August 31, 1998   

This Date's Issues: 2336• 2337••

Johnson's Russia List
#2337
31 August 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Duma stalls on PM, Kremlin warns of unrest.
2. The Independent (UK) letters: Russian extremes.
3. Forbes magazine: Vladimir Kvint, The last days of Boris Yeltsin.
4. Newsday editorial: Russia Could Collapse Like Its Economy.
5. The Times (UK): Victoria Clark, Church leads march out of Western 
path.
6. The Times (UK): Can Russia's economy be saved? Western skills 
could turn the tide, says Alexander Kennaway.
7. Reuters: Chaos in Russia before Yeltsin-Clinton summit.]

*******

#1
Duma stalls on PM, Kremlin warns of unrest
By Alastair Macdonald

MOSCOW, Aug 31 (Reuters) - Russia's Communist-led parliament was set to ignore
Kremlin warnings of mass unrest and began a session on Monday that was almost
certain to end in rejection of President Boris Yeltsin's choice of prime
minister. 
Premier-designate Viktor Chernomyrdin, whom Western leaders hope would steer
Russia out of an economic crisis that has shaken world financial markets,
failed in last-minute talks to convince opposition leaders to let him form a
government. 
Rejecting Chernomyrdin, whom Yeltsin sacked as premier five months ago, would
not be the last word. Yeltsin could nominate him or even less palatable
candidates twice more before a third rejection triggered a dissolution and new
elections. 
But the president's representative to the State Duma lower house warned delay
in forming a cabinet could fuel popular anger after a bewildering month in
which Russians have seen the rouble plunge and many banks close their doors to
stampeding savers. 
After the Communists upped the ante in a high-stakes game by again demanding
that Yeltsin promise to quit in return for their support for Chernomyrdin,
Alexander Kotenkov said their defiance could mean chaos. ``I have in mind a
popular uprising,'' he added. 
Alexander Lebed, regional governor, presidential hopeful and reserve general,
told France's Le Figaro newspaper, not for the first time, that the army was
``in revolutionary mood.'' 
The turbulent history of the past decade suggests Russians, in uniform and
out, have little appetite for violent protest. But patience is wearing thin
after years of broken promises. 
In Germany, Russia's biggest creditor, Chancellor Helmut Kohl also said
developments could turn dangerous. He said it was in the West's interests to
reinforce Russia's stability but ruled out new credits if Moscow abandoned
market reforms. 
U.S. President Bill Clinton is expected to drum home that message when he
arrives in Moscow on Tuesday to meet Yeltsin. 
Clinton and other Western leaders are worried that Moscow will return to
Soviet-era state controls and print money to pay workers' wages and keep
insolvent banks and companies afloat. 
Chernomyrdin, the former gas industry boss, has offered to curb the free
market in a bid to win over the communists. 
But, scenting blood after five years of virtual impotence, left-wing leaders
renewed pressure for Yeltsin to quit. 
``The president must guarantee that he will resign after the government is
formed,'' said Viktor Ilyukhin, a radical member of the Communist leadership.
He said the party also wanted at least 10 cabinet posts in return for backing
Chernomyrdin. 
The premier won renewed backing from the president at talks in the Kremlin and
Kotenkov said the president would immediately re-nominate Chernomyrdin if he
was rejected. 
The Duma can vote three times on the president's nominee. After a third
rejection, parliamentary elections must be called. 
It took a month of dissolution threats for Yeltsin to get Kiriyenko approved
last spring -- a month that Chernomyrdin has warned Russia does not have if he
is to form a government that can steer the economy away from an even worse
implosion. 
``The country cannot work without a government,'' said Chernomyrdin, who
cannot form a cabinet without Duma backing. 
``The rouble is hanging by a thread,'' he said on Sunday. 
The currency gained some ground on the streets of Moscow on Monday -- the
official exchange market has been closed since last week -- but it has still
lost some 25 percent of its value since the government stopped servicing its
debts two weeks ago. 
World financial markets slid again on Monday, fearing instability in Russia,
which accounts for just three percent of the world economy but is the second-
ranked nuclear power. 
A chilling reminder of that came on Monday when a North Korean ballistic
missile fell in Russia's Pacific waters, raising the alert among U.S.,
Japanese and Russian forces. 
The Communists and their two allies form much the biggest bloc in the Duma,
and are just short of a majority. Chernomyrdin needs 226 of the chamber's 450
votes to be confirmed in office. 
Communist leader Gennady Zyuganov said Monday's voting would be by open
ballot, increasing the chance of party discipline. 
Kiriyenko was approved against Zyuganov's orders when his members broke ranks
in a third and final, secret ballot and the form of voting is likely to play a
role in negotiations again. 
Chernomyrdin sought the Duma's favour by offering a return to some Soviet-
style state controls on the economy and to transfer some of Yeltsin's vast
powers to parliament. 
But after a weekend of negotiations, all but Chernomyrdin's own party refused
to sign the political pact on Sunday night. 
The 67-year-old Yeltsin said on Friday he would not quit. 
But he is gravely weakened by his government's financial collapse and the
plunge of the once-steady rouble, one of the few clear achievements of seven
years of post-Soviet change. 
The left, hamstrung by a constitution introduced after Yeltsin shelled
supporters of the Soviet-era parliament in 1993, senses its chance to oust
him. It may have unseen allies. 
Powerful business leaders who have been pushing for the reinstatement of
Chernomyrdin want a strong new government to avert further economic losses.
They, and Yeltsin's family, might be ready to press the president to quit in
favour of his premier or at least take a very back seat until his term ends in
2000. 
If Yeltsin stood down after Chernomyrdin had been confirmed by parliament, the
prime minister would run Russia for three months until a presidential election
was held. If he had not been confirmed, the constitutional position would be
unclear. 
Though an uncharismatic figure, Chernomyrdin could count on heavy financial
and media backing for a tilt at the presidency. He oversaw market reforms,
marred by widespread corruption and frequent policy drift, in five years as
prime minister. 
Zyuganov lost to a deeply unpopular Yeltsin in 1996 and would struggle to win
over a majority of Russians next time. 

