Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List
Johnson's Russia List


August 29, 1998   

This Date's Issues: 2332 2333

Johnson's Russia List
29 August 1998

[Note from David Johnson:
1. Moscow Times: Christian Lowe and Valeria Korchagina, Downcast 
President Fights On.

2. Reuters: Text of Yeltsin's television interview.
3. Reuters: Yeltsin sacks Chubais from top debt job.
4. RFE/RL: Floriana Fossato, Nemtsov Urges Quick Action To Protect 
Ordinary Russians.

5. Toronto Sun: Matthew Fisher, A symbol of Russian rot. (Gazprom

6. Laura Belin: then and now.
7. Jacob Kipp: Re Oligarchs and Current Crisis.
8. Jerry Hough: Chubais and Nemtsov.
10. The Independent (UK): Geoffrey Hosking, Russia has to re-establish 
trust, even if it means price controls.

11. International Herald Tribune: William Pfaff, Keep an Eye on Lebed, 
Potential Tamer of Anti-Western Reaction.]


Moscow Times
August 29, 1998 
Downcast President Fights On 
By Christian Lowe and Valeria Korchagina
Staff Writers

Addressing the nation Friday night after a day when people mobbed stores 
across Moscow in a fit of panic buying and angry depositors laid siege 
to banks, President Boris Yeltsin looked like a tired and ill man with 
perhaps just a glimmer of defiance left in him. 

The 11-minute prerecorded interview, shown live on state television, was 
the first time Yeltsin had spoken at length since Russia was gripped by 
a wave of economic crisis that raised serious questions about the 
president's political future. 

Yeltsin, 67, who had pinned his prestige on defending the Russian 
currency, looked dejected and contrite when asked about the crisis, 
uncharacteristically looking down as he spoke. 

But when asked if he planned to step down, there was a momentary glimpse 
of the old, truculent Yeltsin. His jaw set firm, he looked the 
interviewer firmly in the eye. 

"First of all, to remove me, that is too difficult a matter. Considering 
my character, this, I think, is impossible. Impossible," he said with a 
glint in his eye. He continued, putting emphasis on every word: "I mean 
that I am not going anywhere. I am not resigning. I will work the full 
term given to me by the constitution." 

Then, thoughtful again, he conceded that this would be his last term as 
president. Before, he had hinted archly that he might not run for a 
third term, but that only heightened speculation that he would run. This 
time he was unequivocal. "In the year 2000 there will be elections for a 
new president. But then, in the presidential election, I will not be 
taking part." 

Yeltsin's public appearances have been kept to a minimum since the 
latest crisis broke out a month ago. He appeared briefly on television 
Aug. 14 to offer assurances the ruble would not be devalued, but then 
vanished from view as two days later his government let the ruble slide 
and struggled to deal with the financial chaos which followed. 

He appeared briefly on television Monday to announce his decision to 
fire his Prime Minister Sergei Kiriyenko and replace him with 
Kiriyenko's predecessor, Vitkor Chernomyrdin. Since then, he had shown 
himself in public only twice, meeting with the visiting dignitaries. On 
both occasions he avoided speaking about the crisis. 

His low profile inspired a storm of rumors that his health had taken a 
turn for the worse, that Chernomyrdin was exploiting the weak, befuddled 
president to seize power, backed by a cabal of business moguls. There 
were persistent rumors too, that Yeltsin was about to resign. Friday's 
interview will have done little to convince Russian people that he is 
healthy and in control. 

His face was more puffy than usual, and as he spoke, he was stiff, only 
lifting his hands from his sides on a couple of occasions. He spoke 
slowly, and deliberately, with long pauses as he appeared to be 
struggling to compose his thoughts. The interview was heavily edited. 

Asked by his interviewer, veteran journalist Nikolai Svanidze, how he 
proposed getting Russia out of its crisis, Yeltsin first shuffled 
uncomfortably in his chair then paused for about five seconds, frowning 
deeply, before responding. His answer was vague and ponderous. 

Later in the interview, Svanidze asked him to comment on charges that 
Chernomyrdin, fired five months ago because Yeltsin thought he was 
becoming too ambitious, was now being given unprecedented new powers. 

Yeltsin was thrown by the question. He started strongly, but appeared to 
be losing the thread of what he was saying. 

He hinted that financial interests should not try to influence the 
government, but his warning was so opaque it lacked any force. 

"To use [Chernomyrdin's powers], that's also a question, an important 
one. He shouldn't swing from side to side. He should not use them in 
someone's interest, well, I would say, fleeting interests. In no event." 

Yeltsin did though, try to assert his authority in the interview. He was 
forceful when he dismissed talk of a resignation. Several times during 
the broadcast, he repeated the words, "I, the president," but without 
great conviction. 

And he tried to show that he still had the confident swagger of a few 
years ago. "Of course, everbody knows that I am an optimist by nature," 
he said. "That is true. Otherwise life would not be interesting. But I 
believe in myself and believe that this can be done." 

