September 3, 1998   

This Date's Issues: 2343• 2344•  2345 •

Johnson's Russia List
#2345
3 September 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: Illarionov: Russia Default Immiment.
2. Nathan Stowell: Hough and Squire.
3. Whit Trovillion: Re Hough on Fedorov.
4. Richard Colvin: Anti-Semitism.
5. The Nation signed editorial: Daniel Singer, Twilight of the Czar.
6. San Francisco Chronicle: Janine Wedel, U.S. Aid Added to Russia's Woes.
7. San Jose Mercury News editorial: Clinton's platitudes won't put bread 
on Russia's tables (or disarm its nukes).
8. New York Times: Martin Malia, Russia's Retreat From the West.
9. The Times (UK): A return to the bad old Bolsheviks. Norman Stone fears 
Lebed may be right about Russia.
10. IntellectualCapital.com: Judy Shelton, Greenspan and Cavallo: Russia's
Monetary Saviors?
11. Stephen Blank: Fedorov.]

*******

#1
Illarionov: Russia Default Immiment

MOSCOW, Sept 3 (AFP) - The Russian government may be forced to 
default imminently on foreign debt because of drastic revenue 
shortfalls, an influential Russian economist said Thursday. 
Institute of Economic Analysis director Andrei Illarionov said 
Russia must pay out six billion dollars on its foreign-currency 
denominated debt this year, but its total budget revenues by 
year-end are forecast at about 4.5 billion dollars, Interfax 
reported. 
Russia has an estimated 140 billion dollars in foreign debt, 
including rescheduled former Soviet debt and several eurobond 
issues. 
The Russian government on August 17 announced a de facto default 
on short-term ruble-denominated debt in a desperate effort to keep 
the federal coffers from going bankrupt. 
Illarionov estimated that investors lost 70 billion dollars 
because of the decision.

*******

#2
From: "Nathan Stowell" <nys@aha.ru>
Subject: Hough and Squire
Date: Thu, 3 Sep 1998 

I would like to respond to comments by John Squire and Jerry Hough.
Squire writes, "Chernomyrdin seems to have been the lynchpin that held the
(rather rickety) arrangement of the past six or so years together" and, "the
Communists
have no more idea how to deal with corruption and organized crime than do
the current regime." C'mon ! Chernomyrdin, and the current regime ARE the
corruption of the past six years. The biggest and most powerful krysha
there is. Not only was Victor Stepanovich ineffective in overseeing any
meaningful economic reform for the past six years (which is why we're in
this whole devaluation mess in the first place) but he's the Grand-daddy of
all these "Young Reformer" politicians with their ties to the Oligarchs and
respective banks. I remember 4 or 5 years ago, back before anyone knew what
an oligarch was, Chernomyrdin was reputed to be one of the richest men in
Russian politics from shady GazProm dealings. He's no more qualified than
Chubais and Nemtsov were, if not less. A Soviet era nachal'nik doesn't
exactly instill confidence of economic experience.
Hough also states that Yeltsin would be best as a "Mitterand handling
foreign policy". Would Hough desire a drunken, near-incapacitated,
ex-Soviet party boss as his country's representative abroad ? Watch Russian
TV a little. He's lied on his taxes, skipped meetings with foreign
dignitaries, and made more verbal gaffes than Dan Quayle. Did you see
yesterday's press conference with Clinton ? And how many more "colds" can
he catch ? Last poll results I heard, his popularity was at 12. That's
four points from single digits.
Hough may be able to support his arguements with erudite references to
French revolutionary figures and Asian economic models, (although,
personally I believe Russia is its own model; if it were anything like what
economists in the West suspected 7 years ago, then the miserable
distribution of wealth that Squire points to would never had occurred), but
he ignores the obvious Russian reality. These men have driven the country
into the ground. Americans wouldn't support this type of leadership,
neither should Russians. 90% of them are against Chernomyrdin's
re-appointment. 90%. That's not, like, a Zhirinovsky following. That's
pretty much everyone. Maybe we should listen to them.

********

#3
From: "Whit Trovillion" <wetrovi@email.msn.com>
Subject: Re: Hough on Fedorov
Date: Thu, 3 Sep 1998 

Professor Hough's remarks about the sainted Mr. Fedorov are mystifying.
Boris Fedorov was the sole voice in the upper levels of the Russian
government railing against Viktor Gerashchenko, whom Jeff Sachs called "the
world's worst central banker," during the darkest years of hyperinflation in
the mid-90's. As Finance Minister and Russian Executive Director at the
IMF, Fedorov alone had the credibility and monetarist credentials to deal
effectively with International Financial Institutions and western creditors.
It is easy to forget that the Russian government had its own Paul Volcker
(despite 2500% inflation), but he lacked the power to personally alter the
ruinous expansionary policies of Mr. Gerashchenko.
As for his more recent behavior as head of the Russian Tax Service and his
particular zeal for GAZPROM, Fedorov's target is appropriate and long
overdue. Russia had to get its fiscal house in order fast and GAZPROM was
and is the country's biggest tax deadbeat.

