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CDI Library > Johnson's Russia List

Johnson's Russia List
 

 

August 13, 1998   
This Date's Issues: 2305 2306   


Johnson's Russia List
#2306
13 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Fred Weir on latest developments in financial crisis.
2. Ray Finch's "view from the trenches" in Moscow.
3. New book: M.Ellman & V.Kontorovich (eds) The destruction of the Soviet 
economic system : an insiders' history.,

4. Reuters: Russian military see more cuts as reform grinds on.
5. Bloomberg: Eastern Europeans May Be Emotionally Numb: Marketing Moment.
6. Segodnya: Georgy Bovt, FOREIGN WAR ON FOREIGN TERRITORY. "How far 
to retreat?" Russia is tackling a problem which faced all shrinking empires.

7. New book: Russian Forestry - A Paradise Lost?
8. New book: Sean Kay, NATO and the Future of European Security.
9. Los Angeles Times: Art Pine, U.S. Weighs Action Amid Russia Woes.
10. Nezavisimaya Gazeta: Tatiana KOSHKAREVA, Rustam NARZIKULOV,
RUSSIA HAD INVESTMENT BOOM LAST YEAR.

11. Financial Times (UK): John Thornhill, MOSCOW: Brokers take on western
PR.

12. Nezavisimaya Gazeta: Ruta Konar, WHAT IS BEHIND COLLAPSE OF RUSSIAN 
STOCK MARKET?

13. AP: Russia to Limit Caviar Exports.
14. Reuters: Russian govt seeks to keep unions out of politics.] 

********

#1
From: fweir@rex.iasnet.ru
Date: Thu, 13 Aug 1998
For the Hindustan Times
From: Fred Weir in Moscow

Moscow (HT Aug 13) -- As Russia's economy continued to crash
Thursday, the opposition-led parliament dealt the government a
potentially fatal political blow by refusing to hold an emergency
session on the crisis.
"Russia is on the verge of financial collapse, and we are
now facing sharp political struggle and possible change of
government," says Andrei Piontkowsky, director of the independent
Centre for Strategic Studies.
Last week parliamentary Speaker Gennady Seleznyov agreed
with a request from Prime Minister Sergei Kiriyenko on holding an
urgent Duma session next Monday to consider 17 draft laws to
slash spending, raise taxes and stabilize state finances.
But Duma deputies, in an angry mood, decided this week not
to convene the meeting. 
Mr. Seleznyov's deputy, Mikhail Yuriev, told journalists
that the request for an emergency session was illegal because it
was made by the Prime Minister. 
"The Duma can cold an extraordinary session only in three
instances: at the request of the President, the Duma speaker or
one-fifth of the deputies," he said. "It is quite possible that
the Prime Minister did not understand that. In any case, there
will be no extraordinary meeting."
However, he added, the session might go ahead if President
Boris Yeltsin, who is currently vacationing in Russia's lake
district, submits a personal request.
Despite sealing a $22-billion bailout package from Western
lending agencies last month, Russia's financial markets have
continued a disastrous months-long plunge.
The Moscow stock exchange, which was the world's best
performing in 1997, has lost over 70 per cent of its value since
March and is still dropping.
Interest rates on state bonds have climbed from about 20 per
cent in March to over 120 per cent this week.

Analysts say there may be no choice but to devalue the
battered rouble, a move that would lead to rapid price increases
in Russia's import-dependent consumer economy and could push tens
of millions into abject poverty.
Particularly dangerous, rouble devaluation would shatter the
tenuous prosperity of Russia's new middle-class -- mainly based
in Moscow -- who are the mainstay of the Yeltsin regime's
support.
"The only achievement from six years of reform that the
government could point to was a stable rouble and low inflation
rate," says Mr. Piontkowski. "Now that is in ruins, and
devaluation of the rouble looks imminent."
The Duma's refusal to get behind the government's harsh
austerity program may make little economic difference since
President Yeltsin can implement many of the measures by decree,
but it will explode confidence in the political system at a time
when social unrest is already rising precipitously.
Wildcat strikes are multiplying across Russia's vast
hinterland, where millions of workers have gone without wages for
months due to the economic crisis. 
Coal miners have been blockading railroad tracks in several
regions, and trade unions are promising a general strike this
autumn over the huge buildup of wage arrears.
Ironically, parliamentarians say the government has not paid
their salaries for months either, and therefore the refusal to
meet in emergency session may also be viewed as a justifiable
work stoppage. 
Communist leader Gennady Zyuganov, whose party controls
almost half the seats in parliament, said the government owes the
Duma 126-million roubles ($20-million).
"Why hasn't the government transferred the money to us if it
wants the Duma to convene?" Mr. Zyuganov said.

