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Johnson's Russia List
27 August 1998
[Note from David Johnson:
1. Moscow Times: Matt Bivins, Kiriyenko Blames Firing on Oligarchs.
2. Reuters: Timothy Heritage, Russia crisis opens door for Communists.
3. AFP: Yeltsin under pressure as Russia meltdown gathers pace.
4. Michael Kagalenko: Re 2322-Williams on agriculture.
5. Victor Kalashnikov: comments.
6. Andrew Howell: Re Oligarch myth in JRL.
7. Komsomolskaya Pravda: Nikolay Lakhvich, "Berezovskiy's Shadow Over
8. Interfax: Former Yeltsin Advisor: Early Election 'Economic Necessity.'
(Satarov and Nikonov).
9. Rome's La Repubblica: Interview with Russian Communist Party leader
10. The Independent (UK): Phil Reeves, Kremlin shake-up fixed in secret
11. Komsomolskaya Pravda: Nemtsov Sees Need for 'Intensive Therapy.'
12. Financial Times (UK): Investors face $33bn losses from Russian bond
13. Reuters: Chris Bird, Ex-Soviet states hurting from Russia crisis.
14. Komsomolskaya Pravda: No Sympathy From Miners for Kiriyenko, Nemtsov.]
August 27, 1998
Kiriyenko Blames Firing on Oligarchs
By Matt Bivens
Sergei Kiriyenko said Wednesday that he had been fired from his post as
prime minister for angering a handful of powerful financiers, and warned
of "a danger that Russia will develop as a Latin-American capitalist
But in an interview with The Moscow Times, Kiriyenko added that the
severity of Russia's financial crisis could also be an opportunity to
push through economic reforms that have been needed for years.
Kiriyenko said he agreed with fiery statements made by his former deputy
prime minister, Boris Nemtsov, that a cabal of Russia's top financiers
had torn down the government.
"This week we had planned to put a number of banks under government
administration ... and to begin bankruptcy procedures against major
companies, including oil companies," Nemtsov was quoted as saying by the
Financial Times on Tuesday.
"They understood that the end was near, that there might be serious
changes in ownership and that the current oligarchy might come to an
end," Nemtsov continued. "Naturally, no acting elite wants to be
replaced and so they decided to replace the government."
Kiriyenko said that he agreed with Nemtsov's analysis.
"That's basically true. I didn't pick anyone concrete [to target for
bankruptcy], but yes, I said there would have to be bankruptcies," he
said. "I think that there is a danger of Russia developing as a
Latin-American capitalist system -- although the government still has
the financial strength to prevent that from happening."
But Russia will surely face "total disaster" if President Boris Yeltsin
chooses to resign or otherwise cede power to acting Prime Minister
Viktor Chernomyrdin, Nemtsov said. Some opposition leaders have called
for Yeltsin to step down; by way of reply, Yeltsin spent yet another day
out of sight, reportedly at his dacha.
Ultimately, of course, the decision to fire Kiriyenko, 36, after just
five months in power and bring back Chernomyrdin, 60, was exclusively
But financiers like Boris Berezovsky, an oil and media magnate, have in
the past bragged openly about their ability to manipulate Yeltsin. And
although Berezovsky claimed to be surprised, albeit pleased, by
Kiriyenko's departure, Nemtsov said that was just an act.
"A significant role in the decision to sack the [Kiriyenko] Cabinet and
nominate a new one was played by the well-known oligarch Berezovsky,"
Berezovsky is one of several financiers -- others include Vladimir
Potanin of Uneximbank, Mikhail Khodorkovsky of Menatep and Vladimir
Gusinsky of Most-Bank -- who heavily funded Yeltsin's 1996 re-election
campaign, and who are today often described as an oligarchy.
Attention often focuses on Berezovsky as a symbol of this oligarchy --
largely because he is the most outspoken among them, but also because of
allegations that he gives the president and his family money, either
directly or indirectly.
Berezovsky reportedly has a significant stake in Aeroflot, for example,
and Aeroflot's general director is Yeltsin's son-in-law. According to
Yeltsin's former Kremlin security chief, Alexander Korzhakov, Berezovsky
also often gives jewelry to the women in the Yeltsin family.
Moreover, Berezovsky funded the 1994 publication of Yeltsin's memoirs,
and guaranteed the president monthly royalties of $16,000, Korzhakov has
said. The ghostwriter of those memoirs, Valentin Yumashev, is now the
Kremlin chief of staff; Korzhakov has said that even when Yumashev was
just a journalist, he would bring Yeltsin those royalties once a month
in a paper sack.
In fact, breaking up the influence of such oligarchs was Nemtsov's
brief. Both he and Kiriyenko were brought up to the national government
in 1997 from the minor leagues of Nizhny Novgorod, Russia's third
largest city, where Nemtsov was a popular governor and Kiriyenko a
little known, yet well-connected, banker.
Upon appointing Nemtsov as one of Chernomyrdin's deputies, Yeltsin said
his job was to stamp out widespread state corruption and "bandit
capitalism," and to start building a brighter future of "people's
capitalism." About a year later, Yeltsin brought in Kiriyenko and
dropped Chernomyrdin, and said he hoped Kiriyenko would further energize
the government in that fight.
