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Johnson's Russia List


August 28, 1998   

This Date's Issues: 23302331••

Johnson's Russia List
28 August 1998

[Note from David Johnson:
1. Laura Belin: The "oligarch myth."
2. Moscow Times: David McHugh, President Explores Resigning, Paper Says.
3. Moscow Times: Anders Åslund, Russia's Model: Bulgaria? 
4. Reuters: West tells Russia to stick to economic reforms.
5. The Guardian (UK): James, Meek, The post-Yeltsin era begins.
6. The Independent (UK): The day capitalism died in Russia.
Rouble crisis: As analysts predict Russia will turn away from market 
forces, an army veteran offers survival tips. By Rupert Cornwell.

7. Financial Times (UK): Chrystia Freeland and Charles Clover,
Muscovites' faith in capitalism is crushed.

8. Rossiyskaya Gazeta: Pundits Cited on Chernomyrdin's Political Future.
9. Komsomolskaya Pravda: Paper Says Kiriyenko Not To Blame for Crisis.
10. Interfax: Yabloko Head Says Faction To Vote Against Chernomyrdin.
11. Interfax: Russian Expert Says Clinton Should Propose More Arms Cuts.]


Date: Thu, 27 Aug 1998 
From: "Laura Belin" <>
Subject: the "oligarch myth."

As one of those who suggested that Yeltsin may have been trying to
appease Berezovskii and others by reappointing Chernomyrdin, I feel obliged
to respond to the recent messages on the "oligarch myth."
Keith Darden and others make some fair points. Yes, Berezovskii likes to
boast and may exaggerate his influence at times. Yes, Berezovskii's
political opponents, and newspapers funded by his opponents (including
Russkii telegraf and Komsomolskaya pravda), also have an interest in
exaggerating his influence so they can blame him for all kinds of problems.
I don't want to be accused of thinking the "oligarchs" control all events
in Russia. That seems like a bit of a straw man anyway, since I haven't
heard anyone say the oligarchs are the sole cause of everything that's going
on right now. For the record, I don't think Berezovskii was behind
Chernomyrdin's dismissal in March (although he seems to have heard about it
in advance and rushed to give a big television interview the night before). 
Still, I think that in this particular case, it is plausible to think
major business elites had something to do with Chernomyrdin's return.
What are the possible reasons for appointing a new prime minister?
Sometimes that's done to bring in a more popular figure, which can't be said
of Chernomyrdin. Sometimes it's done to bring in a better manager, but in
that case it's hard to see the logic in reappointing the guy who was prime
minister for more than five years, during which time the government had
trouble improving tax collection and sticking to its budgets. There
certainly doesn't seem to have been any pressure from foreign countries or
the IMF to bring back Chernomyrdin.
No one besides Yeltsin himself knows exactly why he reappointed
Chernomyrdin. He may have had a combination of motives (thinking about his
successor, a graceful exit, and so on). But I don't see any reason to rule
out the possibility that Yeltsin was throwing a bone to the oligarchs. It is
more than a rumor to say that Berezovskii wanted Chernomyrdin back. It is
more than a rumor to say that Berezovskii played a major role in financing
Yeltsin's re-election campaign, and I haven't seen any credible denials of
his other ties to the president's family (through Aeroflot and the book deal
at the very least). 


Moscow Times
August 28, 1998 
President Explores Resigning, Paper Says 
By David McHugh
Staff Writer

The Kremlin denied Thursday that President Boris Yeltsin planned to step 
down as speculation about his imminent resignation escalated and a 
newspaper claimed that the presidential staff were already making 
arrangements for his retirement. 

Four of Russia's major newspapers published front-page articles Thursday 
describing scenarios involving Yeltsin's resignation. One of them, 
Kommersant Daily, said the Kremlin was seeking guarantees from 
parliament that Yeltsin would not be prosecuted if he left office. 

Political analysts said resignation is not inevitable and Yeltsin still 
possesses formidable constitutional powers that he may yet succeed in 
defending. But the mere fact that the issue comes up at all is a stark 
sign of how far Yeltsin's political stock has fallen. 

Despite the crisis, Yeltsin stayed out of sight Thursday at his suburban 
Rus residence and made no public statement. He has said almost nothing 
about the economy since the crisis worsened with ruble devaluation and 
government debt default Aug. 17. 

Presidential spokesman Sergei Yastrzhembsky denied Yeltsin was thinking 
about quitting. "No resignation has been on the agenda," he was quoted 
as saying by Interfax. "Let's calm down and take up real problems." 

But Communist leader Gennady Zyuganov said the issue of post-resignation 
guarantees for Yeltsin came up in discussions with Yastrzhembsky on 

"There were many proposals, among them this one," said Zyuganov. "It was 
not discussed in detail but this point is included in the document." 

Duma deputies are pressing Yeltsin to sign agreements on politicial and 
economic issues as the price of confirming Viktor Chernomyrdin, whom 
Yeltsin chose to replace Sergei Kiriyenko as prime minister. Kiriyenko 
was fired Sunday in the wake of the devaluation and debt default. 

