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17 August 1998
[Note from David Johnson:
1. The Independent (UK): Helen Womack, A rotten, decaying nation.
2. Interfax: Russian Bankers Offer Differing Ruble Devaluation Views.
3. Radiostantsiya Ekho Moskvy: Radio Interviews Communist Leader
4. Interfax: Russian Unions, Communists Disagree Over Strike Demands.
5. Obshchaya Gazeta: TEMPERATURE FOR AUTUMN: CLOSE TO BOILING POINT.
6. Christian Science Monitor: Jean MacKenzie, Political Wheeling Drives
7. Financial Times (UK): RUSSIA: Dollar should provide prop for
(Letter from Professor Steve Hanke)]
The Independent (UK)
17 August 1998
[for personal use only]
A rotten, decaying nation
Helen Womack, a freelance writer, has lived in Moscow for 10 years.
Russia's problems are usually presented as highly dramatic. In reality,
things just get steadily bleaker
"Black Thursday" August 13. Russia was once more "on the brink", as
Western news editors put it. But stock market panic, set off by talk of
a possible rouble devaluation, evoked only a deeper than usual weariness
in the majority of non-share-holding Russians, who for months if not
years now have been watching their country collapsing a little more each
Certainly, a devaluation would hit poor Russians hardest of all, making
their already meagre wages and pensions worthless. And yet, why panic
when, as it is, miners, doctors and other workers have been surviving
for months without any wages at all, when people regularly faint from
hunger in trolley buses, when neighbours are reduced to stealing
cabbages from each other's gardens to feed their children?
Laughter is all that Russians have left to keep them going. Everyone in
the Moscow region guffawed at a local news item over the weekend about a
man who was caught stealing not cabbages but potatoes from other
people's allotments. It was a life and death matter, for the gardeners
would have been depending on those potatoes to survive through the
coming winter. Enraged, they stripped the thief naked, tied him to a
tree and took turns to whip him with nettles. He was reported to be
recovering in hospital with 95 per cent nettle stings to his body.
But despite the brave face they put on things - telling jokes about the
mafia, which now has the real power, in the way they used to tell jokes
about Kremlin leaders - Russians are really crying silently to
themselves. They inwardly howl when they see shops filled with food they
cannot afford to buy; they weep as they sit at home on rainy days
because they have not got any shoes to go out in.
"There comes a point with suffering when you can't react anymore," said
one friend, who was a star of the concert platform when the arts were
subsidised in Soviet times and is now just another of the vast army of
hidden unemployed. "You have no more tears to cry. The mind shuts off.
You walk around like the living dead."
The Soviet Union officially broke up in 1991 when Mikhail Gorbachev
signed Russia over to Boris Yeltsin. Arguably, it was already falling to
pieces behind the facade created by Leonid Brezhnev. Or perhaps the
moment when Russia really collapsed was 1917. Whatever, this is how the
slow-motion, day-to-day deterioration looks today and it is a very
In the port of Vladivostok, where power cuts are routine and drinking
water has to be brought in by tanker, residents are going about
exterminating rats because there is a scare that the bubonic plague, not
seen in Europe since the Middle Ages, is being carried in their fleas.
The local governor, Yevgeny Nazdratenko, is suffering from pneumonia
because, according to his doctors, he lives in "unsanitary conditions".
Think about that. The governor is a relatively privileged man. He lives
in the country mansion where in 1974 Gerald Ford met Mr Brezhnev to
discuss arms control. If the mould on the ceiling (shown on television)
is enough to affect the governor's lungs, what must conditions be like
for ordinary workers living in "communal" flats, where two or three
families share the same apartment?
In Moscow, in the ultimate symbol of collapse, buildings simply fall
down. True, a gas explosion caused the latest tragedy in which a
nine-story apartment block folded like a pack of cards, killing seven
people. Gas explosions happen on a more or less weekly basis because
Russians cannot afford to pay their bills and, when they get cut off,
tap illegally and incompetently into the gas supply system. But on
Bolshaya Dmitrovka Street in the city centre, whole buildings have twice
subsided this summer just because heavy rain finally undermined their
Mayor Yuri Luzhkov, a likely presidential candidate in the year 2000,
overspent the city budget on the World Youth Games in July. Among the
things that Muscovites got for their money were paintings of what looked
like ice-cream cornets (they were supposed to be Olympic flames) on the
asphalt all along the main roads. So there are fewer resources now to
improve the housing stock.
