August 14, 1998   
This Date's Issues: 2307 •2308• 

Johnson's Russia List
#2308
14 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Yeltsin Calls Emergency Session.
2. Peter Rutland: Harvest.
3. Commersant Daily: Yevgeni Govorov, RUSSIA HAS ENOUGH GRAIN FOR THIS 
YEAR, but hardly enough for next.
4. Journal of Commerce: John Helmer, RUSSIAN BANK DEFAULT THREAT ALSO 
THREATENS YELTSIN.
5. Moscow Times: Lonid Bershidsky, MEDIA WATCH: Luzhkov's Agitprop Empire.
6. Financial Times (UK): DEVALUATION: Russia's moment of truth.
7. Vek: Alexei Bogaturov, CUL-DE-CHUBAIS, OR THE FUTILITY OF SUCCESS.
Sobering variations on an inebriating subject.
8. AFP: Irked Middle Class Takes Financial Madness in Stride.
9. Jamestown Foundation Monitor: MORE ON RUSSIAN DEFENSE CONCEPT; 
MILITARY REFORM and IMPLEMENTATION OF DEFENSE CONCEPT NO SURE BET.]

*********

#1
Yeltsin Calls Emergency Session 
By Alexander Merkushev
August 14, 1998

NOVGOROD, Russia (AP) -- Boris Yeltsin called on parliament today to
convene an emergency session to respond to Russia's unfolding economic
crisis, helping boost the ailing stock market. 
Yeltsin insisted, however, that the economy remained stable, the ruble
would not be devalued and there was no need to interrupt his month-long
vacation to take charge of the deteriorating situation. 
``At this moment, there is no need for that,'' Yeltsin told reporters
upon arrival at Novgorod, an ancient Russian capital north of Moscow.
``Moreover, when the president rushes to the Kremlin, everybody thinks
something is wrong.'' 
Communist leader Gennady Zyuganov, whose party dominates the State Duma,
the lower house of parliament, said lawmakers ``wouldn't mind'' holding the
emergency session that Yeltsin requested. 
Stocks soared today, with trading on the Russian stock exchange
suspended temporarily after some shares rose as much as 20 percent. By late
afternoon, the Russian Trading System was up 15 percent at 116.48 points
after falling most of this week. 
Analysts said that in addition to the reaction to Yeltsin's remarks,
stocks rose in hopes the United States was patching together a plan to
augment the recent financial bailout announced by international lenders. 
Deputies from the Group of Seven industrialized nations held a
conference call Thursday to discuss Russia's deteriorating economic
situation. Officials declined to say what further measures might be taken. 
The ruble was lower today in Moscow. The Russian currency was selling
between 6.75 to 7 to the dollar, down from about 6.3 on Thursday. 
There have been growing concerns about the stability of some Russian
banks. While no defaults have been reported, the Central Bank said Thursday
it was looking into particular problems with two major banks, SBS Agro and
Inkombank. 
At one SBS branch in Moscow, customers said they were allowed only to
withdraw money in rubles, even from accounts that were established in
dollars. Those who wanted dollars were told to fill out a form and return
in five days. 
Yeltsin was in Novgorod to issue an edict restoring the old name of
Novgorod Veliky, or Novgorod the Great, in honor of the city's 1,140th
anniversary next year. 
Despite having been on vacation since mid-July, the 67-year-old
president had bags under his eyes and his face appeared puffy. He walked
slowly and seemed to have difficulty understanding questions about the
economic crisis. 

In recent days, the Russian stock market has accelerated its slide and the
ruble has come under intense pressure, prompting fears of a devaluation. 
But Yeltsin insisted the ruble would not be devalued and said he thought
the government had the economic situation under control. 
Upon arrival, Yeltsin said he saw no need for a special session of the
Duma to consider the remainder of the government's economic austerity plan.
Within an hour, however, he had apparently changed his mind. As he arrived
for a tour of a meat factory, his press secretary, Sergei Yastrzhembsky,
said Yeltsin had signed a decree calling on the Duma to meet. 
The Duma has passed some portions of the government's austerity plan,
which was demanded by international lenders, but recessed for the summer
without passing all of it. 
After both Yeltsin and Prime Minister Sergei Kiriyenko pleaded for the
special session, Zyuganov said the Duma probably would convene sometime
before Sept. 1. ``We wouldn't mind,'' he told reporters. 

********

#2
Date: Fri, 14 Aug 1998
From: Rutland Peter <rp001@slav.hokudai.ac.jp>
Subject: harvest

Dear David

re Jerry Hough's suggestion of a discussion of the Russian harvest, here
is the piece I wrote for Jamestown Monitor on 16 July.

