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Johnson's Russia List


August 26, 1998   
This Date's Issues: 2327 

Johnson's Russia List
26 August 1998

[Note from David Johnson:
1. Fred Weir on Russians and their rubles.
2. AP: Laura Myers, Yeltsin, Clinton Friends of a Sort.
3. Reuters: Where's Yeltsin? The Kremlin can't say.
4. St. Petersburg Times editorial: Chernomyrdin's No Solution,
He's a Big Part of the Problem.

5. Irish Times: Russia faces into the abyss. James Hughes fears that
Russia's electoral timetable now offers an ever-decreasing opportunity
gap for the government to implement further reform.

6. Keith Darden: oligarch myth.
7. Newsday: Marshall Goldman, Yeltsin Is Running Out of Time, Money.
8. Moscow Times: Christian Lowe, NEWS ANALYSIS: Nemtsov Fairy Tale
Ended Long Before Firing.

9. Garfield Reynolds: Agriculture. (Re Renfrey Clarke's "My Experience 
of Cows, JRL #2326).

10. Reuters: Adam Tanner, Rouble melts down, citizens withdraw savings.]


Date: Wed, 26 Aug 1998 
Folr the Hindustan Times
From: Fred Weir in Moscow

MOSCOW (HT Aug 26) -- As the rouble's value continues to
evaporate, Russians are besieging their banks in hopes of getting
at least some of their savings out before they become worthless.
But for most it seems an increasingly forlorn search.
"I put 8,000 roubles into this bank over the past year, but
now they say my account is temporarily frozen," says Georgi
Leonidov, a 42-year old municipal worker. He is sitting in the
modern marble foyer of a downtown Moscow branch of Inkombank,
Russia's second largest financial institution.
Mr. Leonidov has been told he must fill out several forms
and wait a few days while some "temporary difficulties" are
cleared up.
"When I deposited my money they took it immediately, in
cash. Why won't they give it back to me the same way?" he says.
Russia's banks have been hit hard by rouble devaluation and
forced restructuring of government debt, which has left even the
strongest of them technically insolvent.
In an effort to protect themselves from complete collapse,
three of Russia's largest banks -- Unexim, Menatep and MOST --
announced they were merging Tuesday. 
Analysts say the basic problem is that banks borrowed
heavily from foreign lenders in order to speculate on the
domestic Russian government bond market, which was yielding
interest over 100 per cent barely a month ago.
"The banks were greedy and they believed the gravy train
would continue forever," says a financial analyst. "Now that the
rouble is collapsing in value, they find themselves holding huge
obligations in hard currency while their rouble assets are
dwindling by the day."
The rouble has been nosediving for over a week, since the
Central Bank announced it would no longer defend the currency at
the former rate of about six roubles to one U.S. dollar.
On Tuesday alone the rouble plunged by almost ten percent.
It continued crashing Wednesday, until the Central Bank closed
down the Moscow currency exchange and annulled the results of the
day's trading.
On Moscow streets anyone offering to sell hard currency
could fetch up to 9 roubles to the dollar Wednesday. But there
were very few dollars for sale and many anxious to buy.
"Roubles are garbage, and soon they're going to be worse
than garbage," says Igor Simonov, a 27-year old street vendor.
"The rule is, change them into dollars immediately at whatever
rate you can get. And whatever you do, don't put your money into
a bank."
For millions of Russians, that advice comes too late. Over
recent years a few of the largest private banks have won the
trust of the country's new middle class by offering depositors
attractive interest rates and services similar to those of
Western financial institutions -- credit cards, 24-hour bankomat
machines and the security of hard currency accounts.
But on Wednesday most hard currency accounts were frozen,
Moscow bankomat machines were "out of order" or "temporarily
unable to dispense cash", and few Russian-based credit cards were
being honoured by local businesses.
"I'm tired of being robbed by the people in charge of this
country," says Vladislava Kirilova, a 65 year old pensioner
waiting in a lineup outside a downtown bank.
"I'm waiting for a man to come to power who will put all
these thieves in prison where they belong."


Yeltsin, Clinton Friends of a Sort
August 26, 1998

WASHINGTON (AP) -- It's been ``Boris'' and ``Bill'' from the time they met.
They've broken bread and brokered deals, made promises and pledges. Even kept
a few, often overcoming or ignoring domestic critics. 

But President Clinton and Russian President Boris Yeltsin, representing
historic foes still armed to the teeth behind public smiles, are political
friends of the fair-weather sort. Like the U.S.-Russia relationship, the
barometer moves up and down with the winds of change. 

Their stated mutual affection is being tested as personal and political storm
clouds hang over both leaders ahead of their meeting next week in Moscow,
their seventh summit since 1993. 

``Policy matters more than personality,'' White House spokesman Mike McCurry
said in advance, distancing Clinton from Yeltsin amid the latest shakeup of
the Russian government and deepening economic troubles. 

