August 17, 1998   
This Date's Issues: 2311 • 2312• 

Johnson's Russia List
#2312
17 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Fred Weir on ruble devaluation.
2. Reuters: Russia lets rouble drop, locals hunt dollars.
3. RFE/RL: Breffni O'Rourke, Russia: Central Bank Devalues Ruble.
4. Reuters: Chronology of Russian financial crisis.
5. Reuters: Text of Russian authorities' rouble statement.
6. Reuters: Soros says Russia finance steps timely and brave.
7. Martine Self: Re Life in Moscow.
8. Janine Wedel: On Adil Rustomjee's perfect economist 
[JRL #2300, August 6]
9. Steven Taylor: Peace Corps in Russia.
10. Boston Globe: Russell Working, Rides are free until oil flows 
in Russia town.
11. Reuters: Russia's Chubais complains of lack of market trust.]

******

#1
From: fweir@rex.iasnet.ru
Date: Mon, 17 Aug 1998 13:06:35 (MSK)
For the Hindustan Times
From: Fred Weir in Moscow

MOSCOW (HT Aug 17) -- Out of options, the Russian government
bowed to the inevitable Monday and sharply devalued the rouble.
The move is expected to ease the state's debt crisis, but will
translate into massive price increases for the average citizen.
The Central Bank announced Monday morning that it will no
longer defend the old rate of 6.3 roubles to the U.S. dollar and
will allow the battered currency to rise to a new ceiling of 9.5
to the dollar -- an effective devaluation of over 50 per cent.
The rouble immediately began plunging on Moscow's currency
exchange, money traders in the streets began frantically changing
their rates and interest on government bonds rocketed to over 300
per cent.
"If the economy was functioning properly, devaluation might
be a useful tool for cooling things off," says Sergei Tarasenko,
an analyst at the Independent Foundation for Studies in Policy.
"But Russia's economy is malfunctioning in basic ways, and
devaluation will only lead to inflation, chaos and mass
impoverishment."
The Russian government has repeatedly pledged to hold the
rouble steady and as recently as last Friday President Boris
Yeltsin promised there would be no devaluation.
Mr. Yeltsin made an unscheduled return from his holidays at
the weekend, presumably to be near the Kremlin when the
devaluation crisis hit. Other top officials, including the
government's chief debt negotiator Anatoly Chubais, have also cut
short their vacations to return to the capital.
The devaluation is expected to bring on rapid price
inflation in Russia's import-dependent consumer economy. In
Moscow up to 80 per cent of the food and everyday items on sale
are imported -- which means their prices will soar as the
purchasing power of the rouble drops.
Many analysts expect this new blow to popular living
standards could lead to political crisis and social unrest.
Strikes and protest have been multiplying in recent months
throughout Russia's economically-blighted hinterland, and trade
union leaders have promised a "hot autumn" is on the way.
"There is nothing good in the short-term perspective," says
Mr. Tarasenko. "People are going to pull their money out of the
banks, there will be no more trust in financial institutions and
the whole economy could start to unravel.
"We can only expect more political conflict, because
Yeltsin, the government and the parliament will try to fix blame
on each other for this disaster." 

******

#2
Russia lets rouble drop, locals hunt dollars
By Adam Tanner

MOSCOW, Aug 17 (Reuters) - Russia effectively devalued the rouble on Monday in
an abrupt reversal of policy intended to restore confidence in its rickety
financial system. 

But drastic measures announced by the government and central bank, including
halting some foreign debt repayments for 90 days, sparked queues outside some
foreign exchange booths as Russians sought to change roubles into dollars. 

International financial markets initially reeled on the news, with the dollar
hitting a five-week high against the German mark, shares falling and Russian
Eurobond prices sliding in London. The mark later recovered and shares in
Europe and the United States wiped out their losses. 

The shock moves, which Prime Minister Sergei Kiriyenko denied amounted to a
devaluation or a debt default, followed a plunge in Russian shares in recent
weeks on fears of devaluation after central bank reserves fell sharply. 

"The measures are tough and fairly radical," Kiriyenko said. "They are tough
but adequate and unavoidable." 

The measures are also politically risky. Although the Kremlin said they have
the blessing of President Boris Yeltsin, they threaten the two main economic
achievements of Yeltsin's presidency: a stable rouble and low inflation. 

In a sign of lower confidence in the economy, the Fitch IBCA rating agency
reduced its Russia country rating. Russian shares, which fell to two-year lows
last week on devaluation fears, closed down nearly five percent. 

A government and central bank statement said Russia would free the previously
tightly-controlled value of the rouble to between 6.0 and 9.5 per dollar until
the end of the year. 

The official rate of the rouble did not reflect a huge devaluation -- it moved
from 6.43 per dollar from 6.31 on Friday. 

