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Johnson's Russia List


August 30, 1998   

This Date's Issues: 2334 2335••

Johnson's Russia List
30 August 1998

[Note from David Johnson:
1. John Varoli: Hough and Russian Industrial Policy. 
2. New York Times: letters on Russia.
3. Lynn Turgeon, Must the Ruble remain Convertible?
4. Reuters: Yeltsin, Russia PM, Duma to negotiate new strategy.
5. The Independent (UK): Phil Reeves, Worse is yet to come.
Whatever Bill Clinton offers when he visits Moscow this week, every 
route to Russian salvation looks strewn with obstacles. 

6. APF: US Presidential delegation to Russia.
7. The Independent (UK): Yeltsin should be proud: he kept the 
dream alive Anne McElvoy says reports of the death of Russian 
capitalism are exaggerated.

8. Calgary Sun (Canada): Cameron Maxwell, PSYCHICS SAY YELTSIN IS 

9. Reuters: U.S. encouraged by Chernomyrdin's words on economy.
10. Reuters: Chernomyrdin says West must understand Russia.
11. Bloomberg: Does Russia Matter to the U.S Economy? A Spectrum 
of Views.]


Date: Sat, 29 Aug 1998 
From: John Varoli <>
Subject: Hough and Russian Industrial Policy

Jerry Hough in JRL # 2332 seems to believe that Chernomyrdin might have
an industrial policy, that will "get Russia off the Weimar path." 
I fear, however, that any Russian state industrial policy, especially
one implemented by an old apparatchik as Chernomyrdin, will lead to the
"post-Weimar path." By this I obviously mean the rise of a militaristic
Since the founding of Russian industry in the 1600s, it has existed
primarily to supply the Russian military with weapons and other
And that was the case for most existing Russian/Soviet factories. More
than half, (some Russian scholars say 70 percent), of Soviet industry
worked towards defense.
Of course, a large country such as Russia needs a strong defense
industry. This sector, in a healthy economy, should probably not account
for more than 20 percent of the country's total industrial output. 
But, in the 1990s, the process of conversion in Russia has yielded few
success stories, and so most factories remain idle. 
If these idle factories will be given work in the near future, according
to some state industrial policy, most of those orders will have to be
defense related since they are unable and unwilling to produce much
Of course, good luck to the Chernomyrdin government in finding
investment for such an industrial policy. In light of the financial
crash, foreigners will unlikely lend the money, and the Russians holding
an estimated $100 billion abroad will also unlikely rush home with this
So who is left to squeeze, a la Stalin? The chelnoki or sadniki?
But if capital can somehow be raised and Russia is serious about
resurrecting its industry, with much less emphasis on the military, it
might be best to look to St. Petersburg. Its industrial output grew by
8.5 percent in 1997, and 3.2 percent in the first half of 1998,
according to official city statistics.
This has been accomplished by the private sector, in spite of the
state's obstruction, by
1) diversification into consumer goods production 
2) the (relative) successful conversion of some defense industries---
the likes of LOMO, Morion, Rubin, Kirovsky Works, and Zvezda--- which
have increasing production and actually post profits.
3) the turn around of power engineering factories such as Leningrad
Metal Works (LMZ), Electrosila, and Turbine Blade Factory (ZTL). 
4) an increase in naval defense production at some local shipyards; big
orders for China and India.
5) Finally, Izhorskiye Works, which even though it remains unprofitable
has increasing production, and about $2 billion worth in orders (half of
it nuclear reactors) over the next few years. Not to mention that it was
recently taken over by Uralmash, which has emerged out of the red thanks
to its relatively good management.
On such a note, it probably comes as no surprise that the factories
whose fortunes have improved owe it to relative competent management. 
Indeed, the lack of competent management, one which can efficiently
produce and sell something that consumers want, has long been at the
root of the crisis in Russian industry.
Certainly it was naive to think that managers trained under the Soviet
command economy could continue to lead in the 1990s. 
So I doubt that Chernomyrdin's 1992 industrial policy would have brought
prosperity to the Russian people by 1998, as Hough claims.
Until Russia solves it management problem, it will be unable to create
an efficient industrial sector.
If it does not solve this problem and continues to insist on
industrializing, then that most likely means, and I hope I am wrong,
militarization. Hardly something in American interests.

John Varoli
Bloomberg News, St. Petersburg


New York Times
August 29, 1998

To the Editor: 
Re "Russia Delivers a Blow to Global Capitalism" (Editorial Observer,
Aug. 27): According to conventional wisdom, Russia's crisis is attributable
to the slowness of the reform process. The opposite is true. 
The opening up of the markets has benefited the usual 10 percent of the
entrepreneurs one finds in any country, but has devastated the rest. The
free market has brought about the deindustrialization of Russia because
Western industry overwhelmed the internal sources of supplies of consumer
goods and made the country dependent on its raw materials, like oil, to pay
for it. 
The answer may sound heretical, but restrictions on the import of
consumer goods would give Russian industry a chance to get on its feet again
and provide jobs and tax revenues. A restriction on capital flow is also
necessary to prevent the oligarchy from moving foreign currency income into
foreign bank accounts. 
New York, Aug. 27, 1998 

