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Johnson's Russia List


August 31, 1998   

This Date's Issues: 2336 2337

Johnson's Russia List
31 August 1998

[Note from David Johnson:
Any comments on how this current crisis will impact
on the Russia military? 
1. AP: Russian Pact Appears To Collapse.
2. Brian Humphreys: NY Times letters.
3. Jerry Hough: Re 2334-Varoli/Industrial Policy.
4. AP: Russian Army Misery Worse Than Ever.
5. AFP: Russian crisis hits another low.
6. The Guardian (UK): James Meek, Rich Rasputin who bewitched Yeltsin.

7. Newsday: Jonathan Steele, A Post-Yeltsin Russia, at Long Last.
8. Bloomberg: U.S. Defense Officials Play Down Nuclear Risk in Russia 

9. Bloomberg: Nixon Center's Simes on Russia: Clinton-Yeltsin Summit 


Russian Pact Appears To Collapse
August 30, 1998

MOSCOW (AP) -- A tentative agreement to approve a new government under Boris
Yeltsin to tackle Russia's economic crisis appeared to collapse within hours
Sunday after the Communists said they would not accept the deal.

The Communist turnabout came just after the government and the opposition said
they had reached a deal following days of tough behind-the-scenes bargaining
to call a political truce to win quick confirmation of Yeltsin's choice for
prime minister.

It also came just two days before President Clinton's scheduled arrival in
Moscow on Tuesday for a summit with Russia's troubled leaders.

Communist leader Gennady Zyuganov said the proposed pact was rejected by a
meeting of his party leadership because there was no firm guarantee Yeltsin
would abide by its provisions. He did not rule out further talks.

``So far, the document is not guaranteeing anybody anything,'' he said, adding
that the party would vote Monday against the confirmation of acting Prime
Minister Viktor Chernomyrdin in parliamentary hearings.

The breakdown appeared likely to usher in a period of political head-butting
similar to the one that surrounded the nomination of the previous prime
minister, Sergei Kiriyenko, last spring. The State Duma, parliament's lower
house, rejected Kiriyenko's nomination twice before narrowly approving it on
the third and final vote.

This time, however, the economic situation is substantially worse, and the
country may face weeks of uncertainty if the opposition blocks Chernomyrdin's
confirmation and Yeltsin refuses to withdraw it.

The proposed three-page agreement would have given the Duma more say in
Cabinet appointments, but have left Yeltsin with substantial power, despite
earlier opposition calls for his removal.

In particular, the president would have retained control of the security
forces with the right to fill three key posts -- the defense, foreign and
interior ministries. In exchange, Yeltsin would have agreed to Duma approval
of most Cabinet appointments for the first time, according to lawmakers and
media reports.

Chernomyrdin said earlier that swift formation of a new government was vital
to tackle the nation's economic crisis.

``We must resolve financial problems. The ruble is hanging by a thread,'' he

In Washington, White House national security spokesman P.J. Crowley declined
to comment on the political turmoil.

``This is a matter for the government of Russia and the people of Russia,''
Crowley said. ``We look forward to working with the new government. We hope
they'll be put into place as quickly as possible.''

Russia was plunged into political and economic crisis when financial markets
and the currency collapsed as the government defaulted on its debts and the
country was hit by the global furor in developing markets. Ordinary Russians
fear they face yet more hardships after years of upheaval, but there have been
few signs of panic on the streets of Moscow and other cities.

The ruble appeared to gain Sunday and exchange points across Moscow were
buying U.S. dollars at an average 8 rubles to the dollar, down from an average
of 8 1/2 rubles to the dollar the day before. The rate had been 6 rubles to
the dollar before the collapse.

There had been no immediate confirmation that Yeltsin would accept the deal,
even though it left him with a firm grip on power. But he appeared reluctant
to accept many of the provisions, according to Russian media.

There was no word on an economic plan that had been discussed with the
opposition to handle the crisis. It called for imposing some Soviet-style
economic controls, but Chernomyrdin said Saturday there was no question of
restoring the Soviet system.

While Yeltsin would have lost some power under the deal, it had appeared to
represent a major step down by the hard-line opposition, which had been
calling for the president's removal and formal power sharing. Yeltsin said
last week he would never resign.

Zyuganov called for unspecified changes to the International Monetary Fund's
terms for extending a $22.6 billion loan to Russia. The Communists also called
for formation of a Constitutional Assembly, a new body that would take over
``if the situation gets out of control'' and tighter controls on Yeltsin's
powers to nominate a prime minister.

Yeltsin brought Chernomyrdin back as prime minister a week ago because he
hoped the familiar figure would restore confidence in the government, badly
damaged by the ruble's sharp decline.


From: "Brian Humphreys" <>
Subject: NY Times letters
Date: Sun, 30 Aug 1998

I had to wonder about the letter to the NY Times (JRL 2334) which blamed
anti-Semitism for the dismissals of government reformers. The latest theory
here -- reported widely by the Western press --- is that oligarch Boris
Berezovsky, a Jew, engineered the dismissal of Kiriyenko and Nemtsov. If
there is any anti-Semitism in Russian politics, it is in the belief that
Berezovsky controls absolutely everything. 