The Duma opposition is trying to get the president to give up his 
sweeping powers to dismiss parliament and the government. They also want 
an agreement to step back from free-market economic reforms, and they 
are pushing for price and currency controls and nationalization of some 

Meanwhile, Chernomyrdin continued talking to deputies and regional 
officials, trying to put together enough support to win approval in the 
State Duma, or lower house of parliament. 

If the Duma rejects Yeltsin's nominee three times, it would be dissolved 
and new elections would be held. Chernomyrdin said he was optimistic the 
government could pull out of its crisis. 

"The overriding goal is to stop the fall of the ruble, not to allow the 
destruction of the economy and reduce the damage sustained by every 
Russian from these financial upheavals," Chernomyrdin was quoted as 
saying by Interfax. 

"If the authorities show the will and the common people trust them, life 
will come to normal very soon," he was quoted as saying. "If the 
authorities show weakness, then we will fail." 

But Yeltsin's position appeared to be shakier by the day. The communists 
have been demanding Yeltsin's resignation weekly for months to yawns 
from the public. But after the ruble fell 10 percent Monday, on top of 
Kiriyenko's firing, all of a sudden it wasn't just the communists. 

The issue bloomed Thursday on the front pages of the daily newspapers 
Segodnya, Kommersant, Izvestiya and Nezavisimaya Gazeta. Segodnya's 
headline read, "Slogan of the Day: Early Resignation of Boris Yeltsin." 

Kommersant Daily quoted an unnamed "highly placed source" as saying that 
the Kremlin was seeking "a special law that spells out the status of a 
former president, his material circumstances, and of course his personal 
security. The former head of state must not be prosecuted for actions 
while in office." 

It then quoted Yastrzhembsky as saying that such a law "would be a sign 
of the civilized level of our society." Efforts to confirm the statement 
with the Kremlin press service were unsuccessful. 

The newspapers' objectivity is suspect since every one of them, with the 
possible exception of Kommersant, are controlled by the so-called 
oligarchs, the financial and industrial moguls widely considered to have 
pushed Yeltsin to return Chernomyrdin to the government and to anoint 
him as his successor as president in the 2000 elections. 

But the fact that all the newspapers broached Yeltsin's resignation 
suggests it is part of the overall political dialogue between their 
owners, the Duma and the Kremlin. 

Many observers think Yeltsin is being pressed to hand off power to 
Chernomyrdin in order to guarantee his election in 2000 and protect the 
oligarchs' position. 

Undoubtedly, Yeltsin's political woes have multiplied with the sharp 
fall of the ruble, collapse of the banking system and meltdown of 
Russia's financial markets. 

Parliament, already conducting impeachment hearings, passed a resolution 
calling for his resignation. Centrist parties in the Duma have deserted 
him. He has appeared confused in recent public appearances and has said 
almost nothing about the economic crisis. 

But there is almost no legal way to remove Yeltsin if he doesn't choose 
to go. The constitution's impeachment provisions raise high barriers to 
removing him, including double court review by judges whom Yeltsin 

"I think [resignation] is not possible now," said Sergei Markov, head of 
the Institute of Political Studies. Markov said Yeltsin may indeed quit, 
but only after -- and if -- Chernomyrdin gets control of the political 
scene and halts the economy's free fall. Only then, "when the entire 
elite recognizes Chernomyrdin as a real leader ... can he be reassured 
about his future and resign." 

"We are still a ways off from that," Markov said. 

Political scientist Andrei Ryabov of the Carnegie Moscow Center said 
resignation only becomes likely if Yeltsin signs away some of his 
constitutional powers. 

"If he signs an agreement with the Duma to limit his powers, then his 
chance to actively influence the political process will be 
dimiminished," said Ryabov. "And then the variant of resignation will 
become more likely." 

The blow of his government's failure to ward off currency and 
financial-markets collapse "has apparently significantly undermined the 
president psychologically, his ability and desire to go on with the 
political fight." 

But he could snap back, Ryabov said. "It is not a coincidence that the 
parliamentarians are in such as hurry to sign a political agreement ... 
If his psychological condition improves I think there will be big 
problems with such an agreement." 

If Yeltsin were to quit, he would be replaced by the prime minister 
until new elections within three months. As yet, though, there is no 
confirmed prime minister. 

Vycheslav Nikonov, president of the Fond Politika, said Yeltsin cannot 
quit before Chernomyrdin wins approval. "Otherwise, there will be 
constititional gridlock, since an acting prime minister cannot serve as 
president," said Nikonov. 

The larger question, though, is how much influence Yeltsin will retain 
even if Chernomyrdin is approved. Nikonov's assessment was blunt: "He is 


Moscow Times
August 28, 1998 
Russia's Model: Bulgaria? 
By Anders Åslund
Anders Åslund is a senior associate at the Carnegie Endowment for 
International Peace in Washington. He contributed this comment to The 
Moscow Times. 

