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Johnson's Russia List


August 22, 1998   
This Date's Issues: 2320  2321

Johnson's Russa List
22 August 1998

[Note from David Johnson:
1. Sydney Morning Herald: Neela Banerjee, In Tver, when the rouble 
gets tough, the tough get troubled.

2. RFE/RL: John Varoli, Russia: Consumers Yet To Feel Effects Of
Ruble Devaluation.

The government says don't expect anything good from the new budget.

4. Reuters: Chubais reassures investors on Russia crisis.
5. Grzegorz W. Kolodko: Response to Stephen Cohen on Russia's reforms.
6. Moscow Times: Igor Zakharov, BOOKWORM: A Romp Through Moscow's 

7. Interfax: Russian Poll Indicates 'Possibility' of 'Social Explosion.]


Sydney Morning Herald
August 22, 1998 
[for personal use only]
In Tver, when the rouble gets tough, the tough get troubled 
By NEELA BANERJEE in Tver, Russia 

Moscow is not Russia, Russians like to say. But Tver, a town 180 kilometres
west of Moscow where the mills have grown quiet and the fields have turned
fallow, probably is.

And as Nina Sokolova waits at a cash machine in a local bank and calculates
exactly where each kopeck will go, she is no doubt like most Russians.

A nurse and State employee, 58-year-old Mrs Sokolova, has not been paid in
three months. Now she has come to draw on her small rouble savings to feed
her family. For Mrs Sokolova, the Government's move this week to devalue
the rouble is only one more blow.

"The panic may be among those who have money, but among those of us who
don't, what can happen?" she says, with a sad smile. "We're poor now, and
it just means we'll get poorer."

As news of the devaluation sinks in, people seem to be growing more
pessimistic. After their six-year crash course on capitalism, most of those
in Tver understand economics well enough to tell you that the devaluation
of the rouble will only worsen their standard of living, pushing many into
real destitution.

But if such realities would ignite riots elsewhere, in Russia so far there
is widespread resignation and even a certain pride among some people at how
much they have already endured. 

"We've been through such inflation in 1991 and 1992, when people's savings
were wiped out," says Olga Vyakina, deputy editor of the TverskayaZhizn
newspaper. "The fact that we lived through it has given us a reservoir of

A city of half a million, situated between Moscow and St Petersburg, Tver
has lost its young people over the years to the two capitals.

Reforms have brought better clothes, foreign cars and bananas in
wintertime, but have left the 40 per cent of the population over retirement
age without pensions since April.

The old textile mills and the former Soviet Union's largest printing
facilities stand idle. Workers from bankrupt collective farms line the
highways, selling smoked fish as hard as cardboard and buckets of
blueberries for $A7.

Many Russians don't have savings in any currency. But many of those with
roubles to spend were buying dollars, even at the high exchange rates -
until, of course, the banks ran out of dollars.

People do not believe that the Government will be able to hold the rouble
to the upper end of the exchange band at 9.5 roubles to $US1.

"Roubles aren't real money. You can't hold savings in it," says Viktor
Svetlov, the director of the Tver Railcar Works, the area's largest
factory. "It's better to buy now, even at 9 to $US1, rather than wait for
it to hit 15."

The devaluation may be a body-blow to Russia's tottering industrial sector.
Prices on materials and services will go up and, as a result, production
will likely go down. 

Foreign investors, always wary of Russia's instability, now have another
reason to stay away - the Government's announcement of a moratorium on
foreign credit payments by Russian businesses.

"Our potential foreign partners believe in us, but we're dependent on the
Government," Mr Svetlov says. "Why would normal people want to put their
money into this market when they have no assurance that they will get it

For average people, the fear is inflation. It may not be the head-spinning
2,000 per cent rate of 1992. But for people who barely scrape by on 300 to
400 roubles a month ($A74 to $A98) - and there are many in Tver - even a
price rise of 10 to 15 per cent will hit hard.

"People are buying more now than before because they expect prices to go
up," says Valentina Alexandrovna, who sells bras and sweaters at an outdoor
market. "I myself am buying sugar and macaroni. I think it will get worse
and worse with each day. I'm very afraid."


Russia: Consumers Yet To Feel Effects Of Ruble Devaluation
By John Varoli

St. Petersburg, 21 August 1998 (RFE/RL) -- Amid confusion and uncertainty
wrought by the ruble devaluation, life for many Russians has yet to be

Consumers have not descended on shops to scoop up goods, and there has been
no run on banks. Also, lines at most currency exchange booths remain small.
But beneath this apparent calm there is a creeping feeling of anxiety that
inflation is about to strike. 