But most of Moscow's banks and exchange points immediately increased their
price for dollars to as high as 9.5 roubles, about 30 percent higher than last
week, although others offered rates of 7.5 to 8 roubles per dollar. 

There was no obvious panic but some people in Moscow reacted by queuing in
search of dollars -- traditionally a safe haven. 

Some shops, especially those selling big-ticket imported items such as
furniture and televisions, closed for the day. The owners said they simply did
not know where to set prices. 

The International Monetary Fund, which had hoped to calm Russian markets by
helping put together a $22.6 billion loan package last month, dispatched its
top Russia official John Odling-Smee to Moscow, where he met top Russian debt
negotiator Anatoly Chubais. 

"International monetary organisations, naturally, were not enthusiastic about
our proposal to restructure the state debt... but they showed understanding of
the situation," RIA news agency quoted Chubais as saying after the meeting. 

In recent days the rouble had fallen outside its official trading band as
financial institutions and banks sought to dump the currency because of
worries that a government austerity plan to emerge from economic crisis would
fail. 

Yeltsin said on Friday there would be no devaluation. But the Kremlin said he
had approved the moves during talks with Kiriyenko and Chubais on Sunday. 

"I consider today's actions taken by the Russian government an adequate and
timely response to the extremely difficult financial situation which was
threatening the economic and political stability of the country," Chubais
said. 

Labour unions have threatened nationwide strikes in October over unpaid wages.
Worsening living conditions would add fuel to their protests. 

Soon after the moves were announced, top Kremlin economic aide Alexander
Livshits tendered his resignation, Interfax news agency reported. 

The Ekho-Moskvy radio station said Kremlin administration head Valentin
Yumashev had asked central bank chairman Sergei Dubinin to step down, although
Dubinin had refused. The central bank declined comment. 

Yeltsin later named tax service chief Boris Fyodorov as a deputy prime
minister responsible for macroeconomics and management of state debt, a
Kremlin spokesman said. 

The government forged its new economic policy during a series of weekend
meetings. 

Kiriyenko huddled with Chubais, Dubinin and Finance Minister Mikhail Zadornov
on Saturday, and then won approval on Sunday from Yeltsin, who has been on
holiday for the past month. 

The president, who during a brief public appearance on Friday appeared
confused at times and briefly had trouble recognising a top aide, met
Kiriyenko again on Monday. 

The Communist-dominated State Duma lower house of parliament said it would
interrupt its summer recess to meet in emergency session on Friday. 

The government wants the Duma to approve more austerity measures to improve
tax collection and boost the ailing economy, which by official statistics is
in a decade-long depression. 

"It is total bankruptcy," said Communist leader Gennady Zyuganov. "We think
that it (devaluation) is first of all a blow for the poorest. Prices will jump
high, most banks except the biggest will collapse." 

In separate statements, both the finance minister and the central bank chief
said the moves were intended to protect citizens and domestic producers from a
market gone haywire. 

Analysts said the actions amounted to an acknowledgement that the Russian
government could no longer defend the rouble. 

"It's tantamount to devaluation," said Charles Blitzer, chief emerging markets
economist at Donaldson, Lufkin & Jenrettein London. "We'll have to see whether
the authorities can keep the devaluation controlled or not." 

"This is a devaluation in progress and is not the end of the story," said
Claudio Demolli, emerging markets economist at ABN Amro in London. "The risk
is still very much to the downside for the rouble." 

Russia announced it was halting payments of some foreign debts, by banks and
companies, for 90 days and banning foreigners from investing in short-term
treasury bills. But a senior Finance Ministry source told Reuters the
moratorium did not affect the government's foreign debt. 

The moratorium nevertheless undermined confidence in Russia's ability to
service its debt, triggering a slide in the price of its Eurobonds, traders
said. 

"There are limits to how many times Russia can come to the market and say
everything is okay," said one trader. "If it can default once and refuse to
admit that it is defaulting, it can do it again." 

********

#3
Russia: Central Bank Devalues Ruble
By Breffni O'Rourke

Prague, 17 August 1998 (RFE/RL) -- The Russian authorities are gambling 
for very high stakes with the announcement Monday (Aug. 17) of sweeping 
new measures to stabilize the country's deteriorating financial 
position. 

If the gamble succeeds, Moscow will have won breathing space in which to 
start bringing order to its economy. If it fails, the consequences will 
certainly be severe in economic terms, with unpredictable results in the 
political and social spheres. 

The key step in the new package is the de facto devaluation of the 
ruble. This has been achieved by widening by some 50 percent the 
corridor within which the Central Bank will support the currency. The 
ruble will be now allowed to sink as low as 9.5 to the dollar before 
Central Bank intervention. This amounts to an admission that in the face 
of massive market pessimism, Russia cannot defend the ruble's present 
value. 