President Boris Yeltsin's naming of Viktor Chernomyrdin as prime 
minister is truly shocking. Nobody has been more tried as Russian prime 
minister, and his record is abundantly clear. Chernomyrdin has never 
stood up against the big businessmen, neither old nor new. To Russians, 
Chernomyrdin appears equivalent with corruption and government 
privilege, which is why he is so popular in Russia's government 
establishment, used to living on government largess. 

The best that can be said of Chernomyrdin's prior reign is that when he 
was prime minister some reforms were carried out by other members of his 
government because he was too weak to stop them. When Chernomyrdin was 
strong politically, as in 1994 or in the fall 1996, state finances were 
undermined, and reforms came to a halt. In 1994, he privatized his old 
company Gazprom in an obscure scheme to the benefit of its managers. 
That same year, Oct. 11, he led Russia to Black Tuesday, when the 
ruble's exchange rate fell 27 percent in one day. In the aftermath of 
that debacle, Chernomyrdin's power was so undermined that Anatoly 
Chubais could complete the macroeconomic stabilization in 1995. 
Sensibly, Yeltsin sacked Chernomyrdin late in the day for his passivity 
and reluctance to pursue reforms. 

The reasons why Kiriyenko was removed are all too clear. He had insisted 
that big companies actually pay their taxes and he refused to bail out 
bankrupt banks. In addition, he long resisted devaluation, which would 
have benefited the oil, gas, and metallurgical companies. In short, 
Kiriyenko was deposed because he stood up against corrupt business 
interests, to the benefit of Russia as a whole. 

This makes Chernomyrdin's re-entry all the more sinister. His return 
means that Yeltsin is politically defunct. As Maxim Sokolov writes in 
Russky Telegraf, it means the effective promotion of Berezovsky to 
president, and Chernomyrdin is now completely a representative of the 
crony businessmen. He instantly declared that his main goal was to form 
a coalition government with Communists and Vladimir Zhirinovsky's 
hard-line nationalists, that is, with Russia's worst anti-reform forces. 
The government crisis means that Russia is being left without an 
effective government for at least a couple of weeks in the midst of a 
financial crisis. 

Russia has lingered on the edge of financial disaster since the crisis 
broke last October, and two very different scenarios were possible. At 
best, Russia could have stayed away from high inflation with only a 
minor devaluation. The country could muddle through with a minor decline 
in output this year and stagnation next year. However, to stay on this 
very narrow road Russia needed the most energetic reforms possible. With 
Kiriyenko's ouster, this option has been definitely abandoned. 

The other alternative is anything less than energetic reforms, and 
Chernomyrdin seems to have chosen minimal reform as usual. Russia's 
previous IMF program has collapsed and cannot be revived for months. 
Debt restructuring reduces the debt service, but Russia still has a 
budget deficit and no financing at all. A free fall of the the ruble's 
exchange rate already seems under way, and prices are marked up in the 
wake of devaluation. Banks are crashing swiftly. The Central Bank has 
already issued large amounts of money to failing banks, which have used 
these proceeds to buy dollars with impeccable irresponsibility, further 
undermining the ruble. It is only a matter of time until the Central 
Bank will be forced to start printing money. Chernomyrdin has already 
criticized the Central Bank, as it has been too responsible. It 
senseless to pay taxes under these conditions, as impending inflation is 
evident, which will later make tax payments cheaper. As tax payments are 
delayed, the budget deficit will balloon. Thus, a free fall of the ruble 
and wild inflation of several hundred percent within a year seem almost 
inevitable, and gross domestic product may fall by a total of 20 percent 
to 30 percent in the next two years. Bulgaria entered such a crisis two 
years ago and has just gotten out of it, while Indonesia is in the midst 
of one. 

Politically, there are two scenarios: One is Weimar Germany, with 
extremists taking power. The other is Bulgaria, where excellent 
democratic market reformers won. As in Bulgaria and Indonesia, the 
young, new middle class in the cities are likely to be the worst hit. 
Tens of thousands of qualified bank employees will be laid off, but this 
young middle class will not take their fate lying down. Within half a 
year, we are likely to see them taking to the streets in the tens of 
thousands, as was the case in Sofia and Jakarta, demanding the demise of 
crony capitalism and pushing for early elections. 

Some political scientists have long argued that it is wrong to start 
with the economy. Instead, it would be more realistic to build on the 
strongest political forces in Russia today, regional governors and big 
capitalists, and push for as good an economic policy as these groups may 
accept. Few policies could be more disastrous. These groups are the 
beneficiaries of corruption, and they are not likely to limit their 
appetite. Chernomyrdin seems set to prove them wrong. His return is as 
if President Suharto had returned in the midst of the financial crisis, 
and Russia has no longer any margin for mistakes. 

It is hardly surprising that the ruble dropped by 10 percent Aug. 25, 
after Chernomyrdin had been back in power for only two days, showing the 
market's lack of confidence in him. Unfortunately, we are all too likely 
to see instant economic disaster. The current crisis is the legacy of 
Prime Minister Viktor Chernomyrdin's years of "moderate" reforms, and 
that mistake is now being aggravated. 