On Tuesday and Wednesday, after the confusion created by the government's
sudden de facto devaluation of the ruble, many banks in St. Petersburg and
elsewhere in Russia were not exchanging currency. 

Jeff Robins, an economist at MFK Renaissance (an investment house) in
Moscow told RFE/RL: "I would not say the situation has stabilized,
consumers can expect to see inflation of about 20 percent soon, and the
fall of ruble is probably not over." 

St. Petersburg governor Vladimir Yakovlev said on Wednesday that the city
will do everything possible to discourage price-gouging. 

Yakovlev said that the Tax Service and Tax Police will step up checks on
those shops and enterprises which have drastic price increases. 

But, so far, most Russians have not been effected by the crisis. The
reason, according to analysts, is that many of them simply do not have much
savings, and those who do already keep most of it in dollars. Ironically,
analysts say that the poorer one is, the less one will probably feel the
effects of the crisis. 

"I am poor, have no savings, cannot buy imported goods, and I already own
all that I need---a furnished apartment and a car--- so I am not worried
about the financial crisis," said Vladimir Smirnov, a pensioner. 

For now, the brunt of the fallout has been limited to banks and financial
companies, which have suffered great losses and are laying off staff.
Businesses that rely heavily on imports have also been hit, having to buy
in dollars and selling in rubles. 

"The stock market and GKO market are dead," said Yevgeni Sidorov, an
analyst and trader at Lenstroimateriali, a leading local brokerage house.
"now everything depends on foreign players to keep the market alive. Only
when they come back will we see a change for the better." 

"I am quite worried by the current crisis because I have a small business
that is dependent on imports," said Sergei Fomin, a tattoo artist in St.
Petersburg. "The materials I use must be paid for in dollars. So now I have
to ask clients to pay for my services at a higher exchange rate and not all
can pay." 

Valentina Askern, the director of a grocery store in the city center, said
that she would almost certainly not raise its prices because 90 percent of
the food items she sells are Russian-made. 

It is estimated that Russia imports between 50 to 60 percent of its
foodstuffs. But, this figure masks the fact that most basic staples are
produced locally. 

Still, in the long run devaluation is unlikely to help Russians industries
because they will not be able to raise capital on international markets and
because the confidence of foreign investors in Russia has been undermined,
said Robins. 


>From RIA Novosti
August 21, 1998
The government says don't expect anything good from the new budget