Peter Rutland

DROUGHT IN RUSSIA WILL HURT GRAIN HARVEST. Specialists are predicting
that more than one third of this year's harvest in Russia will be lost
due to bad weather conditions. A late spring was followed by a severe
drought that began in April and deepened by June, affecting 35 regions
and devastating 20 percent of the sown area, especially in the Volga.
The projected harvest may be only 60 million tons of grain, compared to
last year's bumper crop of 89 million tons (up from 68 million tons in
1996). (Kommersant Daily, June 16)

However, the results of the drought will not be catastrophic. Last
year's harvest led some to hope that Russia could resume its historical
role as a grain exporter. Even this year's poor harvest should be nearly
sufficient to meet domestic demand, which runs at about 60-65 million
tons per year. Russia will thus need to import only perhaps 1 to 2
million tons of grain. The main effect of the drought will be to push up
prices, which had been steadily falling in recent years. The grain price
may go up from the current 700 rubles/ton to 1,000 rubles/ton by
September. 
In any case, poor world market conditions last year meant that only 2.5
million tons of Russian grain was exported. The weak prices encouraged
farms to cut back on sown acreage this year (to a record low of 51
million hectares), which worsened the impact of the drought this year. 

The real problems in Russian agriculture, however, are to be found in
the meat and dairy sectors, which fell by 10% and 5% respectively last
year. Stocks of cattle, sheep and chickens are now one quarter of the
level they were in 1990. The financial situation in the sector is dire:
even last year, with the bumper grain crop, farms ran up losses of 25
billion rubles ($4 billion). The farm lobby will use the excuse of the
drought to try to extract subsidies from the federal budget, but knowing

that the cupboard is bare they are more likely to succeed if they push
for more protection from imports. The government already announced that
it will introduce temporary tariffs of 40-70 percent on imported sugar
from 1 August.

********

#3
>From RIA Novosti
Commersant Daily
August 13, 1998 
RUSSIA HAS ENOUGH GRAIN FOR THIS YEAR,
but hardly enough for next 
By Yevgeni GOVOROV 

Despite the unprecedented drought this summer, Russia will
not have to import grain this year. The shortage will be made
up for at the expense of large leftovers from the preceding
harvest. 
At the governmental commission for operative questions,
Vice-Premier Boris Nemtsov officially stated that, in the
opinion of the Agriculture and Food Ministry, in 1998 Russians
will be self-sufficient in bread. During the sowing campaign
last spring, the then Agricultural Minister Victor Khlystun
assured that a good harvest would be gathered in this year --
at least 70-74 million or even 80 million tonnes, almost as
much as in the record year 1997. His optimism was well grounded
on better seeds and a favourable weather forecast. 
However, the weather upset these plans. A drought
unseen-of during a century has hit 39 regions of Russia. One
third of the sowlands, over 12 million hectares, have been
fully scorched by the heat and a lack of moisture. According to
the present agricultural minister, Victor Semenov, as of today
agriculture and the related sectors have suffered 9.2
billion-rouble damage. It is twice as much as in the
drought-hit 1978 year. In the estimate of the Agriculture and
Food Ministry, grain crop shortages may run into 16.6 million
tonnes. 
However, this is no reason for panic, Semenov soothes. In
his cautious forecast, between 62 and 67 million tonnes of
grain crops will be gathered this year. This is not enough for
national food security, but as a proverb goes, What you lose on
the swings, you gain on the roundabouts. Last year
grain-growers took in a fantastic harvest, 88.5 million tonnes.
Russians could not have eaten it in one year. The government
wanted to export part of the surplus (10 million tonnes) but
our attempt to emerge on the world market ran into a fierce
opposition of Canada, the United States and Australia. Only a
third of the expected amount was sold. This, by the way, was
viewed as a big flop of the Russian export policy. 
Now last year's grain (20 million tonnes has been left)
has helped the government and rid it of the need to spend on
Western grain purchases. Victor Semenov said in no uncertain
terms that with the last year's 20 million tonnes "the grain
balance will not be upset". 
It is not clear what will help the government next year.
In the words of Victor Semenov, Russia may again run into grain
shortages because the "weather forecasts are again
unsatisfactory and by then the present reserves will be fully
depleted". 

*******

#4
Date: Fri, 14 Aug 1998 
From: helmer@glas.apc.org (John Helmer)

The Journal of Commerce, August 14, page 2A
[for personal use only]
BY JOHN HELMER