But Tuesday, Nemtsov's name was removed from his office door in the
Russian White House, Interfax reported, and Nemtsov predicted that
Berezovsky and the other oligarchs could soon be setting the
Chernomyrdin government's agenda.
"Of course, Berezovsky has a certain moral right to dictate to
Chernomyrdin. He [Berezovsky] no doubt believes that he engineered it
all," Nemtsov said.
But Nemtsov added that the oligarchs would have to compete with another
political force -- parliament. "[Chernomyrdin] will have to take into
account other interests, first of all the interests of the political
factions in the Duma," he said.
Chernomyrdin has held out the possibility of drawing a broad-based
Cabinet from the Duma. But Communist leaders said Wednesday that they
were so far unimpressed, and they demanded he pledge to adopt a program
they laid out Wednesday.
It included calls to print money to pay government budget obligations,
to amend the Russian Constitution to make the Cabinet more independent
of Yeltsin and to nationalize bankrupt banks.
The Duma is by law required to hold confirmation hearings on
Chernomyrdin's nomination by Monday, but Communist leaders were talking
of using stalling tactics this week unless Chernomyrdin adopted their
In contrast, Grigory Yavlinsky's Yabloko bloc announced it would under
no circumstances work with a Chernomyrdin government.
Yavlinsky, a free market economist, said Chernomyrdin's previous nearly
six years in office "have convincingly demonstrated to this country and
the world that we have developed a semi-criminal and extremely
inefficient economic system."
"The downfall of the ruble, which is not over, is a direct consequence
of the irresponsible economic policy of the [first] Chernomyrdin
government," Yavlinsky said, in remarks reported by Interfax.
But both Yavlinsky and Nemtsov were quick to add that President Yeltsin
should not resign, or otherwise cede power to Chernomyrdin.
"[Yeltsin's resignation] would be a total disaster for the country,"
Nemtsov said Wednesday, in remarks reported by Interfax. Yavlinsky said
that the tough talk by the Communists was part of "a plot between the
leftists and Chernomyrdin aimed at pressuring ... [Yeltsin] to share
powers with [Chernomyrdin]."
"This is the most dangerous course of developments that could be
suggested today," Yavlinsky said.
Staff writer David McHugh contributed to this story.
ANALYSIS-Russia crisis opens door for Communists
By Timothy Heritage
MOSCOW, Aug 26 (Reuters) - The political shake-up in Russia has raised the
prospect of the Communist Party joining a coalition government and taking its
biggest slice of power since the collapse of the Soviet Union in 1991.
But many obstacles remain to the Communists returning en masse to the
government, and the price they are setting acting prime minister Viktor
Chernomyrdin for approving him in office is so tough that it is almost
``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,'' Communist Party leader Gennady Zyuganov said on Wednesday.
Even if they did come back into the government, the Communists' chances of
having a major say in policy-making or gaining control of important ministries
Above all, doubts remain that the Communists are genuinely interested in
assuming power and responsiblity for a deep financial crisis which is unlikely
to end quickly.
``They want either to have all power or to continue playing in the opposition.
They do not really want to go into a government under Chernomyrdin,'' said
Alexei Kara-Murza, a political analyst who watches the Communist Party
``I think they still follow the Bolshevik diktat that the worse it gets (in
Russia), the better it is for them. They want to strike a blow against
Chernomyrdin, but want to do it in a way that the country does not realise
Political analysts have long questioend whether the Communists want power and,
despite the party's denials, have suggested they did not go flat out for power
in the presidential election in 1996 because of Russia's daunting economic
President Boris Yeltsin rehabilitated Chernomyrdin, his veteran ally, on
Sunday after sacking the four-month-old government of reformer Segrei
Kiriyenko. He had sacked Chernoyrdin, 60, five months earlier.
Chernomyrdin responded by saying he wanted to form a coalition government, or
a government of consensus, to tackle Russia's financial crisis. He is now
holding negiotiations with leading political parties.
Although details of the negotiations are not known, the Communists have set
out their demands in a series of statements and interviews.
They boil down to a change of economic course, Yeltsin's dismissal and
denunciations of a multi-billion-dollar reform package agreed with the
International Monetary Fund.
The Communists also want a greater focus on reviving industrial and
agricultural production, more social spending, support for science, culture
and healthcare and a strengthening of Russia's defence potential.
In short, that means a complete change of course.
Viktor Ilyukhin, a leading communist, told reporters the Communists want 10
places in the government, including the foreign ministry and one of the three
``power'' ministries -- the defence or interior portfolios or the Federal
These would be major concessions and it is hard to see the Kremlin bowing to
them, even in such difficult circumstances.
Yeltsin has the right to name the three ``power'' ministers and although some
media reports say he has agreed to let Chernomyrdin fill them as he wants,
letting Communists take them over would be a deep humiliation.
Chernomyrdin has ruled out abandoning market reforms, even though he has
promised changes in the way they are carried out. A complete reversal of the
policy of the last seven years would mean acknowledging he and Yeltsin were
wrong all those years.