Date: Sun, 30 Aug 1998
From: "Jerry F. Hough" <>
TSubject: Re: 2334-Varoli/Industrial Policy

I find John Varoli's response very discouraging precisely because 
he occupies such an important post as head of Blumberg News in St. 
Petersburg and because he speaks with the universal language I have been 
hearing on CNBC (even such a knowledgeable person as Ron Insani) and CNN. 
"Chernomyrdin is proposing old Communist measures." Chernomyrdin is 
proposing what we call the Asian model, what was the model of Nikolai II, 
of Britain with its protectionism outside the Empire prior to the Corn 
Laws, of the Chinese model (which, of course, we call the great 
capitalist success story of the last 20 years and which thus far has 
avoided the collapse of the rest of Asia). We can argue whether it will 
work. It cannot work worse than the old model, and it is certain to 
better than the last month. Why in God's name should the West call it 
"old Communist methods?" If it is seen to work, Russians will conclude 
that capitalism fails and that Communist methods work. Has there ever 
been such a crazy spin for Americans to promote? We should say that 
Chernomyrdin is trying another capitalist model. Those who bought the 
Jacobin line don't have to say, as I do, that it is the natural, 
virtually the only viable path of capitalist development at the 
beginning, but at least they could say that it is a capitalist path. 
It is also mad to be talking about the end of presidential power 
and a dictatorship by the Duma-dominated legislature. As I write this, 
I don't know the details, but CBS is talking about Duma confirmation of 
cabinet members, a measure American presidents may consider dictatorial, 
not the rest of us. It is talking about the Duma giving up its right to 
declare non-confidence in the premier for the rest of its terms. But 
whatever the terms, Americans should be saying that Russia has a 
distortion of the French model and that French presidents are supposed to 
cohabit with the legislature when it is in the hand of other parties. 
We did not say how powerless poor Mitterrand was.
An industrial policy did not produce a militarist policy in China--or 
in Japan or Korea after a war. What produced a militaristic foreign 
policy in France was not that it had a colonial system, but that the Jacobins
created the conditions for a Napoleon. The American press must begin 
to use the comparative perspective that it, not the Russians, has and stop 
just unthinkingly accepting the spin of the Russian Jacobins and 
Robespierres. It is a Russian Napoleon we have to fear, not a 
What produced a militaristic foreign policy in Germany was not 
Hitler's extremely successful industrial policy, but the fact that 13 
years of national humiliation and economic disaster in German democracy 
brought a normal population to the state that it accepted anything--a man 
with mad views in the ethnic and foreign policy sphere--as worth trying. 
We have had 13 years of national humilation and economic disaster in 
Russia since 1985. By a 3:1 margin Russians think that the Western 
economic advice was motivated by a desire to weaken Russia.
So now Westerners--even Tony Blair!--say that the "only way" is 
an IMF path that will drop living standards another 10-20-30 percent. 
The Gods make mad those they mean to destroy. Moscow and St. Petersburg 
are Potemkin villages subsidized by exploitation of the peasants, small 
towns, and a ponzi game for foreign money. Last year Mosenergo owed 
Gazprom over half a billion dollars. I assume it is higher now and I 
assume St. Petersburg energo is no better. The government then forgave 
Gazprom taxes of like amount and Moscow and St. Petersburg said how 
terrible it was that Gazprom didn't pay its taxes. Let them eat cake.
Clearly Russia needs a Chinese cultural revolution that sends the 
Moscow and St. Petersburg intellectuals to the countryside for five years. 
Alas, from the perspective of justice, Chernomyrdin is a sober, gray 
type. But precisely for that reason we should applaude and help what he 
is going to try to do. 


Russian Army Misery Worse Than Ever
August 30, 1998

MOSCOW (AP) -- Within view of the Kremlin, two skinny, young soldiers are
panhandling on Moscow's upscale Tverskaya Street. 

``Spare some kopecks for cigarettes?'' asks 21-year-old Oleg Derzhanov, palm
thrust out unabashedly. ``What we get paid can't be called money.'' 

Although it was unthinkable a few years ago, the sight of soldiers begging on
the streets has become so common that Russians have become accustomed to it.
Most trudge past without slowing. 

Such is the state of an army that once patrolled a far-flung empire. Officers
routinely go months without wages. Small or late paychecks are a part of
Russia's military miseries, which include inefficiency, corruption, draft-
dodging, desertion, and thousands of deaths every year from beatings,
starvation, malnutrition or suicide. 

Now, with the government and the economy in disarray, conditions could get

Many wonder how much more the downtrodden military can take. Will the
economy's sudden meltdown be the catalyst for a rebellion, even a takeover? 

For now, the worst-case scenario for the world's No. 2 nuclear power is

The military remains a political bystander, with no evident interest in
staging a coup or playing czar-maker in the struggle to determine who rules

``As far as an organized coup, that's pretty much impossible in Russia. The
military doesn't take part in domestic political disputes,'' said Oksana
Antonenko, a researcher at the International Institute for Strategic Studies,
an independent think tank in London. 

