turkey.
Gregory Copley, president of the International Strategic Studies
Association, says that although Russia's interests sometimes differ from those
of the U.S., Russia is not the threat it once was. ''Russia poses less
strategic concern in the short term than at any time in this century,'' he

Nationalist sentiment is on the rise in Russia and will drive the next
presidential election, scheduled for June 2000 unless poor health or economic
collapse forces Yeltsin out sooner.
Despite Moscow's warnings, the ''red and brown'' extremists - the
Communist Gennady Zyuganov and the quasi-fascist Vladimir Zhirinovsky - and
are not likely successors. On the other hand, the boldest reformers like Boris
Nemtsov and Grigory Yavlinsky are considered too Western to win broad appeal.
At present, the best bets for president are Yuri Luzhkov, mayor of
Moscow, and Gen. Alexander Lebed.
''Luzhkov is the worse of the two,'' McFaul said. Aslund calls him an
''obvious godfather and crook.'' Others liken him to Tammany Hall's Boss Tweed
and the late Chicago Mayor Richard Daley.
Lebed is a charismatic ex-paratrooper who negotiated peace in Chechnya.
Youthful and energetic, he came in third in the last presidential election,
then became governor of Krasnoyarsk. He is a populist not beholden to Moscow's
Lebed advocates a sort of ''Russia First'' world view built on Slavic
culture, Orthodox Christianity and a strong attachment to the Russian
motherland. Unlike Luzhkov, he hasn't assumed an aggressive stance toward
other former Soviet states.
Many Western observers regard Lebed with caution, fearing he would turn
out to be undemocratic, illiberal and protectionist. Others believe he may be
the only candidate strong enough to take on the oligarchs and bring back the
rule of law. 


INTERVIEW-IMF says Russia must work hard on budget
By Brian Killen

MOSCOW, Aug 7 (Reuters) - Russia's budget projections for the second half of
this year are modest, but the government will still have to work hard to
fulfill them, the International Monetary Fund's senior Moscow representative
said on Friday. 

Martin Gilman, commenting on the government's financing plan for July-
December, told Reuters that the key to success lay in implementing the
policies on which the figures are based, especially tackling long-standing
revenue-raising problems. 

"We find the initial results of what they're trying to do encouraging, but
they're going to have to work very hard this month so that these programme
projections can be realised," Gilman said. 

The document, part of a government programme to rescue the country from the
jaws of financial crisis, envisages a rise in gross domestic product to 788
billion roubles ($125 billion) in the fourth quarter from 650 billion in the

The six-month plan, agreed by the finance ministry and IMF, put the budget
deficit at 40 billion roubles in the fourth quarter from 31 billion in the

Gilman said issuing the numbers was part of an effort to improve market
understanding of the government's intentions. 

"It is an effort to improve understanding on the part of the participants in
the market that the government is being realistic, that it has a coherent
programme that it is pursuing," he said. 

Russia, like other countries, was dependent on market sentiment, which
recently has not been very favourable. 

"They (the government) recognise that they have a long way to go to convince
market participants...that the government is serious about rectifying the
situation," he added. 

At least some investors in Russia have been worried about the prospect of the
government returning to foreign or domestic markets to raise large amounts of
new money at a time when the market is saturated with Russian paper. 

After a brief rally following the announcement last month of an IMF-led
international credit package for Russia totalling $22.6 billion, stock and
bond markets have slumped again partly due to weak world markets and partly to
domestic concerns. 

Gilman said the government did not want to be over- optimistic in forecasting
a return of foreign investors to the Russian state securities market. 

The projections saw non-residents reducing holdings of the treasury bills,
which they still held after a recent debt conversion scheme by about five
billion roubles in the third quarter and by another three billion in the
fourth quarter. 

"We wanted to be very prudent because we know that non-resident investor
sentiment is very bearish generally on emerging markets and certainly in
Russia," Gilman said. 

Overall he described the financing projections as, "a relatively modest
approach for the second half of this year." 

He noted that the tax service was already taking steps to improve collection
by cutting off access to export pipelines of oil companies that have failed to
pay tax arrears. This showed the government was serious about tax compliance,
he added. 

"The net financing for the whole second half of the year from the domestic
securities market is only the equivalent of $1 billion," he said. "This is a
very modest amount of financing, which is being requested from the market." 

According to central bank and finance ministry figures, Russia must repay $20
billion in maturing T-bill and government bond issues by the end of the year. 