Human rights were also abused while the Mayor put on a show for the
visiting athletes. From my Samotechny Lane column on the foreign pages,
readers may already know about Lydia Ivanovna, a pensioner who was
tricked out of her flat by criminals, ended up homeless but recovered
when Yugoslav builders gave her a hut in which to live. Along with other
"social undesirables", she was arbitrarily swept out of town for the
duration of the games. When the last races had been run and all the
medals had been won, the authorities dumped her back on the streets,
where she discovered her hut had been destroyed. Police told her: "It's
your problem now. But if we catch you wandering about, we'll jail you
for six months."
Nobody will help to house Lydia. The buck will be endlessly passed among
officials with petty power but no responsibility. This is how human
rights are really violated on a mass scale in Russia. It is not that
victims get a bullet in the back of the neck any more. It is that in a
country that is still really two countries (like Switzerland for the
Kremlin bosses, like Hell for everyone else), a person can waste his
entire life in corridors, waiting to appeal to indifferent, corrupt
The politicians are above it all. Once elected, they cease to care until
the next election. President Boris Yeltsin, supported by the West
("always keep tight hold of nurse, for fear of finding something worse")
has squandered the years when equitable reform might have been achieved,
so that the very idea of democracy is discredited. Only now is Prime
Minister Sergei Kirienko bringing in measures that should have been a
priority five years ago, such as taxing the rich who have robbed their
And still the West fails to understand Russia. Most of the time what the
media demands is chirpy little stories about Russians triumphing over
adversity. Then occasionally, as last Thursday, when George Soros
created a sudden hysteria with an analysis that only helped him to make
$107 million through currency speculation, Russia is "on the brink"
The truth is rather different and does not lend itself to conventional
news coverage. Russia is slowly sinking, rotting, decaying. The picture
is bleak, bleak, bleak, with hardly a redeeming feature, although no one
day is really any bleaker than another.
Of course, things will eventually change. Nothing stays the same for
ever. The number of blackshirts saying openly that the West is trying to
break Russia with its financial aid and that the country needs a "strong
hand" and "ethnic purity" makes me personally fear the rise of fascism.
But like the collapse of the country, it will probably not happen
dramatically, overnight. It will be creeping and insidious, like rising
Russian Bankers Offer Differing Ruble Devaluation Views
Moscow, 13 Aug (Interfax-FIA) -- The leaders of Russian commercial
banks differ over the wisdom of devaluing the ruble, according to a poll
taken by the Interfax Financial Information Agency.
While some think that this step would be useful, most of them oppose
sharp devaluation of the ruble and disagree with wellknown financier George
Soros, who has said that the ruble should be devalued by 15 to 25 percent.
An Inkombank official reiterated the view of bank President Vladimir
Vinogradov that the ruble should by no means be devalued beyond the Central
Bank of Russia's and Government's currency peg.
The ruble should decline by 7 to 8 percent against the Dollar in 1998,
as in the preceding years, Vinogradov said. If the exchange rate falls by
10 to 12 percent, the banking sector of the country will lose hundreds of
millions dollars and leading, as well as medium banks, will run into
problems, he said.
"If the ruble is devalued by 20 percent as Soros suggests, the country
will die," said an expert from one of the largest Moscow crediting
institutions. In particular, the structure of the assets owned by the
banks which have given hard currency loans to enterprises will sharply
deteriorate, because the enterprises, whose proceeds are in rubles, will
not be able to pay their debts, he said.
Soros' statement may have been a provocation, the expert said. "It is
true that the Central Bank's gold and hard currency reserves are not
sufficient to maintain the currency peg for a long time, but an abrupt 20
percent devaluation will result in disaster," he said.
"There must be some rationale" behind Soros' proposal, Aleksey
Voroshin, Deputy Chairman of the Mosbiznesbank Board, said. However, he
could not say to what extend the Soros plan was reasonable.
"Soros is right to the extent that devaluation will resolve the
budgetary problems," Spetsstroibank President Ilya Khatsernov said.
There is no time left for cardinal steps such as restructuring the
economy and the taxation system, which "should have been done earlier," he
said. "If we resort to devaluation, it should be 50 percent rather than 25
percent," Khatsernov said. "A 25 to 30 percent devaluation will not resolve
the problem but will delay it, while a 50 percent devaluation will not
resolve the problem, either, but will allow time for restructuring," he
The public reaction to devaluation will certainly be negative because
ruble savings will be wiped out, Khatsernov admitted. Banks will also be
hit, especially those whose capital is chiefly in rubles, he said.