To the Editor: 
You urge President Clinton to make it clear to Russian leaders at next
week's summit meeting "that moving forward with economic reforms is the best
prescription both for healing Russia and for maintaining strong American
support" (editorial, Aug. 25) But Boris Yeltsin hasn't pursued any "economic
Mr. Yeltsin has done everything to keep himself in power. He has used the
immense prerogatives of his office to let industries collapse and give his
magnate allies a free hand to avoid taxes, privatize huge properties and
invest profits abroad. 
He has lowered inflation by not paying millions of workers and driving up
the number of starving and unemployed. 
The West must disown Mr. Yeltsin and help Russia find a way to saner
economic policies and a more truly representative form of government.   
Chevy Chase, Md., Aug. 25, 1998 

To the Editor: 
After World War II leaders of France and West Germany wisely decided to
bind their countries together in an economic union so that they would live
together future in peace and prosperity. 
Perhaps it is time to consider a similar mechanism to help solve the
problems facing Russia (front page, Aug. 28). 
This could be done by inviting Russia to join the North American Free
Trade Agreement. 
Russia would bring its vast land area full of natural resources to Nafta.
It would also bring its educated population with expertise in science and
Nafta members would bring their economic and human resources to help
bring political stability and economic growth to Russia. 
Building a modern Russian economy would create many economic
opportunities for all the Nafta countries.
Chatham, Mass., Aug. 28, 1998
The writer is a professor of strategic management at Iona College. 

To the Editor: 
President Boris N. Yeltsin's dismissal of the new pro-reform government
and the reappointment of Viktor S. Chernomyrdin as Prime Minister, whose
ties to the industrial oligarchy are well established, point to yet another
old aspect of Russian history (front page, Aug. 24). 
The young reformers Sergei V. Kiriyenko and Boris Nemtsov, who are
Jewish, have been sacked. 
In times of crisis Russia returns to its historically unifying principles
of nationalism and xenophobia and finds Jews or foreigners to blame for its
Alas, Russia is again on the brink of political and economic convulsions. 
New York, Aug. 24, 1998
The writer is with the Harriman Institute at Columbia University.


From: "Peter D. Ekman" <>
Subject: no panic
Date: Sat, 29 Aug 1998 20:47:58 +-400

Just as Jana Howlett reported yesterday from St. Petersburg, there is no
panic in Moscow. There are many people in the stores buying things, since
stores do not raise prices to keep up with the ruble/dollar rate. The
reports earlier this week on "bank runs" in Moscow suggesting panic in the
streets were overstated. I stood in two lines at banks this week and can
report that they were the best behaved lines that I've seen in 4 years in
Peter Ekman
Professor of Finance
American Institute of Business and Finance


Date: Sat, 29 Aug 1998
Subj: Must the Ruble remain Convertible?

Currency convertibility has been one of the principal goals of IMF
policy since World War II, although some advanced countries such as Great
Britain retained exchange controls until the late fifties. Convertibility has
also been a goal for emerging countries although the recent experiences with
sharp declines in the values of their currencies in Southeast Asia has produced
some questioning of this goal accoeding to Peter Passell of the NYT.
The positive currency stability in China with exchange controls (and
lack of recent devaluation of the yuan despite the pundits' predictions) has
contributed to the questioning of the desirability of convertibility. Within
the FSU, the experience of Belarus' (which has rejoined Russia) s also
comparatively positive. Belarus' has maintained a fixed exchange rate along
with a black market rate that is something less than double the fixed rate just
as in Soviet times.
Most importantly they hav issued their own currency in quantities that
exceed "sound finance." Thus their workers and pensioners are being paid
regularly as in Soviet times. There is somewhat more inflation than in Russia
but the Lukashenko government remains popular, particular when its citizens
look across their border with Russia and the results of shock therapy. Economic
growth in Belorus' has been running in double digits, something that should
make their Big Brothers envious.
IMHO the Russians would be well advised to look at their Little
Brother's experience with a more conservative policy. The IMF and the
Washington consensus will be appalled but they have no alternative program to
stop the financial meltdown taking place in Russia. Lynn Turgeon


Yeltsin, Russia PM, Duma to negotiate new strategy
By Oleg Shchedrov

MOSCOW, Aug 30 (Reuters) - Russian politicians are to have more talks on the
country's deep political and economic crisis on Sunday, hoping to finalise a
new political strategy which would remove some of President Boris Yeltsin's
sweeping powers. 

Officials of the acting government, parliament and presidential aides will
meet for negotiations in which the Communist-led Duma lower house expects to
win more influence, including the right to control top cabinet nominations. 

Acting Prime Minister Viktor Chernomyrdin, struggling to head off economic
collapse, on Saturday moved to calm mounting Western fears about the fate of
market reforms, saying Russia would not return to the state controls of its
Soviet past. 

His pledge followed a tough warning from the International Monetary Fund and
the United States that the West would not come to Russia's rescue if it
reversed its six-year drive to a more open, market-based economy. 

