August 28, 1998   

This Date's Issues: 2330• 2331••

Johnson's Russia List
#2331
28 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: Yeltsin pledgers to finish out term.
2. AFP: Duma rejects Yeltsin's "non-agression" proposal.
3. Fred Weir in Moscow on latest developments.
4. Ray Finch: WHAT THE HECK IS GOING ON IN RUSSIA?
5. Robert McIntyre: Price Controls and the Morality of Russian Crisis
Reporting.
6. Victor Kalashnikov: Yakutia-gold.
7. John Ulfelder: Oligarch Myth (reply to Laura Belin).
8. September 1 briefing at Georgetown University (Washington DC):
"The Summit and the New/Old Russian Government."
9. Interfax: Russia's 30 Largest Banks' Debt Totals $3.4 Billion.
10. Reuters: World's exposure to Russia exceeds $200 bln - FT.
11. The Independent (UK) editorial: The collapse of Russia is not the end 
of capitalism.
12. Moscow Times: Leonid Bershidsky, MEDIA WATCH: Russia Back in World's
Eye.
13. Washington Post: Dmitri Simes, Return to Reality.
14. Reuters: Lebed Warns of Chaos, Backs Chernomyrdin.
15. AP: U.S. Tells Russia to Stay the Course .
16. AFP: Political, economic blueprints the key to Chernomyrdin's chances.]

********

#1
Yeltsin pledges to finish out term

WASHINGTON, Aug 28 (AFP) - President Boris Yeltsin pledged Friday to finish
out his term during talks with a top US official in Moscow, a US
administration official said.
"President Yeltsin, during the discussion, affirmed his intent to
complete his term in office," the official said on condition of anonymity
in Washington.
Deputy Secretary of State Strobe Talbott and Yeltsin met as rumors flew
that Yeltsin would resign over Russia's economic collapse.

********

#2
Duma rejects Yeltsin's "non-agression" proposal

MOSCOW, Aug 28 (AFP) - Russia's lower house of parliament on Friday
rejected President Boris Yeltsin's offer not to dissolve parliament if
parliament would not oust him, a representative told Russian television.
The deal would have included a five-year moratorium on all
constitutional amendments in exchange for a two-year extension of the
parliamentarians' terms, said Oleg Morozov, chief parliamentary negotiator.
Such rule-bending is not allowed for in the constitution.
Lawmakers rejected the swap, which would have prevented them from
passing laws that weaken presidential power -- something they often attempt.
Morozov's comments confirm earlier reports by Interfax news service that
Yeltsin had made such an offer.
Interfax cited a presidential document submitted to the Duma as
suggesting: "in the present particularly complicated situation there should
be no dissolution of the Duma nor any dismissal procedure against the
president."
A Duma commission seeking compromise with Yeltsin studied the proposal
during Russia's current political, financial and economic turmoil.
The proposal was said to be part of a deal being worked out between
parliament, government and the president's office to prepare the formation
of a new government headed by Viktor Chernomydin.
The Duma will meet Monday to consider Chernomyrdin's appointment as new
prime minister to replace Sergei Kiriyenko, fired by Yeltsin on Sunday.
The deal rejected on Friday would have stopped moves by the Duma to
force Yeltsin's resignation.

Persistent rumours that Yeltsin was on the verge of quitting amid an
unprecedented financial crisis prompted the Kremlin Thursday to issue a
denial.
"I would not even want to reproduce the reaction" of Yeltsin to calls
for his resignation, spokesman Sergei Yastrzhembsky said Friday.
In the rejected deal, the Kremlin proposed setting up a constituent
assembly to introduce those changes in the 1993 constitution, which greatly
benefits the president.
The proposed constituent assembly would include the two houses of
parliament, the constitutional council, the supreme court, the supreme
arbitration court, trade union representatives, religious figures and
government members.
On Wednesday the Duma made its own proposals to increase parliamentary
control over government. 
These included a demand that the president should no longer be able to
present his own candidate for the post of prime minister a second time
round after parliament had already rejected his nominee.
It also demanded that the dismissal of the government, hitherto a matter
for the president, should in future be agreed in coordination with
parliament. 
Lawmakers in the Duma clash frequently with Yeltsin and its influential
speaker Gennady Seleznyov on Wednesday called on the president to step down.
Gennady Zyuganov, head of the Russian communist party, the strongest
party in the Duma, said Friday the country was currently ruled by chaos and
that the communists were going to press for Yeltsin's removal.
Yeltsin arrived in Moscow Friday after lying low in various holiday
retreats over the past six weeks as his country descended into bankruptcy
and economic anarchy.
The crisis is destroying the two major achievements of Yeltsin's
seven-year presidency -- low inflation and a stable ruble.

