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Johnson's Russia List


August 15, 1998   
This Date's Issues: 2309 •• 

Johnson's Russia List
15 August 1998

[Note from David Johnson:
1. Reuters: Yeltsin puts brave face on rouble's troubles.
2. RFE/RL: Paul Goble, The Dog That Didn't Bark. 
3. Edwin Dolan: Examining the Conventional Wisdom about Russia's
Latest Crisis.

4. AP: Mitchell Landsberg, St. Petersburg Faces Hard Times.
5. New York Times editorial: The Staggering Russian Economy.
6. Moscow Times: Valeria Korchagina, Court Eases Rules on Foreigner

7. Jerry Hough: Re 2308-Rutland/Harvest.
8. Argumenty i Fakty: Article Views Political Elite Power Ambitions,
Health Issue.



Yeltsin puts brave face on rouble's troubles
By Andrei Khalip

MOSCOW, Aug 15 (Reuters) - President Boris Yeltsin has put a brave face on the
bruising suffered by Russia's share markets and the rouble, saying the country
has the resources it needs to weather the crisis. 

``There is a new wave of world financial crisis and we have to brace ourselves
again to be able to deal with this situation,'' Yeltsin said. ``We've
calculated our reserves and are ready to resist.'' 

He said he saw no need to rush back to Moscow from his vacation in lakeland
Valdai. ``That would signify that there was turmoil,'' he told reporters. 

U.S. president Bill Clinton, who spoke to Yeltsin by telephone for 40 minutes
on Friday, had a different opinion. U.S. officials said Clinton urged Yeltsin
to act quickly and decisively to restore confidence in the Russian economy. 

White House spokesman Mike McCurry's account implied that Clinton and Yeltsin
had not discussed the possibility of further international aid to Russia,
which only last month agreed a $22.6 billion bail-out with international

McCurry said that the two talked about the rouble. He gave no details. 

Russian share prices meanwhile halted a week of near free-fall, moving higher
so sharply that trading had to be briefly suspended. 

But while stocks closed up nearly 14 percent, traders said volume was too thin
to signify an end to fears of financial collapse. 

The rouble stood at between 6.37 and 6.70 per dollar, well below the central
bank's floor for the day of 6.31. Its fall shows the market is betting on
devaluation, in spite of adamant denials from Yeltsin the central bank. 

Some foreign exchange booths shut down in central Moscow, blaming a lack of
hard currency. Others would sell dollars only at premium rates ranging up to
eight roubles. 

Some banks refused to allow depositors to withdraw dollars from savings
accounts -- a first sign of currency trouble for ordinary Russians. 

But Yeltsin told reporters: ``There will be no devaluation -- that's firm and

Central bank spokeswoman Irina Yasina said central bank chief Sergei Dubinin
and Kremlin debt negotiator Anatoly Chubais were returning from holiday this
weekend but denied there was any plan to devalue the rouble while markets were

Yeltsin's Communist opponents said they were ready to agree to a session of
the State Duma, the lower house of parliament, where they are a dominant
force. But they made clear they wanted to take the cabinet to task rather than
talk about rushing government proposals onto the statute books. 

Yeltsin signed an appeal to the Duma to break into its summer recess. 

Prime Minister Sergei Kiriyenko has been urging the Duma to return next week
to pass a dozen tax and other bills which ministers say are a vital part of
their crisis measures. 

Kiriyenko said in Kazan that he was going to discuss a ``wide range of
economic problems'' with Yeltsin on Monday. 

The Duma has yet to decide whether to convene the session, which Kiriyenko
believes could be held before the end of August. 


Russia: Analysis from Washington - The Dog That Didn't Bark
By Paul Goble

Washington, 14 August 1998 (RFE/RL) - The most remarkable feature of the 
current Russian economic crisis is one that most commentaries have 
overlooked: namely, that the Russian collapse has not spread to the 
other post-Soviet states. 

Even five years ago, most of the former Soviet republics were still 
sufficiently integrated that difficulties in the largest of them would 
inevitably have a large and immediate impact on all the others. 

Now that has changed. More and more of the post-Soviet countries have 
succeeded in diversifying their trading partners so that problems in 
Russia will not be the determining factor in their development. 

That is not to say that the problems in Moscow will not have an impact. 
Rather, it is to insist that the three ways in which these Russian 
problems will affect the non-Russian countries are very different and 
more indirect than many are now assuming. 

•First, some but hardly all of the post-Soviet states remain 
sufficiently integrated with the Russian economy that problems in Moscow 
will have precisely the kind of impact that some are assuming will 
happen across this region. 

Ukraine, Belarus and Kazakhstan, for example, will be under enormous 
pressure to devalue their national currencies if the Russian ruble 
continues to fall. 

•Second, many of the post-Soviet states have not yet completed the 
reforms of their economic and legal system that would make them able to 
withstand negative trends abroad. 