The Communists may believe they are negotiating from a position of strength,
but they could be posturing and setting an impossibly hard bargain to escape
having to take any responsibility for the crisis, analysts say.
Their bargaining position is relatively strong.
Chernomyrdin needs the support of the State Duma, the lower hosue of
parliament, to take office. The Communist Party and its allies dominate the
chamber and can block his appointment if they vote in unison.
Yeltsin would have to dissolve the Duma if it rejected Chernomyrdin three
times, a climax deputies backed down from last April when they approved
Kiriyenko after a fierce battle. This time, they might be ready to call
``Communist deputies have spent the summer out in their regions mustering
support and finances. The party believes it could win a majority in the Duma
if an early election were held now,'' Kara-Murza said.
That could be more advantageous to the Communists than joining a government
which many politicians and analysts say is more likely to fail than succeed
and is only likely to improve the economy by introducing tough, unpopular
Another reason for the Communists to be wary is that Chernomyrdin is under no
obligation to name his cabinet until after he is approved as prime minister.
Even if the Communists secured an agreement from Chernomyrdin to play a major
role in his cabinet, he would be under no legal obligation to carry out the
Yeltsin under pressure as Russia meltdown gathers pace
MOSCOW, Aug 26 (AFP) - Pressure mounted on beleaguered President Boris
Yeltsin to resign Wednesday as Russia's economic meltdown quickened,
stocks edging closer to an all-time low while panicked banks forced a
further ruble collapse.
The crisis prompted interim premier Viktor Chernomyrdin to rush to
Ukraine for urgent talks with Michel Camdessus, managing director of the
IMF which brokered a 22.6 billion dollar bailout in July that has
strikingly failed to rescue Russia.
Anxious Russians queued outside banks worried that a looming collapse of
the sector would swallow up their deposits, as the German mark rocketed
69 percent to 7.6 rubles in frantic trading.
The central bank had earlier taken the unprecedented step of scrapping a
dollar auction which had depressed the Russian currency to 8.26 to the
Amid the wreckage of the economy, politicians led by the normally placid
speaker of parliament Gennady Seleznov queued up to demand Yeltsin pay
the price of the crisis and step down.
Seleznyov, the influential speaker of the State Duma lower house of
parliament, said Yeltsin "must resign voluntarily," because the Kremlin
chief had "exhausted the people's confidence."
Communist Party boss Gennady Zyuganov echoed the call, saying Russia
could only stave off economic collapse if "the incumbent head of state
Maverick general Alexander Lebed, a presidential hopeful and bitter
Yeltsin critic, spoke of "a certain disarray" in the country as he
arrived in Moscow for talks with Chernomyrdin, who is considering
forming a rainbow coalition of leftists, nationalists and centrists to
confront the economic emergency.
Political analysts said Yeltsin's position as head of state was looking
increasingly precarious in the wake of his surprise decision Sunday to
recall Chernomyrdin just five months after dumping him.
The move has been widely interpreted as a humiliation for the Kremlin
chief, with some analysts saying Yeltsin, architect of some stunning
political comebacks, was now a broken man whose political demise was
just months away.
As the storm clouds gathered, Yeltsin retreated to his residence at Rus,
100 kilometres (60 miles) from Moscow, to prepare a forthcoming summit
with US President Bill Clinton.
Chernomyrdin meanwhile scrambled to prevent Russia's crisis-bound
economy from imploding, after a fiercely negative reaction from market
makers to details of a forced restructuring of the 33 billion dollar
domestic debt market.
The acting premier distanced himself from the debt fiasco, saying he had
merely rubber-stamped the restructuring deal, and fumed at central bank
chairman Sergei Dubinin over the ruble and vowed to call him to account.
"Now our top priority, my personal goal, is to soften the impact of (the
debt deal's) negative effects on the securities markets and on
investors," Chernomyrdin said.
The communists vowed to fight his confirmation in parliament unless the
acting premier pledged to dump the previous government's monetarist
policies, and warned Chernomyrdin against courting Lebed.
"Some analysts are talking about the need to shape a right-wing radical
government with Chernomyrdin and Lebed," said Zyuganov. "This is the
Latin American variant which is not only hopeless but also extremely
Andrei Piontkovsky, director of Moscow's Centre for Strategic Studies,
said the Chernomyrdin comeback and his designation as Yeltsin's dauphin,
was the "beginning of (Yeltsin's) process of abdication of power.
"Seleznov is very cautious and this emphasizes that even a very cautious
and conciliatory person like Seleznyov does not hesitate to make such
"Yeltsin was renowned for his instinct for power, but he capitulated and
when a such a person capitulates once he's finished. And on Sunday he
capitulated before the oligarchy who imposed Chernomyrdin on him."
"I think (he'll stick around for) a month," he said, warning that
Chernomyrdin and the communists could make a pact to change the
constitution which would allow the president to be selected by
parliament rather than directly elected.
That would obviate the need for presidential elections in 2000 which
analysts say the unpopular Chernomyrdin would have difficulty winning.