But experts say if the crisis drags on and the army's financial state gets
worse, the military could be drawn into the fray. 

``These conditions are very dangerous because they make the armed forces more
unstable, they loosen the lines of control,'' says Pavel Felgenhauer, a
military analyst for the daily Segodnya. 

``It's like (Congolese President Laurent) Kabila's army, only their soldiers
have Kalashnikovs -- ours have nuclear weapons.'' 

Besides its nuclear stockpile, the military hasn't been much of a force to be
reckoned with since the fall of communism ended its bottomless budget. 

Pulled out of East Europe and the Baltics and humbled by a ragtag army of
separatist rebels in Chechnya, the Russian army has been cut roughly in half
to about 1.2 million personnel, the London-based IISS estimates. 

But the crippling lack of funds has created new chaos in the transition to a
smaller army. 

The backlog of unpaid wages is soaring, the government has failed to come
through with much of the money it earmarked for the military in the 1998
budget, and more than 150,000 military personnel are still waiting for
promised housing as part of their retirement packages. 

A delayed pension forced a retired lieutenant colonel in fatigues and army cap
to sell mushrooms displayed on a box on the sidewalk. 

``Please buy something,'' said the man, who gave his name only as Danil. ``I
haven't received my military pension for three months.'' 

In a one-man revolt, an army major took to the streets with a tank last month
in central Russia to protest the failure to pay wages. 

Military officials quickly came up with the cash to pay the major and his
whole unit. They have taken a similar approach with the most elite troops,
paying higher, prompt wages to special forces in charge of nuclear weapons and
others whose loyalty is deemed critical. 

But the ruble's collapse leaves that strategy in jeopardy. 

``If things continue deteriorating as fast as they have in the past two weeks,
if the collapse of banks and the economy is not stopped, you could have some
unrest involving the military,'' says Alexander Pikayev, a military analyst at
the Moscow branch of the Carnegie Endowment for International Peace, a U.S.
think tank. 

``If this were the case, it could affect nuclear troops as well.'' 

Russian tanks have already rolled twice in Moscow this decade. Both times
military loyalty turned the tide: the thwarting of a hard-line coup attempt in
1991 and the crushing of a parliamentary rebellion in 1993. 

Mindful of those key alliances, the government reportedly is taking steps to
ensure that troops are both loyal and ready to take part for the first time in
quelling possible civil unrest. 

Acting Prime Minister Viktor Chernomyrdin has promised to pay off back
payments owed to the military, according to the Russian media. He also
reportedly agreed to take the job only after being given control over the
security forces. 

In addition, Russian commentators note that President Boris Yeltsin's recent
visit to the Northern Fleet appeared to duplicate a trip and strategy he
employed before the 1993 showdown to secure the army's backing. 


Russian crisis hits another low

MOSCOW, Aug 30 (AFP) - Russia's economic and political crisis deepened 
Sunday when the Communists said they would vote against the appointment 
of Viktor Chernomyrdin as premier and oppose a ground-breaking accord.
Hopes of resolving the turmoil rocking the country had risen following 
an accord to dilute the powers of President Boris Yeltsin and strengthen 
the hand of parliament and the government.

That was meant to smooth the way for Chernomyrdin's confirmation in the 
State Duma lower house of parliament, which is dominated by the 
Communists and nationalists. In theory, the process was to start Monday.

But Communist leader Gennady Zyuganov, speaking on television, said his 
party, the largest in parliament, would vote against Chernomyrdin, who 
has been given the urgent task of tackling Russia's economic turmoil.

"Mr. Chernomyrdin was a participant in the collapse of the economy," 
Zyuganov said. "He experimented repeatedly during five years at 
Yeltsin's side."

Later, ultra-nationalist leader Vladimir Zhirinovsky said: "I will be 
happy to support the Communists."

It is the latest twist in the crisis which began with economic chaos, 
including the de facto devaluation of the ruble, and has spread to the 
political scene.

Yeltsin, scheduled to hold summit talks Tuesday with US President Bill 
Clinton, and the Communists have long been enemies and Zyuganov's 
supporters are taking advantage of his weakness to press their political 

So unless his opponents change their minds, Chernomyrdin's prospects of 
nomination look pretty slim.

On paper 228 of the 450 deputies in the lower house, and also including 
the reformist Yabloko bloc, are against his appointment.

Zyuganov also said his party would reject a political agreement reached 
earlier and designed to ensure parliament would confirm Chernomyrdin.

The ground-breaking agreement would have sidelined Yeltsin politically 
while giving the Communists a bigger say in the choice of government.

If approved by Yeltsin, it would have heralded a sea change in Russian 
politics which the 67-year-old head of state has dominated since the 
1993 constitution gave him sweeping powers.

Zyuganov however said the agreement "will cover up Yeltsin's arbitrary 
actions just like before."