These countries -- and they are in the majority -- thus suffer from many 
of the same kind of problems that Russia does and for the same reasons. 

Without reforms, they cannot attract the kind of investment that will 
help power their future development. Indeed, the exceptions to this 
general pattern -- Estonia, Latvia, and Lithuania -- prove the rule. 

The three Baltic countries rapidly liberalized their economies and now 
enjoy some of the highest rates of Western investment and economic 
growth anywhere in this region. 

Those that have failed to reform their economies, on the other hand, are 
in increasing difficulty. But the primary cause of their problems is the 
absence of reform rather than difficulties in the Russian marketplace. 

•And third, all of these countries are profoundly affected by the 
attitudes of Western investors. Because the Russian market is the 
best-known, many in the West have concluded that all post-Soviet states 
and indeed all emerging markets are in the same situation. 

That is profoundly wrong. In the most recent quarter for which economic 
statistics are available, virtually all the post-Soviet states did 
better than Russia on virtually every measure of economic development, 
relative to the size of their markets. 

But while these judgments are incorrect, they have an impact on the 
economies of the other countries in the region, an impact that some 
analysts in both Moscow and the West will undoubtedly suggest shows just 
how "integrated" this region remains. 

To a large extent, this misreading of the economic situation in the 
post-Soviet states reflects a larger misunderstanding of the situation 

Nearly seven years after the Soviet Union collapsed, all too many in the 
West continue to refer to the countries there as "new independent 
states" and to think about the region as a single whole rather than as 
12 new countries and the three restored Baltic states. 

Such observers thus have missed the amazing diversification over the 
last few years in a region dominated until a decade ago by a single 

If the Russian economic crisis does in the end have a broad impact 
across all these countries, it is far more likely to be the result of 
Western misperceptions than the product of integration left over from 
Soviet times. 


Date: Fri, 14 Aug 1998 
From: (Edwin Dolan)
Subject: Conventional wisdom

Examining the Conventional Wisdom about Russia's Latest Crisis
Edwin G. Dolan, President
American Institute of Business and Economics, Moscow

The Washington Post for August 14 contains the following summary of the
conventional wisdom about the latest Russian crisis:

"The scenario feeding the fears of the Clinton administration [is that] a
collapse in the ruble could rekindle hyperinflation. That in turn would
endanger President Boris Yeltsin's reform-minded government, which has
claimed credit for stabilizing prices-one of the few bright spots in
Russia's economic picture."

Given the Post's excellent contacts, I think we can take it as given that
this really is the way the administration thinks as it contemplates the
possibility of a new, even more massive rescue effort. Nevertheless, if the
reported reasoning is analyzed piece by piece, it is less than fully

(1) Will a collapse in the ruble kindle hyperinflation? 

True, there are cases in which devaluation has preceded, or even caused,
hyperinflation. However, this is not the inevitable or even the most
frequent effect. Broad-based cross-country comparisons of the effects of
numerous devaluations indicate that the typical effect is for any given
change in the nominal exchange rate to feed through fully to the price level
over a period of about two years, thereby bringing the real exchange rate
back to its predevaluation level. If that pattern held for Russia today, it
would mean that a one-time 25 percent devaluation now would boost the
inflation rate over the next two years from the current 4 percent annual
rate to an annual rate of about 16 percent-hardly hyperinflation.

In cases where the initial real exchange rate is overvalued, the nominal
devaluation does not necessarily fully feed through to prices. It can be
argued that the ruble is now overvalued, a factor that would further reduce
the inflationary consequences of a devaluation.

What about the cases when devaluation did trigger hyperinflation? An
essential linkage between hyperinflation and devaluation in such cases is
monetary policy, since hyperinflation cannot occur without massive monetary
accommodation. It is most likely to occur in a country where the finance
ministry habitually funds current expenditures by borrowing directly from
the central bank or by other equivalent methods of "printing money."
Whatever the sins of Russia's current government, this is not one of them.
Absent the linkage of monetary accommodation, it can be stated flatly that
there is no danger that devaluation will lead to hyperinflation, as opposed
to a modest rise in the rate of price-level increase.

Whether the current crisis could lead to a change of government--to a
government not committed to monetary restraint--is of course a separate

(2) Would hyperinflation endanger Yeltsin's reform-minded government?

There are three problems with basing US policy on the premise that anything
short of maximum forbearance and support from the West will "endanger
Yeltsin's reform-minded government."

First, Yeltsin's government is in pretty deep trouble already. Polls show
popular support at about 4 percent. The government has no candidates and no
party organization going into the upcoming legislative and presidential

elections. The prudent focus of US policy, one would think, would be to get
into a position to deal with whatever successor government emerges. The
calculus should be, will letting the already hopelessly unpopular Yeltsin
government take the heat for additional unpopular policies improve the
prognosis for a post-Yeltsin government, or will it make matters worse? I
don't have the answer to that one, but it seems like a better way to frame
the discussion.