The largest Russian banks will survive anything other than sudden
devaluation, Alfa Bank President Pyotr Aven said last week. He said he
thought devaluation was unrealistic.
Radio Interviews Communist Leader Zyuganov
Radiostantsiya Ekho Moskvy
12 August 1998
[translation for personal use only]
Interview with Gennadiy Zyuganov, leader of the Russian
Communist Party, by Aleksandr Andreyev -- live
[Andreyev] Good afternoon, Gennadiy Andreyevich.
[Zyuganov] Good afternoon.
[Andreyev] The first question will be about the government and the
economic situation. The government is now trying hard to collect taxes and
improve the country's economic situation in order to obtain another IMF
tranche and further improve the economy. Many laws have to be adopted for
this. In your view, will the Duma gather in August to help Kiriyenko's
government in this matter?
[Zyuganov] There is no denying that the situation is parlous, a very
bad one. And this is true not only about financial markets but also about
crime that has paralyzed whole streets. Yeltsin has driven everyone up the
wall, not only the miners but also the oilmen, not only tramps and
unemployed but also businessmen. As regards the government, unfortunately
it continues its old policy of squeezing money from a population that has
already been robbed four times and from enterprises that have been robbed
three times. If only they were concerned about how to support and organize
production, that would be one thing. But the money they asked for has been
given on the condition that not a kopeck will be paid to the real economy.
[passage omitted on possibility of Duma extraordinary meeting to discuss
austerity laws; Zyuganov's attitude to Communist Maslyukov joining the
I asked the government to reveal the conditions on which the IMF is
giving us a big loan. You know that I have not received any reply. The
Duma asked the same question and got no reply either. Finally we found this
document on the Internet in English and translated it into Russian. In it
our government pledges to scrap all the social achievements and guarantees
that the country has. In fact, Russia has gone over to outside management.
It is being run by the IMF, from Washington or anywhere. [passage omitted
on arguments against working with the current government; Maslyukov is
likely to be sacked from the Communist Part central committee for
disobedience; the Semago-Klimentyev election bid in Nizhniy Novgorod]
[Andreyev] Let us speak about the events in Afghanistan. The Taleban
is approaching CIS borders. They are already on the border with Uzbekistan
and, in all likelihood, after they capture yet another pass, they will be
at the Tajik border, which is being protected by Russian border guards. In
your view, could Russia do anything so that these people suffer no harm and
that the CIS remains as it is, without new problems emerging?
[Zyuganov] Thank you for this question but I would formulate it
somewhat differently. An impeachment commission to remove Yeltsin from
power is working now. It is within constitutional norms. The commission
has held its first meeting on the Belovezhye conspiracy. And it was proved
there that a small number of people -- Yeltsin, [Sergey] Shakhray,
[Gennadiy] Burbulis -- did their utmost to destroy a single country, a
single security expanse, and a single border for the sake of gratifying
their personal ambitions and getting seats in the Kremlin or in other
offices and so on. They committed an unprecedented crime of destroying a
defense system that was four centuries old and extended from Larva to
Kasha. [passage omitted on Zyuganov expanding this theme]
It is clear today that all out troubles, including in Central Asia,
stem from Belovezhye. Now, let us look at the specific situation. I have
just returned from the North Caucasus where I visited several republics.
The situation is ominous there. Almost everyone is armed. If this region
catches fire, it will be difficult to put it out. Meanwhile, everything is
being done to upset the situation in Dagestan, Chechnya, and so on.
At the same time, the Taleban is getting right up to Central Asia.
The Taleban movement is made up of those who, paid by the United States,
Saudi Arabia, and Pakistan, were specifically trained for field fighting in
Afghanistan. They are approaching the border. They are Islamic militants
and the very fact of their cynical execution of Najibullah confirms this.
The world community kept silent whilst our leadership, which at one time
saw Najibullah as an ally, made no serious protest. And now they are
reaping the whirlwind at their own borders. And this gives out a signal to
all Central Asian leaders. If this crosses the river and catches fire
there too -- oh!
I have been everywhere in that region, including Tajikistan, and know
the situation well. A concerted joint reaction by all the leaders should
have been voiced some six months ago. The CIS was based on a single
defense space, a single border, a single army, and a single security
system. But they have failed to implement a single point of what they have
signed! And now they have to convene urgently -- but there is nobody to
convene. Yeltsin is gravely ill, he is not in control of himself, the
government is paralyzed by a financial crisis, others are engaged in
internal feuds, and so on. [Foreign Minister Yevgeniy] Primakov understands
these problems, he is an Arabic scholar and knows the region well but one
ministry's efforts are not enough for taking such strategic decisions.
