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Johnson's Russia List


September 6, 1998   

This Date's Issues: 23502351• 2352  •

Johnson's Russia List
6 September 1998

[Note from David Johnson:
1. AP: Deborah Seward, Russian Villagers Live off the Land.
2. Edwin Dolan: Currency board.
3. Frank Durgin: Re-The change of course.
4. Peggy Simpson: nonpayment of wages.
5. Rachel Douglas: Glazyev: Liberal reformers act like anarchists.
6. Dmitri Glinski Vassiliev: Murder of Aleksandr Karasev.
7. The Sunday Times (UK): Richard Beeston, West fears 'loose nukes' 
from desperate men in command.

8. Argumenty i Fakty: Russian Economist Predicts Rocketing Inflation. 

9. Itar-Tass: Zyuganov Tells Clinton Situation 'Critical.'
10. AP: Deborah Seward, Russians' Quiet Desperation Deepens.
11. Interfax: Zhirinovskiy Predicts Lebed's Rise to Power in Russia.
12. The Independent (UK): Phil Reeves, Print more roubles and to hell
with the markets.

13. Vladivostok News editorial: Russia needs New Deal.
14. Interfax: Poll Shows Two Thirds Blame Yeltsin for Financial Crisis.]


Russian Villagers Live off the Land 
By Deborah Seward
September 4, 1998

AVDOTINO, Russia (AP) -- In a small village hidden by a thick curtain of
trees, Viktor Korzhavin is using his hands and a hoe to brave Russia's
latest economic crisis. 
``The land saves us. See this, it's goat's milk,'' Korzhavin said,
pointing to a chipped green metal pail. ``I'd rather have a cow, but I can't
afford one.'' 
Korzhavin and other Russians in this village 30 miles east of Moscow know
they cannot count on the state for help and must rely on their labor and the
land to survive Russia's latest economic crisis. 
Most Russians have always lived in isolated small towns and villages,
where existence has never been easy. 
``We're not sugar,'' said Korzhavin, a retired mechanic, clutching his
precious pail of milk as he headed home on a muddy road under a cold rain
marking the end of summer. ``We won't melt.'' 
But life is getting tougher with price increases, fear of rationing and
worries of prolonged instability. 
``Things have gotten bad. We don't understand what's happening,''
Valentina Grigoryeva said. ``We don't count on politicians. We get through
life one day at a time.'' 
Sagging wooden houses surrounded by forest on one side and fields on the
other line the two roads in Avdotino, which has two stores, a grocery and a
housewares shop called: Everything For Your Home. 
Prices on some items in the grocery have already doubled since the
Russian government devalued the ruble nearly three weeks ago, and villagers
were stocking up on matches and soap at the housewares store. 
``I'm worried we'll have ration cards again, and prices will surely go
up,'' said Grigoryeva, carrying seven boxes and a bag of laundry detergent,
a bottle of dishwashing soap, vinegar and a loaf of white bread on her back. 
Except for staples like bread and soap, Grigoryeva almost never goes to
the local grocery. ``My pension is too small,'' the retired textile worker
She keeps her family from going hungry by growing beets, potatoes and
carrots in her garden. Thieves stole all 14 of the family's chickens,
depriving the family of eggs and a valuable source of protein. 
In the summer, she and other villagers collect berries to make jams.
Nettles are used for making soup. Fall is for hunting mushrooms, which are
pickled to last through the winter. 
Her two children both have jobs, but she and her husband, who also is
retired, help them out with food. 
Although she doesn't want to return to communism, Grigoryeva says she
misses what she calls the Soviet Union's feeling of unity. She takes solace
in attending a church in the next village. 
Despite rubbing a string of maroon worry beads nonstop, Andrei Khromov,
23, seems to be one of the few people in Avdotino who doesn't share the
cloud of pessimism hanging over the village. 
``People are buying and building,'' said Khromov, who owns the housewares
store. ``We have to go forward and not backward. I want the market to
continue. We should stick with Chernomyrdin. He made a lot of reforms, you
Alexander Dubin, a former army officer who works part time at the store
loading boards, doors and sheet metal, doesn't agree. He's fed up with all
politicians, even the Communists, despite 15 years as a party member. 
``Let there be a dictator so at least there will be sausage,'' Dubin said. 
After he was discharged from the army two years ago because of military
cutbacks, Dubin, 41, his wife and two children moved to Avdotino, where his
mother lives and has a plot of land. 
``I expected to be retired and relaxing in my own garden, not to have to
be working in one,'' he said. 