Second, the degree to which Yeltsin's government really merits the
inevitable epithet "reform minded" is open to challenge. Over the years, the
government has put high priorities on some aspects of reform, for example
privatization and (after 1974) monetary control, but low priority on other
aspects of reform, such as institution building (rule of law, corporate
governance, bankruptcy) and human capital development (health, education,
rural infrastructure). Still other aspects of reform (property in land, deep
structural reform of the tax system, military reform) have been backed at a
rhetorical level but nothing has been accomplished in practice. In human
rights areas (prison conditions, abuse of military conscripts, religious
freedom, residency restrictions) the Yeltsin government has not been
reformist at all.

Third, to let Yeltsin's government believe that the West will back it, no
matter what, out of fear that any alternative will be worse, is to give that
government too much of a blank check. And unnecessarily so. Chechnya was a
case in point. On the same reasoning that now applies to economic matters,
the Clinton administration once feared criticizing Yeltsin's war in
Chechnya, even (sickeningly) comparing it to Lincoln's campaign against
secession of the Confederacy. The result was to place no constraints on the
brutality with which the war was conducted. What is more, Washington's fears
proved unfounded. Yeltsin's government flat-out lost the war to the
Chechens, but survived that disaster with its hold on the Kremlin unshaken.

(3) The ruble must be defended because low inflation and a stable currency
are among the "few bright spots" of reform.

To say that low inflation is a bright spot of reform is a very curious way
to put it. The hyperinflation of 1992-1993 was itself a product of reform.
It can be argued (the argument is too long to go into here, but it has to do
with the policies pursued by the central bank during Gerashchenko's
chairmanship) that wiser monetary policy could have held the cumulative rise
in the price level over 1992-1993 to about 500 to 1,000 percent, or even
less, rather than the 20,000 percent that took place. It seems, then, that
the Yeltsin government is getting a lot of credit for solving a problem that
its own policies brought on. It's like giving a quarterback credit for
fighting back to a tie in the second half of a game after a series of
fumbles and interceptions that made a total mess of the first half.

To say that the stable ruble is a bright spot of reform is even more
curious. Controlling inflation is at least among the basic goals of economic
policy, but the exchange rate is a mere instrument of policy. During the

disinflation of 1995-1996, the policy of holding the ruble to a
pre-announced corridor was arguably appropriate and effective. However, a
review of the technical literature on exchange rate policy shows universal
agreement among economists on one point: If a fixed exchange rate (or its
first cousin, a corridor) is used as an instrument to fight inflation, then
exchange rate adjustment becomes unavailable as an instrument to help the
economy deal with the impact of external economic shocks.

At some point the useful instrument of stability transmutes into a source of
fragility and rigidity. This occurred in Russia when two things happened
simultaneously. First, successful control of inflation meant that the
corridor, which initially contained some element of flexibility regarding
the exact pace of devaluation, became de-facto a simple fixed exchange rate.
Second, the Russian economy was hit by a pair of powerful external shocks,
namely, a loss of investor confidence (the "Asian contagion") and falling
world oil prices, which adversely affected its terms of trade.

A flexible exchange rate is a useful, indeed one of the most useful,
instruments for absorbing external shocks. The Japanese, even though they
may be making some other mistakes, at least know this. Their flexible
approach to the yen's value is mitigating the damage external shocks are
doing to Japanese industry. The inflexible policy of the Russian central
bank is, on the other hand, amplifying the impact of external shocks on the
Russian productive sector.

Let's move on very briefly from the Clinton administration's conventional
wisdom to that of the Russian government, also as reported in the August
14th Washington Post.

(4) Prime minister Kiriyenko says he sees "no objective financial reasons
for this panic. Its origin is psychological."

Well, yes. To the extent that stock prices and exchange rates are market
determined, and since it is a truism to say that prices on financial markets
reflect the expectations of market participants, there is of course a
psychological element to the crisis. At the same time, however, there are
objective reasons for market participants to hold the expectations that they
presently do.

Once again, let's review the technical literature. The relevant literature
begins from the famous "Sargent-Wallace" conditions that show when a
government's fiscal policy is sustainable, as opposed to when it is building
an unsustainable debt pyramid. This is not the place to give the equations
themselves, but suffice it to say that the Sargent-Wallace conditions
feature the following key variables:

--Other things being equal, a greater primary deficit in the budget (the
deficit excluding interest on the government debt) makes a policy less

--Other things being equal, higher real interest rates make a given primary
deficit less sustainable.

--Other things being equal, slower economic growth makes a given primary
deficit less sustainable.

--Other things being equal, a larger initial stock of debt, and a larger
share of the debt held by foreigners, make a given deficit less sustainable.

The problem with Russia's situation is that by the time the IMF paramedics
arrived, the patient was already in a condition where none of the standard
therapies could favorably affect any one of these variables without
adversely affecting others.