[passage omitted on break for newscast]
[Andreyev] The economic situation in Russia is very difficult, it is
being compounded by numerous protest actions. Is there any other solution
to the crisis or, on the contrary, the government will understand that the
people have started large-scale protests and will reconsider its policy?
[Zyuganov] [passage omitted on Zyuganov summing up his party's vain
efforts to reason with the government]
I am in favor of organized protests, when all responsible people
understand that we are at an impasse and the situation must be rectified.
But I am only in favor of a peaceful and democratic solution to the
situation. I would suggest the following blueprint. First, authoritative
and respectable people, heads of the Federation Council, the State Duma and
major regions, religious figures and nationally-minded capitalists who want
to work in Russia should get together and hold multilateral and bilateral
consultations because we cannot go on like this.
Second, there is a possibility of introducing amendments to the
Constitution by the two chambers and reshaping power in favor of a strong
government and effective legislative authority.
Third, the impeachment procedure should be seen through to the end.
It has been announced and signed by 225 deputies but 300 signatures are
required. I do not see any problem in collecting this number. [passage
omitted on Zyuganov's ideas on how to correct the situation]
[Andreyev] I have a question about methods of influencing the
executive -- do you support coal miner pickets on rail tracks?
[Zyuganov] I am in two minds about it. On the one hand, people do not
get wages for months, their voices are being ignored. [passage omitted on
suffering of working people]
On the other hand, I understand perfectly well that if railroads are
blocked, bread and coal will not be delivered, all communications will be
cut off, preparations for the winter will fail, and so on. Look, there are
Chelyabinsk-26 and Chelyabinsk-70 in Chelyabinsk Region. If power supply
is switched off from nuclear facilities there then, given the current mess,
the backup systems will simply fail, I am afraid. Therefore we called on
the striking people to stage pickets and put up tents, like here, in
Moscow, on Gorbatyy Bridge, and work with each labor collective to agree
their actions. We have had such a picket line in Omsk for more than
several weeks. I talked to them yesterday. There are 20 permanent pickets
but all the collectives of the military-industrial complex, educational
establishments, teachers, and doctors have visited them, from all
Districts. It is imperative now that protests are staged simultaneously in
all regions with the same demands: Yeltsin's resignation, a change of the
political course, and the formation of a government of national trust.
[pasage omitted on Zyuganov elaborating on how the country should be run,
using Roosevelt as an example]
[Andreyev] In your view, will Clinton's visit to Russia improve the
economic situation and will it have any effect on anything at all?
[Zyuganov] Americans, their administration and Clinton should stop and
think why embassies are being blown up and why anti- Americanism is growing
throughout the world. I would not like to see a return to the Cold War but
anti-Americanism in our country is growing by the hour too. They [American
administration] see and support a gang of thieving bankrupt drunks who have
led the nation to extinction and annihilation. But they have kept
supporting them. These reforms are a blatant genocide and the annihilation
of people. Backed by the Americans, democrats in Russia invented a
monstrous system of destroying people, culture, education, and honest
information. You, journalists, are suffering too since you see what is
happening in the country because you also live in it. I would like
therefore very much that during his next visit he [Clinton] should refrain
from persuading us to ratify START II or to carry on with the Chubays
reforms. At the present-day stage, neither will come through. The country
is not blind any longer and it is longing for a change. We would like to
live in peace and friendship with America, Europe, and Asia. We would like
to inherit everything good on earth. At the same time, we would like to
see respect for our language, culture, and our uniqueness. We would like
to see respect for our choice and sovereignty. But we do not have any
today. A master is coming to see his subjects.
[Andreyev] Here is the last question: Will START II be ratified in
the near future?
[Zyuganov] What is START? It is a treaty signed when the conventional
arms treaty was in force. Now the whole system has been upset. At the
time NATO was not expanding, now it is. Who is posing a threat to them
from the East? Nobody. Why then are they expanding? In order to divide
Russia up into pieces and then to privatize it bit by bit. And they see
Russia as the outpost of the struggle against Islamic extremism and Chinese
Communism. So what do they expect -- that Russia should do just that while
simultaneously scrapping its entire security system? You cannot be
serious! On the whole, I believe that the level, the threshold of nuclear
weapons should be considerably lowered. I am perhaps one of the few
politicians who has taken part in nuclear and chemical weapons tests.