******

#2
The Independent (UK)
31 August 1998
Letters
Russian extremes

Sir: The IMF warns Russia not to go back to communism, otherwise there 
will be a return to hyperinflation and economic chaos. Am I missing 
something? 
Few people would advocate a return to the oppressive command and control 
economy of the former Soviet Union. On the other hand, would someone 
please tell me why the Russian people should be asked to embrace a 
system which deifies greed and the individual and, in so doing, 
encourages the lawlessness, inequality and insecurity now widespread in 
that country? 
Too many people, pundits and politicians, keep telling us that the only 
alternative to the unfettered free market is old-fashioned socialism. 
Fortunately, the world is not black and white. There are many attractive 
permutations between these extremes, and none of them need be predicated 
on the myth that reliance on the invisible hand of the market is the 
best way of conducting human affairs. 
It might be helpful to consider giving social policy higher priority 
than economic policy. Rather than working for money alone, we would be 
working for a better world. Imagine a government in which the 
pre-eminence of the Treasury and the Budget was replaced by their social 
policy equivalents. 
Globalisation died this week somewhere in Russia, but I suspect that all 
of us will have to endure its death throes for some time until we decide 
to behave as if we really were the most intelligent species on the 
planet. 
Christopher Thomson, London SW11 

Sir: The last six years of "Western-style reforms" in Russia have been a 
failure, and in some ways worse than useless. The shock therapy 
monetarist policies of the IMF and, ironically, the previous 
Chernomyrdin regime, have pushed 70 per cent of the population onto or 
below the poverty line. Twenty-year qualified doctors and university 
lecturers earn $100 a month in a country where, even before devaluation, 
imported food was dearer than in the UK. GDP in Russia has dropped by 50 
per cent since 1991. 
Is it enough to blame the Russian government for not implementing IMF 
conditions, such as improved tax collection, public spending cuts and 
legal reform? Clearly most of the blame must lie with an inherently 
rotten elite who have profited handsomely in personal terms from the 
privatisations of recent years while doing little to stimulate genuine 
reform. But the IMF and Western governments cannot escape culpability. 
Their insistence on almost overnight privatisations of a lumbering 
command economy as a condition for loans has created the monster of the 
oligarchs, and the austerity measures of the shock therapy have crippled 
ordinary people. Small wonder that only 3 million Russians pay their 
taxes when even the middle classes (if we can use such a word) can 
barely afford to buy fruit or normal quality meat. Billions of dollars 
of loans have continued to pour into a black hole of corruption, 
mismanagement and Swiss bank accounts. 
Even if Chernomrydin gets his coalition, come winter and hyperinflation, 
even the stoical and resilient Russian people may snap. The spectre of a 
hard man such as Lebed or even a military coup is a very real one. 
Edward Cooke, Chichester, West Sussex 

*******

#3
Forbes magazine
September 7, 1998
[for personal use only]
The last days of Boris Yeltsin 
Russia's currency and stock market are collapsing, but you haven't seen
anything yet. The next thing to fall will be the Yeltsin government.
By Vladimir Kvint
Dr. Vladimir Kvint, consultant, and professor at Fordham University Graduate
School of Business, is a member of the Russian Academy of Natural Sciences. 