They say one should marry without any great hopes for the
success of the undertaking so that every joy may later be a
surprise. Our "young" government has also lived to see this
folk wisdom by deciding that the next year's budget should be
drawn up based on deeply pessimistic forecasts. Without hoping
for either a reinvigoration of the financial markets or for an
improvement of market conditions in the oil sector. In a word,
proceeding from the premise that things won't be better than
they now are, and that there's not a rouble to be borrowed in
the domestic market or a dollar in the external, excluding only
loans from the IMF and the World Bank. From the same vantage
point the main financial law of the country will be rewritten
for the rest of 1998 as well.
Had there been no "black Monday" the government could even
yesterday have approved the draft 1999 budget at its meeting
and on August 25 submit it to the Duma. This time limit,
prescribed in the conditions for the allocation to Russia of a
second tranche of the IMF's stabilisation credit, the
government had rigidly observed, and by yesterday the first
supertough, primary-proficit budget for the new year was ready.
However the "Monday" turned it into a heap of scrap paper. And
along with the budget - all the perceptions of what structure
our economy is going to have. It is only known that revenue
would be fixed at 376 billion and expenditures at 456 billion.
The rest is currently a "black box."
At yesterday's meeting Yuri Maslyukov, head of Mintorg,
after yet another series of explanations by Sergei Kiriyenko
about default demanded that the budget be rewritten in favour
of industrial development. Promises were vague, if any. For
there is nothing to promise. For the simple reason that it is
not yet clear what exactly has happened in the country or what
will happen next. The government and the Central Bank, by
announcing a default, solved no problems but only blocked a
collapse of the economic system. Now it has to be rebuilt anew.
But before that, it's necessary to understand what sort of
economy it must be. So far, the government hasn't said a word
about that. On the restructuring of GKOs it is expected to save
in expenditures about 80 billion rubles this year, and as a
minimum as much next. This saving is relative - a direct
reduction of state expenditures on debt servicing for one year,
possible only because the government has granted itself a
deferment of payments.
But an economy is made up not only of state expenditures
on debt service alone. It also consists of investors' trust,
the position of the banks, the condition of the production
sector and so on. With all those things it's total uncertainty
so far. The investors and the banks are waiting for a second
"black Monday" when all the terms of GKO restructuring will be
announced: in the phrase of some of them, the main thing now
is, who and by how much will be "thrown down." Including in the
world market.
It is not without meaning that Deutsche Bank and J. P.
Morgan were enlisted as experts in the elaboration of the terms
of GKO restructuring. German banks have invested quite a pretty
sum in our markets; Deutsche Bank, for example, has formed 60%
of its "risk" portfolio from credits to Russian banks and GKOs.
Both banks last December, at the time of yet another series of
Russian financial difficulties, urgently financed us. By the
way, the country still does not know how much money and on what
terms we then borrowed. The authorities forgot to report about
that. Now it will depend on the recommendations produced to
what extent Russia can save face before the world community (it
should be noted, though, that in such cases, even if it
involves a mere valuation of an enterprise's assets,
independent appraisers are invited as experts, not interested
companies). And whether we will have foreign investments at
least after 1999 as, for example, the present "fresh dead
body," the 1999 development budget was almost 100% built
precisely on them - 18 billion roubles out of 19.6 billion
roubles. The bulk of this sum was earmarked precisely for
industry. In the new, pessimistic 1999 budget, which does not
presuppose foreign credits, instead of these figures a
bold-type zero must be drawn.
The entire budgetary planning of the new cabinet - the
1999 budget is part of the much publicised knowhow, the
three-year budget for 1999-2001 - set itself the task of
enhancing investment vigour, maintaining a stable rouble, and
liquidating nonpayments. However only budget deficit cuts
remain on this list after the announcement of default. Both
cheap credits and new interbudgetary relations - all this, just
as many other things, is unpredictable, just as the fate of the
banks. The government has sheltered some of them with the same
90-day moratorium on foreign bank credit repayments, thus
balancing their loss of the GKO market. But far from all the
banks took large credits from the West and they have simply
lost the market without having "credit" reserves. So that bank
losses will be uneven, and few people now understand by how
There are very many other questions to which the
government will have to urgently seek answers. How to protect
from the growth of import prices not only and not so much the
buyer of retail goods, but again the very same industry which
lives on imported components? Will banks be able to conduct
operations with clients' money by order or continue, as they
did yesterday and do today, to limit the clients in their own
funds? What will happen after the end of the moratorium on
banks' credit repayments - will they all start paying at once,
or somebody decide to arrange for itself an individual
An inconceivably difficult task is facing the cabinet: in
just slightly over two weeks (by September 7 in order by
September 21 to send it to the Duma) to write a new budget for
the conditions of an unprecedented general economic dead-end
for us. This will be immeasurably more difficult than to hang
up in the window of the national cash department the
announcement "No money."


Chubais reassures investors on Russia crisis
By Peter Graff

MOSCOW, Aug 21 (Reuters) - Russia's chief foreign debt negotiator and economic
guru Anatoly Chubais fielded tough questions from investors and financial
experts around the world on Friday to reassure them of the country's reform

In a conference call with foreign analysts carried live on Reuters television
he said Russia would allow some of the country's largest banks to fail. 

But he was sure Moscow would meet strict reform targets set by the
International Monetary Fund (IMF) and vowed that details of a debt
restructuring plan to be released on Monday will not discriminate against
foreign investors. 

"We need to have a (bank) restructuring...Banks which are insolvent should
become bankrupt and this should be done even under the financial situation we
have now," he said. 

A crisis of liquidity at Russian banks was one of the main reasons the
government and central bank on Monday took a range of emergency measures that
included a 90-day moratorium on some debt repayments and a de facto
devaluation of the rouble. 

Chubais said individual banks should not be saved if it would hurt the system
as a whole. 

"The main priority we have is to keep the whole banking system viable in
Russia...I stress the whole banking system, but not separate banks," he said. 

Russia has promised to unveil plans for the restructuring of its short-term
rouble debt on Monday. 

Chubais said the conditions of the debt restructuring, which involve a swap of
about $40 billion of short-term T-bills, called GKO's and bonds, called OFZ's,
into longer, lower-yielding paper, would be "extremely tough", but that there
would be, "respect for the principle of equal treatment." 