``We are already part of the world economy and there will be no return to the
past,'' Chernomyrdin said in televised remarks. 

In recent days the rouble has lost more than 40 percent of its value and
anxious Russians, fearing a meltdown of the whole banking system, have
besieged banks to withdraw life savings. 

On Friday Chernomyrdin formed a group of senior reformers headed by acting
Deputy Prime Minister Boris Fyodorov, setting them the task of preparing
urgent anti-crisis measures. 

In another possible sign of Chernomyrdin's determination to stick to the
reform path, news agencies and newspapers in Argentina reported that he had
asked the man who drove four-digit inflation from the Latin American country
to advise his government. 

News agency DyN and newspapers said Chernomyrdin had invited Domingo Cavallo,
a Harvard-trained economist and Argentina's economy minister in the early
1990s, to advise the new cabinet. 

Russian officials were not immediately available to confirm the reports. 

Chernomyrdin and Yeltsin's chief of staff Valentin Yumashev spent four hours
in the parliament building on Saturday night negotiating with parliamentary
deputies on a draft of a compromise strategy worked out with the Communist-
dominated legislature. 

The talks produced no immediate results after four hours of bargaining and
were put off until 0630 GMT on Sunday. 

Chernomyrdin and the Duma speaker Gennady Seleznyov said they were generally
happy with the pace of negotiations but did not say if they would personally
attend the new round of talks. 

Interfax news agency said the draft, approved by experts from both sides,
provided for redrawing the constitution to hand some of Yeltsin's sweeping
powers to parliament. 

It would give the Duma more control over the government but also approve the
nomination of Chernomyrdin as prime minister and his deputies and some key

Interfax also quoted sources as saying Yeltsin, who said on Friday he would
not resign until his term ends in 2000, had rejected a parliamentary offer to
introduce a law to give him legal protection from prosecution and a generous
pension on retirement. 

Yeltsin was spending the weekend at a rural retreat preparing for his
September 1-3 summit in Moscow with U.S. President Bill Clinton. 

Clinton and other Western leaders have offered Russia moral support during its
present difficulties but they insist Moscow must continue tough market reforms
as a condition for continued financial backing. 

On Saturday German Chancellor Helmut Kohl, Yeltsin's closest Western ally, was
quoted as saying Russia's crisis could pose enormous problems in international
financial relations. 

The Kremlin said Yeltsin would meet Chernomyrdin on Monday. The same day or
possibly on Tuesday the Duma is scheduled to consider Chernomyrdin's
nomination as prime minister. 

On Saturday acting Deputy Prime Minister Viktor Khristenko met the local World
Bank representative, Michael Carter, to discuss Russia's continued cooperation
with global lenders. 

``The speedy resolution of our political problems and the outlining of clear
goals for the country's economic development are among the basic requirements
for financial support from international financial organisations,'' Interfax
news agency quoted Khristenko as saying after his talks. 

On Saturday Chernomyrdin said he had no plans to end the internal
convertibility of the rouble but would take measures to prevent the flight of
capital out of the country and protect people's savings and that the central
bank was working on this. 

He said he would not shut currency exchange outlets because this would spark
the creation of a black market that would evade the tax authorities. A de
facto black market reminiscent of the Soviet era has begun mushrooming on
Russian streets in the absence of an official dollar-rouble exchange rate. 


The Independent (UK)
30 August 1998
[for personal use only]
Worse is yet to come 
Whatever Bill Clinton offers when he visits Moscow this week, every 
route to Russian salvation looks strewn with obstacles. By Phil Reeves 

THE WHOLE business has the air of the cavalry galloping in, pennants 
fluttering, to join a fight that is almost over, on a field strewn with 
corpses. Bill Clinton jets in to Moscow on Tuesday with his army of 
spin-medics, policy wonks and whiners from the White House press corps, 
with a set of hastily redrafted battle instructions. 

Discussions about stalled arms-control agreements, routine moaning about 
Russian nuclear technology sales to Iran, polite chiding over Moscow's 
sympathetic approach to Baghdad, patient explanations of the (suspect) 
logic of Nato expansion - all of this now matters little. Russia's 
meltdown, which prompted Boris Yeltsin to fire his entire government 
last Sunday, has changed everything. 

Mr Clinton's new agenda contains two principal, and pressing, items. One 
is an urgent plea to urge Russia not to revert to command economics, but 
to persevere with its so far largely failed attempts to rebuild the 
dead-weight legacy of the Soviet system into something resembling a 
Western-style economy. The other is a warning: if you don't take this 
path, don't expect any more money out of us. Waffle about not 
interfering in the politics of another sovereign power does not apply to 
Washington when faced with the prospect of the fruits of its Russian 
policy withering on the vine. 

The social scene confronting the US President is clear and grim enough 
(although, it must be said, not yet one of overwhelming panic). Story 
after story surfaced last week as the impact of failing banks, tottering 
under a sea of debt, and a nose-diving rouble filtered through to street 

Gold and jewellery sales rocketed nearly threefold as Russians rushed to 
get rid of their currency; the supply of imported medicines dried up as 
pharmacies could not get hold of the dollars to pay for them. And, all 
week, the sad-looking queues outside banks continued. The situation will 
worsen, for sure; predictions of hyper-inflation and winter food 
shortages abound. 