Clinton, who frequently consults with Yeltsin over a shared hotline, didn't
immediately call after the Russian president dismissed Prime Minister Sergei
Kiriyenko on Sunday and replaced him with veteran Kremlin leader Viktor
Chernomyrdin -- who had been ousted in March. 

Instead, Clinton waited two days to phone, then offered Yeltsin this limited
endorsement: ``I'll continue to support you in what you need to do to tackle
Russia's economic situation,'' a White House official said. 

Clinton also signaled he wanted the summit to focus on nonproliferation, Iraqi
compliance with U.N. weapons inspections and Kosovo -- all areas of dispute,
the official said. 

Clinton, vacationing in Massachusetts, still may have been angry at Yeltsin's
criticism of U.S. missile strikes last week against suspected terrorist
targets in Afghanistan and Sudan. The Russian president said Clinton should
have informed him in advance. 

``I am indignant,'' Yeltsin said, calling the strikes ``indecent.'' 

Disagreements between the United States and Russia are frequent though, as the
world's only remaining superpower and its Cold War adversary manage their
post-Soviet relationship. 

``Russia is neither a friend nor a foe,'' said Richard Burt, a former chief
arms control negotiator in the Reagan and Bush administrations. ``As Ronald
Reagan used to say, `trust, but verify.''' 

The two nations are at odds on a range of issues. 

Russia has objected to eastward expansion of the North Atlantic Treaty
Organization to include Hungary, Poland and the Czech Republic next year. 

Russia continues selling sensitive technologies to Iran despite repeated
assurances to stop helping Tehran's nuclear and missile programs. 

Russia opposes possible NATO involvement in fighting between Serb forces and
Albanian secessionists in Kosovo, a Serb province. 

Moscow's response was muted to nuclear testing in May by India and Pakistan
despite U.S. calls for economic sanctions. 

Russia favors easing sanctions on Iraq, which is balking once more at U.N.
weapons inspections. 

Even where Clinton and Yeltsin agree -- on reducing strategic arms -- the
presidents have had trouble getting lawmakers to close the deals. The Russian
Duma, or lower house, has delayed considering the START II nuclear arms
treaty, which the U.S. Senate ratified in 1996. 

In Washington, lawmakers who support a missile defense system want to block
ratification of a revised 1972 Anti-Ballistic Missile Treaty that Yeltsin and
Clinton agreed to at their last summit in March 1997. 

On the Russian economy, tensions are high. Clinton will urge Yeltsin to move
decisively on reforms ordered by the International Monetary Fund to lure back
foreign investors and to pay overdue government bills. 

Usually, the conflicts and crises aren't allowed to spoil talks. Mostly, it's
hugs and handshakes when Clinton and Yeltsin meet. It was over salmon and
squash during their first summit dinner at Vancouver, British Columbia, in
April 1993 that they agreed to address each other by their first names. 

But the relationship hit a low at their May 1995 Moscow summit when Yeltsin
spurned pleas to halt the bloody repression in Chechnya, although Clinton
agreed the region should remain part of Russia. 

At their last summit, at Helsinki, Finland, in March 1997, both presidents
were on the mend -- Yeltsin recovering from open-heart surgery and Clinton
from a wrenched right knee, which put him in a wheelchair and then on

Now, both are politically ailing. 

A weakened Yeltsin, battling a parliament dominated by communists and
nationalists, has remade his government twice this year. 

Clinton, after months of denials of a sexual affair, has just admitted he had
an inappropriate relationship with former White House intern Monica Lewinsky.
Some critics say he should resign. 

Arthur Hartman, the American ambassador in Moscow during the Reagan
administration, calls the two leaders' troubles ``irrelevant'' compared with
the need to keep the U.S.-Russia relationship on track. 

``The trouble with summits is they tend to take up issues that are the
headlines of the moment,'' Hartman said. ``(But) leaders can't afford to let
talk about the long-range relationship go out the window.'' 

EDITOR'S NOTE -- Laura Myers covers foreign affairs and national security for
The Associated Press. 


Where's Yeltsin? The Kremlin can't say
By Adam Tanner

MOSCOW, Aug 26 (Reuters) - Several presidential aides said they did not know
whether Russian President Boris Yeltsin intended to work in the Kremlin or not
on Wednesday as the Russian rouble and markets continued steady falls. 

``We only have information that the president is working, but we are not
saying where he is working. We don't know,'' said spokeswoman Darya Plokhova.
``So far, he has no meetings planned for today.'' 

Yeltsin returned to the Kremlin on Monday after taking a five-week holiday
amid a severe economic crisis that saw an effective rouble devaluation and
default on some foreign debt. 

Hours before coming back to work he dismissed the government of Prime Minister
Sergei Kiriyenko and brought back Viktor Chernomyrdin, whom he had fired in

His actions provoked a wave of new criticism of the erratic Yeltsin, who has a
history of heart problems and admitted in his memoirs that he occasionally
suffers from depression. 