********

#3
From: fweir@rex.iasnet.ru
Date: Fri, 28 Aug 1998 
For the Hindustan Times
From: Fred Weir in Moscow

MOSCOW (HT Aug 28) -- Confusion reigned in Moscow Friday as
President Boris Yeltsin vehemently denied rumours of his
impending resignation and acting Prime Minister Viktor
Chernomyrdin told panic-stricken Russians the economic crisis is
under control.
"One way or another, the Yeltsin era is over," says
Alexander Konovalov, an analyst at the Institute for Strategic
Assessments in Moscow. "It's quite possible that he'll resign
before his term is up, but even if he stays on he will never
again have the power he had before this crisis broke."
Russia has been spinning out of control ever since an almost
bankrupt government stopped defending the rouble two weeks ago.
The battered Russian currency has since lost about a third of its
value, forcing the Central Bank to freeze trading and halt most
hard currency credits.
Private banks, many of which greatly overextended themselves
during the financial boom of recent years, have been shutting
their doors and refusing to pay depositors their money.
"Now I have sorted out the situation in full and can say:
Although it is certainly not simple, it is absolutely
controllable," Mr. Chernomyrdin said Friday. 
But panicky Russians have been besieging the banks to demand

their savings, while others have been storming grocery stores and
appliance shops desperately trying to convert their roubles into
solid merchandise before they become completely worthless.
"I'll buy a computer or a refrigerator, whatever is
available," said Lena Tarkovskaya, a 43-year old clerk, who was
lining up outside a downtown Moscow department store Friday
morning. "If I don't spend my roubles now they'll be lost
forever."
Last weekend Mr. Yeltsin attempted to stabilize the
situation by sacking his young pro-market prime minister, Sergei
Kiriyenko, and bringing back Mr. Chernomyrdin, a conservative who
led Russia's government from 1992 until last March.
But that move only deepened the country's financial frenzy,
and led to a rising crescendo of demands for Mr. Yeltsin's
resignation from the opposition-led parliament, some regional
leaders and from the streets.
"The financial crisis gravely weakened Yeltsin, but his own
political miscalculations have brought him to the brink of
disaster," says Viktor Kuvaldin, an analyst at the Gorbachev
Foundation in Moscow.
"Now it is parliament and the economic elite who will work
out the terms for ruling Russia over the next period."
The State Duma, Russia's lower house of parliament, plans to
meet on Monday to consider Mr. Chernomyrdin's confirmation. But
the powerful Communist Party is threatening a long and bruising
battle over the new prime minister's nomination unless Mr.
Yeltsin turns over much of his authority to the Duma and the new
government.
The Communists believe it is time to abolish the
all-powerful presidency instituted by Mr. Yeltsin after he won a
power struggle with parliament in 1993, and create a "government
of national trust" based on the relative strengths of political
parties in the Duma. 
"The next government will have to be formed on a coalition
basis if they want to rescue the country from crisis together," 
Gennady Seleznyov, the Communist speaker of the Duma, said
Thursday. "It is desirable that Yeltsin himself should introduce
changes to the constitution vesting the government with broad
powers. We have been pressing for this for some time." 
But on Friday Mr. Yeltsin's office scoffed at reports that
the President might soon resign or turn over his powers to
parliament.
"I would not even like to reproduce" the President's

reaction to calls for his resignation, Kremlin spokesman Sergei
Yastrzhemsky said. "Such talk is just absolutely groundless idle
inventions."
A smiling and alert-looking Mr. Yeltsin was shown on Russian
TV Friday meeting with the visiting Bulgarian President and
holding meetings in the Kremlin.
"It's not likely Yeltsin will quit anytime soon," says Mr.
Kuvaldin. "He is not the type to walk away from power. And
anyway, he has U.S. President Bill Clinton coming to visit him on
Tuesday. I'm betting Yeltsin will still be in the Kremlin to
greet him."

********

#4
Date: Fri, 28 Aug 1998 
From: "Ray Finch-Kroll Associates, Moscow" <krollrf@aha.ru>
Subject: Friday 28 August

WHAT THE HECK IS GOING ON IN RUSSIA?

Walking from the subway stop to work this morning (Friday 28 August) there
was no sign that the country was in the midst of a financial and political
crisis. The old ladies were still standing along the metro entrance selling
their cigarettes, the fruit and vegetable stands were preparing for another
day of sales and there was the same brisk business at the drink kiosk for
canned gin and tonic. It was not even 8 a.m., and already a number of
construction crews were hard at work constructing and restoring buildings
along my path. (Whoever said that Russians lacked drive and industriousness
was wrong. What they lacked in the past was an opportunity to better their
lives.) 
Reaching the office, the same car whose security alarm had been yelping all
day yesterday was still whooping and whining away, though at a lower
decibel. The battery will likely be dead by the time the owner reappears.
The whining of this siren was quite similar to the frightening
announcements and headlines now screeching from the Russian capital. This
siren has been whining off and on for the past eight years, and most have
now grown used to it. Besides, who really cares if someone rips off this
crummy old Lada of a country? I suspect that most of the recent concern has
more to do with the $33 billion which was ripped off by the Russian
kleptocracy than with the fact that this Lada is not only packed full of
nuclear-chemical-biological TNT, but the driver has been known to take more
than a nip on occasion. 
In all likelihood, there will shortly be a change of drivers, and who
knows, maybe this new owner will figure out how to turn off that damned
siren and get the car running properly. Early reports have it that this new
driver plans to drive for awhile in reverse. Sure hope the engine can stand
the strain and the cargo doesn't shift too much! 