But the contours of the political environment in which Mr Clinton finds 
himself are less easy to discern. The man the US President will 
concentrate on is not a jaded and weary Mr Yeltsin - who, despite his 
robust refusal to resign, seems destined to fade into the background. 
Viktor Chernomyrdin, the 60-year-old premier designate, is the figure 
who now counts. 

The West has being doing its best to advertise its fears about the 
possibility that Mr Chernomyrdin will lead Russia on a backward path. On 
Friday, the US Deputy Treasury Secretary, Lawrence Summers, said that 
the $23bn international bail-out deal, brokered by the International 
Monetary Fund in July, will have now to be renegotiated. It required "a 
new set of understandings, appropriate to current circumstances, about 
Russian policy actions". 

The IMF was still more specific. Its managing director, Michel 
Camdessus, told Mr Chernomyrdin on Wednesday that he could forget any 
international support if Russia returned to the price and trade controls 
of Soviet days. 

Part of the reason for such alarm is the departure of the 
standard-bearers of Western economic ideology - the "young wolves" 
Anatoly Chubais and Boris Nemtsov. But the West's fears have also been 
stoked by remarks by Mr Chernomyrdin himself, who criticised the 
monetarist creed of the West as inadequate for Russia's problems. 

There have also been signs that he may cave in to demands for 
Soviet-style remedies from parliament. Yesterday he sought to repair the 
damage. "We have already joined the world economy," he said on national 
television. "There will be no return to the past." 

But the proof of that is awaited. Mr Clinton will want more assurances 
and more information. Yesterday negotiations continued between the 
government, the Kremlin and the Communist-dominated parliament over Mr 
Chernomyrdin's confirmation in his new/old post. 

The Americans will be eager to establish if any concessions have been 
made to secure the vote, and whether they have any real force. Among the 
issues also under negotiation during this haggling is a list of demands 
drawn up by a government-parliament commission. 

According to the Russian media, these include clauses that will chill 
the heart of the visiting champions of capitalism: fixed prices, 
renationalisation, printing money. The reformist Izvestia newspaper 
yesterday called it "suicidal". 

The uncertainty over which way Russia will now go marks the onset of a 
new and tense phase in US-Russian relations. It will, as ever, be 
characterised as a blend of economics and ideology - a battle by the 
West to preserve Russia's "reforms" and, if possible, to establish a 
measure of democracy while it's about it. 

But Russia's economy is small; the issue is as much to do with 
geopolitics. What the United States ultimately fears, as the struggle 
for Russia's soul gathers pace, is that it will become an increasingly 
impoverished rogue nation, with weakening control of its mighty 
stockpiles of weapons and nuclear materials, and a growing fondness for 
throwing its (admittedly much diminished) weight around in sensitive 
areas - the Caspian oil fields, Iran, Iraq, Serbia. 

All may not yet be lost, but the signs are scarcely rosy. Certainly Mr 
Chernomyrdin is not the knee-jerk Soviet manager that he is sometimes 
made out to be in the West. His instincts have tended towards market 
economics, although they are above all pragmatic. He does, however, 
suffer from a heavy dose of cronyism and a tendency to indecision. 

And there are plenty of cronies about, notably his heavyweight chums in 
the energy lobby (he used to run the gas giant Gazprom). These include 
the banking and media barons, such as Boris Berezovsky, Mr 
Chernomyrdin's chief sponsor, a capitalist entrepreneur whose main 
priority is creating an environment in which he and his fellow oligarchs 
can get richer. 

But Mr Chernomyrdin's track record of actually implementing "reforms" is 
not impressive: he failed during his previous six-year premiership to 
secure a tax code or a workable legal framework in which business could 

The absence of both has done much to impede change and to deepen the 
criminalisation of the entire economy. Perhaps he has genuinely lost 
faith in market economics as Russia's sole remedy. 

Ominously - from the West's viewpoint - the mayor of Moscow, Yuri 
Luzhkov, has appeared at Mr Chernomyrdin's side in the last few days. 
The city boss is an ardent interventionist; yesterday he announced, with 
relish, that Russia's crisis was the "the devastating finale" of 
monetarism. Whatever, the economic crisis in Russia may soon gather such 
momentum that no remedy, be it Soviet or monetarist, will help. 