Money markets so far have reacted mildly. The ruble has declined, but 
selling pressure has not been so great as to cause it to sink to the 
danger level. Analysts say however that if a big slide develops, the 
Central Bank's main problem will be to keep it under control. Although 
the bank reputedly has over $17.5 billion in reserves to support the 
ruble, about one-third of this is in gold, not cash, therefore reducing 
the liquid resources which can be brought into play at any given moment. 

The people of Moscow are providing a barometer of popular feeling about 
where the ruble is heading. Almost immediately after the government 
announced the emergency measures, Muscovites were thronging banks and 
exchange offices seeking to buy dollars to replace their rubles. 

An uncontrolled fall of the ruble would have negative effects throughout 
Russia's real economy. Sheetal Radia, a senior economist with the MMS 
International finance house in London, explains:

"You would be looking at inflation, and interest rates would have to go 
even higher than they are now. The fiscal side might have to be a lot 
tighter then maybe even then the level desired by the International 
Monetary Fund. That would bear down heavily on the Russian man in the 
street, who unfortunately is going through a tough time anyway."

Radia says that the likely outcome of all the troubles is a contraction 
of Russia's gross domestic product by more than 4 percent this year. He 
says much depends on how quickly the Russian government can get its tax 
collection methods in order, so as to raise revenues and keep the system 
functioning.

"The main problem with Russia all along has been the fact that it relies 
internally on short-term financing, and it has got to the stage now that 
it cannot access that short term financing, because rates are too high 
and no one outside Russia, no foreign investor, will lend it any money." 

Within hours of the events in Moscow, the International Monetary Fund's 
Managing Director, Michel Camdessus, said the Russian measures and their 
potential impact will immediately be analyzed by the staff and 
management of the IMF.

German Chancellor Helmut Kohl also was supportive, saying that he felt 
the situation is repairable if the right decisions are taken. Apart from 
the de facto devaluation, the new Russian measures include a 90-day 
moratorium on foreign debt repayments, the suspension of all further 
auctions of domestic debt instruments, and the restructuring of the debt 
into new bonds. Also included are limits on non-residents' currency 
operations as a barrier against short-term speculative flows. 

******

#4
Chronology of Russian financial crisis

MOSCOW (Reuters) - Following is a chronology of key events in Russia's
financial crisis, which came to a head Monday as the government announced
drastic new currency measures. 

March 23, 1998 - Yeltsin fires loyal Prime Minister Viktor Chernomyrdin and
the entire Cabinet, saying reforms were not dynamic enough. He names virtually
unknown Energy Minister Sergei Kiriyenko as acting prime minister. 

Markets already uneasy over turmoil in Asia and a slump in world oil prices
are shocked, and many investors retreat to the sidelines amid the political
uncertainty. 

March 27 - Yeltsin formally nominates Kiriyenko as premier, vowing to dissolve
parliament if it fails to approve him. Parliament finally approves him one
month later. 

April 29-May 5 - New Cabinet, packed with reformers, is announced. Markets
mainly rise over this period, but major investors still sidelined. 

May 12 - Coal miners protest unpaid wages, blocking a major railway. Stocks
tumble, mainly on a law restricting foreign ownership of shares in electricity
giant UES. 

May 13 - Russian markets fall further on news of Asian woes, amid violence in
Indonesia and poor state of Japan's economy. 

May 26 - Yeltsin signs austerity package to stabilize budget and cut spending.
Russia suffers a blow as no one bids for a 75 percent stake in Rosneft, the
last big oil company still in state hands. Finance minister announces spending
cuts of $10 billion. 

May 27 - Central bank triples key interest rate to 150 percent after t-bill
yields soar and shares tumble. 

May 29 - Influential Russian tycoons pledge to back Yeltsin. Yeltsin appoints
hard-liner Boris Fyodorov to head tax service. 

June 4 - Central bank cuts key interest rate to 60 percent from 150 percent in
a sign of growing confidence. 

June 18 - The International Monetary Fund delays an expected $670 million
installment of its $9.2 billion loan to Russia, citing problems with
implementing reforms, mainly fiscal. 

June 19 - Russia asks for additional $10 billion to $15 billion credit package
from the IMF and other lenders. 

June 23 - Yeltsin and Kiriyenko present anti-crisis plan consisting mainly of
tax laws. Yeltsin says the crisis has become ``so acute that there are social
and political dangers.'' He tells the Duma to waste no time in passing the
laws, hinting at tough steps if it resists. 

June 25 - The IMF approves the release of the $670 million installment, but it
fails to impress traders and shares fall again. 

July 1-2 - Siberian miners start new pickets of railways, demanding wage
arrears and the resignation of Yeltsin and his government. Stocks tumble on
overall uncertainty. 

July 13 - International lenders pledge $22.6 billion in extra credits spread
over 1998 and 1999. Stocks briefly soar. 