********

#5
From: "Robert McIntyre" <mcintyre@wider.unu.edu>
Date: Fri, 28 Aug 1998 
Subject: Price Controls and the Morality of Russian Crisis Reporting

Mention of price controls in Russia will quickly produce heavy 
application of "free market" ideology, always presented as the 
"market-wise" use of the "economic laws of nature". 
I have a recently published article in "Europe-Asia Studies" 
(former "Soviet Studies") which has the drawback of a long pompous 
title (listed at the end) but the advantage of explaining how market 
controlling actions can be successfully carried out in emergency 
situations. The simple point is that a successful approach requires 
coherent attention to both supply and demand sides of the market. 
Attacks on these measures are often purely ideological, but claim to 
be application of the "law of markets" My article suggests that the 
regional authorities most attacked as enemies of "market reform" have 
a far more serious understanding of how markets actually function 
than do their critics. 
It is not impossible to have both controlled and free market 
sales of the same product at the same time. Two obvious "supply 
side" actions have to be carried out to allow that: (1) there must be 

supplies of the controlled product actually available; and (2) price 
controls have to be supported by quantity restrictions (You can buy 
only 1 kg of sugar at a time, or per week). So, price controls will 
require some form of explicit rationing. They are also likely to 
require explicit subsidies. 
A simplification to make the point: an extra tax could be added to 
free market sales of sugar to fund the procurement and payment of 
subsidies necessary to allow provision of an adequate supply of the 
price controlled sugar. 
If there is serious concern about social/health disaster in the 
coming winter period, price controls and rationing of "subsistence 
goods" is logical, practical and morally appropriate. 
It would be nice to see popular and specialist writers stay off
the pure propaganda road in reporting this issue and note instead 
that price controls and rationing are a universal and generally 
successful tactic of all governments in war-time and post-war 
emergency conditions (which for example extended until 1951 in 
England). Russia is now (and has been for a while already) in 
such conditions.
There are a series of arguments that should be resolutely 
laughed off by any writer claiming to put the interests of the 
Russian people first: 
(1) that the welfare of the Russian people would be improved 
(compared to this rationing approach) by simply giving them the money 
to buy necessities at the going rate -- this is an absurd formal 
argument that has no relevance to "disequilibrium" economic and 
social disaster situations; 
(2) that the Russian government is incapable of administering such a 
program -- these are exactly the type of measure that would enjoy 
extremely broad social support and could quickly build up renewed 
popular support for the authorities -- if much of the Moscow 
population does not like this approach, that is itself a sign it is 
excellent policy (the Moscow way of life developed after 1991, not 
just by the new Russian strata, has been partly based on the 
degradation of the rest of Russia -- this is not the time to look 
away from "where the real suffering is"); 
(3) that the government has no resources to do this -- there are 
continuing large export earning (that no Western government could 
possibly stop from being used for food purchases), plus vast 
possibilities for seizure of tens of billions of dollars of stolen 
and misappropriated funds abroad (which also requires cooperation of 
Western governments); 
(4) that any corruption in the administration of the program ruins 
its value -- there is almost always some corruption, but as long as 
there is strong social support for goals of the program and 
transparency in its operation, the corruption is a small irritant, 
not a fatal flaw. Much of the popular "legend" of price-control 
evasion is based on end of the war or post-war events, and even 
so is generally exaggerated. 
Let me (almost) end with a quote from J.K.Gailbraith:
"A common tendency of orthodox economics has been to deal with all 
forms of price control as a homogeneous exercise. This, it will be 

evident, is a grave oversimplification. In fact, there are radically 
different forms of controls in greatly differing contexts. Reasonable 
and, indeed, necessary sophistication requires that these differences 
be recognized, that price controls be seen as a diversely applicable 
policy, sometimes greatly advised, sometimes wholly the reverse."
The article reference is (text available through academic libraries, 
the CARFAX Publishers website or the UNU/WIDER/Helsinki website: 

www.wider.unu.edu):

Robert J. McIntyre, "Regional Stabilisation Policy under Transitional 
Period Conditions in Russia: Price Controls, Regional Trade Barriers 
and Other Local-level Measures", Europe-Asia Studies, vol. 50, no 5, 
1998, pp. 859-871.
Dr. Robert J. McIntyre
Project Director, Transition from Below
UNU/WIDER (World Institute for Development Economics Research) 
Katajanokanlaituri 6B
00160 Helsinki
FINLAND
Tel: (358 9) 615-99 11/switchboard
(358 9) 615-99 212/direct
(358 9) 684-7473/home
Fax: (358 9) 61599 333
E-Mail: mcintyre@wider.unu.edu

*******

#6
Date: Fri, 28 Aug 1998 
From: machinegun@glas.apc.org (Victor Kalashnikov )
Subject: Yakutia-gold

President of Yakutia has just ordered to stop delivering 
gold from his gold-producing republic into federal reserves.
Any comments seem, at first, needless.
For those still too slow in following Russia's 'inherent 
logic'. 1. There was a special KGB unit ensuring gold 
delivery to Moscow-controlled storage facilities. The boys 
are either blocked or on Yakutian side now. 2. There also 
was an agreement between Yakutia (i.e., governing, post-
nomadic Yakuts) and Moscow banks concerning these 
banks' participation at Yakutia-Moscow gold transactions (a 
usual practice since Russian banks existed from budget-
parasitism only). There were killer-units (several thousand 
men), hired by those banks (largely from KGB/GRU) to 
ensure this process. What happened to those poor lads 
during the last night in the gold- and mosquitoes-rich 
tundra?! I have the gloomiest premonitions...
The international aspect of the story is that ca. 2/3 of 
Russia's federal gold/currency reserves had to be 
deposited at foreign banks (mainly those participating at 
GKO gambling). A nice 'Tomahawk' for those tundra-
terrorists now, eh..? 
Meanwhile, the Pacific Fleet started a big exercise (despite 
no sprit there a few days before) following the one in the 
Far North last week. 
RÝsumÝ: leave the old fool in Kremlin in piece. It's Yakutia 
(Tatarstan, Komi, Krasnoyarsk, Yekaterinburg...) where the 
fate is decided now.