*******

#4
Date: Wed, 2 Sep 1998 
From: "richard j. colvin" <colvinrj@glas.apc.org> 
Subject: Anti-Semitism

A brief response to Brian Humphreys' odd comment that, "If there is any
anti-Semitism in Russian politics, it is in the belief that Berezovsky
controls absolutely everything." (JRL 2336, responding to a NYT letter from
JRL 2334 which noted that Kiriyenko and Nemtsov are Jewish and suggested
that, "in times of crisis, Russia... finds Jews or foreigners to blame for
its failures.)
Odd, because if anti-Semitism were at the root of suspicions about the role
of Berezovsky, why is he being singled out and not, say, Gusinsky?
Odder still is the notion that it is worth debating whether anti-Semitism is
a factor in Russian politics. Has Humphreys never heard a Russian dismiss
Yavlinsky as unelectable "because he's a Jew"? Or criticise the former
government as "not Russian" because it included Kiriyenko, Nemtsov, Chubais
and Primakov? Or even explain the outcome in Krasnoyarsk by noting that
Zubov is Jewish, whereas Lebed is a Slav? 
The original letter by Susan Gold raises a valid point. As the economy
continues to nose-dive, with a street rate of almost 12 rubles per dollar,
it seems reasonable to suppose that a search for culprits will soon begin.
Someone must be responsible. Why not the usual suspects? 
One obvious target is the West. Just today at a press conference in the
Duma, Zhirinovsky (himself half-Jewish) was vigorously condemning Yeltsin as
a tool of the U.S., Yavlinsky as an American-funded stooge, and the Russian
MFA as a branch of the State Department, with Primakov merely a nachalnik
upravlyenie. Westerners may snicker. But given the current crisis, perhaps
we shouldn't. 

********

#5
From: Nationkvh@aol.com
Date: Thu, 3 Sep 1998 
Subject: editorial from The Nation

Signed editorial from the September 21, 1998 issue of The Nation - written by
Daniel Singer, The Nation's Europe correspondent.

Twilight of the Czar

President Clinton recently paid a visit to a fallen czar. The blundering
Yeltsin may be clinging to his throne, but his effective reign came to a close
on August 17, a date to remember. The collapse of the ruble and the defaulting
on debt payments symbolically mark the end of a period of seven years of
calamity leading to the ruin of the country’s economy and the terrible
impoverishment of the bulk of the population. It was good on this occasion
that Clinton was in the limelight with Yeltsin because the Western powers in
general, and the American presidency in particular, share the blame, having
all along given their blessing to the policies that brought about the
disaster. The trouble is that the West’s financial institutions seem to have
learned nothing from the bitter experience. While the battered Yeltsin is
wondering how best to survive or to make a safe exit—his last-minute refusal
to reduce the exorbitant presidential powers may explain why the pact with the
opposition collapsed on the eve of Clinton’s arrival—Western leaders urge him
to stick to the outmoded script. For this purpose, they and their scribblers
must rewrite history to whitewash the “democratic reformers.” It is important,
therefore, to set the record straight.
The financial failure is the handiwork of the “democrats” or so-called
radical
reformers, not of the apparatchiks. If Viktor Chernomyrdin, the ex-manager of
mighty Gazprom, was appointed Prime Minister at the end of 1992, it was
because the shock-therapist Yegor Gaidar had rendered living conditions
unbearable; and if he was recalled by Yeltsin now, it was because the “young
reformers,” headed by Sergei Kiriyenko, had made a terrible mess. True,
Chernomyrdin, Prime Minister for more than five years, is far from innocent.
But throughout his term he was under close supervision of a keeper of
financial orthodoxy—most of the time that darling of the Western
establishment, Anatoly Chubais. The other clever attempt is to shift
responsibility for the troubles onto the financier Boris Berezovsky and his
fellow profiteers. But who made it possible for them to make their millions?
Our Chubais again, who as minister in charge presided over the biggest
daylight robbery of the century, Russia’s privatization. And who rejoiced when
the Sinister Seven oligarchs, with his help, used their ill-gotten gains and
their mastery of the media to twist the 1996 presidential election in
Yeltsin’s favor?
Clinton must take his knocks for the bankruptcy. Having at the beginning of
his first term drawn the now obviously wrong conclusion that Yeltsin was the
best bet to keep Russia safe for capitalism, he acted accordingly. Our man in
Moscow could do no wrong. When Yeltsin shelled Parliament in 1993, we turned a
blind eye. When he won a corrupt election, Clinton hailed it as “a triumph for
democracy.” When Yeltsin’s “reformers” tried to balance the budget by delaying
payment of salaries to millions of workers, our experts praised their efforts
to fight inflation. And so Russia—and we—traveled, blindly and smugly, to
disaster.
The problem throughout was that the people we supported were hated by
ordinary
Russians. With an Orwellian sense of humor, we called “democrats” those who
could never win an open election. Indeed, Yeltsin has a real dilemma. If he
does not reach a deal with the opposition, including the Communists, and
renominates Chernomyrdin (rejected on August 31 by 253 deputies versus 94) a
second and third time with the same lack of success, he is entitled by the
Constitution to dissolve the Duma and stage a new election but is most likely
to get an even more hostile assembly. The same question of popularity affects
the issue of Yeltsin’s succession and the presidential poll, scheduled for the
year 2000 and already dominating the minds of politicians. The only potential
candidates with a real following at present are those who have no open link
with the rulers: the Communist Gennady Zyuganov and the bluff general
Aleksandr Lebed, waiting for his hour in distant Krasnoyarsk; maybe the mayor
of Moscow, Yuri Luzhkov, in a pinch. Anybody with a Yeltsin connection cannot
get into double digits in the polls, and it is highly doubtful that pots and
pots of money and full control of the media would do the trick a second time.
During his two-day visit to Moscow Clinton, intervening blatantly in domestic
politics, lectured the Russians time and again on the imperative need to
continue with the old policies.
Outsiders may seek consolation in the thought that he who pays the piper
has
at least a strong influence on the score. It is not clear whether the IMF will
give Moscow the second slice of $4.3 billion in mid-September, but the refrain
played in Washington, London, Paris and Bonn is exactly the same: We are ready
to keep on helping the Russians, if they get on with the reforms. Which
reforms? Anybody in his senses in Moscow understands that in the tragic
condition of its economy what the country must do is relaunch production. For
this, industry needs some spur from the state and some degree of international
protection. To stick with the old policy is to precipitate a social explosion.
On this occasion, the sternest censor of Russia’s would-be heretics was
Michel
Camdessus, managing director of the IMF. This is understandable. Although the
$22.6 billion package sponsored by the fund proved to be too little too late,
its officials did not think the Russians would dare, or be forced, to suspend
payments. The news was not only a shock. It was a dangerous precedent. The
message might travel from Moscow to Mexico City and from Seoul to São Paulo.
What if people ceased to believe that to spread unemployment by the
millions
and poverty by tens of millions is the road to economic salvation? As
currencies crash and stocks tumble, as the bubble bursts on Wall Street, the
moneybags must begin to wonder whether the fall of the ruble does not
foreshadow something more dramatic: the bankruptcy of the system as a
whole. 