July 15-17 - The State Duma guts government anti-crisis plan, approving
measures which Kiriyenko said would provide only a third of targeted revenues.
He vows to compensate for this through government resolutions and presidential
decrees. 

July 19 - Yeltsin vetoes reduction in tax cuts and decrees fourfold hike in
land taxes after Duma rejects much of revenue-raising elements in anti-crisis
package. 

July 20 - IMF approves its $11.2 billion share of the new international loans.
First $4.8 billion made available. 

July 29 - Yeltsin cuts short his vacation and flies to Moscow citing ``urgent
business,'' prompting fears of Cabinet reshuffle. But he replaces only Federal
Security Service chief. 

Aug. 4 - Yeltsin resumes vacation in Valdai lake region. 

Aug. 6 - World Bank approves $1.5 billion structural adjustment loan for
Russia, including immediate $300 million. 

Aug. 10 - Miners lift rail blockade after a temporary deal with the
government. But stocks fall and treasury bill yields rise as investors take
money out of Russian markets amid fears of devaluation and doubts over state
finances. 

Aug. 12 - Central bank says interbank market virtually paralyzed by liquidity
shortages and lack of confidence. It decides to impose limits on purchases of
foreign exchange by banks and says will act to prevent crisis from spreading. 

Aug. 13 - International financier George Soros advises the Russian government
to devalue ruble and introduce currency board, pegging ruble to dollar or
euro. Central bank official says devaluation would not help solve crisis. 

Stocks plunge to lowest levels in more than two years and short-term t-bill
yields soar as banks dump paper for rubles. 

Central bank expands banks' access to overnight credits. 

Kiriyenko says there is no economic basis for decline in markets and his
government is in position to meet obligations. 

Aug. 14 - Stocks rebound and debt market stabilizes after plunge. Yeltsin, on
visit to Novgorod, rules out devaluation and gives backing to Kiriyenko. He
says he will not cut short his vacation and urges parliament to hold special
meeting to consider government anti-crisis drafts. 

Russia's big Communist opposition bloc backs Yeltsin's call for an
extraordinary summer session of parliament, saying it should focus on the
current crisis. 

But some major banks have trouble meeting payments to each other. Dollars
become scarce on streets. 

Aug. 17 - Russia's government and central bank announce they have lifted the
ceiling for the ruble exchange rate, banned foreigners from investing in
certain securities and halted payments on some debts for 90 days. 

Kiriyenko insists the moves do not amount to a default on the debt or a
devaluation of the ruble, but the exchange rate on the street collapses and
Russians line up in a frantic search for dollars. 

*******

#5
Text of Russian authorities' rouble statement

MOSCOW, Aug 17 (Reuters) - The following is a Reuters translation of the text
of the joint declaration of the Russian government and central bank on Monday:

``The time that has passed since the government of the Russian Federation and
the Bank of Russia set mid-term goals of currency policy has been marked with
a major complication of the internal economic situation for Russia. 

The fundamental factors of this were: the international financial crisis,
which started in the countries of Southeast Asia and later moved into a global
phase; the general depressed state of all emerging markets, including the
Russian financial market; a fall in world prices on the main items of Russian
exports, first and foremost oil, which brought about a worsening of the
foreign trade balance. 

At the same time the state of the federal budget became critically
complicated, confidence in Russian state securities fell, which brought about
a flight of foreign capital and a fall in the country's gold and currency
reserves. Under these conditions certain corrective steps in the Russian
Federation's current exchange rate policy became unavoidable. 

To protect national economic interests, avoid a drawing-down of currency
reserves and liquidate accumulated disproportions in the foreign economic
sphere, the Russian government and Bank of Russia declare that they are
reviewing their exchange rate policy and the methods of determining the rouble
exchange rate. 

In such complicated conditions it is inexpedient to maintain strict daily
boundaries for the oscillation of the rouble exchange rate with regard to the
rates announced by the Bank of Russia for buying and selling U.S. dollars on
the interbank currency market. 

Therefore, the system for determining the official exchange rate for the
Russian rouble is being changed, and will be determined by the results of
daily operations on the exchange- and non-exchange-sectors of the internal
currency market. 

In this regard, the government of Russia and the central bank are obliged to
use budgetary, monetary and currency policies to support such conditions on
the internal currency market which are necessary for supporting the
predictible dynamics of the exchange rate. 

As earlier, the possibility of unrestricted purchase and sale of foreign
currency by organisations and individuals, within the framework of existing
laws and on the basis of the market currency rate, will be supported. 

The government of the Russian Federation and the central bank consider that,
with legislative support, the government's package of economic stabilisation
measures can be implemented, and gold and currency reserves will support the
possibility of maintaining the rouble exchange rate until the end of the
present year between 6.0 and 9.5 roubles to the U.S. dollar. 

The carrying out of the exchange policy under the new conditions will be based
on the policy of a balanced budget and sufficiently strict monetary policy. 