The way the anti-crisis program was SUPPOSED to work was by bringing using a
standby credit facility, which would never be fully drawn on, to boost
investor confidence, while simultaneously undertaking a combination of tax
increases and expenditure cuts to reduce the primary deficit to a
sustainable level. 

The reason the program has gone wrong is not at all hard to see within the
Sargent-Wallace framework.

First, the triple-whammy of expenditure cuts, tax increases, and an exchange
rate held high in the face of a massive terms-of-trade shock have depressed
prospects for GDP growth. Thus, although the first variable of the
Sargent-Wallace equation-the primary deficit-looks better, the third
variable, the growth rate, looks worse, so that the new policy, on balance,
isn't really any more sustainable than the old. 

Second, the debt restructuring aspect of the crisis package also has a
problem. The idea was to cut real borrowing costs by a combination of
official standby credits together with increased private eurodollar
borrowing. The downside of this policy (especially now that we are no longer
talking of standby credits, but of credits fully drawn upon) is that the
bigger the foreign-currency component of the Russian government's debt, the
more it is locked in to a fixed exchange rate. The reason is that a
devaluation raises the cost, in terms of domestic tax revenue, of servicing
any given foreign debt, so a bigger foreign debt, in turn, raises the cost
of devaluation. Add to this the fact that the market for eurodollar debt
turned out to be thinner than was thought, so that increasing the volume of
such debt has pushed rates up sharply, and it begins to be clear why the
desired impact of the anti-crisis program on real interest rates has not

Third, although the Kiriyenko government has brought down the primary
deficit, it is not clear that this is being done in a sustainable way. The
sustainable way to cut expenditures is to divest the budget of superfluous
expenditure obligations, such as pay for the rather large number of
bureaucrats and military officers that the Russian government employs.
Simply accumulating more arrears, that is, cutting expenditures by not
meeting existing obligations, makes the numbers look better in the short run
but is not sustainable. On the tax side, the sustainable way to improve
government revenues is to cut tax rates while broadening the base and
improving compliance. Although this remains a stated goal of the policy,
actual sort-run measures being undertaken are moving in the opposite
direction. They have aptly been described as "using dynamite to catch fish."
Because doing so means fewer fish next year, everyone knows that the effect
is only temporary. The bottom line is, objective doubts about the
sustainability of at least large parts of the anti-crisis package are
precisely the origin of the psychological phenomena that Kiriyenko laments.

(5) "Devaluation would worsen Yeltsin's political problems [because his]
current team has staked its credibility on the currency's stability."

Well, yes. Harold Wilson did the same thing back in the 70s when he staked
his government's credibility on the stability of the pound, and a lot of
other leaders have done the same thing in the time since. Staking your
credibility on the stability of your country's currency when the objective
conditions for maintaining that stability are not there is a big political
mistake. It is very sad that this fresh-faced young Russian government has
let itself be caught in this old political trap.

Having made the mistake, the question is what to do about it. Do you
stubbornly hold on at all costs, hoping that a miracle will save things? Do
you follow the advice of the Moscow Times (also August 14), which, looking
over its shoulder at Japan, Wall Street, and oil prices, expresses the
forlorn hope that "All of these things could change for the better?" 

No, when your policy fails the right thing to do is to say that it seemed
like a good idea at the time, you tried it, it didn't work, you take
responsibility for the consequences, and you are now ready to try something
else. What else? Maybe the Soros currency-board idea, maybe something like
the Argetnine "bonex" plan (a forced conversion of short-term
domestic-currency debt to long-term dollar-denominated debt), maybe
renationalization of GasProm to capture its mysterious cash flows for the
budget, who knows, but something. 

Sadly, the reform-minded Yeltsin seems more interested in his fishing. 


St. Petersburg Faces Hard Times
August 15, 1998 

St. PETERSBURG, Russia (AP) -- The old woman has lived in St. Petersburg for
nearly a third of its history. Her life has been hard, but like the city, she
has borne it with grace. 

She was there for the revolution, when Bolsheviks stormed the Winter Palace
and claimed an empire. Today, on the great Palace Square, one of history's
most bloodstained stages, teen-agers whirl about on in-line skates. 

She was there for the siege of World War II, when soldiers of Nazi Germany
surrounded the city and starved it for 900 days. A million people died, more
or less, and she remembers the bodies littering streets where, today, black
Mercedes Benz automobiles carry thuggish-looking men in suits to chic

For roughly 90 years, Valentina Vladimirovna Bobrovskaya has lived in this
elegant, tormented city, home of Dostoevsky and Nijinsky, Peter the Great and
the young Vladimir Lenin. She cannot imagine a life lived elsewhere. 

``I went to Moscow once,'' she says, a bit gruffly. ``Didn't like it much.
That was before the war. People were so rude. I didn't like the people, so I
didn't like the city.'' 