********

#2
Date: Thu, 13 Aug 1998
From: "Kroll Associates, Moscow-Ray Finch" <krollrf@aha.ru>
Subject: Russian economic crisis

Dear Mr. Johnson, Greetings from Moscow. Thought you might be interested
with a view from the trenches. Warmly, Ray Finch 

One might have assumed that the chaotic situation in the Russian
economy would have calmed in the month of August upon the announcement of
the approved IMF aid package of $22.6 billion and the traditional vacation
period. While there has been less overt political activity, the Russian
economy has continued to plummet and rumors of forthcoming drastic changes
have disturbed the calm. Fuelling these rumors are the continued strikes by
miners, military and medical personnel (with more state workers now
threatening to strike), deepening Kremlin intrigue and the general fear,
that even with the IMF aid package, the ruble will soon be devalued. 
The essence of Russia's current economic problem stems from a lack of
faith, both in the strength of the currency and in the government. To every
solemn Kremlin announcement that tax revenues will be improved to meet the
IMF demands (including the use of threats), come smirks of disbelief from
the Russian public. As an indicator of their serious intention (and some
would say, desperate straits), the government recently mandated that the
budget for the tax agency/police would be directly predicated upon the

revenues they bring in: the more taxes you collect, the more you will be
paid. Given certain Russian traditions, alas, more taxes collected does not
equate to more government revenue. Corruption is endemic. 
One only has to walk down any street in Moscow to find evidence of the lack
of faith in the ruble. There are thousands of exchange points all over the
city, where those Russians who have any significant amount of rubles are
systematically exchanging them for dollars. Nor did the re-denomination of
the currency which took place last year (where they lopped off 000 from the
ruble notes) strengthen belief in the ruble. Most merchants still refer to
one ruble as a thousand. Indeed, the plenitude of exchange points serves as
an apt metaphor of a large part of the Russian economy (merely exchanging
currency without producing anything of value). This same demand for dollars
is also apparent at the macro level, where the major Russian banks are
anxious to buy dollars from the Central Bank. Where all these dollars go
remains unclear. Yesterday (12 August), the Central Bank established limits
on the amount of hard currency it would sell to major Russian banks. 
To date, the Russian banks have been profiting greatly from the desire to
exchange rubles for a more stable currency. The current delta between the
(dollar to ruble) vs. the (ruble to dollars) stands at 2.5% and continues to
widen. As the risk that the ruble will be devalued continues to grow, it is
taking more rubles to buy a dollar (yesterday, 12 August, the ruble "broke
out" of its mandated corridor and reached 6.310 to the dollar; today, 13
August, it has reached 6.55 at some exchange points). The IMF aid package
has done little to instil confidence in the ruble, and the general feeling
is that this aid will be unable to keep the Russian economy afloat.
Devaluation of the ruble appears inevitable. 
Not being an economist, there may be forces at work of which I'm unaware.
The mood on the streets, however, is that the ship is sinking, and those
that possess the wherewithal, are exchanging their rubles for dollars and
stashing them away. My guess is that the ruble will be forced into
devaluation within the next month and that the Yeltsin government will fall
(or at least the Prime Minister and his team of "reformers"). Whether this
scenario will lead to mass protest is unclear. It will certainly force the
majority of Russians to tighten their belts still further. Our president
may have to bring more than words of encouragement during his upcoming visit.

********

#3
Date: Thu, 13 Aug 1998
From: "Prof. M. Ellman" <ellman@fee.uva.nl>
Subject: THE COLLAPSE OF THE SOVIET ECONOMIC SYSTEM

THE COLLAPSE OF THE SOVIET ECONOMIC SYSTEM

A new book has just been published on this subject. It is:
M.Ellman & V.Kontorovich (eds) The destruction of the Soviet economic
system : an insiders' history (M.E.Sharpe Inc: NY 1998),
It mainly consists of papers by former Soviet insiders about various
aspects of the collapse as they perceived it. Highlights of the book are:
- Prostiakov's account of the economic reform plan approved by the

politburo under Chernenko. This shows that some of the most radical reforms
of 1985-88 had actually been approved in principle by Chernenko's politburo.
- the critiques of Soviet military and economic statistics by Shlykov,
Eydelman & Khanin. These show the role in undermining the system of
erroneous statistical data.
- Shlapentokh's criticism of the idea that the USSR collapsed because of
popular dissatisfaction with the low standard of living.
- Iasin's account of the changing official reform proposals.
- Kuznetsov's analysis of the crucial role in the breakdown played by the
withdrawal from the economy by the local party organizations.
- Hanson's account of the Soros mission in 1988-89 (the first Western
attempt to advise on the reform of the Soviet exconomy). 
- Belanovsky's speculations about the possibility of a 'conservative'
reform based on conversion and use of the military-industrial sector's
economic assets.
- Tsipko's detailed account of the background to his famous anti-Marxist
articles (which were not inspired by Iakovlev).
A detailed source book which will be very interesting reading for
all those concerned with the dramatic and (generally) unexpected collapse
of the Soviet civilization. The editors have edited it in such a way that
it reads like an integrated book rather than a collection of unrelated
chapters.

Prof.M.J.Ellman
Faculty of Economics & Econometrics
Amsterdam University
Roetersstraat 11
1018 WB Amsterdam
Netherlands
tel: + 31-20-5254235
fax: + 31-20-5254254
email: ellman@fee.uva.nl

********

#4
Russian military see more cuts as reform grinds on
By Alastair Macdonald

MOSCOW, Aug 12 (Reuters) - The Russian armed forces are ready for a new cost-
cutting drive after successfully completing a first stage of painful mergers
and troop reductions, Defence Minister Igor Sergeyev said on Wednesday. 

