August 20, 1998   
This Date's Issues: 2316  • 2317

Johnson's Russia List
#2317
20 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Kirill Kyz'michyov Charities.
2. Paul Backer: expats in Russia.
3. Stefan Lemieszewski: Comment on "Why Call It Reform?/Stephen Cohen.
4. RFE/RL: Simon Saradzhyan, Russia: Defense Ministry Advises Servicemen 
To Hunt For Food.
5. Delovoi Vtornik: LEBED AS A DIFFERENT MAN. (Interview).
6. Trud: Aman Tuleyev, RUSSIA'S NATIONAL-TERRITORIAL STRUCTURE: A CAUSE 
FOR ANXIETY.
7. Los Angeles Times editorial: Breathing Room for Russia.
8. Itar-Tass: NATO Enlargement To Feature at Russian-US Summit.
9. Itar-Tass: Yabloko Faction Issues Statement on Russian Economic Plan.
10. Financial Times (UK): John Thornhill, RUSSIA: 'Cronyism' doubts over
plan to protect banks.
11. Anthony D'Agostino: Recueillement in Russian foreign policy thought.
12. David Quinn: A Magic Bullet for the Russian Economy.
13. New York Times: Michael Weinstein, Russia Devalues Its Way Toward a
Market Economy.]

*******

#1
Date: Thu, 20 Aug 1998 
From: "Kirill Kyz'michyov" <kkuzmichov@lucent.com>
Subject: Charities

Are there any charities in the US that work in Russia?
Do you think it might be worthwhile to compile a list of them,
and post it on the Russia List once in a while, so that people
could actually do something to help the country?

In any case if anyone has any information on the subject
could you send it to me, or post it here?

*********

#2
Date: Thu, 20 Aug 1998
From: "Paul Backer, Esq." <pbacker@glasnet.ru>
Subject: expats in Russia

an interesting sidebar to all of this, is that these events left many
expats in russia w/o jobs, and the rest, w/o dollars.

it is sort of ironic that we are so used to U$ being available everywhere
(cash advance at a bank, at an ATM machine or just out of your hard curr'cy
account) and all of that seems to be over for the time being. of course
you can get rubles, but 1. you lose big on a bank or ATM exchange rate (by
the way you can't find out what the ATM rate is) and then ... you may have
to use those expensive rubles to buy more expensive dollars.
as a result a number of quite reasonably compensated expats in moscow find
themselves in a (strange) position of either $ hunting at the bank (not
very helpful) at an atm (hopeless) or at the u.s. embassy ($ very limited)
to pay for the things they must pay for in $s.
interesting times.

******

#3
Date: Thu, 20 Aug 
From: Stefan Lemieszewski <stefanl@direct.ca>
Subject: Comment on "Why Call It Reform? (Stephen Cohen)

Stephen Cohen legitimately raises the question of "Why call it reform?"
(The Nation; 1Sep98; JRL #2316) but does not provide an answer as to why
it is called "reform." Seems to me "reform" is a very effective
propaganda term--both for the West and for Eastern Europe.

For the West, reform connotes change and when used with "free markets,"
"democracy" and "capitalism" implies that the change in Eastern Europe
is for the better, away from the evil enemy of Communism of the Cold War
to something more familiar, less threatening, and preferable as a common
goal. The change is anticipated to become something like us Westerners.


This deflects criticism and makes the approval for various foreign aid
program funding much easier. "Reform" labelled policies can be much more
easily portrayed in the media and government circles as irrefutable
common sense. There is a ring of congruence to common Western values.

To the Eastern Europeans, initially "reform" connoted a change to become
like the West--more opportunity, more prosperity, more freedom and thus
very desirable. This hope made their citizens patient and willing to go
along with the changes initially. However, after the disastrous results
of a serious decline in the standard of living during the past several
years, citizens of the former Soviet Union have lost much hope and are
beginning to blame "reforms" and their associated reformers for the
demise as their patience runs out. The latest devaluation and default in
Russia only adds fuel to their fires of dissatisfaction.

Cohen speaks of "demodernization" and observes that the Russian
economists are now trying to distance themselves from the "the
'neoliberal' monetarist orthodoxies of the State and Treasury
departments, the IMF, World Bank and legions of Western advisers, which
have done so much to abet Russia’s calamity."

The failure of these IMF/World Bank/State/Treasury programs should not
come as a surprise. Economists such as Michel Chossudovsky (University
of Ottawa) go further and suggest that they are by design. In his book,
"The Globalization of Poverty: Impacts of IMF and World Bank Reforms"
Chossudovsky writes:

"The IMF-Yeltsin reforms constitute an instrument of
"Thirdworldisation"; they are a carbon copy of the structural adjustment
programme imposed on debtor countries in Latin America and sub-Saharan
Africa. Harvard economist Jeffrey Sachs, advisor to the Russian
government, had applied in Russia the same 'macro-economic surgery' as
in Bolivia where he was economic advisor to the MNR government in 1985.
The IMF-World Bank programme adopted in the name of democracy
constitutes a coherent programme of impoverishment of large sectors of
the population. It was designed (in theory) to 'stabilize' the economy,
yet consumer prices in 1992 increased by more than one hundred times
(9,900 per cent) as a direct result of the "anti-inflationary
programme". As in Third World 'stabilisation programmes', the
inflationary process was largely engineered through the 'dollarisation'
of domestic prices and the collapse of the national currency. The 'price
liberalisation programme' did not, however, resolve (as proposed by the
IMF) the distorted structure of relative prices which existed under the
Soviet system."