Mr Clinton cannot stop the onset of winter among a population that must 
now pay more for its food, but has less to spend; a population that has 
grown heartily sick of listening to one economic theory after another 
without ever seeing the benefit. The Clinton cavalry could indeed be too 


Presidential delegation to Russia

EDGARTOWN, Massachusetts, Aug 29 (AFP) - The official delegation
accompanying US President Bill Clinton on his official visit to Russia from
September 1-3, released here Saturday:
First Lady Hillary Rodham Clinton
Ambassador James Collins, US Ambassador to Russia
Secretary of State Madeleine Albright
Secretary of Commerce William Daley
Ambassador William Richardson, US ambassador to the United Nations
Senator Pete Domenici
Representative Steny Hoyer
Representative Peter King
Maria Echaveste, Assistant to the President and Deputy Chief of Staff
National Security Adviser Samuel (Sandy) Berger
Gene Sperling, Assistant to the President for Economic Policy and Director
of the National Economic Council
Michael McCurry, White House spokesman
Doug Sosnik, Counselor to the President
Melanne Verveer, Assistant to the President and Chief of Staff to the First Lady
Strobe Talbott, Deputy Secretary of State
Lawrence Summers, Deputy Secretary of the Treasury
David Lipton, Under Secretary of the Treasury for International Affairs
Ernest Moniz, Under Secretary of Energy
Stephen Sestanovich, Ambassador at Large and Special Adviser to the
Secretary of State on the New Independent States
Elaine Shocas, Chief of Staff to the Secretary of State
Mary Mel French, Chief of Protocol
Edward Warner, Assistant Secretary of Defense for Strategy and Threat Reduction
Marsha Berry, Deputy Assistant to the President and Director of Communications
Lael Brainard, Deputy Assistant to the President for International Economic
Joe Lockhart, Deputy Assistant to the President and deputy spokesman
James Steinberg, Deputy Assistant to the President for National Security Affairs
Lt. Gen. Robert Fogelsong, Assistant to the Chairman of the Joint Chiefs of
James Foley, State Department spokesman
Robert Bell, Special Assistant to the President and Counselor to the
Assistant to the President for National Security Affairs
Antony Blinken, Special Assistant to the President and National Security
Council Senior Director for Strategic Planning
Anne Edwards, Special Assistant to the President and Director of Press Advance
Kirk Hanlin, Special Assistant to the President and Trip Director
Broderick Johnson, Special Assistant to the President for Legislative Affairs
Carlos Pascual, Special Assistant to the President and Senior Director for
Russian Affairs
Gary Samore, Special Assistant to the President and Senior Director for
Nonproliferation and Export Controls
Laura Schiller, Special Assistant to the President and Senior Speechwriter
Chris Wayne, Special Assistant to the President and Deputy Director of
Presidential Advance
Jan Lodal, Principal Deputy Under Secretary of Defense for Policy
Mark Medish, Deputy Assistant Treasury Secretary for Eurasia and the Middle East
P.J. Crowley, National Security Council spokesman
Nicole Elkon, National Security Council Director for Planning
David Halperin, National Security Council Director for Speechwriting
David Leavy, National Security Council spokesman
Andrew Weiss, National Security Council Director of Russia/Ukraine/Eurasia
Betty Currie, personal secretary to the president
Kris Engskov, aide to the president
Nanda Chitre, assistant press secretary
Kara Gerhardt, assistant press secretary
Michael Teague, press assistant
Lori Anderson, assistant to the press secretary
Laura Graham, deputy director of presidential scheduling
Nina Hachigian, executive assistant to the deputy assistant to the president
for National Security Affairs
Whitney Williams, trip director for the first lady


The Independent (UK)
30 August 1998
[for personal use only]
Yeltsin should be proud: he kept the dream alive
Anne McElvoy says reports of the death of Russian capitalism are 

A Russian friend has just sent me the following e-mail from Moscow: 
"Someone showed me your column last week - you said you would bet your 
last rouble on Yeltsin surviving in office longer than Clinton. I bet 
you're wrong! But the rouble will be so worthless by the time Yeltsin 
goes that you won't suffer much of a loss." 

The developments of the past week mean that I now have an even more 
devalued bet on a devalued Russian President. But then this is the third 
time in six years that the imminent demise of Boris Yeltsin has been 
announced. Each time, through health crises, fits of absentee 
drunkenness, the wanton bloodshed in Chechnya and previous economic 
crises, he has staggered on, in his stubborn, wounded-bear-like way. 

This time though, things are different. Yeltsin is no longer master of 
his own destiny. On Friday, he announced that he intended to stay in 
power until the elections in 2000. But power has drained from him. He 
looks like a large, faded papier mache puppet, whose movements are 
erratically controlled by some external agency. 

Events in Russia are dismal. But the West's response dismays me more. 
Fear of recession and the outbreak of global economic doldrums have led 
to an outburst of peevish fatalism about Russia. We want to write it off 
as a basket case: to consign to outer darkness a place we cannot 
understand and thus prefer to shake our heads about and despair. That is 
a luxury which Russians themselves cannot afford. 

The fate of Russia is one of those subjects which causes the ideological 
spectrum to bend and blur. On the left, a perverse desire remains to 
prove that somewhere, anywhere, a market economy is not superior to a 
state model and that people are happier eating state-manufactured 
sausage and holidaying once every five years in trade union hostels than 
being exposed to the global markets. 

The right can never quite make up its mind whether the economic 
liberalism it espouses elsewhere can hold up in Russia. In Britain and 
America especially, conservatives incline to the view that Russia is 
inherently and incurably "backward" and that the less we have to do with 
it the better. 