Her companions -- three old ladies, sitting on two facing park benches, taking
the sun -- nod their agreement. It turns out, though, that she's the only one
who's ever been to Moscow. 

For a brief moment this summer, St. Petersburg was again on center stage. The
last czar, Nicholas II, was buried in the city's Peter and Paul Cathedral, and
Russians were reminded this was once the capital of a vast empire, the place
from which all of Russia's great power flowed. 

It was a stirring moment. But it also was a reminder of how much the city has
slipped into the shadows of post-Soviet life. 

One of the first acts of the Bolsheviks after the 1917 revolution was to
return the capital to its ancient center, Moscow, and relegate St. Petersburg
to the status of Russia's second city -- second in size and importance, if not
in attitude. 

Since then, the divide has only grown, and since the collapse of the Soviet
Union and the creation of a market economy in Russia, it has grown greater

Moscow is Russia's one and only boomtown. St. Petersburg still exhibits dreams
of grandeur, but they seem far-fetched, at best. The city administration
envisions it as the future financial capital of Russia, a bizarre claim
considering the vast majority of the country's wealth is centered in Moscow. 

As Moscow has leaped ahead, St. Petersburg has languished. Tens of thousands
of people have gone jobless. Attempts to revive the city's shipyards, its
largest industry, have mostly failed. The city has moved slowly in developing
the tourist business that would appear to be its economic salvation. Its first
post-Soviet mayor, championed as Russia's great liberal hope, stands charged
of corruption. 

And yet, walking the streets of the city on a summer evening, the setting sun
glinting gold off the canals, couples strolling along the great boulevards and
along the banks of the Neva River, one can't help but think this remains a
glorious city, one of those rare places that somehow lift and ennoble their
inhabitants and give expression to the better side of the human spirit. 

``St. Petersburg is such a city that from the moment of its founding, the
culture was alive and vibrant,'' said Timur Novikov, an artist who leads a
movement to return to classical styles of art. 

``At no time was it stagnant, whether it was during the time of the revolution
or during the Second World War. And during the recent years, none of the
negative processes the city has gone through have influenced the culture in
St. Petersburg. It's just the sophistication of the city.'' 

Even through the Soviet period, much of the old spirit of St. Petersburg
survived. Its sophistication can still be seen in its architecture, theaters
and museums, including one of the finest art museums in the world, the

All these remain vital, but with a new gloss added by places like Gostiny
Dvor, an old department store that has been partly transformed into a shopping
``gallery'' that is as much a museum as a store. 

Here, in shops facing creamy yellow porticoes alive with the chatter of
songbirds, St. Petersburg's new aristocracy can buy women's shoes from Charles
Jourdan for 2,000 rubles ($330) or a jacket from Sonia Rykiel for 6,550 rubles

There's just one thing missing: customers. 

``This is the beginning,'' said Zoya Kozhevnikova, the manager of the shopping
center. For now, sales are modest but sufficient, she insisted. ``We hope in
the future there will be more and more.'' 

Kozhevnikova is tall and blond and 23, with the features and self-confidence
of a fashion model. Her hair is tied in a pony tail; she looks smartly elegant
in a black Gianfranco Ferre blouse and a short, black Escada skirt. She is a
St. Petersburg native and proud of it. 

``I adore St. Petersburg,'' she said in passable, British-accented English.
``I like the classical things in fashion. We are a conservative city -- maybe
not conservative, but intelligent. Our buildings are straight and elegant and
classical. St. Petersburg was always considered to be an intelligent city in
comparison to Moscow, which was just a big market before the revolution.'' 

Moscow these days resembles a big, often coarse market once more. St.
Petersburg remains classical, elegant -- and poor. 

St. Petersburg and its suburbs have a population of 6.5 million, roughly half
that of Moscow. Last year, retail sales for St. Petersburg and the surrounding
region totaled just under $7 billion -- only about one-sixth as much as in

German Gref, a vice governor of St. Petersburg who is in charge of land
development, said it was unfair to compare the two cities. Moscow gets far
more support from the federal government and gets tax revenue from the many
national and international companies with their Russian headquarters there, he

``Though it should be said,'' he conceded, ``that Moscow's government does
well with the money they get.'' 

He ticked off his administration's policies, which he considers to be laying
the foundation for strong economic growth: tax cuts for corporate earnings,
extra tax breaks for big investors, an increase in government spending,
restructuring of city-held enterprises, development of the city's
infrastructure and support for the tourist industry. 

The problem is, much of the administration's program is stuck in the city
legislature, the victim of a political feud between city Gov. Vladimir
Yakovlev and top legislative leaders. 

Anyway, said Christian Courbois, a spokesman for a group of small
international businesses in St. Petersburg, it all adds up to ``too little,
too late.'' 

Foreign investment in St. Petersburg has stalled, he said. The city's roads
and ports are crumbling; the customs service is not only corrupt but
incompetent; the idea of a ``money culture'' is just beginning to catch on. 