Chossudovsky forewarns of these programmes and goes on to describe the
collapse of civil society in Russia.

*******

#4
Russia: Defense Ministry Advises Servicemen To Hunt For Food
By Simon Saradzhyan

Moscow, 19 August 1998 (RFE/RL) -- The Russian Defense Ministry has 
advised its servicemen to fish, hunt, farm and gather mushrooms in order 
to survive until the federal government accumulates enough cash to pay 
military wage arrears.
General Nikolai Byrbyga of the ministry's education department says that 

a written "advice" to this effect had been issued this month to military 
units across Russia.
Byrbyga said all deputy commanders of the military units in charge of 
education are currently scrambling to organize "collective trips of 
military servicemen and their family members for gathering mushrooms and 
berries, and canning them."
Byrbyga stressed that the directive is "no order, but just a piece of 
advice" which should be put into effect only after servicemen complete 
their daily service.
"People really need this to survive somehow, we are trying to help," 
Byrbyga said, citing the fact that most Defense Ministry servicemen have 
already gone for four months without pay.
Moreover, most of Russian officers have not been paid their food 
compensations that account for some 20 per cent of their pay package, 
for more than a year.
The servicemen are advised to fish as well as to gather vegetables and 
fruit, according to the text of the department's directive cited in the 
newspaper Moskovsky Komsomolets. It remains unclear however, how 
servicemen will be able to grow and harvest vegetables and fruit on land 
assigned to others, whether to collective farms or private farmers.
Officers at two military units, reached by phone this week, said they 
had "heard" about the directive, but had not yet seen it. An education 
chief of an air force unit near the Moscow region town of Chkalovsky 
said he would hardly try to take his brothers-in-arms mushroom hunting 
and fishing unless he was pressed by Byrbyga's directorate.
"Just tell me who is going to pay" for the trips and extra hours, said 
the officer, who asked not to be named. He said there was barely enough 
gasoline at his cash-strapped unit to have commanders driven around in 
their working time, let alone to fuel buses to take people 
mushroom-hunting.
In any event, officers' wives have for years been involved in similar 
informal activities. They customarily plant all sorts of vegetables on 
plots of land that their husbands rent inexpensively at collective 
farms.
Unlike officers, soldiers do not have much choice and have to eat 
whatever their cash-strapped unit can afford. In one case hundreds of 
kilograms of very low-quality canned meat, containing parts of processed 
tails, were bought by a military unit based in the Moscow region town of 
Monino.
Luckily for the soldiers, the meat, which technically could have been 
classified as pet food, came to the attention of the Chief Military 
Prosecutor's Office. The office forced the unit's command to exchange 
the meat for one of better quality. 
(Simon Saradzhyan is a specialist writer in Russian defense matters and 
contributes regularly to RFE/RL) 

*******

#5
>From RIA Novosti
Delovoi Vtornik
August 18, 1998
LEBED AS A DIFFERENT MAN
Interviewed by Viktor SOKIRKO

Alexander Lebed took off his bow-tie and 
dinner-jacket right after his inauguration 
oo start working 16 hours a day.

Question: After you soared into big politics, participated
in the 1996 presidential elections and worked in the capacity
of the Secretary of the Russian Security Council, how do you

feel as the governor of such a huge area as the Krasnoyarsk
Territory? Is it more difficult than you supposed? 
Answer: It is not more difficult, it is more deceitful. I
have never shunned difficulties. I have grown accustomed to it.
But I cannot grow accustomed to deceit even today, all the more
so as I have had to confront with it especially closely as the
governor. However, I had enough of it before as well. It was
only in Afghanistan that everything was clear and extremely
simply: you could distinguish between our forces, the aliens,
the enemies and friends. 
Question: It is no secret for anyone that after the
victory in Krasnoyarsk the political rating of Alexander Lebed
has grown considerably. At the same time, people will now watch
closely Lebed's every step to see whether he will break his
neck as the governor or not. You will be held personally
responsible for things which people may forgive any of your
colleagues by shutting their eyes to one drawback or another. 
Answer: It is true, the love of the federal centre for me
is special. These relations cannot be called as anything else
but a state of war. However, this is more a war with the entire
people rather than with me. How else can you call the failure
of the government to pay people for what they have earned
honestly for the good of this very government? Today the
majority of the population perceives the power as an alien
force which acts to the detriment of the country it lives in.
Is it normal? This separate co-existence of the power and the
people cannot last long. 
Question: Of course, forecasts are never accurate enough.
But still, what can Krasnoyarsk residents expect in the near
future? Soon you will mark 100 days of your stay in office as
the governor of the territory.
Answer: I am no astrologist and do not like all these
jubilee dates: one hundred days, five hundred days. Something
indecent is felt behind it. I have grown accustomed to look
realistically at things and know that the movement forward
beyond the zero mark will no doubt take place. One provision is
the key one: the attracted money must not be simply "eaten up,"
it must be spent in a civilised way for the development or at
least for the reanimation of the economy. 
On the other hand, the prepared calculation at my disposal
shows that until the end of the year the regional budget will
receive taxes worth 788 million roubles. With these tax
revenues and also with numerous credit proposals we shall build
our financial policy which should be aimed at stabilising money
flows and reducing social tension. In brief, our pensioners
will receive their pensions regularly. We shall also finally
resolve the issues with all budget-dependent organisations as
well. 
I also do not want to make forecasts due to complex
relations with the federal centre. I have not signed the treaty
on delimitation of powers with the Russian Federation - they
suggested that the Krasnoyarsk Territory sign the same document
as all other Russian regions, as if it is possible to rank
equally the Moscow Region and the Krasnoyarsk Territory and
other Siberian regions, or as if northern deliveries do not