EIGHTY-ONE YEARS AGO THIS AUTUMN, the October Revolution swept from power
a weak and ineffectual democratic government in Russia and replaced it with
totalitarian rule. As it turned out, this was a dark day in world history. 
Today Russia is ripe for another revolution. Weak and utterly rotten, the
current government came to power by democratic means but is anything but
democratic. It is little more than a cover under which a gang of kleptocrats
impoverish the country. Under communism, people had rubles but nothing to
buy. Things are reversed now, with shops full but most people's wallets
empty. If this be capitalism most Russians aren't sure they want it. The
situation validates for them the old communist joke: Capitalism is man's
exploitation of man, and communism is the other way around. 
If that weren't bad enough, tens of millions of Russians are not being
paid even their miserable wages. In protest, unpaid coal miners block the
Trans-Siberian railroad for weeks at a time. Unpaid soldiers sell weapons,
uniforms, even tanks and aircraft to any willing buyer: a pretty frightening
situation in a country that still possesses thousands of missiles and a
large nuclear stockpile. 
You can't judge Russian prosperity by what you see in Moscow. One hundred
miles outside the capital, a mere 20 miles from regional centers, there is
hunger and people are wearing rags. Tattered clothes and bread-and-potato
diets are more representative of Russia today than the relative prosperity
of a few big cities. 
In Siberia's frigid Krasnoyarsk region (pop. 3 million) the average wage
is less than $300 a month, and Krasnoyarsk is a hostile place to stay alive. 
Not insignificantly, the elected governor of Krasnoyarsk is General
Alexander Lebed, the tough and disciplined military man who became a popular
hero for ending the war in Chechnya. Whether the Yeltsin government lasts a
few more months or somehow staggers into 1999, Alexander Lebed is Yeltsin's
probable successor. 
Tossed out by the Yeltsin government because he was too popular, Lebed
was elected governor of the Krasnoyarsk region, which covers 14% of the
Russian territory, by a landslide. He is relatively untouched by corruption
and has to his credit brought an end to the fighting in Chechnya. He has
been brutally critical of the Yeltsin government and of the kleptocrats.
Although he is not himself an extreme nationalist he could well come to
power with their support and in alliance with Viktor Chernomyrdin, Yeltsin's
former prime minister, who is close to Russia's communist-era leaders. 
What would it take to trigger a coup d'état? Asked that late last year,
Gen. Lebed told FORBES: "Maybe it will be a woman whose child dies from
hunger or cold, who will carry him out on the street, and the crowd will
explode. It's an unpredictable situation". 
In that sense the situation resembles that of October and November 1917.
The democratic Kerensky government was not so much overthrown; it simply
crumbled. Describing the Kerensky regime, the writer Alan Moorehead
declared: "It was like a body with no bones in it, like a mind with no
will." You could say much the same about the Yeltsin government.
"Bolshevism," Moorehead writes, "succeeded to an empty throne." 
Whoever seizes the vacant throne, it will not be Bolsheviks this time
because communism is discredited here as nowhere else in the world. It is
conceivable that Yeltsin will resign and Lebed brought to power via
elections. But however the government changes, it will try to force through
the social and economic reforms that Yeltsin is unable or not prepared to
carry out. 
Unwilling to face these facts, the International Monetary Fund, under
strong pressure from the U.S. government, is providing new multibillion
dollar loans to the Yeltsin government, presumably to save Russian democracy
and to keep its nuclear arms in relatively safe hands. They will do neither. 
It is not even clear that IMF money can postpone the day of reckoning.
Where did the $50 billion that Russia already borrowed go? (There is another
$17 billion in IMF commitments plus $100 billion in now-frozen Soviet-era
debt.) Will the new IMF money simply end up in the Swiss bank accounts of
the kleptocrats and their friends? These people have already grabbed many of
the best assets that belonged to the old Soviet state and diverted to their
overseas bank accounts a large share of the foreign exchange Russia has
earned from exports. One of the first priorities of any post-Yeltsin
government would be to bring that money back home and undo the phony
privatization that was tantamount to grand larceny. 
Less than two years ago FORBES explained how a handful of Russian
bureaucrats-turned-businessmen were able to grab control of Russia's prime
assets at a small fraction of their true values. (This is explored further
in the interview with former trade minister Oleg Davydov.) By my
calculations, they and their hangers-on have taken over assets worth as much
as $150 billion since Yeltsin's corrupt privatization program started in 1992. 
The tycoons and their friends and retainers flaunt their new wealth in
such places as Cannes and Nice on the French Riviera. Last year, as poverty
spread through much of Russia, those two Mediterranean resort cities were
host to 100,000 Russian tourists, three times as many as in 1994. They come
loaded with so much cash that almost every expensive shop posts the
franc/ruble conversion rate and signs in Russian as well in French. 
As a Russian, it hurts me to say this, but I think the new government,
authoritarian though it will be, will govern better and prove a better
partner for Western nations than the present so-called democracy. I once
admired Yeltsin (see "Who's in charge around here?" FORBES, Sept. 3, 1990)
and put great faith in him. Unfortunately, Gorbachev was right when he
predicted that Yeltsin would create widespread corruption. 
In Soviet times, the state exploited the workers by paying barely
subsistence wages and using the rest of the national product for its own
purposes. But the profits from industry, which once helped fund the
government, now go into private pockets and are neither reinvested nor paid
out in taxes, leaving the government seriously short. In past times a
government faced with spending in excess of revenues would rev up the
printing presses and use inflation as a hidden tax on the economy. But the
Yeltsin government cannot use the printing press. Its sole financial
accomplishment has been a stable ruble that stopped hyperinflation—and with
the Aug. 17 devaluation, even that achievement is history. Thus Yeltsin and
his aides have had to finance the deficit in the most primitive of ways: by
not paying its bills. According to Washington, D.C.'s PlanEcon, a research
outfit specializing in former Eastern bloc economies, the Russian state owes
its workers 77 billion rubles, equal to one-third of all rubles now in
circulation. Private-sector industries owe their workers another 70 billion. 
How do people live without paychecks? They subsist on dwindling savings
and the food they and their relatives raise on tiny plots outside of town. 
Most experts and, of course, the government, claimed positive GDP growth
for the economy in 1997. These claims were based more on wish than on
reality. Had the growth occurred, living conditions for ordinary people
might have gotten slightly better and they would have regained some hope.
But it didn't happen. By my estimate, there was no growth in 1997, and 1998