Never before has the West been keener to admit - before it has actually 
happened - the total defeat of the economic system and values it claims 
to uphold. Headlines boldly announce the "death of capitalism in 
Russia". I don't know what the "death of capitalism" would look like. It 
is a remarkably resilient beast, even if not all its forms are beautiful 
or stable. 

Newsnight, meanwhile, reverts to Cold War tradition by wheeling out the 
editor of Pravda at the top of its bulletin to tell us that the 
capitalist experiment is dead. The editor of the world's ur-Communist 
newspaper is not the man you would usually call on for a cool assessment 
of the future of the free market. 

Yeltsin's seven years in office are now being described on the hour, 
every hour, as having been a disaster. It is perfectly rational to be 
depressed about the situation in Russia. But it is neither fair nor 
reasonable to dismiss the best part of seven years in office as a 
complete failure, still less to conclude that the values of liberal 
reform have been defeated in one fell swoop. 

In order to speak of a failure, one must first have some idea of what 
success would look like. This is where I think that his detractors in 
the West are being particularly hard on Boris Yeltsin. He arrived in 
office at the most significant moment in the Russian century since the 
Bolshevik revolution and had to preside over four transitions 
simultaneously - the change from a centralised economy to a free market, 
from a Communist system of political organisation to a rudimentary 
democracy, from the security and might of the Soviet Union to the 
loose-jointed Commonwealth of Independent States, and the humiliating 
end of Soviet empire in Eastern Europe and the Baltic States. 

On the first count, he has failed. Banks and business oligarchs moved 
into the unaccountable and obscure position the Communist Party once 
occupied. Russia's democratic instincts were still too poorly developed 
to create a bulwark against them. But it has taken Western democracies 
centuries and bitter struggles to evolve the kinds of checks and 
balances which stop, say, the High Street banks and privatised utilities 
ganging together to hold the government to ransom. Could he 
realistically have been expected to plant a secure political and 
economic system on the rotting corpse of Soviet Communism within six 

I don't want to whitewash Yeltsin. He is an imperfect democrat - as he 
showed in his cavalier firing and hiring of his Prime Minister, Viktor 
Chernomyrdin. Much of the moral high ground and natural authority he had 
on acceding to power at the end of 1991 and fought so hard to maintain 
against his enemies, he squandered in succumbing to the generals' 
idiotic lust for war in Chechnya. 

He has shown a patchy understanding of market economics and democracy, 
but always preserved a strong instinct which may yet turn out to be more 
important for all of us in the long term than a stock-market slump, 
namely an iron determination not to allow either the Communists' leader 
or the deranged chauvinist Vladimir Zhirinovsky into the Kremlin. He has 
long seen Chernomyrdin as the least worst hope for reform and his Prime 
Minister, while he will play to the hardliners in parliament to get 
himself ratified, is neither a fool nor a (total) economic illiterate. 
He knows that a future, lasting presidency will only be his if he 
delivers stabilisation, not hyperinflation. 

The Yeltsin years changed Russia for ever and for the better. At one of 
his early low ebbs, I asked a rather sensible female deputy in the Duma 
if the reforms were saveable and she said "Of course: because the market 
has entered the soul of the Russian people." The juxtaposition of "soul" 
and "market' sounds odd to those of us in the West who are not die-hard 
libertarians. But the arrival of a market economy in Russia was a 
revelation. It meant the legalisation of the barter which had sustained 
people in the looking-glass world of Soviet command economics. Russians 
are natural entrepreneurs. It is the distortion of a meaningfully free 
market and the rise of a corrupt class of asset-strippers that offends 
and enrages them - what the disappointed reformer Boris Nemtsov who left 
the Kremlin this week calls "an ugly market, where competition is 
non-existent and monopolies run the country". 

Under Yeltsin, the first post-Communist generation glimpsed for the 
first time the possibility of a better and more dignified life than 
state socialism could deliver. My brightest, most energetic and luckiest 
friends used these years to transform themselves from late-Soviet 
caterpillars into ambitious butterflies. Others knew that they 
themselves would not be the material beneficiaries of change, but 
fervently believed that their children should live in an open, 
prosperous Russia and enjoy greater freedoms and opportunities than they 
had done. These hopes remain, however battered and however distant their 
fulfilment. That they have survived thus far at all is something Boris 
Yeltsin can look back on with pride. 