From: email@example.com (Michael Kagalenko)
Subject: Re: 2322-Williams on agriculture
Date: Wed, 26 Aug 1998
Carol Williams in her LA Times piece blames the problems of Russian
agriculture on the lack of land ownership. As an example of the
improvement caused by individual incentives she points towards
the garden plots tended by just about everybody in Russia. But the land of
those plots isn't privately owned, it is leased. It seems that "land
ownership" is proposed as a kind of "magic bullet" to end all problems
of Russian agriculture, much like monetary stabilization and privatizaton
were alleged by Gaidar and others to be the quick cure for the imbalances
of the Soviet economy.
Date: Tue, 25 Aug 1998
From: firstname.lastname@example.org (Victor Kalashnikov)
1. Several JRL readers asked me for more details on a
rocket exercise last Friday in Russia, mentioned in my
message in today's 2325.
In the morning of 21.08 President Yeltzin arrived on board
of 'Pjotr Velikij' cruiser off Murmansk. From here he, in his
Supreme Commander capacity, gave a 'go ahead' for a
launch. A RSM-50 was fired from a 667 BDR sub. Three
targets on Kamtshatka peninsula were hit.
On his way there Yeltzin made a statement condemning US
rocket strikes against targets in Sudan and Afghanistan
several hours before.
2. Can't help making another comment.
Soon after Chernomyrdin became prime-minister, in late
1992, the idea of his future presidency was launched BOTH
BY HIS OWN AND YELTZIN'S people into circulation at the
top to set the frame. A political party (PRES, Sergei
Shachrai) was set up specifically to facilitate the
succession. Gaidar, Chubais, Kiriyenko, Nemtzov, etc. - all
were only ad hoc puppets. Two old Central Committee
buddies have just fooled the world all the years. And as
always, only physical conditions (ability to move legs, to
open mouth) will determine the further path of events.
Date: Wed, 26 Aug 1998 1
From: "Andrew Howell" <email@example.com>
Subject: Re: Oligarch myth in JRL
I strongly agree with Keith Darden's recent comment ("Oligarch myth"),
critiquing the exaggerated importance often given the Russian "oligarchs", and
particularly Berezovsky, in running public affairs. I am continually surprised
at the attention given these self-aggrandizing tycoons, who, while
are being swept along by events just like everyone else. While agreeing with
Mr. Darden's explanations for this misperception of their influence, I would
add that the exposure available to the oligarchs through proprietary media
such as B's Nezavisimaya Gazieta (which should really be renamed Zavisimaya
also certainly assists in their promotion. In the end, however, I have little
doubt that the hubristic Berezovsky will soon go the way of other has-beens in
Russian politics (remember Ruslan Khasbulatov?) so feared and celebrated at
Paper Eyes Berezovskiy's Key Role in Kremlin Events
August 25, 1998
[translation for personal use only]
Article by Nikolay Lakhvich: "Berezovskiy's Shadow Over Kremlin Again?"
The shadow of Boris Berezovskiy, devoted unofficial adviser to the
Kremlin family, looms behind the second coming of Viktor Chernomyrdin, as
it does behind many events in most recent Russian history. The financial
crisis has again brought the out-of-work oligarch unpublicized leading
roles. It has long been known that there is nothing dearer to Boris
Abramovich than elemental forces.
Komsomolskaya Pravda's informed sources report that Berezovskiy was
intensively and skillfully playing his own "game" all last week. This time
it was not a question of some vice premier's post for someone he needed, as
was the case in the spring. The magnate was playing for big stakes -- to
return Viktor Chernomyrdin to the chief White House office. On the eve of
the president's decision to dismiss the "green" government Berezovskiy was
actively meeting with many people. He even had a conversation Saturday
with Anatoliy Chubays, who went straight from that rendezvous to Sergey
Kiriyenko. He spent more than an hour with him....
The Kremlin, which had been in disarray for more than a week, could
find nothing better than to play up to the ambitious oligarch. In the
opinion of our highly-placed White House sources, the coming of the new old
premier means a drastic strengthening of the positions of Berezovskiy and
company. It is no secret that Viktor Stepanovich spent all of his enforced
"vacation" March through August consulting actively and closely with Boris
Abramovich. Moreover, there is information that the magnate has already
found time to visit Chernomyrdin's dacha. He spent several hours with him,
setting out the game of government "patience" -- who will go where. It is
no coincidence that the acting premier has already declared that he will
personally control every appointment in the new government. Other
oligarchs are said to be greatly alarmed. The strengthening of
Berezovskiy's positions is of no use to them at all. Some of them are
already trying to meet with the "Kremlin conductor"....
Boris Berezovskiy never forgets anything. He has not forgiven Yeltsin
and his Staff for publicly running him out of the Kremlin. As soon as he
was able to do so, he masterfully "lowered " the president and his
entourage before the eyes of the entire country by forcing the return to
the premiership of a Chernomyrdin who was dismissed just five months ago.