In addition, he said, the city has done little to encourage tourism, despite
having so many attributes. There are no decent mid-priced hotels; taxis and
museums gouge foreigners, charging them up to 10 times what they charge
Russians. There is no city tourist office, and virtually nothing in the way of
international marketing. 

``Tourism should be a huge, huge industry here,'' Courbois said. ``But it's
going to take awhile. They've got to clean the city up. They've got to protect
tourists from getting ripped off.'' 

In an evening in St. Petersburg, it is possible to see things scarcely dreamed
about, even now, in much of Russia. 

A group of teen-agers sit strumming guitars and drinking beer along the Neva,
their backs to the Winter Palace. In a park, two young women lean against a
pathway railing, kissing passionately. Nearby looms a statue of Catherine the

In a cafe, a young couple dressed in black sit smoking, sharing the earphones
from a portable cassette player, nodding their heads in time to the music. A
boutique window offers a display of ``Tsar'' perfume by Van Cleef and Arpels.
The United Colors of Benetton window displays this season's colors in St.
Petersburg: black and white. 

Elegant and simple. 



New York Times
August 14, 1998
The Staggering Russian Economy

The ailing Russian economy seems to have nine lives, but they are rapidly
running out. The latest crisis, less than a month after the International
Monetary Fund provided a new bailout, is bank-based. 
Russian banks owe lots of dollars and are having trouble paying them back. 
With some banks needing to repay loans next week, and with foreign lenders
demanding additional collateral to roll over the loans, the banks appear to
have been buying dollars from the Russian central bank as fast as they could
early this week. The central bank clumsily tried to impose new restrictions on
such transactions, only to provoke a new crisis of confidence. 
The result yesterday was a virtual breakdown of Russia's financial markets,
particularly for most Government bonds. That makes it impossible to determine
how much banks' bond portfolios are worth, a fact that makes lenders nervous.
But to repay their loans, the banks need to sell their bonds. 
All of this is happening when it is too soon to know whether Russia's latest
reform efforts are working. The Government says tax receipts are up sharply,
which is encouraging but not conclusive. Foreign currency reserves have
increased, but that may be meaningless if the bank crisis intensifies. 
George Soros, the international money manager, weighed in yesterday with an
innovative but unrealistic proposal for Russia to devalue the ruble by 15 to
25 percent and then adopt a currency board. Such a scheme would require Russia
to set aside enough foreign currency to redeem all rubles in circulation. 
The depressed price of oil, Russia's principal export, may have left the
ruble overvalued, and devaluation may yet be necessary. 
But a currency board seems impractical. 
Mr. Soros estimates conservatively that Western nations would have to put up
$15 billion or so, on top of the money already committed by the I.M.F. More
importantly, a currency board would effectively hand over Russia's monetary
policy to the foreign central bank administering the currency to which the
ruble was tied. Selling that idea to the Communist-dominated Russian
Parliament would probably be impossible. 
An immediate answer to the current crisis must involve a willingness of
foreign banks to be flexible regarding their loans to Russian banks that are
suffering from a liquidity squeeze but are otherwise solvent. The longer-term
solution, though, is unchanged. The Russians must proceed with economic
reform, and show the world they can do it successfully. Parliament should stop
stalling and pass needed tax reform bills immediately. 


Moscow Times
August 15, 1998
Court Eases Rules on Foreigner Travel 
By Valeria Korchagina
Staff Writer

Russia's Supreme Court has overturned two Soviet-era regulations used to 
control the movement of foreigners. 

In a ruling Thursday, the court said foreigners no longer have to notify 
police before setting out on a trip to another part of the country. 

Additionally, organizations and private citizens no longer have to 
report the visits of traveling foreigners, according to the lawyer who 
argued the case. 

Both regulations date from the depths of the Cold War and have rarely 
been enforced in recent years. But on some occasions they have given 
local authorities the legal grounds to harass visiting foreign 
journalists or businessmen. 

Sergei Belyayev, a lawyer from the Yekaterinburg-based foreigners' 
advocacy group "Sutyazhnik," or Malicious Litigator, said the ruling 
fell far short. 

Although Russians no longer have to report their foreign visitors, they 
still can be held responsible -- and fined or even detained for a few 
days -- if their guests fail to register with police, he said. 

The Supreme Court also refused to lift the threat of deportation for 
foreigners who violate registration regulations or to extend the amount 
of time foreigners have to register when they arrive in a Russian city, 
Belyayev said. 

Russian law gives Russian citizens seven days to register with police 
when visiting another city. 

Foreigners, however, fall under conflicting regulations requiring 
registration either within 24 hours or three days, the lawyer said. 

"The Russian Constitution gives the same rights to Russians and to 
foreigners," Belyayev said. 

Most of the regulations governing foreigners written in Soviet times 
simply were transferred into new Russian laws, he said. 

