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Johnson's Russia List
16 August 1998
[Note from David Johnson:
1. Melissa Caldwell: food assistance.
2. Fred Weir in Moscow on latest.
3. Christian Caryl Belarus bunnies.
4. Paul Backer: economic crisis.
5. Reuters: Philippa Fletcher, Russian government girds for confidence
6. New York Post: John Dizard, GORE & THE FALL OF RUSSIA'S ECONOMY.
7. Bloomberg: Russia's Nemtsov Says Nation Must Reduce Deficit,
8. Ekonomika i Zhizn: Tatyana Ivanova, "Nonpayments: They Do Not Drown
In Water or Burn In Fire."
9. Interfax: Conference Criticizes Standards in Russian Prisons.
10. Itar-Tass: Kiriyenko Denies Rumored Cuts in Free Higher Education.
11. The Electronic Telegraph (UK): Marcus Warren, Rich watch from the
beach as rouble falls.
12. Reuters: Adam Tanner, Master Soviet cartoonist has no regrets.
13. Chicago Tribune editorial: RUSSIAN RESOLVE ON THE LINE.
14. Interfax: Expert Predicts Serious Inflation in Russia Inevitable.
Date: Sun, 16 Aug 1998
From: Melissa Caldwell <email@example.com>
Subject: food assistance
In response to Professor Hough's invitation for comments on the need
for food aid, I would like to offer the following thoughts. I am currently
in Moscow doing dissertation research on the strategies that people use to
manage hunger. Because my work is anthropological in nature (and
geographically limited), I can not comment specifically on statistics or
on realities outside Moscow. I can, however, offer a few insights into
what some ordinary people in Moscow have told me about hunger and food
First, most of the people with whom I have talked categorically deny
that there is either a current or impending food crisis. They point to the
fact that today there are relatively inexpensive food products on the
shelves and in the markets, and to the fact that even when there were real
shortages (such as the early 1990s), they nevertheless always had food and
were even able to entertain properly. They do, however, use the idea of
hunger as a means to talk about their low wages and pensions (and the
products that are now too expensive to buy), as well as the problems of
the striking miners, soldiers, and people who live outside the city. Thus,
perhaps hunger is for many people not so much a real possibility as it is
a symbolic comment on other aspects of life. Second, many individuals find
the idea of food aid from the outside to be problematic, embarrassing, and
even offensive. I have been working in a soup kitchen for the past 9
months and have heard many people (both clients and non-clients) say that
it is an embarrassment and a shame that foreigners are providing this
aid; they should be taken care of by their own people. In fact, some of
the clients will only accept food that is offered by other Russians.
Moreover, I have been scolded severely and even threatened for being a
foreigner and for interfering in a private, local matter. Thus,
non-Russian food aid may not reach people who need it simply because of
cultural conceptions that prefer "our" ("nash") to "foreign" ("chuzhoi").
Third, in a related issue, many individuals think that American and
European products are being sold in Russia only because they
are old and stale and that Americans and Europeans do not want them.
People do not want what they think are either left-overs or substandard
products. These ideas are not helped by the fact that it is not unknown
for non-Russian entities in Moscow to donate outdated food
products--sometimes more than a year out of date--to food aid programs.
Thus, any donated food should be carefully scrutinized for quality and
appropriateness. The soup kitchen with which I work runs all of its
programs through existing Russian cafeterias so that the food is seen by
the clients as being familiar and fresh.
I think that food aid will most likely become more important,
especially as people are increasingly unable to afford food on their
salaries and pensions. This does not mean, however, that there is no food
available. Many of my friends and acquaintances are quick to tell me that
"the shelves are full" or that "you can buy absolutely everything." In
addition, during the summer most people who are able are at dachas and in
the forests getting "free food" for the winter. Therefore, I would argue
that, at least now, the question of a need for food aid lies less in a
complete absence of food and more in the issue of whether people are able
to consume the foods that they want, when they want, at prices they can
Thus, if aid is proffered, I would like to urge the individuals
making the decisions concerning this aid to think closely about how it
will be implemented and in what forms. For instance, will they give money
or products; if they give products, what kinds? On one occasion, the
clients at the soup kitchens received something extra--donated soda.
Although donations such as this are eagerly accepted for the unexpected
treats that they are, someone who is truly hungry or even malnourished
might be better served by something with more nutritional value. In fact,
the price of a single meal (soup, bread, main course, beverage) in this
soup kitchen is only 4 rubles--roughly the same price as that same bottle
of soda in the store. Which is more effective?
Finally, decision-makers should consider carefully local, cultural
ideas about food and eating; the fact that people are hungry or have
little money with which to buy food does not mean that they forfeit the
right or ability to make choices, even choices not to consume what is
available or offered--which means that very genuine efforts to help might,
in the long run, prove ineffectual.