Former Yeltsin Advisor: Early Election 'Economic Necessity'
Moscow, Aug 25 (Interfax) -- Under "Viktor Chernomyrdin's government,
early presidential elections will become an economic necessity," Russian
President Boris Yeltsin's ex- advisor Georgiy Satarov told Interfax Tuesday
In the current situation, he said, a belt-tightening policy is
inevitable, but it can only be afforded by a government which is not afraid
of elections. "I don't think Chernomyrdin will be able to pursue his policy
confidently, if there is a year or so ahead of him and not four years,"
President of the Politika Fund Vyacheslav Nikonov told Interfax that
"the current economic crisis signalled the end of the Boris Yeltsin era.
The dismissal of the government, whose confirmation cost Yeltsin so much
effort, actually means that his personnel policy has failed," he said.
He added that Yeltsin has retreated to the background, because he has
given Chernomyrdin carte blanche in shaping a government and its political
The constitution was intended for a strong president who could ensure
strong leadership, he said. "Yeltsin can no longer ensure such leadership,"
He said, however, that prospects for Yeltsin's early resignation are
minimal because "power is the content of his life."
Nikonov does not share the opinion that Chernomyrdin is the best
replacement for Yeltsin. "Of course, Chernomyrdin is more energetic, but
his popularity remains low so he is not fit for the president's chair at
the moment," Nikonov said.
He said that according to opinion polls and experts' estimates,
Governor of Krasnoyarsk territory Aleksandr Lebed and Mayor of Moscow Yuriy
Luzhkov have the best chances of getting through to a second round of
Zyuganov Demands Economic 'Change of Course'
Rome's La Repubblica in Italian
August 25, 1998
[translation for personal use only]
Interview with Russian Communist Party leader Gennadiy
Zyuganov signed 'a.s.' in Moscow; date not given: "'We Communists
in Government? I Want Boris To Confess His Sins'" -- first two
paragraphs are La Repubblica introduction
Moscow -- Gennadiy Zyuganov, the communist leader, who led his troops
in the storming of the Kremlin, is celebrating victory. He is setting his
conditions, but is careful not to offer Chernomyrdin his unqualified
support. Indeed, the Communists insist that Yeltsin must resign, and must
in any case withdraw Chernomyrdin's candidacy, engage in consultations with
the parties and parliamentary speakers, after which a decision will be
reached. But apart from these tactical maneuvers, the heirs to the CPSU
can suddenly see the doors to power opening.
"Consider this new class of owners, as they used to be called,"
Gennadiy Zyuganov said, speaking at the offices of "Moscow's Radio Echo"
["Radio Eco di Mosca"]. "Those who were not broken or swept away are
resisting. They have been perverted and humiliated by means of
unbelievable bribes. So they exist, but the human and material resources
have been exhausted, and now, with the decision to devalue the ruble,
Yeltsin has decided to finish them off. Believe me, this economic course
has no future, whoever leads the government. This is why we set as an
absolutely indispensable precondition for the establishment of a credible
government a real change of course in the economy."
[La Repubblica] But what will the Communists do once they have
returned to government? Will they use tough methods with their former
adversaries? Yeltsin is said to be worried about his future and that of
[Zyuganov] Who do you take me for? All the men in my family fought in
the war; I know what tragedy and death mean. Violence is not the way to
resolve problems. Look at what the US bombardments are causing. The Bible
says: "Evil begets evil." I know Yeltsin's family. We used to be
neighbors, in the same building. If they had been worried about their
future, they would have accepted the proposal that we made to the
president, that he resign, back in March. He refused. Now they are
[La Repubblica] Do you mean that Yeltsin is badly advised?
[Zyuganov] He has a staff of 2,000 people, but none of them is capable
of thinking in a far-sighted manner.
[La Repubblica] Has it already been suggested to you that you present
Communist candidates to the government? [Zyuganov] I am sure that I will
be asked. Kiriyenko asked me that, too, but none of our people were
invited. They preferred to create an impossible mishmash. Be that as it
may, I do not think that Chernomyrdin has the character necessary to create
a strong team.
[La Repubblica] Why do you say that?
[Zyuganov] Because Chernomyrdin should already have set certain
conditions on Yeltsin -- complete autonomy in the formation of the
government. No interference by the presidential apparatus in the prime
minister's affairs. To state clearly that the time has come to form a
government of national interest and popular confidence. To acknowledge the
mistakes made last time. To make publicly known the real state of the
economy, which is on the brink of disaster. To pledge to respect
parliament's autonomy. To rally the forces together in order to extricate
us from the crisis, and to specify that behind these principles there will
be a package of laws which the government team that is to be formed will
[La Repubblica] In other words, the program of the Communist Party...
[Zyuganov] What else should be done? Implement the memorandum
dictated by the IMF to Sergey Kiriyenko? I have had it translated for me:
They wanted to destroy our national monopolies, to increase the price of
housing by 15 percent, thus causing social explosions. I will say no more.
This is how Zyuganov plans to settle his personal score with Russian
history. Having been head of the ideological committee in Gorbachev's CPSU
-- we could describe him as a lesser version of Suslov -- the Communist
secretary has devoted himself body and soul to the destruction of the
Yeltsin myth, especially since in 1993 the Kremlin leader ordered the
bombardment of the White House, which was occupied by deputies, who refused
the dissolution by presidential decree. Since that time Zyuganov has
employed an inexhaustible range of invective, and has gone as far as to
demand an impeachment.