Gilman said the finance ministry was exploring the use of alternative domestic
debt instruments to the current GKO treasury bills and OFZ bonds. 

"There are some alternative market instruments that are being considered, but
it's a bit premature to discuss them at any length right now," he said. 


Journal of Commerce
August 10, 1998
[for personal use only]
Guest Opinion
Moscow's bright lights
James Meek writes for the London Observer Service. This article was 
distributed by Scripps Howard News Service. 

MOSCOW -- A couple of old Moscow hands passed through town recently -- 
English journalists who worked in the city during the Soviet era. Both 
men have knocked around the world long enough to doubt the reality of 
apparent change. Neither are people you would look to for uncritical 
praise of the Western way of doing things.

Yet both of them, unprompted, said the same thing: How much Moscow has 
changed for the better since they last visited.

It's one thing to witness the day-to-day transformation of a city when 
you live there, but quite another to see the changes of 10, five, even 
two years -- which is a long time in '90s Russia -- laid before you all 
at once.

The returning visitors -- once the quickest to condemn the latest 
architectural monstrosities -- now express wonderment and confusion at 
the metamorphosis of the city streets: the bright lights that have 
replaced the old dim firefly glow, the traffic jams where once were 
empty boulevards, and the smooth, neatly barriered highway that the 
outer ring road -- formerly a spectacle of constantly anticipated 
carnage reminiscent of "Ben Hur" -- has now become.

"What happened to all those people who used to stand near the station?" 
asked one visiting colleague, referring to the rank of out-of-towners, 
several hundred yards long, who used to line the road near our office in 
all weather, selling socks, cigarettes, mushrooms and great hunks of 
bloody meat from the countryside.

Good question: Where did they go? They just stopped coming. No doubt the 
police made it harder for them, but the main reason was that there was 
nowhere for them to stand anymore: There was a new row of shops, a new 
market and a new row of kiosks selling lavish bouquets of imported 
flowers in their place.

And if they had gathered further down the road, what would have been the 
point? Why would anyone want to buy a slab of raw meat from a stranger 
on the street when the same stuff is for sale in a shop -- a shop with 
refrigeration facilities, for that matter?

Another returnee found it impossible to remember what, in Soviet times, 
had been in place of the bright shop fronts now lining Tverskaya Street, 
Moscow's main thoroughfare. "There must have been shops, but they were 
so dark," he mused. "And there were other buildings. Institutes or 
something." He was talking about just eight years ago.

It's ironic that the one social group in Russia that has become 
absolutely convinced of the benefits of capitalism over communism is the 
foreigners. That's at least partly because they're so keen on shopping 
and going out -- both of which required huge effort in the old Russia, 
and both of which are now booming.

It sounds shallow, but think about your own life outside work. Then take 
away the shops, including do-it-yourself stores, garden centers, car 
showrooms, the restaurants, the pubs, the clubs, the travel agents, the 
lottery. What's left? An ascetic and richly spiritual life, perhaps, 
but, more likely, a pretty depressing existence.

Complain as they do about their lot, yearn as they may for a 
romanticized memory of the soul-nurturing simplicity and hardship of the 
Soviet years, most Muscovites don't miss communism. They just wish that 
post-communism was easier, safer, more predictable, more noble -- but 
don't we all?

In retrospect, the pace of change in Moscow quickened perceptibly in 
1995. That was when the commercial construction boom began. That was 
when people first began to realize that City Hall, under Mayor Yuri 
Luzhkov, was about more than just patching up: It was about building and 
rebuilding. That was when it first became impossible to list, by name, 
all the restaurants, supermarkets and nightclubs in Moscow.

Could Mr. Luzhkov, were he to become president, spread this change 
across the whole of Russia? I believe he could. Russia hasn't been ruled 
by a Muscovite for more than 250 years. A Russia under Mr. Luzhkov would 
see better roads, more investment in science and industry, a greater 
sense of national purpose and a more powerful military. It would be a 
shinier, brighter, more efficient Russia.

But like Moscow itself -- with its puppet legislature, its corruption, 
its cult of mayoral personality and its shocking treatment of poor 
nonresidents and the homeless -- it wouldn't be much of a democracy.

In the short term, prosperity and efficiency don't necessarily go hand 
in hand with democracy and civil liberties. It has been easier for 
post-Soviet rulers and regional bosses to pay lip service to ideals of 
democracy and reform while letting the city or province they are 
supposed to be running rot away. Mr. Luzhkov, at least, has made his 
fiefdom a better place for most people to live in.