There are seven countries with nuclear weapons today, and tomorrow another
15 will join them because they are technologically ready for this. Israel
claims not to have any. Everybody is making noises about Iraq. But Iraq
does not have any indeed, whilst Israel has a nuclear bomb. Ask
intelligence people and they will confirm.
Just imagine that five or so nuclear charges are dropped on a country,
any country. It will be an absolutely different country tomorrow.
Therefore national, state, global security should be comprehended as soon
as possible because the planet is already groaning under the weight of
piles of weapons and the mentality of military confrontation. Washington
will not be the master of the world. A multipolar world is developing and
it requires more astute politicians, closer contacts, and no humiliation of
countries. Russia, all of us, have been humiliated to such a degree that
outrageous things have started growing from below and on outer flanks in
our country and many people are terrified by them. So do not humiliate!
Germany was humiliated and that led to the 1941 war. Nobody took its
interests into account and it was carved up after the World War I. At the
time the experience and interests of Soviet Russia were also neglected. It
was simply thrown out of Europe. So lessons must be learned from this and
a multipolar world should be built keeping in mind that education, health,
ecology, and peaceful neighbourhoods are the most important things. Given
this, trust and the ratification of appropriate documents will be achieved.
Instead, now when everything in Russia has been upset and reduced to this
state, nobody will consider this seriously.
[Andreyev] Thank you, Gennadiy Andreyevich.
Russian Unions, Communists Disagree Over Strike Demands
Moscow, Aug 13 (Interfax) -- Trade Unions will put forward their own
slogans, differing from the demands of the Communist Party of Russia
(CPRF), during the protest action in the fall, said the secretary of the
Russian Federation of Independent Trade Unions Andrey Isayev.
Isayev criticized leader of the Communist Party Gennadiy Zyuganov's
remarks that "formation of a popular trust government" should become the
chief demand of the protest.
"Communists think that such a government would be formed under the
leadership of the State Duma. However, the trade unions have their own
attitude to the lower parliamentary house," he said.
"Deputies failed to adopt a single socially significant law in the
interests of workers. They set up a shamefully low minimum wage level,
ignore the demands for enforcing legal responsibility of the employer for
overdue wages. At the same time, they push through the anti-trade union
law on labor and dutifully vote on all the budgets proposed by the
government," he said.
"The legislative branch is no less to blame than the executive one for
the current situation in the country. It is shameless to expect hungry
people to play as extras in the officials' game under the cover of creating
a popular trust government," he said.
"A complete and unequivocal settlement of wage arrears, changes in the
social and economic policy and simultaneous early presidential and Duma
elections will become the chief demands of the All-Russian strike which
trade unions alone have the right to declare, not political parties," he
The federation's general council will make a final decision on the
issue on August 27.
>From RIA Novosti
Obshchaya Gazeta, No. 32
TEMPERATURE FOR AUTUMN: CLOSE TO BOILING POINT
However, most likely, there will be no explosion
The "hot autumn" is the traditional scare used by the
Russian opposition to frighten authorities. Since last spring
paid prophets are preparing society for a social explosion,
which is due to break out, if not in September, then in
November by all means. Frequent horrible forecasts have stopped
not only to scare people but even to make them laugh. Society
has lived through so many Novembers but the chaos has never
The forecast for the 1998 autumn is, naturally, also bad,
i.e. standard. However, there is one significant difference:
the composition of disaster prophets has changed greatly. This
year social upheavals are promised not so much by Communists as
by quite well-wishing politicians and the mass media
traditionally loyal to authorities. Now even the President has
spoken about the hot autumn. Why?
According to a well-known law discovered by Leo Tolstoi,
if all people begin to expect a fire at once, the fire cannot
but flare up. Is the social situation in Russia indeed so
explosive that it will be impossible to evade the disaster this
time? Do the prophets again trade in fear? And what do they
want to get in exchange?
Obshchaya Gazeta put these questions to several renowned
experts in the field of economics, social science and political
analysis. Below are their opinions.
Alexei ULYUKAYEV, the Institute of the Economy
of the Transitional Period
The Situation Is Grave But Not Fatal
The main thing which worries society today is the grave
situation with state finances. The crisis has indeed gone too
far but I would not say that the state is inevitably heading
for bankruptcy and that this is the prospect for the coming
months. The first half of the year was even completed with the
slight excess of budget revenues over current expenditures and
the government, to all appearances, will be able to preserve
this trend. According to cautious estimates, in the second half
of this year this excess (the primary surplus of the budget)
will be raised to 0.7-0.8 per cent. However, apart from its
current expenditures, the government has to pay old debts and
it has to pay much. Today this is perhaps the main reason for
the nervousness of the Finance Ministry.