The Independent (UK)
26 August 1998
[for personal use only]
Kremlin shake-up fixed in secret at Cannes
Russia: Billionaire car dealer and media boss Berezovsky acted as the
go-between for Yeltsin and Chernomyrdin. By Phil Reeves in Moscow
The chief mastermind of the firing of the Russian government, heralding the
beginning of the end for Boris Yeltsin, has emerged as a 51-year-old tycoon
who made his fortune as a car dealer.
Boris Berezovsky, the country's most prominent oligarch, is the principal
broker in a deal that restored the sacked Viktor Chernomyrdin as Prime
Minister and established himself as the power behind the throne.
Reports in Moscow say the billionaire businessman recently secretly met the
new premier and a senior Kremlin official - the deputy chief of staff, Igor
Shabdurasalov - in the French resort of Cannes, thousands of miles from the
economic maelstrom that was engulfing Russia, shaking the empires of its
new oligarchs to their foundations.
The resulting proposal to replace the 36-year-old Sergei Kiriyenko, after
only four months in office, was relayed to President Yeltsin by his younger
daughter, Tatyana Dyachenko, and chief of staff, Valentin Yumashev, both
friends of Mr Berezovsky.
The key question now taxing the minds of Russia's political supporters and
creditors in the West is the nature of the influence that Mr Berezovsky,
and a coterie of other tycoons, will undoubtedly wield in the new government.
Although, Mr Chernomyrdin's past record suggests he broadly favours market
economics, he is also a former chief executive of the gas giant Gazprom,
and tends to protect the interests of his chums in business and the energy
It says much about the entwined nature of power and cronyism in Russia that
Gazprom shares yesterday rocketed by 20 per cent.
The signs so far are ominous. Mr Chernomyrdin has told a newspaper that he
wants to concentrate on "industrial policy, since purely monetary measures
have not pulled Russia out of crisis". He has also been carefully courting
the main parliamentary groups (who have yet to confirm him in post) and has
talked about creating a "broad-based government of accord", raising the
possibility of a coalition government, including the Communists.
To the ears of advocates of market reforms, such words are anathema, and
spell a rise in government interventionism and spending. One of their camp,
Anders Asland, a former adviser to Russia, has described Mr Chernomyrdin's
return as "a total disaster".
Certainly, tasks regarded as crucial by the International Monetary Fund -
such as raising Russia's lamentable tax revenues and cutting the state's
huge subsidies to energy and housing - can be expected to lose what little
momentum they have.
This may well be one of the reasons why Mr Berezovsky has anointed Mr
Chernomyrdin both as the premier and, it is safe to assume, the man whom he
sees as heir to Mr Yeltsin's throne.
Tsar-making is a role that he has long cultivated. In 1996, fearful of a
Communist victory, he and six other magnates paid $3m towards the Yeltsin
re-election campaign. He was rewarded with a government job - deputy
secretary of the Security Council, from which he was later removed. But he
fought his way back. His success was yesterday acknowledged, bitterly, by
Russki Telegraf, a hostile newspaper. "Berezovsky Is Now Our President,"
said the headline.
His rise owes much to ruthlessness, wheeler-dealing skills and opportunism
honed in the lethal new world of Russian business. A former maths
professor, he was shrewd enough to seize the money-making chances that
arose in the lawless aftermath of Soviet collapse, parleying a car
dealership into an empire that include oil, industrial and property
By 1994, he was deeply enough immersed in the business world to become the
target of an assassination attempt; a car bomb blew off the head of his
Undeterred (and protected by a 150-strong security contingent, many
ex-KGB), he rose steadily upwards, becoming the most prominent member of a
group of oligarchs who have long sought to control the Kremlin from behind
No one knows exactly how wealthy he is (his own assessment, last year, of
$23,000 was greeted with mirth in Russia), but he has all the "new Russian"
accoutrements: apartments abroad, at least three properties in Russia and
He has had occasional spats with the authorities - rows, for instance, with
the government's so-called "young reformers", Anatoly Chubais and Boris
Nemtsov, over the spoils of privatisation. One of these, over the sale of
the state telecommunications giant Svyazinvest became so serious that Mr
Yeltsin personally had to intervene. But the tycoon assiduously mended his
For now, Mr Berezovsky, a small, balding man with a penchant for check
jackets, is calling the shots in Russia. The clues were there, before the
Like any player with serious ambitions to wield power in Russia, Mr
Berezovsky has sizeable media holdings, which he brazenly uses to his ends.
These include a controlling stake in the national TV network ORT, and
proprietorship of the newspaper Nezavisimaya Gazeta (the Independent - no
On Friday, the newspaper all but predicted Mr Chernomyrdin's return to the
top. It was not a coincidence.
Nemtsov Sees Need for 'Intensive Therapy'
25 August 1998
[translation for personal use only]
Interview with former Vice Premier Boris Nemtsov by Nikolay
Yefimovich; date and place not given: "Boris Nemtsov: I Was Not
Thinking About Retirement..."