Belyayev said the battle to guarantee equal rights for foreigners and 
Russian citizens could only be won if the Constitutional Court takes up 
the issue. 

"But to find a foreigner who would want to stand up for his rights in 
the Russian Constitutional Court seems to be a problem," the lawyer from 
Sutyazhnik said. 

Foreigners from Western countries, who might be more willing to pursue a 
court case, are less likely to run into trouble from authorities in 
Russia's provinces, he said. 

Others, however, such as traders from Asia or former Soviet republics, 
tend to prefer to put up with harassment and pay bribes rather than get 
engaged in a legal battle, Belyayev said. 


Date: Fri, 14 Aug 1998 
From: "Jerry F. Hough" <> 
Subject: Re: 2308-Rutland/Harvest

Dear David:
Your service is a wonder in the way it generates public and 
private comment so quickly. Thank God the Russians have enough bread 
and potatoes for their diet. Peter Rutland's piece was devastating. One 
wonders when Agriculture Dept and Congress will understand that they need 
that corn market back and will weigh in on policy. 
I still hope someone will comment on food imports. One reads 
that some huge percentage of Russian food is imported. I have always 
been suspicious and wonder if that include sugar beets from Ukraine on 
"barter" for the oil and gas it receives. Another possibility is that 
the denominator is very small because Russians grow their own potatoes 
and other crops and that a low percentage of food consumed goes through 
the trade network. Maybe because bread is relatively cheap, the high 
cost of a relatively small amount of Western imports overwhelms them in 
ruble figures. The balance of calories imported, especially from the 
old foreign countries, to calories consumed may be lower. Indeed, since 
alcohol and tobacco were Ministry of Food, do they get included? It would 
be very good if someone in Department of Agriculture or in the 
food industry would send you some memo or summary. I would 
love to do a study of agricultural reform and would be delighted if some 
one would contact me privately if they have been doing that.


Article Views Political Elite Power Ambitions, Health Issue 

Argumenty i Fakty, No. 33-34
August 1998
Unattributed article in the "Gossip" column entitled: "Whose
Health is Stronger?"

The Knives Are Out for Luzhkov [subhead]
According to well-informed sources, the President's entourage has
virtually finalized an action plan in case Boris Yeltsin stands for a third
term. The same sources claim that a group numbering 15 people has been set
up under Valentin Yumashev's wing to prepare for "the third coming." 
Allegedly, the group is to politically discredit and to collect
compromising information about Yuriy Luzhkov, who is Boris Yeltsin's main
However, analysts believe that if this group really succeeds in the
year 2000, the population may face a dramatic choice: either Boris Yeltsin
again or the compromised Yuriy Luzhkov, or the unpredictable Aleksandr
By the way, the Krasnoyarsk Governor [Aleksandr Lebed] has his own
problems. People who know Aleksandr Ivanovich well claim that he has two
or three severe headache attacks a day, that is migraines. A faith healer,
who constantly accompanies the governor, relieves the headaches by hand
manipulations while having heart to heart talks, often on political topics,
with the Governor. People say that the Governor's affliction is linked
with his tempestuous time in the Army, when he made hundreds of parachute
jumps and his landings were not always soft.
Gennadiy Zyuganov has health problems, too. Rumors have it that, like
many men of his age, he suffers from a urological ailment. Allegedly this
depresses him a lot and prevents him from concentrating on the political

Focus on Kiriyenko [subhead]
Against the background of ailments assailing the majority of
contenders for the top post, a young and healthy politician can make an
unexpected appearance. We are talking about Sergey Kiriyenko. The Prime
Minister with technocratic leanings is turning into a political figure. 
Judging by Sergey Kiriyenko's public pronouncements, he does not want to
remain in Boris Yeltsin's shadow any more but aspires toward a successful
career. In this the Prime Minister's ambitions are being stirred by
Anatoliy Chubays's group, which is desperate for its own candidate in the
year 2000.
That this is not idle talk can be confirmed by the latest poll
conducted by the All-Russian Center for Public Opinion Studies. Sergey
Kiriyenko was named among the five political figures enjoying the
population's greatest trust (10 percent). He is only trailing Aleksandr
Lebed (17 percent), Gennadiy Zyuganov (14 percent), Grigoriy Yavlinskiy (12
percent), and Yuriy Luzhkov (11 percent), but is ahead of Boris Nemtsov (8
percent) and Viktor Chernomyrdin (5 percent).
Incidentally, Boris Nemtsov, who himself is an equally young and
healthy presidential candidate, does not seem to regard himself as such and
is satisfied with smaller things. They say that at a lavish dinner for a
narrow circle in Kaliningrad, the Deputy Prime Minister allegedly put
himself forward for the post of manager of the Kaliningrad free economic
Meanwhile, the intrigue surrounding the cadre reshuffle in the
Government continues. At their latest meeting in Gorki-9, Boris Yeltsin
and Anatoliy Chubays discussed the issue of appointing the latter to the
post of first deputy prime minister in charge of the economy and finances. 
Yegor Gaydar or Vladimir Potanin may become Russia's new special envoys to
the international financial structures. [passage omitted: who attended and
what was served at Ukrainian President Leonid Kuchma's birthday party]