But Sergeyev, Russia's only post-Soviet marshal and a former head of the
strategic missile command, told a news conference it was unlikely he could
deliver on President Boris Yeltsin's election campaign pledge to end
conscription by the year 2000. 

To switch to a fully professional army would cost another $1 billion which the
stretched federal budget seemed unlikely to provide for the military despite a
pledge by Yeltsin to raise defence spending by 3.5 percent next year, Sergeyev
said. 

``I'm convinced only a professional army can meet today's requirements.
Unfortunately, there are doubts about our ability to comply with the
presidential decree as early as 2000,'' Sergeyev said. ``This would need an
additional outlay of at least six billion roubles.'' 
The armed forces, still very bloated after the Cold War, were granted 82
billion roubles ($13 billion) in 1998, or some 16 percent of the state's
budget. However, a big shortfall in tax collection means that the military has
only received some 60 percent of budgeted funds, according to Sergeyev's
figures. 

Officials have previously made clear the deadline for ending the draft has
been quietly dropped, though ending conscription remains a goal. Sergeyev said
Yeltsin signed on Tuesday a major policy document setting out defence strategy

to the year 2005. 

Yeltsin had promised to end the draft -- a highly popular move -- by the end
of the decade when he was campaigning for re-election in 1996 during the war
with Chechen separatists that cost the lives of thousands of ill-trained young
conscripts. 

Sergeyev, whose predecessor was sacked last year for failing to move ahead
fast enough with reform, said he aimed at least to keep increasing the number
of professional troops in key combat roles. At present, he said, two out of
three professionals were in back-up roles that conscripts could do just as
well. 

The minister said the reorganisation of the armed forces into four units --
army, navy, air force and nuclear missile forces -- was now complete following
a series of mergers, but he declined to offer any deadline for completing a
plan to cut that to three by integrating the missiles with the other arms. 

``Military reform has reached a new landmark,'' he said. ``In the past year a
qualitatively new armed forces has been formed.'' 

More than 200,000 jobs were shed in the armed forces last year and some
400,000 would go this year, he said. That should get Sergeyev close to his
target of 1.2 million troops for the end of the year on the way to an even
smaller force. 

Among other priorities were improvements in the standard of training and
equipment and a slashing back of military colleges where civilian training
centres could train officers better. 

There would be more rationalisation of the command structure and Sergeyev said
he would push for better coordination with Russia's other military structures,
notably the Interior Ministry's home army and the Federal Border Guard
Service. 

As for short-term problems, Sergeyev said that, like many Russian workers,
service personnel faced wage arrears of three months in July but one month's
pay had been distributed this month: ``The situation with wages...was very
tense. But by the end of the month we hope to have largely solved this
problem. 

One regional governor threatened to take over control of a Siberian nuclear
missile battery last month if Moscow failed to send wages for officers who had
not been paid for five months. 

Trying to soothe worries about the reliability of Russia's still massive
nuclear arsenal, Sergeyev also dismissed speculation that the millennium
computer bug could cause malfunctions and even accidental firings of Russian
atomic warheads. 

**********

#5
Eastern Europeans May Be Emotionally Numb: Marketing Moment

Chicago, August 12 (Bloomberg) -- Chicago-based Leo Burnett Co. has found a
key difference in the attitudes of Central and Eastern European consumers that
influences how they should be approached by advertisers. 

After studying 12,000 people from Estonia to the Czech Republic, the ad agency
found ''widespread emotional numbness,'' said Kevin Gilbert, a research
analyst at the agency. 

``Growing up in a system where all your decisions are made for you, from where
you go to school to where you work, makes most of these people less activist
consumers,'' he said. 


Burnett studied consumers in the Czech Republic, Estonia, Germany, Hungary,
Poland, Romania, Russia, Slovak Republic and Ukraine to learn how the change
from communism to a free market has changed people's lives. 

``Some 355 million people live (in the region) so it's an absolutely huge
potential market,'' Gilbert said. 

It's also a potentially lucrative one. 
``These are among the most educated people anywhere on the globe,'' Gilbert
said. ``Their economies are growing and some areas, like Poland and the Czech
Republic, are perhaps 10 to 15 years away from the U.S. standard of living. I
could hardly tell the difference between Estonia and Stockholm when it comes
to standard of living.'' 

Gilbert estimated that 20 percent of the population has been ``beaten down''
by the changes around them, while an equal number see the free market as a
ticket to the good life. Most Eastern Europeans are ``fence sitters,'' he
said, unsure of how to react to the new order. The survey found that Russia
had the highest degree of pessimists. 

Propaganda Overload 

Gilbert said the people of Central and Eastern Europe generally have a ``lack
of faith in institutions,'' including government and increasingly the media.
Because of this, ``you've got to cut through the malarkey with these people
and give them the straight scoop,'' he said. ``They've heard propaganda all
their lives.'' 

Non-traditional media, such as outdoor billboards and bus stop advertising,
are proving to be more effective in reaching Eastern European consumers than
more conventional radio and television outlets. 

Advertising in the region ``must be very authentic and free from bravado,'' he
said. ``We've concluded that marketers shouldn't assume that their advertising
will be perceived as trustworthy and honest.'' 