Calgary Sun (Canada)
August 29, 1998 

  Since the days of Rasputin, Russia's political affairs have been the 
target of mystics and crystal ball-peering psychics. 
 And soothsayers in Calgary who consulted their tea leaves yesterday 
predicted political turmoil in Russia that will usher in the return of 
 "I feel Yeltsin will go," said psychic Lorna Levett, predicting the 
political demise of President Boris Yeltsin. 
 "And he may not feel that happy about it." 
 And Mother Russia's flirtation with capitalism will go with him, added 
Levett, saying communist hardliners will take over. 
 While legend has it the "Mad Monk" Rasputin held a mysterious sway over 
Russia's last czar and his family -- leading to their murder and the 
communist revolution -- Levett said she gets her powers of 
prognostication by reading inner feelings she gets. 
 Levett also sees a gloomy future for the lowly Canadian dollar, saying 
it will plunge to a paltry 50 cents US. 
 But while political pundits may blame that on market forces and 
Russia's economic woes, Levett has a decidedly different explanation -- 
a government conspiracy. 
 "They've been planning this since 1968," she said. 
 "Interest rates will go up again, but it won't do any good -- the 
economy is tanked no matter what." 
 Psychic Deanna Giesbrecht used the zodiac to come up with much the same 
conclusion: "Boris Yeltsin is on his way out now," she said, basing her 
prediction on his date of birth. 
 "He's not even as in control as people think he is." 
 Unlike Levett, Giesbrecht said the stars told her Russia will emerge 
strongly from its current financial woes within 10 years. 
 "And the Canadian dollar's gonna do OK," she added. "It's the U.S. 
dollar that's out of whack." 
 According to Giesbrecht, the heavens are pushing to make Canada's 
economy even stronger. 
 Who can argue? It's in the stars. 


U.S. encouraged by Chernomyrdin's words on economy
By Maggie Fox

EDGARTOWN, Mass., Aug 29 (Reuters) - The United States said on Saturday it was
encouraged by acting Russian Prime Minister Viktor Chernomyrdin's quick
reassurances about his country's crumbling economy but said he still had a
huge task ahead. 

Chernomyrdin, the one-time hardliner re-appointed by President Boris Yeltsin
this week after he sacked his entire cabinet, ruled out any return to Russia's
Soviet past. 

He also assembled a group of senior reformers and told them to prepare urgent
measures to halt the country's acute financial crisis -- which has panicked
markets and unnerved foreign lenders. 

White House spokesman P.J. Crowley called the developments encouraging but was
cautious about saying more. 

``It's hard to comment at this point until they have a government, they
formally have their economic team and they formally lay out their economic
programme, but certainly it is encouraging,'' Crowley said. 

``They are going to continue on the path of economic reform (and) that's
clearly what we are encouraging them to do.'' 

In a briefing on Friday, Deputy Treasury Secretary Larry Summers said Russia
had to make several crucial choices on banking and financial reform, building
a new market system and managing relations with foreign creditors. 

He said President Bill Clinton would discuss such issues with Yeltsin on his
visit to Moscow next week. 

The summit, coming in the midst of economic and political upheaval in Russia
and at a personal low point for Clinton after his public confession to an
extra-marital affair with a young White House intern, has drawn criticism from
some influential Republicans. 

House Speaker Newt Gingrich expressed concern that Clinton's trip lacked a
clear purpose and might wind up being simply a meeting of two weakened

``He believes without a mission or purpose, it would be nothing more than two
weak presidents propping up one another,'' said Andrew Weinstein, a spokesman
for the Georgia Republican. 

House Majority Whip Tom DeLay said Clinton should not go to Russia ``until it
becomes clear his visit will accomplish more than sound bites and pretty
pictures for the media.'' 

``His presidency is marred with scandal, his moral authority is at an all-time
low and his worldwide respect is diminished by the sordid stories of the
president's conduct,'' the Texas Republican said in a written statement. 

But the House Democratic leader Representative Richard Gephardt of Missouri
disagreed, saying it would be ``irresponsible'' on Clinton's part not to go to

``We are at a critical point ...the president's trip will be the most
immediate way by which the United States can reiterate the need for continued
economic reforms in Russia,'' Gephardt said Saturday. 

Western countries are terrified that Russia's government, demoralised by the
collapse of the rouble, and its inability to pay wages and pensions, will
return to its old ways with a centralized economy. 

There have also been fears that Chernomyrdin will resort to the printing
presses to keep insolvent banks and companies afloat and to meet the payroll.
They say such an act would spark hyperinflation, batter the rouble even more
and paralyse the economy. 

Clinton, vacationing on the Massachusetts island of Martha's Vineyard, did not
answer reporters' shouted questions about Russia on Saturday, and preferred to
speak about healthcare reform in his weekly radio address. 

But on Friday he said the United States would not give up on Russia just
because it was going through tough times. 

``We should tell them that if they'll be strong and do the disciplined, hard
things they have to do to reform their country, their economy and get through
this dark night, that we'll stick with them,'' Clinton said. 

An aide to Chernomyrdin told reporters that the acting prime minister had
already told members of the Duma, Russia's parliament, that he wanted to make
reforms backed by the International Monetary Fund. 

Russia's economic crisis helped drive down stock prices around the world and
hit the dollar as well. 

After a steep 357-point drop on Thursday, its third-biggest points slide ever,
the Dow Jones Industrial average ended down 481.97 points for the week at


Chernomyrdin says West must understand Russia

BONN, Aug 29 (Reuters) - Russian acting Prime Minister Viktor Chernomyrdin has
called on the West to take stock of Russia's situation and not try to impose
an unsuitable economic blueprint on it, a German newspaper reported on

In an interview with Welt am Sonntag, Chernomyrdin sought to reassure the West
that Russia, in the throes of a political and financial crisis, was not about
to reverse its reform course and ruled out a return to a Soviet-style command

Asked what Germany and Europe could do for Russia, he said: ``Above all
understanding for our situation. Understand our difficulties and not demand
the impossible of us. 