When talking about the suffering that the slide of the ruble and the 
collapse of Russia's banks could cause for ordinary Russian people, 
Yeltsin appeared genuinely embarrassed. 

"Of course, right now, it would be naive to say that we are taking 
measures and so forth, and that people are not suffering," he said. 

Russians who sat in front of their television screens Friday night 
watching Yeltsin's performance were unimpressed, and did not come away 
reassured that the country was in good hands. 

Nadezhda Lonskaya, a microbiologist from Moscow who had previously 
backed Yeltsin, said she felt depressed watching him. 

"I just keep trying to persuade myself not to say bad things about him. 

..We supported him through all those years. But I can honestly say that 
I regard him differently now from the way I did in 1991 or 1993," she 
said. "And as for the financial crisis, you can go through black Tuesday 
or Monday, but now it looks like there is "black Monday,Tuesday, 
Wednesday, Thursday ..." 

Yelena Popova, an accountant who watched the broadcast at her home in 
the Volga city of Nizhny Novgorod, said Yeltsin had done what was 
expected of him and could now go into semi-retirement. 

"All they wanted us to know was that the president is calm. I guess he 
can now retreat to his country side residence and continue 'to work on 

documents,'" she said, poking fun at the euphemism the Kremlin press 
service uses to explain away Yeltsin's periods of inactivity. 


Text of Yeltsin's television interview

MOSCOW, Aug 28 (Reuters) - Following is a Reuters translation of President
Boris Yeltsin's interview with state-owned Russian Television on Friday. 

Q. Boris Nikolayevich, what are, in your opinion, the ways out of the crisis
in which Russia's economy has found itself? 

A. First of all, I think it is now necessary to concentrate on fulfilling the
programme which has been made during the stabilisation period. And second, to
solve the problem of personnel. These are the two main key items. Having
solved them, we will solve the problem. 

Q. As far as the crisis itself, how deep is it? Because it is obvious that the
banks are suffering greatly. And how much are people suffering? 

A. Of course, now it would be naive to say 'we will take measures,' and so on
and so forth, so that people do not suffer. But nevertheless, I, as president,
am obliged to say that we will take all measures to ensure that people's
savings do not suffer. 

Q. Prices, Boris Nikolayevich. People are worried, what will happen with
prices? What about that? 

A. Of course, I cannot say that prices will not rise, but I, as president am
obliged, and should do, what is needed so that this will be minimal in extent.
Minimal. We must do all the maximum possible to get out of this situation. 

The central bank and the government have orders. Everything is spelled out,
what to do and how to do it, which direction to act in. Everything. We must
strictly fulfill that which is written. 

Of course, everyone knows that by nature I am an optimist. It's true.
Otherwise it is not interesting to live at all. But here I say that I simply
believe myself. I believe that it is possible to accomplish, otherwise I
myself find it uninteresting to live. 

Q. Boris Nikolayevich, it seems as though you believe not only in yourself,
but in (acting Prime Minister) Viktor Stepanovich (Chernomyrdin) as well. Back
when he resigned from the position of prime minister you reproached him to a
certain extent, for exceding his political powers. Now he has received yet
more political powers. This is contradictory, is it not? 

A. There are two mistakes in your question. The first mistake is that he had
some excessive political powers -- more correctly he did not have them, but
had decided to take them. Because of that, let's say, he suffered at my hand. 

But here I want to say, at that time he did not use even all those political
powers he had. He didn't use them. And never was there an instance, not one,
when I reproached him, 'why are you taking certain powers?' No. So to say now
that he has been given so much power, that is also not correct. Now he has
been given exactly as much power as is laid out for an ordinary prime minister
in any developed country. 

To use them correctly, that is also a very important question. Not to throw
oneself from one side to another. Not to use them in some interests -- passing
interests -- under any circumstances. To solve strategic problems, consult
with the president. Everything else, is up to you. 

Q. Boris Nikolayevich today you had a meeting with Chernomyrdin, (speaker of
the upper house of parliament Yegor) Stroyev, and (Moscow Mayor Yuri) Luzhkov.
What is the result of this meeting? 

A. I expected this meeting would play a great role. It could have led to a
negative outcome, finishing with nothing, but we have very responsible and
strong (people.) Stroyev and Luzhkov are people of the state, with a state
outlook. They understood and agreed on the candidacy of Chernomyrdin. If they
support him, one may say that very many (people) support him. 

Q. If you permit, a question about you. In the last days there have been
rumours and talk of your resignation. Simply, can you comment? 

A. It is very difficult to remove me and, considering my character, it is
practically impossible. Impossible. In general, I would like to say that I am
not going anywhere. I am not going to resign. I am going to work. As is laid
down, according to the constitutional term. In 2000 a new president will be
elected and I will not take part in that presidential election. 