Some Western banks had expressed worries the debt swap would discriminate
against foreign banks after preliminary details of the deal leaked out on

Chubais warned the government's priority was to ease the strain on its cash-
strapped budget, while taking the equal treatment of foreign and Russian banks
into account. 

"If we create an attractive scheme which has the principle of equal treatment,
but will ruin the budget for the next years then I do not think that will
create market confidence," he said. 

But despite the market turmoil and worries that parliament would sabotage the
government's proposed reforms, Chubais said he was sure his country could meet
all the targets set by the IMF under a recent bailout deal. 

"We are absolutely in a position to demonstrate to the IMF team that we will
do everything we promised according to the targets included in the (credit)
programme," he said. 

The IMF agreed to take part in a package of aid to Russia, worth more than $20
billion, provided that Moscow reform the tax system, boost tax collection and
reduce the budget deficit. 

The IMF at the end of July released the first $4.2 billion tranche of it's
$11.2 billion share of the loan package. Russia expects to get a further $4.8
billion in mid-September. 

Chubais was joined during his question and answer session by Sergei
Aleksashenko, First Deputy Central Bank Chairman, who said Russia is now
running a current account deficit of between 1.5 and two percent of the gross
domestic product. 

"We do believe that our measures will help to finance this deficit," he said,
adding IMF and World Bank support would help cover the gap. 

Last year, Russia had a current account surplus equal to 0.7 percent of GDP,
but falling prices for the country's main exports, such as oil, have hurt its

Oil companies may increase oil exports despite a recent pledge to cut crude
and product exports, Chubais said. 

"I know there are technical limits to pipelines for oil exports...but I think
we have a real chance first to increase the oil exports and second oil
companies will definitely increase their revenues from oil exports," he said. 

He gave no time frame for a possible rise in oil exports, but acknowledged the
recent decision to devalue the rouble helped the oil companies by lowering
their costs. 

"Do you think that's bad? I don't think so," he said. "I do believe that using
this kind of support, government must be more aggressive in pressing the oil
companies to be more active in restructuring the company and cutting costs. 

"That's the only way which will give an answer for the government in case
companies come to the government again and say why don't you devalue now." 

Analysts who participated in the broadcast gave Chubais credit for tackling
tough questions head on. But some analysts said they still had doubts about
where Russia would find the dollars to meet its foreign debt obligations. 

"I suspect there are still some doubts as to where the dollar financing comes
from next and it's not possible to give a clean bill of health to the question
of external default," said Richard Gray, of Bank of America in London. 

Duncan Webster at Hypo Bank in Munich also had doubts aboutthe balance of

"There's going to have to be a major turnaround in the current account and
that's going to keep investors very nervous about the prospects for a
significant further rouble devaluation," he said. 


From: (Grzegorz W. Kolodko)
Date: Thu, 20 Aug 1998
Subject: Cohen on Russia's reforms

Dear Mr. Johnson,
Below, please, find my reaction for Prof. Cohen article.
Professor Grzegorz W. Kolodko

Professor Grzegorz W. Kolodko, Senior Research Fellow at Yale School of
Management and currently Visiting Fellow at the World Bank, was Deputy
Premier and Finance Minister in Poland in 1994-97. His book on "From
Shock to Therapy. The Political Economy of Postsocialist Transformations"
is forthcoming by the Oxford University Press.

Hunting for the scapegoats

It's quite unusual to read such just and up to the point piece as
Professor's Stephen F. Cohen comments on Russia's malaise ("Why Call It
Reform?", THE NATION, September 1, 1998, and # 3 in JRL # 2316). He
claims that "Russian economists and politicians across the spectrum are
now desperately trying to formulate alternative economic policies that
might save their nation ones more akin to Franklin Roosevelt?s New Deal
than to 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." Yet this is only partially
true, since there is still a bulk of influential economists and
policymakers, strongly supported by their foreign allies, keen to continue
the disastrous course of reforms executed so far, but this time they want
to do it "better?. So, they mean they will be tougher, they will push
harder, they will enforce more, etceteras. Quite the same as once upon a
time the exercising of "further perfectioning" of the central planning
under the command economy, when it already ceased to work. As then the
real economy stop to listen to the central plan, it now has hardly started
to listen to market designed along such pattern. Not surprisingly,
instead of abetting the calamity, these kind of advice has substantially
contributed to still growing misery.