*******

#7
From: "John C. Ulfelder" <Ulfelder@EBRINC.COM>
Subject: Oligarch Myth (reply to Laura Belin)
Date: Fri, 28 Aug 1998

Laura Belin's entirely reasonable response (JRL 2330) to Keith Darden 
reveals precisely why some of us have such a hard time swallowing all 
the speculation about the "oligarchs'" influence: because it is still 
just that, speculation.
Ms. Belin writes, "I don't see any reason to rule out the possibility 
that Yeltsin was throwing a bone to the oligarchs." Nor do I, though 
conspiracy theories are notoriously difficult to falsify. But the 

fact that it's *possible* shouldn't make it front-page news (today's 
Washington Post A1 headline reads: "Tycoons Take the Reins in 
Russia"!).

To my mind, the greatest failure of this Kremlin-intrigue approach to 
covering Russia is that it remains oblivious to the fundamental 
politics of the country. It leaves American readers unable to imagine 
a Russia beyond the Kremlin walls, yet most of the choices that will 
determine where Russia goes from here will be made literally or 
figuratively thousands of miles from the capital.

If I may indulge in a little speculation of my own (but labeled as 
such), I think we may finally be seeing the last gasps of the old 
guard, the beginning of the end for the Soviet holdover institutions, 
the completion (or eruption) of the revolution that began nearly a 
decade ago, with a final transfer of power away from the capital. If 
the command-economy crowd completes the coup in Moscow, it will only 
hasten the collapse of the center, for too many property holders and 
regional players now have a real stake in bringing their goods to 
market and writing their own rules. If I were a challenger in Russian 
politics, I wouldn't be scrambling to out-Soviet Chernomyrdin by 
coming up with the next great 5-year plan, I'd be spending my time 
drafting the Russian version of the Federalist Papers.

********

#8
Date: Fri, 28 Aug 1998
From: "Cheryl C. Sawyer" <SAWYERC@gunet.georgetown.edu>
Subject: briefing at Georgetown University

On Tuesday, September 1, the Georgetown University Center for Eurasian,
Russian and East European Studies will host "The Summit and the New/Old
Russian Government," a briefing and discussion on the current political and
economic situation in Russia and the upcoming presidential summit. Panel
members will include Harley Balzer, CERES Director; Angela Stent, Professor
of Government; Clifford Gaddy, Fellow, The Brookings Institution; and Leon
Aron, Resident Scholar, American Enterprise Institute. The session will be
held from 3:30 - 5:30 p.m. in McNeir Auditorium (New North). For more
information contact CERES at 687-6080.

**********



#9 
Russia's 30 Largest Banks' Debt Totals $3.4 Billion 

Moscow, Aug 26 (Interfax)--Russia's 30 largest banks have debts to
foreign banks totaling $3.4 billion that mature during the 90-day
moratorium period which started August 17, say experts at the Interfax
Economic Analysis Center.
As of July 1, 1998, the 30 banks owed $8.1 billion in loans maturing
between July 1998 and June 1999, of which $2.31 billion was due in July
1998, $1.48 billion in August, $1.14 billion in September, $1.18 billion in
October, $605 million in November and $678 million in December, the Russian
Central Bank reports. A total of $707 million is to be paid back in the
first half of 1999.
The amounts borrowed by Russian banks abroad in July and August 1998
did not significantly change this data, Economic Analysis Center experts
say.


********

#10
World's exposure to Russia exceeds $200 bln - FT

LONDON, Aug 28 (Reuters) - The outside world's debt and equity exposure to
crisis-ridden Russia exceeds $200 billion, the Financial Times said on Friday,
quoting a research body owned by leading banks. 

It said the figures produced by the Washington-based Institute of
International Finance included $194 billion in all external debt and an
estimated $11 billion for accumulated foreign investment in Russian equities
at the end of 1997. 

But the institute pointed out that exposure did not necessarily mean loss. 

It quoted Dutch bank ING Barings <ING.AS> as saying $118 billion in wealth had
been "destroyed" in Russia since the start of the year, which included money
lost by Russians. 

The bank said the figure was broken down as follows: a $57 billion fall in
stock market value, a $31 billion fall in the value of outside debt and a $30
billion loss in value on GKOs, rouble-denominated treasury bills. 
The newspaper quoted economists and bankers as saying Russia's exposure to
foreign creditors in various types of hard currency-denominated bonds was
$54.5 billion. 