Q. Boris Nikolayevich, nevertheless the Duma is trying somehow or other to
force you to resign. And you are suspected of wanting to dissolve the Duma. Is
it possible to work jointly with the lower house of parliament under such

A. You know, I cannot link these two questions. Not for ethical or political
or human motives. It is impossible. I am not going to dissolve the Duma. I
have had no attention of dissolving the Duma and I do not have such an
intention now. No matter how had they try to intimidate me, I am not going to
dissolve it. 


Yeltsin sacks Chubais from top debt job
By Andrei Khalip

MOSCOW, Aug 28 (Reuters) - President Boris Yeltsin on Friday dismissed his
long-standing ally, reformer Anatoly Chubais, from the post of Russia's top
foreign debt negotiator, a move analysts and politicians called a concession
to the opposition. 

The Kremlin said Yeltsin's decree simultaneously scrapped the post of
presidential representative in relations with international financial
institutions, introduced in June to give Chubais a free hand in negotiations
with the IMF. 

Analysts said foreign investors may miss Chubais as a professional, but they
will welcome the greater political stability that his departure may bring. 

Russian Communists and their allies, who dominate the State Duma lower house
of parliament, have long demanded that Chubais be removed and the compromise
sacking may help the approval of Viktor Chenromyrdin as full-time premier next

"In the very short term, this should facilitate Chernomyrdin's acceptance by
the Duma. That will reduce political uncertainty, which should help markets,"
said Mohammed El Erian, an economist at Salomon Brothers in London. 

"Chubais is only one piece of a much bigger puzzle," he said, while praising
Chubais' knowledge and experience. 

A debt syndication official was sorry to see Chubais go. 

"It's a shame because he always tried to do a decent job. They obviously have
made some mistakes in terms of the whole restructuring thing, but he was at
least bright enough to understand the issues," he said. 

Chubais has spearheaded Russia's economic reforms since their very start in
1991, charting a difficult path from a planned ecomony to the free market, and
has become perhaps the most hated figure for the Communist-dominated

He played a leading economic policy-making role in the government of Sergei
Kiriyenko, which Yeltsin dismissed on Sunday in a shock move. He is unlikely
to join the government that acting Prime Minister Chernomyrdin is now forming.

"Definitely, it (Chubais' sacking) is a concession to the opposition.
Yeltsin's administration knows that the opposition is allergic to Chubais,"
senior Communist party official Viktor Zorkaltsev said. 

He added though: "But who is going to take care of the money (international

The State Duma lower house of parliament, dominated by Communists and their
allies, is due to vote on whether to confirm Chernomyrdin as premier on
Monday. He is unlikely to be seeking confrontation with the chamber. 

However, Sergei Ivanenko of the liberal Yabloko party said Chubais may have
orchestrated the sacking himself. 

"I see no miracle here -- what is a special envoy to the world financial
insitututions for when the country has declared an effective default on its
debt. This may be a concession to the opposition, but Chubais will not be too
unhappy," he said. 

Chubais headed the country's tough privatisation drive and served in several
key posts, including as Yeltsin's chief of staff. He worked closely with
Chernomyrdin when he served as prime minister from 1992 to earlier this year. 

He also played a key role in winning a multi-billion dollar loan from the
International Monetary Fund in July. Analysts said the credits were won
largely thanks to Chubais' reputation and his good personal relationships with
the creditors. 

Yeltsin also formally accepted the resignation of another reformer on Friday,
deputy prime minister Boris Nemtsov. 

Chubais was not involved in the latest negotiations with the IMF, when
Chernomyrdin unexpectedly flew to Ukraine on Wednesday to meet the IMF's
managing director, Michel Camdessus. 

Their meeting ended without clear result, although the acting Russian prime
minister, who is struggling to form a cabinet and win parliamentary
confirmation, said he received backing from Camdessus for his anti-crisis

The Russian financial crisis has sent shock waves through global financial
markets, fearful that a Russian meltdown will unleash a global economic
downturn. But the West has made clear that Russia has little hope of winning
more loans unless it introduces radical reforms. 

The West has viewed Chubais' top jobs as an indicator that reforms were still
going on, and his sacking now may give another negative signal. However,
Chubais is still the chief executive of Russia's national electricity company,

He also has a record facing the problems head-on and bouncing back to top
posts every time he falls. 

Earlier this week Chubais said the coming three or four weeks would be
especially grave for crisis-hit Russian economy and warned against allowing
the banking system to collapse. 

He said Russia had not experienced such a grave situation in the seven years
since the break-up of the Soviet Union and called the economic challenges
ahead "absolutely new and dangerous without precedent." 


Russia: Nemtsov Urges Quick Action To Protect Ordinary Russians
By Floriana Fossato

Moscow, 28 August 1998 (RFE/RL) -- Former reformist Deputy Prime Minister
Boris Nemtsov says the Russian government must act quickly to protect the
livelihood of ordinary Russians. 