RUSSIAN BANK DEFAULT THREAT ALSO THREATENS YELTSIN
Moscow. Three years almost to the day since Russia's commercial banks 
stopped lending to one another, the banks are facing another massive 
liquidity crisis which must be resolved by Friday. Otherwise, 
western bankers predict, there will be a chain reaction of defaults, as 
smaller banks fail to repay loans to larger ones, and larger ones default to
each other, and to western lenders.
Sergei Aleksashenko, deputy chairman of Russia's Central Bank, tried 
reassuring the market Wednesday in a television statement. But he acknowledged
that "in the last two weeks banks have been actively buying hard currency and 
have exhausted their reserves of hard currency. Inter-bank rouble and
foreign currency lending has virtually halted."
Central Bank intervention has failed to hold the rouble below the
target of Rbs6.294 to the dollar, despite the buildup of reserves from last
month's down-payment of $4.8 billion by the International Monetary Fund
(I.M.F.) on its two-year $22.6 billion bailout plan for Russia.
Throughout Moscow's financial community nervousness has been visible all
week. Employees at one well-known American company in Moscow were warned
that it had become risky to hold their savings in just one bank.
George Soros, the New York financier with close ties to Uneximbank, one
of Russia's most politically powerful finance houses, publicly urged
the I.M.F. to add another $15 billion to the bailout. Reflecting the
interests of Uneximbank, whose liquidity has been hurt by falling oil
prices and dropping oil income, Mr.Soros recommended the government also
allow a controlled devaluation of up to 25%.
Until now, Uneximbank and the other leading Russian banks have told
the Kremlin that devaluation had to be avoided at all costs, if they were
not to be overwhelmed by their hard-currency liabilities. President Boris
Yeltsin and Prime Minister Sergei Kirienko have insisted, accordingly,
that devaluation was not an option.
Mr.Kirienko and his subordinates repeated this Thursday, leaving open the
possibility of a managed devaluation later in the year. Meantime, the 
government and Central Bank have agreed to curtail foreign exchange trading, 
and promised to deal with the weaker banks.
The Russian liquidity crisis of August 1995 required the Central Bank to 
intervene with the equivalent of $500 million in emergency loans. This
proved enough to prevent any serious casualty, and restructuring
of the weakest banks and rescheduling of debts were successful.
This week the Central Bank is being asked for more money, at the same time 
as it is struggling to preserve the terms of last month's I.M.F. bailout.
Through the columns of the newspapers they control, Russia's commercial
bankers are now attacking the I.M.F. terms, and the government for
implementing them. They are resisting the tough tax collection methods
which have been applied, particularly against oil and metal exporting
companies that are the only producers of income right now for the banks.
Anatoly Milyukov, vice chairman of Mosbusinessbank, one of the commercial
banks currently targeted by press rumors, has been a consistent critic of

the government's monetary policy ever since the 1995 crisis. "It's not 
possible," he said, "to keep artificially this discrepancy between the 
decline of production and the limits on the growth of the money supply. The 
blowup is inevitable. Any peasant or worker can understand that."
A London-based banker commented that he expects the Central Bank to
add liquidity to rescue the most seriously affected commercial banks. "The
costs of borrowing are so high now," he predicts "the government will also 
restructure the short-term bond market, obliging both domestic and foreign
bond holders to accept longer-term paper at lower yields."
A bond conversion scheme the government offered last month, terming
it voluntary, resulted in the rescheduling of just $4.4 billion in 
Russian treasury bills into lower-interest, long-term bonds. But this was 
only a fraction of $24 billion in total treasuries due for redemption this 
year. Yields dropped briefly, but returned to previous highs of over 140%.
A senior executive at Tokobank expressed deep distrust of Central Bank
actions, implying it is favoring the interests of some commercial banks
against others. According to Gennady Yegounov, Tokobank -- at one time one
of Russia's top-20 commercial banks, with solid international credit
lines and equity backing from the European Bank for Reconstruction and
Development -- was forced into default in May. "In a word," he said,
"the Central Bank was unfriendly. It had agreed on the money needed to
cover our immediate liabilities. It then violated that agreement."
Mr.Yegounov and officials of the European Bank for Reconstruction and
Development confirm that several Russian banks have been planning hostile
takeover bids for Tokobank for months. Until the Central Bank took over, 
Tokobank was negotiating with a consortium of western banks to defend itself.
Tokobank and Mosbusinessbank are regarded by Russian bankers as
vulnerable to whispering campaigns and hostile takeovers, abetted by
by the Central Bank, because they are not allied to any of the major
financial groups that largely control the press, and influence
the Kremlin.
According to documents released by a newspaper associated with Russian
financier Boris Berezovsky, not even the Russian Finance Ministry trusts the 
Central Bank to honor its commitments. The published details reveal that 
between July 16 and 21, as the I.M.F. was deliberating whether to release 
the first tranche of funds for Russia, the Central Bank blocked Finance 
Ministry accounts, preventing the ministry for paying government 
obligations.
Mr.Berezovsky, whose commercial interests are weighted more toward
oil exports and domestic manufacturing than toward banking, has been
campaigning for devaluation. He has also linked this to agreement by
President Boris Yeltsin not to run for office next year, and
to settle on a successor as soon as possible.
Mr.Yeltsin's opposition to devaluation, and his nervousness lately about
schemes to force his early resignation, reflect the calculation that he
needs to shore up support among Russia's energy producers and banks. 
"This is much bigger than a bank liquidity crisis," commented a western

bank advisor in Moscow. "The entire economic policy of the government is
collapsing, and that means the political future of President Yeltsin,
too."

******

#5
Moscow Times
August 14, 1998 
MEDIA WATCH: Luzhkov's Agitprop Empire 
By Leonid Bershidsky
Special to The Moscow Times

It was recently reported that Moscow Mayor Yury Luzhkov has convinced 
the State Property Ministry to let the Moscow city government gain 
control of the Moskovskaya Pravda printing press. Pretty bad news, in my 
view: Luzhkov is clearly using his political clout to give an unfair 
advantage to the media holding he has been building lately in 
anticipation of the 2000 presidential election. 