will be even worse. I believe Russia will suffer a 2% fall in both
industrial output and GDP, thus continuing the downward trajectory of recent
years. 
Agriculture is a disaster: During the last five years, livestock
production declined, in absolute terms, to the level of 1953, the year of
Stalin's death. Why? Because while the cost of inputs has risen sharply in
real terms, the price of food has not. 
Russia has a trade deficit this year for the first time since the breakup
of the U.S.S.R. Yeltsin apologists like to blame this shortfall on low world
prices for oil and other raw materials, but this is only part of the picture. 
In a situation like this, the IMF loan is useless. It may enable Russia
to roll over its foreign currency obligations but will not do anything for
the country's underlying economic problems. It will not close the gap
between what the government takes in and what it pays out. 
Almost alone among nations that privatized, Russia got close to zero for
the assets it divested thanks to the privatization program carried out by
Yeltsin and his two main aides—Anatoly Chubais and Yegor Gaidar—between 1992
and 1995. Instead of selling businesses in open bidding at fair prices, they
basically gave state-owned monopolies to a small group of clever
opportunists, without competitive bidding and usually without first breaking
up the monopolies. 
Once basic industries like fuel, fertilizer and machinery were in private
hands, the new owners were permitted to push prices as high as they wanted.
It was shock therapy, but the shock didn't accomplish what it was intended
to do: Scarcely a ruble of the monopoly profits were reinvested in the
economy. Much more went to places like the French Riviera, Swiss banks and
expensive jewelry shops. 
In early privatizations there was a legal fiction that the buyers were
paying book value, but this was a joke. It was book value unadjusted for the
inflation that at one point in the early postcommunist days reached an
annual rate of almost 2,200%. So-called book value often amounted to mere
pennies on the dollar. 
Abetting the opportunists were the bureaucrats. A few months ago I was in
Toronto with a midlevel Russian government official. He wanted to buy a
briefcase. I took him to a leather goods shop where he examined bags priced
between $300 and $700. He turned up his nose. Then he saw one with a price
tag of $3,500. He bought it—with cash. That would have been ten months of
his official salary. 
When the October Revolution of 1917 snuffed out the weakling Kerensky
government, it was a tragedy for Russia and for the world. The Communist
government that followed was one of the cruelest regimes in human history.
The fall of Yeltsin need not end so badly for the world, though it may cost
many of today's new rich dearly. A tough new government must expropriate the
tycoons assets and then resell their ill-gotten gains in competitive bidding
at prices that reflect true economic values. By my calculations, this would
raise upwards of $30 billion, and create a tax-paying industrial base. It
would be a first step toward creating a sound economy that might be able to
support democracy. 
Yeltsin? He is so badly tainted by association with the kleptocrats he
has just about lost his legitimacy in Russian eyes. For instance, last year
Yeltsin's son-in-law Valery Okulov was named chairman of Aeroflot—a holding
of one of Russia's richest new capitalists, Boris Berezovsky. Okulov's
qualifications for the job: He had been an Aeroflot navigator. But few were
surprised at the appointment: Berezovsky had financed Yeltsin's re-election
bid. 
Yeltsin may or may not himself have any hidden assets. But Anatoly
Chubais has come under strong suspicion in the press for the sources of his
money. 
Meanwhile, former acting prime minister Yegor Gaidar was so thoroughly
discredited by the privatization and price reform fiascos that he lost his
low-level seat in the Duma in elections in 1995. 
How will the end come? This is Russia and anything can happen. A military
coup is possible, but the end could come in other ways. Yeltsin might strike
a deal to step down (he is not a well man) before the next elections, which
are set for June 2000. In the event of his early retirement, power would go
briefly to Sergei Kiriyenko, the 36-year-old prime minister, who has no
political base. Within three months new elections would be called. 
My understanding is that Boris Berezovsky, desperate to hold on to his
newly gained millions, has tried to broker a deal between Yeltsin and Lebed.
Such a deal would enable Lebed to come to power via the ballot box. For
arranging such a deal Berezovsky apparently hopes to be allowed to keep most
of his fortune. He may be kidding himself. Lebed is tough and cynical, and
at any rate knows he can succeed only if he can recapture the assets the
government gave away. 
So, forget those IMF loans; they are almost irrelevant. Equally futile is
the suggestion made by speculator George Soros that the IMF and G-7
countries impose a currency board on Russia. Forget it. Unlike Argentina,
say, Russia is not a country with capitalist institutions; a currency board
will change nothing because it will not address Russia's basic economic
problems. 
The Aug. 17 devaluation will simply make matters worse. As London's
Financial Times observes, devaluation will take another big chunk out of
Russians' savings and make its foreign-debt burden even harder to service.
And as FORBES GLOBAL publisher Domingo Cavallo observed (FORBES, Apr. 6),
currency boards and other reforms succeed only when introduced by local
leaders—as in Argentina—not when imposed from outside. 
The 90-day debt moratorium compounds the problems. Having stiffed the
world's lenders, where does Yeltsin think he can turn for new money? 
What about dollarizing the economy? This, too, would not help. Russia
already has more than 40 billion U.S. dollars in circulation, more than any
country save the U.S. But ownership of these dollars is concentrated in a
relatively few number of hands. Dollarizing the economy would make life even
harder for those without them. 
Smelling the end, many lesser kleptocrats are scurrying for foreign
passports—hundreds of Russians have bought themselves residency status in
the Bahamas and other Caribbean places. Canada also gets lots of votes. 
In running away, the new rich may save their skins but not necessarily
their fortunes. Any future government, whether it emerges from new elections
or from a coup d'état, will almost certainly press criminal charges against
the big guns and demand repatriation of its capital. There's plenty of
precedent—Switzerland has handed back money Ferdinand Marcos stole in the
Philippines, and has frozen the Salinas drug money from Mexico. 
Look, therefore, for a renationalization of much Russian industry and a
reimposition of many controls, at least for a while. The future of
post-Yeltsin Russia will not be the American model of capitalism. Assets
genuinely owned by foreigners will probably avoid expropriation since any
Russian government will need foreign capital and will go to great lengths
not to offend its sources. Shares owned by small investors are also probably
safe: The owners had no part in the looting and paid market prices for their
holdings. 
If things go well, Russia could go the way of Taiwan and Chile: a period
of authoritarianism paving the way for the establishment of democracy. But
don't grieve for the Yeltsin government when it falls: It is neither
democratic nor capitalistic, but simply kleptocratic. 