A flexible interest rate policy will play a key role, supporting a holding
back of inflationary expectations and the sufficient attractiveness of
investment in securities denominated in the Russian national currrency, with
the support of state currency reserves to a sufficient level. 

The determination of the official rouble exchange rate on the basis of market
quotations will allow a decrease in the sharpness of speculative attacks on
the Russian rouble which led to unjustified losses to the currency reserves of
the central bank. 

The Russian government and the central bank simultaneously undertake the
following step necessary under the current complicated conditions: capital
restrictions on currency exchange operations by non-residents to defend the
Russian market from the influence of global short-term speculative capital
flows. 

At the same time, the Russian government and the central bank fully confirm
international obligations taken upon themselves in 1996 on the non-imposition
of limits to the convertability of the rouble for current balance-of-payment
operations. 

Sergei Kiryenko, Prime Minister 

Sergei Dubinin, Chairman of the Central Bank 

******

#6
Soros says Russia finance steps timely and brave

MOSCOW, Aug 17 (Reuters) - Top international financier George Soros on Monday
welcomed a raft of monetary policy decisions by the Russian government, one of
which effectively devalued the rouble. 

"The Russian government has acted in a timely and brave manner to stop the
collapse of the financial system," Soros, who last week urged a devaluation,
told radio Ekho-Moskvy in an interview. 

The government and central bank earlier announced several steps after a crisis
in Russian markets, including the widening of the rouble's current exchange
rate corridor and a 90-day moratorium on some foreign debt, excluding state
debt. 

The widening of the corridor, with a bottom rate of 9.50 to the dollar versus
an earlier 7.13, was seen by many analysts as an effective devaluation of the
currency. 

Soros last week urged a 15-20 percent devaluation of the Russian currency
before pegging it under a currency board. 

He told the radio that the Russian authorities had no choice but to announce
its financial and monetary policy measures due to an absence of support from
the West. 

He said the government's steps had acted to limit the loss of reserves from
the central bank, which had been trying to support the currency by direct
intervention. 

But Soros said the new measures were not the end of the story for the
bealeaguered ex-Soviet giant. 

"Russia remains as before in a very dangerous situation," he said. 

He said Russian financial institutions had made losses on Russian markets and
that Russian institutions were not in a good shape. 

******

#7
From: "Martine Self" <seawolf@aha.ru>
Subject: Re: Life in Moscow
Date: Mon, 17 Aug 1998 l

Dear David
Some observations/thoughts/queries from Moscow:
1. Yesterday we went to do our weekly shop at Moscow's only, and biggest
Western-style super/hypermarket, Ramstore which has over 30 tills, just to
give you an idea of the size. The place was packed and people were spending
their money in a way that suggested that a siege was not imminent. 

2.In addition, both my husband and I tried (for the third time yesterday)
to withdraw rubles from our British bank accounts from the ATM at the
shopping centre, and for the third time, the transaction was refused, no
reason given.

3. I've just finished reading Frederick Forsyth's latest excellent novel,
'Icon' which is set in Moscow and slightly in the future as it looks at the
presidential elections of 2000. The scenarios he puts forward seem to be
worryingly plausible. Even if they are not, the book makes most interesting
reading for anyone interested in Russia. Have any of your readers read the
book and what are their comments?
Also, the book ignited my interest in the Aldrich Ames case. Can any
readers suggest a book that looks at what this ratbag did while acting on
behalf of the SU and how he was caught and tried?

4.On a more mundane note, do any of your readers have horror stories (apart
from the obvious) regarding the immigration desk shambles at 
Shmeretyevo-2. In the past two weeks I have spent a total of 150 minutes
trying to get in and out of Russia. Undoubtedly, the experience would seem
to undo all the work Mayor Luzhkov has done in trying to promote Moscow for
tourists.
Martine Self

******

#8
Date: Sun, 16 Aug 1998 
From: Janine Wedel <jwedel@gwis2.circ.gwu.edu>
Subject: On Adil Rustomjee's perfect economist 
[JRL #2300, August 6]

Dear David:

Adil Rustomjee's recent submission in search of an 
economist to study "the exact role of foreign
advisers in the Russian Privatization Program" 
prompted me to think about the obstacles and 
disincentives to pursuing that story and why it is 
economists haven't done so.

To begin with, following the role of foreign advisers 
and Russian privatization could only be done through 
on-the-ground fieldwork and investigative reporting. 
Pursuing the story has involved contacting 
hundreds of sources (many repeatedly) in Moscow, 
Washington, and elsewhere. It has involved pouring 
throug+h hundreds of documents and reports and 
thousands of unreimbursed hours of cross-referencing 
and piecing together people and events. 