I don't believe that there will be a noticeable price
increase or sharp rouble devaluation in the second half of the
year and fears on this score are too exaggerated; however, wage
arrears will no doubt complicate the social situation. However,
this misfortune is not new and the population has grown
accustomed to it; that is why it can hardly be expected that
this may become the reason for serious mass disturbances this
* * *
* In the second half of the year, the federal budget is
expected to receive 161 billion roubles of revenues. As many as
71 billion roubles will be needed to service the state debt.
On August 6 the Russian government made a decision to
increase the limits of foreign borrowings for 1998 from $6
billion to $14 billion.
Vladimir PETUKHOV, the Russian Independent Institute
of Social and National Problems
Society Is Afraid of Disturbances
Social scientists have grown accustomed to the fact that
summer polls of the population normally produce the quietest
picture of public sentiments. This is natural: many people are
on vacation, live in their summer cottage houses or go to the
sea. However, this summer the polls register for the first time
the growth of social tension. This is manifested, in the first
place, in the anxious expectation of possible cataclysms due to
the financial collapse of the state. This possibility is
admitted by 50 per cent of the polled. The growth of protest
sentiments is also noticeable. More than 70 per cent of
Russians support, to some or other extent, the miners' railway
war, while another 40 per cent are ready for similar actions,
if the same situation with the payment of wages emerges at
their enterprises. Moreover, the polls register a rather quick
radicalization of the youth, including students, who have been
considered up until now the most apolitical group of Russian
society. The level of trust for all leading politicians without
exception continues to decline. For the first time in recent
years the confidence index has turned out to be negative not
only for Yeltsin and the members of the government but also for
Yavlinsky, Luzhkov and Lebed.
Are these grounds sufficient to believe that Russia is on
the verge of a social explosion? I believe that there are still
no sufficient grounds for this.
First of all, there is a large distance from the
hypothetical readiness to go to the barricades to the real
participation in some protest actions. The majority of the
population, while supporting the actions of miners, is
extremely sceptical about the efficiency of these actions. In
particular, 62 per cent of the respondents believe that the
railway war will not lead to the improvement of the situation
in the country. The opposite view is held by only 13 per cent
of those polled.
Secondly, the strong containing factor is the fear of a
large-scale disturbance whose consequences may affect everyone.
This fear is experienced to some or other degree by up to 90
per cent of the population. Consequently, society is absolutely
not interested in aggravating the situation and is
instinctively afraid of this. Apparently, the theme of the
inevitable autumn disaster has been included in the agenda not
by society but by political elites, for which the build-up of
fear is the normal instrument in their struggle for power.
* * *
The budget arrears of wage payments reached 11 billion
roubles in August and the arrears of children's and other
allowance payments amounted to 17 billion roubles. Pension
arrears constitute about 16 billion roubles.
The Federation of Russian Independent Trade Unions intends
to stage on October 7 an indefinite all-Russia strike. The
participants in the action of protest are expected to demand
the resignation of the government and the President.
Leonid SEDOV, the All-Russian Public Opinion Study Centre
Careful: New Dissatisfied
Perhaps, this autumn will be hotter than usual. In any
case, the wave of citizens' dissatisfaction with their material
position, judging by our polls, will sharply increase. Already
today 65 per cent of the respondents say that the situation
with the wage payment is worsening, or 20 per cent more than in
April. The government anti-crisis measures are perceived by
people as the threat to their well-being, as they expect only
the growth of taxes and prices from them. Even the financial
assistance of Western creditors does not inspire optimism for
Russians and 60 per cent of the polled are sure that the IMF
money will be embezzled.
Whether the government wanted it or not, but its latest
fiscal innovations have led to the emergence of a group of the
"new dissatisfied." I mean not only oil and gas barons or
employees of the oil and gas sector in general, although it is
not safe to make them angry. The introduction of the sales tax,
the increase of import duties, the charging of pension fees
from the incomes of bank deposits will most of all affect the
well-to-do citizens, as the poor do not fear the decrease of
bank incomes due to their absence. However, citizens with
incomes above the average level constituted the social base of
the current authorities and are interested more than anyone
else in social stability. Although they clearly constitute the
minority in society, this minority is very active and
influential and if it joins the permanently dissatisfied
majority, it is not clear whose support the current authorities
can count on.
In brief, the views for the autumn are not very
encouraging. The next stage after the railway war is the stage
of spontaneous protest involving acts of vandalism and the
outbursts of uncontrolled violence. It is difficult to say
whether society will come to this situation or not. Normally
such outbursts of popular anger occur unexpectedly.
