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CDI Library > Johnson's Russia List

Johnson's Russia List
 

 

August 19, 1998   
This Date's Issues: 2314  2315 


Johnson's Russia List
#2315
19 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Russia would prefer sex scandal.
2. Sydney Morning Herald: Neela Banerjee, Money crash? Just another
of the joys of Russian life.

3. Reuters: Yeltsin Crosses Rubicon with Devaluation.
4. Russia Today: Rod Pounsett, Leave Kiriyenko in Charge! 
5. Internships: The Kennan Institute for Advanced Russian Studies.
6. Interfax: Russian Opposition Seeks New Policy, Anti-Crisis Cabinet.
7. The Guardian (UK): James Meek, Banking system faces disaster.
8. Moscow Times: David McHugh, NEWS ANALYSIS: West Keeps Hands Off
Russia as Ruble Drops.

9. Financial Times (UK): Astrid Wendlandt, FOREIGN INVESTMENT: Views
vary in wake of rouble's fall.

10. Ekonomika i Zhizn: Abalkin on Ruble Devaluation.
11. St. Petersburg Times: Brian Whitmore, Fighting To Take Back The 
Stolen Revolution.

12. Reuters: Russian markets tumble, unions plan protest.]

*******

#1
Russia would prefer sex scandal

MOSCOW, Aug 19 (Reuters) - With Russia's rouble sinking the same week U.S.
President Bill Clinton admitted an extramarital affair, some Russian
newspapers on Wednesday compared their president to the American and decided
they preferred Clinton. 
The rouble plunged this week, only days after President Boris Yeltsin
vowed there would be no devaluation. 
On Wednesday some Russian newspapers compared Yeltsin's reversal on
currency policy to Clinton's about face in confessing to a relationship with
former White House worker Monica Lewinsky. Yeltsin, they said, had made the
worse mistake. 
``You can poke as much fun as you'd like at American morals, hypocrisy
and the desire to drag the presidential dirty laundry before a wide
public,'' said the daily newspaper Sevodnya. 
``But in all this note one obvious fact... If the president feels obliged
to explain himself to the nation on live television even for adultery, the
nation can be calm about the future of the national currency -- nobody would
risk letting anything unpleasant and unexpected happen to it.'' 
Others made the comparison more explicitly. 
Cartoonist Igor Shein of the Moscow Times drew Yeltsin and Clinton
sitting side by side. 
``I didn't lie about Monica. I just didn't volunteer information,'' says
Clinton. 
Yeltsin replies: ``I didn't lie about the rouble. I just didn't have any
idea what I was talking about.'' 

*******

#2
Sydney Morning Herald
August 19, 1998 
[for personal use only]
PUBLIC CALM 
Money crash? Just another of the joys of Russian life 
By NEELA BANERJEE in Moscow 

Whether they expected the devaluation or not, most Russians view the 
Government's decision as yet another trick to rob them of their money 
which began with the liberalisation of prices and privatisation six 
years ago.

"I don't believe in the Government anymore," says Vladimir Nestorovich, 
a 57-year-old small businessman who had already lost $A40,000 in savings 
at two Russian banks over the past few years. "I voted for Yeltsin in 
every election, but he lies and lies with impunity."

Yet, oddly enough, because this country has been through so much, from 
2,000 per cent annual inflation to months of unpaid wages to waves of 
political unrest, Russians appear calm about any new ills that might 
befall them.

"We're used to whatever this Government does; they'll say one thing and 
do another," says Sergei Afromeyev, 36, a production supervisor at a 
PepsiCo bottling plant here, after trying unsuccessfully to get his 
$A5,800 in savings out of the Russian bank SBS Agro. He was told to come 
back the next day. "If they don't give us our dollars, what can we do? 
We'll just end up losing the money, that's all."

There were no long queues at exchange points or banks, as there had been 
last Friday when news of possible bank failures spread through Moscow. 
There certainly were no people clamouring or rioting. The Government and 
the media have been careful not to ignite any panic.

Over the past few weeks, the Russian Government saw that the IMF's 
$US22.6 billion ($38.57 billion) bailout wouldn't be enough to revive 
confidence among investors and get them to finance the Budget by buying 
Russian short-term debt.

Faced with dwindling resources, the Government had to decide who would 
bear the brunt of any major policy shift: a population prone to striking 
more and more often because of months-long delays in paying wages, or 
foreign speculative investors who had already more or less abandoned the 
Russian market.

For the time being, it looks like foreigners will take it a bit harder 
on the chin.

*******

#3
Yeltsin Crosses Rubicon with Devaluation 
August 18, 1998

MOSCOW -- (Reuters) President Boris Yeltsin has crossed a dangerous 
Rubicon by allowing a de facto devaluation of the ruble which ensures 
ordinary people will finally feel the effect of Russia's crisis in their 
pockets. 

Until Monday, months of turmoil on financial markets had had little 
effect on ordinary Russians. That changed with the decision to let the 
ruble depreciate faster than previously, risking higher inflation and a 
drop in the real value of wages. 