There are several reasons for which economists are 
among the least likely to pursue the story. 
First, they have been the most involved in it 
as participants. Economists such as Andrei Shleifer 
of Harvard University (implicated in the U.S. 
government's ongoing investigation of the Russia 
activities of the Harvard Institute for International 
Development, or HIID) played a key advisory role to 
Anatoly Chubais's team. Other economists 
(most notably Jeffrey Sachs, current head of HIID) 
served as what I call an "econolobbyist" -- jet-setting 
economists who are much more about public relations and 
their own publicity than they are about serious policy 
advice. Still other economists were beholdened to the 
first two types for grants, reputation, tenure, 
standing in the field, etc.

Second, since economists do not generally figure
people as such into their world view, it is hard to 
imagine an economist with professional stature studying 
the "role of foreign advisers" -- a topic in which
people are central. This is not a topic that is 
likely to secure an aspiring economist with a Ph.D., 
let alone tenure. Accounts by economists of eastern 
European privatization generally fall into two types:
1) technical prescriptions or analyses of effects of
policy;
2) accounts by participants in privatization. 
The definitive book in this genre is Privatizing Russia, 
written by aid-funded privatization players Maxim 
Boycko and Andrei Shleifer (with their colleague Robert
Vishny). Privatizing Russia, the writing of which was 
funded by the Harvard Institute for International 
Development (through which U.S. economic aid to Russia 
flowed), appears as propaganda for the American aid 
and political community and bears little resemblance 
to a scholarly account. Statements from the book, 
such as the following, make that clear:
"Russian privatization could not have had a better 
champion than Anatoly Chubais..." 
"foreign aid should be narrowly targeted to alter the
balance of power between reformers and their opponents....
United States assistance to the Russian privatization
has shown how to do this effectively." 

It is probably not accidental that the most definitive
scholarly account of early Russian privatization 
published in the West comes not from economists, 
but from sociologists Lynn Nelson and Irina Kuzes in 
two books published by M.E. Sharpe, Property to the 
People and Radical Reform in Yeltsin's Russia. 

The third reason that economists, and for that matter,
academics in general, were not likely to dig too 
deeply is that the role of Western advisers and aid 
in Russian privatization could not be pursued 
through reading published accounts and armchair analysis.
First the accounts had to be written and published.
With all due respect to Milton Friedman (to which Mr.
Rustomjee referred), I simply cannot
imagine him (and many other academics) in the trenches
doing the kind of thankless, non-linear, pounding the 
pavement type of work that such an investigation 
requires. This type of work is simply not where the 
academic rewards, money, or glory are to be found. 

So, what kind of expertise and training is useful? 
It is probably not accidental that an investigative
journalist with financial expertise (Anne Williamson)
and some journalists in Moscow have done much 
leg work to unravel pieces of the story (see, for example, 
Jonas Bernstein on loans-for-shares, John Helmer on 
finance, Mark Ames and Matt Taibbi on corruption, 
Fred Weir and Matt Bivens on politics and general reporting).
Investigative journalism is obviously basic to following 
the story and pursuing leads. Understanding of financial
transactions and following markets, is crucial to parts
of the story, and this, by the way, is NOT the same as
economics. Also, as a social anthropologist
with journalistic experience, I have tried to piece 
together the role of USAID, HIID, and Harvard-connected
players in Russian privatization (recounted in articles in
Demokratizatsiya and the Nation and my forthcoming
book, Collision and Collusion: The Strange Case of
Western Aid to Eastern Europe, 1989-98, St. Martin's
Press). (My training in social anthropology was very 
helpful, in, for example, conducting network analysis 
and analyzing the discourse of aid organizations.) 

What bears systematic and serious scrutiny is why there
are so few scholars from any discipline and journalists 
who have pursued the story and why the story we do 
know has been largely ignored by the mainstream media. 
Despite some excellent journalists in Moscow (several 
of which are named above), the MAINSTREAM media have been 
compromised and, with few exceptions, have served 
almost as cheerleaders for policies of the United 
States and the international financial institutions. 
I imagine that Mr. Rustomjee's perfect economist 
would probably cease to be regarded as such and 
be branded a "communist" if he were to tell
the true story.

Thus, the issue, to my mind, is not WHO (should investigate) 
as Mr. Rustomjee implies, but WHY (there has been so 
little investigation and why what we do know is swept 
under the rug). We do know quite a lot: If we take Nelson's 
and Kuzes's accounts of privatization, combine them 
with Anne Williamson's forthcoming book (How America 
Built the New Russian Oligarchy, some chapters of which
are available on the internet), add my accounts and those
of some reporters in Moscow, as well as reliable reports
published in Moscow, we would know a lot about the role
of Western advisers and aid in Russian privatization. 
The pertinent question then is this: Why is so little 
of the information that is already on-the-record discussed 
and followed up? 