The media holding so far includes the TV Center television channel and 
the newspapers Rossia and Literaturnaya Gazeta. None of these has any 
particular influence or can boast commercial success. But, as Kommersant 
Daily pointed out; "By election time Yury Luzhkov will be in control of 
a powerful media holding, despite experts' earlier skepticism about it. 
The control of Moskovskaya Pravda, apart from the ability to print his 
own publications (and also posters, leaflets, etc.), will give the mayor 
the ability to control other people's publications." 

Among "other people's newspapers" Moskovskaya Pravda prints Moscow's 
most popular daily, Moskovsky Komsomolets, and the feisty and 
independent-minded weekly Novaya Gazeta. 

There are many situations in Russia's regions where governors make 
printers refuse to work with opposition publications. The case of 
Sovietskaya Kalmykia Segodnya, barred by Kalmyk President Kirsan 
Ilyumzhinov, is one example that had extreme consequences: the 
newspaper's editor persisted in smuggling her publication into the 
republic and later got killed. The suspects, now under arrest, were 
linked to Ilyumzhinov. 

Something as ugly as that is hard to imagine in Moscow; but Luzhkov does 
have a clear tendency to try to control what the press writes about him. 

Take his recent spat with the daily Segodnya over its comments on a 
recent gas explosion in a Moscow apartment block, in which several 
people were killed. Segodnya remarked that the mayor was quick to blame 
the accident on one of the dead. Segodnya's editor, Mikhail Berger, 
immediately received a letter from Luzhkov's chief spokesman, Sergei 
Tsoi, threatening to sue the newspaper for defaming the mayor. 


"Despite the existing agreement on cooperation between your publication 
and the Moscow mayor's office, Segodnya continues to publish articles 
containing statements that smear ... Luzhkov and the city government he 
heads," Tsoi wrote. 

Luzhkov's spokesman clearly believes there can be some kind of a 
non-aggression pact between a newspaper and the mayor. Quite rightly, 
Berger fears things may get worse if Luzhkov decides to run for 
president and gets elected. "The heightened sensitivity shown by the 
mayor's aides gives rise to fear that [under a President Luzhkov] the 
freedom of speech may be replaced by a freedom to express approval of 
the authorities," Berger wrote in a front-page reply to Tsoi's letter. 

Berger makes no discovery when he says Luzhkov's press people openly 
divide media into two camps: those friendly to the mayor and those 
hostile to him. To be considered friendly, a newspaper or television 
channel has to praise Luzhkov. Not criticizing him is insufficient. 

A few years ago, The Moscow Times had an extremely dedicated and 
energetic city reporter, Ann Barnard. She spent her entire tenure at the 
newspaper writing about city life and trying to get an interview with 
Luzhkov. She coped admirably with the first task; on the second, she ran 
into a stone wall. She left Moscow without once meeting the mayor 
face-to-face. The Moscow Times is clearly not seen as a friendly 
newspaper. Neither are, for example, Kommersant and Segodnya. 

What kind of future awaits these newspapers under President Luzhkov? 
That, I think, is a question that causes legitimate concern. 

Earlier this year, Luzhkov received the Silver Archer, a prestigious 
award established by the Russian Public Relations Association, as "PR 
Personality of the Year." "There is probably no public figure who would 
combine working for state interests with building his own image as 
smoothly as Luzhkov does," Igor Pisarsky, one of the Silver Archer 
competition's judges, was quoted by Sovietnik magazine as saying. 

Pisarsky may well be right because Luzhkov does get results with his PR 
strategy: Ninety percent of Muscovites voted to elect him mayor in 1996. 
But I am sure a lot of journalists would disagree with Pisarsky's 
ringing endorsement: What works for the public does not necessarily have 
anything to do with democracy, freedom of speech and all these old 
concepts in which we still try to believe despite everything. 

*******

#6
Financial Times (UK)
14 August 1998
[for personal use only]
DEVALUATION: Russia's moment of truth

It was only three weeks ago that Russia's beaming prime minister, Sergei 
Kiriyenko, declared "absolute victory" as the International Monetary 
Fund approved the first part of a rescue package designed to haul Russia 
from deepening crisis. On Thursday, Mr Kiriyenko was staring at the 
prospect of absolute defeat.

The country's collapsing financial markets have already cut off the 
government's access to fresh finance, exacerbating its short-term 
funding difficulties. This in turn is eating away at the central bank's 
hard currency reserves - which fell $1.4bn to $17bn in the first week of 
August - and is threatening to destroy the country's banking system.

In a letter to the Financial Times, George Soros, the world's best-known 
speculator, said the meltdown in the had now reached a "terminal phase". 
On Thursday, his prophesy appeared self-fulfilling.

The prices of Russian equities and bonds plummeted to new lows this 
year. The stock market, which was suspended at one point, fell 15 per 
cent before recovering to close 6.5 per cent down. The word on every 
market participant's lips was that either the government would have to 
default on its debts or devalue the rouble. Neither is a happy prospect.