What Russia has yet to find is a leader who can both be a genuine 
democrat and get things done. They won't find one until they start 
looking. And for the time being, for most Russians, order, jobs and 
material needs are more important than the alien concept of a civil 


Moscow Times
August 8, 1998 
EDITORIAL: Frightening Letters Need Explanation 

The letters published in this edition of The Moscow Times signed by 
Finance Minister Mikhail Zadornov, if authentic, provide a chilling 
insight into the depth of the financial crisis that faced Russia in 

According to the letters, the Finance Ministry received a nasty surprise 
when the Central Bank froze its main accounts and withdrew some 8.7 
billion rubles of government money in repayment for short-term loans. 

The Finance Ministry had expected to have to repay the loans four days 
later, but the Central Bank had unilaterally decided to reduce the 
settlement period for the loans. 

The Central Bank's actions, according to the letters, meant that the 
Finance Ministry had no funds to pay workers or make interest repayments 
on government bonds. 

If the letters are authentic, this suggests a frightening lack of 
coordination between two arms of government that are supposed to be 
working together. 

The dispute between the Central Bank and the Finance Ministry could have 
undermined confidence at a time when Russia was desperately trying to 
convince the International Monetary Fund and other investors to trust in 
Russia's financial system. 

Unfortunately, the Russian government has not given a convincing account 
of what happened. 

The Moscow Times was unable to obtain from the Central Bank or the 
Finance Ministry a denial or confirmation of the authenticity of the 
letters or of the specific facts contained in them. 

The Russian daily newspaper Nezavisimaya Gazeta outlined a similar set 
of circumstances and referred to one of the letters in a highly 
polemical article published Friday. 

The Central Bank and the Finance Ministry condemned that article and 
threatened to sue. But they also issued a bizarrely qualified denial: 
The article was inaccurate but, officials admitted, it was true that the 
Central Bank and the Finance Ministry had some differences during the 
financial crisis in July. These have now been settled. 

Vague admissions by the Finance Ministry and the Central Bank of 
significant differences during a national financial emergency are not 
exactly reassuring. It would be nice to know what they were and how they 
have been resolved. 

A statutory guarantee of independence has done a great deal to enhance 
the reputation of Russia's Central Bank. But this independence has also 
occasionally put it at odds with the government of the day. 

So long as the letters remain unchallenged, it looks like the Central 
Bank and the Finance Ministry were at daggers drawn at the worst time. A 
fuller explanation would do a lot to build confidence in Russia's 


Russia To Crack Down on Tax Debtors
August 7, 1998

MOSCOW (AP) - Russia's new tax chief threatened tough action against the
country's tax deadbeats on Friday, saying the government is prepared to take
``every measure,'' including freezing their bank accounts and seizing their

Boris Fyodorov also said revenues are rising steadily, indicating progress in
a struggle that has targeted some of the country's biggest tax-dodgers -
powerful oil and gas companies.

``If we don't collect taxes ... we will have the same situation the Soviet
government found itself in,'' Fyodorov told reporters. ``It sat around, had no
resources, and pretended that it was governing. This we will not allow.''

President Boris Yeltsin has made countless pledges to improve tax collection.
But his government has consistently failed to raise the revenues needed to
provide basic services and pay millions of state workers on a timely basis.

However, Fyodorov, a wealthy businessman who was recently appointed to his
post, is regarded as a strong-willed figure with the courage to confront the
country's most powerful corporations.

To underscore the government's new resolve, the Fuel and Energy Ministry ruled
late Thursday that access to oil export pipelines would be cut for two chronic
debtors, oil companies Sidanko and Onako.

The companies say they cannot pay their taxes because the government, one of
their biggest customers, has not paid its oil bills. But Fyodorov showed
little sympathy.

He threatened to fire or demote top officers of state-controlled companies. He
also said the government would initiate bankruptcy proceedings against failing

``We will take every measure, starting with freezing bank accounts, seizing
assets, seizing property, company cars, offices - all the way down the line,''
Fyodorov told reporters.

He singled out Onako, saying it has made ``the most dismal impression'' among
Russia's oil companies. Fyodorov vowed to have Onako's management replaced and
warned the state-run company might be put up for sale.

The government has threatened previously to seize the assets of several oil
giants, but never followed through. Fyodorov said 5,000 big companies owe a
total of $50 billion in taxes.