[Yefimovich] What do you intend to do?
[Nemtsov] First I will go on vacation.
[Yefimovich] And then?
[Nemtsov] I have not yet decided. I had no time to think about
[Yefimovich] Why did Kiriyenko's government "blow out" so quickly?
[Nemtsov] There is a terrible systemic crisis in the country. The
system of government [vlast] in the country is weak. A government that
cannot collect taxes, a government whose decisions are not fulfilled. A
government whose members settle accounts with one another and pay no
attention to what is going on around them. A government that does not
exploit even those possibilities that are given it by the Constitution.
Second, a mongrel oligarchic capitalism has been built in Russia. The
budget deficit, people's inflated expectations, immoderate expenditure --
that is the consequence.
[Yefimovich] All in all, a hopeless case?
[Nemtsov] Russia needs intensive therapy that includes a large number
of far more serious decisions than the anticrisis program alone.
The first lesson of the crisis is that there is a huge quantity of
speculative capital in the country, which was gambled on the market, but
there were very few direct capital investments. Then the 6- or 7-percent
fall in living standards is a gigantic negative symptom that is bound to
cause anxiety. Only a radical change of rules galvanizing the economy as a
whole and investment programs [in particular] can rescue the country from
the abyss. That is the first thing.
The second lesson is that we must bankrupt the oligarchic empires that
do not pay taxes. They grabbed property, but they cannot manage it. So,
if it is adopted, the law submitted to the Duma on accelerating the
bankruptcy process must be immediately carried into effect, without fear of
any oligarchs' wrath.
[Yefimovich] And what awaits us all now?
[Nemtsov] My forecast is that, if nothing is done, the reins of
government could pass to the Left. A left-wing government knows nothing
except how to print money; it cannot and will not do anything. Inflation
will spiral. Inflation willl reach 20-30 percent, social polarization will
increase, and a revolutionary situation will arise. The Left could be
replaced by Russian fascists. That is what we face.
Financial Times (UK)
27 August 1998
[for personal use only]
Investors face $33bn losses from Russian bond default
By Our Financial and Foreign Staff
Foreign investors in Russian bonds are facing losses exceeding $33bn,
according to a conservative estimate, because of the government's
The losers include George Soros's investment funds, which admitted
yesterday they had lost up to $2bn as a result of the Russian economic
The Russian loss is the largest suffered by Mr Soros's Quantum Group,
said Stanley Druckenmiller, chief investment strategist at Soros Fund
Credit Suisse First Boston, the Swiss-owned investment bank, said that
Russian elites had "plundered" the country's capital. It said its
profits had fallen more than $250m in less than two months because of
Paul Luke, a senior emerging markets trader at Deutsche Bank in London,
said losses on foreign holdings of Russian dollar and rouble-denominated
bonds could exceed $33bn. Other estimates have ranged up to $50bn.
About 75 per cent of the paper value on Russia's hard currency bond debt
had been wiped out, Mr Luke said. His estimate excludes not only bank
lending and equities but also possible losses on rouble hedging
contracts between foreign investment banks and Russian banks, most of
which would be unable to honour their liabilities.
One senior US banker said the action would not be forgotten. "I don't
think anybody's going to lend these guys a dime," he said.
The move also raised serious questions about whether other contracts
would be honoured, he said. Mark Mobius, head of emerging market
investment at Franklin Templeton, a leading fund manager, said Russia
had lost the trust of investors.
Mr Druckenmiller, however, was not critical of the government. "We took
a risk and we were wrong," he said. Mr Soros warned in a letter
published in the FT two weeks ago that Russia's financial turmoil had
reached a "terminal phase".
CSFB yesterday said net profit so far in 1998 had plunged from $754m at
June 30, after the first half, to $500m. CSFB, which along with its
clients accounted for 40 per cent of foreign ownership of the $40bn
Russian government debt market, is believed to have lost at least $350m
- and perhaps as much as $500m - in Russia since June.
Andrew Ipkendanz, the bank's head of global emerging markets, said:
"Russian elites have plundered the country's capital and funnelled most
of the proceeds offshore."
Traders estimated hedge funds would sustain about 25 per cent of the
losses. The rest would be borne by foreign investment banks and US
Among investment banks, Goldman Sachs said exposure to Russia was
"immaterial". JP Morgan, Bankers Trust, Merrill Lynch, Morgan Stanley
Dean Witter and Lehman Brothers all declined to comment. Analysts said
any firms with very large losses would probably feel obliged to make
Reporting by Philip Coggan, Tracy Corrigan, Clay Harris, William Lewis,
Edward Luce and John Thornhill
Ex-Soviet states hurting from Russia crisis
August 26, 1998
By Chris Bird
KIEV, Ukraine (Reuters) - A secretive meeting Wednesday in Ukraine's Crimean
peninsula, of leaders from Russia, Ukraine and Belarus showed Russia's market
fever had spread to neighboring ex-Soviet states, analysts said.