Date: Sun, 16 Aug 1998
For the Hindustan Times
From: Fred Weir in Moscow
MOSCOW (HT Aug 16) -- President Boris Yeltsin has
interrupted his vacation plans and other senior Russian officials
are returning to Moscow for a last-ditch round of meetings aimed
at pulling the country out of its economic tailspin.
Mr. Yeltsin has been on holiday in Russia's western lake
district for almost a month, enjoying a little hiking and fishing
while insisting publicly that there is no crisis in the country.
"There is no need for me to return to Moscow," Mr. Yeltsin
said Friday in Novgorod, an ancient Russian city where he has
been resting. "Moreover, when the president rushes to the
Kremlin, everybody thinks that something is wrong."
But the next day Mr. Yeltsin abruptly decided to return to
his summer home near Moscow, just an hour's drive from the
Kremlin. Russia's top financial negotiator, Anatoly Chubais, also
interrupted his vacation to return to the capital Sunday,
according to the official ITAR-Tass agency.
Moscow newspapers report a crucial round of meetings is due
this week, as the Russian government and its international
creditors try to stem a spiralling financial crisis that
threatens national bankruptcy and political collapse.
The Moscow stock exchange has virtually melted down, losing
over 70 per cent of its value in less than six months -- perhaps the
most dramatic stock market crash in history.
Despite huge loan injections from the International Monetary
Fund and other Western lending agencies, Russia's hard currency
reserves are evaporating as the Central Bank struggles to defend
the battered rouble and service the country's enormous debts.
Many experts now believe a devaluation of the rouble is
imminent. Last week the international financier, George Soros,
called for a 15 to 20 per cent devaluation of Russia's currency
to save the Russian government from sliding into complete
For the first time since the crisis began, panic has begun
to stike the population. Over the weekend huge crowds of
Muscovites gathered at banking machines and currency exchange
posts hoping to change their roubles for more stable dollars or
But most banks were already refusing to sell dollars, and
those that did charged as much as 30 per cent premium over the
official exchange rate.
"I know I'm going to wake up one morning soon and find that
my savings are worthless again," said Marina Malukina, a 57-year
old pensioner, who was hoping to convert her savings of 3,000
roubles (about $500) into dollars.
"I lost everything I had in the big inflation of 1992, and I
can see that it's all going to happen again."
Date: Sun, 16 Aug 1998
From: Christian Caryl <firstname.lastname@example.org>
Subject: Belarus bunnies
Look, I love the idea of Belarusian bunnies as much as the next guy, but
Michael Wines of The New York Times (in his otherwise excellent piece
picked up by Friday's Moscow Times) is a bit out of date when he says that
the Belarus ruble is "called the zaichik, or little hare, after the
engraving that is its main feature." The eponymous bunny adorned 1-ruble
notes in the first half of the 1990s, but thanks to the country's rampaging
inflation such modest denominations have long since gone the way of the
Great Auk. 10 and 25 ruble notes haven't existed in Belarus since August
1995, and during my visit to Minsk last week the smallest bill I saw was a
surreally worthless 200. (As Mr. Wines mentions in the article, the
official exchange rate these days is 41,000 to the dollar. The last
black-market quote I heard was 63,000.) The slip-up suggests that even our
esteemed colleagues from the Times are occasionally guilty of writing about
countries they haven't actually visited. I do agree with Mr. Wines,
however, that "appellation is the least of the economic worries" in Belarus
By the way, can hares really be described as "cuddly cottontails"?
Zoologists have long been surprisingly under-represented on JRL. Perhaps
it's time for them to weigh in on important issues of the day.
Date: Sat, 15 Aug 1998
From: "Paul Backer, Esq." <email@example.com>
Subject: economic crisis
generally, i rely on others to promote my insights. but i just want to say
in the spirit of prof. ellman's announcement of the ellman book, that paul
backer's insights on russia border on the brilliant.
by the by, histrionics aside, yes, as a securities/finance lawyer in moscow
i think that there will be a devaluation and there is a very simple reason
for the collapse of the securities market, basically, there are no
meaningful enforcement penalties for any of the laws (AO law, Securities
law, Stock Issue law, etc.). but, the stories about panicked
buying/selling are simply not true, the vast majority of the exchanges
moved from a 6.21-6.25 buy/6.34 sell (Monday) to a 6.30 buy and 6.80 to
7.00 sell for the dollar. this does show that the dramatic growth of the
valuation spread indicates that those in the professional currency betting
game are expecting a devaluation. but it ain't here yet.
the easiest to track, and therefore (per Occam's Razor) most meaningful
indicator is the Hard Currency Reserve of the Central Bank, it is down from
17.5 billion to 17 in one day. So, the CB can stay afloat for roughly 34
days, artifically keeping the ruble in the currency corridor. So, expect a
devaluation about mid-September. as far as the securities market, it seems
to have no bottom, b/c shareholders don't have any protected rights and
therefore are reluctant to buy other than as an expression of their
patriotism of course.
paul backer, jd, llm, llm.