West tells Russia to stick to economic reforms
By Donna Smith 

WASHINGTON, Aug 27 (Reuters) - Western powers warned Russia's new government
on Thursday not to abandon free market reforms and urged it to move quickly to
stabilise its battered economy. 

The United States joined other economic powers in voicing worries about
Moscow's commitment to economic reform as the Russian central bank suspended
foreign currency trading for the second day in a row because of fears the
rouble was going into free fall. 

``What we are concerned about, and would be extremely interested in, is the
policy direction that the new government takes,'' President Bill Clinton's
National Security Adviser Sandy Berger said. ``If it changed course in any
kind of fundamental way, that would be of serious concern to us.'' 

U.S. officials fear Russia will retreat from market-opening reforms and sound
monetary policies, and print money at the expense of inflation. 

In Berlin, German Chancellor Helmut Kohl said Moscow would receive no cash
bailout if it backtracked on economic reforms. 

``Without the reforms it will not be possible to mobilise money either from
international financial organisations or from Germany,'' Kohl told reporters
on a visit to Berlin. 

French Finance Minister Dominique Strauss-Kahn said the West was willing to
help Russia, but Moscow must do its part through reform. 

``What must be seen is that we are all committed to doing our best to help the
Russian economy,'' he told Reuters Television. ``We are totally committed to
helping Russia.'' 

Russia's economic crisis, which has unnerved financial markets around the
world, is likely to dominate discussions next week between Clinton and Russian
President Boris Yeltsin. 

Berger said Clinton would go ahead with the summit even though Yeltsin appears
to be under growing pressure to step down and has had to deny repeated rumours
that he has resigned. 

Rumours began spreading after Yeltsin fired his entire government earlier this
week and brought back his old ally Viktor Chernomyrdin, whom he had fired just
five months earlier, to be acting prime minister. 

Chernomyrdin spent Thursday working to secure his parliamentary approval and
the United States said it was important for him to move fast to stem the

``It's very important for him to organise his government as quickly as
possible, for them to take the measures that are going to be necessary to deal
with the economic problems -- the fiscal measures, the banking measures --
that will stabilise the situation,'' Berger said at a Justice Department news
conference called to discuss the arrest of a suspect in the U.S. embassy
bombing in Africa. 

Briefing reporters on Thursday, Deputy U.S. Treasury Secretary Lawrence
Summers said the United States and the Group of Seven major industrial nations
were working together to address the volatility in emerging markets like

But he gave no specifics on how the world's richest nations planned to tackle
the financial crisis and said there was no single approach to the problems
facing emerging markets. 

``While there are important common global elements, each country's situation
has to be evaluated and responded to in terms of its own particulars.'' 

The United States and other economic powers had hoped that a $22.6 billion
rescue package put together last month by the International Monetary Fund
(IMF) would restore international market confidence in Russia. But Moscow
spent most of the first tranche of the package on a failed defence of the

Despite the bailout, Russia effectively devalued the rouble and declared a
90-day moratorium on repayment of some foreign credits. The Russian government
said it is likely to announce details of a short-term rouble debt
restructuring plan on Friday. 

The rouble lost more than one-third of its value on Wednesday, rattling
financial markets around the world and sparking a panic among Russians as they
rushed to withdraw savings from banks. The central bank was expected to
suspend currency trading through Friday. 

The IMF said its Managing Director Michel Camdessus, who held urgent talks
with Russian and Ukrainian leaders on Wednesday, would brief the fund's
executive board on the worsening crisis, and may issue a statement on Friday. 

Officials said the July bailout might have to be renegotiated and the schedule
of loan payments could change. 
The IMF was expected to disburse the next $4.3 billion instalment of the loan
mid-September, but only if it approved of Russia's financial policies. 


The Guardian (UK)
28 August 1998
[for personal use only]
The post-Yeltsin era begins 
Russia-watchers should not expect blood on the streets of Moscow, but 
the country's political elite is facing up to the agony of real change 
By James Meek in Moscow

Well before the August financial crisis exploded in Russia, warning 
bells should have been ringing in the White House about the advisability 
of President Bill Clinton hobnobbing with Boris Yeltsin in Moscow. 

Now that the Russian debt bomb has gone off, any benefits of next week's 
trip - political, human or economic - are void. This is not one of those 
periodic crises that Mr Yeltsin can muddle through, or hide from and 
emerge unscathed. This crisis is open-ended, and Mr Clinton flies into 
Russia like an ill-prepared tourist, with an out-of-date guidebook, a 
map that no longer makes sense, and no bulging bumbag of dollars to 
smooth his way with the locals.

The world has grown accustomed to the cynical argument underlying Mr 
Clinton's warm support for Mr Yeltsin. Their presidencies have kept in 
step over the years, beginning with so much hope and now faltering 

All Mr Yeltsin's moral failings - his illegal dissolution of parliament 
in 1993, his constant lying about the bloody war in Chechenia which he 
began, his plunder of state funds during the 1996 presidential election 
- were written off by the West against the gain of having an ally in 
charge of the world's second-largest arsenal of nuclear weapons.