For his part Grigory Yavlinsky, the head of the Yabloko bloc, told NTV 
television: "We do not support this document which will be tossed aside 
as soon as Chernomyrdin's candidature passes through the Duma."

However Alexander Shokhin, the parliamentary chief of Chernomyrdin's own 
party, Our Home is Russia, warned his fellow deputies.

"We could get a scenario where the candidature of the prime minister is 
presented several times in succession, and I think the financial and 
economic consequences of such a scenario will be felt very quickly."

Chernomyrdin's immediate predecessor, Sergei Kiriyenko, took four weeks 
of difficult negotiations to get himself confirmed. In the end, 
parliament backed off from rejecting him a third time under threat of 

That is unlikely to happen this time simply because Yeltsin has been so 

General Alexander Lebed, who unsuccessfully challenged Yeltsin in the 
1996 presidential election, said the president was now being shifted 
from power.

"We are looking at a process of the eviction from power of the 
president, and a shift in the power centre of gravity towards the 
Federation Council and the Duma," he told Russia's RTR television.

He also warned against the temptation of a new war in the Caucasus to 
deflect attention from the crisis.

A different view came from Boris Berezovsky, an influential businessman 
and close Chernomyrdin ally, who said he thought the interim premier 
would be confirmed no matter what the Duma thought.

"The opposition understands perfectly well that if there's a revolt, it 
will sweep everybody away, government and opposition," he warned.

Berezovsky, who also has close links with Yeltsin's family, is believed 
to have pressed for the president to recall Chernomyrdin, whom he had 
axed five months ago in favour of Kiriyenko.

Zyuganov also called for changes in some of Moscow's commitments to the 
International Monetary Fund (IMF) which is organising a 22.6 billion 
dollar loan to Russia.

His words will likely cause more concern among international financial 
circles who fear Russia may abandon strict monetary rigour in favour of 
a policies leading to renewed inflation and an end to economic reforms.

The G-7 group of industrialized nations urged Russia to press on with 
economic reforms, said a spokesman for the British government which 
holds the current G-7 chair.

More bad news for Chernomyrdin came from a poll on NTV television which 
showed that 90 percent of 25,000 respondents said they did not believe 
he could lead the country out of its crisis.


The Guardian (UK)
30 August 1998
[for personal use only]
Rich Rasputin who bewitched Yeltsin 
Boris Berezovsky, high priest of the elite capitalists of Moscow, wields 
huge influence via the Premier's daughter. James Meek reports. 

The lives of three men named Boris are held hostage to Russia's fortune 
today. One has lost his power. The second grows weaker by the moment. 
The third, accountable only to his enormous wealth, struggles to pull 
the strings in a vast, disintegrating nation that may yet overwhelm him.

Boris Yeltsin, the old, sick President who wanted to go down in history 
as the leader who broke the chain of oppression that has bound Russia 
for all of this millennium, finally admitted that he was not capable of 
leading it into the next. Communism beaten, a task he could understand, 
it was time to withdraw and let others tackle a global economic disaster 
that is beyond his grasp.

Boris Nemtsov, the archetypal young reformer once seen as Yeltsin's 
natural heir, who many in the West hoped would carry the torch of social 
and economic liberalism into the new century for Russia, is out of 
government, his boasted dreams of smashing the country's oligarchic 
capitalists in ruins.

The champion of Russia's business barons, Boris Berezovsky, has beaten 
both of them. He persuaded Yeltsin and his family, increasingly fearful 
for their future, to begin handing over power and to bring back the 
discredited former Prime Minister, Viktor Chernomyrdin, as a safe 
successor. This in turn has meant the expulsion of Nemtsov, his allies 
and all they stood for from the government.

Berezovsky, who compares his desire for power and wealth with the sexual 
urge, is playing a dangerous game. He has always been a better 
manipulator than a politician. Now he must be wondering whether his aims 
- to avenge himself on the Nemtsov faction, increase his power behind 
the scenes, and protect and expand his control over the Russian economy 
- are not being destroyed by the mounting economic catastrophe he has 
helped create.

For Berezovsky's legacy is this. The rouble is still in free fall. The 
banking system is collapsing and foreign investors are fleeing with all 
the grace of first-class passengers on the Titanic. There is no 
government, and when there is it won't have any money. None of the old 
problems - particularly non-payment of wages - has gone away. And 
Berezovsky cannot be sure his worst nightmare, a re-examination of old 
privatisation deals and a redistribution of property by a new, 
neo-socialist administration, will not come about.

Taking a break from an evening farewell party in the government White 
House on Tuesday, his last day in office, Boris Nemtsov sat down and 
tried to explain what had happened. The government of Sergei Kiriyenko - 
it was Nemtsov who first brought Kiriyenko to Moscow from his native 
Nizhniy Novgorod - had reached a critical moment.

With foreign lenders about to explode in anger over the terms of 
Russia's debt default, the banks in crisis and the rouble beginning its 
precipitous slide, the reformers had to prove themselves by a show of 
strength. That could only mean bankrupting some of the most notorious 
non-payers of tax, which would have spelt disaster for Berezovsky and 
his friends.