Other Kremlin officials said that although they could not immediately say what
Yeltsin was doing, his health -- a cause of concern since he underwent heart
surgery and then caught pneumonia in the autumn and winter of 1996-97 -- was

``He had meetings all of yesterday, meeting with ambassadors, with the
Vietnamese premier,'' said Viktor Vershin, deputy to Yeltsin's chief of staff.
``I think all is normal. There is no cause for concern.'' 

Yeltsin has periodically disappeared from public view for weeks at a time
during his presidency which began in 1991. But his erratic behaviour and
lapses of concentration have sparked growing criticism during the current

During his meeting with Vietnamese President Tran Duc Luong on Tuesday Yeltsin
dismissed fears about his health. 

``Now everything is fine,'' he said. 

The Vietnamese leader said Yeltsin looked ``younger than in photographs,'' to
which a smiling Yeltsin replied that the fault lay with the photographers, not
his health. 

Economic turmoil continued on Wednesday as the central bank voided morning
trade in the rouble to bar further plunges in the currency after a 10 percent
loss on Tuesday. 

``What do you think the president should be doing -- rushing to the MICEX
currency exchange?'' asked Vladislav Andreyev, an aide in the president's
chancellery who also did not know what Yeltsin was up to on Wednesday. 


St. Petersburg Times
August 25, 1998
Chernomyrdin's No Solution, He's a Big Part of the Problem 

FROM the point of view of a sick, old man with failing mental powers and 
a deep sense of paranoia, President Boris Yeltsin's decision to bring 
back Viktor Chernomyrdin as prime minister might look reasonable.

Troubled by a financial crisis caused by economic factors that he barely 
understands, Yeltsin's thoughtless response was that Russia does not 
need some whiz kid technocrat but a solid figure - a "heavyweight" - to 
steer the ship of state.

Yeltsin, a former Communist party boss who earned his political spurs in 
the Brezhnev era, probably thinks Chernomyrdin's back-room friendships 
with the power elite will sort things out better than any financial 

The ailing president's mind is also clearly plagued by the prospect of 
what happens when he steps down. He wants to ensure he will be succeeded 
by a man who shares his views, who will give him a graceful exit and 
will not throw him or his friends in jail.

Of course, Yeltsin cannot just name a successor - Russia is a democracy 
- and it will be a hard sell to have the discredited, recycled 
Chernomyrdin elected. But with the support of the power elite and their 
media, he may think that too should be manageable.

Such is the president's apparent logic. It is flawed and reckless.

For one thing, the timing is madness. Russia is in the middle of its 
worst financial crisis since 1991 but it now faces the prospect of weeks 
of horse-trading over a new Cabinet.

Even if that can be quickly resolved, Chernomyrdin is not the man to 
lead Russia out of crisis. It is he, after all, who more than anyone 
else except Yeltsin created this mess by piling up a mountain of state 
debt. As one wit in the Duma put it, Yeltsin has replaced a man who 
could not do anything in five months with someone who could not do 
anything in five years.

Chernomyrdin's network of pals in the power elite will not empower him 
but compromise him and prevent him from making the tough decisions 
needed to win back confidence.

And as for the succession, Chernomyrdin is very much an outside bet. He 
will in a few months, if not a few weeks, be tarred with the blame for a 
truly appalling financial and social crisis. It will take a miracle to 
elect him.

Yeltsin is now a lame duck whose influence and relevance will fade.

Similarities to the last days of the Suharto regime in Indonesia are 
growing. It is hard to see what can now pull Russia back from the brink.


Irish Times
August 25, 1998
[for personal use only]
Russia faces into the abyss 
James Hughes fears that Russia's electoral timetable now offers an
ever-decreasing opportunity gap for the government to implement further
Dr James Hughes is Senior Lecturer in Russian Politics at the London
School of Economics and Political Science

Five months ago Boris Yeltsin wagered his political survival by ditching
his dour and incremental reforming prime minister Viktor Chernomyrdin.
Western governments and foreign investors hailed his appointment of a
"dream team" of young doctrinaire liberal reformers with 35-year-old Sergei
Kirienko as prime minister. 

International lending institutions such as the IMF were reassured by the
knowledge also that Anatoly Chubais, the main proponent of liberal economic
reform for Russia, continued to act as Yeltsin's eminence grise. Russia's
dependence on foreign investors and the IMF required that it instill
political confidence in its commitment and capacity for market reforms.

The result was the successful negotiation of a massive new $11.2 billion
IMF loan in July to bolster the rouble. Yeltsin's wager on a government of
economic liberalisers has ended in a triplet of disasters: the IMF loan
squandered in a hopeless defence of the rouble, culminating in last week's
effective devaluation; the government defaulting on its short term debt
repayments; and a rash of insolvencies in Russia's banking sector.
Confidence in Russia's reformers has been shattered, pushing the country
toward the cusp of a post-Yeltsin era.