My recent article in THE NEW YORK TIMES ("Russia Should Put Its People
First", July 7th, 1998) as well as the interview in the World Bank
TRANSITION (?Economic Neoliberalism Became Almost Irrelevant...?, Vol. 9,
No. 3, June 1998), both circulated also on the JRL, were emphasizing the
same syndrome. The roots of mounting challenges are stemming form
confusing the means of the policies with their ends and from ill-advised
drive towards killing the real economy and imposing dire straits upon
society for the illusory sake of "the only achievements of the Yeltsin
reformist government". It supposed to be the ruble stabilization and low
price inflation. Although it was achieved for some transitory time, but
at the cost of spreading poverty, increasing inequity and growing up to
unsustainabilty public debt. At the end, not only the financial, economic
and social costs must be paid, but the invoice for the political costs
has been sent too. However, the address where this mail supposed to aim,
is going to be lively discussed.

Now, when the time of truth should come at last, the stable ruble for
whatsoever costs is not at all an achievement, but just delusion, and it
turns that there have not been that much reformist governments, or - still
worse - this is not that kind of reform the millions of people in Russia
and other former Soviet Union republics, still depending to certain extent
on what?s going on in Russian finance and economy, have been looking for
during last seven years. Hopelessly, in Russia - unlike in the Bible -
after seven years of lean, there is going now to be another at least seven
lean years, instead of promised by irresponsible economists and unreliable
politicians many years of plenty. Albeit there was a chance for such, now
that must wait for the time of another generation. Russia?s GDP - already
at about 50 percent of pre-transition level of 1990 - is going to shrink
another 2.5 percent this year and additional 4 percent or so in 1999. In
2000 it may - or it may not, if the reforms and policies will not divert
in proper direction - have a chance to bottom out. Real income of the
population will shrink even more than that and accelerating inflation one
more time will deprive the households from their meager savings.
Unemployment will jump and the overall living standard will continue to
deteriorate. Furthermore, the people are losing their trust in market
economy and afterwards to convince them about the superiority of market
system will be even more difficult.

Despite for true professionals - the analysts and commentators, but
firstly the politicians and investors - it should be obvious that to
sustain the exchange rate of ruble was impossible, it was not the common
wisdom; just the contrary. And it has been reconfirmed time and again,
including the July IMF-led and the USA and Germany-insisted bail-out of
altogether over 22 billion dollars. One fifth of this sum is gone already
and we have de facto devaluation by one third with great possibility that
the process of weakening will continue. Hopefully now it will be
understood that one cannot get healthy currency and finance within the
environment of sick economy and politics. But - and this is the issue -
it was possible that international speculative portfolio investors and
their Russian associates were making at that time great profits due to
exercised financial policies.

The policies of Russian reformist governments - including the revolving
door?s mechanism, through which some politicians and advisers are leaving
and than coming back again - wrongly assumed that one can accomplish sound
financial system and firm fiscal stance on the ruins of the real economy.
That was also the case of Poland early stabilization attempts of 1989-92
and - to the extent - the cause of the Czech koruna crisis in 1997, due in
part to lack of appropriate corporate governance of privatized assets.
The 1996-97 euphoria about the Russian emerging capital market as one of
the best in the world was so ridiculous, since its performance against the
features of the real economy, i.e. deep depression and lack of
competitiveness, was precisely the hint that there is a bubble which must
explode. The naive and not enough careful investors, including foreign
banks and funds, must share the costs of this burst. After what has
happened, there is not anymore a way to impose the burden of the crisis
exclusively and entirely on the Russian people, nor there should be the
next bail-out carried at the costs of the Western taxpayers. The private
sector, firstly the financial one, must pay a firm part of the price,
since it too bears a significant part of the responsibility for all this

Now we have to listen that everybody has known before and everybody was
right. That is not truth and we have great opportunity to discuss again
what arguments happen to be correct and why and what ways of reasoning
proved to be wrong and why. In fact, there is not that many of these
which are right and they haven?t been influential enough to change the
deadly course of the Russian transition. Thus the hunting season for the
scapegoats has begun both in Moscow and Washington. I am ready to bet
that overwhelming majority of them will escape the chasing for the very
simply reason: the ones which supposed to be the game, remain still in the
shoes of the hunters...