"The country is built as a freakish, oligarchic capitalist state," 
Nemtsov told The Observer. "Its characteristics are the concentration of 
property in the hands of a narrow group of financiers, the oligarchs. 
Many of them operate inefficiently, having a parasitic relationship to 
the industries they control, sucking out capital and keeping it in 
Moscow or moving it abroad. They don't pay taxes and they don't pay 
their workers.

"This week there could have been bankruptcies. That meant the government 
had to go."

Berezovsky, a world-class mathematician in Soviet times, used his 
connections to launch the first private car dealerships in Russia as the 
USSR fell apart. He has holdings in ORT, the biggest television channel, 
in Aeroflot and in a large oil company, among other interests. Forbes 
magazine has named him as one of the world's richest men, his wealth 
running into billions of dollars. But it is hard to say exactly how rich 
he is, how he came by the money, and how he is able to exert such 
powerful editorial control over companies such as ORT when he owns only 
a tiny percentage of the shares.

Berezovsky has been accused of 'handling' the Yeltsin family finances. 
It is believed to be thanks to him that one of Yeltsin's sons-in-law now 
runs Aeroflot. He led the group of bankers and industrialists, the dozen 
or so mega-rich tycoons who soon became known as the oligarchs, which 
backed Yeltsin's successful 1996 election campaign.

He is particularly close to Yeltsin's daughter and aide, Tatyana 
Dyachenko, and to the head of the presidential administration, Valentin 
Yumashev, known as "the son Yeltsin never had".

Berezovsky shuttles back and forth between his large grey mansion on 
Moscow's inner ring road, his country home and his properties abroad. He 
has houses in London and on the French Riviera and it may have been in 
Nice that the tactics for ousting Kiriyenko and restoring Chernomyrdin 
were finalised early this month.

Berezovsky grew close to Chernomyrdin after the Prime Minister was 
sacked in March. After Chernomyrdin's restoration last week, Berezovsky 
was with him when he triumphantly returned to the White House. One 
report claimed that on Sunday evening, just before the curt Kremlin 
announcement that the Kiriyenko government was being sacked, Berezovsky 
sketched out squares on a piece of paper and wrote in the names of the 
Ministers he wanted to see in the new government.

It was eerily quiet in the White House on Tuesday. Outside, the Moscow 
rush hour hissed through the rain. The queues of desperate depositors 
outside banks had dispersed for the day and the permanent picket of 
unpaid coal miners was out of sight, round the corner. Nemtsov, 
wondering what to do with his life, fidgeted with a lighter.

Once a Yeltsin family favourite, he admitted that he had not seen the 
President since July, and increasingly rarely before that. "If you want 
to be close to the President, there are always those who want to get you 
further away from him," he said.

He was sceptical that money had much to do with Berezovsky's closeness 
to Yeltsin's inner circle. What, then? He shrugged and looked 
distracted. "Extra-sensory powers?" he said.

Surely he couldn't be serious. "I don't know," he said. "Such people 
have always existed. Remember Rasputin. How did he penetrate the 
imperial court? Now we have a new Rasputin, Berezovsky."

There has been bad blood between the two men for at least a year. Last 
August their feud burst into the open over a huge privatisation auction 
- the sale of 25 per cent of Svyazinvest, a Russian telecoms holding 
company. Largely thanks to Nemtsov and his ally in government, Anatoly 
Chubais, the stake went to the highest bidder, a consortium partly 
financed by George Soros - who gratefully announced that the days of 
'robber capitalism' in Russia were over.

Berezovsky, who despite the fact he was also in government at the time 
was quietly involved in the rival lower bid, was enraged.

The battle lines were drawn. When Nemtsov and Chubais later engineered 
Berezovsky's dismissal from the government on the ground that he had 
lied about putting his business interests in a blind trust, they seemed 
to have won.

In fact, they - and, later, Kiriyenko - never had the full backing of 
Yeltsin to carry through the bankruptcies they wanted when the economic 
going got tough after the Asian crisis began in autumn.

At the same time the oligarchs, too, lost faith in Yeltsin - not just in 
his ability to protect them but in his ability to survive. His physical 
weakness, indecision, failure to grasp issues and capriciousness 
alienated him from his supporters. Fearing that their machinations and 
law-breaking over the years might eventually be laid against them in 
court, the Yeltsin circle were ripe for a deal.

Leonid Shebarsin last head of the KGB's network of foreign spies, now 
runs a white-collar security service for banks. He occupies a suite of 
offices under Moscow's Dinamo Stadium. As he talked to The Observer, the 
sounds of a busking flautist and the hubbub of the surrounding clothes 
market rose through an open window. The significance of the rouble's 
collapse was only beginning to sink in and consumers were still not sure 
how to react - spend everything as quickly as possible, or wait?

"In a way, the reformers reminded me of the Bolsheviks," said 
Shebarshin. "They ignored the interests of the people and ignored the 
real circumstances in the country in an attempt to make a foreign 
economic theory come to life in Russia."