Russian government girds for confidence battle
By Philippa Fletcher
MOSCOW, Aug 16 (Reuters) - Russian authorities girded themselves over the
weekend for a new round in their increasingly tough battle to restore economic
confidence, assuring people their money was safe in the country's banks.
``There is no reason today to run to a bank and collect one's savings,''
Deputy Central Bank Chairman Denis Kiselyov told Russian Public Television on
Saturday evening to prevent any crowds gathering when the banks reopen Monday
Prime Minister Sergei Kiryenko held closed-door crisis talks Saturday with the
chairman of the central bank, the finance minister and the Kremlin's chief
On Monday he was due to report to President Boris Yeltsin -- who has moved his
holiday location closer to Moscow -- on how he plans to alleviate Russia's
growing financial problems.
The 36-year-old premier, under severe pressure after less than five months in
power, has an unenviable range of options, prominent among them a devaluation
in the rouble which could help ease the crisis but risks sparking social
Russia's 150 million population has been largely immune from months of turmoil
on local financial markets fuelled by declining world oil prices, economic
problems in Asia and growing worries about Russia's own financial health.
But the effects of several days of panic-striken declines on share and debt
markets last week reached the streets Friday when some of Moscow's foreign
exchange points closed down and others raised the price at which they would
Some banks refused to let depositors withdraw dollars from savings accounts --
a first sign of currency trouble for ordinary Russians, amid rumors the
government would be forced to devalue the ruble.
Yeltsin and the central bank have both firmly ruled out a devaluation, which
could ease the government's crippling domestic debt burden but would likely
spark inflation and with it maybe social unrest.
But leading business newspaper Kommersant Daily said over the weekend a
devaluation had effectively already happened.
``The ruble has fallen,'' it splashed across its front page, one of several
papers to take a grim view of the crisis.
Other papers took a less pessimistic view. Saturday's Isvestia daily said the
crisis had yet to be felt outside Moscow, reporting that foreign exchange
centers in other regions across Russia's 11 time zones were working normally.
Among banks, however, the ruble ended the week at a bid/ask of 6.45/6.5 to the
dollar for next-day settlement against a central bank's range of 6.27/6.31 to
Currency trading among banks almost dried up Wednesday and while markets
recovered Friday, traders said fears of a possible debt default or banking
crash had not disappeared.
Kiselyov said Saturday the central bank, which stepped in last week to support
some banks, would help those banks with liquidity problems so as to protect
``We are looking at which measures can be undertaken now ... not to allow in
any case interruption of the normal work of banks,'' he said, adding that
officials had to be ``on the alert.''
Central bank spokeswoman Irina Yasina denied any plan to devalue the ruble
while markets were closed and Yeltsin was categoric during a visit to the
provincial town of Novgorod.
``There will be no devaluation -- that's firm and definite,'' he told
The Kremlin said Yeltsin, who has been on holiday for most of the time since
July 18, had moved to the Moscow region because the fishing had been bad at
the northwestern Valdai lakeland, but would remain on holiday for another
President Clinton spoke to him by telephone Friday and urged him to move
decisively to resolve the crisis. The U.S. and visiting Japanese foreign
ministers echoed the call but all played down the prospect of any new
Amid worries a financial crisis in Russia might set off a global recession,
U.S. financier George Soros said last week Russia needed $15 billion to
support a new, exchange rate tied to the dollar or euro and restore
Dealers on Russian markets say the government also needs to shore up its
finances by boosting tax collection and winning the early backing of the
Communist-dominated parliament for further revenue-raising measures.
Yeltsin persuaded Communist leaders Friday to say they were ready to convene
an emergency session during their summer break, possibly this month.
But Communist leader Gennady Zyuganov said deputies wanted to take the
government to task over the crisis rather than rush through Kiriyenko's tough
New York Post
16 August 1998
[for personal use only]
GORE & THE FALL OF RUSSIA'S ECONOMY
By JOHN DIZARD (firstname.lastname@example.org)
BACK two or three weeks ago I predicted that the Al Gore-endorsed rescue
plan for the Russian government's finances would blow up in the fall.
Actually, back at the beginning of July, I had said that the collapse
was scheduled for October, after the German elections in late September.
I thought that was a pretty good insider call. I knew what a number of
major traders' intentions were, and I'd even been in touch with the
opposition movements in Russia.