The economic crash has thoroughly discredited Yeltsin and devastated three
key constituencies on which his political survival depended: ordinary
Russian voters, the seven financial oligarchs that control about half of
the economy, and foreign investors. Yeltsin, an inveterate political
survivor who has bounced back many times before from the edge of the
political abyss, has taken a knockout blow by the effective devaluation of
the rouble and the ensuing obliteration of the Russian stock market.

A stable rouble was the one claim to success from his flirtation with
liberal economic reform, though it was achieved at the cost of the mass
impoverishment of Russian society. Last week's devaluation means that
ordinary Russians, who are owed billions of dollars in wage arrears by the
government and private sector employers, have seen their savings halved in
value in the space of a week, and now have nothing to hope for after six
years of grinding economic reform.

The financial oligarchs that dominate Russia's "crony capitalism" have also
been thrown into panic, sensing that their economic empires - built on
banks and financial services and fed by political contacts and insider
deals - are teetering on the brink of collapse as the crash has left much
of the banking sector insolvent.

Foreign investors who pushed Russian stock values to all-time highs in
1996-7, and whose purchases of Russian debt have kept the government afloat
for the last two years, have finally stampeded out of Russian equities into
safer havens, while the Russian government has frozen the domestic debt
market. Some Western securities firms are heavily exposed and their
disastrous engagement with Russia will not be quickly forgotten, nor their
retreat readily reversed, a factor that weighs heavily against an early
Russian economic recovery.

Yeltsin's response to the crisis has been fully in character. His lack of
understanding of economic policy is exceeded only by his erratic political
gestures and penchant for scape goats. This partly explains the sudden
sacking of the Kirienko cabinet and the reappointment of Chernomyrdin as
the new acting Prime Minister. The key factor, however, was enormous
pressure behind the scenes from an oligarchs' revolt. Fearful that their
economic empires could go under, and that economic and political
instability could lead to a restoration of a communist government, the
oligarchs have foisted Chernomyrdin on Yeltsin in what amounts to a
political coup.

Chernomyrdin, formerly the head of Russia's giant gas monopoly, Gazprom,
has lost few of the characteristics and exhibits all of the instincts of a
stolid communist-era economic manager. His consensus building style, and
indeed his plodding manner and greyness, will reassure and comfort Russians
at all levels, with the exception of young liberal reformers. Institutional
relations will improve across the board - with both chambers of parliament
(the Duma, and Federation Council), regional administrations, and financial
and corporate interests.

Chernomyrdin raised the possibility of co-opting Communists into the
government during the political conflicts over economic reform late last
year - and his compromising stance was a major reason for his removal by
Yeltsin in March. We can expect him to now resume the attempt to build a
national consensus on reform. Chernomyrdin is a shrewd political tactician
who has all the qualities needed to woo parliamentary opposition and secure
the passage of urgently needed legislation, especially on the budget and
tax reform.

He will dampen the reformist zeal of the government in accordance with his
more conservative instincts and popular pressures for security and
stability. Constitutionally, the Russian parliament, the Duma, must approve
the President's nominee for prime minister within a week. Chernomyrdin's
compromising style is already in evidence, at work soothing Communist
opposition by agreeing broad "principles" for a coalition government with
the Duma's Communist speaker, Gennady Seleznev, and establishing a
conciliation commission between government and parliament on economic
reform. He can be sure of detaching, at the very least, the support of the
20 to 30 Communist deputies who eventually backed Kirienko's nomination as
PM in April, and consequently, is almost certain to be approved by the Duma
on Monday week.

As an experienced political operator and manager, Chernomyrdin will aim to
divide and weaken the Communist opposition by co-opting some of its leading
figures into his new cabinet. The price of this broadening of the political
base of the government to include some Communists will be a more closed,
protectionist, and statist economic policy, perhaps including some
renationalisation of privatised industries, and a foreign policy more
hostile to Western interests.

Consequently, a less fraternal relationship with the IMF than that of
Kirienko and Chubais is in store. The greatest fear for economic stability
must be that monetary restraints will slacken as Chernomyrdin may be
tempted to indulge in a wave of patronage dispersal, particularly to key
regions, to prepare the ground for his presidential bid in 2000.

As a reflection of power-sharing between a weakening President and a strong
Prime Minister Chernomyrdin has wrung two major concessions from Yeltsin:
there will be no presidential interference with his cabinet selection, and
a public statement from Yeltsin that Chernomyrdin is the best guarantor of
continuity and stability and is Yeltsin's preferred successor for the
presidency in 2000.

Much now depends on Chernomyrdin's ability to stabilise the markets by
building a political consensus with a working Duma majority. This will be
complicated by his political rivals for the presidency, Communist leader
Gennady Zyuganov, Moscow Mayor Yury Luzhkov, and Governor of Krasnoyarsk
Alexander Lebed, who have no interest in eroding their own prospects in
2000 by making the Cher nomyrdin government a success. The electoral
timetable offers an ever-decreasing opportunity gap for the Russian
government to implement further reform. With Duma elections late next year
and a presidential election in summer 2000 it is very unlikely that any of
the presidential contenders, the Duma parties or Federation Council
senators will entertain any grim economic measures that will negatively
affect their electoral chances.