Bad as Mr Yeltsin was, the argument ran - and still seems to run in 
Washington - he was better than the inevitably nationalist, inevitably 
anti-US alternative.

Yet even in terms of that dubious argument, Mr Yeltsin has been a 
growing threat to US and European national security for years. If there 
is one thing more dangerous than a nuclear-armed, neutral state, it is a 
nuclear-armed, friendly state where the people operating the weapons 
don't get paid for months on end.

It was Mr Yeltsin's failure to negotiate a settlement with the Chechens 
and their neighbours which threatens to make the region a new centre of 
Islamic fundamentalism.

Most pertinently in the present crisis, it was Mr Yeltsin who 
consistently sabotaged the liberal economic reforms, backed by Western 
governments, which pro-Western Russians such as Yegor Gaidar and Sergei 
Kiriyenko tried to carry out.

To be fair to Mr Clinton and other Yeltsin buddies such as Helmut Kohl, 
it is not easy to stop supporting the elected leader of a reasonably 
friendly country. But what has always been offensive and is now proved 
unwise was the superfluous warmth towards him, the effort to yield to 
his desire for praise from world leaders rather than to force him into 
serious discussion, the missed opportunities to politely criticise him.

The Yeltsin era is over, and with it Russian reliance on foreign 
financial bail-outs. No one can predict where Russia will go from here.

Arguments in the West about who "lost" Russia - too much aid? Too little 
aid? The right Western policies wrongly applied? The wrong Western 
policies wrongly applied? - are patronising. Russia was never ours to 
lose. Without excusing the dreadful mistakes Western advisers and 
investors have made in Russia, the country cannot be saved if it cannot 
save itself.

A lifebelt from the International Monetary Fund is not enough for a 
country that keeps putting lead weights in its pockets. As a Russian 
journalist, Pavel Fengenhauer, put it: "Russia doesn't like to learn 
from other people's mistakes. It prefers to make its own."

There is a tendency in the Western debate to see Russia as the victim of 
a terrible experiment - a terrible communist experiment, in the economic 
liberal view, or a terrible capitalist experiment, in the 
anti-Thatcherite view. In reality, Russia is a series of incomplete 
experiments, one piled on top of the other, stretching back to the 
brutal 17th-century reforms of Peter the Great - even, it could be 
argued, to the conversion to Byzantine Christianity 1,000 years ago, 
imported, like Microsoft Windows, wholesale, off the shelf.

Slowly, but with encouraging determination, Russia's tiny political 
establishment moved towards the agony of real change this week. The most 
likely outcome of the upheavals is not, yet, blood on the streets, or an 
extreme nationalist dictatorship.

It is a surrender of most executive powers by Mr Yeltsin, who will move 
into virtual retirement; the assumption of leadership by the government, 
probably headed by Viktor Chernomyrdin; a far greater role for the 
parliamentary majority in forming policy; and a new economic programme 
embracing inflationary spending to invest in agriculture and industry, 
import tariffs, tighter currency controls, and limited nationalisation.

It sounds revolutionary. It is. It sounds good. But as long as agreement 
about implementing it is not reached between president, parliament and 
government, the rouble will go on falling and inflation will rocket. And 
it is not enough to tackle Russia's fundamental problems.

It does not address corruption. It does not address the federal 
government's inability to enforce policy in the regions. It does not 
deal with the mess of ethnically based fiefdoms violating civil rights 
and sucking in subsidies. It does nothing to help the millions of 
Russians who are stuck in Arctic communities.

There is no parliamentary majority: even the Communists themselves are 
deeply divided. And if parliament decides where to channel the newly 
minted flood of roubles, we can look forward to pork-barrelling on a 
grand scale, with the cash being poured into military factories and 
inefficient collective farms for directors to line their pockets, 
workers to pilfer and little of use to be produced.

Watching Russia's crisis unfold, there is a sense of a Western audience 
impatient for a dramatic upheaval, a social explosion - now, soon, 
tomorrow. But this isn't Godzilla. It isn't even Jakarta. A longer sense 
of time is required, a sense, perhaps, of the time-scale of Germany from 
Versailles to the Reichstag fire. A weak, indecisive Russian coalition 
government could limp on under hyperinflation for months or years until 
some force - the neo-Gaullist Alexander Lebed, or a genuine grassroots 
liberal movement, or a genuine grassroots fascist movement - put it out 
of its misery.

In 1995, Professor Alexander Yanov, author of After Yeltsin: A Weimar 
Russia, wrote: ''The history of the Weimar Republic was brief - just 15 
years long. But it will forever remain a striking illustration of an 
implacable historical law: any attempt to reduce the giant task of 
democratic transformation of an imperial leviathan to the trivial 
problem of money and credits ends without fail in a world disaster."