Gilbert said products that give ``consumers control and contribute to their
sense of self-reliance'' will have the greatest chance to succeed. 

********

#6
>From RIA Novosti
Segodnya,
August 11, 1998
FOREIGN WAR ON FOREIGN TERRITORY
"How far to retreat?" Russia is tackling a problem 
which faced all shrinking empires
By Georgy BOVT

Reports from Dushanbe say that the Tajik authorities are
taking emergency measures to reinforce their southern border
with Afghanistan, with the Taliban forces barely 20-40
kilometres way from it. They fear that Afghan refugees or the
units of Islamic fundamentalists might spill over into their
territory. 
However, little depends on the efforts of Tajik President
Emomali Rakhmonov in this situation, as the "keys" to the
Tajik-Afghan border are held by a 25,000-strong group of
Russian troops in Tajikistan. And second, if Rakhmonov's regime
collapses, it would not be at the hands of Afghan
fundamentalists, who have no reasonable pretext for
intervention into "ethnically unfriendly" Tajikistan. Rather,
Rakhmonov might be toppled by the Tajik Islamic opposition,
which can be inspired by the success of the Taliban.
The strengthening of the Taliban regime, smelling of the
Middle Ages, in Afghanistan (which is bound to happen if

Mazar-e-Sharif falls) will change the balance of forces on the
region dramatically. To begin with, the new regime, supported
by Pakistan and Saudi Arabia, will compound the threat of the
fundamentalist expansion into the CIS states. 
Russia and its Central Asian CIS partners have only one
objective ally in the struggle against the Sunnite Taliban,
which is Shiite Iran. Apart from political and ideological
differences with the Taliban, Moscow and Teheran may be brought
together by their common desire to prevent the Taliban from
snatching control over the export oil and gas pipelines, which
will rival the pipes running via Russia and Iran.
Some forces are trying to find common language with the
Taliban. The US Yunocal company is regarded as the main
contender for the contract to build a gas pipeline running from
Turkmenistan via Afghanistan. That is why Turkmenistan has
dissociated itself from all anti-Taliban statements and
actions.
But the existence of Yunocal's special interests in
Afghanistan does not necessarily mean that Afghanistan will
become the site of a new Russia-USA confrontation. Washington
will never support the Taliban openly. It will never establish
more or less serious relations with Afghan fanatics, similar to
the relations it has with Pakistan. America will never become
"the friend of Moslems," and one recent proof of this is the
terrorist acts staged at the US embassies. The US immediate
goal is to prevent Moscow and Teheran from linking up. No more,
and no less.
But Russia's tasks will become more complicated now. First
and foremost, it will have to reassess its strategic goals. The
slogan "The Fundamentalists Are Plunging Into the CIS" can
frighten and even mobilise us, but Russia does not have enough
economic and military might now to combat this threat. In fact,
it is a typical problem which faced all shrinking empires.
Where is that last defence line beyond which one must not
retreat, for defeat is inadmissible and hence justifies the "We
will pay any cost" slogan. 
It is clear that the defence of gas pipelines which have
not been built yet, or the Dushanbe regime, which will collapse
as soon as the last Russian soldier leaves Tajikistan, are not
the noble goals which can inspire a selfless struggle to the
last drop of blood. Besides, by understanding where that line
beyond which we must not retreat lies, Russian society will
create the foundations of a new post-imperial patriotism. 
Moreover, Moscow will not be able to come to an agreement
with the Taliban soon. And our diplomats should admit this and 
stop making loud statements, claiming that Russia would not
tolerate expansion, that it would give an adequate reply and
reinforce the southern borders of the CIS. We must admit that a
one-on-one war with Islamic fundamentalism in the south is not
our war. 

********

#7
Date: Wed, 12 Aug 1998
From: "Jennifer Long" <vladsta@erols.com> 
Subject: New Book: Russian Forestry - A Paradise Lost?

I'm not sure of JRL is the place for the following, but Sergey Sheveiko is a
friend of mine and asked me to help him publicize his book. I haven't read

it but I have flipped through it and it does contain a lot of statistics.
Forgive me for the advertisement!
_Russian Forestry - A Paradise Lost?_, co-authored by Runar Gareyev, Sergey
Sheveiko and Samuel Hale and published by Dana Publishing in New Zealand, is
a comprehensive treatment of Russian forestry resources and industry. It
includes a lot of raw data concerning Russian timber and two chapters on
conducting business in Russia that have sparked a lot of interest. If any
of your readers would like more information they can contact Mr. Sheveiko
directly at SergeyS@msn.com.

*******

#8
From: KAY@rhodes.edu (Sean Kay)
Date: Thu, 13 Aug 1998
Subject: New Book on NATO and European Security

Hi David,

I thought that the list might be interested in knowing about my book which
just came out last week. It deals substantially with the issue of NATO
enlargement, which I know has been debated much here. 

Sean Kay, NATO and the Future of European Security (Lahnam, MD: Rowman &
Littlefield, 1998).