Yeltsin, who just three days earlier had ruled out a devaluation, risks 
losing what remains of public confidence in him and his government. His 
main economic achievements -- a stable ruble and low inflation -- are 
under serious threat. 

Although he is in no immediate danger of being ousted, Yeltsin runs a 
greater risk than two days ago of social unrest exploding in the next 
few months. His chances of re-election, if he tries to run again in 
2000, have taken another blow. 

"This situation is above all to do with a lack of trust in Boris Yeltsin 
and the government," said Gennady Zyuganov, leader of the main 
opposition Communist Party. 

Alexander Lebed, another Yeltsin critic and potential presidential 
rival, sounded a warning. "The government and central bank's decisions 
will have an extremely negative effect on the population. ... The 
decisions are a veiled recognition that the state is bankrupt," he said. 


Making clear that ordinary people are about to feel the pinch, the 
popular Komsomolskaya Pravda newspaper published a list of six ways to 
survive a financial crisis. 

Yeltsin's position has been difficult many times in the past and he has 
often proved to be at his best in a crisis. He has often fought back 
from the brink of defeat and guided Russia through previous economic 
turmoil. 

But the huge popularity Yeltsin enjoyed in the early 1990s after playing 
a pivotal role in sweeping away communist rule has faded. Even the 
support he rallied in an energetic re-election campaign in 1996 has 
evaporated. 

Critics can all too easily find evidence that his economic reforms have 
failed. A rise in inflation in the coming months and the collapse of the 
ruble would remove the last icons of major economic success that Yeltsin 
can hold up. 

Russian shares have already slipped back below the levels they were at 
when he was elected in July 1996, crossing a symbolic barrier that 
reinforces the impression that Russia has not moved forward in Yeltsin's 
second term. 

It is not only the 67-year-old president who seems unclear which way to 
turn next. Interfax news agency said Prime Minister Sergei Kiriyenko had 
also offered to resign but that Yeltsin had rejected his request. 

"It is a crisis of power, of trust in the authorities," said Mikhail 
Prusak, governor of the Novgorod region. 

The liberal newspaper Nezavisimaya Gazeta said: "The authorities have 
been devalued themselves." 

Many people, including Yeltsin and Kiriyenko, blame the financial crisis 
largely on outside events such as economic problems in Asia and a fall 
in the price of oil, Russia's most important export. 

But many analysts say the financial problems were also a result of a 
long-term political crisis brought about by inaction at the political 
center. 

Yeltsin was ill for much of the first eight months of his second term 
and missed what many economists say was a golden opportunity to carry 
out painful but necessary reforms which he had long put off for 
political reasons. 

He now intersperses his work at the Kremlin with spells at residences 
outside Moscow. He holds vast power but his concentration, health and 
long-term vision are in question. 

The government is headed by a prime minister who, although admired for 
his courage and knowledge of the economy, has no political powerbase and 
is highly dependent on Yeltsin. A government reshuffle is widely 
predicted. 

Parliament has few powers and offers even fewer alternative ideas of how 
to pull Russia out of crisis. 

The Communist Party has launched impeachment proceedings against Yeltsin 
but its efforts are widely thought to have little or no chance of 
success and it has little reason to try to take power at such a 
difficult time. 

"There is a lack of power in Russia. This is a danger. The three centers 
of power are all rather shaky at present -- the government, the Kremlin 
and the parliament," political analyst Irina Kobrinskaya told Reuters 
Television. 

"Until we have all or at least one of these centers of power 
strengthened, the situation will not improve." 

She doubts social unrest will mount into any significant political 
challenge to Yeltsin. Other analysts disagree, saying the patience of 
ordinary people who have not been paid for months due to a cash crisis 
could be about to snap. 

"The main thing is that panic is gradually being transferred to the 
ordinary population and no central bank reserves can stand in the way of 
the population," the popular newspaper Moskovsky Komsomolets said on 
Tuesday. 

"Nobody trusts anyone. The state is trusted least of all." 

The next presidential election is due in 2000, the next parliamentary 
election at the end of 1999.

*******

#4
Russia Today
http://www.russiatoday.com
Aug. 18, 1998 
Leave Kiriyenko in Charge! 
By Rod Pounsett

Recent speculation about Russian Prime Minister Sergei Kiriyenko's 
security of tenure is madness. Yeltsin must stand by his prime minister 
-- over whom a few short months ago he was prepared for open warfare if 
the Duma failed to endorse his choice. To abandon Kiriyenko now would be 
further proof that the Russian president hasn't the faintest idea how to 
manage affairs of state, let alone to oversee a market-driven economy. 

Yet various factions in the Duma still openly doubt his abilities. There 
have been a number of articles in the press, both in Russia and 
overseas, that suggest Yeltsin will dump him if the economic situation 
gets any worse. Several political analysts in Moscow, including Andrei 
Kortunov and Sergei Ryabov, have predicted Kiriyenko could be sacked 
this autumn. And we have had Nezavisimaya Gazeta arguing, "It is as 
clear as day that Kiriyenko's government cannot handle the crisis and 
even cannot adequately understand what is happening on the markets." 