The intractable problem for Chernomyrdin, or any Russian leader, is how to
balance the demands of the Russian people for economic stability, the
pressures and lobbying of Russia's corporate interests (whose funding and
media will largely shape the electoral outcomes), and the pressures from
Western governments, financiers and investors for reforms and a more
transparent market system.


Date: Tue, 25 Aug 1998 
From: Keith Darden <> 
Subject: oligarch myth

Dear JRL Readers:

When Chernomyrdin was removed from office in the Spring, analysts said
that it was the oligarchs, possibly spearheaded by Berezovsky, which
were behind his sacking. When Chernomyrdin was brought back into power
this past weekend, once again analysts are saying that it was
orchestrated by the oligarchs, possibly spearheaded by Berezovsky. When
the ruble was allowed to slip, some analysts claimed that this, too, was
due to the oligarchs from the oil and gas industries who received
payments in dollars and paid workers in rubles. In fact, I cannot think
of a single event in the past year in which "analysts" did not point to
the oligarchy as a cause.

When the same explanation is given for all events, particularly events
as opposed as the removal and subsequent reinstatement of Chernomyrdin
as prime minister, it becomes painfully clear that we are not really
explaining anything at all. Rather, it seems that references to the
oligarchs and Berezovsky have become a quick and easy substitute for
understanding the often complex causes behind events in Russia. 

Why is this?

One reason is because the explanation is vague and ambiguous enough that
it is quite difficult to pin it down and prove it wrong. As has become
clear in the Chernomyrdin case, the argument is supple enough to
convincingly "explain" both an event and its antithesis. Because the
explanation lacks any real evidence - generally relying on all sorts of
un-named sources and "he said, she said" rumor-mongering - we are never
really able to verify it until attention has already shifted to the next
crisis and we no longer care.

Another reason is that it can be universally applied. For any given
event, it is not hard to construct, after the fact, how the outcome
serves someone's interest. From there, a few quotes from unnamed
sources can easily land you a very persuasive explanation that those
whose interests were served were secretly behind the event. We saw this
with some accounts of the devaluation. Since the production costs of
exporters drop with the ruble, and payment was received in dollars,
exporters expand their profit margin with the devaluation of the ruble. 
Based on this, I read a number of stories in which it was suggested by
analysts that the natural resources "oligarchs" were behind the
devaluation. I think it unlikely that a close analysis of the
devaluation will bear out the validity of this account.

A third explanation for why this is so pervasive is the self-promotion
of the so-called oligarchs themselves. It should not be forgotten that
Berezovsky himself was the one to introduce the idea that seven bankers
(himself included, of course) run the country. Clearly he has an
interest in doing this, as his influence is enhanced if people perceive
him to have power even if he does not actually wield it. One often sees
him leaping in after the fact to make himself appear king-maker. My
personal opinion is that Berezovsky's power is grossly overstated. Even
as someone who credits CIS institutions with more of a role than most
analysts, I find it absurd that a man powerful enough to select the

prime minister of Russia would choose the executive secretariat of the
CIS as his private throne. Even within the CIS structures there are
considerably more influential positions than the one Berezovsky
occupies. But this is probably beside the point. In general, my
experience has been that the truly powerful (like Chernomyrdin himself)
do not find it necessary to broadcast their power and engage in
continual self-promotion. 

A fourth reason that the oligarch or "semibankirshchina" myth has become
pervasive is what I would call the pervasiveness of "peasant logic" in
Russia itself. In "peasant logic", complex processes are grossly
oversimplified into intentional, conspiratorial explanations for all
events. I think that the recurring "semibankirshchina" story falls
squarely into the tradition of explaining crop failures and a whole
range of other economic and political misfortunes as being the result of
a conspiracy of Jewish financiers that pull the strings behind the
economy, politics, and the media. At times, I feel that Berezovsky
(himself a Jewish banker) seems to draw on this consciously to make
himself seem more important than he really is. 

This feeds into the fifth, and final, reason that the oligarch myth has
taken root: Deadlines. Journalists have to meet deadlines. They need
quotes from local sources and they need to come up with explanations in
a frighteningly short period of time. For this reason, I think that
many (particularly the group of newbies that have just started covering
Moscow for the NY Times) have fallen into the trap of reproducing this
pre-fab explanation and supporting it with the conspiratorial musings of
various locals. This is understandable given the constraints that they
are under, even if it is undesirable. Unfortunately, most Russia
scholars rely on Western journalistic accounts to a far more copious
extent than they usually admit and they, too, have adopted this way of
viewing Russia in a way that strikes me as unthinking. I am sure that
these pervasive misperceptions will be "corrected" much as their
predecessors were (i.e. the myths that after the collapse of Communism
Russia became a liberal democracy with a functioning market and
burgeoning civil society). In the mean time, we should try to minimize
the damage by being a bit more critical of the oligarchy thesis and
digging a bit deeper into the causes behind recent events.