*******

#4
Newsday
August 30, 1998
COVER EDITORIAL / AT THE SUMMIT / 
Russia Could Collapse Like Its Economy

President Bill Clinton is going to Moscow for a summit conference
with Russian President Boris Yeltsin because not to go would be like
pouring gasoline on a blazing fire. Yeltsin can only hope that the fire
doesn't consume him before the summit's scheduled start on Tuesday.
That is how grave the situation is in Russia. That is why so little
can be expected from this summit.
The collapse of Russia's financial system has triggered the most
serious threat to that country's floundering democracy since the
Communists were thrown out of power. After seven years of struggle --
some periods better, some periods worse -- the Yeltsin phase of Russian
history is coming to an end. He will be remembered for saving Russian
democracy after the Communist coup attempt against Mikhail Gorbachev in
August of 1991 and for starting Russia down the path to capitalism and
democracy, but he will also be remembered for allowing such massive
corruption and pervasive cronyism in his government that all of the
reforms he started have been placed in peril.
The immediate danger is a coup attempt or Yeltsin's forced
resignation. Either one would be a most serious blow to Russian
democracy. Even Yeltsin's persistent critic, reformer Gregory Yavlinsky,
says it would be disastrous for the Russian president to resign under
pressure. Trying to hold an election in the midst of an economic crisis
would be very difficult and would undercut chances of necessary economic
reform. But even worse would be a takeover by a junta that cancels
elections. Even if these upheavals don't occur in the next few days or
weeks, the continuing deterioration of Russia's financial system and
decline of its economy threaten Russia's future - and the future of
world stability. However, if Yeltsin, as promised, gives up power at the
end of his current term, in 2000, it will be an unprecedented act in
Russian history and a positive part of his legacy.

First, Stabilize the Ruble

The short-term task before acting Prime Minister Viktor Chernomyrdin
is to regain stability for the ruble and the financial markets. But then
he must move to much more effectively implement economic reforms, stamp
out corruption that has become endemic and, as Yavlinsky has urged,
begin the creation of a civil society. This is problematic for
Chernomyrdin if for no other reason than that he presided over the
conditions that led to the current crisis in his previous role as as
Yeltsin's handpicked prime minister. To make his job even more
difficult, Chernomyrdin is trying to form a working coalition with the
communists who control the Russian legislature, the Duma - but those
are the very people who most oppose economic reform. The communists have
issued economic plans that call for more government control and even
renationalization of parts of the economy. That's a formula for
continuing economic disaster.
The problem in Russia is not that it has tried capitalism and
failed, but that it has not gone far enough in implementing economic
reforms. First Gorbachev and then Yeltsin have started and stopped, gone
half way but no further. And economic reform has been stained by
rampant, mind-boggling corruption. Big chunks of the country have been
given away. What has emerged is closer to oligarchy than democracy; to
kleptocracy than capitalism. Much of the country survives through a
system of barter, robbing the government of needed tax revenue to the
point where it is on the edge of bankruptcy. Wealth has been
concentrated among a narrow band of well-connected sharks close to
Yeltsin and Chernomyrdin. There is no tradition of entrepreneurship, no
legal infrastructure such as existed previously in the communist-bloc
states of Eastern Europe that have made a painful but relatively
successful transition from communism to capitalism. A danger now is
that, in reaction to the immediate crisis, reform will be abandoned
altogether.

Russia Blames the U.S.