Shebarshin was coolly trashing the past seven years of radical economic 
change in Russia. "Thousands of banks sprouted up like mushrooms. There 
was a chaotic stripping of national wealth. No other country has 
experienced privatisation on such a scale. The atmosphere was one of 
boundless greed, of a desire to enrich yourself at any price.

"The people who were in power looked on this power as an instrument of 
direct and brazen self-enrichment.

"Over several years we created not just millionaires, but billionaires. 
I don't think there's a precedent in world history for this, apart from 
the emergence of the drug barons."

The irony is that in understanding the post-Soviet road Russia has 
travelled, and where it might go from here, there is no better subject 
than Shebarshin and his kind. Most of Russia's banks have someone like 
him on their staff: a former KGB man who now loyally works to protect a 
capitalist's interests and sniffs out what the competition and the 
politicos have up their sleeves.

Shebarshin recalled with distaste the days of Soviet collapse, when KGB 
headquarters was taken over by "arrogant" new chiefs, and the agency was 
submitted to humiliations such as having the issue of fake foreign 
passports frozen. Yet instead of drawing their weapons and fighting to 
defend the USSR, Shebarshin and his colleagues wandered out and looked 
for new, richer power structures to attach themselves to. They found the 

As the neo-Gaullist general, Alexander Lebed, puts it sardonically in 
his memoirs: "Nobody died defending the Soviet Union with a gun in their 
hands, like Allende."

The most senior KGB men, the most outspoken dissidents, the senior 
Communists, the reformers of the early 1990s held very different ideals. 
But they shared one thing: a lack of will to prevent the USSR from 
collapsing, an intense desire for personal prosperity and a sense that 
they deserved to have it.

And for the past seven years, economic change in Russia has been driven 
by this inner psychological engine rather than by any Russian vision of 
what reform should be, or even of what exactly Russia is trying to 

"I wouldn't blame the West," Shebarshin said. "The West takes care of 
its interests and Russia should have taken care of ours. But this time 
personal and group interests overwhelmed the interests of the state and 
the people."


30 August 1998
[for personal use only]
SUNDAY FOCUS / A Post-Yeltsin Russia, at Long Last
By Jonathan Steele
Jonathan Steele is former Moscow correspondent for
the London Guardian and author of "Eternal Russia: Yeltsin, Gorbachev
and the Mirage of Democracy."