Fortunately, even the most militant groups of the population do
not dare so far to destroy palaces, banks and shops. Possibly,
they fear not so much OMON groups (special militia units) as
criminal structures which are capable of fighting for their
cottages and business. But, in principle, such restraints are
undoubtedly unreliable. If our elite - both political and
business - is unable to ensure quick economic recovery, it
could at least ease social tension by restricting its consumer
appetites. Let's assume that people have to tighten their belts
once again to overcome the financial crisis - in this case our
rich should give their personal example of self-restriction,
why not? If people have patience, their best representatives
should also be patient as it's not so troublesome for them.
* * *
* Today half of the population has banking deposits. The
total sum of savings constitutes 166 billion roubles. As much
as 50 per cent of all savings belong to 2 per cent of citizens.
In July Russians used more than 20 per cent of their
expenditures to purchase hard currency.
Vyacheslav NIKONOV, Politika foundation
Each Group Has Its Own Interest
The problems which worry the country today are, generally
speaking, not new but they have never been so acute before and
this makes the situation even more explosive. Last year the
state did not experience such a crisis of payment solvency as
it experiences now, since the lion's share of revenues
heroically collected by the government is used to cover the
internal debt. Strikes, hunger strikes and pickets were also
witnessed in previous years. However, it is for the first time
that picketers have blocked for two months railway mainlines in
some or other places and that their illegitimate actions have
met with public sympathy and no counteraction from the
authorities. The situation is aggravated by the intrigues of
some part of the business elite which in its own way is
dissatisfied with the government anti-crisis measures and
actually is at one with the participants in the railway war.
The combination of all these factors - the budget crisis,
miners' protests, the dissatisfaction of big bourgeoisie and
the obvious weakness of the power - present a potentially
dangerous mixture. I do not believe that the government will be
able to remove all contradictions by autumn, although the
situation will hardly result in large social upheavals.
Although the current power is being pressurised simultaneously
by the left opposition, miners and oligarchs, each of the
pressure groups has its own strategic interests. Hardly any of
them aims to radically destroy the entire social system.
It is quite probable that the strikers, the opposition and
oligarchs will provoke with their joint actions a political
crisis. This is a less painful event than a social explosion,
although, in my view, this is also very undesirable. Of course,
there is sense in changing the Cabinet of Ministers when it
makes big mistakes or when there is a stronger alternative to
it. However, neither is witnessed by us today.
In my view, the talks about the possible dissolution of
the State Duma are also groundless. It is unclear why the
President should be interested in this since the dissolution of
the lower house will aggravate the political situation no less
than the dismissal of Viktor Chernomyrdin. Of course, after
returning to work from their vacations, the deputies will begin
with the harsh criticism of the executive branch - this is a
tradition and there will be no unexpected things for the
executive authorities in this respect, as it knows the rules of
the game with the parliament and is capable of resolving this
seasonal conflict without resorting to radical measures. I
believe that all the other participants in today's big game
will not go too far to make the situation turn into a
large-scale social cataclysm.
Department of politics
Christian Science Monitor
AUGUST 17, 1998
[for personal use only]
Political Wheeling Drives Ruble Crisis
•High-level jockeying hinders hopes of fixing Russia's diving market and
Special to The Christian Science Monitor
Shaken by last week's 13 percent plunge in the Russian stock market and
fears of a ruble devaluation, Russia's economy once again seems to be
spinning out of control. But is it?
As the world holds its breath, Moscow is awash in questions that nobody
is able to answer. Will the ruble fall? Will the economy disintegrate?
How bad can things get?
Western observers delight in doomsday scenarios. "It could get much
worse than Indonesia," says one Moscow-based Western economic analyst.
"Foreign capital is fleeing, the government cannot sustain the ruble, no
one is buying ruble debt, everyone could default, there will be no
money, and no one will get paid."
But the real questions are ones that few people are willing to tackle:
Is there a genuine crisis? Is the crisis being driven by objective
economic factors or by the wheeling and dealing of Russia's Byzantine
Certainly the atmosphere in the capital is tense. President Boris
Yeltsin interrupted his summer vacation to return to Moscow on Saturday,
just one day after telling reporters in no uncertain terms that he would
not consider such a move. And last week the United States sent David
Lipton, the undersecretary for international affairs, to Moscow to look
at the situation firsthand.
Over the weekend an uneasy calm descended on the population. Television
news downplayed the crisis, showing soothing interviews with Central
Bank officials who assured everyone that deposits were safe.