Comments like those of Prof. Cohen and earlier of Dr. Janine Wedel, also
published in "THE NATION" (?The Harvard Boys do Russia. How the best and
the brightest helped destroy the Russian economy?, June 1, 1998), or my
article in "NYT", instead of provoking serious debate and proper reactions
amidst the policymakers, sometimes are causing their further frustration
and opposition. Yet it is very fine that especially the World Bank is
involved at larger and larger scale in debate about policy reforms and
pays attention to both - systemic changes and development policy.
However, in the real politics it actually doesn?t lead the league and
rather the monetarist ortodoxies are still dominant. Is it possible that
such wrong and harmful dogmas will be able to stand the aftermath of the
east Asian contagion and the Russia?s malaise? They shouldn?t, but I?m
afraid they will, since the decisions are taken there where is the money,
not where the truth is. The things are organized in such a way, that
often these are the two different places.

Fortunately, in Russia as well as in both the International Monetary Fund
and the World Bank there are the people having serious and still growing
doubts about the inappropriate course taken by the transition not only in
Russia, but also in several other countries. As for the politicians,
technocrats, advisers and commentators getting afraid that the things can
change and ultimately they?ll receive the criticism they deserve and may
bear political responsibility and or intellectual humiliation they have
earned for their mistaken train of deeds and thoughts, it seems that they
are getting the message that they've been wrong. Nevertheless, for the
sake of avoiding to be blamed with any responsibility they prefer to
continue keep talking, writing and doing along the line of so far
approach, despite it won't do anything good neither for transition, nor
for development. And for sure not for Russia.

As long as the fight for the shape of post-communism continues, also the
struggle for getting the credit for few successful stories and not being
blamed with the responsibility for more failures continues. Good example
of the former is Poland, where the advocates of policies similar to these
which has led to Russia's malaise, are trying to get the credit for Polish
recent achievements, accomplished contrary to their advice and activities.
However, instead they must be blamed for the failure of Polish
stabilization and adjustment at the beginning of the 1990s as much as for
the current Russia's much greater failure. Both cases of mismanagement
are based upon the same ground of wrong theory and mistaken policy.

Poland, if not the significant change of the course of policy reforms
since after 1993 and favorable implementation of "Strategy for Poland"
(or, if one wants, something alike "The New Deal") could be in similar
situation as Russia is now.

However, when I've worked as Deputy Premier and Finance Minister in my
country, I was able not to listen to wrong domestic and foreign advice and
not to bow to the various lobbies? insistence and pressures, as
unfortunately it had happened in Poland earlier and occurs in Russia all
the time. It was not easy, since not only some Western governments and
following their line international organizations, and not only well paid
and well publicized advisers, but also political opposition and various
groups of interests together with linked to them mass media have been on
the wrong side during these debates and fights. And indeed, this is the
fight, since the issue is not to be right, but to be able to enforce the
policies stemming from such rationale, that is to be able to conquer the
groups of particular interests and their political cronies. Thus,
unfortunately, even if Prof. Cohen and Dr. Wedel are right - and
definitely they are - it doesn't matter that much, since not their but
somebody?s else opinions and advice shape the policies. They don?t have
enough money, despite they have enough good arguments.

I still wonder what is the mechanism that so many influential economists
and policymakers are for so long so wrong? Actually, Russia has followed
the advice of the key international institutions and did listened the
suggestions given by several advisers, quite well-known due to the media
and international financial circles support. It is not true that they are
not able to adjust, rather the opposite. If some of them several years
ago were the extreme zealots and advocates of disastrous "shock therapy",
now they do not hesitate to criticize the IMF for going along the line
similar to this wrongly advised by them earlier. Another ones a week ago
were saying that the ruble?s devaluation would be a lethal mistake, today
they are saying that it has been quite wise step. Credibility of such
shifting opinions is weakening fast, yet all the time they try - with
sound and bizarre support of some politicians, think thanks, media - to
play the role of guru. They may; if one is looking for a recipe for
disaster they are capable to provide not only just one. After all,
experimenting in economics and advising in finance - why not on the
post-communist economies? - became quite entertaining and lucrative

I think - and this is also the conclusion form my political experience in
Poland, in Washington and elsewhere - that the explanation is twofold.
First, the institutional as well as individual advice is often linked more
with the interests of the advising countries, lobbies, organizations and
individuals than with the actual interests of the countries the issues of
which are being addressed. So, nothing special here is vis--vis Russia's
economy and society, despite that it drives always much more attention
because of the meaning of this country - disregarding is it prospering or
shrinking. Hence it must be admitted that their advice and "support" are
as much compromised and bankrupt as the Russia's financial and economic
policy. Both are in ruins and this is crucial conclusion. Not only
Russia?s ?reformist governments? have failed, but the ones pushing them in
wrong direction should feel in the same way. Yet they continue to claim
that they have been right and are suggesting "keep going". Where to?