But where is the evidence that Kiriyenko is guilty of mismanagement? 
Even the most outspoken critics of the government's policies recognize 
that most of Russia's economic misfortunes have been brought about by 
forces beyond its control, such as backlash from the Asia markets crisis 
and falling world oil prices. And the bad practices prevailing within 
government and industry, which cannot be fixed immediately, were 
installed by Kiriyenko's predecessors. 

The agenda he has set for urgent adjustments to policy meets almost 
every criteria set by international observers and, more importantly, 
those with hands on purse strings that could provide support for Russia 
through this troubled period. He has defined objectives, identified 
priorities, developed strategy and set up procedures and working groups. 
In other words, he is doing the job he was asked to do. 

Aware of international concern about Russia's propensity to spend more 
than it earns, he has engineered budget cuts of more than 40 percent. He 
has reduced the amounts for financing the administration of government, 
the presidency and the Duma as well as axed great chunks out of 
defense estimates. He has overseen the substantial improvements in 
revenue collection which have been spearheaded by new tax supremo Boris 
Fyodorov. The amount of tax collected has risen for several successive 
months and it looks like August will see another increase of 4 percent 
to 5 percent. 

Despite immense daily pressures brought about by market turbulence, he 
has found time to install several new procedures to improve the 
internal efficiency of the government and cut wastage. This has freed up 
considerable amounts of cash which has helped to pay back wages for 
miners and others. He has stood firm against both opponents from within 
the administration as well as those who would interfere from outside. 

He has also been actively attempting to build a team spirit 
within government and eliminate historic frictions that have resulted 
from hitherto competing interests. And in a sometimes tense relationship 
with Yeltsin, mainly because of the wide generation gap between them, he 
is forceful in defense of his colleagues. 

When required, Kiriyenko has carried his office onto the 
international stage, with relatively successful trips to France, Japan 
and Belarus. He has also been active internally, visiting a number of 
major industrial centers in support of new initiatives to push up 
production in key sectors like aviation, car production and engine 
building. He has helped kick-start joint ventures, like the 
Kamaz-General Motors project to build trucks. 

As for his personal team, they have nothing but praise for the boss 
they have nicknamed "Samurai." (Kiriyenko has a passion for the Japanese 
martial arts sport Aikido.) His spokesman, Konstantin Voitsekhovitch, 
tells me this name was chosen because it reflects the image observed by 
those close to him. "He's a fighter who never blinks in the face of 
trouble. He never loses hope, never panics and always remains cool 
headed," Voitsekhovitch said. 

Kiriyenko is a workaholic -- head down and hard at it from 9 in the 
morning until well after midnight every day. And his team says he has 
"immense reserves of physical and mental energy." They regard him as a 
highly intelligent, creative and decisive and a man who seems to thrive 
under pressure. 

"He works like a man with a mission," says Voitsekhovitch. And his 
"mission" is to make sure external pressures do not take Russia off a 
course which he firmly believes will see the economy picking up again by 
early next spring. 

The prime minister has accomplished a lot during his short time in 
office -- and not without his share of adversity. Handicapped by open 
hostility toward his relative youth and inexperience from the upper 
levels of the political stage and in full knowledge of the economic mess 
he was inheriting, he has grasped the challenge like a veteran. 

The world is desperate for signs of continuity and stability on the 
Russian political landscape, and a change of helmsman during Russia's 
current economic tempest would be catastrophic. Trying to blame 
Kiriyenko for the country's economic malaise would be a transparent ploy 
recognized by all as an attempt by the president to save his own neck. 

If Yeltsin wants to avoid being shipwrecked, he had better leave 
Kiriyenko at the helm.  

*******

#5
Date: Tue, 18 Aug 1998
From: "JOSEPH DRESEN" <DRESENJO@WWIC.SI.EDU>
Subject: internship announcement

Internship Positions * Washington, DC

The Kennan Institute for Advanced Russian Studies of the Woodrow Wilson
Center in Washington, DC, offers paid Research Assistantships throughout
the year for undergraduate, graduate students and prospective graduate
students who are either U.S. citizens or permanent residents. A number of
positions are still available beginning in September. Each research
assistant works with a Fellow or Research Scholar in residence at the
Institute over a period of three to nine months. Applicants must have a
good command of the Russian language, good organizational skills, and be
able to conduct independent research.

A Research Assistantship at the Kennan Institute complements any student's
academic interest in Russian or Soviet Studies. Research Assistants have
the opportunity to:

Work closely with a prominent scholar in the field.

Attend discussions and seminars sponsored by the Institute.

Build on research skills you've acquired in college.

Gain the privilege to use the Kennan Institute Library, which houses
approximately 7,500 volumes and more than fifty Russian journals and
newspapers.

Have the opportunity to use your Russian language skills.

Have a flexible schedule of 15 hours per week.

If you are interested in continuing in Russian Studies, a research
assistantship at the Kennan Institute will provide practical experience in
the field while helping you establish contacts with academics and policy
makers that may prove useful for achieving future career objectives.