THE FINANCIAL crisis engulfing Russia and roiling global stock markets
is not all bad. It will, of course, be hard for President Bill Clinton
to admit this when he goes to Moscow in a few days' time. We will hear a
lot about the need to "go on with the reforms." We will hear more
flattery of Boris Yeltsin and his brave leadership. And yet, almost
everything the United States and other western governments have been
trying to achieve in Russia for the last six years now lies in ruins.
That is the good news, since western policy towardpost-Communist
Russia has been profoundly misconceived. Now, at least, there is a small
chance that the country will set about rethinking its political and
economic reforms - not thanks to Bill Clinton but in spite of him.
The new dawn began last week when Yeltsin made it clear that he will not
try to run for a third term. When he announced he was reappointing
Viktor Chernomyrdin as prime minister, he virtually anointed him as his
successor, saying Chernomyrdin's qualities would be "decisive" in the
2000 elections. This was doubly encouraging: It saves Russia from the
constitutional crisis that would ensue if Yeltsin tried to bend the
rules limiting a president to two terms; and, more important, it propels
Russia closer to the obvious truth that Yeltsin must go.
He long ago outlived his usefulness. His on-again, off-again style
of governance deprived the country of any sense of strategy. His
addiction to alcohol made his public appearances increasingly
embarrassing. He treated his ministers in a high-handed way that failed
to command any loyalty - scolding them in public or dismissing them if
they seemed to be stealing the limelight. He manipulated the media
shamelessly, appointing the men who ran the main television networks and
ensuring they supported his policies. He treated the state Duma, or
parliament, with contempt, as though it were an unnecessary roadblock
rather than a chamber of popularly elected representatives. The great
confronter, who won his spurs during the August coup of 1991, was not
the man needed when Russia embarked on the patient task of building
democratic institutions after communism.
Viktor Chernomyrdin has already signaled a new approach. Apparently
confident that this time around he will no longer be overshadowed by the
president, he has started on the road of consensus-building. He has
indictated that he will appoint a cabinet that reflects the balance of
forces in the Duma. This should stop the bruising arguments between the
government and the Duma that characterized Yeltsin's rule. Many of them
stemmed from the bitter showdown of 1993, when Yeltsin violated the
constitution and dissolved parliament in midterm, using tanks to flush
out the deputies who refused to leave the building. He then drafted a
new constitution giving excessive powers to the president and rammed it
through a referendum of dubious legality. The election commission failed
to publish the final results in full, leaving suspicions that not enough
people had voted to make it valid.
Throughout this low period for Russian democracy, Yeltsin had the
unbending support of western governments. Their leaders mainly wanted a
man in charge who would continue with what the West called "economic
reform." That Yeltsin was hardly a democrat was seen as a plus - it
was clear that the reforms were unpopular and only a strong executive
would be able to push them through.
The current economic crisis has revealed the bankruptcy of those
reforms. After six years of frenetic privatization and market growth,
the Russian economy is almost as much a barter economy as it was in the
Soviet epoch. According to Grigory Yavlinsky, one of the younger
marketeers who leads the Yabloko group in the Duma, 75 percent of
Russia's domestically produced goods are traded by barter. This is
little different from the Soviet system, which was entirely nonmonetary
at the wholesale level. The state commanded production, fixed prices and
nominated customers. In one way, Russia today is less dependent on money
than it was 10 years ago. Soviet wages were paid in cash. In much of
Russia, that is no longer the case. Except in the country's fledgling
small and medium enterprise sector, staff often get paid with the goods
their factory produces. They have to sell them to get cash.
In a healthy market economy, people save. But because of the erratic
nature of wage payments, the spread of poverty and the bitter
experience of hyperinflation after price controls were first lifted in
1992, Russians are less inclined to save now than they were in the
Soviet Union. Life has become unstable and unpredictable. You quickly
spend what you have. The financial crisis that has caught the headlines
in the West as people rush to withdraw their savings from the banks is
largely confined to Moscow. Some 80 per cent of Russia's cash and liquid
assets - the part that is not sent abroad - is estimated to be held
in Moscow banks. Most Russians in the rest of the country never use
dollars, and rarely have anything to invest, except small deposits in
the state-owned National Savings Bank that survives from the USSR.
The economic "reforms" of the Yeltsin period, so fervently pushed by
the Clinton administration and other western governments, have done
almost everything wrong. In a country with no tradition of free
enterprise, it was crazy to start privatization by going for the largest
companies, many of them monopolies. This merely handed wealthy assets to
a few people, often the existing management, for nothing. It was like
winning a lottery. They promptly creamed off the profits, bought luxury
goods and salted the rest of the money abroad. Re-investing in the plant
was the furthest thing from their minds.
The West then insisted on setting up a stock market and making the
ruble convertible as quickly as possible. Who were the benficiaries?
Once again, the narrow group of owners of newly privatized enterprises,
plus foreign speculators who wanted to get their hands on Russia's
lucrative resources. As the Russian government struggled to meet its
spending obligations in the absence of any tax revenues from the parvenu
lords of enterprise, it covered its budget deficit by borrowing. For
foreigners, lending to Russia became a great business. Last week's
crisis has shown the Russian financial system was nothing but a giant
pyramid scheme, in which the high-interest payouts were financed from
the flow of new loans.
When the Soviet system ended, the reforms that Russia needed should
have been enacted in the reverse order from the agenda Yeltsin and his
western backers chose. Russia should have built up small private
businesses in manufacturing and the service sector before privatizing
the largest enterprises. When it came to these industrial giants,
management was more important than ownership. The government should have
brought in outside consultants to prepare new business plans and a
restructuring package for truly competitive industrial companies. It
should have broken up the monopolies before they were privatized.
It should not have allowed the almost unchecked development of
private banks. Very few of them gave credit for serious investment. They
did not rely on deposits from the public. Their funds were usually
nothing more than assets from the newly privatized enterprises, which
they used for speculative short-term gains on the stock market and the
foreign exchanges. Creating a stock exchange and making the ruble
convertible should have come at the end of the line when Russia already
had at least a decade of experience of an internal market and a proper
banking system.
Russia cannot go back to square one. The damage that has been done
cannot be easily undone. But the government has signaled the end of open
trading for the ruble. This will restore some stability. It is likely to
close some of the flakier "banks." The stock market has lost its
credibility, and there should be no hurry to try to revive it. Russia's
strength - and weakness - is its industrial sector. No modern
economy in a large country can survive without a flourishing industry.
There is a chance for the country if the new government can take
industry and its space-age scientific potential in hand, with or without
foreign investment, so it can be modernized and start supplying the huge
internal market. This may require raising tariffs on imports for an
extended time.
Russia faces a grueling period if it is to recover from the ravages
of the failed neo-liberal experiment of the last six years. It now needs
to adopt a development strategy more like that of Japan and South Korea
in the early post-war years, a relatively closed economy with strong
government help to rebuild industry. If Chernomyrdin can work with
parliament to advance this agenda - and if Yeltsin finally
relinquishes his autocratic hold on power - we may yet see a new


U.S. Defense Officials Play Down Nuclear Risk in Russia Crisis

Washington, Aug. 30 (Bloomberg) -- Russia's financial crisis doesn't pose an
immediate danger to safeguards against the use of nuclear weapons or other
threats to U.S. security, according to U.S. Defense Department officials. 

As U.S. President Bill Clinton heads for Moscow tomorrow for a two-day summit
with Russian President Boris Yeltsin, Russia's ability to keep tight military
control of its 25,000 tactical nuclear and strategic warheads has come under
increased scrutiny. 

``It's a precarious situation,'' said Rajiv Jain, who helps manage $150
million in emerging market assets at Vontobel USA Inc. ``No one wants some
jerk taking over the nukes. And there's just too many all over the place.'' 