exist. Moscow tries not to notice the specifics of our
territory; nor does it recognise the need for a rational rather
than egalitarian policy in the sphere of railway tariffs and
all the rest. 
I do not subject to doubt the country's state system.
Russia must remain single and undivided. However, in the
economic sphere, the centre must build with the regions
exclusively partner's relations. Moscow must not speak with the
rest of Russia in a scornful and condescending manner. It
cannot use its wealth without assuming any obligations or
bearing any responsibility. I am against this kind of game. 
Question: Your recent address to Prime Minister Sergei
Kiriyenko on the possibility of granting to the territory the
status of a nuclear power connected with the many-months-long
wage arrears to the officers of a division of the Strategic
Missile Force made quite a lot of noise. Many qualified this
move as a purely advertising step: they said that Lebed was
preparing for the election campaign and was trying to gain
points. 
Answer: This is not a trick but a cry for help. When it
comes to the situation where hungry wives stage a strike and do
not let their husbands to approach the missiles with nuclear
warheads - all this is already on the verge of a disaster. It
is simply outrageous to drive people who hold the country's
nuclear shield to desperation. 
I tried to draw the attention of the government to this
problem, even if by these methods. 
Question: Did you succeed? 
Answer: Recently two generals serving in the missile
forces came to me and thanked for the support: they were paid
at once for April and May. So, was I right to write such an
address? 
Question: What about the possibly of your participation in
the 2000 presidential elections? You are still called one of
the basic candidates, but, as it seems, you refuse from this...
Answer: Let's clear up this issue once and for ever. I do
not deny the possibility of participation in the elections. But
I do not intend to speak about it at every corner either. What
will happen, if I say: "Lebed will run for presidency?" One can
blow out his cheeks as long as possible but nothing will
change. All the more so, as I do not need these ambitions.
Russia's president will be the man claimed by its people and a
number of circumstances which will not depend on him. So, why
make a fuss? 

*******

#6
>From RIA Novosti
Trud
August 19, 1998 
RUSSIA'S NATIONAL-TERRITORIAL STRUCTURE: A CAUSE FOR ANXIETY
By Aman TULEYEV

Let us leave the financial crisis for some other time. Let
us talk instead about the relations between the Centre and the
regions. There are quite a few unresolved issues here. There is
no overt antagonism between them yet, but hidden contradictions
do exist. For instance, every governor knows that the republics
have more privileges than the regions and territories, that
they transfer less taxes to the budget. Who do you think will
like it?
More than that. The republics' population has better
social protection than the population of the regions and
territories. And this is the culture medium for all sorts of

discontent, since both are Russia's citizens and have equal
rights in the social sphere under the Constitution.
These tendencies are becoming especially dangerous
considering the fact that some subjects of the Russian
Federation are juridically assuming some functions which are
absolutely incompatible with them. For instance, they adopt
republican laws on military service, regulation of foreign
policy issues and international relations, etc. The Centre is
looking at it keeping silent. Is such a thing possible in a
normal Federation? A state within a state is nonsense
permitted by the Centre either in order to put another delay
mine under the Federation, or because it is politically
short-sighted. Both are dangerous for the integrity of the
Russian state. An unstable federation is a step toward
confederation, toward the country's actual disintegration.
Article 72 of the Russian Constitution defines what is
within the joint jurisdiction of the Centre and the Federation
members. The law which has been shelved at the Federation
Council for more than 4 years now, should concretise those
provisions. Despite this, 40 treaties have been concluded with
the Federation members. They cover nearly 55 percent of the
country's economic potential and 52 percent of the entire
population. Under the Constitution of the Russian Federation,
the Federal Assembly considers and ratifies only international
treaties and agreements. In our case, the talk is about
internal documents, therefore the Federal Assembly does not
consider such papers for, should it do so, it would raise the
status of the Federation member to international status which
is not provided for by the current Constitution.
I believe all Federation members should sign a
comprehensive treaty and delegate some fundamental rights to
the Centre, such as, for instance, the issues of foreign
policy, defence and security, the monetary policy, some
problems of the national economy, science, health care,
education and ecology. As for Federation members, they must
have equal rights.
In the United States, for instance, 50 American states
enjoy greater rights than the Russian Federation members.
Nevertheless, the USA has a strong state. And we have it the
other way round: we have more Federation members which have
fewer powers. Besides these powers are distributed unevenly,
therefore the threat of the country's disintegration is real
enough. If the central authorities would have really promoted
the development of the regions, one could at least have
reconciled oneself to the situation. This, however, is not our
case. Being a governor, I want to state that the central
authorities do not fulfil their obligations to the regions,
which makes the whole state structure rather unstable.
Russia's national-territorial structure is a special and
rather involved issue. What we have today is far from the best
version. If Russia is inhabited by nearly 130 nationalities and
ethnic groups, this does not at all mean that every one of them
must have its own state. We already have one state: the Russian
Federation. Today, out of the 89 members of the Russian