August 25, 1998
[for personal use only]
Yeltsin Is Running Out of Time, Money
By Marshall I. Goldman. Marshall I. Goldman, a professor of Russian
economics at Wellesley College, is associate director of the Davis
Center for Russian Studies at Harvard.

JUST WHEN it looked as if Russia was at the bottom of its economic and
political rope, President Boris Yeltsin surprised us by resuscitating
Viktor Chernomyrdin as prime minister - thus proving that there is
still a way to go.
A mere five months ago, Yeltsin took a gamble and appointed Sergei
Kiriyenko as prime minister and fired the same Chernomyrdin, obviously
dissatisfied with Chernomyrdin's performance. Yeltsin explained that he
needed someone with fresh ideas and enthusiasm, someone who could
revitalize the Russian economy.
At the time, Kiriyenko seemed like an unlikely choice. He had been
in Moscow barely a year, and his most senior position was that of
minister of energy. Yet, the 35-year-old Kiriyenko seemed like a breath
of fresh air. He had opened his own bank and created his own oil company
in the provincial city of Nizhni Novgorod. He clearly was a quick
Admittedly, Kiriyenko lacked experience in dealing with Moscow's
political establishment. But he quickly demonstrated his competence and
moved to deal in particular with Russian economic problems that had
basically been left unaddressed by Chernomyrdin.
Chernomyrdin simply had been unwillng to take the strong medicine
that was needed.
Because the Russian financial markets had been vibrant in 1997,
there did not seem much urgency until recently in addressing these
matters. As the Indians might have said: "In a strong wind, even turkeys
fly." In 1997, the tripling in value of Russian stocks was a strong
wind. And the big turkey was Russia and its festering problems.
But with the Asian crisis, the wind shifted and the turkey crashed,
leaving Kiriyenko to pick up the pieces. In the end, he was forced to
declare a moratorium on the country's debt, devalue the ruble and, in
effect, put Russia into bankruptcy. This was the legacy left by
Chernomyrdin and there is no doubt that if Chernomyrdin had remained as
prime minister, the result would have been no different.
With all this turmoil, Yeltsin began to feel the heat. Off on
vacation and clearly not in full commmand of his body and mind, he began
to look for scapegoats. Under Yeltsin, it is always someone else's
fault. The fact that on Friday the Duma voted overwhelmingly for Yeltsin
to quit as president forced him to focus.
Nor did it help Kiriyenko that the Moscow oligarchs - the very
rich - began to agitate for Kiriyenko's removal. As Kiriyenko began
to press for effective tax enforcement and the breakup of some of the
oligarchs' monopoly control, Kiriyenko became the enemy. With a
moratorium in effect on payment of the government's debt, some of the
oligarchs were on the verge of bankruptcy. As early as Friday, there
were rumors that the oligarchs would prevail and Kiriyenko was on the
way out.
So, to take the heat off, Yeltsin fired Kiriyenko, his latest
scapegoat, and brought back the incompetent Chernomyrdin. It is hard to
see how Chernomyrdin will be more effective than he was before.
Admittedly, he may be able to work out some compromises and coalitions.
But Russia may have run out of time. It has run out of money, and it
has already exhausted its first installment of a loan from the
International Monetary Fund.
We often ask if a country can go bankrupt. Russia under Chernomyrdin
may soon provide an answer. That would be a calamity, and not just for


Moscow Times
August 26, 1998 
NEWS ANALYSIS: Nemtsov Fairy Tale Ended Long Before Firing 
By Christian Lowe
Staff Writer

A year ago, Boris Nemtsov was the blue-eyed boy of Russian reform and a 
favorite of President Boris Yeltsin. But amid the chaos of this week's 
government reshuffle, his departure was barely noticed. 

Nemtsov ruled himself out of staying on in the Cabinet of acting Prime 
Minister Viktor Chernomyrdin by tendering his resignation Monday. 
Government sources were quoted as saying Tuesday that Yeltsin had 
accepted the resignation and would soon announce his decision. 

It marked the end of a fairy tale for the young reformer from the Volga 
city of Nizhny Novgorod, who was plucked from provincial obscurity and 
groomed as Yeltsin's successor. 

In truth though, the fairy tale ended several months ago: Nemtsov's 
popularity rating has been falling consistently, and Yeltsin was eyeing 
other successors. Analysts say that while he will stay on the political 
scene, the most Nemtsov can now hope for is a seat in the State Duma, 
parliament's lower house. 

Nemtsov did not go quietly. In an interview with the German magazine 
Stern, released Tuesday before publication, he praised his old friend, 
outgoing Prime Minister Sergei Kiriyenko, and poured scorn on 

"Kiriyenko's government was from the beginning a hostage to old debt 
policies," he said. "His predecessor Chernomyrdin did not even bother to 
cut state spending. He used credits like a drug as a result of which the 
debts piled up. ... Sooner or later the country would have exploded or 
the financial system would have collapsed." 