*******

#6
San Francisco Chronicle 
September 3, 1998
[for personal use only]
U.S. Aid Added to Russia's Woes 
By Janine R. Wedel 

WHEN THE SOVIET UNION abruptly ceased to exist on Dec. 25, 1991, it
seemed that the United States finally had what it had always wanted -- the
opportunity to introduce quick economic reform that would remake Russia in
the West's own image. To this end, the United States embarked upon a course
of economic relations with Russia through three interrelated policies: 
-- Urging radical economic ``reforms,'' notably privatization; 
-- Backing a particular political-economic group to do so; 
-- Providing billions of dollars in U.S. and other Western aid,
subsidized loans and rescheduled debt. 
The United States has consistently supported President Boris Yeltsin and
a Russian cadre of self-styled ``reformers'' to conduct these ``reforms''
and negotiate economic relations with the West. U.S. support for Anatoly
Chubais and the members of the ``Chubais Clan,'' a group of savvy operators
dominated by a clique from St. Petersburg, has bolstered the Clan's
standing as Russia's chief brokers with the West. The Chubais Clan -- not
the Russian economy as a whole -- has been the chief beneficiary of U.S.
economic aid. Working closely with Harvard University's Institute for
International Development (HIID), the Chubais Clan controlled millions of
dollars in U.S. aid through a variety of organizations run by the Clan.
Between 1992 and 1997, HIID received $40.4 million from the U.S. Agency for
International Development (USAID) in noncompetitive grants for work in
Russia and was slated to receive another $17.4 million until USAID
suspended HIID's funding in May 1997, citing evidence that HIID principals
were engaged in ``activities for personal gain.'' 
The preferred method of reform was by top-down presidential decree
orchestrated by Chubais. Shortly after Yeltsin became the Russian
president, the Russian Federation's Supreme Soviet passed a law mandating
privatization. After several schemes were floated,the Supreme Soviet passed
a program in 1992 intended to prevent corruption, but the one Chubais
eventually implemented contained none of the safeguards and encouraged the
accumulation of property in a few hands. This program opened the door to
widespread corruption and was so controversial that Chubais ultimately had
to rely on presidential decrees, not parliamentary approval, to implement
it. This rule by decree not only was undemocratic but frustrated many
market reforms. This seems familiar to Russians raised in the Communist
practice of political control over economic decisions -- the quintessence
of the discredited Communist system. 
Privatization was supposed to help Russia reap the fruits of the free
market. Instead it created a system of tycoon capitalism run for the
benefit of a corrupt political oligarchy that has appropriated hundreds of
millions of dollars of Western aid and plundered Russia's wealth. Yet, de
spite evidence of corruption and lack of popular support, many Western
investors and U.S. officials embraced the ``reformers'' and saw Chubais as
the only man capable of keeping the nation on the road to economic reform. 
U.S. assistance to Chubais (through Harvard) continued even after he was
dismissed by Yeltsin as first deputy prime minister in January 1996. The
July 1998 IMF bailout of Russia represents more of the very policies that
have produced such abuses. The $11.2 billion aid package for 1998, (with
another $7.8 billion funds over three years pledged if Russia ``stays on
track''), is supposed to put an end to Russia's financial crisis. Yet only
a very few certain political-economic players stand to reap any benefits. 
Veniamin Sokolov, head of the Chamber of Accounts of the Russian
Federation, Russia's rough equivalent ofthe U.S. General Accounting Office,
argued, ``All loans made to Russia go to speculative financial markets and
have no effect whatsoever on the national economy.'' And it is the Russian
people who are responsible for repaying those loans. 
Just weeks after the IMF deal was approved, investor confidence hit a
new low and the Russian government was forced to devalue the ruble. USAID,
which provided Russia with $95.7 million in aid in 1997 and another $129.1
million estimated for 1998, is requesting from Congress $225.4 million in
economic aid for Russia in 1999. 
If the U.S. government wants to adhere to its own declared objectives of
promoting sound economic development and equitable growth in Russia, it
must reverse its current policies. The U.S. role in creating a system of
tycoon capitalism and the current economic meltdown, coupled with military
policies such as NATO expansion, have fueled anti-American sentiment in
Russia. 
To begin to reverse this, the United States should: 
-- Stop its policy of support-at-all- costs for Yeltsin and the Chubais
Clan. 
-- Recognize that a healthy banking and financial system cannot arise
without a revival of production and distribution in the ``real'' economy.