They told me that the miners and other unpaid workers wanted to take the
summer off from organizing an overthrow of the government so they could
raise some vegetables to avoid starving this winter.
Made sense. It turns out that even I was optimistic. As we saw this
week, Russian markets tanked.
Of course, the people who make Russian policy in the State Department
and the vice president's office are so dishonest and incompetent that
they'd actually come to believe their own lies. They thought $22 billion
of rich countries' money would buy them time to implement a "reform"
plan based on improved tax collection. Their friends in Moscow,
including the crooked Scientologist and former Komsomol, Prime Minister
Sergei Kiriyenko, and state-asset-thief-turned-tax-collector Boris
Fyodorov, obliged by offering up some shows of brutality visited by
masked tax police on people who hadn't paid their bribes.
Gore and Strobe Talbott, his ally at the State Department, didn't seem
to notice that for all the talk about a change in the tax-evasion
culture (simple self-defense in the face of a criminal government), the
mock heroic efforts barely made a dent in the state budget hole. The
reason, as always with Yeltsin's government, was that if any new money
was produced by the tax thugs, it was efficiently stolen by the very
people Gore congratulated on his visit last month.
And even if the tax collectors and the Ministry of Finance decided to
stop stealing their own people blind, they couldn't get the money
needed. That's because the Central Bank decided to disguise inflation by
not issuing rubles. Instead, the medium of exchange for over half the
country's transactions are off-the-books corporate IOUs, or "veksels,"
the market for which is controlled by well-connected
If seized somehow, they can't be turned into cash for government
operations. Dollars offshore and under the mattress account for most of
the rest of the money supply.
The international Russian debt speculators (there aren't any investors)
figured out this whole scam some time ago. They had the same date range
I did for the collapse. So they decided to tiptoe out of the market with
their earnings in hand before the schnooks got caught.
Guess what. All the insiders turned into schnooks and an avalanche of
selling built up to the point where the banking system ceased to
The imagery they used was from the Battle of Stalingrad - bleak, blasted
landscapes, abandonment by the High Command, eating the bloody snow of
losses, no hope of exit, friends blown to bits in front of them, strong
men gone insane.
Thanks to the blindness of the government's Supreme Commander on the
Russian Front, Al Gore, there is no Plan B.
Robert Rubin, Larry Summers and their group at Treasury actually knew
Plan A of recent memory was a fool's errand, but Al and Co. took the
position that retreat was unthinkable. Words that have been heard before
in Russian history.
Russia's Nemtsov Says Nation Must Reduce Deficit, Newsweek Says
New York, Aug. 16 (Bloomberg) -- Russia is now ``paying for serious mistakes''
that were made in its budget policy and needs to move forward on deficit
reduction and structural issues, such as accelerated bankruptcy proceedings,
Russian Deputy Prime Minister Boris Nemtsov said in an interview in the Aug.
24 issue of Newsweek magazine. ``Investors are waiting for good news:
increased tax collection, new privatization projects,'' Nemtsov said. He also
confirmed that the Russian government will seize the assets of some oil
companies that aren't paying taxes.
Rubles for September delivery, traded in Chicago, fell to 14.05 cents per
ruble Friday, a five-year low, after billionaire investor George Soros called
for a 15 percent to 25 percent devaluation of the currency, and the central
bank tightened rules on banks' foreign currency operations because some banks
stopped making payments to one another and to foreign lenders.
Nonpayments Circle Examined
Ekonomika i Zhizn, No. 31
August 1, 1998
[translation for personal use only]
Article by Tatyana Ivanova: "Nonpayments: They Do Not Drown In Water
or Burn In Fire"
[Begin boxed text]
--Creditor indebtedness on the whole in Russia as of 1 June 1998
comprised 1999.5 billion rubles (R). Of this, R1075.5 billion was overdue
indebtedness, or 53.8 percent of the total sum of creditor indebtedness.
--Incurred debts on the whole in Russia as of 1 June 1998 comprised
R1292.7 billion. Of this, R677.3 billion, or 52.4 percent, was overdue.
[End boxed text]
Today, the system of nonpayments is a closed circle-- everyone owes
everyone. The budget owes the enterprises, and the enterprises owe the
budget, its business partners, and workers. The unpaid wages and pensions
become indebtedness on municipal payments. In general, everyone nods at
each other. And there is neither a beginning nor an end to this chain.
Nonpayments are clogging the vessels of the Russian economy with ever
denser thromboses. The universality of nonpayments has given rise to
dangerous illusions among enterprise directors. If everyone owes everyone
else, and the volumes of indebtedness have reached such proportions that it
is now simply impossible to repay them, then that means sooner or later
everyone will forgive everyone else. Moreover, the government is actually
provoking enterprises not to pay taxes.