"If you had to sum up the mood of investors in one word it would be 
despair," said one market trader. "Investors have completely lost faith 

in the government," echoed Moscow's Kommersant business newspaper.

Yet there is still a sense of unreality about the crisis. Most Russians, 
who do not have mortgages, car loans or credit cards, appear oblivious 
to the wild gyrations of financial markets and interest rates. Even 
though the financial system appears on the brink of collapse, top 
Russian officials - including Boris Yeltsin, the president, Sergei 
Dubinin, head of the central bank, and Anatoly Chubais, the chief debt 
negotiator - remain on holiday.

Even Mr Kiriyenko, who has made heroic efforts to grapple with his 
responsibilities since entering office in March, was refusing to admit 
the gravity of the situation yesterday. "What is happening on the 
markets belongs in the realms of psychology," he said. "There are at 
present no financial grounds for a deterioration in the situation."
Objectively, Mr Kiriyenko may be right. Russian markets appear to have 
been the victim of negative investor sentiment about the Japanese yen, 
the recent slide on Wall Street, further falls in the international oil 
price and fears of a Chinese devaluation. Prices have moved wildly in 
extremely thin volumes after most big investors closed out their 
positions ahead of their holidays.

"My feeling is that markets in Russia are over-reacting," says Nicholas 
Stern, chief economist at the European Bank for Reconstruction and 
Development. "I do not think the markets have learned anything new over 
the past three weeks and, in that sense, the price movements are rather 
artificial."

Yet, as has proved to be the case in several Asian countries, extreme 
market falls can quickly cause fundamental problems of their own. The 
danger is that this is beginning to happen in Russia as the collapse of 
the financial markets threatens to undermine the banking sector. The 
central bank on Thursday moved to increase liquidity in the sector as 
rumours abounded that even some of the country's biggest banks were in 
severe trouble.

Holger Mueller, banking analyst at Fleming UCB, the Moscow-based 
investment bank, says Russian banks have been caught in a liquidity 
squeeze as the value of their financial assets has plummeted. Creditors 
have started calling in their credit lines and refusing to roll over 
hard currency loans.

"The main risk now is that one of the big banks that has household 
savings may not be able to pay out on their deposits which would cause 
substantial damage to confidence and trigger a run on the banks," he 
says.

If retail depositors started withdrawing their money from the banks - 
estimated to be $25bn at the end of June - this would put enormous 
pressure on the government debt market as banks were forced to liquidate 
their Treasury bill portfolios. It could also endanger the stability of 
the rouble as the population switched into dollars.

Yet the central bank appears acutely aware of the dangers of keeping 
weak banks afloat. Many Russian banks are run more like speculative 
hedge funds than conservative financial intermediaries and their 
collapse would do little harm to the broader economy. "The central bank 
is afraid of injecting too much liquidity into the banking system 

because it will just be used to buy dollars and further destabilise the 
rouble," Mr Mueller says.

In his letter to the FT, Mr Soros argued that the action needed to 
resolve the banking crisis was diametrically opposed to the action the 
government had agreed with the IMF to solve its budget crisis. "The IMF 
programme imposes tight monetary and fiscal policy; the banking crisis 
involves the injection of liquidity," he wrote.

Mr Soros argued the only way out of this dilemma was to introduce a 
currency board - backed by $50bn of reserves - after a 15-25 per cent 
devaluation of the rouble. Such currency boards, which fix the local 
currency to a hard currency and ensure that domestic money supply 
expands or contracts in line with hard currency reserves, have brought 
financial stability to countries as diverse as Argentina, Estonia and 
Singapore.

But the Russian government has long argued it would be impractical to 
introduce a currency board in such a big and complex country. Besides, 
where would the $50bn come from?

"For a currency board to work, you have to have a very flexible fiscal 
policy because you have no control over your monetary policy," says one 
western economist. "But anyone who understands how fiscal policy works 
in Russia knows that that is not very realistic."

A better way of letting some steam out of the system may be to have a 
controlled devaluation - to reflect the fall in commodity prices which 
form the bulk of Russia's exports - and introduce a more flexible 
exchange rate regime. But again the question is whether Russia has the 
institutional capability, and sufficient international reserves, to 
deliver such an outcome.

Ministers fear any devaluation of the currency would panic the 
population leading to a run on the banks and a rout of the rouble. "A 
devaluation would be a disaster," the western economist said. "It would 
end up with the market chasing its own tail downwards."

Before it contemplates a devaluation, the government seems more likely 
to force a restructuring of the domestic treasury bill (GKO) market, 
which has been the chief cause of its financial woes this year. 
Politically, it is becoming increasingly hard for the government to 
persuade striking workers that it should honour its debts to foreigners 
in the debt markets before it pays off wages to coalminers and teachers.

With foreign investors reluctant to roll over their holdings of 
short-term GKOs, the thinking is that the government may force them to 
do so by unilaterally lengthening the bonds' maturities. "Russian debt 
is already trading at default levels," says one bond holder. "Investors 
are beginning to reconcile themselves to the fact that they are going to 
get restructured."