Clinton enters this mess weak at home and not at all popular in
Russia, where anti-Americanism has been swelling, a phenomenon that can
only worsen with the economic collapse. There are many in Russia who
blame the United States for their predicament. Indeed, Clinton has a
tricky role to play there: to demonstrate support for Russia and
Russians without continuing to align himself too closely with the
universally ridiculed Yeltsin.
At best, Clinton's presence will be reassuring to a Russia gripped
by financial panic. If Clinton had decided not to go, it would have sent
the opposite signal: "So long, guys; you're on your own to sink or swim,
and it's pretty clear you're sinking." That would make a terrible
situation even worse.
From Clinton's own selfish point of view - and what other point of
view should we expect from him? - it's an opportunity to change the
topic from Monica Lewinsky. But there is a downside to Clinton's being
in Moscow at this time. His policy of supporting Yeltsin while holding
his nose over the corruption in the hope that Russia's economy would
take off has failed, and his summit appearance will call attention to
that failure. His advocacy of Yeltsin and his efforts to win
International Monetary Fund support for Russia were a gamble, one that
seemed to Newsday worth taking. The bet was that by supporting the
forces that advocated democracy and capitalism (even flawed versions)
the administration was buying time until the economic reforms could be
implemented and take effect. But the gamble came up snake eyes.

Deny Aid Without Reforms

The new administration policy ought to make financial support by
Washington or western organizations contingent on the absolute
implementation of economic reforms in Russia, no excuses. There ought to
be benchmarks for Russian performance before any more IMF funds are
released. At the same time, the administration can still develop
separate programs for actions that are clearly in the United States'
interest. For instance, funds for buying and storing nuclear-weapons
material should be set aside separately, because gaining control of
anything nuclear is in the interest of the United States. Also, giving
money to house Russian military officers is worthwhile. Homeless
soldiers are an invitation to trouble.
Given the strong anti-American feelings now in Russia, it isn't at
all certain the Kremlin will cooperate with these programs. Clinton, for
instance, will press Yeltsin and Russian legislative leaders to finally
ratify the START II nuclear arms treaty. But that is unrealistic given
the tensions between the nations, not to mention the economic and
political chaos in Russia. The Russians are very unhappy about NATO
expanding toward their borders and the use of American force in nearby
places such as Afghanistan. At the moment the Russians are weak and
cannot do anything about it. But it adds to their frustration and sense
of humiliation and gives ammunition to the anti-western forces. The
danger is that out of this unhappiness and economic catastrophe the
worst part of the Russian political personality will emerge: xenophobic,
ultra-nationalistic, hostile to the West. Washington's current
disagreements with the Kremlin will seem minor compared with what could
still develop. Most experts believe it is not possible for old-line
communists to regain power. They have been rejected by a large
percentage of the population. But the ultra-nationalistic, anti-western
forces do exist and could come to power.
Russia is a weak nation now. Its economy is no larger than
Denmark's. Its military is in shambles (although it still possesses
thousands of nuclear warheads) and most experts believe it would take
seven to 10 years for Russia to rebuild its military.

The Optimistic Scenario

The outgoing prime minister, Sergei Kiriyenko, a 37-year-old
technocrat who had strong ideas about how to fix the economy but ran
into the buzzsaw of the oligarchs, says the only good that could come
from the current crisis is a consensus to finally implement the economic
reforms. Those would include ending government subsidies to unprofitable
businesses, instituting a real system to collect taxes, establishing the
rule of law and breaking the power of the oligarchs. That is, of course,
the optimistic scenario. And this is Russia.
But the pessimistic scenario is too bleak to contemplate: a large,
militarily resurgent, hostile power in Eurasia. Such a situation
dominated global politics for a good part of the century. What's at
stake in the coming days and weeks in Russia is nothing short of what
the world will look like in the coming century.

*******

#5
The Times (UK)
August 31 1998
[for personal use only]
RUSSIAN CRISIS 
Church leads march out of Western path 
Russia's clergy are reaching extremist conclusions, writes Victoria Clark 
The author is working on a book to be published by Macmillan 