Measures which emphasize increases in tax collections and reductions in
government expenditures under the current extremely depressed conditions
simply guarantee accelerated decline of the real economy and
social-political chaos. 
-- Discontinue support of noninclusive organizations and of bypassing
democratic process through decree. 
-- Establish ties between President Clinton, other U.S. officials, and a
``wide'' cross-section of Russian leadership. 

AID TO RUSSIA, 1992-1997 
-- U.S. bilateral - $4.9 billion 
-- World Bank - $9.8 billion 
-- IMF - $14.4 billion Sources: World Bank; IMF; USAID; Wedel's "Collision
and Collusion," (forthcoming from St. Martin's Press). 

*********

#7
San Jose Mercury News 
September 3, 1998
Editorial
Clinton's platitudes won't put bread on Russia's tables (or disarm its nukes)

PRESIDENT Clinton went this week to Moscow. There he hugged an unpopular
president, embraced failed policies, uttered words as worthless as the
ruble, then declared the summit a success.
Stay the course, ``play by the rules,'' and ``reject the failed policies
of the past,'' he urged, repeating platitudes that many Russians have come
to see as poisons. In doing so, he cemented in their minds the suspicion
that America is either indifferent or contributing to their despair.
Mostly they are cynical and paranoid. To a degree, they are right.
Instead of lecturing the Russians, Clinton should have been listening to
them, for they know when they've been had: by ex-apparatchiks in cowboy
boots and Stetsons who've been plundering the nation's wealth, and by
tight-money policies, demanded by the West as the price for a meager bailout. 
Most Russians have seen their standard of living plunge. Jobs
disappeared; savings vanished. They've been told of the need to sacrifice,
but see no glimmer of a payoff. Instead of democracy, they have
kleptocracy; instead of a free market, they have free fall. Their tolerance
is reaching the limit.
Russia's troubles are home-grown and deeply rooted. Its corrupt
bureaucracies and inefficient industries are hard-to-shake legacies of
Soviet times. The robber barons pirating the banks are native sons. The
economy's collapse reflects a fundamental and simple failing of the Russian
government: to raise enough taxes to pay workers and meet debts. Short of
cash, it began borrowing at escalating short-term rates until the madcap
scheme collapsed, and the ruble fell. 
And now, when leadership is imperative and decisiveness is critical,
there's paralysis and brinkmanship. An ailing President Yeltsin is
threatening to dissolve a communist-dominated parliament, which is refusing
to confirm his colorless prime minister, Viktor Chernomyrdin.
America didn't create the current crisis, but it did hasten it. Through
the International Monetary Fund and the World Bank, it forced a rapid
privatization in a society without a middle class and civil institutions.
It imposed fiscal severity without regard for the insecurity and hardship
it would create.
The results have been calamitous, and, in a nation with thousands of
nuclear weapons guarded by unpaid soldiers and disaffected generals,
extremely dangerous. And yet, at least outwardly, Clinton continues to talk
the same line, prescribing austerity as the Vitamin C for all of Russia's
ills.
The truth is, given the magnitude of Russia's troubles, Clinton has
nothing to offer Moscow but talk -- and flexibility. The Russians got a lot
of the former and not the latter, which is what they need.
It's becoming clear that the Russians will be changing course,
regardless of whether Yeltsin stays or goes and who becomes the next prime
minister. The liberal free marketeers are out; the communists are
bargaining hard. The next government will take a stronger hand, whether by
instituting protectionist policies or by regaining control of critical
industries, like oil and gas, that can bring quick currency the government
needs.
A stronger central government in Moscow need not -- and probably won't
-- lead to a full restoration of state socialism. The young people in
Russia wouldn't tolerate that. And Washington need not see a larger role
for the communists as a threat to this nation's security or cause for an
acrimonious, destructive recriminations over ``who lost Russia.''
As Steven Cohen, a New York University history professor and Russian
expert points out, one need only look at the American experience during the
Depression and Germany's and Japan's history after the Second World War to
understand the importance of strong central government intervention in an
economic crisis.
``The Russians are saying, `Bear with us and restructure the debt. We
need to do what you did in the '30s, We need to be compassionate,''' Cohen
said.
This week, in parliamentary debate, Aleksandr Shokhin, the leader of
Chernomyrdin's party, called for a ``Russian Roosevelt,'' a prime minister
who would ``implement a new economic course.'' 
How obtuse and unhelpful for our Democratic president to insist on a
Herbert Hoover instead. 