Fyodorov conceded that major improvements in government revenues would only be
possible if Russia's economy starts to grow. The country's economy has been
contracting throughout the 1990s.

Russia's tax collection figures have improved in recent months, though not as
much as hoped.

Tax receipts for August are expected to total $2 billion, up marginally from
$1.9 billion in July, which was higher than in June.

``The figures confirm that we have made a certain progress,'' Fyodorov said.

Also Friday, the Finance Ministry and the International Monetary Fund said
Russia is committed to raising $3 billion through privatization by the end of
the year. The move is part of a reform plan demanded by international lenders
before they agreed to a $22.6 billion bailout.


Taleban thrust raises alarm in Central Asia
By Mike Collett-White

ALMATY, Aug 8 (Reuters) - Central Asian states and Russia are looking south
with increasing alarm as the escalating conflict in Afghanistan raises the
spectre of attacks, refugees flooding north and the spread of conservative
Islamic influences. 

Russian guards in the former Soviet republic of Tajikistan have begun
strengthening the Tajik-Afghan border in reaction to the escalation in
fighting in northern Afghanistan, a guard spokesman said on Saturday. 

``At the moment Russian border guards are using all means necessary to counter
possible armed attacks on Tajikistan from Taleban forces,'' the spokesman told

Efforts were being concentrated on two divisions patrolling the borders around
200 km (125 miles) south of the capital of Dushanbe, where Afghan Taleban
forces were most likely to attack, the spokesman said. 

He did not specify what measures were being taken to strengthen Tajikistan's
southern flank. 

Earlier on Saturday Afghanistan's Taleban Islamic movement said it had taken
the opposition stronghold of Mazar-i-Sharif. 

The northern Afghan city lies just 60 km (38 miles) south of the Uzbek town of
Termez, and not much further from Tajikistan's southwestern tip. 

Aid organisations in Central Asian states bordering Afghanistan said on
Saturday they would be looking closely for any sign of an exodus of Afghans
fleeing the conflict area. 

Uzbekistan and Russia issued a joint statement on Wednesday urging the Taleban
movement to halt its advance and end the ``bloodshed,'' adding that former
Soviet republics had the right to take any measures necessary to strengthen

It is not only refugees and armed skirmishes which are worrying leaders in
Central Asia and Moscow. 

The Taleban have vowed to create the world's purest Islamic state in
Afghanistan, and the spread of fundamentalist influences in northern
Afghanistan would be seen as a serious threat to stability in Central Asia and

The region, a vast bridge between Russia to the north, China to the east and
Afghanistan and Iran to the south, is largely Moslem, but leaders keep a close
watch on religious activity and vow to deal harshly with what they regard as
Islamic extremism. 

Uzbekistan's hardline President Islam Karimov has led the campaign against
what he sees as a threat to stability in the region coming from Islamic
fundamentalism, and his emotive rhetoric has struck a chord in Russia and
neighbouring states. 

Karimov and Tajik President Imomali Rakhmonov have accused Afghanistan,
Pakistan and Iran of hosting underground centres training Islamists who then
threaten peace in their states. 

Russia, Uzbekistan and Tajikistan formed a ``troika'' earlier this year to
fight fundamentalism, and particularly Wahhabism, a conservative brand of
Islam they fear could take hold in Central Asia and Russia's North Caucasus. 

Tiny Kyrgyzstan has also expressed an interest in joining the group, while
Kazakh President Nursultan Nazarbayev has said he would not tolerate

The revival of Islam after more than 70 years of repressive atheist Soviet
rule has been especially marked in Uzbekistan, the most populous of the
Central Asian states with 23 million. 

The number of Mosques in the country has mushroomed since indepedence in 1991,
and thousands flock to services every day. 

Islam has been slower to take hold elsewhere, although it is still an
important force in Tajikistan, where the Islamic United Tajik Opposition (UTO)
is in the process of being integrated into a coalition government. 

Islamic and Moscow-backed secular forces fought a bloody civil war in which
tens of thousands perished. 

Widespread fighting was ended by a June 1997 ceasefire, but peace in the
impoverished state of 5.7 million is fragile. 

Even Kazakhstan is becoming increasingly nervous. 

The deputy head of its National Security Committee intelligence service told
Russia's Itar-Tass news agency on Saturday foreign states were proselytising
Islamic fundamentalism more aggressively in the oil-rich state of 16 million. 



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