The Kennan Institute has moved to new office space in August. To apply,
send a resume and cover letter to:

Research Assistantships
Kennan Institute for Advanced Russian Studies
Woodrow Wilson International Center for Scholars
One Woodrow Wilson Plaza
1300 Pennsylvania Ave., NW
Washington, DC 20523

The Woodrow Wilson Center is an Equal Opportunity Employer and as such
follows EOE guidelines in the selection of its interns and research
assistants.

For more information, please call (202) 691-4245. You may also fax your
resume to (202) 691-4001.

*******

#6
Russian Opposition Seeks New Policy, Anti-Crisis Cabinet 

MOSCOW, Aug 17 (Interfax) -- The left- wing opposition has called on
Russia's political parties, officials in charge of national industry and
businessmen to start consultations on a new economic policy, anti-crisis
measures and formation of an anti-crisis government.
Communist Party of Russia leader Gennadiy Zyuganov, Chairman of the
People's Rule parliamentary group Nikolay Ryzhkov and Chairman of the
Agrarian parliamentary group Nikolay Kharitonov issued a corresponding
statement Monday [17 August] addressed to "Russia's responsible public and
political forces, those responsible for the real sector of the economy and
(representatives of) nationally oriented capital."
The three men, leaders of the opposition People's Patriotic Union
bloc, said both houses of national parliament should meet as quickly as
possible in order to assess the situation in Russia and "make decisions on
redistribution of power within the country."
"A collapse of the national currency has actually occurred, as well as
a collapse of the monetarist policy and bankruptcy of the executive power,"
the statement says.
"Neither the president's well-meant remarks nor desperate measures by
the government have done anything to avert the natural outcome of the
regime's deadly economic policy," the three men said.
Russia is on the verge of a financial collapse, the statement says. 
Today's statement by the government and the Central Bank of Russia "puts an
end to the illusion that some stability might be maintained within the
bounds of the present anti-people policy," it says.
"An actual devaluation of the ruble has taken place," which means
"another spiral in price growth, further impoverishment of the working
people, bankruptcy of national industrial and agricultural enterprises and
financial structures and further robbery of Russia by foreign-exchange
speculators," the three men said.
The government's measures will primarily "hurt the already poor
miners, farmers, school teachers, medical workers and military servicemen,"
they said.
Zyuganov, Ryzhkov and Kharitonov said that "the difficult social and
economic situation of the working people confirms the need for a nationwide
protest demanding Russian President Boris Yeltsin's dismissal."

******

#7
The Guardian (UK)
19 August 1998
[for personal use only]
Banking system faces disaster 
By James Meek in Moscow 

The collapse of the rouble could spell doom for hundreds of Russia's 
commercial banks, with no guarantee that the government can protect even 
the handful who hold individual savings. 

Meeting in their dachas outside Moscow at the weekend, a dozen of the 
country's most powerful bankers, who knew that the rouble was destined 
for devaluation, tried to set up an elite pool of banks that would 
support each other with mutual loans when required and draw on funds 
from the central bank if necessary.

But despite the bravado on Monday of the spokesman for the group, 
Vladimir Vinogradov, of Inkombank, the country's seventh biggest, it is 
unclear how far the central bank can, or will, back the idea.

Central bank efforts last week to help SBS-Agro, the ninth biggest bank, 
had little success. Yesterday Standard & Poor's, the international 
ratings agency, gave SBS and three other banks in the "pool" - Alfa, 
Inkombank and Rossisky Credit - long term credit ratings of NM for "Not 
Meaningful".

The only bank which the government is under popular pressure to support 
is Sberbank, the former Soviet state savings bank, with millions of 
small private deposits and branches in every town and city. Many people 
with accounts in Sberbank saw their life savings wiped out by inflation 
within weeks in 1992, and to suffer the same experience would be too 
much, even for patient Russians to bear.

Russia's other commercial banks, of which there are about 1,500, are 
smaller, feebler and younger. The oldest date back to 1989, when they 
were allowed to open by Mikhail Gorbachev. The decision cleared the way 
for the rapid enrichment of a tiny number of individuals with access to 
income from Soviet exports.

In June, Mikhail Zadornov, the finance minister, said that if the rouble 
fell, as few as 30 banks could be left, or two per cent of the total.

Many say the banks deserve to die. Most are self-serving organisations, 
having no contacts with ordinary savers or borrowers. They do not offer 
mortgages, branch networks, chequebooks, or small business loans - 
except at prohibitive interest rates, tens of times above inflation.

Most commercial banks work with industry, but not in the western sense. 
They tend to be siphons, sucking income out and using it to play the 
markets, which in Russia's case lately has meant buying the government's 
ultra-high interest-bearing bonds.

The banks' problem is that the bonds were so attractive that they 
borrowed dollars to buy them - dollars which they converted into roubles 
and, with the roubles now worth so much less, cannot afford to pay back.

Not all banks are so hollow. Some, like Most-Bank, were trying to give 
savers and borrowers genuine services. There is a danger that they will 
go down with the rotten banks, taking savings with them. Although, 
Sberbank aside, a banking collapse would bear no comparison to similar 
events in Asia or the West, there would be a considerable pain for new 
middle-income savers who had just begun to believe that having a bank 
account was normal.