*********

#11
The Independent (UK)
August 28, 1998
[for personal use only]
Editorial/Leader
The collapse of Russia is not the end of capitalism
At the beginning of this decade, the bright, optimistic talk was of the 
End of History. The collapse of communism, crushed by the cost of 
fighting the Cold War, was thought to usher in a post-ideological era of 
global tranquillity. The triumph of liberal economics was final, and 
would bring in its wake the world-wide spread of liberal democracy. It 
was never likely to work out like that, but the pitching of embryo 
Russian capitalism into crisis has revealed the the end of that 
particular stage of history to be a much more complicated - and more 
exciting - phenomenon than it might have seemed. 
The immediate consequences of the Russian crisis for the rest of the 
world are perhaps limited, however ghastly they are for the Russian, 
Ukrainian and Belarussian peoples. The increased size and complexity of 
the international trading system makes it more resilient to regional 
shocks and less vulnerable to domino effects - although the simultaneous 
sharp and deep downturns in east Asia, Brazil and Argentina are hardly 
good news. British exposure to bad Russian loans is minimal - certainly 
in comparison to Germany's commitment - but the real impact will be on 
the IMF, which will now have less to lend to other developing countries. 
Indeed, it is in the poor world that the lasting effect of economic 
anarchy in Moscow might be felt. Not just because the supply of capital 
will be temporarily reduced, but because the glaring omission from 
Francis Fukuyama's elegant thesis was a theory of precisely how the 
benefits of liberal economics would be transmitted to the poorer 
two-thirds of the world's population. If poor countries no longer have a 
choice between the planned economy and the free market, they still face 
agonising dilemmas in their choice of route from agrarian poverty to 
free-market prosperity. The apparent failure of Russia's seven-year 

experiment in Chicago-school capitalism calls into question the 
laissez-faire route. 
Since Mr Fukuyama's essay appeared in 1990, there has been a vogue for 
books modelling themselves on Adam Smith's 18th-century classic, 
attempting to improve our understanding of the laws of national 
prosperity. The Work of Nations, by Robert Reich, laid the emphasis on 
the educational level of workforces - people being less mobile than 
either capital or information in the modern global economy. That, in 
part, has been the route adopted by the east Asian "tigers". 
Earlier this year David Landes, in The Wealth and Poverty of Nations, 
was accused of showing an "almost Whiggish confidence" in the 
superiority of the Anglo-Saxon brand of capitalism. While his analysis 
of national markets and a culture of individualism is fine in explaining 
the development of early industrial societies, it is less useful as a 
guide to the economics of "catching up" which is what matters to the 
developing world. 
The implication of the "End of History" argument was that it was enough 
to send in Western bankers and business school graduates into the 
so-called "emerging markets". But setting up a stock exchange, 
auctioning off state assets and waiting to see what happens is clearly 
not sufficient to ensure a fast track to first-world status for 
countries of either the second (ex-communist) or third worlds. Certainly 
if, as in Russia, the infrastructure does not exist for the efficient 
collection of taxes. 
Mr Fukuyama was right to suggest there is no present alternative to 
capitalism, but that is far from the end of the matter, let alone of 
history. Capitalism is a bumpy road. Nor does a free market mean a 
nightwatchman state. It is important that the state should command 
authority through consent, which is why it is too simple to see 
political reform as following economic development - the two should go 
hand in hand. While there may not be much we can do for Russia in the 
short term, its crisis should open up a debate about the many routes to 
capitalist salvation. 

**********

#12
Moscow Times
August 28, 1998 
MEDIA WATCH: Russia Back in World's Eye 
By Leonid Bershidsky
Special to The Moscow Times

For people outside Russia, what is going on here has a decidedly 
apocalyptic look. That is a known phenomenon: The way Russia is covered 
in the Western press, it seems much worse than it actually is. Ordinary 
Russians' underlying confidence that they will survive any disaster is 
hard to capture in a news story, and in any case, the story has to start 
off with default, devaluation, government shakeup, Yeltsin's dementia, 
etc. 
Russia is back on the world's front pages. For Moscow correspondents, 
there is again plenty of work and plenty of opportunities to make 
themselves more visible, though only the most cynical of them would feel 
happy about it. The story is alive and vibrant after a period of slow 
decay caused by Russia's tentative economic revival and political 
stabilization . 
This means a revival of sorts for Russia pundits. While news reporters 
are searching for some kind of logic to the recent momentous events, and 