********

#8
New York Times
September 3, 1998
[for personal use only]
Russia's Retreat From the West
By MARTIN MALIA
Martin Malia is professor emeritus of Russian history at the University of
California, Berkeley, and the author of ``The Soviet Tragedy : A History of
Socialism in Russia, 1917-1991.'' 

PARIS -- The only certainty in Russia's present crisis is that it marks the
end of an era -- the Yeltsin years for sure and quite probably the end of
the theory, widely trumpeted just a decade ago, that market democracy has
triumphed as a universal ideal. 
In 1991, it was clear that communism in Russia was going to collapse.
And there seemed to be little debate that Russia and all post-communist
states would follow the Western norms in some form. But now it's impossible
to foresee the shape of a post-Yeltsin Russia. 
Why? Let's look at our three previous models for understanding
post-communist Russia, all of which are now being trotted out to fix blame
for the crisis and to propose remedies. 
The first model, market democracy, has been advocated by the Clinton
Administration and the International Monetary Fund with the support of all
Western European governments. 
Namely, "reform" means a transition to market democracy through price
liberalization, privatization and a stable ruble. In due course, these
policies, their advocates predicted, would restructure Russia along Western
lines. 
President Boris Yeltsin, for all his faults, was deemed indispensable to
this policy, for he alone could defend reformers against the forces of
resurgent nationalism and neo-communism. 
Yet Russia's liberal experiment has now collapsed in spectacular and
completely unexpected fashion, leaving the country both bankrupt and
without a government -- in a sense, in worse straights than after
Communism's collapse. 
These events have given greater credibility to the second model, one
that embraces a market economy with a welfare state more expansive than any
in the West. Supporters of this model have long charged that a quick turn
to a strict market economy was inappropriate to both Russian national
tradition and post-communist conditions. 
Forcing Russia into a market economy, in this view, was to turn over, at
fire sale prices, the nation's industries and natural resources to the old
nomenklatura and to new robber barons, while dilapidating the savings and
pensions of vulnerable citizens, especially the elderly. Within Russia,
Grigory Yavlinsky, who heads the political party, Yabloko, has been the
most prominent exponent of this position, and in the West it has been
propounded by progressives distressed by the Reagan-Thatcher revolution. 
The second model, however, has never been tried in pure form. In the
mid-1990's, voters in Poland and Hungary, hurting from the turn to a new
liberal economy, returned Communists to the leadership in what Adam
Michnik, a Solidarity leader, called a "velvet restoration." 
Communists added an affordable safety net to the prosperity generated
by Poland's liberal "shock therapy" of 1990, the first cold-turkey
transition to capitalism, which was highly successful. In other words, the
second model could work only if economic liberalization had already
generated the needed funds. 
A third model, advanced especially in socialist and academic quarters,
is more radical than the second. According to this theory, Mikhail
Gorbachev had already made the transition from Stalinist Communism to a
market social-democracy.Real reform, therefore, should have continued on
that course until "socialism with a human face" was reached at last. 
In this perspective, Mr. Yeltsin was a spoiler, who turned to unbridled
capitalism and ruined the country. This model is a fantasy whose time has
passed: The Hungarian and East German communist regimes tried it in 1989
and 1990, and it led to their demise. 
In retrospect, it is clear that the debate among these three models has
been as much a contest between competing Western economic and social
ideologies as a debate about Russian problems -- just as the debate about
communism between Western hawks and doves was always in part a debate about
how far to the right or the left Western societies themselves should move. 
In practice, however, the liberal West could only support a liberal
market democracy for Russia. Now that this course has collapsed, we are
left with no effective model for making sense of Russia's predicament. 
Still, at first it seemed as if the liberal model might work for Russia,
which did try to make a real transition to a privatized economy, however
diluted by barter and riddled with corruption. At the same time, freedom of
expression and elections, however manipulated by the oligarchy, have been
accepted as the norm. And the younger generations of Russians, in the
cities if not in the countryside, has become genuinely attached to these
principles. Moreover, the 20th century record overall is clear: in the long
run, there does exist a distinct correlation between free markets and free
politics. 
So why did the Yeltsin-I.M.F. course end in the present debacle? Why was
the Yeltsin regime unable to collect taxes, to pay wages, to regulate its
banks, and to fund its debt. Surely, this was not the result of faulty
fiscal and monetary policy alone. The deeper reason is the legacy of the
Leviathan Soviet Party-state, which when it collapsed left behind only
administrative and economic rubble, devoid of the judicial, accounting and
police procedures necessary for a modern society -- an institutional abyss
not present in Eastern Central Europe when it made its transition to a
market economy. 
This heritage along with a sporadically doctrinaire liberalism produced
the collapse of the Yeltsin experiment. The crisis in Asia only provided
the final shove. 
So what might emerge from Russia's post-liberal rubble? There will
certainly be a significant swing away from free markets to a statist
economy -- certainly less than a return to Communism but much more than the
earlier "velvet restoration" of Eastern Europe. And this new course will
last a long time, perhaps a matter of years. 
In embarking on this orientation, the Communists, as the main organized
anti-liberal force, clearly hold the strongest hand. 
Even the business oligarchy, terrified by the militant liberalism of
Prime Minister Sergei Kiriyenko and company, has abandoned the Yeltsin
experiment. So, seven years almost to the day after the now-ailing
President banned the old Communist Party of the Soviet Union, the new
Communist Party feels poised for a not-so-velvet come back. 
Unfortunately, there is no realistic alternative.The liberal Western
model has failed -- maybe not because of its inherent flaws -- but to most
Russians that doesn't matter. The post-Communist experiment has failed
nevertheless. And after a somber, low-key summit, it's clear that a
devalued American President and a defeated Russian President can hardly
stem this tide. 