Such a step could not be taken lightly. Any such drastic measure would 
close off Russia's access to capital markets for many months to come. 
But so long as the government continued to run a budget surplus, it 
could soldier on regardless. That would win more time to overhaul its 
tax regime and put its public finances in order.


A growing part of the Russian industrial establishment appears to favour 
devaluation. They believe this would make their exports more competitive 
lower their domestic cost base. Russia's politically powerful oil and 
gas companies, which own large parts of the country's media, argue that 
a devaluation would be the best way out of their own financial 
difficulties. They have taken to dismissing the IMF as "Gosplan on the 
Potomac", referring to the Soviet command economy.

For the moment at least, the government appears determined to stick to 
its IMF-approved austerity plan. The Fund has given the central bank 
sufficient reserves to hold the rouble for several more weeks, perhaps 
months, assuming there is no mass panic among the population.

Ministers are still arguing that investor confidence will return after 
the government has demonstrated its commitment to raising tax revenues 
and pursuing painful structural reform. It is also possible that more 
support may come from the IMF or Group of Seven countries to plug the 
expected hole in the government's funding needs this year.

The US administration, in particular, appears desperate to help the 
Russian government through its financial crisis, especially since 
President Bill Clinton is due to visit Moscow on September 1. David 
Lipton, the undersecretary of international affairs at the US Treasury, 
yesterday held talks in Moscow with Mr Kiriyenko to discuss the 
government's financial plight.
It is clear that the Russian government has no easy options. It remains 
highly vulnerable to global events and market moods beyond its control. 
Yet the outcome of the next few weeks could prove critical in 
determining the stability of the Russian economy and the political 
system for years to come.

It has become something of a cliché to argue that Russia is forever at a 
turning point. But this time, it may be true.

*******

#7
>From RIA Novosti
Vek, No. 31
August 1998
CUL-DE-CHUBAIS, OR THE FUTILITY OF SUCCESS
Sobering variations on an inebriating subject
By Alexei BOGATUROV

The case of Chubais is unique in our history, and the
staggering constant demand for him surprises even his bitterest
enemies. He was fired two times, and soared to the near-summit
three times. His powers magically returned to him, only to
vanish with incredible suddenness. Relations between Chubais
and the powers-that-be formed a vicious circle. Movement in
this circle is fuelled by a complicated mixture of jealousy and
suspicion, common sense and political inevitability. 
On the other hand, the corpulent favourite cannot get rid
of the uniform of "the messenger at large." The special tasks
entrusted to him can be tackled only by inordinate minds, but
the presidential leash of "forced trust" is very short. Does
Yeltsin want to hug, or smother the country's best negotiator?
Smart men are not liked in this country. They are feared.
This one is smart, we must and are pleased to admit. Hence we
criticise him and blame him for alleged conspiracies. That is
why deliberations about Chubais's chances for "big-time" power
are so popular. The fewer reasons for them, the greater their

attractiveness. 
And Chubais keeps mum, guided by the instinct of self-
preservation. The silence of both sides is only tempting the
public still more, engendering attractive (for some) or
horrible (for others) scenarios of election coalitions,
conspiracies and intrigues promising the rule of the "coalition
of carrot-tops" in the government, if not in the Kremlin.
Judging by everything, Chubais disregards these
deliberations, to the regret of his enemies, who respect him
still more for this. Legend says he is incredibly wealthy and
has greater influence than even the premier and both houses of
the Federal Assembly taken together have - he spent two hours
in an eye-to-eye talk with the president. Who of the contenders
for power would not envy him? Total success and prosperity?
That's what people think. And this could have been true, if not
for the dramatic paradox of this person and, to an even greater
extent, of the situation which he symbolises. 
In this country Chubais has no rivals in terms of natural,
organic behaviour which fits the modern Russian political
practice perfectly well. A pro-Westerner by reputation, way of
thinking, interests, tastes and likes and dislikes (including
political ones), his is also an ideal embodiment of the
archaic, traditionally Russian type of courtier, because he is
playing nearly exclusively, more than any other Russian
politician, on the field of the president's personality. 
Compare him to Luzhkov, Zyuganov and even Lebed,
politicians who have more reasons than Chubais to become the
symbols of a purely Russian type of political culture, but who
behave as Westerners in everyday life. Willingly or
unwillingly, but they above all rely on political institutions
- elections and elected agencies, the mechanisms of formal
power, the mass media, and so forth. 
Unlike them, Chubais's influence is based on his talent to
be needed by Yeltsin, to enchant him in a stunningly Byzantine
manner befitting a genuine courtier. This is the secret of the
incredible viability of the "cardinal" and his resistance to
pressure put on him outside the Kremlin. But this also explains
his strange defencelessness to the changeability (read
arbitrariness) of the Chief Executive. 
There is a merciless irony in the fact that Chubais, the
most unsinkable Russian politician, has never got a chance to
act completely independently, to bring to completion the viable
cause of his life, as, say, Rem Vyakhirev is doing now. He
hardly ever worked as the boss. He wielded incredible influence
in the government, but was always chained by the prestige of
the premier. The will of the Chief Executive weighed down on
him even more when he headed the Presidential Administration. 
Strange as it may seem, but the post of head of RAO EES
was the first large and constructive job which could become his
own, if he has the time. And yet, he has not achieved the main
thing here either, which is to bridle abuse of power and
embezzlement. Playing on the non-apparat field does not go well
with Chubais's talents of organiser and inventor of
sophisticated schemes and concepts.