According to some analysts, however, the current crisis may be a
function more of political maneuvering than of economics.
"Politics is certainly dominating the economic situation," says Vladimir
Pribylovsky, head of Moscow's Panorama think tank.
If the Kremlin were to forget politics and act according to rational
economic criteria, most analysts agree that a ruble devaluation is
The Asian crisis, the slump in world oil prices, and the spiraling
growth of Russia's internal ruble debt has put an almost unbearable
pressure on the national currency. Propping up the ruble is costing the
Central Bank hundreds of millions of dollars a week, and even the $22.6
billion in international financing that Russia secured last month will
not last long unless something is done.
Devaluing the ruble would give the government some much needed breathing
space, as international financier George Soros indicated last week in a
letter to the Financial Times newspaper in Britain.
In Russia's looking-glass world, however, logical reasoning does not
always lead to the obvious conclusion.
"On a purely economic basis it would be difficult to avoid devaluation,"
says Vladimir Milovidov, assets manager at Atlas Capital, a Russian
investment firm based in Moscow. "But the stable ruble is all Yeltsin
has to show for seven years of economic reform. There are no other
achievements. If the ruble were to fall now, the government would lose
For this reason, adds Mr. Milovidov, the ruble is "doomed to stability,"
even though keeping it artificially high is likely to lead to economic
At the same time, Russia's political actors were busy muddying the
waters. Nezavisimaya Gazeta, a newspaper owned and openly used as a
mouthpiece by financial tycoon Boris Berezovski, floated wild rumors
last week that the Central Bank was behind the latest crisis, with the
goal of toppling the current government.
As unlikely as that may seem, political analysts are not so quick to
dismiss the possibility that there are forces at work behind the scenes.
"It is not out of the question that some of our Russian oligarchs are
using the economic crisis to pin Yeltsin to the wall," says analyst
Pribylovsky. "The presidential elections are less than two years away,
there is no clear successor to Yeltsin, and the oligarchs want some
clarity in the situation."
To top it all off, the Communist-dominated legislature is being
difficult about complying with the president's wishes to hold a special
session on Aug. 19 and 20 to consider the government's economic
Russians, however, are less pessimistic than Western observers.
Much of the population is already outside of the banking system. While
studies have shown that Russians convert approximately 24 percent of
their funds to dollars, much of that is kept at home. "The population
has some $5 billion under their mattresses," says Pribylovsky.
And what are the prospects for the future?
"Half crisis, half stability," says Milovidov. "The shadow economy will
grow, the criminal element will become more active. But officially,
there will be an absence of development, capital will leave the country.
In short, stagnation."
Financial Times (UK)
17 August 1998
[for personal use only]
RUSSIA: Dollar should provide prop for rouble
>From Professor Steve Hanke.
George Soros (Letters, August 13) is on target. Russia desperately needs
a money and banking quick fix, one in which a currency board system
provides the linchpin.
The rouble is a junk currency. In 1997 alone, the Russians sold more
then $13bn in roubles for dollars in cash. This amounted to a capital
export that exceeded all capital imports into Russia in 1997. Russians
now hold $40bn in greenbacks. That is double the supply of roubles in
These figures are truly astounding, particularly when you consider that
Russians can't legally use dollars for retail transactions. And the
Russian banks are as phoney as the rouble. Indeed, the Russian banking
system is technically insolvent. To fix this money and banking mess,
Russia should follow the steps contained in my 1993 book, Russian
Currency and Finance: A Currency Board Approach To Reform:
* The dollar should be granted legal currency status immediately, so
that it circulates on a co-equal basis with the rouble.
* Foreign banks should be allowed to open branches in Russia without
prejudice. Russians would trust these banks with their mattress money;
and these foreign banks could mobilise those savings by extending credit
to worthy investment projects, something the Russian banks are incapable
* The Russian government should pass a currency board law that would
govern the monetary emissions of the Central Bank of Russia and announce
an implementation date.
* Then, as with the Bulgarian lev in 1997, the rouble should be allowed
to float for a specified period of time.
* At the end of the float period, the rouble-dollar rate should be
irrevocably fixed at a realistic level.
These were precisely my recommendations to former President Suharto in
Indonesia earlier this year. If President Yeltsin fails to follow them,
the rouble will end up where the rupiah is and Mr Yeltsin will join Mr
Suharto in an early, forced retirement.
Steve H. Hanke,
professor of applied economics,
The Johns Hopkins University,
MD 21218, US