*******

#9
The Times (UK)
September 3 1998
[for personal use only]
OPINION
A return to the bad old Bolsheviks 
Norman Stone fears Lebed may be right about Russia 
The author is Professor of International Relations at Bilkent University,
Ankara. 

Terminator Two was what the Russian intelligentsia called General
Aleksandr Lebed. And he does have something of a Schwarzenegger quality. He
has been an excellent soldier, but he also has political sense and has been
quite adept at solving the nationality conflicts that have arisen in the
territory of the old Soviet Union in the past few years. Mr Lebed could be
Boris Yeltsin's successor if he finds the right backers, and journalists
have been waiting to see what he has to say about the present crisis. 
He has told President Clinton that the situation is "worse than 1917".
Of course this is hyperbole. In 1917, Russia was fighting the First World
War and there were six million men under arms. But in a sense Mr Lebed is
right: Russia is going through what in Leninist parlance would have been
called "a revolutionary situation". The old is dying, and the new has not
yet been born. Meanwhile, there is no party that can legitimately run
government and yet public finances are running out of control. This goes to
the heart of Russia's political problems. 
Yesterday's International Herald Tribune cartoonist, Danziger, suggests
that the Russians will soon be inking their own rouble notes. In 1917 this
actually happened. The Provisional Government, which had succeeded the
abdicated Tsar, could only use the printing press to create money. It did
so at such speed that there was no time to print numbers on the notes, and,
if customers tried to take money from a bank, they had to follow the
teller's instructions and ink in the numbers. The reason for this was that
the State had no mechanism for taxation, just as happens, more or less,
today. There was no way of identifying people's incomes since they kept
their own books (if any at all). 
An income tax was levied in 1915, and there was an excess profits tax,
levied for political reasons. Together these paid roughly for a weekend of
the First World War. Indirect taxes were not much help either because, in
an extraordinary act of self-denial, the Tsar imposed prohibition in 1914
and thus forfeited the main item of revenue in the country. By 1917 it was
impossible to raise money by war loan, because the rouble was inflating so
fast. 
The same is quite likely to happen now. It will have the predictable
effects of a great inflation. Those people who have things to sell will
hoard them, in anticipation of higher prices. In the summer of 1917 the
banks were even speculating in sugar, vast bags of which were kept in the
vaults because it was better collateral than anything else. Wholesalers did
the same with flour, provoking bread riots. 
The working classes, on whom the war depended, found themselves dealing
with increasingly worthless paper money. The State's efforts to reform
things made them worse: the distribution of meat and grain supplies broke
down entirely. 
In an inflation, in Russia, this sort of thing happens. We might not now
expect conditions of this sort to occur and people are not used to coping.
True, in 1990 there were endless alarms about food shortages, but the
Yeltsinites in the Moscow machine were hamming it up to discredit Mikhail
Gorbachev. Besides, in those days, Russians could stand an inflation
because their own savings accounts were stuffed with roubles for which
there had been nothing to buy. 
Now there is a cash economy, of a sort, there are no savings and, come
an inflation, there will be dreadful shortages, some of them man-made.That
is very like 1917. Then the Russian crisis was such that no party could
contemplate taking responsibility for the mess. The Provisional Government
even imagined that it could improve matters by launching what might be
called market reforms in a war. It even abolished income tax, and treated
the Stock Exchange in such a bizarre way that it boomed in the weeks before
the revolution. The moderate Left and Right, were terrified of taking
power, and the way was open for Lenin and the Bolsheviks, who expected
chaos, and were ready to make a new world. They "solved" the food question
by barter and force, and they were able to use the army, which mutinied on
a huge scale. 
Nowadays in Russia there seems again to be only one party that, having
expected the chaos and perhaps also worked for it, is ready to take power:
the Communists. This time, too, they might even be able to rely on the
army. In 1993, the army saved Yeltsin when the former Soviet Duma members
rebelled; that led to the extraordinary, and extraordinarily symbolic,
bombardment of the White House. 
Mr Yeltsin has hitherto squared the generals, to some extent even by
conniving at the shady deals that some have been doing. Mr Lebed, although
manipulated by Mr Yeltsin over the Chechen affair and since, will have
learnt his lesson, and will keep clear so that he is not tied to a corpse.
The army will be in an exceedingly important position, and it will not,
this time, be saving Mr Yelstin unless some miracle appears. In 1917, there
was also a military saviour in the wings - the lion-hearted General
Kornilov, who staged a coup at the behest of elements in the Provisional
Government, and was then let down by them. Mr Lebed may very well be
turning into a long-delayed Kornilov, but this time one with a brain and a
future - of all oddities, in unlikely partnership with the Communists.
Bednaya Rossiya - "poor Russia" - as they often say. 

*******

#10
IntellectualCapital.com
http://intellectualcapital.com
Greenspan and Cavallo:
Russia's Monetary Saviors?
by Judy Shelton
September 3, 1998 
Judy Shelton is an economist and the author of Money Meltdown. She serves
on the board of Empower America in Washington, D.C. She is a regular
commentator for IntellectualCapital.com. Her e-mail address is
judyshelton@intellectualcapital.com. 

Only two people can help Russia get back on the road toward free markets
and democratic capitalism at this critical moment. Neither one of them is
named Bill Clinton. 
The first person who should go to Moscow and offer his credentials and
experience for handling banking and financial calamities is Alan Greenspan,
chairman of the U.S. Federal Reserve Board. The second person whose
insights and expertise hold out the only viable path of economic reform for
Russia under such pressing circumstances is Domingo Cavallo, former
economics minister of Argentina. 
Between the two of them, these men hold the key to Russia's economic and
financial salvation. Greenspan and Cavallo are the global champions of
sound money. And what Russia needs now -- more than platitudes about the
importance of discipline coming from Clinton or imperious warnings issued
by indignant International Monetary Fund officials on the inviolability of
fiscal targets -- is a working plan to establish a reliable Russian currency. 

The currency board cure 

In the absence of sound money, all efforts to erect solid finances in
Russia are doomed to collapse. You cannot build a stable economy on a
foundation of quicksand. 
What Cavallo brings to Moscow is his ability to draft a genuine
blueprint for a Russian currency board. Cavallo personally shepherded the
Law on Convertibility through Argentina's legislative process in April
1991, introducing a new currency, the astral, to replace a peso fast
succumbing to hyperinflation. He knows how to convince politicians that
monetary sovereignty is meaningless if the money is worthless. 
Moreover, Cavallo can vouch for the effectiveness of solid money as a
catalyst for restoring economic growth and improving living standards in a
nation wracked by financial turmoil. He can testify to the dramatically
impressive turnaround in his own country after a currency board began
issuing stable new money. 
Russia, of course, is not Argentina. Nuclear weapons and a land mass
that spans 11 time zones distinguish its profile in the global community.
But a currency board may be the only way to stop the financial unraveling
and start productive economic activity again in Russia. 
Under a currency board system, new units of money cannot be issued
unless they are backed 100% by reserves of the key currency. The main
advantage of a currency board is that the money it creates has instant
credibility. Admittedly, this is because it piggybacks on the reputation of
the reserve currency. 
Argentina uses the U.S. dollar as its reserve asset, as do Hong Kong and
other nations that have adopted some form of a currency board system.
Russia should do likewise -- despite pressures that undoubtedly will arise
to choose the euro to assuage political sensitivities. 
The hard reality is that Russia is in severe straits; it does not have
time to wait for the as-yet-unborn euro to establish itself as a legitimate
rival to the dollar. Besides, average Russians long ago came to trust the
dollar as a store of value. 