>From RIA Novosti
August 13, 1998

Since the war in Afghanistan and, especially, in Chechnya
and with the Taliban forces having come close to the borders of
the Commonwealth of Independent States, anti-Islamic sentiments
have been growing stronger among the Russian public and a
widespread opinion is that all Moslems are Fundamentalists. But
in Russia Islam, like Russian Orthodoxy, is one of the
traditional religions which was born hundreds of years ago.
Nonetheless, there is an intricate knot of problems connected
with Islam and the attitude to it. Some of them Mufti Ravil
Gainutdin, chairman of the Council of the Muftis of Russia and
chairman of the religious board of the Moslems of Russia's
Central European region, discusses in his interview with
Izvestia's Yuri Buida.

Question: As far as I know, Russia's thirty Moslem
religious boards have a different structure than, say, the
Russian Orthodox Church--they have no common centre. That is
why they not always manage to come to understanding with one
another which may even cause conflicts between them.
Answer: Thank goodness, there are practically no conflicts
today between Russian Moslem boards. In 1995 they embarked on a
course of unification, but not organisationally. The issue at
hand is coordination of the religious and moral efforts of the
Moslems who would like to make a big contribution to the life
of the country.
Question: Was it connected with the war in Chechnya?
Answer: No. The thing is that our country, Russia, is
gradually recovering. I do not speak of the remaining economic
difficulties, I mean politically. It carries more weight in the
world and is able to uphold its interests and pursue an
independent international policy. When we, the heads of the
Moslem boards, received freedom, we did not know how to use it.
Gradually we began to realise that it is impossible to live in
isolation without communicating with one's neighbours,
including foreign Moslem leaders. I mean not centralisation but
unity. The times when all matters were decided by fiat, when
the mufti was the boss of his fifty imams are gone. Today we
have more than eight thousand imams, mosques and religious
associations. One person cannot know all about each mosque.
That is why local self-administration boards are created. All
information is coming to the Council of the Muftis of Russia.
It is a new body of management, which does not give out orders
but elaborates consensus.
Question: Of late, there have been more and more talk of
a dialogue between Islam and the Russian Orthodox Church.
Answer: Islam is the second most important religion in
Russia after Russian Orthodoxy. We should find a common
language and we find it. Have you noticed that mosques and
Orthodox churches were and are built in the same
neighbourhoods. Our confessions are not at daggers drawn, and
such a position becomes a factor of social stability. When
hostilities broke out in Chechnya, we jointly with the Russian
Orthodox Church publicly stated that it was not a
religion-related conflict.
Question: Would you mind if I asked you about your
attitude to Wahhabism?
Answer: Not at all. But I must say that there is no such a
school in Islam. Followers of the recognized Islamic
schools--Hanbalite and Maliki--can be representatives of
Wahhabism. Wahhabism is sooner a notion. To a certain degree we
ourselves facilitated its appearance. Many of us have the
feeling of deviation from genuine, Arab, roots of the doctrine.
By criticising us, Wahhabites become increasingly radical and
intolerant of other views. This is what frightens many Russians
and other people.
We all oppose Wahhabism. Over the past one thousand and
one hundred years moderate Islam--the Khanifite school of Sunni
has been developing in Russia and of the Shafite school in the
Northern Caucasus. We have always been good neighbours with
representatives of other religions and cultures who spoke
different languages, realising that there should be peace and
tranquillity in our Russian home. The Russian Moslem clergy, I
repeat, are categorically against Wahhabism. There may be only
around ten thousand Wahhabites in Russia and they should not be
identified with the rest of Moslems, which sometimes happens
and which alarms me a great deal.
Question: In your remarks at the recent workshop "Islam in
Russia: Traditions and Prospects" you actually accused the
Ministry of Education of nearly facilitating the fast growth of
animosity towards Moslems among the young people.
Answer: I want to quote my remarks almost word by word on
this issue of great importance for us. The inculcation of
ethnic and religious tolerance should begin precisely in
school. In our opinion, the existing high and secondary school
textbooks fail to cope with this task. Many of them contain
incorrect and even distorted ideas of Islam and its doctrine
and of Islam-Christianity relations. Is it normal? Or take the
army, where there are practically only Russian Orthodox
priests. The Interior Ministry's schools teach only the
fundamentals of Christianity. Moslems remember the Russian
policy of conquering the Northern Caucasus, and they are very
apprehensive of all these facts. In addition, the mass media,
in my opinion, inadequately and inefficiently cover
Islam-related issues. We are ready to organise a conference on
Islam for the mass media.



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