Nemtsov says that the government's first priority should be protecting the
interests of people holding bank accounts. 

Nemtsov, who resigned on Monday, told RFE/RL in an exclusive interview that
the government must prevent the collapse of the banking system but added
that "nationalization of banks is a stupid idea." 

Nemtsov said: "Replacing inefficient bankers with inefficient bureaucrats
will mean that the state will have to print money and this money will never
be enough to save the banks, but will fuel hyperinflation and destroy the

He said a rescue management approach, not nationalization, is the best
approach right now. He also said that "foreign banks should be allowed to
operate on Russian territory in the shortest time." 

The obvious risk, said Nemtsov, is that "nationalists and fascists will
come to power." He added that in Russia "only a fine line can be drawn
between communists and fascists." 

Nemtsov charged that influential Russian businessmen, the so-called
"oligarchs," had brought down Sergei Kiriyenko's government in fear that it
would force bankruptcy proceedings against several banks and companies,
including major oil companies. Nemtsov said that the oligarchs were
concerned about their interests. He also warned that Russia now risks a
"return to a Soviet-style command economy." 

Nemtsov's words come as pressure is mounting on Yeltsin to step down, or at
least transfer a major part of his constitutional powers to the government
and deputies in the communist-dominated State Duma. During recent days
Yeltsin has made no public statement, fueling rumors of his imminent

The former deputy prime minister said he hopes Yeltsin will speak soon. He
suggested that the president has given Viktor Chernomyrdin "ample power to
form a new government and now does not want to interfere." But he added
that he does "not know if the decision is right or not." 

The Central Bank yesterday announced plans to nationalize SBS-Agro,
Russia's second largest bank, requesting parliamentary approval for the
move. SBS-Agro, led by influential Aleksandr Smolensky, holds 25 million
accounts of small depositors across Russia and politically valuable media
assets. Smolensky and the bank leadership have reacted angrily to the
Central Banks' threat. 

The move follows the removal yesterday of banking license from the Imperial
bank, Russia's 13th biggest. The license was revoked without legislative
approval. The Imperial bank, partially owned by the Gazprom group, had
relatively few retail depositors. 

Five leading Russian banks -- Oneximbank, Menatep, Mostbank, Inkombank and
Narodni Bank -- announced plans earlier this week to merge. 

There are speculations in Moscow that Central Bank chairman Sergei Dubinin
will soon be replaced to satisfy the Duma's plans to print rubles to
satisfy public demand. Nemtsov said that "it will be crucial to know who
will be at the helm of the financial sector in government. 

Nemtsov said that the government "will not function" until a new Prime
Minister is approved by parliament. 

Duma Speaker Gennady Seleznev said today that the Duma will vote on
endorsing Chernomyrdin next Monday. Political bargaining over the
composition of the government and the future of President Boris Yeltsin is

Nemtsov said that Chernomyrdin may be influenced by Boris Berezovsky, a
media and oil tycoon who is regarded as leading the "oligarchs." 

"But Chernomyrdin is more experienced than many think," said Nemtsov,
adding "he is certainly dependent on Berezovsky and the other oligarchs,
including (those from) Gazprom... but in case of a choice between the
interests of the country and the interests of various oligarchs, I hope
Chernomyrdin, with his political ambitions, will decide in the country's


Toronto Sun
August 28, 1998 
[for personal use only]
A symbol of Russian rot
Sun's Columnist at Large