many of them are again embracing the convenient conspiracy theory 
according to which Boris Berezovsky is the root of all evil, the pundits 
are left to offer unorthodox opinions, the likes of which would have 
been hard to find on the pages of the mainstream Western press in the 
old, more straightforward days. Back then, these opinions would have 
seemed downright wacky. For lack of the ordered reality, that would 
comply with mainstream economic and political theories, they suddenly 
deserve attention. 
"Basically the disaster in Russia in the wake of the disaster in Asia 
shows that we must revise our understanding of economic development," 
Professor Gerry Hough wrote in the Los Angeles Times. "Investment is key 
to growth, and domestic investment must almost always precede 
large-scale foreign investment. When market institutions are weak, 
investment must be supported by government. Countries with infant 
industries need protectionism, as the U.S. did in the 19th century." 
The Los Angeles Times' reporting from Russia has basically been in line 
with modern, monetarist economic theories -- the Russian leaders who 
advocated them were called reformers and those who criticized them were 
called retrogrades. But now the editors there clearly see a need to 
balance that traditional view with suggestions which, coming from an 
American academic, would cause Gennady Zyuganov to stand up and cheer. 
Or take a look at a recent opinion piece by Matthew Parris in The Times 
of London. "Is it not at least arguable that [Russia's] economic and 
social crisis springs from democracy and is locked by democracy into an 
unending and destructive cycle? The concentration of economic power in 
the hands of a mafia came with, and is a result of, political 
liberation. The powers needed to smash that mafia will be hard, perhaps 
impossible, to assemble in a 'free' country. ... Far from marching in 
step with a free market, constitutional liberty, there is throttling the 
free market." 
The Times is printing these doubts on its opinion page because of the 
desperate need to find some kind of a rational explanation to what has 
happened here, even if this explanation is uncomfortable to most 
conservative Times readers. 
Consider the even more far-out suggestion by Rupert Cornwell, printed on 
the opinion page of The Independent. 
"In 1867, America purchased the 600,000 square miles of Alaska from the 
tsars for a few million dollars," Cornwell wrote. "What about Russia now 
selling an even larger swath of Siberia to the U.S. for a few trillion 
dollars, payable in installments over several decades?... Russia would 
be assured the colossal sum it needs, over the period it needs, to turn 
itself into a clean and modern country, without running up debts it can 
never repay. Western expertise would be able to exploit Siberia's huge 
resources." 
The idea that Russians are too incompetent and too inclined toward 
thievery to manage their own affairs has even crept onto the pages of 
that bastion of the economic mainstream, The Economist. The magazine 
wrote recently: "If [Western] lending is now to resume, it must be only 

on the strictest of terms. That should mean explicit conditions about 
what the money is to be used for -- for instance, to guarantee small 
deposits in commercial banks. It should also mean stern supervision of 
how it is spent, preferably by appointing foreigners to run the banks in 
question. Similar oversight over the tax and customs services will have 
to be imposed if any support is to be given to the balance of payments." 
Russia has disappointed and baffled the world again. I guess that's the 
only way we can guarantee ourselves a place in the collective mind of 
the West. 

********

#13
Washington Post
28 August 1998
[for personal use only]
Return to Reality
By Dimitri K. Simes
The writer is president of the Nixon Center. 

Viktor S. Chernomyrdin's reappointment as prime minister presents the
best and perhaps the last opportunity to keep the Russian political
situation under control and ensure a relatively smooth transition when
Boris N. Yeltsin leaves office. Of course, Chernomyrdin is not a magician,
and he shares responsibility for the country's current chaos. But he
realizes that Russia faces a systemic crisis and that political rather than
purely financial solutions are essential.
The alternative to Chernomyrdin's return -- retaining Sergei V.
Kiriyenko and his government, which lacked any major base of support beyond
the erratic Yeltsin -- was a recipe for disaster. For the first time in
years, recent Russian opinion polls had begun to indicate a potential
social explosion.
The Clinton administration and the International Monetary Fund loved the
Kiriyenko cabinet's commitment to follow the IMF's recommendations to
maintain the value of the ruble, cut the federal budget and increase tax
revenue. But the Kiriyenko government had no chance of delivering on its
promises.
In the Russian economy -- where about 75 percent of transactions are
based on barter for which there is yet no meaningful tax legislation --
sending out tax police squads with ski masks and submachine guns could not
resolve revenue shortfalls.
Similarly, in attempting to avoid the inevitable devaluation of the
ruble, the Russian Central Bank wasted some $3.5 billion to $3.8 billion of
the first $4.8 billion installment of the IMF's $22.6 billion July rescue
package in only one month.
Russia needs more rather than less reform. But for reform to work, it
must be undertaken in a systematic manner and address the key requirements
for building a genuine market economy in Russia, including guarantees of
property rights, anti-monopoly legislation, tax reform and tough measures
against corruption. In order to have any credibility, changes this profound
cannot be implemented through presidential decrees of questionable
legality. They must be legislated by the Russian parliament.
Critics of Russia's State Duma frequently describe it as being dominated
by Communists and nationalists. This convenient label is simplistic,
however; the Communists have the largest faction in the Duma but are
certainly not in control. And Vladimir Zhirinovsky's nationalists have lost
most of their popular support and have voted with Yeltsin on most major
issues. This is not an ideal parliament, but it is not a hopeless one either.
Given that opinion polls suggest new elections are unlikely to produce a
better Duma, a truly pro-reform Russian government -- one that is prepared
to be judged on results -- has no alternative but to enter into a dialogue
with the Duma. Despite their pro-Western appearance, Kiriyenko and his
radical colleagues have failed to accept the fundamental fact that in a
democracy, even an emerging democracy, treating the elected representatives
of the people with contempt will not contribute to the development of a
free-market environment. To his credit, the former Soviet bureaucrat
Chernomyrdin understands at least that much.