Federation, 21 republics have their own symbols of statehood: a
flag, hymn, constitution and president. Is this not a sign of
the forthcoming disintegration of Russia? At a Federation
Council session in Moscow we see 21 flags of the Federation
members, and not a single flag or pennant of a region. Why such
discrimination?
I am convinced that the nations will be able to preserve
their national identity by achieving progress in the economy,
science and technologies, in philosophy, culture and sports
rather than by creating ever new state entities and multiplying
the class of bureaucrats which is already as numerous as it
could be.
Sooner or later, economic interest will make them seek
closer contact. The smaller the state entity, the faster the
process. As for independence of which there is so much talk
today, there are no countries which are more dependent than the
weak and small countries. As for me, I share the opinion of
the majority of governors that the Centre is more in favour of
the republics. Perhaps, the central authorities are afraid that
the other republics will follow the Chechnya's example and seek
independence, or they believe, in line with the tradition, that
the national outlying areas should come first.
At the same time, in our Kemerovo region alone we have
representatives of nearly 100 nationalities and ethnic groups
who live and work here. Is it not a national outlying area
then? However, our region has fewer rights than the
neighbouring Gorny Altai republic. Therefore, to build a truly
federative state we should start with building interregional
relations which would make Federation members the basis of such
a Federation.
However, the main problems of Russian federalism lie
elsewhere, not in the legal sphere. They are more of a
psychological nature since they arose together with the
ambitions of all sorts of leaders (including regional ones) and
politicians of all ranks. This is why our legislation should
not permit the dominance of personal or clan interests over
public and state interests.
Recorded by Vladimir SEMIRYAGA.

******

#7
Los Angeles Times
August 19, 1998 
Editorial
Breathing Room for Russia 

The hasty decision by President Boris Yeltsin's government to devalue the 
Russian ruble and postpone some payments on foreign debts gains it a 
little more time during which, in the most optimistic scenario, it may 
finally be able to muster the will to adopt overdue economic reforms. 
Devaluation--technically, letting the value of the ruble float 
within a defined range--and the moratorium on debt payment spare Moscow 
from having to dip further into its scarce dollar and other hard 
currency reserves. It might even make it easier for the government to 
begin paying some of the back wages it owes restive coal miners and 
millions of other state workers. 
But all this comes at a stiff price. Much of Russia's food is 
imported, and so already hard-pressed consumers will soon be hit by 
inflated grocery prices. At the same time a cheaper ruble will do little 
to boost income from Russia's chief exports, oil and gas, whose prices 

are depressed worldwide. 
While the full political consequences of devaluation can't be 
calculated, it's obvious that Yeltsin's popularity will fall even more, 
along with trust in government generally. The Communist- and 
ultranationalist-dominated parliament, the Duma, meets on Friday, but 
there's no assurance that this latest crisis will make it more ready to 
approve the economic reforms sought by Western nations and the 
International Monetary Fund. 
The guiding political rule for extremists seeking power is that the 
worse conditions get, the greater their chances for success. Some will 
see advantage in letting things further deteriorate in advance of the 
presidential election two years hence. 
The reforms that might have helped head all this off--financing 
government budgets through more effective tax collection, an overhaul of 
the banking system, laws guaranteeing property rights--have been pending 
for a long time. Warnings about what could happen if they weren't 
adopted have been frequent and insistent. Moscow now has about 90 
days--the scheduled length of the moratorium on debt payment--to try to 
keep a bad situation from collapsing into something infinitely worse. 

*******

#8
NATO Enlargement To Feature at Russian-US Summit 

Moscow, Aug 18 (Itar-Tass) -- The working out of practical decisions
designed to lower the potential military danger and minimize the negative
consequences for Russia of NATO enlargement is the main immediate task for
Moscow at present, international aide to the Russian president Sergey
Prikhodko told Itar-Tass on Tuesday [18 August] when asked whether NATO
enlargement would be considered at the Russian-American summit.
Russia's strong opposition to the NATO enlargement plans is well-
known. "There is a 'red line' for Russia which cannot allow the crossing of
that line. Should a question about the admission to NATO of any of the
countries located in the territory of the former Soviet Union be put on a
practical plane, a revision of relations with NATO will become inevitable,"
Prikhodko said.
At the same time, "we do not have the slightest wish to return to
confrontation," he stressed.
Russia is satisfied with the fact that the most pressing and rather
complicated questions are now seen by Russia's partners through a prism of
cooperation with Moscow.
"It is a qualitatively new situation," the aide noted. Speaking about
modification of the Agreement on Conventional Forces in Europe [CFE],
Prikhodko noted that the Vienna negotiations were marking time. The talks
are expected to enter the decisive phase in autumn and there is little time
left to finalize the provisions on modification, he said.
Unless addiitonal efforts are made to prepare the final version of
amendments to the CFE treaty, "the NATO summit in April will jeoparise not
only the amendments but the CFE treaty in its present form itself,"
Prikhodko added.