The Independent (UK)
August 28, 1998
[for personal use only]
The day capitalism died in Russia
Rouble crisis: As analysts predict Russia will turn away from market 
forces, an army veteran offers survival tips. By Rupert Cornwell 

ENFEEBLED he may be, but Bill Clinton none the less arrives in Moscow 
next week as the embodiment of global capitalism. He will find a Russia 
whose bastard version of capitalism, implanted at Western urging and 
largely on the basis of Western money, may be in its death throes. 

Whatever the outcome of the present turmoil, analysts believe it will 
shift Russia, perhaps decisively, away from the global economic 
mainstream. After the virtual default on $40bn of foreign loans and the 
freefall devaluation of the currency, foreign investment is likely to 
dry up. 

Yesterday, for the second successive day and as markets tumbled around 
the world, the central bank cancelled foreign currency trading and 
refused to fix an exchange rate for the rouble. Barring renewed 
international credits, this step is likely to be precursor of a formal 
decision to end the convertibility of the rouble. This will mean a step 
back towards late Soviet times - of a fixed rate for trade and other 
official transactions and a black market rate, more or less tolerated, 
for the rest. 

In this way Russia would insulate itself from market storms. But by 
making its currency inconvertible, Russia would be in breach of a basic 
rule of the International Monetary Fund, and become ineligible for 
loans. The IMF therefore faces a dilemma. It and the Western community 
believe no more money should be lent until Moscow puts its house in 
order. But unless it makes more resources available, the Fund will bring 
about precisely what it was set up to prevent - and perhaps watch the 
world crash into recession. 

The crisis is not entirely of Russia's making. Its misfortune is to be a 
supplier of commodities when commodity prices are plunging. The flip 
side of the record low petrol prices in the US of which President 
Clinton is so proud - down to barely 80 cents (50p) a gallon in some 
places - is a steep drop in the price of oil, Russia's main source of 
foreign exchange. 

The West is sympathetic, but insists it will not help until the 
introduction of economic reforms, including an end to vast state 
subsidies of various sectors and the efficient collection of taxes to 
reduce a budget deficit that in practical terms is out of control. But 
this sort of change requires huge political will. Thus Russia's plight 
is as much political as economic. So what will happen ? 

To rule out the most apocalyptic vision, military takeover is out of the 
question, given the present organisational disarray and dismal morale of 
the armed forces, and their long tradition of non-interference in 
politics. But some kind of political realignment seems inevitable. 

Conceivably this could involve the departure of President Boris Yeltsin, 
precarious in health, and who has long since forfeited all confidence, 
at home and abroad alike, that he could impose effective government. His 
spokesmen yesterday again insisted he would not resign. "He is at his 
dacha but will be back at his desk at 9am tomorrow," an aide said last 
night. But the clamour could become overwhelming. 

His weapon is rule by decrees. But these days, their writ mostly does 
not run beyond the Kremlin walls. For it to do so, a Russian President 
must have a Parliament which basically supports him. 

A first sign of an emerging coalition emerging was the declared 
agreement yesterday between Alexander Lebed, former general and aspiring 
President, and the re-appointed Prime Minister Viktor Chernomyrdin on a 
way out of the crisis. But any deal credible in domestic terms would 
probably have to embrace the Communists, the largest party in the Duma. 

Democratic purists would see this as consigning Russia anew to the dark 
ages. In fact such an outcome would probably be welcomed even in 
unlikely places. Who knows, mused Algirdas Saudargas, Foreign Minister 
of Lithuania which suffered 50 years of unwilling annexation by Soviet 
Communism, in London yesterday, "A few Communists in the Government 
could increase stability." Also to be factored into any guess about 
Russia's future is the capacity for suffering of its people. Anywhere 
else, a financial meltdown of current proportions would have led to a 
popular uprising. But under Communists and post-Communists alike, 
Russians have frequently experienced currency chaos. 

The wiser ones this time will have put their savings into dollars. The 
rest will once more, almost certainly, put up with it. Perhaps at last 
they will be paid, even in devalued, inflation-eroded roubles. For the 
miners of Vorkuta, Kemerovo or the Don Basin, that is what matters- not 
the unlikely prospect of another $4bn from the IMF, that would vanish 
into the black hole of a crumbling banking system and to reimburse 
foreign lenders who arguably should have known better in the first 

For the rest of the world, the long-term effects of this crisis should 
logically be small. The present contagion is mostly psychological, the 
impact on world markets out of all proportion to the size of Russia's 
economy and its marginal role in global trade. Only for its immediate 
neighbours is the risk of infection founded in the realities of trade 
and financial flows. 

Those most at risk are the countries still economically yoked to Russia, 
like the Ukraine and Belarus, and other former Soviet Republics and some 
former members of the Warsaw Pact perceived, rightly or wrongly, as 
somehow "linked" economically with Moscow. 

Take Lithuania for instance, enjoying 7 per cent growth and whose 
currency, the litas, is pegged to the dollar and 100 per cent backed by 
foreign currency reserves. None the less it conducts 25 per cent of its 
trade with Russia. And that may be a dangerous percentage, at a moment 
when Russia is proving the global capitalism Mr Clinton represents does 
not have all the answers. 