AFTER seven years of sporting Western styles, there are signs that 
Russia plans to slip into something more traditionally comfortable - 
something more akin to an Orthodox priest's garb. 
Viktor Chernomyrdin, the Prime Minister, is creating a new government 
that few doubt will boast the unhealthy "red-brown", or national 
socialist, complexion of the Communist and nationalist Opposition. A key 
to understanding how these two - one led by Aleksandr Lebed, the 
nationalist general, the other by Gennadi Zyuganov, the Communist leader 
- can work together lies with the Orthodox Church, repository of Russian 
values. 
The burial of the bones of Tsar Nicholas II in July was an early 
warning. There was no mystery in Patriarch Aleksi II's refusal to share 
a platform with President Yeltsin and officiate at the burial service. 
As Father Vsevolod Chaplin, spokesman for the Moscow Patriarchate, said 
in July, Aleksi II simply wanted to "stay with the mood of the flock and 
his clergy". 
Father Chaplin defined that mood. "Our over-naive enthusiasm for the 
West has been replaced by a very negative attitude because our 
Government promised to effect these reforms overnight, and it seems to 
be acting with the authorisation and permission of the West," he said. 
It is a mood of bitter outrage at everything President Yeltsin has stood 
for, be it failing to ensure wage payments, allowing the rouble to 
crash, or allowing Nato to expand in the direction of Russia's 
frontiers. 
The old Church-nurtured distrust of the "heretical", soulless and 
money-mad West; the old Messianic belief in Russia's special mission, 
and the nostalgia for a God-the-father of a ruler is the common ground 
between Church, Communists, nationalists, the far Right and monarchists. 
They all want Russia out of her Western fancy dress. 
The more Russian churchmen one talks to, the clearer it becomes that 
they believe Jews are responsible for "deliberately engineering" 
trouble. Abbot Tikhon, head of the Sretenskovo Monastery in Moscow and a 
regular on a religious TV chat show, plucked a dollar from his cassock 
to show me a "Jewish cabbalistic symbol" on one side. He claimed it was 
proof Jews control the West and, increasingly, Russia. 
Sergei Kiriyenko, the reformist Prime Minister sacked by Mr Yeltsin, has 
Jewish blood. So does Boris Nemtsov, the former Deputy Prime Minister 
and stalwart reformer. George Soros, the wizard financier who first 
suggested that Russia devalue the rouble, is a Hungarian Jew. 
In such a traditionally anti-Semitic and conspiracy-minded society, a 
youthful and under-trained clergy is leaping to the old conclusions and 
the prospect of national socialism is not ringing alarm bells. Far from 
it. Father Tikhon is happy to see his articles reprinted in the 
newspaper of the growing fascist paramilitary "Barkashovtsi" movement, 
whose badge is a barely modified swastika. 
Father Dmitri Dudko, a dissident who served eight years in Communist 
camps, is now an apologist for Stalin. "When I see the destruction and 
decay all round me, I know I'd prefer to be beaten up in prison," he 
said. 
Scores like him have no trouble reconciling their nostalgia for a firm 
hand with the fact that the Communists were atheists who murdered the 
God-appointed Tsar. Today's Communists have embraced Orthodoxy. 
Furthermore, churchmen say the Bolsheviks were not "real Russians" but 
Jews. If the Church is anything to go by, Russia is unlikely to thrive 
until its powerful Jews have been ousted, with Mr Yeltsin. 

*******

#6
The Times (UK)
August 31 1998 
[for personal use only]
OPINION 
Can Russia's economy be saved? 
Western skills could turn the tide, says Alexander Kennaway 
The author is a professor at the Conflict Studies Research Centre at the 
Royal Military Academy Sandhurst. 

As the world looks east in fear, it is natural to ask if anything can be 
done to save the Russian economy. President Clinton's intervention will 
achieve nothing, but if the West is prepared to lower its sights and 
eschew grandiose gestures, than the New World may yet come to the rescue 
of the Old. 
Since the collapse of the Soviet Union in 1989, the rouble has devalued 
against the dollar about 8,000:1; in comparison, the devaluation of the 
past few days is minuscule. Ten years ago the Soviet Union, although 
deteriorating, more or less sustained itself in basic necessities, there 
were no financial markets for foreign "investors" in which to gamble and 
there were no native manipulators of the economy who became seriously 
rich by dubious means. 
The reason why there is panic now is because contemporary events take 
place in different circumstances, in which the pain is felt not only by 
ordinary Russians but also by the foreign speculators. It would be wrong 
to describe speculators and bankers as investors, since they have not 
invested in the sinews of the economy. 
The rouble's relations to hard currency have been arbitrarily fixed by 
the authorities but have been bolstered by massive foreign loans and 
also by the opportunity for Russians and foreigners to earn huge 
interest rates on government bonds. The cost of servicing these loans is 
rising to almost half the total income of the federal Government. Much 
of this money and most of the profits of export trade are held abroad. 
Even if it is held in Russia, it is in dollars - the real cash basis of 
commerce. 
Trading between companies and deals with the tax authorities are, 
however, not carried out in cash but in e IOUs and barter. For all the 
talk of reform, the old Soviet cashless economy is continuing, albeit in 
a mutated form. Russia's export earnings are limited almost entirely to 
raw materials, semi-finished goods such as aluminium and a modest amount 
of arms. All these aspects of the economy are run by the oligarchs who 
combine ownership and management of the firms involved with high 
positions within the Government at every level. The situation is 
chillingly reminiscent of the politically brittle city states of 
medieval Italy. These people put nothing back into the basic economy. 
The economy itself is run by people who are are also prisoners of the 
past. Russia's rulers have not abandoned their beliefs in a centrally 
directed system. Soviet dogma required a pretence of performance 
according to "the Plan", and was weakened by a love of the grandiose and 
bedevilled projects done in haste. 
What we see today is a result of tsarist and Soviet incompetence, allied 
to modern entrepreneurial greed. 
Attempts by foreign experts and consultants over the past ten years to 
help those in power to make real progress towards a market economy have 
had little success. Most of those those in power in Russia have scorned 
well-intentioned advice. They react with a mixture of suspicion that our 
advice is designed to destroy Russia as a Great Power, a feeling that 
their past methods brought them success, an unwarranted confidence in 
their own ability to understand a market economy by theoretical study, 
and a belief in the superiority of their own scientific education. 
In addition to these delusions, they maintain an unwarranted belief that 
th eir bankrupt factories are valuable and attractive to potential 
foreign partners. They are hurt and bewildered at our reluctance to 
invest. 
For these reasons a Marshall Plan for Russia will fail. The Marshall 
Plan for Western Europe worked in Germany in particular because they 
retained the ability to run a private enterprise system. Russians do not 
and their leaders will not let them. 
The economies of those countries in Eastern and Central Europe which 
suffered a shorter period than Russia of Communist rule have improved 
faster than that of Russia. Foreign firms report that the locals learn 
rapidly from modern managements. Estonia in particular is almost 
indistinguishable from a thriving West European country. 
The experience in theformer Soviet Union and Central and Eastern Europe 
suggests that the only way forward is for top-class foreign firms to 
establish themselves in those countries, to bring their expertise in 
commerce, technology and management. There is nothing demeaning in this 
process; even Britain is not too proud to have done so. 
Foreign firms have to work at the level of the firm, the farm and the 
railway depot. This is how Russia began to improve in the last decades 
of the 19th century and the first decade of the 20th century. But for 
this to come about, the foreign firms require that the Russian 
Government creates the conditions for profitable enterprise and the 
confidence that they will be treated according to international norms 
legally, in taxation and in cross-border customs matters. 
Unfortunately neither the present nor potential people in power in 
Russia are likely to be able to deliver these conditions. Until they do, 
there is little point in throwing good money after bad. Russia needs our 
expertise and direct involvement - if it creates the conditions for that 
to happen, the investment will follow. 