Janine R. Wedel
Associate Research Professor
The George Washington University

******

#9
Date: Mon, 17 Aug 1998 
From: "Steven Taylor" <staylor@rum.peacecorps.gov>
Subject: Peace Corps in Russia

Subject: Time: 11:57 AM
OFFICE MEMO Peace Corps in Russia Date: 8/13/98
I read with interest Ronald Pope's comments about the Peace Corps
program in Vladimir.[JRL #2295]. As the Country Director of the Peace Corps 
program in Western Russia, I'd like to add some factual information.

During 1993-94 the Peace Corps and the United States Agency for
International Development helped to organize several business centers
throughout Western Russia. Their goal was to provide technical assistance
and advice for Russians in small and medium-size business development. In
Vladimir Peace Corps Volunteers the Peace Corps teamed up with the Eurasia
Foundation to begin the Vladimir Center-Foundation for Business
Development.

Since that time some of the 12 original business centers have closed down
their operations due to a lack of financial support from local sources,
some have changed their focus and some, now staffed and financed solely by
Russians as was originally intended, have continued working.

As is mentioned above, the initial goal of the business centers was to
provide technical assistance and advice for Russians (not money) by
working together with them on the grass-root level and transferring to
them business technical skills. Funding was provided only for a start-up
period after which host organizations were supposed to finance the centers
until they became self-sustainable.

The Peace Corps is not an investment fund, it is a humanitarian aid
governmental agency and it does not have any intention of doing investment
projects anywhere in the world. It's main function is education--both
business and non-business. The Peace Corps provides their most valuable
resource--highly educated professionals, many of whom have run their own
businesses. In the case of Vladimir, Volunteers placed there over the
last several years have included an attorney, a CPA and an experienced
management consultant. 

And, because our Volunteers live and work with Russians on a daily basis
for two year periods, the Peace Corps is one of the very few agencies that
can speak with authority about the real state of the Russian economy and
its impact on the lives of ordinary Russians.

As anyone who has spent even a few weeks in Russia knows, the economy is
in a constant state of flux. Russians themselves are often at a loss to
explain the economic situation. It should therefore come as no surprise
that Americans sometimes disagree. However, the very fact that Peace
Corps Volunteers have been making a continuous impact in Vladimir--and in
many other regional cities throughout Western Russia--for the past six
years, at a time when the majority of other business development efforts,
both in the public and private sectors, have come and gone, certainly
indicates the value our Russian sponsors attribute to the Peace Corps
program.

And apparently, not only Russian attribute value to our Volunteers and our
program. The fact the Mr. Pope approached one of our Vladimir volunteers
with a request to author a business plan for him, would certainly appear
to be a recognition of professional competence. In addition, two of Mr.
Pope's employees will participate in the Business for Russia Program. Our
Volunteers were members of the panel that recommended sending the two to
the United States for a five week internship where they will soon be
learning much more about the practicalities of running a business in a
market economy.

For the past thirty-five years the three goals of the Peace Corps have
remained the same--to promote world peace and friendship through the
following objectives:

To help the people of interested countries and areas in meeting their need
for trained manpower;

To help promote a better understanding of Americans on the part of the
peoples they serve; and,

To help promote a better understanding of other peoples on the part of
Americans.

I am very proud to be leading a program in Russia which is undoubtedly
meeting each of these goals and, hopefully will continue to do so, into
the future.

Steve Taylor
Peace Corps Country Director, Western Russia

*******

#10
Boston Globe
August 17, 1998
[for personal use only]
FOREIGN JOURNAL
Rides are free until oil flows in Russia town 
By Russell Working
Russell Working is editor of the Vladivostok News. 

NOGLIKI, Russia - The train rolled into town past the Soviet-era 
apartment blocks, the wrecked car parked on a roof, the hot water pipes 
snaking alongside the roads. And as it arrived, perhaps because I was 
unshaven and wearing jeans, I was mistaken for one of the Texas oil men 
who come stomping into Nogliki, ready to helicopter out to the offshore 
rigs. 

Sakhalin Energy, a consortium preparing to extract oil off Sakhalin 
Island, had sent a van to pick up an American who was expected by train. 
And although I turned out to be just a scruffy journalist, the office 
manager offered me a lift to the Nogliki Hotel. 

I figured if oil men on expense accounts were staying at the Nogliki, it 
was out of my price range. I work for a Russian newspaper that as of 
mid-August hadn't paid me since June. ``Do you know of anything 
cheaper?'' I asked. 

``Well,'' she said, ``you can always try the Severyanka.''

I was in Nogliki to write about oil: The petroleum deposits may rival 
the North Sea's, and I had read about Texans roaming Sakhalin in sport 
utility vehicles and drinking margaritas at a $370-a-night Japanese 
hotel in the capital city, Yuzhno-Sakhalinsk. But there was something 
about staying in a provincial fleabag to temper my vision of Sakhalin as 
an island on the cusp of an oil boom. 

