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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
5. Toronto Sun: Matthew Fisher, A symbol of Russian rot.
6. Laura Belin: then and now.
7. Jacob Kipp: Re Oligarchs and Current Crisis.
8. Jerry Hough: Chubais and Nemtsov.
9. New York Post: John Dizard, REFORMERS COULD BE RUSSIAN FOR THE EXITS.
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
Potential Tamer of Anti-Western Reaction.]
August 29, 1998
Downcast President Fights On
By Christian Lowe and Valeria Korchagina
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
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
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
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
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
August 28, 1998
[for personal use only]
A symbol of Russian rot
By MATTHEW FISHER (74511.357@CompuServe.com)
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
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
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" <firstname.lastname@example.org>
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" <email@example.com>
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]
REFORMERS COULD BE RUSSIAN FOR THE EXITS
By JOHN DIZARD
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
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
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
WE MUST STOP DEMANDING OF RUSSIANS WHAT WE WOULD NEVER TOLERATE
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
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
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
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
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