Financial Times (UK)
28 August 1998
[for personal use only]
Muscovites' faith in capitalism is crushed
By Chrystia Freeland and Charles Clover in Moscow

"The state stole our money," said Roman, a 32-year-old Moscow marketing 
director, who has helplessly watched $30,000 drain out of his savings 
account as the rouble has more than halved in value over the past 10 

Roman, who held a 10-hour vigil yesterday outside a branch of SBS-Agro, 
the second most popular savings bank, in a futile effort to retrieve his 
money, said his faith in Russian capitalism had been crushed.

"We believed in market reforms. We trusted the promises of our 
government and our central bank when they said, 'Go to the commercial 
banks, they will give you higher returns than the state'," Roman said. 
"But this is a lesson - I will never again put my money in a Russian 

But Roman and the 50 other aggrieved depositors patiently waiting for 
their money are the lucky ones. According to poll data, only one in four 
Russians claims to have savings at all. The sum of all household 
deposits is roughly 130bn roubles, or 4 per cent of gross domestic 
product, meaning the average depositor holds only 3,500 roubles ($350).

Most Russians are too poor - or too suspicious - to have been affected 
by the crisis in the banking system. The best-off are those who hold 
some of the $35bn in hard currency.

The millions of workers whose wages have been unpaid for months, or even 
years, have been scratching out a diet in garden plots and living on 
their parents' pensions. As the rouble dissolves, the prospect of a 
pay-off of accumulated wages is vanishing.

"All my workers have been treating the company as a sort of bank, and 
seeing their unpaid wages like a kind of savings," said Joseph 
Piradashvili, director of Zapolarneftegaz, a gas exploration company 
north of the Artic circle. "Now, in dollar terms, their savings have 
halved and soon the price of food, which must all be imported, will 

Echoing the shortage-stricken Soviet days, those Russians who have cash 
are finding that there is less to buy. Some shops, and even traders in 
city bazaars, yesterday locked their doors to Moscow customers. The 
merchants are waiting for the currency to hit bottom before they resume 

"We lost $1,800 on Tuesday alone because the rouble fell, so now we just 
sell for a few hours and then go home," said Lena Burmistrova, who sells 
Austrian shoes at a stand in Luzhniki, one of Moscow's most popular 
markets. "Probably Luzhniki will just close down for a week or 10 days. 
Everyone is in horror. No one knows what to do."

Ironically, only the people who had already been reduced to penury by 
the market reforms are finding something to cheer about.

Liuda, a 47-year-old bureaucrat in Vladivostok, Russia's far eastern 
outpost where water is rationed and black-outs are routine, lives on her 
mother's meagre pension. She thought she would never see a pay cheque 
again, but now she has some hope. "Maybe now they will print some 
roubles and I will get my salary. You can't live without money and now 
maybe I will get a little bit."


Pundits Cited on Chernomyrdin's Political Future 

Rossiyskaya Gazeta 
August 27, 1998
[for personal use only]
Report by Anna Kozyreva under the "Political Forecast" rubric:
"Which Corridor Leads to the Premier's Office? Russian Political
Scientists Sketch Out Possible Scenarios for the Development of

Everyone is sure that this fall will be a hot season. Political
scientists recalled ex-Premier Sergey Kiriyenko's words to the effect that
"the crisis is only beginning." Therefore, given an unfavorable turn of
events, a social explosion is possible too. The unfavorable events, in the
opinion of Igor Bunin, director of the Center for Political Techniques,
could be as follows: The State Duma drags out the approval of Viktor
Chernomyrdin's candidacy and the political elite starts a "tug of war";
meanwhile the ruble falls even lower. But there is a chance of avoiding
that scenario if Viktor Stepanovich is able quickly to find a common
language with both the Duma and the elite. Then the country can expect to
emerge from the crisis and the premier himself can expect to become Russian
president in the future.
Let me note that absolutely all the political scientists were united
in the opinion that V. Chernomyrdin is the most probable candidate for the
presidency both in the event of early elections and in the event that the
elections take place in 2000. Mikhail Gorshkov, director of the Russian
Independent Institute of Social and Ethnic Problems, shared a curious
observation. Public opinion polls carried out even before V.
Chernomyrdin's appointment as acting government chairman showed that the
majority of Russians believe that he will be the next president, and even
those who will personally vote for another candidate are sure of that.
There was a similar situation in public opinion polls on the eve of the
1996 presidential election. M. Gorshkov also noted that 42 percent of
those polled believed in Viktor Chernomyrdin's lucky star even immediately
after his dismissal.
Vyacheslav Nikonov, president of the "Politika" Foundation, is
confident that the future government will without fail be a coalition
government, since responsibility for unpopular measures must be shared out
as far as possible among everyone. And the measures adopted to overcome
the economic crisis cannot be popular....
Incidentally, as V. Nikonov noted, today Viktor Stepanovich is acting
premier of a different country. The liberal-technocratic model of Russia's
development has been scrapped by the liberal technocrats themselves.
Unlike Sergey Kiriyenko, V. Chernomyrdin has political support in the
shape of the NDR [Russia Is Our Home]. Today the movement has every chance
of becoming the party of power without the quotation marks. And that means
that an influx of new people and fresh forces will pour into the NDR.
The political scientists also do not rule out the possibility of
Viktor Chernomyrdin acquiring a new image, most likely the image of a
patriot concerned to protect Russia's national interests. And in the very
near future we will see major shifts in Russia's political life.