The significance of Monday's devaluation was still being absorbed 
yesterday. The air of anarchy and emergency in the banking system at 
street level intensified as people's need to change their cash dollar 
savings into roubles for day to day spending, and their desire to turn 
their dwindling rouble holdings into hard currency, grew more urgent.

Despite most currency exchange points quoting the dollar at 9.5 roubles, 
the upper limit set by the government on Monday, there were few dollars 
to be had.

Banks are being squeezed by clients in Russia and foreign creditors 
trying to understand the terms of the government's 90-day moratorium on 
repaying foreign loans to Russian commercial banks.

Ministers say the measures taken on Monday will prevent a banking 
crisis. Foreign investors are likely to see a cull of the weaker banks 
as preferable to no bank failures at all.

******

#8
Moscow Times
August 19, 1998 
NEWS ANALYSIS: West Keeps Hands Off Russia as Ruble Drops 
By David McHugh
Staff Writer

Solidarity with Russia in its time of economic trouble, yes. Another 
injection of financial aid, no. 

That was the stance adopted over the weekend by Western governments and 
by the International Monetary Fund as Russia teetered on the brink of 
ruble devaluation. 

In the past, Russia had been able to secure financial help by arguing 
that the West could not afford to abandon a young democracy with nuclear 
weapons. 

But analysts said the West's decision this time not to extend Russia any 
further cash to stave off currency devaluation or a debt default marks a 
watershed. 

They said the decision was motivated by a sense that it was up to Russia 
to sort out its own problems. The IMF is already overburdened with 
billion-dollar bailouts in Asia, and it has come under political 
pressure for using taxpayers' funds to run rescue packages that 
effectively bailed out speculative investors. 

So as Russia's crisis reached a climax over the weekend, the West 
offered moral support but no cash. 

A Western economist said Western bankers knew about Russia's plight as 
early as Saturday, two days before the announcement. But no help was 
offered. 

The International Monetary Fund had only a month earlier put together a 
$22.6 billion rescue package for Russia. This made it all the more 
embarrassing that Russia was forced to announce a default on state debt 
during its watch. 

But International Monetary Fund managing director Michel Camdessus' only 
comment on the collapse was to encourage reforms and offer sympathy. "It 
is important that the international community ... show solidarity with 
Russia at this difficult time," he said Monday. 

Neither Germany nor the United States, which had pressed the IMF to help 
Russia, got involved this time. 

Robert Rubin, U.S. Treasury secretary, also urged Russia to move ahead 
quickly on economic reforms aimed at improving tax collection and 
strengthening the government's finances but offered no concrete help. 

German Finance Minister Theo Waigel also put the onus on Russia to sort 
out its own problems. He said Russia had to restore faith in its 
financial markets by carrying out the IMF's requirements: "Lasting 
stabilization of the financial situation in Russia is only possible if 
new confidence is created on financial markets and in the Russian 
public," he said in a statement, Reuters reported. 

Charles Blitzer, director of emerging markets research for Donaldson, 
Lufkin & Jenrette in London, said "it's been fairly clear for some time 
that the view is the Russians got a big package and the key to solving 
their problems lies in the actions they take to deal with the 
fundamentals. 

"And until there is clear evidence that the fundamental issues, be they 
on the structural side or on the fiscal side, are being dealt with 
adequately, it makes no sense to put more money in." 

Paul Reynolds, director of the international department of the Adam 
Smith Institute in London, said the IMF could only do so much and it was 
up to Russia to cure its deeper underlying problems. 

"It is the fundamentals, and not the herd instincts of investors," 
Reynolds said. "There are fundamental flaws" including the reckless 
behavior of the banking sector. 

"At the end of the day, it's a sovereign state and perhaps not enough 
emphasis has been placed on that," he said. 

At the same time, neither Western governments nor the IMF are about to 
turn their backs on Russia completely. 

The IMF is still on track to release a $4.3 billion tranche in 
September, the second installment of the rescue package agreed to in 
July. Future Western aid will, however, depend on reforms, especially in 
the State Duma, or lower house of parliament, which is scheduled to take 
up tax legislation in three special sessions Friday, Tuesday and 
Wednesday. 

"It will be especially important for the Russian authorities to take all 
necessary steps to strengthen the fiscal position," Camdessus said in a 
statement. 

******

#9
Financial Times (UK)
19 August 1998
[for personal use only]
FOREIGN INVESTMENT: Views vary in wake of rouble's fall
By Astrid Wendlandt in Saint Petersburg

R.J.Reynolds, the US tobacco company, this week formally opened an 
expanded $300m cigarette factory, saying the rouble's problems could not 
undermine its commitment to the Russian market.

"This is not going to affect our long-term plans," said Steven 
Goldstone, chief executive of RJR Nabisco, R.J. Reynolds' parent 
company.

But workers at the St Petersburg plant said cigarette orders had gone 
down in recent months, adding that production of three Russian brands 
had stopped altogether since the beginning of the year.

Other members of the foreign investment community in Moscow said they 
would adopt a cautious attitude in the wake of the rouble's fall.