Short Description:

Tracing NATO's formative years, its Cold War development, and its post-
Cold War evolution, Sean Kay draws on his policy experience in Brussels and
Washington to provide unique insights into contemporary policy challenges,
including NATO's outreach to the East and its Partnership for Peace,
peacekeeping and teh future of the Balkans, enlargemetn and the role of 
Russia in Europe, NATO's internal military adaptation, and the future of
the transatlantic relationship. Kay argues that although NATO has evolved
to some degree, it remains an institution dependent upon the United States
with uncertain long-term prospects for playing a constructive role in Europe.
Indeed, the author shows that if not implementented carefully, NATO 
enlargement may actually decrease rather than increase stability in the
region. With its provocative challenges both to realist and institutionalist
assumptions about NATO's capacity to adapt in the post-Cold War world,
this book provides an invaluable perspective on Europes future security.

Table of Contents:
1. NATO and European Security
2. The Formative Period
3. Who Put the "O" in NATO?
4. NATO after the Cold War
5. NATO Enlargement
6. Restructuring Transatlantic Relations
7. NATO and the Future of European Security

Includes Bibliography and Index.

"Kay has accurately chronicled the key developments that led to the
enlargement of NATO as well as detailed many of the hurdles that will
confront the Alliance as it attempts to integrate both new missions and
new members. An excellent foundation from which all members of Congress
can commence the debate over NATO's purpose in the twenty-first century."
-Richard G. Lugar, United States Senator
(back cover endorsement)

********

#9
Los Angeles Times
August 13, 1998 
[for personal use only]
U.S. Weighs Action Amid Russia Woes 
Economy: Administration hints of possible aid as Clinton meets with
advisors and Treasury official visits Moscow. 
By ART PINE, Times Staff Writer

WASHINGTON--As prospects for Russia's tattered economy worsened Wednesday,
the Clinton administration hinted that the United States might be willing
to provide more temporary aid if the crisis there escalates. 
The White House said President Clinton met with several key economic
advisors to discuss the Russian situation as a senior Treasury official
arrived in Moscow to discuss possible remedies. 

So rapidly is the financial picture there deteriorating, U.S. officials
fear, that there may not be time for Moscow to deal with it before the
second installment of a $22.6-billion international rescue package
assembled for Russia can be disbursed. 
The Russian ruble sank against the U.S. dollar on Wednesday after the
Russian central bank caused a panic in the nation's financial markets by
attempting to limit the amount of dollars that it would set aside to defend
the ruble in the foreign exchange markets. 
Some analysts worry that Russia soon may be forced to devalue the
ruble--a step that would worsen its economic plight by increasing its debt
to foreign investors and commercial banks. 
Financier George Soros said Wednesday that Russia's financial markets
have "reached a terminal phase" and called for a devaluation of the ruble,
suggesting the introduction of a currency pegged to the dollar or euro. 
In a letter to the Financial Times, Soros recommended a currency board as
"the most efficient way to stabilize the situation." He said Russia would
need $50 billion of reserves to back a currency board, whereby it would be
committed to exchanging rubles for dollars or euros at a set rate. 
Clinton is scheduled to visit Moscow on Sept. 1 for three days of
meetings with Russian President Boris N. Yeltsin. The meetings will be
their first since they talked in Birmingham, England, in June. 
The White House declined Wednesday to provide any details about what
Clinton and his economic advisors might be considering. P.J. Crowley,
spokesman for the National Security Council, said that "much of [the]
meeting" was devoted to Russia. 
Crowley appeared to leave open the possibility that Washington would
consider providing additional help if the situation in Russia worsened. "I
can't predict at this point," he said. 
The financial situation in Russia has been worsening for weeks as
foreign investors were disappointed by the government's seeming inability
to carry out promised economic reforms that analysts say are necessary to
restore economic health. 
In another blow to the government's efforts to stabilize the economy,
leaders of the Communist-dominated Duma, the lower house of parliament,
announced Wednesday that they would refuse to call a special session to
approve an austerity program. 
Although the Duma's speaker, Gennady Seleznyov, had promised last week
that the legislature would meet on Aug. 19 and 20 to consider 17 draft
measures, Deputy Speaker Sergei N. Baburin said Wednesday the measures were
"not urgent" and could "wait until autumn." 
The reforms were demanded by the International Monetary Fund in return
for its $22.6-billion bailout package. The IMF has already approved an
initial installment of $4.8 billion and is scheduled to release an
additional $4.3 billion in early September. 
Besides the adverse news from the Duma, the markets were jolted by the
Russian central bank's announcement that it is cutting the maximum quotas
of dollars that it would sell to commercial banks. 
Although Russian officials said the action was aimed at limiting its
risk in deals with the banks, traders saw it as a desperation move provoked
by the rapid depletion of foreign exchange reserves as Russia has defended
the ruble over the last few days. 
As a result, the ruble sank further, while the Russian stock market
index dropped a hefty 1.6%, after a 9% drop on Tuesday. 

Despite Wednesday's assault on the ruble, Russian Finance Minister Mikhail
M. Zadornov insisted that the government could still avoid a full-scale
devaluation. "If we thought that devaluation was unavoidable, we would not
be taking the measures we are taking now." 
The Treasury's senior international economic official, Undersecretary
David Lipton, arrived in Moscow for consultations with his Russian
counterparts, but U.S. officials declined to comment on what issues he may
have discussed. 