Nemtsov, 38, added, "When Chernomyrdin says now that he can save the 
country, that really is laughable." 

In March 1997, Nemtsov, then the highly regarded governor of the Nizhny 
Novgorod region, was appointed first deputy prime minister to inject 
some reformist energy into Chernomyrdin's flagging government. 

Nemtsov's stature continued to rise. Yeltsin made Nemtsov part of his 
inner circle, and took the first deputy prime minister with him to 
meetings with foreign leaders. Some commentators said he was the son 
Yeltsin never had. But his inexperience and lack of a political power 
base in Moscow quickly showed. 

He ran into massive resistance when he tried to make Russia's so-called 
natural monopolies, such as the electricity company RAO UES and gas 
conglomerate Gazprom, more financially transparent. That set him on a 
collision course with Chernomyrdin, who championed the interests of his 
alma mater, Gazprom, and saw Nemtsov as a rival. 

In the fall of 1997, Nemtsov, with Cabinet colleague Anatoly Chubais, 
picked a fight with some of Russia's most powerful financial interests 
over the $1.9 billion sell-off of state-owned telecommunications giant 
Svyazinvest. The losing consortium, including Vladimir Gusinsky and 
Boris Berezovsky, alleged the auction had been rigged. Nemtsov defended 
the auction and accused Berezovsky of corruption. 

Nemtsov was then attacked both in the media and in the corridors of the 
Kremlin by the embittered oligarchs. With his public appeal fading, his 
political chariot was hitched to the government of his friend, 
Kiriyenko. Its collapse also left Nemtsov stranded. 

Analysts said Tuesday that Nemtsov now faced a future of relative 
political obscurity. "He will go back to a level lower than the one at 
which he started" said Yury Korgunyuk a scholar with the INDEM think 

Elections for mayor of Nizhny Novgorod are scheduled for Sept. 27, but 
Nemtsov, through his spokesman, ruled himself out of the poll Monday. 

Asked if he regretted leaving the security of his post in Nizhny, 
Nemtsov was philosophical. "Life in Russia, is by definition, a life 
with risks. It is interesting and at the same time terrible." 


Date: Wed, 26 Aug 1998
From: Garfield Reynolds <>
Organization: St. Petersburg Times
Subject: Agriculture

Regarding Renfrey Clarke's "My Experience of Cows, or Carol Williams on
Russian Agriculture" from JRL #2326:

Having just returned from an eight-day stay with my parents-in-law in
the Kursk Oblast, I would like to add a couple of observations regarding
Russian agriculture's capacity to cope. 

My wife's parents, having lived in cities most of their lives, decided
in the early 1990s to buy a cottage with a facing strip of land (a
market garden one would call it in the West) in a tiny village with 12
houses, no shops and no running water. They now keep a cow, chickens and
sheep. They raise the calf each year, selling it if it is female and
butchering it if it is a bull calf. In years when the calf is female,
they usually buy a piglet and raise that for meat. 

On the one hand, their life is massively more healthy than it would have
been if they had stayed in St. Petersburg. As well as fresh air and
exercise, their levels of nutritional intake are very much greater than
they would have been able to afford on the insults Russia calls

On the other hand, whenever I visit them I am overwhelmed by the sheer
WASTE going on around them. They live in the famed Black Earth region,
and produce just jumps up out of the ground. However, no effective use
is being made of this bountiful earth. 

Why? One word -- infrastructure -- or rather the decaying lack thereof.
I saw fields of wheat rotting away because the local collective farm
could not get its hands on a combine harvester. Meanwhile I saw several
rusting combine harvesters that had been stripped of their tires,
components etcetera. I also saw acres of prime land producing nothing
but weeds. The lack of farm equipment, the poor roads and aging trucks
and tractors are a large part of the reason for this. I also suspect
that the railways are not as effective in transporting produce to market
as they could be. Less and less trains run every year, and goods trains
mostly seem to be carrying coal or oil products. 

A piece of anecdotal evidence for the railways' lack of funds is the
situation with the water supply at the village where I stayed. Water is
obtained from ***kolonki*** spaced along the "street" that runs along
the village between the cottages and the market gardens. These are
essentially large taps -- depress a lever, wait three seconds and the
water comes pouring out. This water comes, I was told, from a large
underground lake. The water system was set up and maintained by the
railways because way back when because it was the largest employer in
the region. Now, the railway company cannot afford to change the
filters, resulting in several cases of food poisoning. 

Meanwhile, when the apple trees that my parents-in-law have fruit every
two years they produce massive amounts of the most delicious apples I
have ever tasted. My parents-in-law cannot sell these apples for a
decent price. One guy offered them last year 100 rubles a kilo (then
worth anout 1.5 cents). So, they fed the cow two wheelbarrows a day of
apples. The rest rotted.