"I am convinced that those who are already at the door will not come in 
before the end of the year," said Seppo Remes, representative of Neste, 
the Finnish oil company, and chairman of the European Business Club, an 
informal grouping of investors in Moscow.

To date, most foreign direct investment has been concentrated in the 
consumer goods industry, while investment in heavy industry has been 
limited. The fall in the rouble is likely to make investors more 
cautious still, analysts said. But the change is likely to favour 
Russia's oil and gas market, which produces most of the country's 
exports.

"We are now going to have investors thinking two or three times before 
they proceed with their investment," said Bruce Macdonald a member of 
the board of the American Chamber of Commerce in Moscow. Last year, 
Russia received $10.4bn in foreign direct investment according to data 
from the French embassy in Moscow.

Russia's recent economic problems have already had negative consequences 
on the foreign direct investment, which fell by 14.5 per cent in the 
first quarter of 1998 in comparison with last year's figure, according 
to official statistics, which do not give absolute figures.

This year, Fiat and Renault, the Italian and French car makers have 
delayed their local production and assembly projects. Last June, 
Philips, the Dutch electronics company, announced it was withdrawing 
from its joint venture in Voronezh in the south of Russia.

"Conservative money has not arrived yet [in Russia]," said Tanya 
Monhagan, head of the Russia and CIS department of the International 
Chamber of Commerce.

Mr Remes said the rouble's fall was expected to benefit foreign 
investors in Russia's oil and gas industry but could seriously hit those 
exporting or producing consumer goods due to the fall in purchasing 
power.

At present, the US provides more foreign direct investment to Russia 
than any other country, followed by the UK and Switzerland.

*******

#10
Abalkin on Ruble Devaluation 

Ekonomika i Zhizn, No 31
August 1, 1998
[translation for personal use only]
Article by G. Lyulkin: "If There Is Money, There Will Be Chairs;
Emission Is Not As Terrible As They Would Have Us Believe"

Devaluation of the ruble. What stands behind this phrase? Losses or
gains? In issue No 30 of Ekonomika i Zhizn, a member of our EZh editorial
staff, Professor Kamil Ivanov, expressed his opinion. Director of the RAN
[Russian Academy of Sciences] Economics Institute and Academician Leonid
Abalkin continues the discussion.
The growth of mutual nonpayments, the chronic delays in payment of
wages and pensions, the colossal undercollections in receipt of revenues to
the budget--these are the realities of our day. The payments crisis has
gripped all the regions, dealt a painful blow to most enterprises, and been
reflected in the income of practically every family.
Let us recall December of last year. A mass campaign was underway,
headed by the president himself. Its goal was extremely urgent--to settle
the wage debts to the budget workers at the federal as well as at the
regional level. However, the campaign, as we might have expected, was
unsuccessful: On 1 January 1998, the overall indebtedness on wages
comprised 52.6 billion rubles (R), including R6.9 billion to budget
workers. And this served as one of the main reasons for dismissal of the
government.
In the current year, the overall indebtedness on wages continues to
grow, and by 1 June had reached R66.9 billion, of which R11 billion were
wed to workers of budget organizations. A debt economy has arisen in
Russia, where everyone owes everyone else.
Enterprises of the fuel-energy complex owe the budget, and budget
organizations owe the TEK [fuel-energy complex]. Unpaid wages and pensions
become indebtedness to municipal services. Banks do not give enterprises
loans, and enterprises do not repay credit. One cannot pay profits tax on
profits not received, or income tax on wages not paid.
The volume of the GDP [gross domestic product] for the five months of
the current year comprised R978 billion, while the overdue creditor
indebtedness has reached the unthinkable sum of R1.38 trillion. And this
means that it is clearly impossible to repay the debts.
* * *Dynamics of the Money Supply (M2) (in percent, compared to beginning
of the year)Based on data of the Goskomstat RF [State Committee on
Statistics of the Russian Federation]. (Negative values given in
parentheses).
1997January - 0.6
February - 3.9
March - 6.1
April - 10.2
May - 13.9
June - 22.1
July - 25.9
August - 26.5
September - 25.9
October - 27.9
November - 24.0
December - 28.4

1998January - (-2.4)
February - (-2.1)
March - (2.7)