Second, there is even now, in 1998, a great deal of policy advisers,
experts, western politicians and bureaucrats, and even - unfortunately -
scholars, which still are wrong and unable to understand the sense of
post-communist transition in Russia and elsewhere. Hence the transition
becomes the victim of the stand of the minds, that is this "neoliberal
monetarist orthodoxies". Yet still the IMF, the U.S. Treasury and number
of other bodies are sending there the same experts and the same officials,
to deliver the same messages and deal with the same people, which ought to
be blamed for the disaster. Russia does need a lot of advice and deep
overhauling of its economic system and policy, but not along the line
executed over several recent years.

There is a need of comprehensive medium-term development program, where
fiscal and monetary targets must serve as the means, and not as the ends
of policy. Russia's problem, resulting from the mismanagement of the
decade (what else has been mismanaged in such spectacular way?), is not
lack of liquidity, but already insolvency. Its problem is not too much of
regulation, but lack of regulation and institutional arrangements. Yet
being aware of all these flaws it is surprising to learn from the
statement of representative of Russian government, just a day after the
IMF-led bail-out package, that there is about 9,000 groups of organized
crime and about 40 percent of 40 billion dollars placed by the Russians on
Swiss banking accounts belongs to them. Hence further injection of
liquidity is not a remedy. It's not just another large financial crisis
and thus it can not be solved from this side. This is fundamental
structural, institutional and political crisis at the same time.

Russia needs even much more the institutional reforms, including fighting
organized crime, corruption and capital flight, than further privatization
and liberalization. It calls for re-regulation, not further deregulation.
The problem is much more with the deficit of institutions than deficit of
revenues, though indeed a huge lose of capital has taken place. I wonder
- as Prof. Cohen and the others - how it is possible that so many so
knowledgeable people draw the wrong conclusions about the causes,
mechanisms and remedies for Russian disease? There is a risk that still
the discussion as well as the policies may not take the right turn. Why
it is necessary to continue the set of wrong policies with all
accompanying costs for so long? Albeit not at once, but on time we have
found the correct road in Poland as well as in some other east European
countries. However, it must be stressed again that as long as it is not
understood and admitted that it has happened contrary to ill-advised
?creative destruction?, despite of and not owing to the neoliberal
monetarist ortodoxies, due to the shift from ?shock without therapy? to
?therapy without shock?, there is no chance for real policies
reconsideration. Still too many researchers and policymakers are looking
into the wrong place, so no wonder that they cannot find the right

And President Clinton? I advise him strongly not to go to Moscow now.
Just money - even if there was couple of dozens of billion spare dollars
more - can?t help and a reliable policy advice is not ready yet. To give
up to the pressure of time and to put his authority for the sake of
support of erroneous old policies would be a serious mistake. It can
still be avoided. At this stage of crisis he should avoid to do what
Prof. Cohen is concerned about, i.e. to insist ?Stay the course!? They
have stayed already too long at the wrong course. Now this is the time
first for reproach and then for deep policies? change, Western attitude
towards Eastern market transition notwithstanding. As different as the
Polish and Chinese experiences are, both prove that there are better roads
to market than the one chosen by Russia. Yet to change the line of
advising which was exercised so far is not easy. It also needs some time
- I mean months, not years - and much of reflection.

As far as the economics and politics of transition is concerned, one may
think that President Clinton has been misguided. He - as many others -
was assured that the recent IMF-led bail-out is going to work, so it is
good time to go to Moscow and to discount this assistance politically.
But now there arises the question how to deal with such ?success?? Now
the question must be asked who - and why - was so much wrong? Maybe this
incident can create a chance for the major turn of Western policy towards
post-communist transition? I?m not sure that President Clinton is reading
Cohen, Wedel end suchlike scholars? comments, but he should, because
sometimes they advise much better than the others do. The problem is that
the politicians read usually what they are suggested by their advisers and
subordinates, which don?t want them to know the critical appraisals
exposing their own mistakes.

So, agreeing almost entirely with Professor Cohen, I have this one more
doubt: will indeed President Clinton go to Moscow at the beginning of
September? Or will he be able to draw the correct conclusion that
something has gone terribly wrong and it would be better to postpone this
visit until on the agenda will be a reliable policies? blueprint how to
assist Russia and transition and what the reforms suppose to mean in this
case. I strongly recommend him to do the latter. Where there is an
alternative to support now the wrong or later the good, actually there is
only one choice.