Let us take at least the re-computation of penalties (reducing
indebtedness on them by five times). Those who paid in a timely manner
were left as the fools, while those who accumulated debts, sometimes
intentionally, are rubbing their hands with glee. Who knows, perhaps they
will not have to pay the remaining sum of penalties at all--perhaps they
will be forgiven.
And so it turns out that it is profitable to be a non-payer in Russia.
Supposedly, restructuring had been called upon to solve the problem of
non-payment of taxes. However, what reason does an enterprise have to opt
for restructuring today, when one other idea to punish those who want to do
so is being hatched in the depths of the government? Thus, perhaps already
in the Fall (after adoption of the appropriate law by the State Duma), a
mechanism will emerge for accelerated debt restructuring. In accordance
with it, if debtors make their current payments for a period of one year,
the sum of indebtedness will be reduced by 20 percent, for 1.5 years--by 50
percent. And if they conscientiously pay for 2 years, then all the
indebtedness will be written off altogether. In general, what can we say,
the budget needs a bird in the hand, not one in the sky.
commercial paper In the Land of Crooked MirrorsIt is a strange state,
and a strange economy. Here even such economic instruments as commercial
paper [veksel] and barter, which in any other country serve for the good of
the enterprise and the state, are used for machinations. Being a legal
means of accounting, commercial paper under conditions of nonpayments
becomes material for building a pyramid. Unfortunately, not as strong as
those in Egypt.
However, this is not even the main thing. In practice, many
enterprises have rather skillfully begun turning nonpayments to their
benefit, using barter and surrogates of securities in various schemes to
avoid payment of taxes. As they say, necessity is the mother of invention.
The schemes which are being devised are the most varied, and usually for a
specific situation. Considerable "live" money floats past the budget in
It is no accident that the government spoke out with an initiative to
collect a fee in the amount of 0.8 percent at the time of issuance of
transferable and simple commercial paper. Undoubtedly, this is a blow to
securities surrogates, which will nevertheless have a negative effect on
the development of the commercial paper market.
After all, there are quite a few enterprises which use commercial
paper for peaceful purposes. And the desire of the government to put a
scare into those who like surrogates may prove to be a disaster for issuers
of "good" commercial paper.
Many-Faced CriminalIn most cases, it is the state itself which has
given rise to non-payments. Any enterprise which bears the responsibility
for the state contract and which does not receive money from the budget
cannot help but become a non-payer. It would seem we live under a market
economy, and an enterprise itself chooses its partners. And here is the
problem. The specifics of many enterprises are such that their products are
intended for a specific producer, and cannot find any other sales market.
In this situation, both the commercial and the budget organization along
the entire technological chain become the hostages, as well as the budget
itself, ultimately. The circle is closed.
However, let us suppose a miracle happens and the state settles
accounts on its debts. However, the economic ties between enterprises will
not be normalized because of this. After all, there are many commercial
structures which, along with the budget structures, have found themselves
in a deep hole of debt. And how could it be otherwise if the enterprises,
as if under a spell, continue to ship products to non-payer firms...
Under normal market conditions, no one would agree to work at a loss
to oneself. And directors would be brought to responsibility for such
strange deliveries. Yet in our country, they can cry and beg for money.
Instead of working.
The situation is such that, for many enterprises, nonpayments have
arisen as a result of imprudent policy of the owners. Often, however, this
is elementary theft. However, if an enterprise begins to scrupulously
follow all the legal standards, it would soon simply go bankrupt. And so
it turns out that any director cannot help but commit a crime for the sake
of saving his enterprise.
In general, non-payments are reminiscent of an avalanche which is
about to let loose. The more time passes in inaction, the more terrible
the consequences. The authorities have themselves raised and strengthened
non-payments. And that which is going on today is entirely logical for the
economy, but only for the shadow economy, and not the civilized one.
Sooner or later, we will have to cut this Gordian knot. Will we find
another Alexander the Great?
[Graphs omitted showing structure and dynamics of overdue creditor
indebtedness of enterprises and organizations in industry, construction,
agriculture and transport (in million rubles), and dynamics by which credit
indebtedness exceeds incurred debts (in million rubles).
Conference Criticizes Standards in Russian Prisons
MOSCOW, Aug 13 (Interfax) -- Violations of prisoners' right to health
care have put the implementation of Russia's commitments as a Council of
Europe member, under threat.
Yuriy Shcherbanenko, a senior official of the Russian Prosecutor's
General's Office told colleagues at a conference on Thursday that the level
of medical services in Russian prisons is far below international standards
and even elementary sanitary norms. Ten thousand people die in prisons
annually, he said. The most common causes of death in prisons are
dystrophy, typhoid, venereal diseases and tuberculosis.