********

#9
Yabloko Faction Issues Statement on Russian Economic Plan 

Moscow, 17 Aug (ITAR-TASS) -- In view of the country's currency
reserves, the outlook for the trade balance, and the political situation,

the statement by the government and Central Bank of the Russian Federation
on the introduction of a set of measures aimed at normalizing fiscal and
budgetary policy can only be viewed as a forced and extreme measure, says a
statement from the Yabloko faction in the State Duma received by ITAR-TASS
today.
This solution to the problem, which arose from the collapse of the
ruble, could lead once again to a protracted and exhausting struggle
against inflation, in addition to extremely negative consequences in all
spheres. If this struggle is based on the same blueprint for economic
policy as over the past four years, everything could be repeated all over
again, the statement says.
Yabloko is prepared to offer a new blueprint for the country's
economic development. The priorities of economic policy have to change. 
This requires strong political will. Forces within the country are ready
to assume full political responsibility, the statement says.

********

#10
Financial Times (UK)
20 August 1998
[for personal use only]
RUSSIA: 'Cronyism' doubts over plan to protect banks
By John Thornhill in Moscow

Moscow's White House was surrounded by fleets of black limousines and 
jeeps crammed with bodyguards yesterday afternoon, as Russia's 
"oligarchs" came to discuss the country's financial crisis with Sergei 
Kiriyenko, the prime minister.
The outcome of such meetings will determine whether the government can 
succeed in imposing harsh new market disciplines on the economy or will 
once again succumb to the "crony capitalism" which has besmirched 
Russia's transition.
Top of the agenda was likely to be Russia's troubled banking sector, 
which has been devastated by the government's decision to allow an 
effective devaluation of the rouble.
Many of the biggest banks have amassed sizeable dollar debts, which they 
will now struggle to service, and have additional exposures in the 
dollar forwards market. Several are technically bankrupt.
The challenge for the central bank is to prevent a systemic collapse of 
the banking sector while minimising the costs and consequences of any 
bail-out.
To this end, it announced on Monday it would help support a pool of 12 
core banks and would impose a 90-day moratorium on their foreign debt 
obligations. The idea was that all the banks would help each other out 
to keep an inter-bank lending market alive and ensure that their 
depositors - and ultimately their creditors - did not suffer more than 
necessary. Mergers among the weaker banks would also be encouraged.
The benign interpretation of this action was that the government thought 
it essential to preserve confidence in the banking system and protect 
household depositors. The fear was that if one big commercial bank 
collapsed it would spark a run on all the rest, destroying the banking 
system and causing havoc in the broader economy.
But some of Russia's stronger banks are already questioning why they 
should be held responsible for the more reckless actions of their 
rivals. Yesterday, Vneshtorgbank, the foreign trade bank, said it did 
not intend to participate in the pool as had been previously announced.

"It is not completely clear to us what the end goals and tasks of the 
decreed pool should be, inasmuch as its working document does not have a 
sufficiently concrete character," says Sergei Kolotukhin, the bank's 
deputy chief executive.
Moreover, unless it resorts to the printing press, the central bank has 
few resources to support the troubled banks.
By forcibly restructuring Russia's treasury bill market, the government 
will also inflict more short-term pain on the country's commercial 
banks. These banks are also cut off from all external sources of 
funding. This week, Standard & Poor's, the credit rating agency, 
attached a "not meaningful" rating to the counter-party risks of several 
Russian banks given the imminent risk of default.
Some of the smaller banks already fear that central bank support will be 
determined more by political clout than commercial viability. The IMF is 
believed to have expressed similar concerns to the government, arguing 
that the banking sector should be thrown open to more international 
competition.
Augusto López-Claros, chief Russia economist at Lehman Brothers, the US 
investment bank, says the Russian government would win credibility if it 
now imposed harder budget constraints on the banking sector and allowed 
failed banks to collapse.
"I think that the influence of the owners of these banks far outweighs 
the importance of the banks in the overall economy. Bailing them out, 
which is essentially what the government is doing, does not send a very 
good signal to the rest of the economy at a time when the government is 
talking about accelerating bankruptcies," he says.
Dirk Damrau, head of research at MFK Renaissance, a Moscow-based 
investment bank, says many of the banks could be allowed to fail without 
too much impact on the broader economy. The level of financial 
intermediation in Russia is still extremely low.
While Sberbank, the state savings bank, holds 78 per cent of all Russian 
bank deposits, the next biggest retail bank, SBS-Agro, holds just 4 per 
cent of household savings. Mr Damrau suggests that if necessary it would 
still be possible for the government to guarantee banks' household 
deposits while allowing troubled banks to go bust.
"Most of the assets of these banks are long gone," says Mr Damrau. "All 
that is left are nice buildings and cheesy Swedish furniture."