*******

#10
>From RIA Novosti
Nezavisimaya Gazeta
August 12, 1998
RUSSIA HAD INVESTMENT BOOM LAST YEAR 
However, hardly anyone noticed it, although $17 billion 
should have left its trace in the Central Bank
By Tatiana KOSHKAREVA, Rustam NARZIKULOV

The country literally overslept the true investment boom
staged by foreigners in 1997. According to available estimates,
no less than $44 billion of foreign capital was invested in the
Russian economy last year!
The figure is impressive; nothing similar has been
witnessed in the entire post-Soviet period. Over twelve months
alone, foreign investments rose almost two-fold to reach 6 per
cent of the gross domestic product and almost half of all
budget revenues. 
However stranger it may seem, this favourable fact was not
used either by authorities or liberal economists. There were no
bravura marches or festivities on this outstanding economic
achievement. 
This silence has its explanation. A golden rain poured on
the country's economy but the latter, as distinct from the
mythological Danai, failed to produce any results. 
Let's try to understand why there were billions of US
dollars of investments but everything resulted in the deepest
crisis. 
It would be naive to think that the West would like to buy
half-dilapidated factories and plants with its money. The major
focus in 1997 was on the stock and securities markets. The
first of them yielded profits up to 300 per cent of annual
interest. The yields on the GKO market were more modest but
high returns on state bonds made foreigners forget about the
unfortunate industry. This was a pure speculative boom. With
all its disadvantages, it could produce benefits for the
economy since foreign operators transferred to Russia from
abroad hard currency which, even though for some time, settled
in the country and worked for its economy. 
Out of $44 billion, $19.1 billion was channelled by
foreigners into the purchase of GKOs and other state bonds. Up
until the last moment (until July 20 this year), not a single
structure in Russia had the right to sell short-term government
securities for hard currency - it was to be obligatorily
converted into roubles. The hard currency sold in this way was
placed into the special accounts of commercial banks. Since the
US dollars of foreigners were exchanged for roubles issued by
the Central Bank, the currency brought into the country was
designed to replenish the hard currency reserves of the Central
Bank. That is why by late 1997 the gold and hard currency
reserves of the Central Bank were about to increase by $19.1
billion. 

However, official data indicate that the Central Bank
built up its reserves only by $1.8 billion. How can this
difference of $17.3 billion be explained? Nezavisimaya Gazeta
and some other economists cannot explain it. Nevertheless,
let's memorise this figure and recall some facts. 
What would have changed in Russia, if the hard currency
reserves had really increased by $19.1 billion? We can assert
that in this case the crisis in South-East Asia could hardly
have influenced the Russian markets strongly. The growth of
reserves is called upon to become a guarantee against any
upheavals. No Asian crisis, and also a flu, an earthquake, or
an oil price fall, together with Western capital flight could
not have worsened the economic situation in Russia. Even the
most nervous speculators, while leaving this land alien to
them, would have been able to buy the US dollars, which were
supposed to be kept among the gold and hard currency reserves
of the Central Bank. At the same time, less timid foreign
operators, seeing their more nervous colleagues getting rid of
roubles without any problems, would have continued working on
the market. 
Nevertheless, this hypothetic possibility had not been
used and the market collapsed, which forced the government to
turn in May to international financial organisations for help.
Let us emphasise that the requests for new loans were
conditioned only by the grave situation on the financial
markets. Officials directly stated that money was needed to
support the rouble stability, i.e. the loans were needed, in
the first place, by the Central Bank of Russia, which by late
May began to experience a serious shortage of gold and hard
currency reserves. The threat of rouble devaluation was acute
as never before. 
Let's see how much money the IMF and other lenders
promised Russia. The figure seems to be well-known - $22.6
billion. However, if we deduct from it assistance under "old"
agreements signed before the middle of 1998, the new aid
package will equal precisely $17 billion. This sum is
strikingly similar to the sum which we asked to memorise. 
By granting loans to Russia, the IMF, naturally, demanded
the guarantees of their return. These guarantees were provided:
the government worked out a package of additional tax measures
worth 105 billion roubles. In terms of US dollars, additional
taxes constitute $17.1 billion. So, as a result of perfectly
different calculations, we have received three virtually
identical figures. Such accidental coincidences occur only in
astrology. The magic of numbers is good for occult sciences. In
economics, however, the equality of three different indicators
compels us to speak about the extremely unpleasant relationship
of three things: under-supply of hard currency reserves, new
credits and an increase of taxes. 
The balance at the level of the state has been fully
complied with. The sum of $17 billion, had it not vanished,
would have increased the reserves of the Central Bank.
Precisely this sum is intended to be borrowed by the government
in the West in the coming 18 months. The same sum must be

transferred by tax payers to the federal budget. 
What has been lost, has been compensated for, with just
one difference. Billions of US dollars have not replenished the
reserves of the Central Bank while the losses will be paid by
the Russian people. Every Russian citizen, including disabled
persons, elders and infants, must until the end of the year
give to the federal budget (the government's tax package) $110.
This was the sad end of last year's investment boom in the
country. That is why the advocates of reform are silent and no
fanfares are heard. 