Over the past two years tuberculosis has taken the lives of 20,000
prisoners. Seventy thousand prisoners are infected with this disease, he
First Deputy Prosecutor General Yuriy Chayka said that one tenth of
the prisoners suffer from tuberculosis which is assuming incurable forms.
Experts estimate that "Russia has become a world incubator of
tuberculosis," Chayka said. The transfer of prisons from the Interior
Ministry to the Ministry of Justice, to be completed in September, is
expected to improve medical services in prisons.
The Interior Ministry did not take either organizational or economic
measures to solve this problem. To this day, no one has been brought to
account for misusing 500 billion old rubles transferred to the Main
Department for Prisons from the budget.
Conference participants said that the Prosecutor-General's Office
attaches priority importance to these questions. The prosecutor- general
has informed the president and government of the situation in prisons,
about inadequate medical services for prisoners and detainees and about
insufficient prison financing. The interior minister has been instructed
to ensure the implementation of the laws on medical and sanitary services
for prisoners. However, it is impossible to improve the situation by
exercising prosecutor's control alone. The problem of tuberculosis in
prisons has broken the limits of a narrow problem, evolving into a national
one, the participants in the conference said.
They also said that the federal program for the prevention of
tuberculosis should be supplemented with a federal law on the protection of
the population from tuberculosis.
The conference was attended by Commissioner for Human Rights Oleg
Mironov and by the leaders of the ministries of justice, finance and health
Kiriyenko Denies Rumored Cuts in Free Higher Education
Perm, Aug 12 (Itar-Tass) -- Prime Minister Sergey Kiriyenko dispelled
rumours that there are plans to cut the number of budget-financed higher
educational establishments in Russia and described them as "absolutely
"In reality, there will be no end to free higher education in the
foreseeable future," Kiriyenko told a press conference in Perm on Wednesday
He said the number of students and institutes and universities has
grown immensely in the last years. "Even in the last years of Soviet power
there was no such volume in Russia," he added.
At the same time, he called for a "reasonable and expedient" approach
towards the training of young specialists.
"It is necessary to form some sort of a 'state order' for the training
of specialists, based on economic expediency," he said.
The Electronic Telegraph (UK)
16 August 1998
[for personal use only]
Rich watch from the beach as rouble falls
By Marcus Warren in Moscow
RUSSIA'S political rulers and new breed of super-rich are steadfastly
refusing to allow the country's latest financial crisis to intrude on
their summer revelry.
The few members of the Moscow elite who deigned to comment were scathing
about the prediction from the financial speculator, George Soros, of a
meltdown in Russian markets affecting shares worldwide.
His self-described "wake-up call to the world" infuriated the Russian
government. "Unnecessary", was the curt reaction of Sergei Kiriyenko,
the country's prime minister.
>From his holiday home on Russia's Lake Valdai, President Yeltsin backed
Mr Kiriyenko's opposition to any devaluation of the rouble, a
pre-emptive move that Mr Soros said was needed to avoid further chaos.
Mr Yeltsin summoned ministers from the capital for a reprimand between
fishing trips, and said he had no intention of cutting short his
vacation. That would only give the impression of panic.
Yesterday, he moved closer to Moscow, but was still 60 miles away from
his desk. He was definitely still on holiday, only now in his hunting
lodge at Rus.
At least he did suggest that someone should do something, even if it was
only urging the Duma, the troublesome state parliament, to break its
recess for an emergency session.
Meanwhile, the new Russian rich, despite apparently having most to lose
from the turmoil in Moscow, played on. They were determined not to let
the chaos interfere with their vacations at the Mediterranean resorts.
Most self-respecting Russian businessmen spend the summer as far away as
possible from the motherland. They apparently feel that only from the
comfort of a villa on the French Riviera or a suite booked for the whole
summer in a five-star Italian hotel does one acquire a real sense of
perspective on the bad news back home.
Even without Mr Soros's remarks, the Russian economy was suffering from
a heavy dose of Asian flu, withdrawal symptoms from years of dependency
on oil export revenues and a general collapse of morale. Last year
Moscow had the world's best performing stock exchange. That same stock
exchange has lost 70 per cent of its value since March.
A £13.8 billion package from the International Monetary Fund a month ago
, prescribed to boost confidence in Russia, seems to have had little
The rouble has already slipped below the rate the government is
committed to keeping it against the dollar. By the end of this year
Russia must come up with £12.5 billion to pay off its short-term debts.
Some banks began defaulting last week and queues of depositors trying to
withdraw foreign currency formed outside branches of others rumoured to
be in difficulties.