Dialogue with the defiant Duma is not going to be easy. Chernomyrdin
will need to demonstrate a remarkable combination of backbone and
flexibility in his relations with the Duma, the oligarchs, foreign
investors and, last but not least, Boris Yeltsin -- who has a record of
being disloyal in defeat and envious of victory.
If the prime minister tries to be all things to all people -- or worse,
if he appears to be no more than a surrogate for the oligarchs -- his
second tenure in office will be a sad and short-lived episode.
For now, however, there is little choice but to give Chernomyrdin a
chance. This does not mean offering Moscow more funds; rather, the United
States should tell Yeltsin and Chernomyrdin that Washington is ready to
encourage the IMF to release subsequent installments of the loan without
trying to micromanage Russia's reform process. Of course, the Clinton
administration should insist on transparency, protections for foreign
investors and guarantees that the IMF money will not be primarily used, as
it has been in the past, to benefit Russia's oligarchs.
Beyond that, the time is long past for the administration to put an end
to its paternalistic obsession with Boris Yeltsin, to accept the fact that
Russia is not an American protectorate, and -- to the extent important U.S.
interests are not involved -- to allow and indeed encourage Russia to make
its own decisions. At a minimum, such a policy would protect the United
States against backlash in Russia in the event the Yeltsin regime fails.
And by placing the responsibility for Russia's future where it should be
-- squarely within Russia's own political process -- we would
simultaneously encourage the Russian people to develop their own indigenous
solutions and make clear that they must be ultimately responsible for the
consequences.

********

#14
Lebed Warns of Chaos, Backs Chernomyrdin 
August 28, 1998

MOSCOW -- (Reuters) Reserve general Aleksander Lebed, a contender for the
Russian presidency, urged all parties on Friday to back acting Prime
Minister Victor Chernomyrdin and warned of chaos if parliament thwarted his
attempts to govern. 
"Chernomyrdin has very little chance of getting the situation under
control. Helping him would be good for everyone. We must help him," Lebed,
a former Kremlin security adviser and now governor of Krasnoyarsk region in
Siberia, told reporters during a visit to the Duma, the lower house of
parliament. 
Lebed, seen as a possible rival to Chernomyrdin in the bid to succeed
President Boris Yeltsin, described opposition threats in the Duma to block
Yeltsin's nomination of Chernomyrdin as premier as a policy of "the worse
it is, the better for us." 
"The situation is critical. Things are very nasty in the country," added
the law and order campaigner, who sits in the Federation Council, the upper
house, in his capacity as a regional governor. 
Lebed was among the first officials Chernomyrdin met after his
nomination on Sunday, five months after Yeltsin dumped him in favor of the
short-lived premiership of Sergei Kiriyenko. 
He said Yeltsin appeared to be giving up power and that parliament was
pressing to seize his authority, but he warned that the Communist-led lower
house must reach an accord with Chernomyrdin or risk provoking popular
unrest. 


"I get the impression that the executive and the legislature are trying
to sweep each other away," Lebed said of Communist demands that
Chernomyrdin agree to transfer constitutional power from the president to
parliament in return for its endorsement. 
"If they fail to understand the situation in the country, both of them
will be swept away," he said. Asked if he meant there could be a popular
revolt, he said simply, "Yes." 
"In many regions, the security forces, the executive powers and the
people are all in the same foxhole," said the former paratroop commander,
who has warned in the past that the army could mutiny and regions break
free of Moscow due to the federal government's failure to meet its
financial commitments to them. 
However, Lebed, who was dismissed by Yeltsin two years ago amid talk of
a coup plot, dismissed the possibility that anyone could take power in
Moscow by force. 
"That would be as crazy as in 1991," he said, referring to the failed
hardline communist putsch in August that year. (

*********

#15
U.S. Tells Russia to Stay the Course 
By Barry Schweid
August 28, 1998

WASHINGTON (AP) -- Urging Russian President Boris Yeltsin to revamp his
government quickly and take hold of a reeling economy, the Clinton
administration says preparations for summit talks next week in Moscow are
on schedule. 
Reports that Yeltsin is planning to quit are being sidestepped by U.S.
officials as Russia's own business and not a proper topic for U.S.
speculation. But Sandy Berger, President Clinton's national security
adviser, emphasized Thursday that ``this is an extraordinarily important
relationship.'' 
And Berger sounded a clear note of caution to Yeltsin, who dismissed his
government Sunday and has reinstalled Viktor Chernomyrdin as his prime
minister but otherwise delayed filling other top Cabinet posts. 
Yeltsin is due to submit Chernomyrdin's appointment to the Duma on
Wednesday, while Clinton is in Moscow. That will follow two days of
deliberation in the parliament on international efforts to rescue the
fading Russian economy. 
``What we are concerned about, and would be extremely interested in, is
the policy direction that the new government takes,'' Berger said. ``Does
the new government stay essentially on course with respect to economic
reform, and with respect to democracy, or does it change course? 
``If it changed course in any kind of fundamental way, that would be of
serious concern to us,'' Berger said. 
U.S. officials have emphasized that Russia should expect no further
financial bailout from the International Monetary Fund or other nations,
and should instead look to continue free-market reforms to get its
financial house in order. 
Today in Moscow, Yeltsin made another apparent concession to hard-liners
as he fired prominent reformers Boris Nemtsov and Anatoly Chubais. 
Chubais played a leading role in the wrenching transformation from
communism to a market economy that last year finally posted a gain in
growth. He also was the government's chief negotiator with international
lenders, obtaining a $22.6 billion emergency bailout package that failed to
stem the financial crisis. 
With Clinton due to fly to Moscow on Monday, Deputy Secretary of State
Strobe Talbott extended talks he was holding in Moscow to set the stage for
the summit meetings. 