At issue is the network of communications, electronics and bureaucratic
safeguards that guard against an accidental launch or warhead theft. The fear
is that if cash-strapped Russia can't continue paying the Russian soldiers who
guard the nuclear force for bombers, submarines and land-based missiles, some
of them could leave warheads unprotected, steal or sell them, or in the worst
case, launch an attack. 

Two senior Pentagon officials following the financial crisis in Russia,
however, played down the risks. ``Do I expect this financial crisis to
translate into a significant change in the safety, security, command and
control, organization of the armed forces - particularly the nuclear forces?''
said one senior Pentagon official monitoring the latest intelligence. ``The
answer is no.'' 

Hand-Picked Force 

The just-retired commander of the U.S. Strategic Command, Gen. Eugene Habiger,
agreed. ``Things would have to go very badly to lead to a disintegration of
the Russian military,'' he said. 

The hand-picked military forces who guard Russia's nuclear forces ``would be
the very last to be impacted by such a disintegration or implosion,'' he said.
Habiger said he stood by the upbeat assessment he gave reporters June 16 after
his second trip to Russia since November, when he was granted unprecedented
access to nuclear weapons storage sites. 

``We have no reason to believe there is any problem with Russian command and
control of its nuclear weapons or security of its nuclear arsenal,'' Pentagon
spokeswoman Air Force Lt. Col. Queenie Byars said. 

Others say they're not so sure. ``There is a tremendous amount of unrest in
Russia -- economically and politically but also militarily,'' said U.S.
Representative Curt Weldon, a conservative Republican from Pennsylvania, who
follows Russia's nuclear forces and is traveling to Russia this week. 

``We need to assess the extent of that and what impact it is having on the
control of strategic rocket forces,'' Weldon said. ``I have been somewhat
cautious in accepting everything at face value the administration has said,''
he said. 

Alert Status Unchanged 

The U.S. has seen no unusual troop movements around weapons storage sites, nor
has there been any change in the military's alert status, officials and
analysts said. 

While the entire Russian military is suffering from post-Cold War neglect, the
Russian leadership has focused more of its resources on paying priority troops
such as the airborne corps and strategic nuclear forces, including those who
perform warhead safety and monitoring, officials said. 

At this point, there's no sign these units will suffer as much as Russian
society and conventional forces -- at least no worse than since the Soviet
Union dissolved, analysts said. 

And Clinton and Yeltsin will use their summit to highlight joint efforts to
reduce the nuclear threat. For instance, the two leaders will agree to reduce
stockpiles of plutonium that could be used to make weapons. 

The Pentagon on Friday released a fact sheet recounting all the post-Cold War
initiatives the U.S. and Russia have undertaken together since 1992 under the
so-called Cooperative Threat Reduction program. 

These included helping Russia maintain the proper level of warhead safety and
security during storage and transport. Since 1992 ``some 10,000 operations of
nuclear weapons transported have been completed without incident,'' the
Pentagon said. 

Computer programs similar to those used in the U.S. have been installed in
Russia to assess site and guard force security, and other improvements include
a special force and training to counter terrorist or renegade military attacks
on missile silos and storage sites, said the Pentagon and Habiger. 

`Good Grip' 

Habiger during his June trip to Russia witnessed a counter- terrorism exercise
where a Russia nuclear weapons site force used armored personnel carriers and
helicopter gunships to repel an attack. ``They did it very well,'' Habiger

For now, ``the military has a good grip'' on its nuclear weapons, said Keith
Bush, director of Russian and Eurasian program at the Center for Strategic and
International Studies, a Washington D.C. 

``Our anxiety is the existence of perhaps thousands of sites where fissile
materials are stored,'' Bush said. Pentagon officials say theft of fissile
material has been, and remains, a concern long before the current crisis. 


Nixon Center's Simes on Russia: Clinton-Yeltsin Summit Comment

Washington, Aug. 30 (Bloomberg) - Dimitri Simes, a scholar in Russian affairs
at the Nixon Center, a Washington, D.C. think tank named after the late
Richard Nixon, comments on Russia's political crisis and U.S. President Bill
Clinton's trip to Russia this week for a summit with Boris Yeltsin. 

``Clinton has for a number of years cared more about Russia's macroeconomic
situation above Russian democracy,'' Simes said of Clinton's aligning himself
with Yeltsin. 

Last week's meltdown of Russia's financial system, which opened the door for
the Communist Party-led lower house of parliament, the Duma, to push for
Yeltsin to give up some of his presidential powers, can be blamed only in part
on the legislature's hostility to market-opening reforms, Simes said. Also
partly to blame was a misreading by Clinton and the International Monetary
Fund of Russia's politics. 

``Clinton and the IMF thought Russia was an absolute monarchy,'' Simes said.
``They supported Yeltsin even as he tried to rule by decree, not consensus.'' 

``The Duma, understandably, did all it could to assert its power and role in
the Russian government,'' as it resisted many of the economic changes called
for by Yeltsin, Simes said. 


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