Yet the head of Russia's Central Bank, Sergei Dubinin, and the
plutocrats who have made huge fortunes from treating their banks as
personal milch cows were not to be seen in Moscow. One Western banker
said last week: "I have not heard of any of the big players rushing back
to Russia to try to sort this mess out."
This is not the Russian people's famous stoicism at work. As far as the
self-styled "oligarchs" who crave yet more power are concerned, it is a
completely rational response to even the most dire of crises. For the
few of the super-rich still in Russia, the view through the tinted
windows of their armoured Mercedes is still heartening as their
chauffeurs sweep them - often on the wrong side of the road - from their
fortress-like homes to the office and back.
In Moscow, the poor are too few and far between to pose any threat to
the status quo. It is the unsuspecting middle classes who trustingly put
their savings in the unsound banks who actually have the most to lose.
But those in the back of the Mercedes are unlikely to suffer any
fall-out in the process. Their personal assets are already salted away
in numbered overseas bank accounts which even the most tenacious tax
inspector will never find.
FEATURE: Master Soviet cartoonist has no regrets
By Adam Tanner
August 14, 1998
MOSCOW (Reuters) - Nikolai Sokolov, a member of the Soviet Union's most famous
trio of political cartoonists, savaged the West and hailed the Kremlin's
achievements during a career that encompassed the entire history of Soviet
At 95, Sokolov, who has just published an updated volume of memoirs, continues
to paint and still contributes occasional cartoons to Russian newspapers. And
he has no regrets about his propaganda role in supporting the Soviet
government, even during the darkest days under Stalin.
``There were many wrong things written about us, that we were official artists
working at the beck and call of the state, even though we never were,'' he
told Reuters in an interview. ``Anyone who has a job to a certain extent helps
his country. What's so wrong about that?''
Sokolov earned fame and popularity soon after two university colleagues,
Mikhail Kupriyanov and Porfiry Krylov, asked him to join their team in 1925 to
produce art and political cartoons under the collective pen name Kukryniksy.
Among the often mind-numbingly dull pages of the Communist newspaper Pravda,
Kukryniksy's political cartoons provided the spice of the day for half a
century starting in the 1920s. Images penned by the trio during the Cold War
often showed an evil Uncle Sam threatening the Soviet Union and its allies, or
a fat capitalist motivated by greed.
CARTOONS OPPOSED MILITARISM, NUCLEAR DANGER
``We made cartoons against militarism, against armaments, against nuclear
danger,'' Sokolov said in his apartment on Moscow's central Garden Ring road.
``We never drew even a single cartoon against the American people, never. But
there was an American president who launched the bomb on Hiroshima, right? And
America officially called our country the Evil Empire,'' he said, referring to
a remark by then-President Ronald Reagan. ``How could we react calmly when we
lived in an Evil Empire?''
The trio's finest hour came during World War II, when they continued to issue
anti-Nazi art under the Kukryniksy pen name even after they were evacuated to
different Russian cities. Many showed the Red Army crushing a pathetic Adolf
A well-known postwar painting shows a terrified Hitler cowering in the
darkened corner of his Berlin bunker with two drunken aides and a third with a
suitcase ready to escape.
``During difficult years for the country, Kukryniksy's satire, always sharp
and feisty, gave strength and helped combat evil,'' President Boris Yeltsin
said in a telegram wishing Sokolov a happy 95th birthday in July. ``As a
master of graphic art, you managed to combine killing sarcasm and the
grotesque with the heroic and lyrical.''
Despite his remarkable longevity, Sokolov is not the eldest of Russia's
Soviet-era cartoonist corps. That honor belongs to his friend, Boris Yefimov,
who turns 98 next month.
NO TO THE COMMUNIST PARTY
Sokolov, the last Kukryniksy survivor, said they succeeded even though they
refused to join the Communist Party.
``We worked for 50 years in Pravda because they valued art and we developed
our own themes. No one made suggestions to us from the side or from the
editors. We came up with them ourselves.''
If the three cartoonists were as minimally directed as Sokolov says, they
clearly knew what their bosses wanted during an era of tight censorship.
Sokolov acknowledges one instance when an aide to Stalin called with a
suggestion, and when he recalls some of the fear that permeated the Stalin
``One day Krylov was called to the NKVD,'' he said, referring to a forerunner
of the KGB secret police.
``They demanded that he inform on other artists, including on me and
Kupriyanov. Because of our background -- my father was a merchant -- we were
considered more bourgeois and less reliable. Krylov refused during a difficult
three-hour session, and he was worried for a long time after that.''
A man who, as an 11-year-old in Moscow in 1914, recalls seeing Russia's last
czar, Nicholas II, Sokolov says the past seems more alluring than the present.
``When you are younger, you feel times were better,'' he said.