Until the Russian government makes a serious committment to investing in
its own country's infrastructure -- outside of the Garden Ring -- it
will go on wasting the rich resources it has, including its black earth

Garfield Reynolds,
Business Editor,
The St. Petersburg Times


FOCUS-Rouble melts down, citizens withdraw savings
By Adam Tanner 

MOSCOW, Aug 26 (Reuters) - Russia's rouble plunged by more than a third
against the German mark on Moscow's main currency exchange on Wednesday after
the central bank voided dollar trades and said they would not set a dollar
rate for the day. 

There was a growing sense of panic among Russian people, who rushed to banks
to withdraw their savings, while some stores closed down to mark up prices. 

"People are also withdrawing en masse their rouble and dollar savings from
banks," said a cashier in the Omskpromstroibank in the Siberian city of Omsk. 

The deepening crisis led to declines in European shares. Frankfurt was hardest
hit among major European bourses, with the Xetra-DAX declining 2.9 percent in
a reflection of German banks' large exposure to Russian debt. Deutsche Bank AG
<DBKG.F> shares dropped more than six percent to almost a six-month low. 

Russian central bank officials appeared paralysed by the chaos on the nation's
financial markets, and in desperation voided all morning rouble trade against
the dollar. 

They later said they would not set an official rouble-dollar rate, called the
daily fix, for Wednesday, the first such frantic run for cover in recent

The rouble continued its meltdown in German mark trade on the Moscow Interbank
Currency Exchange (MICEX), and at the fixing the German currency was at 7.6
roubles per mark from 4.4995 the previous day. 

About half the stores in GUM, the country's leading department store off Red
Square, shut their doors to increase prices. Eldery people people wandered the
streets with their final roubles seeking, often without success, anywhere or
anyone to trade their savings into dollars. 

"Financial and economic policy is a question to which I am giving my attention
minute-by-minute," Itar-Tass quoted acting Prime Minister Viktor Chernomyrdin
as saying. "I am extremely dissatisfied with the work of the central bank over
the last two days." 

The report said he would talk to the bank's chief, Sergei Dubinin later on

President Boris Yeltsin summoned Chernomyrdin back from the political
wilderness on Sunday and fired the four-month old cabinet of reformer Sergei
Kiriyenko, 36, saying Russia needed a "heavyweight" at the helm. 

Like a man invited to stand on quick sand, Chernomyrdin has been unable to
stop the rouble's plunge. 

The central bank for its part has less ability to support the rouble as its
reserves have fallen sharply in recent weeks. Its foreign exchange and gold
reserves fell to $15.1 billion on August 14 from $17.0 billion on August 7. 

The Federal Securities Commission chairman Dimitry Vassiliyev later seconded
Chernomyrdin's criticism of the central bank which Dubinin has led since
October 1995. 

"Serious mistakes were allowed by the leadership at the highest levels
including over the past two years -- the actions of the central bank and its
leadership," he told reporters. 

The RTS index of leading shares was down 8.4 percent at 1000 GMT on very low
trade volumes. 

Trading was suspended on MICEX soon after it started because of an immediate
drop of about five percent to 8.26 from Tuesday's fix against the U.S.
currency. The trade -- coming after more than a 9 percent decline on Tuesday
-- was then declared null and void. 

At the suspended rate -- already outdated because of the rouble fall against
the German mark -- it is already a third lower since it was devalued from
about 6.2 to the dollar ten days ago. On Tuesday, the rouble tumbled to 7.88
from 7.14 to the dollar. 

With the rouble spiralling lower and ordinary Russians alarmed about price
rises, Chernomyrdin said any delay in his confirmation by parliament would
exacerbate the situation and he warned of tough economic decisions ahead. 

"Objectively it could turn out that the authorities will have to take very
tough measures for a resolution in the financial-economic sector,"
Chernomyrdin was quoted by Russian news agencies as saying on Tuesday evening.

Yeltsin, who is under fire for the devaluation and sudden change in the
government, was nowhere to be found on Wednesday, and calls to his
receptionist went unanswered. 

"We only have information that the president is working, but we are not saying
where he is working. We don't know," said spokeswoman Darya Plokhova. "So far,
he has no meetings planned for today." 

Late on Tuesday, the government announced some details of a plan to
restructure $40 billion worth of domestic debt into longer-term paper, but
besieged officials were still unable to provide further information on the
plan on Wednesday. 

Western analysts are calling the scheme an effective default which will hit
investor confidence in Russia for years to come. 

Also on Wednesday, Russian Communist leader Gennady Zyuganov demanded that
Chenromyrdin abandon the tough monetary course which he said was dictated by
the West. 

"We will only support a policy and a leadership that would clearly and
straightforwardly reject the so-called monetarist reforms and agree to take a
different course," Zyuganov, whose party is dominant in the parliament, told a
news conference. 



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