``Not only in the West, but also many people here in Russia underestimate
Russian specifics and the Russian mentality. We are proposed standardised
economic schemes,'' he said. 

``But what, for example, is not bad for little Latvia does not work in Russia
and sometimes produces the opposite result.'' 

Chernomyrdin did not say which demands were impossible or specify which
economic schemes he felt did not suit Russia. 

The International Monetary Fund and the United States told Russia on Friday
that bailout funds were on hold until Moscow proved it was reforming its
economy and not returning to the methods of the past. 

The lending agency said it could still approve a payment from a $22.6 billion
international rescue package for Russia in September -- but only if
Chernomyrdin moved swiftly on market-oriented reforms. 

``The population does not want a return to the past,'' Chernomyrdin said.
``Therefore we, the president and the government in the interests of all
Russian citizens, will not premit a rollback.'' 

Chernomyrdin criticised unnamed Western leaders. 

``Many politicians in the West tend toward scepticism and passivity in their
political and economic relations with Russia. This has often led to a
situation where vital support from the Western side for Russian reforms has
come too late,'' he said. 

German Chancellor Helmut Kohl, Russian President Boris Yeltisin's closest ally
in the West, was quoted on Saturday as saying he would use his influence to
convince Russian leaders there was no way out of the crisis without reforms. 

Kohl's finance minister Theo Waigel and his British, French and Italian
counterparts have written to Chernomyrdin offering Western assistance, but no
cash, to fight the crisis. 

Germany is Russia's biggest trading partner and creditor. 

The rouble went into free fall this week after Yeltsin sacked the government
of prime minister Sergei Kiriyenko, and reappointed Chernomyrdin, who had been
sacked months earlier. 

Despite the turmoil, Chernomyrdin said he believed that one day it would be a
good thing for his country to participate in the European Union's single
currency project which is due to launch the euro currency in January 1999. 

``I believe Russia must participate in the euro-project,'' the report quoted
him as saying. 

Chernomyrdin said Russia was not ungrateful for Western support and gave
assurances the country would fulfil its obligations to foreign investors and
correct past decisions that had put foreign investors at a disadvantage. 

``We are working on a number of mechanisms which would make if possible for
Russia to meet its obligations to investors and at the same time to
substantially correct previous improve conditions for
investors,'' he said. 


Does Russia Matter to the U.S Economy? A Spectrum of Views

New York, Aug. 29 (Bloomberg) -- Scarcely anyone would argue with the
proposition that politically and militarily, Russia's fate is a major concern.
Yet it's not a big trading partner for the U.S. 

Small wonder, then, that some people question why U.S. markets should tremble
at the prospect of Russia's financial collapse. What follows is a spectrum of
opinion from Russia specialists in the U.S. 

Marshall Goldman, professor of international economics at Wellesley College 

``Russia's breakdown matters because we never like to see any country go
through this. It effects its neighbors the Poles and the East Europeans who
have been doing well, quite well but in part because of the developed markets
in Russia. 

``If you have economic problems you run the risk of people slipping over the
borders, refugees, and the Germans aren't really eager to see that. 

``Russia doesn't really affect our economy that much but it does effect,
deeply, the German economy. The German banks are owed $30 billion or lent $30
billion, but for us it's not all that important because we really don't export
all that much to them. 

``Russia is just another domino. I think people sometimes say that maybe
Germany is to Russia like Japan is to Asia, and maybe Germany will have those
problems too and somehow this will affect us. But in this general hysteria,
you panic where you panic.'' Anders Aslund, Senior Associate, Carnegie
Endowment for International Peace 

``If Russia pursues a total financial collapse, they'd default on $130 billion
and a lot of U.S. commercial banks would be hurt. Russia's direct trade with
the U.S. is not very substantial but the stock markets are falling because of
the instability. 

``The destabilization in surrounding regions might cause a financial meltdown.

``U.S. defense spending might increase if Russia collapses because there's a
general uncertainty about Russia's 20,000 nuclear warheads and with the recent
terrorist attacks in Africa you don't know who will do what in the world.''
Helmut Sonnenfeldt, guest scholar in foreign policy at the Brookings

``Although Russia is not a big trading partner of the U.S., some parts of the
American economy have relationships with the Russians, the banking industry
for example and elsewhere Russia is an important source of raw materials. And
of course they have gold and gold sales could depress the market for gold. 

``But the more basic issue is that if Russia is chaotic, it's quite troubling
because it still has large military arsenals and they have scientists and
engineers with a lot of knowhow in weaponry, weapons of mass destruction and
chemical, biological and so on. 

``We've already had disagreements with them about how their technology
transfers to countries like Iran and India. If it's chaotic it's even less
likely that we'll be able to control all of that. 


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