MOSCOW -- Basking in the glow of 100 searchlights, the magnificent
skyscraper of tinted glass, steel and concrete that is Gazprom headquarters
dominates the night. 
If you live in southeast Moscow, as I do, it is almost impossible to avoid
looking at the oil and gas monopoly's shimmering offices, which are always
lit up like a candle. I can easily see it from my balcony, some 5 km to the
east. So can friends who live 5 km to the north of my flat. 
The Gazprom complex was meant to be a symbol of all that post-Soviet
Russia could be. Instead, as the ruble raced toward oblivion last night and
the country braced for who knows what, Gazprom looms as an example of all
that has gone wrong in post-Soviet Russia. 
Unlike the outwardly relaxed head offices of many western conglomerates
where the public is made to feel welcome, at least in reception areas,
Gazprom has been true to its Soviet roots. It is a forbidding fortress
where security is the first priority and conspicuous consumption and
selfishness is a religion. 
A mid-sized army of surly, heavily armed men guard the place - not that
they have much to do, as most Muscovites understand this is no place for
them. A giant steel fence surrounds the office tower. There is also an
impressive private garden and a sprawling forecourt where fleets of luxury
sedans worth tens of millions of dollars await their masters' capricious
I've never had a reason to try and obtain permission to have a peek inside
the colossus, but English teachers I know who have been allowed in to tutor
Gazprom staff report they have never seen anything like it. No expense has
been spared acquiring the latest western accoutrements and furnishings. It
is opulence run riot. Cost simply was never a consideration. 
Gazprom looks out on a city that for all the imported neon and glittering
upmarket boutiques near the Kremlin, is a shambles. Flowers bloom at
Gazprom but Moscow's once world-class botanical gardens border on ruin.
Major thoroughfares regularly cave in. Public swimming pools and tennis
courts are closed. 
Medical care of any kind for those without lots of dollars is practically
unavailable. Murder is not a measure of last resort, but the easiest way to
settle business disputes. 
No one single mistake has brought Russia to its knees today. But greed,
graft, embezzlement and contempt by the ruling class for those under them
have had as much as anything else to do with this wrenching process. 
As in African and Latin American banana republics, imperious officials
from Gazprom, scores of other high-living companies and the local and
federal government race their limousines through the streets on their way
to gaudy private clubs and casinos or to the airport where private jets
transfer them to weekend homes in Spain or the south of France to enjoy
some of the $130 billion they have spirited out of Russia over the past
seven years. 
Meanwhile, stone-faced mothers with bawling kids in tow pay "rent" money
to cops for prime locations in the Metro where they beg Moscow's dwindling
middle class for what little it can spare. 
But there is fierce competition. Swarms of babushkas in threadbare coats
and thick, grimy leotards scuttle around cadging kopecks whenever and
however they can to buy hunks of black bread and vegetables. 
Nothing has been seen or heard of President Boris Yeltsin for several
days. However, his new/old prime minister, Viktor Chernomyrdin, who once
ruled Gazprom and maintains close ties with its billionaires, has been
bravely warning of extreme financial measures and issuing proclamations
about how his new government is preparing the country to weather the
approaching winter. 
There may no longer be money to fuel many of the eternal flames across
Russia, but whatever else happens as the lights are extinguished across the
country this autumn, nothing will dim the spotlights trained on the palace
built by Gazprom. 


Date: Fri, 28 Aug 1998 
From: "Laura Belin" <> 
Subject: then and now

It's been a rough week, so I thought I'd pass along some light reading for
JRL subscribers ahead of the weekend. This came to me courtesy of Kieran
Williams of the University of London's School of Slavonic and East European
Studies. The translation was done by BBC monitoring:

>From TV interview with Yeltsin, 9 June 1990:
Interviewer: Tell me, the
country's government believes that a further six months are needed for the
transition to a market economy. Difficult times are in store for the
republic and the country. How, in this difficult time ... can you, as
Chairman of the republic's Supreme Soviet, act so as to avoid a
destabilisation of the economy?
Yeltsin: We have our own
alternative programme for Russia which will not lead to a decline in
people's living standards during the transition to a market economy. That
is the fundamental difference between ours and the government - the union -
programme. Therein lies the difference. In their programme, everything is
heaped on the shoulders of the people, while in ours that is not the case.
By using different economic levers we can ensure that people's standards of
living do not fall, and indeed should rise in time.


Date: Fri, 28 Aug 1998
From: "Jacob Kipp" <KIPPJ@LEAV-EMH1.ARMY.MIL> 
Subject: Re: Oligarchs and Current Crisis

Is any body out there concerned about the linkage between contemporay
conspiracy theories that "explain" the current systemic crisis and that
nasty connection to "the socialism of fools"? Is this a preview of
Aleksandr Yanov's "Weimar Russia"? While it is common for each faction
around Yeltsin to explain their fall from grace by the actions of the bad
"oligarch" who led the poor president astray [good tsar - bad advisor
game], no one should take that game at face value. It is as credible as
Kiriyenko and Nemtsov taking a bottle to the miners outside the White House.
This use is really a case of counterfeiting -- taking a real ideological
coin and reminting it for narrow, elite politic use. The real coin of the
oligarchic conspiracy emerged when Chubais brought them openly into the
electoral campaign of 1996. From that time forward the oligarchic
conspiracy theory has been the stock in trade of the Russian Browns playing
to the mass of disaffected Russians. Russian Nationality Unity has been
stressing the oligarchs' control of Russian capital and their Jewishness.
Our Fatherland is even more open--it provides photographs of Berzezovsky,
Gusinsky, Khodorkovsky, Smolensky, et al beside charicatures from "Das
Strumer" of the "Enternal Jew." Of fourse, it can also be found in other
Red-Brown literature with a bit more subtle tone. But it has been out there.
It may be too hard to really explain just what made Russia melt down at this
time, but I suspect that we will come to regret repeating the conspiracy
explanations for what is a deep multi-dimensional crisis in a complex
system. Of course, when you have lost your savings and any hope, maybe you
just want someone to blame. . . . Kreditanstallt anyone? 