********

#11
Date: Wed, 19 Aug 1998 
From: "Anthony D'Agostino" <dagostin@sfsu.edu> 
Subject: Recueillement in Russian foreign policy thought
One of John Helmer’s entertaining and thoughtful pieces, the one on
Primakov, calls for a debate on the “Gorchakovism” or, more precisely, the
motif of Recueillement in Russian foreign policy thought. 
What can we say about Recueillement? Gorchakov’s line in its various
manifestations took Russia out of the Holy Alliance and gave her push to
revolutionary changes that destroyed the balance of power. Soviet
diplomatists who studied Gorchakov considered him a comfort when it seemed
that the world was against Russia, because Gorchakovism, while seeming to
be a turn away from expansionism, was in fact a “gathering of forces” that
prepared further chances for expansion.
Soviet policy in the Cold war had several periods of Recueillement. After
the failure of the forward policy of 1944-7, the Soviets turned away from
Europe and opened a new theater in Asia. After the failure of forward
policy in the Berlin and Cuban crises, the Soviets sank into themselves,
but built a navy and achieved missile parity by 1969. When their great
victories in the third world in the seventies were followed by failure in
Afghanistan and Poland, Gromyko made another attempt at retrenchment during
the Chernenko interregnum. Gromyko wanted a return to the Kissinger-Nixon
détente. 

Gorbachev had to revolt against Gromyko to defeat him politically.
This was an incentive to perestroika and the New Thinking. Gorbachev thus
transcended the alternance between forward policy and Recueillement. But
Gorbachev’s foreign policy, while it transcended the Cold war entirely,
also lost everything. At Foros in August 1991 he lamely protested that he
had only been pursuing the time-tested line of Recueillement, but he was
misrepresenting things. Today Primakov also misrepresents things when he
pretends that a Gorchakovist policy can retrieve much. The real
Gorchakovist was Gromyko, but no one can follow in his footsteps now.
The old alternance is now destroyed. What is the new one? 
What of the view of Mister No (Gromyko) and Mister Yes (Kozyrev), with
Primakov as the centrist Mister mozhet byt? Rather wrong on Gromyko, I
would say. Much better on Kozyrev. Primakov, who has the full confidence
of the Communists, is just trying to give the air of having a foreign
policy of consolidation, which he would dearly love to direct. But it is
impossible under the current collapse of Yeltsin’s regime. 
Could Yeltsin himself make a turn now, defy the west, consolidate power
in a regime of “national salvation” and banish the legacy of Mister Yes? I
am sure he has thought of it more than once. 

*********

#12
From: "David Quinn" <rusfin98@hotmail.com>
Subject: A Magic Bullet for the Russian Economy
Date: Thu, 20 Aug 1998 

Dear David:

I'm an American attorney who first visited Russia shortly after the 
collapse of the USSR, and has been working here on and off since 1994, 
including the past year and a half spent representing Russian firms 
seeking Western financing (no, I'm not some kind of masochist!). I'm a 
sporadic reader of your list, so if somebody else has already proposed 
the policies outlined below, please forgive me.
Something that I've noticed during the most recent crises(s) is the 
absolute dearth of credible plans to bring real, significant economic 
growth to Russia. I thought that I was alone in this assessment until I 
read Matt Taibbi's article in the most recent eXile, in which he seems 
to be concerned with the same question.
We all know about the intellectual bankruptcy of the collectivists, but 
what about the self-styled "managers" of Russia's emerging "market" 
economy, i.e., the current government, the IMF, Clinton advisors? Is 
there anybody out there who read the Kiriyenko/IMF anti-crises plan 
(itself a collection of stalled "reform" initiatives) and thought to 
themselves, "that's just the thing that Russia needs to really turn 
around this 10 year depression and set itself on a course of tangible 
economic growth and opportunity for the 21st century!"? Cell-phone and 
"large-displacement engine" taxes? Please. Although my pedigree in the 
field of economics is modest, I see very little in the proposed policies 
that leads me to conclude that they will result in economic growth for 
Russia anytime soon.
The list of problems confronting the Russian economy is better known by 
most Russia-watchers than The 10 Commandments:

1. The federal government has no cash (especially short term) despite 
the fact that the government sector accounts for a large portion of GNP 
(as noted in the Taibbi article).
2. Russian businesses owe at least $50b in taxes and large amounts in 
wage arrears.
3. #2 exists despite the fact that Russian business holds $250b abroad 
in Swiss & Cypriot banks. This sum is increased daily as Russian 
companies send profits abroad despite "currency control" regulations. 
Russian business holds little capital in Russia due to tax 
considerations.
4. Workers are not paid on time even in profitable companies, because 
this will attract the tax inspector.
5. The "Communist Opposition" Duma would like to pursue an Asian-style 
"industrial policy", with subsidies and tax preferences to favored 
industries, despite the fact that Russia has no money with which to feed 
its soldiers. 
6. The stock market is gone.
7. Banks are on the verge of collapse due to losses on the financial 
markets - very few have a "traditional" banking business to fall back on 
during times of market troubles such as these.
8. Absolutely no foreign investment because of high political risk 
relative to expected returns and lack of transparency in Russian 
companies. Much of the non-transparency is the result of tax 
considerations.
9. Most importantly, there has been no growth in the Russian economy 
since the fall of the USSR.
Not only are the problems universally recognized, but the primary Source 
of the problems has also become conventional wisdom - "It's the Tax 
Code, stupid". Many have placed their hopes for Russia's turnaround on 
a new Tax code (featuring many of the attributes of the hugely 
successful American variant) and the efforts by Mr. Fyodorov to improve 
revenue collection and to create a sound tax environment in which 
business can operate.
I agree that the taxes are at the heart of Russia's problem. But I 
don't believe that, even if it were enacted tomorrow, the new tax code 
will considerably affect economic growth. Russian companies are my 
clients, and I don't believe that they will significantly alter their 
behavior under the new tax regime. In his article, Taibbi correctly 
points out that it isn't simply a problem of the tax code "philosophy", 
but of the entire system of revenue collection in Russia (or any other 
government institution, for that matter) - corruption. This will not 
change under an all-new "American" tax code because the institution of 
the tax service itself will not change.
What I propose is something slightly different than a new tax code. 
What I propose is to simply get rid of the corporate income/revenue tax. 
Period. That's right, the world's largest country is to be turned into 
a tax haven. The essence of the policy is that Russian businesses, who 
owe significant money to the government and to their workers, and who 
have been exporting their earnings since the fall of the USSR, will be 
given the opportunity to pay the government and workers everything that 
they currently owe, in exchange for which they will receive tax immunity 

for eternity.
The expected results of such a course of action are as follows:
1. Russian companies pay their back taxes and workers' wages with money 
that is now stashed in Switzerland or Cyprus.
2. Therefore, the Russian government and the private economy as a whole 
receive a sharp influx of capital from abroad - money will actually flow 
into the Russian economy (as opposed to the anti-crises package, which 
simply seeks to suck-up what little capital is left here).
3. As a result of workers being paid and the government paying its debts 
to its citizens, consumption increases, which in turn increases tax 
receipts from VAT (mitigating some of the revenue loss from elimination 
of the corporate income tax).
4. Russian companies who have earned the tax privilege suddenly become 
more valuable, and the stock market quickly recovers some of its recent 
losses due to expectations of overall increases in profitability.
5. Russian companies would lose the primary reason for their 
non-transparency, and those that wish to access outside finance (making 
them more competitive than those that remain non-transparent) can now 
provide factual financial statements that are audited by truly 
independent auditors.
6. Russian companies would lose the major reason for exporting their 
profits to Cyprus and Switzerland. They will now begin to keep ever 
greater amounts of capital here in Russia, which, in turn, gives the 
banks a boost in capital, thereby enabling them to actually start 
banking - lending to Russian companies at more competitive rates.
7. This gives a further bump to the stock market, as foreign money 
returns in the expectation that Russian companies are now poised for 
much greater profits than was expected even during the "heydays" of 
early 1997.
8. Foreign direct investment increases because, even if all other 
"Russia Risks" remain the same, the expected return of any investment in 
Russia has been increased simply by the absence of the corporate tax 
itself and the physical absence of the Tax Inspector. 
9. This helps Russian banks, who have seen the value of their equity 
holding plummet (in addition to any gains that they would receive due to 
the tax benefits themselves).
10. The government will have lost a source of revenue. However, as 
consumption should increase due to new, continuous capital inflows, VAT 
revenues should see a marked increase.
11. Russian companies are now more competitive vis-a-vie their foreign 
counterparts (makes the Duma happy), further increasing profits, market 
value, position of banks.
12. No more barter. Russian companies will no longer be afraid of 
having their accounts frozen by the tax inspector and will be less 
afraid of using Russian banks to pay suppliers/receive payment from 
buyers.
13. One of the main direct and indirect sources of corruption, the tax 
inspectorate, looses considerable power.
14. Finally, The Russian Great Depression is halted, and economic growth 
begins before the end of 1999.
The greatest leap of faith in such a plan is that companies will believe 
the government's offer to be genuine. In order to achieve the desired 

result of all Russian companies (that are capable of doing so) paying 
their debts, the law should have the force of a constitutional amendment 
- only reversible by a super-majority of the legislature. Otherwise, 
companies will think that it's a trick or that the government will 
quickly change its mind.
Companies that truly are bankrupt will have to be re-privatized over the 
course of the next year. The ultimate goal being that by the beginning 
of the year 2000, no company registered in the Russian Federation is 
subject to a tax based upon its income/profits.
Assuming the cash windfall is forthcoming, the government must use this 
opportunity to restructure its activities, particularly limiting its 
social obligations and support of inefficient industry. It will have to 
live within the means of VAT. (As a side-note, one might also consider 
doing away with the individual income tax, since by my guess almost 100% 
of Russians consume fully 100% of their income. Therefore, the VAT is, 
practically speaking, a flat income tax.)
Politically, this plan has aspects that appeal to virtually everybody in 
the country. It could be sold to the Duma and the public as an 
"anti-American/anti-IMF" plan - the elusive "third way" between a return 
to collectivism and the harsh austerity measures promulgated by the IMF.
Of course, many of the anticipated results of the proposal, particularly 
with regard to government revenue, are uncertain. What is not uncertain 
is that the private sector results, which are the most important, are 
rather bankable. In the end, what this policy offers that no other does 
is the virtual GUARANTEE of real economic growth in Russia in the 
shortest possible time.
I'm sure that many tax/economics experts will scoff at my proposal ("If 
it were such a great idea, it would have already been tried"), and they 
are probably correct. My aim is merely to point out that nobody seems 
to be offering policy options that are likely (or even intended) to 
result in real economic growth in Russia in the near future, if at all.