A respected monetary statesman 

That brings us to Greenspan and the extraordinary level of monetary
integrity he could bring to the volatile Russian currency situation. Unlike
Clinton or members of his administration -- including Treasury Secretary
Robert E. Rubin and Deputy Treasury Secretary Larry Summers -- Greenspan is
not perceived as being overtly political. Communist believers who are
unable to stomach policy advice from Washington politicians might be
willing to abide by Greenspan's pragmatic recommendations. 
Greenspan represents pure competence in matters of money and banking. He
also would provide the ultimate inside connection to the global financial
community and in that sense ensure that Russia's new monetary regime would
comport with the requirements and expectations of international capital
markets. If Greenspan put his own seal of approval on a new Russian
currency issued through a currency board and backed by dollar reserves, it
would be worth its weight in gold. 
The beauty of such an approach is that it would require no huge outlays
of fungible resources that can be easily misdirected into speculators'
pockets; it would carry no ideological message other than the sanctity of
sound money; and it immediately would introduce a stable currency immune to
speculative assault. 
Most important, a currency board could be established in weeks. The
commercial banks that would emerge in its presence would be essentially
private and not entitled to any form of government bailout -- exactly
suited to Russia's need to foster productive entrepreneurial loans rather
than encourage more currency speculation and equity market scams. 
Any foreign investor could invest in Russia with confidence, knowing
that financial assets denominated in the new currency could be converted
into dollars. Meantime, the new currency would establish the monetary base
to justify increasing levels of financial investment in productive economic
opportunities. 

Testing the capitalistic commitment 

Currency boards have come under some suspicion in recent weeks because
of the troubles in Hong Kong. In a show of bad judgment stemming from
frustration, Hong Kong monetary authorities purchased huge amounts of
equity shares to frustrate attempted "manipulations" by speculators who
have learned how to game the Hong Kong system with its automatic
interest-rate hike triggered by sales of Hong Kong dollars. 
But the real risk in creating a Russian currency board is that it might
prove altogether successful in restoring economic stability. A free-market
economy is difficult to maintain when the currency is crumbling, but sound
money by itself does not guarantee democratic capitalism. Russia could
potentially end up as a more robust nation for resurgent communism. 
In a desperate move, Lenin confronted hyperinflation in 1922 by issuing
the gold-backed chervonet as an alternative to the disastrous Soviet bank
notes that had come to be known as "paper trash." Though Lenin risked
reminding citizens of the more stable monetary practices associated with
czarist rule, his bold gamble to dump the Soviet money and adopt a new
currency no doubt saved the Bolshevik government. 
Of course, there is always the chance the outside world will offer no
technical support to launch a new Russian currency. Western leaders could
choose to merely observe continued economic deterioration from the
sidelines, providing little more than platitudes about "staying the course"
to disillusioned Russians. 
If so, we should be prepared to see the cynical termination of a
free-market experiment that never had a decent chance to succeed. For the
West, such a passive approach would demonstrate to the world that we do not
have the courage of our convictions when it comes to betting on capitalism
over communism as the preferred choice of people who have been exposed to
the worst of both. 

*******

#11
From: "Blank, Stephen J. Dr." <BlankS@awc.carlisle.army.mil>
Subject: fedorov
Date: Thu, 3 Sep 1998 

If someone believes Fyodorov is the man of the hour I'd suggest he
read the recent U.S. News and World Report article on the Russian diamond
smuggling scam that showed how far Fyodorov is, like everyone else,
implicated in massive corruption. What Clinton and others appear to have
overlooked or dismissed is that nobody there seems to have any conception of
an interest other than his own. Both sides appear to be pushing for a
showdown in which everything is risked so that they can get their interest at
the expense of everyone else. This is certainly true for the banks and of
the political elite in general. This goes back to the privatization of the
state, a concept I originated two years ago to the best of my knowledge but
which is now commonplace. If the state is essentially the elite's private
property we are back in a Hobbesian universe and it is no surprise that
Yeltsin has already started preparing the armed forces for whatever might
ensue. Contrary to the predictions in number 2344, nobody knows how the
multiple militaries might respond to a contingency, and nobody can answer
that without first specifying the contingency at hand. Since it is easier
to unleash force than to bring it to an end, the continuing obduracy of
both sides may yet result in the unthinkable and perhaps worse, the
unpredictable. 

*******