Excellent review essay on Jervis book in current "Atlantic" highlights the
poverty of our analysis of this crisis of political ecnomomy in its global


Date: Fri, 28 Aug 1998 
From: "Jerry F. Hough" <>
Subject: Chubais and Nemtsov

In rereading the press of the last three years, it is absolutely 
clear that it has relied almost totally on Chubais and Nemtsov and their 
friends for spin. The role of Chubais and Nemtsov has been to draw Western 
money into the pyramid, and they have scapecoated the oligarch for faults 
that are not theirs, but the fault of Chubais' and Nemtsov's policy.
The logic of Gaddy's virtual economy is that the depression has been 
deeper than measured, not less as Aslund would say. The collapse of the 
pyramid is certain to deepen it. The danger of demonstrations and a 
coup is enormous. Yet a Laura Belin can think of no explanation for a 
New Deal policy other than that the oligarchs want it. Berezovsky has 
good ties with Diachenko, he hears what Yeltsin is planning, he reports 
it, and he gets credit for causing it. If de Borchgrave is right that 
he was at a villa in France that was next to one Berezovsky bought for 
$70 million, Berezovsky needs to worry whether he can be extradicted from 
France, not about his power in Russia. Chernomyrdin was brought back, 
we can hope, because he promised an industrial policy in 1992 that would 
have brought prosperity to Russia by 1998. To get Western support, 
Yeltsin supported Boris Fedorov. Now that the pyramid has collapsed, 
the economy is a disaster, and the West will no longer give money, 
Yeltsin has naturally dumped those who produced disaster and is 
appointing the man who was right. What is complicated about that? The 
US and especially the Western media needs to get over its emotional 
hysteria and ask what is the best option for America at the present 
time. It clearly is Yeltsin as a Mitterand handling foreign policy and
Chernomyrdin handing domestic policy. An industrial policy that gets 
Russia off a Weimar path is clearly in American interests.


New York Post
August 28, 1998
[for personal use only]

MONEY, that is to say dollars and deutsche marks, has pulled a 
getting-out-of-Saigon act in Moscow over the past two weeks. It's sort 
of like those speeded-up, time-lapse segments on PBS nature shows of the 
desert drying up after a flash flood. Last year, money was all over 
Moscow, bidding up the 2hottest market in the world, splashing over 
discos, and stuffing the briefcases of undercompensated politicians. Now 
it's off taking an Alpine vacation. 
The miracle of Russia, they say, is that even after all the theft, 
there's still something left to steal. You would have thought, for 
example, after the currency was devalued last week and payments of 
foreign exchange effectively blocked, that no Russian banker would 
actually, visibly send money out of the country. And yet on Tuesday, 
after the Russian Central Bank gave an emergency injection to SBS-Agro 
Bank of Moscow to meet urgent requirements, the management immediately 
wired the $100 million to their accounts in Switzerland. International 
Monetary Fund officials believe that $3.2 billion of the last $5 billion 
the Fund sent to the Central Bank a few weeks ago was outright stolen in 
just this manner. Now they're complaining about it like a drunken 
businessman telling a cop his wallet was lifted by a hooker. What did 
they expect? 
The topper, though, came on Wednesday when Andrew Ipkendanz, the head of 
global emerging markets trading for Credit Suisse First Boston, said, 
Russian elites have plundered the country's capital and funnelled most 
of the proceeds offshore. 
Yes, and they did it with people like you, Andrew. CSFB made a fortune 
off every crooked turn of the privatization frauds. They can't lose 
enough money to make up for their complicity in the destruction of the 
Russian economy. 
But going over all this is like idly turning through old photographs of 
Anastasia pouring tea and playing tennis at Tsarskoe Selo. There's a new 
day coming. And, as always with Russia, it can get worse. 
The next phase will likely be a short-lived coalition government with a 
limited program. It will probably be headed for the time being by Viktor 
Chernomyrdin, the enormously rich acting prime minister. He is arranging 
a deal with the Communist Party, which is just another gang of crooks 
who appropriated an old brand name, under which the Communists get some 
money and a selection of their nationalist ideas. General Alexander 
Lebed, a possible future president, will go along with the coalition. 
This won't be a return to communism. It does mean far more central 
control of the economy. The temporary government will impose foreign 
exchange controls, confiscate the assets of those bankers and other 
oligarchs who lose this round of musical chairs, and pay off some of the 
government's ruble debts with rapidly depreciating cash coming right off 
the overworked presses. Some foreign debts will be paid, such as the 
interest on government financed food imports - half their total 
consumption - and those direct obligations of the state, such as 
Eurobonds, that can't be rolled over by terrified Western governments. 
If the key parties in the Duma, are made happy, then the parliament may 
be suspended to create more of an illusion of stability. Nobody wants a 
civil war, and an election is less interesting than getting enough food 
and supplies for the winter. 
The ultimate showdown will come later, when the new czar is finally 
chosen. For now, though, we'll have the spectacle of two discredited 
hacks, Bill Clinton and Boris Yeltsin posing for their last photo ops. 