********

#11
Financial Times (UK)
12 August 1998
[for personal use only]
MOSCOW: Brokers take on western PR
By John Thornhill in Moscow
A group of Moscow-based stockbrokers is hiring a western public
relations company to improve Russia's image among foreign investors and
help reverse the savage falls in the country's financial markets over the
past year.
The stockbroking firms, which have seen daily turnover on Russia's
rudimentary stock market reduced to just £6m, are desperate to entice
foreign investors back into Russia - and salvage their own businesses.
"There is a feeling that Russia generally gets a bad rap, and we are
looking at ways of correcting that," said a member of the group.
The 15 firms, which are forming a non-profit industry association called
the Financial Council of Russia, have selected Burson-Marsteller to head
the public relations campaign. Burson-Marsteller, which has confirmed its
involvement in the project, is one of the biggest public relations
companies in the world and has wide experience of working for foreign clients.
Discussions are at an early stage but it is envisaged the council will
act as a clearing house for information about Russia's financial markets
and liaise with the government about how it can communicate its economic
message more effectively.
The council is also looking to recruit a prominent spokesman who would
devise a communications strategy with Burson-Marsteller for "selling"
Russia to foreign investors.
Charlie Ryan, chief executive of United Financial Group, one of the
council members, said the firms had met several times over the past two
months to discuss ways of encouraging the development of Russia's financial
markets.
"All of us have been so competitive with each other that we have not
been very good at co-operating. "But there is now a sense that we need an
industry association which can represent our views and correct some of the
misconceptions out there," he said.
The financial council, which includes leading local brokers such as
Troika Dialog and MFK Renaissance, as well as international investment
banks such as Credit Suisse First Boston, also intends to lobby the
government to improve the corporate governance environment within Russia.
Abuses of minority shareholder rights have deterred many foreign fund
managers from venturing into the Russian market, which has plunged more
than two-thirds this year.
The Russian government is encouraging the stockbrokers' initiative,
although it has not given it any direct support. 


********

#12
>From RIA Novosti
Nezavisimaya Gazeta
August 13, 1998 
WHAT IS BEHIND COLLAPSE OF RUSSIAN STOCK MARKET?
A Powerful Coalition Wants Kiriyenko to Resign
Before his Government Runs Short of Money
By Ruta KONAR

Tuesday's unexplainable landslide fall of the Russian
stock market can be evidence of one and only thing--the
government headed by Sergei Kiriyenko is likely to fall before
the end of the month. There is little that can help the Prime
Minister. The matter is already not the economic crisis and
certainly not the situation in Southeast Asia or on NYSE. Too
great is the desire to make the government fall. Too
influential and powerful political forces have united to ensure
it to happen.
The economic failure in the stock and GKO markets is
almost impossible to explain. It happened at that rare moment
when the government really had money and quite a lump sum at
that. It might not be enough for the whole of the year but it
would certainly last till autumn.
Finance Minister Mikhail Zadornov yesterday confirmed
Nezavisimaya Gazeta's information that the Central Bank
transferred to the Finance Ministry (MinFin) $1 billion out of
the $4.8-billion loan provided by the IMF. Judging by
everything, MinFin must have some other funds, as Deputy
Finance Minister Oleg Vyugin said that the government had at
its disposal two billion dollars to buy out GKOs alone. In
yesterday's interview with the NTV television company, the
President's deputy chief of staff Alexander Lifshits said that
"MinFin had enough money for the next month to service all the
debts".
Why has the market collapsed then? Have the brokers been
very mistrustful? I am sorry. One can mistrust his girl friend
or his wife, but different rules are effective on the market.
What happened on Tuesday could only be the projections of a
real political or social revolution. But there has been
neither. This is not something invented by Nezavisimaya
Gazeta's correspondents. A brilliant description of Tuesday's
happenings was given by one of the traders in an interview with
Kommersant who said the following: "Looking only on prices, one
could assume that there are either street riots in the country
or something has happened to the control over nuclear weapons.
The only conclusion is that either the prices will go up or
riots will begin after all."
We, for our part, want to offer a different version.
Prices will not rise to the previous level and there will be no
riots till the end of August, but the government may resign.
This is because there is only one trustworthy and logical
explanation of what happened on Tuesday. Such a market collapse
could have been provoked by the force which controls a greater
part of the market. Such a force in the GKO market is the
Central Bank--Sberbank link as well as a number of affiliated
banking institutions. This group taken together owns 66% of
government treasury bills. It would be silly to presume that
tens and even hundreds of commercial banks which own the
remaining 34% of GKOs reached a secret agreement to make the
market plummet. So, it is the Central Bank's group that is