Sokolov said he is not opposed to capitalism but has few kind words about
``We were friends with a whole series of capitalists,'' he said. ``We knew
Picasso, and he was quite rich. But the position of the people today is worse
than I've ever seen, even during the (1918-21) Civil War,'' he said.
``You see the disorder we have today. It's already three months since I last
got my wages from the Academy of Artists.''
Nadezhda, his wife of 68 years, replied when asked divulge a the secret of
their long relationship: ``We have completely different personalities. He's
outgoing and I'm reserved, so it is not boring. Plus, I've devoted my entire
life to him.''
The couple outlived their eldest son, but another son, Vladimir, became an
artist and produced some Soviet propaganda posters during the war with
Afghanistan. One grandchild also became an artist.
The nonagenarian artist still dabbles with his oil paints by the window and
rides an exercise bike to strengthen his now weakened legs. He says the
secrets of longevity include not smoking, a rule he has always followed, and
an active lifestyle.
``I cannot live without working,'' said Sokolov, who sports a small crop of
white whiskers. ``Life is more interesting when you work, otherwise it is
Sometimes overshadowed by his political cartoons and posters is a large output
of apolitical paintings, from picturesque scenes of Venice to portraits of his
``I feel that I am lucky that I dreamed of becoming an artist and I
succeeded,'' he said.
16 August 1998
RUSSIAN RESOLVE ON THE LINE
Investor sentiment fell off a cliff in Russia last week. Stock, bond and
currency markets cracked, and trading, along with bank liquidity, all but
dried up amid rumors that the ruble would be devalued or the government would
default on its debt.
This just five weeks after the U.S. helped engineer an expanded
International Monetary Fund and World Bank emergency rescue of $22.6 billion
that--coupled with government reforms on taxes and revenue-raising--was
supposed to reassure investors that all would be well.
It is clear that all is not well in Russia and that promises of billions in
foreign money alone will not convince investors otherwise.
Prime Minister Sergei Kiriyenko got it right when he said, "Unfortunately,
what's happening on the markets belongs in the realm of psychology." That
doesn't make it any less real or less devastating. Kiriyenko also got it right
when he went on to say that the only way for the government to respond to the
investor panic is to "strictly implement the program we have approved." That
is the difficult--but only possible--way out.
Russia faces several problems. As an emerging market--ironically the best-
performing emerging market in the world just last year--it has been buffeted
by the fallout from the Asian financial crisis. The country also has been
rocked by the plunge in oil prices.
But making everything worse for Russia is the Communist-dominated Duma's
resistance to passing crucial reforms sought by Kiriyenko and President Boris
Yeltsin. Yeltsin has imposed these by decree, but investors rightly worry
that--in the face of persistent legislative stalling--the government won't
have the political muscle and resolve to carry them though.
By week's end, the ruble had not been devalued. The debt--though
downgraded--was still good, and the stock market had snapped back as Yeltsin
appealed for the Duma to convene in emergency session to pass remaining
reforms. Communist leader Gennady Zyuganov responded that the Duma "wouldn't
mind" holding such a session.
But make no mistake, this crisis is far from over, and its consequences for
Russia and the world are immense.
Russia's window of opportunity to transform itself into a normal
functioning economy always has been narrow. In a normal economy, citizens and
businesses pay taxes to the government in exchange for services that boost the
general good. There is no tradition in Russia of the trust between citizens
and government that is at the heart of such a relationship. Authoritarian
Czarist rule was overthrown for authoritarian Communist rule. It is why this
transformation is so problematic. The events of this past week have narrowed
that window further.
Billionaire financier George Soros, announcing the "meltdown" had reached
"terminal phase," on Thursday urged Russia to devalue the ruble 15 to 25
percent and establish a currency board to regulate its value, as if that would
solve all the problems. It wouldn't, and the unrest that a devaluation and its
resultant soaring prices would unleash in the Russian countryside could topple
Chaos in what was once the other nuclear-armed superpower is frightening to
contemplate. The Clinton administration, calling it "critical" for the
Russians to "restore confidence," rightly views Russia as this nation's main
Expert Predicts Serious Inflation in Russia Inevitable
MOSCOW, Aug 13 (Interfax-FIA) -- The rate of inflation will inevitably
grow in Russia in the near future, Andrey Illarionov, the director of the
Russian government's Institute of Economic Analysis, said at a press
"Unlike in May and June, it's clear now that inflation is inevitable
and its outbreak will be serious," he said.
He said that the earliest possible devaluation of the ruble will lead
Russia out of the crisis. The government has no more than two weeks at its
disposal to make ruble devaluation relatively painless from the
social-political point of view.
He announced that devaluation of the ruble is necessary for balancing
up the volume of state ruble liabilities and the currency reserve. "Only
after this can the Russian ruble become a really strong currency,"