The Independent (UK)
August 29, 1998
[for personal use only]
Geoffrey Hosking - Russia has to re-establish trust, even if it means 
price controls
The writer is Professor of Russian History at the School of Slavonic & 
East European Studies, University of London 

Most of the comment of the last week or two on the Russian crisis has 
focused on the radical free-market reforms introduced from 1992 onwards, 
as if its roots were to be found there. 

I believe we must look much further back. In essence we are still 
dealing with a semi-Soviet economic system, whose real nature is 
disguised by all the hype about privatisation. In Soviet days, 
everything was run by the nomenclature elite, a vast patronage network 
under the control of the Communist Party. By the final decades, the 
so-called "planned economy" was not really planned at all: enterprise 
managers treated the resources of their factory or collective farm as if 
they owned it. They would commandeer its transport for private outings, 
use its tools for domestic order its workers to repairs, build dachas 
for them. There were occasional sensational crackdowns, but most people 
had patrons who would them at the top if things got sticky. 

With the reforms of Gorbachev and Yeltsin bosses were able to transform 
de facto ownership into real ownership. Even though the workers were 
guaranteed a share, the managers were usually able to buy them out. So 
the old nomenclature bosses were soon firmly in the driving seat at 
shareholder's meetings. 

To portray them completely cynically would be unfair. They wanted to 
line their own pockets, certainly, but most also felt a responsibility 
for their employees, who depended on them not just for benefits too: 
housing, child care, sports facilities, sometimes medical treatment as 

But in the brave new world of market economics they were terribly 
vulnerable. Decades of state protection, under-investment and outmoded 
technology had left them unable to produce goods that any customer 
outside a siege economy would want to buy. 

So most of these industrial dinosaurs continued to look to the state, 
either as customer or as provider subsidies and cheap credit. They 
managed to continue trading with each other by the simple device of not 
paying for goods. Barter and accumulated debt became the normal method 
of doing business. As for the workers, if they were laid off or were 
unpaid, they did not quit "their" enterprise, since it still provided 
them with social benefits which local authorities were often too poor to 
take over. They simply spent more time moonlighting or working on their 
allotments. After all, this was merely a new version of the old Soviet 
informal social contract: "They pretend to pay us and we pretend to 

Not surprisingly, no one was very keen to invest in enterprises of this 
kind. Foreign businessmen who made the pilgrimage to Russia often found 
that their counterparts there regarded investment not as an opportunity 
to restructure their firms, but as a new kind of subsidy to enable them 
to continue shouldering their social responsibilities. Rich Russians 
avoided investing in their own country, for the same reason, and instead 
put their funds in foreign banks or bought speed boats and luxury 
country houses. 

Enterprises of this kind are impossible to tax, since cash is not the 
unit of accounting they adopt. To cover the resulting deficit on its 
budget, the government got into the habit of issuing treasury bonds 
left, right and centre. What is surprising is that they found plenty of 
takers among international banks. It is the default on those bonds which 
has precipitated the current crisis and caused substantial losses to 
bankers around the world. 

So the crisis is a logical result of the structure of the Russian 
economy both in the late Soviet era and subsequently. The same can be 
said about politics. Yeltsin's greatest failing as President has been 
that he has scarcely made any serious attempt to cultivate. co-operative 
relations with the Duma. Any US President has to spend much of his time 
on the phone to deputies on Capitol Hill, but when Yeltsin invites the 
heads of the main Duma parties to a cup of tea in the Kremlin, the news 
is a sensation. Instead he has dealt with them through clients in his 
own entourage, just as a Soviet boss would have treated his underlings. 
The result is that he has had to rule much of the time by decree, 
instead of getting the co-operation of regional elites. 

The nature of post-Soviet politics should have made it easy for him. 
Most deputies value their seats in the Duma because through them they 
gain access to benefits which greatly ease life in the difficult 
post-Soviet environment: cars, good health care, a flat in Moscow. Even 
Communists appreciate these things, and if Yeltsin had humoured and 
cajoled them a little more, they would probably have offered more 
support over crucial matters such as land privatisation, commercial law 
and tax reform. As it is, Yeltsin and his governments have often been in 
a state of "cold war" with the Duma. 

Fundamentally, the issue is a matter of trust among the population 
rather than the international bankers. People do not trust the financial 
and political elites to back the rule of law or to take care of the 
public welfare. They suspect that government ministers, duma deputies 
and especially the newly rich bankers and industrialists are out to make 
money quickly at everyone else's expense. In those circumstances, no one 
relies on contract or the law courts to protect them against 
illegalities: everyone tries to acquire their own patron, someone 
powerful who can provide a "roof" (as the Russians call it) under which 
they can make a bit of money. Those who cannot end up in those pathetic 
lines of people selling old clothes, kittens and matchboxes outside 
Metro stations. 