* * *At the present time, there are two principally different
approaches to explanation of the reasons for the situation which has
emerged and to the search for means of emerging from the crisis. According
to the first of them, the entire problem lies with persons of ill intent. 
We must be more strict in our demands of them, and taxes will begin coming
into the budget, and then pensions will begin to be paid out. As for the
budget and credit policy, it is correct and even without alternative. 
Except that it should be implemented more strictly.
The proponents of the second approach, of whom I am one, see the
reasons for the current crisis in the deep-seated deformation of the
economy. We are convinced of the need for serious correction in the
economic and monetary-credit policy. The essence of such a turn has been
rather thoroughly developed in the proposals of numerous independent
experts and scientists. Among them, we may cite the analytical report of
the RAN Economics Institute, "Strategy of Development of the Russian
Economy and Program of First Priority Steps."
Briefly, the essence lies in changing the target principles. They
must become economic growth and resolution of social problems. Everything
else--regulation of monetary circulation, the tax system, the credit
policy--are all means to achieve these goals.
The debt economy which has been formulated in Russia is characterized
by extremely deformed and simply absurd relations. And so, the apparent
prosperity on the consumer market is built largely on mass delays in
payment of wages and pensions.
Thus, the situation appears more complex than generally believed, and
there are no easy and quick solutions to be seen. In this, the second
approach also differs from the hopes, which are close to our mentality, for
success with the aid of various extraordinary commissions and cavalry
charges.
It is time to finally understand that there is only one stimulus for
increasing production in a market economy--demand. And demand is not
imagined, but real and solvent--backed by money. As they say, if there is
money, there will be chairs. Today, however, as a result of artificial
compression of total demand, there has been an erosion of live money out of
circulation. It has been replaced by various surrogates and barter
operations.
The principle which states that the most terrible threat is emission
has been instilled in the public consciousness. But is this really so?
According to the data of Goskomstat, the volume of cash money on 1
January 1997 comprised R103 billion denominated rubles. This indicator
grew gradually, and by the beginning of September had reached its
apogee--R141.6 billion. However, despite predictions of numerous analysts,
such rather large growth of the monetary mass did not cause a decline in
the ruble. On the contrary, last year the lowest level of inflation for
all the years of reform was reached. After September, there was an
artificial compression of the money supply, and on 1 April 1998 its volume
had declined to R119 billion.
The same dynamics also accompanies growth of the monetary mass as a
whole. The volume of cash and non-cash money, taken together (M2
indicator), also has a tendency toward compression.
If we do not eliminate the disproportion between the volume and
movement of goods on one hand, and the volume of the monetary mass on the
other, then we can foresee no emergence from the crisis. It will only
become deeper.
In our opinion, moderate inflation--25-30 percent a year--is a
necessary condition for breaking out of the crisis. And this has been
proven by world practice. The inflation process, which is regulated by the
state, is entirely natural, provided it is also accompanied by repayment of
the wage debt, as well as by measures aimed at development of domestic
production and saturation of the commodity market.
However, devaluation may also be implemented by various methods. There
are mild and flexible ones, and there are radical ones. As we know, our
reformers are proponents of radical solutions: Take a swinging blow, and
whatever comes of this--time will tell.
* * *Growth of Consumer Prices (in percent, compared to beginning of the
year) based on data of Goskomstat RF1997January - 2.3
February - 3.9
March - 5.4
April - 6.4
May - 7.4
June - 8.6
July - 9.6
August - 9.5
September - 9.1
October - 9.3
November - 10.0
December - 11.0

1998January - 1.5
February - 2.4
March - 3.0

* * *However, there are also more cautious methods, as for example
expansion of the currency corridor. Aside from all else, a law protecting
the savings of citizens must be adopted. The main thing is to restore
public confidence in the state and the banking system. If the state
undertakes the task of protecting and increasing the people"s savings,
then even without advertisement appeals: "Keep your money in the savings
bank," people will bring in their savings on their own.
However, the very best variant of resolving the crisis is a change of
course. The new policy must include several principle positions.
First--wages must have such a relative share in income under which it would
really be possible to collect taxes and introduce paid medical and
municipal services.
Second--support of domestic production.
Third--change in the monetary-credit policy. There is a very simple
solution, which no one wants to take into their arsenal. Only one article
need be introduced into the law, "On the Central Bank," granting the
Central Bank the right to credit the federal budget deficit. Various
limitations may be established, but it should be given this right. If
inflation comprises, for example, 10 percent, then the Bank of Russia could
easily give credits at 15 percent interest.
Fourth--restructuring the debts, since, along with penalties and
fines, they have reached such incredible proportions that they will simply
never be repaid.
And the main thing: It is necessary to change over to a model of a
socially oriented market economy, which all developed countries have taken
into their arsenal.
Economic growth is the only prerequisite on the basis of which radical
resolution of the payments crisis, expansion of the tax base and
implementation of social programs will be possible.

*******

#11
St. Petersburg Times
August 18, 1998
Fighting To Take Back The Stolen Revolution 
By Brian Whitmore

THIS WEEK marks the seventh
anniversary of the failed hardline coup of August 1991, an event that many
believed to be the final, lasting victory of democracy on Russian soil.
Today, few people are so naive.

Last Friday, I was invited to take part in what is to be a regular
political discussion group about the state of democracy in St. Petersburg.
Most of the participants are veterans of the city's perestroika-era
democratic movement. They include people like Alexander Belyayev, the
former speaker of the City Soviet; Yury Vdovin, co-chairman of the human
rights organization Citizens' Watch; and the renowned poet Viktor Krivulin.
Seven years down the road, they are finding themselves re-fighting battles
they thought were won long ago.

At the group's first meeting, there seemed to be two questions on
everybody's mind: What went wrong, and what do we do now? Or, phrased
another way: Who stole our revolution, and how can we get it back?

"We are democrats but we aren't in power, and those in power aren't
democrats," said Krivulin. "We need to return to the dream, the hope and
the promise of 1991."