``It's appropriate the trip continue, and I wouldn't speculate on any
other scenario,'' Berger told reporters Thursday. 
On Martha's Vineyard, the Massachusetts island where Clinton is
vacationing, the president ignored shouted questions from reporters about
Yeltsin resignation reports. But Barry Toiv, the White House deputy press
secretary, said: ``The president is very much looking forward to their
meeting next week.'' 
The summit will give Clinton a chance to escape his Monica Lewinsky
problems at home and focus attention on his role as leader of the free
world. It also may be good for Yeltsin's battered image. 
Spurgeon Keeny, president of the Arms Control Association, a private
group, called the summit ``a critical opportunity for these two presidents,
who are hanging on the ropes, a unique opportunity to demonstrate to their
countries and to the world they retain the power of presidential
leadership.'' 
A number of contentious issues were expected to be on the summit agenda,
such as NATO expansion, arms control, terrorism, and technology transfers
to Iran and India. But the alarming state of the Russia economy and what
Yeltsin can do about it was of most immediate concern. 
Dimitri K. Simes, president of the Nixon Center, a Washington think
tank, said Yeltsin is ``not fit for the job,'' is in poor health and has
``serious problems with his drinking.'' 
Yeltsin has lost all credibility with the Russian people, and a majority
think he should resign, Simes said. ``The Yeltsin period is coming to an
end, the sooner the better,'' said the longtime Russia analyst. ``I have no
idea why President Clinton is going to Moscow. Boris Yeltsin is not in a
position to do serious business with anyone.'' 
Keith Bush, director of Russian programs at the Center for Strategic and
International Studies, said Yeltsin's decision to devalue the ruble was a
major political defeat for the Russian leader. 
``The Russians have been through six years of great privation,'' Bush
said. ``Two of the greatest achievements that the Yeltsin administration
could point to were a stable and convertible ruble and bringing inflation
down from 2,500 percent in 1992 to 11 percent last year,'' Bush said. 
Both of these are gone, he said, and the Russian people might ask, ``Why
have we been suffering? What have we achieved in the last six years?'' 
Paul Saunders, director of the Nixon Center, said Chernomyrdin was
reaching out to the State Duma, the Communist-led lower house of
parliament, which condemned Yeltsin last week. 
``There's been a lot of talk of some kind of coalition government that
would be based on a parliamentary majority,'' Saunders said. ``The hope is,
if Chernomyrdin were able to form such a government, he would be able to
develop some kind of minimal consensus with the Duma and get some
legislation through to stabilize the situation.'' 

*******

#16
Political, economic blueprints the key to Chernomyrdin's chances

MOSCOW, Aug 28 (AFP) - Acting premier Viktor Chernomyrdin has been seeking
a broad consensus on two radical economic and political blueprints which
would not only secure his confirmation as premier but tip the balance of
power away from the Kremlin.
The economic plan, which provides for a sharp reversal of policy to
prevent the economy from foundering, has already been drafted and approved
by the Kremlin and Chernomyrdin as well as representatives from both houses
of parliament.

But lawmakers and the Kremlin administration are still divided on the
political draft, although Chernomyrdin and Kremlin administration officials
are to hold 11th-hour negotiations on the plan with Duma, or lower house,
leaders Friday evening.
The two documents have been under negotiation since President Boris
Yeltsin sacked ex-premier Sergei Kiriyenko's government and gave
Chernomyrdin broad authority to come up with a new Russian policy that
includes heavy input from opposition forces.
The crux of the political document as drafted by leftist lawmakers would
cede broad power over confirmation and removal of top government ministers
to the Duma from the presidency, sources familiar with the draft told AFP.
The lower house would win the right to approve the nominations of top
government ministers -- including defense, interior and foreign affairs, as
well as the first deputy premiers.
Parliament would also be empowered to approve the president's decision
to sack his prime minister and government.
The president in addition would lose his right to issue decrees in
matters dealing with tax legislation and the federal budget.
Under a 1993 vintage constitution pushed through by President Boris
Yeltsin, the Russian presidency was granted wide, almost unassailable
powers with parliament reduced to an ineffectual debating chamber.
In return for its new powers, parliament would grant Yeltsin political
immunity should he retire, and also promise not to vote no-confidence in
the government for the next three months, sources told AFP.
The Kremlin has frowned at the political blueprint, calling it
"one-sided." It has not said which of these points it agrees with, although
its own version of the political document submitted to lawmakers Thursday
night is vastly different.
It includes a five-year moratorium on any changes to Russia's current
constitution, and calls for Duma elections scheduled for 1999 to be put
back two years.
Leftist lawmakers are strictly opposed to both of these motions.
The economic package, meanwhile, has already been agreed. The draft
provides for a forced reflation including heavy money-printing to finance
recapitalisation of failing banks, credits to struggling Russian industries
and paying off wage arrears and pension backlogs.
The 16-page text also details the nationalisation of certain sectors of
the economy, the Russian banking system in particular.
Communist Duma speaker Gennady Seleznyov said Friday he would like to
see Russia print 50 billion rubles (about 6.25 billion dollars at last
Tuesday's exchange rate) this year.
Chernomyrdin's right-hand party man Alexander Shokhin said for his part
Friday that Russia needed substantial inflation and greater state
involvement in the economy to overcome the current economic crisis.

********