Severyanka is a converted kindergarten that had a spare room with nine 
beds in it. I rented a bed for $8, and I was left with the impression 
that other guests might be boarded with me in case of emergency. Down 
the hall was a bathroom with a rusty shower and a miniature and filthy 
toilet. 

Upstairs were five Russian helicopter pilots and two flight attendants 
who live in Nogliki for 20 days at a time. They were deeply bitter about 
the Severyanka. The pilots were all men in their 30s and 40s, with 
families down in Yuzhno-Sakhalinsk. For half their lives they share a 
room with a wardrobe in the corner and a Gorizont television buzzing on 
the desk. 

When I dropped by, they were watching a black-and-white Soviet movie in 
which a Politburo member standing before a giant painting of Stalin 
harangued the Congress of People's Deputies. 

Sergei Momat, a 43-year-old pilot, said: ``When we moved here, our 
bosses told us, `You guys will be living here for 30 years.' They said 
the only thing that will change is they'll be bringing in two new hot 
water tanks. Everything else will be the same.''

He paused and listened to the flight attendants' tape deck pulsing 
through the wall. ``Can you imagine living here for 30 years with those 
people entertaining themselves next door?''

There isn't much in Nogliki to escape to. The city is filled with wooden 
barracks, chickens pecking at the dirt, babushkas tending goats. The 
town's only cinema hasn't shown a movie in five years. The pilots could 
always join the dispirited Americans drinking rum and cola in the 
Nogliki Hotel. The foreigners are similarly disinclined to stroll the 
streets, where the dust is a quarter-inch thick. 

It's too bad. In a city stricken, like the rest of Russia, by a crisis 
of unpaid wages, you learn something about character simply by hitching 
a ride. In Vladivostok, where I live, private drivers charge anywhere 
between 83 cents and $5.83 for a lift, depending on where you're going. 
In Nogliki - dusty, poor, filled with collapsing factories and roofless 
grocery buildings - no one would take my money. 

One driver said: ``For us, it was always a shame to make someone pay for 
a ride. Especially in winter. When it's minus 40 and you see someone by 
the road, you pick him up.''

I remember that whenever I wish oil money would start flowing into 
Sakhalin. The market economy has its tradeoffs: You get paid, you get 
MTV rather than Stalinist reruns. But no one offers you a ride in a 
snowstorm. 

*******

#11
Russia's Chubais complains of lack of market trust
By Oleg Shchedrov

MOSCOW, Aug 17 (Reuters) - Top Russian debt negotiator Anatoly Chubais said on
Monday market scepticism about the government's anti-crisis programme had
forced the cabinet to make dramatic changes in its monetary course. 

``We had a fundamental programme backed by the International Monetary Fund,''
Chubais, who is a major influence behind the government and has a big say in
decisions, told reporters. 

``But unfortunately the programme did not help build up the confidence of the
markets as we had hoped.'' 

The government and central bank announced on Monday they would allow the
rouble to float freely in a new currency corridor, effectively allowing the
currency to devalue. 

The government measures, which also included government debt restructuring and
restrictions on some foreign debt repayments, led to queues outside some
foreign exchange booths in Moscow as Russians rushed to change roubles into
dollars. 

``Until the very last moment we hoped we would be able to avoid such steps,''
said Chubais, a former finance minister who lost his last official government
post in March. ``But unfortunately last Friday it became clear we could not
avoid them.'' 

The former first deputy prime minister said the government's decision had
helped avoid far worse consequences. 

``The goal was to protect the Russian banking system and Russia's budget
system from developing along disastrous scenarios,'' he said. 

Chubais said the the drastic changes in monetary policy could help the
government solve some of its biggest problems. 

``We understand now that the restructuring will lead to sustainable fiscal
parameters of the budget for 1998, 1999 and 2000,'' he said. 

Another goal, according to Chubais, was to save dozens of Russian banks from
what he described as an ``unmanageable chain of bankruptices.'' 

``Now we see that Russian banks will be able to develop along manageable
scenarios,'' he said. ``In the coming two or three days we will inevitably see
some turbulence on financial markets. But now we have a clear and transperent
strategy.'' 

IMF Managing Director Michel Camdessus issued a statement on Monday appealing
for public and private solidarity with Russia and urged the government to
press ahead with its anti-crisis programme so that the IMF could release in
September the next tranche of an $11.2 billion credit package agreed last
month. 

But in a sign of even lower confidence in the economy, the Fitch IBCA rating
agency reduced its Russia country rating. Russian shares, which fell to two-
year lows last week on devaluation fears, closed down nearly five percent. 

International financial markets initially reeled on the news, with the dollar
hitting a five-week high against the German mark, shares falling and Russian
Eurobond prices sliding in London. The mark later recovered and shares in
Europe and the United States wiped out their losses.

*****