Paper Says Kiriyenko Not To Blame for Crisis 

Komsomolskaya Pravda 
25 August 1998
[translation for personal use only]
Article by Yevgeniy Anisimov: "Kiriyenko Did Nothing Foolish"

Resignation is always a punishment in Russia. The resignation of S.
Kiriyenko's government appears all the more strange -- there was nothing to
punish him for. The most fault-finding view of him could not describe as
foolish any particular action by the now former premier -- he acted
strictly within the bounds of the corridor of possibilities. If someone
else had been in his place, maybe everything would have been still worse. 
The only possible rebuke against the ex-premier is that his team was weak
Kiriyenko has done his duty, and now he can go. He has carried out
devaluation, drawn up an anticrisis package of laws, and obtained credits
from the West. Now Chernomyrdin can return again. What will be the first
steps of the new old premier? Viktor Stepanovich will undoubtedly help the
oil and gas industries. The fuel and energy complex will get from
Chernomyrdin all the breaks that it tried in vain to get from Kiriyenko. 
No one will keep the ruble's exchange rate strong, and it will rise more
rapidly. It is quite likely that the very concept of the "currency band"
will soon disappear, and we will get the ruble's "floating exchange rate." 
And, accordingly, accelerated inflation. Boris Fedorov will cease his
attacks on Gazprom and the oil industry, but it is altogether unlikely that
he will keep his post as chief tax official. It will be clear from the
very first appointments of ministers in V. Chernomyrdin's cabinet whether
he has learned well the lessons in macroeconomics he received while he was


Yabloko Head Says Faction To Vote Against Chernomyrdin 

Moscow, Aug 26 (Interfax) -- The Yabloko faction in the Russian State
Duma will vote against approving Viktor Chernomyrdin as the re-appointed
Russian prime minister, Yabloko leader Grigoriy Yavlinskiy told a Wednesday
[26 August] news conference.
He said Yabloko would not negotiate for positions in the new Cabinet. 
There are no plans for a meeting with Chernomyrdin, but if a meeting does
take place he will say everything to Chernomyrdin personally, Yavlinskiy
Almost six years of Chernomyrdin as prime minister "have convincingly
demonstrated to this country and the world that we have developed a
semi-criminal and extremely inefficient economic system," he said.
"The downfall of the ruble, which is not over, is a direct consequence
of the irresponsible economic policy of the [former] Chernomyrdin
government," he said.
Therefore, President Boris Yeltsin's decision to make Chernomyrdin
head of the government again "is a soap opera, revealing complete
disrespect for the citizens of Russia," he said. The new Cabinet will be
shortlived, he added.
Answering an Interfax question, Yavlinskiy said that the tough
declarations by the leaders of the left-wing majority in parliament may
camouflage "a plot between the leftists and Chernomyrdin aimed at
pressuring the president to encourage [Yeltsin] to share part of his powers
with the prime minister."
"President Yeltsin should realize that. This is the most dangerous
course of developments that could be suggested today," he said.
Yavlinskiy said that the immediate amendments to the Constitution
curtailing presidential powers demanded by the left-wing opposition are
absolutely impermissible and Yabloko is opposed to them.
"It is impermissible to tailor the Constitution to suit the left- wing
opposition. Any decisions lying outside the constitutional framework are
very harmful for Russia," he said.
He said he was very skeptical about the two key documents the Duma is
drafting -- a concept of economic development and a political agreement
between the executive and legislative branches of power.
Yavlinskiy said Yabloko is ready to assume responsibility for
developing and implementating an economic strategy. However, "today there
are no visible prospects for this and the issue is not being raised this
way," he said.


Russian Expert Says Clinton Should Propose More Arms Cuts 

MOSCOW, Aug 25 (Interfax) -- U.S. President Bill Clinton's upcoming
visit to Russia should accelerate the process of reduction of strategic
offensive weapons, Aleksandr Pikayev, the head of the Nonproliferation
Program at the Moscow Carnegie Center, told a news conference in Moscow
Tuesday [25 August].
"If Bill Clinton does not bring any acceptable proposals on conclusion
of a START III strategic arms reduction agreement, his visit to Russia may
have very negative consequences as far as ratification of START II by the
State Duma is concerned," Pikayev said.
Clinton should put forward new initiatives on nuclear disarmament, he
"The State Duma will ratify START II only if there is progress on
preparation of a START III, which should set lower ceilings on the nuclear
potential of Russia and the United States," Pikayev said.
The U.S. Congress ratified START II in 1996. This treaty allows the
two countries to have no more than 3,000-3,500 nuclear warheads each. 
START III is expected to reduce the limit to 2,000-2,500 nuclear warheads.


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