Many noted that while the terms "democracy" and "market economy" have
become analogous to "corruption" and "declining standard of living" for
most, this is because neither has been really implemented. The same
bureaucrats who ran Leningrad are running St. Petersburg - and they haven't
changed their methods. "There has been an imitation of the process of
democratization and an imitation of economic reform," said Vdovin.

"Many people were certain that they would find their place in a democratic
society with no understanding about what a democratic society was. Most
believed that they would prosper in a market economy with no understanding
of the market," said Belyayev. 

Belyayev was one of the unsung heroes of August 1991. It was he - not
former mayor Anatoly Sobchak - who organized an extraordinary session of
the City Soviet as the tanks rolled toward St. Petersburg. It was Belyayev
who pushed a resolution through the soviet, calling the putsch illegal and
declaring loyalty to "the constitutionally elected president." And it was
Belyayev who sent an official delegation - with a police escort - to meet
the tanks, inform them they were breaking the law and tell them to return
to their bases. 

Belyayev has since left politics. With elections to the Legislative
Assembly only four months away, we can only hope that he, and others who
created so much hope here seven years ago, will re-enter public life and
finish the job they started - and take back their revolution.

********

#12 
Russian markets tumble, unions plan protest
By Adam Tanner

MOSCOW, Aug 19 (Reuters) - Russian stocks tumbled to more than two-year lows
and the rouble fell further on Wednesday in new aftershocks from a de-facto
currency devaluation and default on some foreign debt. 
The leader of Russia's labour unions stepped up pressure on the
government, demanding that $10 billion in wage arrears to workers be indexed
in line with the devaluation. 
The government had been expected on Wednesday to give details of the
terms of its plans for restructuring short-term domestic debt, but said it
would be delayed until Monday. 
"On Monday, it (the conversion scheme) will be totally completed, this I
promise," newly-appointed Deputy Prime Minister Boris Fyodorov said. "If
there is no announcement, I will no longer be here (in the government)." 
International investment bank Credit Suisse First Boston said the moves
being considered theatened to discriminate against foreign investors and
could trigger more defaults. 
"This would permanently damage private financing of Russian reform and
significantly destabilise other emerging markets," it said in a statement. 
The government says its rouble and debt moves are intended to reduce
financial pressures so that it can pay off workers and tend to other urgent
needs. 
Russia's main trade union leader said he did not believe the government
and reitereated threats of a nationwide strike on October 7. 
"The devaluation and default on paying government obligations shows the
complete failure of the government's economic policy," Mikhail Shmakov,
chairman of Russia's Federation of Independent Trade Unions, told Reuters. 
"Thus we will sharply criticise the government and we will demand
indexation on wages that have still not been paid." 
President Boris Yeltsin, at his Rus residence near Moscow in the fifth
week of his summer holiday, had no immediate plans to make a public comment
about the crisis, the Kremlin said. 
"We don't have an exact date of when he is finishing his holiday,"
Kremlin spokeswoman Vera Barysheva said. "He is up to date on all matters." 
The president has not made a public statement since Russia on Monday
extended a band in which the rouble is allowed to fluctuate, allowing it to
float as low as 9.50 per dollar until the end of this year, and announced a
90-day halt on repayment of some foreign debts owed by banks. 
Previously the rouble had been allowed to fluctuate only within a
corridor between 5.27 and 7.13 to the dollar. 
In official trading the rouble maintained its slide on Wednesday, falling
to 6.99 to the dollar from 6.88. It had been at 6.31 last Friday. 
Investor pessimism prevailed as the leading RTS1-Interfax index of shares
was down nearly 10 percent at 1038 GMT. 
Citizens have responded to the rouble's fall by trying to buy dollars and
going on shopping sprees to spend their Russian money. On Wednesday the
initial flurry of spending and changing appeared to have calmed somewhat. 
The change in currency policy was a major blow for Yeltsin, who counts
low inflation and a stable rouble among the few widely felt economic
achievements of recent years. 
The Sevodyna daily newspaper said Yeltsin had far worse problems than
U.S. President Bill Clinton, who on Monday admitted a "wrong" relationship
with a former White House intern. 
"You can poke as much fun as you'd like at American morals, hypocrisy and
the desire to drag the presidential dirty laundry before a wide public," it
wrote. 
But it said: "If the president feels obliged to explain himself to the
nation on live television even for adultery, the nation can be calm about
the future of the national currency." 
Labour union threats of an open-ended strike highlighted the possible
risks to Yeltsin. Shmakov said unions would discuss strike plans next week. 
"We will propose an open-ended strike, but we now have information that
not everyone will participate and some industries and sectors will
participate and others will not maintain an open-ended strike," he said. 
Russian unions have not succeeded in organising sustained nationwide
protests since the collapse of communist rule in 1991, although miners have
caused considerable disruption by blocking major rail lines from time to
time this year. 
Shmakov also criticised Yeltsin for his long holiday. 
"It's not normal when the president of a country in an extremely
difficult situation because of the rouble's devaluation is not permanently
involved in solving these problems," he said. 

*******


 

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