********

#13
New York Times
August 20, 1998
[for personal use only]
ECONOMIC SCENE
Russia Devalues Its Way Toward a Market Economy
By MICHAEL M. WEINSTEIN

The reaction in the West this week to Russia's decision to, in effect,
default on some loans and devalue the ruble has been one of fear mixed with
disappointment. 
The fear that a Russian financial debacle would spread elsewhere has so
far proved exaggerated. Russia's nuclear arms cache might intimidate
faraway places, but its Netherlands-sized economy does not. 
Disappointment may also prove unwarranted. Though a policy of de facto
default-with-devaluation solves no long-term problem, it could serve as a
clever device by which the government, led by the boyish-looking prime
minister, Sergei Kiriyenko, puts pressure on an obstinate parliament to
pass its economic reform package, designed to tackle Russia's many
structural problems. 
Russia's nearly seven-year trek toward markets has been grudging,
incomplete and riven with corruption. Its tax code drives companies to hide
profits, while helping insolvent ones stay in business. Huge swaths of the
economy operate through barter transactions controlled by insiders rather
than by impersonal market forces. Barter deprives workers of cash wages and
the government of tax revenue. 
Moscow's tight monetary policy has created relatively stable prices and
exchange rates, but this week's devaluation will undo some of the good by
driving up the price of consumer imports and erode confidence in the ruble. 

The current financial crisis was partly caused by steep drops in world
oil prices that eroded dollar earnings from exports. Those dollar losses,
and possible fallout of the Asian financial crisis, fueled fears among
foreign investors that President Boris Yeltsin's officials would be unable
to prop up the ruble. 
Investors began to flee, further depleting dollar reserves and adding to
the fears of investors left behind. The turmoil hit banks hard because they
hold lots of ruble-denominated bonds and other assets. When investors
turned skittish and dumped ruble assets, driving down their price, the
value of the bank-owned assets shriveled. Many banks stopped lending money
or completing currency transactions. 
Professor Rudiger Dornbusch of MIT points out a somewhat odd consequence
of the government's collecting too little tax revenue. It not only lacks
enough dollars to pay foreign creditors, but it also lacks enough rubles to
pay domestic creditors. Of course, Russia could print rubles to pay its
loans, but that would reignite inflation. 
Last week, Kiriyenko asked the International Monetary Fund to chip in
emergency funds on top of the more than $20 billion it pledged last month.
The IMF refused. So he seized an alternative: de facto default. 
Specifically, he placed a 90-day moratorium on repayments by banks and
private companies to foreign creditors and froze government repayment on
domestic loans. Russia is expected to press creditors to replace short-term
loans with longer-term loans. 
The plan is designed to ease the government's financial plight by
rebuilding cash reserves. Some of the extra cash will come from the freeze
on loan repayments to domestic creditors and from taxing the extra profits
that oil exporters will earn as the value of the ruble falls. 
But cash infusion is at best a stopgap measure. De facto
default-with-devaluation does nothing to end confiscatory business taxes,
create a workable bankruptcy code, balance the budget or approve
production-sharing agreements that would attract foreign investors. 
Tax reform is key not only because it would raise desperately needed
money, but also because it would drive businesses to replace barter
arrangements with cash deals. Kiriyenko has proposed laws along these
lines, but parliament has so far refused to approve all the changes. 
The intriguing possibility is that the prime minister can exploit what
will surely be furious opposition by investors to a government-imposed debt
moratorium to press parliament to take the corrective action that would
render the moratorium superfluous. 
But Kiriyenko's plan does not go nearly far enough. Professor Marshall
Goldman of Harvard University cites a need to back venture capitalists --
small-scale operations that provide organized crime no large target. 
Daniel Arbess, a venture capitalist operating in Russia, emphasizes the
need for Russia to move to a cash-based economy. Toward those ends, he
would require Gazprom, which supplies energy to businesses, to sell energy
strictly for cash. 
That, he says, would strip away support for insolvent enterprises and
force Russian companies to abandon barter transactions. 

Kiriyenko's plan could easily backfire. The central bank could lift its
tight hold on the money supply, allowing devaluation to escalate inflation.
Partial default and debt restructuring could scare off foreign investors,
at least temporarily. 
Devaluation could provoke domestic opposition, perhaps leading to
Yeltsin's downfall. Whether the plan succeeds will depend more on
Kiriyenko's political skills than his economic acumen. 

*******