Whatever else the new government does, it needs to start generating this 
sense of trust. this may require measures which do not conform fully to 
most people's idea of the free market. Currency controls may be needed 
to protect the rouble - but then we ourselves tolerated them for more 
than 30 years after the war. Price freezes may be required to give 
consumers a little more confidence in the market - again, we have them 
in this country well within living memory. 

We must stop demanding of the Russians what we would never tolerate 
ourselves. They have made considerable progress towards the market, and 
they will certainly not now return to a command economy. But probably 
the new government will adopt measures to renew the productive capacity 
the country still has. Let us hope that it takes steps to transform 
ailing industries and retain workers for new production skills. 

The farms need to be restructured and provided with cheap credit, so 
they can grow the kind of produce people want to but in the shops, at a 
price they can afford. Medical care and education desperately need an 
investment and an appropriate level of state support. This may mean some 
economic planning and a measure of protection, and the result will be an 
economy with a higher level of state intervention than is currently 
fashionable in more developed economies. 

But again, we have been through all this ourselves. 

The immediate fallout of the crisis will be highly unpleasant not only 
for international bankers but above all for Russians themselves, who in 
the coming winter will probably have to endure a failing public 
transport system and unheated flats with lifts that do not work. But in 
the long run this has been an inevitable reckoning with the heritage of 
the Soviet system. 


International Herald Tribune
29 August 1998
[for personal use only]
Keep an Eye on Lebed, Potential Tamer of Anti-Western Reaction 
By William Pfaff 

PARIS - Alexander Lebed arrived in Moscow on Wednesday, amid fiscal 
collapse and political crisis, to meet the acting prime minister, Viktor 

The former general has been used before as a stalking horse by Russian 
leaders who wanted to borrow his popularity. He has also been dropped by 
them when his presence became an encumbrance.

Mr. Lebed's successful campaign to become governor of the Krasnoyarsk 
region is said to have been financed by Boris Berezovsky, one of the 
oligarchs of the privatized Russian economy, close to Mr. Chernomyrdin. 
Moscow gossip suggests that when Mr. Chernomyrdin falters, Mr. 
Berezovsky may ''play the Lebed card.''

However, who really is using whom in this somber dance, as the Russian 
economy disintegrates? Mr. Lebed is anything but naive. This return to a 
Moscow in crisis puts him again at the center of events.

He is too intelligent not to understand that the system of oligarchs or 
robber barons has run aground. He must know that boarding their sinking 
ship, on their terms, would take him down, too.

The demise of the ruble as a tradable currency means that neither the 
IMF loans already committed nor new loans from the industrial nations 
can salvage Russia's financial system. It has to be refounded.

The proposal by George Soros that the ruble be linked to the dollar (or 
euro) in a version of the ''currency board'' that the economist Steve 
Hankehas been promoting in Asia,an idea with Keynesian ori-gins, has 
until now been ignored. It should be examined.A re-established currency 
will have to be protected against destabilizing and self-interested 
forces in the globalized financial system. Now functioning largely by 
barter, Russia has to cut its dependence on imports and restart its 
agriculture and manufacturing. This will not be achieved without 

A belief widely held in Russia is that its economic collapse was 
deliberately engineered by the United States and its allies. This belief 
is untrue, but it is not unfounded. The advice the West gave Russia was 
based on a serious misapprehension of Russian reality, as well as on the 
credulous assumption that beneficent capitalism is man's natural 

In the name of deregulation and liberalization of the marketplace, 
Russia has instead had its economy looted by a band of well-placed 
insiders, mostly former functionaries of the Soviet state and economy. 
These now dominate the media as well as the state, and have moved as 
much as possible of their wealth to the West.

The fundamental problem now is political. The legal and social 
institutions and infrastructure of a modern society remain to be 
created. This cannot be done without dislodging the oligarchs from 

That can be accomplished only on the basis of legitimacy obtained from 
popular mandate. The only figure now on the scene who possesses the 
natural authority and populist appeal likely to win that legitimacy is 
Mr. Lebed.

In economics he is an unknown quantity. In political terms he has a 
record. He has demonstrated astuteness and common sense not only in 
promoting his own career but in dealing peacefully with a complicated 
situation in Moldova and in settling the disastrous war in Chechnya. He 
has revealed no dictatorial ambitions, although those cannot be 
excluded, or may arrive.

There is going to be a nationalist and anti-Western reaction. With Mr. 
Lebed, this will, on current evidence, be a rational and controlled 
reaction, open to pragmatic dialogue with the West.

Such a reaction is probably necessary as well as inevitable. The 
Russians are a richly talented people, educated and skilled, capable of 
enormous efforts, but after the fiasco of the last nine years they need 
to reclaim control of what happens to them, and rebuild on their own 


Return to CDI's Home Page  I  Return to CDI's Library