behind the Tuesday market collapse.
A natural question is: Why does it need it? Precisely a
week ago our newspaper expressed the supposition that beginning
with May the Central Bank had been destabilising the GKO market
to create a political chaos in the country. Why the Kiriyenko
government does not suit the Central Bank is a different story.
But the Central Bank leaders do not practically conceal their
attitude to the government and the prime minister.
To prove our point, we would like to cite excerpts from
the article by Bank of Russia's First Deputy Chairman Sergei
Aleksashenko published in the latest issue of the magazine
Expert. "It is perfectly clear that today Russia is in the
gravest financial situation in the past five years.... Good
prospects are very few because it is unclear at the expanse of
what the government is going to improve the present situation."
Then the First Deputy Chairman of the Central Bank of none
other country but Russia who, by the way, is in charge of the
fiscal situation, among other things, trains such criticisms on
the government's activities which even members of the
inveterate communist opposition cannot make. The Cabinet is
harshly criticised on every aspect: for the inability to pay
its debts, incapability to collect taxes, etc. Aleksashenko
expresses doubts about the ability of the government to solve
economic problems. Lastly, we want to cite the following
telltale excerpt from his article: "there is only one way of
fighting against enterprises which do not pay taxes: the threat
of depriving them of control over their properties". The
Central Bank Deputy Chairman actually advocates a re-division
of property, and such a measure is capable of smashing any
government.
The Central Bank is not alone in its rejection of the
Kiriyenko Cabinet. All gladly point to the government's gross
mistakes and its inability to organise elementary paper work.
It is clear to practically everyone that the Cabinet is too
weak to take the country out of the economic and political
impasse. The problem of power is more acute today than ever
before.
It is not easy, however, to remove Kiriyenko. He still
enjoys the President's great trust. Only a powerful
anti-government opposition is capable of confronting the
Premier. According to Nezavisimaya Gazeta's information, this
opposition is not headed by Central Bank Chairman Sergei
Dubibin and it is not the same people's patriotic communist
opposition which exists in the State Duma. There is much talk
about a certain "third force" which is in a hurry to change the
government.
So, the core of the matter is not the stock market or
GKOs. What happened on Tuesday was actually one more step to
escalate the political situation in the country.

********

#13
Russia to Limit Caviar Exports 
August 13, 1998

MOSCOW (AP) -- Seeking to protect its dwindling sturgeon population, Russia
will restrict caviar exports, a government official said Thursday. 
An order to introduce export quotas has been drafted and presented to
the Cabinet for approval, said Dmitry Sukhoparov, an official at the
Ministry of Foreign Economic Relations, the Interfax news agency reported. 
Another ministry official, Marina Lvova, said the order was aimed at the
many sturgeon poachers in the country and would not hurt legal producers. 

Officials did not say how big the quota would be, or when it was likely
to go into effect. 
Russia has enacted stringent restrictions on fishing for sturgeon, which
are threatened by overfishing and pollution in the Caspian Sea, but
authorities continue to report poaching. 
The Caspian, which laps the shores of Iran and the former Soviet
republics of Russia, Azerbaijan, Kazakstan and Turkmenistan, is home to
most of the world's sturgeon. 

********

#14
Russian govt seeks to keep unions out of politics
By Philippa Fletcher

MOSCOW, Aug 12 (Reuters) - The Russian government is planning to tighten up a
law enforcing a separation between labour unions and political parties
following protests by miners over unpaid wages which some officials described
as "terrorism." 

"We have to make a strict division between the activities of trade unions and
political parties," Justice Minister Pavel Krasheninnikov said. 

"We will have to look again at the law, clarify the registration system and
clearly outline the trade unions' sphere of influence," he told a news
conference. 
The government's Communist and nationalist opponents have scented blood in the
last few months as ministers grapple with a financial crisis sparked by global
investor nervousness and deep-rooted tax collection problems. 

Some opposition deputies have backed a series of blockades of the key Trans-
Siberian railway line by coal miners protesting at months of overdue wages.
The government says the blockades have cost the economy tens of millions of
dollars. 

Along with their pay demands, the protesters have also called on President
Boris Yeltsin and some government ministers to resign over what they say is a
catastrophic reform policy. 

The governor of the Chelyabinsk region called the miners' blockades "economic
terrorism" and Deputy Prime Minister Boris Nemtsov warned last week Moscow
would not send money to regions where miners blocked the line. He called the
protests "terror." 

Krasheninnikov defended the government's desire to keep political parties away
from the trade unions -- in contrast with the links between the two which
exist in many western countries -- by saying close relations could lead to
abuse. 

"Here parties have no right to create branches in the work place. As a result,
sometimes politicisation creeps in through the trade unions," he said. 

"If a boss supported a particular party he could bring other people in to that
activity, through his position." 

Miners agreed on Wednesday to end their latest three-week blockade of the
Trans-Siberian line near the city of Chelyabinsk in the southern Ural
mountains. But it was not clear how long the truce would last as previous
agreements have broken down when promised cash has failed to materialise. 

A criminal investigation has been opened into the blockades and the head of
the Independent Union of Mineworkers (NPG) was questioned by police on Tuesday
in connection with the protest. 

Krashenninikov declined to specify whether he considered the miners had broken
the law during the recent blockade, but accused them of making their problems
worse. 

"It's as if someone stole from me and instead of trying to defend my rights I
went to a neighbour and blocked his door." 

The protests have prompted government officials to make rare forays to the
affected regions for talks and pledge to tackle the corruption which has
helped exacerbate wage delays in an industry crippled by Russia's transition
to capitalism. 

But Moscow has consistently refused to listen to any political demands from
striking workers. 

********

 

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