Moscow Times
August 22, 1998 
BOOKWORM: A Romp Through Moscow's Bestsellers 
By Igor Zakharov
Special to The Moscow Times

It's August again, time to check out the Moscow bestseller lists. This 
opens the new book season in style, and sets the stage for the 
international book fair, which will be held at the All-Russian 
Exhibition Center, formerly known as VDNKh, in early September, 

To avoid confusion I have divided the fiction category into 10 separate 

-Russian classics: The most popular authors this year, according to 
number of copies printed, are Fyodor Dostoevsky, Nikolai Gogol, Mikhail 
Bulgakov and Boris Pasternak. 

-Foreign classics: French essayist Michel Montaigne, German novelist 
Stephen Zweig and Jane Austin top the list. 

-Poetry: Russians triumph. The leaders are Alexander Pushkin (whose 
200th birthday will be celebrated next June), Anna Akhmatova (Volume I 
of her Collected Works was published a few weeks ago) and Iosif Brodsky. 

-Modern Russian literature: Nobody stands out, except maybe for Sergei 
Dovlatov, who died eight years ago. People are just not reading modern 
literature. But two names, Viktor Yerofeyev and emigre author Vasily 
Aksyonov are probably the most prominent. 

-Modern Western literature: Nobody seemed to notice the Russian 
translation of James Redfield's "The Celestine Prophecy," but Umberto 
Eco's books are very fashionable, thanks to the author's recent visit to 

-Russian thrillers: This is where the readers are. 

Alexandra Marinina has not published anything new for nearly a year -- 
instead she moved to a new apartment, causing a mass media event. Her 
latest hit "I Died Yesterday" is still a leader in the sales charts. She 
now faces stiff competition, though, from Polina Dashkova, Tatyana 
Polyakova and Anna Malysheva. 

Viktor Dotsenko's serial novels about "Besheny" (Mad Dog) are going out 
of fashion, but he is still popular in provincial towns. Danil Koretsky 
and Nikolai Leonov, both among the old Soviet guard of authors of police 
procedurals, are still the best in the market. 

-Crime novels by foreign authors: The most noticeable event here is the 
44-volume "Complete Works" by Earl Stanley Gardner and the second 
enlarged edition of the "Complete Works" of James Hadley Chase in 34 
volumes. It makes a great present, and is a bargain at $2 per 500-page 

-Fantasy: Vasily Golovachyov is No. 1. 

-Science Fiction: American author Harry Harrison leads the pack. 

-Romance: This genre survives mostly in poor translations of 
English-language originals. The best of the lot comes from Raduga 
publishers, the Russian supplier of Harlequin. Russian authors are not 
very popular in this field, except for, perhaps, Yelena Arsenyeva. Their 
slogan seems to be "Make money, not love!" 


Russian Poll Indicates 'Possibility' of 'Social Explosion' 

MOSCOW, Aug 19 (Interfax) -- The economic crisis in Russia has made
the possibility of a social explosion more probable, the Sociology and
Parliamentarism Institute announced on the basis of a nationwide poll of
6,000 people conducted in mid- August.
Some 65% of the respondents said that in implementing the reforms, the
government "can no longer count on people's patience." This was up from
50% in March.
The number of Russians "inclined to express their protest in some
form" is on the rise, Nugzar Betaneli, the institute's director said.
Twelve percent of the respondents are ready to join strikes, 11% would
participate in armed insurrection, 8% would block automobile and railroads
and 6% may seize enterprises, organizations and offices, according to the
Coal miners who recently blocked railroads throughout Russia are
supported by 43% of Russians, and 15% are prepared to join the action.
Nevertheless, Prime Minister Sergey Kiriyenko "still enjoys the needed
level of popular trust," the pollsters said. Kiriyenko's activity is
assessed "rather positively" by 27% of the respondents, indifferently - by
12%, "rather negatively" - by 44%, while 5% of those polled said they knew
nothing about it. Twelve percent did not answer the question.
Asked about the stabilization program of the current government, 8% 
said it would "improve the economic situation," 37% said "it would fail to
make any impact on the economy," 24% said it would worsen it. The
remaining 31% were uniformed or did not answer.
Most Russians, 61%, are critical of using the International Monetary
Fund (IMF) loan as a means to ease the economic plight.
"An address of the government and Kiriyenko personally to the Russian
people" could be effective in mustering public support, Betaneli said.



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