Shockingly well educated, he engenders the envy of those
who work with him and suspicions (justified?) of the public.
With his "improper" name and black reputation of the author of
the most unpopular government measures, who cannot and does not
want to merge with the masses, Chubais is the most unrewarding
figure of all presidential marathons known in history. He is
also the worst candidate for premiership, for the same 
reasons. 
These are the political and psychological elements of the
current situation. The hero and the winner of "the battle for
IMF credits," the brightest and most conflicting figure of two
Yeltsin's administrations, he is doomed to be the third man, at
the very best. Influence without power. Might without
protection. Wealth and comforts without recognition and
gratitude. 
The case of Chubais embraces all contradictions of our
era, and embodies a special type of a mixed Russo-Western
thinking and behaviour, which is still marginal (is this good
or bad?) in Russia. It is the drama of a towering personality
who cannot, and probably will not, find a task corresponding to
his scale, where he would accomplish himself. We can only
wonder what is God's, and what is Satan's work here. 

*******

#8
Irked Middle Class Takes Financial Madness in Stride 
August 13, 1998

MOSCOW -- (Agence France Presse) Ordinary Russians -- salespeople,
students, managers -- are no worse off because of the plunging market
wreaking havoc in Russia's financial circles and unnerving the world's
financial markets. 
The latest turbulence, Russians say, is mere child's play after the
successive crises they've come to know since the fall of communism in 1991. 
That was when life got harder for them. 
"There's no reason to panic," said Yulya Vasilyevna, a retired
60-something accountant. "I've been vaccinated against all financial
crises: I've got nothing to lose." 
Aleksei, a student in economics, quipped: "Crises in Russia are
permanent. They only change qualifiers -- political, governmental, market,
financial, economic." 
Nor do rumors predicting the ruble's devaluation seem to trouble the
Russians middle class. 
Currency exchange offices have seen no exceptional haste among people
trying to trade in their rubles. 
"When there is no stability, you're better off spending everything,"
said Ivan, 30, a Moscow clothing store manager who claims he has no
savings, either in rubles or dollars. 
Since the fall of the USSR, this has been a shared conviction among
middle-class Russians. 
For Lidya Pavlyuchenko, a former engineer who for the past three years
has sold blue jeans for a living, making 500 rubles ($800) a month, it was
under the Soviet Union that life was stable. 
"Now I am afraid of being fired because I'm not young," she said. "I am
afraid of being underpaid or not paid at all." 
"Food, clothing, public services have become more expensive but my
salary hasn't budged," she added. 
Meanwhile, Prime Minister Sergei Kiriyenko says every day that the only
way for Russia to overcome the current crisis is to implement a strict
"anti-crisis" austerity program that would include raising import taxes,
hardening fiscal discipline and jacking up the cost of public services. 
These are measures that surely will affect people like Ivan and Lidya
Pavlyuchenko. 

"If you are smart enough to start your own small business, they
strangle you with taxes," Ivan, the store manager, said. 
Oleg Girin, marketing director for Style TM, a textile firm, decried the
imperfections of the fiscal and banking systems. 
For Girin, investing in industry has become risky business. 
"It's madness," he said. "The fiscal administration confiscates whatever
we put in our bank accounts if the company doesn't have special advantages
given by the state." 
Furthermore, banks slow down payments, which can be a reason for
companies to break contracts, he said. 
"This situation worries me," he added. "I could lose my firm any day
now." Marina, a salesperson, agreed that the crisis seems permanent. 
"I have made no profit in the past year," she said, admitting that as a
pregnant woman, she worries about her newborn. 
"As soon as he is born, his debt to the state will hang over him," she
said. Pavlyushenko, the ex-engineer who now hawks blue jeans, said she
hopes her children will have a better life, but does not have "much faith"
that they will. 
As for Ivan, the manager, Russia now has only two classes: the rich and
the miserable. 
The current laws will never see the rebirth of the middle class, he said. 
"They were passed for those who are in power," he said. "It's like the
IMF loans. The directors are asking for them to finish paying off their
dachas."