Like a flying doctor, the head of the International Monetary Fund, Michel
Camdessus, was on hand to listen to their woes at a Ukrainian government
hideaway overlooking the Black Sea and once used by the Soviet elite.
Russia's financial crisis, sparked by last week's effective devaluation of the
rouble, was at first seen as a chance for other former Soviet republics to
differentiate themselves from their long-time colonial master.
But the rouble's precipitous fall battered Ukraine's hryvnia currency -- the
republic is dependent on Russia for 40 percent of its foreign trade.
Tiny Moldova, which relies on Russia for 60 percent of its foreign trade,
could fare even worse.
``If the crisis continues, it will be difficult to keep the situation stable
without external help, especially if we take into account economic
difficulties faced by our other major economic partners -- Romania, Ukraine
and Belarus,'' Moldova's deputy prime minister, Ion Sturza, told reporters in
the capital Chisinau.
Belarus's Soviet-style planned economy is almost entirely reliant on Russia as
the only country that will buy its Soviet-designed tractors and television
sets and remain lenient on huge energy debts to Russia.
Two days after Ukraine celebrated seven years of independence with fireworks
and military pomp, a headline in the popular daily Kievskie Vedomosti about
the sharp fall in the hryvnia currency summed up the region's mood: ``Symbol
The collapse of communism has created two tiers in eastern Europe. Countries
like Poland and Hungary have reformed quickly and have reoriented their trade
But further east, countries like Ukraine, fearing its western neighbors'
membership of the European Union will create an economic ``iron curtain,'' are
still very much tied to Moscow.
States like Belarus and Turkmenistan, run by strongman leaders who hanker
after the fixed prices and certainties of their Soviet pasts, have defied the
globe's reigning market orthodoxy.
Belarussian President Alexander Lukashenko, shown on Ukrainian television
after meeting his Ukrainian counterpart, could not resist a dig at western-
``It doesn't matter who's in charge, we should change our whole outlook,'' he
A Western diplomat based in the Ukrainian capital Kiev was anxious to
underline the former Soviet republic's political independence. ``But
economically, they can't escape,'' he said.
The return of Viktor Chernomyrdin as Russia's acting prime minister and the
hush surrounding the surprise meeting in Crimea has prompted disquieting
comparisons to the region's Communist past.
On the Asian side of the old empire, oil-rich states like Kazakhstan appear to
have avoided the fallout from Russia's market meltdown while Tajikistan,
wracked by years of civil war, is trying hard not to disintegrate altogether.
``We assess the situation in Kazakhstan as calm and stable,'' said Madina
Dushimova, research director at Kazkommerts Securities in Kazakhstan's
commercial capital Almaty.
She said unlike Russia, Kazakhstan has never defaulted on foreign debt.
``Foreign debt servicing accounts for some nine percent of Kazakhstan's state
budget this year, while in Russia and Ukraine this is nearer 35 percent,''
Kazakhstan's dependence on Russia continues in the form of a Soviet-built oil
and gas pipeline network.
It, like fellow oil-rich Azerbaijan, is pushing ahead with projects to pipe
oil and gas east through China and south and west through the Middle East.
No Sympathy From Miners for Kiriyenko, Nemtsov
August 25, 1998
[translation for personal use only]
Report by Aleksandr Bukreyev and Yelena Ionova: "While
Kiriyenko and Nemtsov Went to the Miners With a Half Liter..."
On Sunday evening, having just learned of their dismissal, Kiriyenko
and Nemtsov decided finally to have a man-to-man talk with the people. The
ex-premier and the ex-vice premier went out onto Gorbatyy Bridge -- to the
miners. Nemtsov took with him a bottle of our vodka, as a true admirer of
On learning of this, we too decided to pay a call on the miners Monday
morning. The miners readily shared their impressions of the visit by their
"At about 11 o'clock last night we were getting ready for bed when we
saw Nemtsov and Kiriyenko come out of the White House and head toward us.
There was a guard with them, and the local police. We thought: They are
coming to repent and to seek sympathy. How naive! You see, they simply
wanted to drown their sorrows with us guys."
Boris Nemtsov was so upset that, according to the miners, he assured
them that he himself was prepared to sit alongside them and bang a helmet.
He would never again go near the government. He bowed his curly head: I
have one way to go now, he said -- to my homeland, to Nizhniy [Novgorod],
to run once again for governor.
Kiriyenko cursed the oligarchs. He tried to explain to the miners
that all the bad things in our economy stem from the magnates. He himself,
Sergey Vladilenovich, is to blame neither for crises nor for devaluation.
After all, first they set him up, and then they knocked him down....
But the "retirees" did not obtain the miners' support or even
sympathy. The miners did not feel sorry for them:
"Our paths are different. When it comes right down to it, they were
never concerned about our problems. Admittedly, Nemtsov did once come to
us in the summer. He tried to persuade us not to demand the president's
resignation. But this was the first time we had ever seen Kiriyenko 'in
The bottle of vodka that Nemtsov brought was never opened. The miners
did not drink with them. It is said that the miners later threw that
unhappy bottle into a trash can. Pathetic or not?!