*******

#7
Chaos in Russia before Yeltsin-Clinton summit

By Timothy Heritage
MOSCOW, Aug 31 (Reuters) - Russia's fast-moving political and economic crisis
on Monday overshadowed chaotic preparations for Tuesday's summit between
President Boris Yeltsin and U.S. President Bill Clinton. 

Doubts over whether Russia will have a prime minister by the time Clinton
arrives and whether Yeltsin might agree by then to give up some of his vast
powers have forced the U.S. administration to keep its summit plans in flux. 

The two presidents are limping to the summit because of damaging political
crises at home, and Russia's pressing financial problems have now taken over
the agenda. 

Clinton will offer political, but probably not financial support, for Yeltsin.
Even so, hopes of a major breakthrough in uneasy Russian-U.S. relations are
low. 

``Given the utter weakness of the Russian authorities and the relative
weakness of the Amercian authorities, I do not think we can agree on anything
politically serious,'' Sergei Karaganov, a senior Russian foreign policy
expert, told Interfax news agency. 

The two leaders, holding their first full summit for 18 months, could hardly
be meeting at a more difficult time. 

``At this point we don't have a Russian economic team. We don't have a Russian
economic plan,'' U.S. Deputy Treasury Secretary Lawrence Summers said in
Washington late last week. 

U.S. Secretary of State Madeleine Albright was due to arrive on Monday
evening, about 14 hours before Clinton. She was expected to meet Russian
Foreign Minister Yevgeny Primakov and assess the impact of the latest
political events on the summit. 

The State Duma, the lower house of parliament, was due by then to have started
a debate on whether to approve Yeltsin's candidate as prime minister, Viktor
Chernomyrdin. 

Clinton will seek guarantees that Russia is going to push on with market
economic reforms, despite the slide of the rouble, a plunge in Russian shares
and the threat posed to Russia's banking system by the economic chaos. 

The U.S. president is unlikely to offer any extra financial assistance on top
of an nearly $23-billion international loan package agreed in July. 

But the two-day summit gives him a chance to assess the gravity of Russia's
political situation, in which opposition parties are seeking Yeltsin's
resignation and are demanding that he hand some of his powers to parliament. 

``The president is going to Moscow to show support for economic and political
reform in Russia, to engage with the broad array of Russian leadership, to
deal with a lot of foreign policy questions that can't be put on hold,'' U.S.
Energy Secretary Bill Richardson told NBC television. 

Russia's financial crisis has pushed other pressing issues down the agenda.
But Clinton and Yeltsin, anxious to salvage something form the summit, could
still strive for some kind of agreement to answer their critics. 

Clinton will hope for signals that the State Duma, the lower house of
parliament, will speed up ratification of the START-2 accord signed in 1993 to
reduce nuclear weapons. He is unlikely to get them. 

Nuclear non-proliferation is also likely to be on the agenda, as well as the
joint fight against terrorism following the bombing of two U.S. embassies in
East Africa which prompted U.S. air strikes against what Washington said were
terrorist-related targets in Afghanistan and Sudan. 

Clinton will meet Yeltsin on both Tuesday and Wednesday. They are due to hold
a news conference around 1 p.m. (0900 GMT) on Wednesday. 

Clinton will give a major speech at the Moscow Institute of International
Relations on Tuesday. He plans to meet a group of political leaders on
Wednesday which Russian media say will include Communist Party chief Gennady
Zyuganov. 

*******