********

#9
Jamestown Foundation Monitor
14 August 1998

MORE ON RUSSIAN DEFENSE CONCEPT; MILITARY REFORM. On July 30 of this year,
Russian President Boris Yeltsin approved a document setting out the
fundamental principles--or concepts--of Russian military development to the
year 2005. (See the Monitor, August 4) In a long interview granted on August
12 (Federal News Service, August 12), Russian Defense Minister Igor Sergeev
called the document a "landmark" in Russia's efforts to restructure its
military establishment, and the beginning of a "new stage" in military
reform. Sergeev also provided an overview of both what the armed forces had
accomplished over the past year in terms of military reform, and what the
July 30 document means in terms of future developments in Russia's regular
army and in the other security organs. Sergeev said that the July 30
blueprint had formalized the leading role of Russia's regular armed forces
in the country's military reform effort. He suggested that the other "power
structures"--that is, the Internal Affairs Ministry, the Federal Border
Service and other security agencies--now face the sort of radical
restructuring and downsizing that the armed forces have already undergone.

With regard to the Defense Ministry's successes in the area of military
reform to date, Sergeev highlighted the merging of the countries former
Strategic Rocket Forces, Military Space Forces and Space Missile Defense
Troops into a single new service branch: the Strategic Missile Troops. He
pointed likewise to the merger of Russia's Air Defense Troops with the Air
Force. In addition, Sergeev said that the Ground Forces--the most troubled
of Russia's five former service branches--had become more compact and combat

ready. He claimed that the armed forces as a whole are now closer to their
optimal administrative structure, and that these positive organizational
changes in the regular army had created the preconditions for the reform of
Russia's entire defense establishment.

This broader reform plan is reflected in a restructuring of the country's
military district system set out in the July 30 document. Previously, the
regular armed forces had been organized into eight military districts, while
the Federal Border Service and Interior Ministry troops had carried distinct
structures of their own that were only partially integrated with the regular
army. Now the eight military districts are to be reorganized into six
military-administrative zones, in each of which all Russian military and
security structures are to be integrated. In addition, both a centralized
command structure and an integrated system for procuring military hardware
and providing logistical support are to be created for all of Russia's army
and security forces, Sergeev said. Other reports (Kommersant-Daily, July 1;
Segodnya, August 5) have suggested that the Defense Ministry will be given
responsibility for coordinating the procurement orders of all the military
and security structures.

Sergeev also appeared to confirm what has now long been assumed: that the
Russian government has put aside, for the time being, efforts to transform
Russia's army from a conscript force into an all-professional, volunteer one
by the year 2000. Sergeev suggested that a scarcity of government funding
was responsible for the delay. He also said that the Defense Ministry would
make a greater effort to place those contract volunteers it does recruit
into posts that will contribute directly to the readiness of armed forces
units. He admitted that about two-thirds of Russia's current contract
soldiers are serving in support and service units.

IMPLEMENTATION OF DEFENSE CONCEPT NO SURE BET. Sergeev's upbeat assessment
of the Defense Ministry's accomplishments to date and his matter-of-fact
rendering of the government's plans for future military reform would seem to
raise more than a few questions. It is not clear, for example, that the
military restructuring and force reductions implemented to date have
actually made the armed forces more manageable or more combat worthy.
Certainly, recent reports of continuing problems in the armed forces and of
growing disgruntlement among military personnel--evidenced in particular by
the army's inability to retain its best young officers (Krasnaya zvezda,
August 4)--make it difficult to say that the Defense Ministry has managed to
reverse the army's long decline.

Sergeev's remarks about the current disposition of Russia's contract
volunteers likewise say much about the large gap that often divides the
Defense Ministry's avowed policies and reality in the barracks. The Russian
army has been recruiting contract volunteers for approximately five years
now, and the military leadership has vowed intermittently during that period
to place these (relatively) highly paid recruits in key combat posts rather
than in support units. That pledge has clearly not yet been met. There is

little reason to believe that Sergeev's efforts in this area will meet with
any more success.

A host of other problems also come to mind. The July 30 military reform
document was to some extent sprung on the public, and is unlikely to win
much support in Russia's parliament. The leader of the Communist Party,
Gennady Zyuganov, criticized the military reform blueprint on August 3 and
accused the Kremlin of drafting it without input from the public or
parliament. (Russian agencies, August 3) Zyuganov's criticism was
politically motivated, but it nevertheless reflected widespread opposition
to the Kremlin's defense reform policies--now embodied in the military
reform blueprint--within the parliament. The July 30 document was apparently
issued in the form of a presidential decree, and is thus not subject to a
veto by the parliament. The military reform issue, however, is likely to be
a highly politicized one, particularly with parliamentary and presidential
elections approaching. That, in turn, can only complicate the government's
efforts to implement policies which, in any case, are sure to be unpopular
in a number of the Kremlin's entrenched bureaucracies.

That the drafting of the defense reform concept generated considerable
controversy within the Russian government was made clear by Security Council
Secretary Andrei Kokoshin. (Russian agencies, August 13) The Kremlin
security chief said that the decision to grant the Defense Ministry the
leading role in organizing logistical and technical support for the other
force structures had been especially controversial. He also suggested that
government leaders might have to take strong measures to ensure that the
defense concept's call for full integration of all military and security
structures is faithfully implemented. Kokoshin should know. He is likely to
be the point man in the Kremlin's efforts to rein in the country's various
security agencies and to cut government expenditures by streamlining the
currently unwieldy and wasteful defense and security establishments.

*******