Date: Sat, 5 Sep 1998 
From: "Edwin G. Dolan" <>
Subject: Currency board

The Fedorov/Cavallo currency board is obviously the talk of the town in
Moscow this weekend. Judy Shelton (JRL 2345) and J0-Ellen Pozner (JRL 2348)
have pretty well covered the technical pros and cons, but I'd like to add a
couple of observations.

(1) Judy Shelton makes a revealing slip of the pen in her note. She
attributes to Cavallo (1991) the austral plan, which replaced the
hyperinflated peso with a new currency unit of that name pegged 1:1 to the
dollar. However, the austral plan actually was introduced in 1985. It almost
immediately stopped inflation, but then failed spectacularly, with inflation
shooting up to over 2,000 percent by the end of the decade. Cavallo THEN
replaced the austral with a new peso, pegged even more firmly via the
Argentine pseudo-currency board on par with the dollar.

What's the point? Not the terms or date, which anyone can get mixed up.
Rather, the point is that these things don't always work. Russia needs not
to look only at the successful 1991 Cavallo plan but also at the failed and
somewhat similar 1985 austral plan. Writers who seem to know more about it
than I do appear to agree that the difference was that Cavallo's 1991 plan
was backed by true, serious, ground-up reform of the fiscal system (deep tax
system reform down to the local auditor level, not just top down, serious
cuts in subsidies of state enterprises, etc.) so that the deficit really
went away and stayed away. The austral plan, in contrast, got a short-term
boost in tax revenues from the reverse Olivera-Tanzi effect (i.e., falling
inflation increased the real value of lagged tax payments), but there was no
deep fix of the fiscal mess, so the problem came right back.

(2) Currency boards (of which I'm rather a fan, actually) to a substantial
degree depend on psychological/credibility effects for their success. In
1991, Menem (Cavallo's boss) was recently electected with a mandate to make
changes. People believed he was serious, he was serious, and it worked. How
can Yeltsin's new PM Chernomyrdin-redux possibly attain the needed degree of
credibility? And won't the credibility be undermined by the fact that new
elections are scheduled soon in Russia, in contrast to Menem, who had his
whole term ahead of him when he took these tough decisions?

(3) We shouldn't forget that the Argentine miracle has been having problems
of its own, of late. A drawback of all fixed-rate fixes for inflation is
that after a year or two, they can lead to currency overvaluation, which is
now a worry in Argentina. Also, Argentina illustrates the principle that
fixed-rate countries take a bigger hit from external shocks, like capial
outflow (Asian contagion) and terms-of-trade changes, than to countries with
flexible rates.

Question: Is Russia the right country at the right time to implement this
often very useful solution to an economic crisis?

Edwin G. Dolan, President
American Institute of Business and Economics, Moscow


From: "Frank Durgin" <>
Date: Sat, 5 Sep 1998 
Subject: Re-The change of course

Chernomyrdin finally caught on! He now proposes to change course and
pay off the debts for government purchases, back wages to workers in
the state sector and pensioners by printing money.

Odd as it may seem, the genesis of Russia's problems is to be found,
not in profligate monetary policy, but rather in overly draconian
monetarism. The relation of money supply 
(M2) to GDP in Russia has been the lowest in the world. In October of
1995 it was 8.5%
of GDP and in October 1996 it was some 10-12% of GDP. (Finanscvoye
Izvestiya No 
102, Oct. 31, 1996 p. 4.) vrs some 80% or higher in the West

It is money shortages rather than efforts to evade the fisc that are
the reason why better than 50% of all transactions in Russia are 
conducted via barter. Firms don't pay taxes because they pay and get
paid in kind and simply don't have the cash.

To liken Russia's current financial problems to those of Asia and
South America is to err. For the past seven years Russia has been
living off the large capital stock inherited from the Soviet era. In
all sectors, human included, depreciation has outstripped investment.
Production, employment and consumption have fallen by enormous
proportions; hunger, homelessness disease and despair are widespread.

Russia's problems are rooted in under-production, under-investment and
under-consumption. The progressively tighter money and fiscal of the
past few years, policies have been continually aggravating the
situation. Could the US have cured its depression of '29 via tight
money (interest rates running 50% or better) and ever more tightly
balanced budgets. Russia has long needed a Roosevelt type new deal to
get factories and workers back to work, and it needs U.S. World War II
type budget deficits to wage an all out war against the human misery
which now pervades that nation. The frightening prospect, however, is
that to it will be some time before this reversal of policies can have
an effect on living conditions. In the meantime the doomsday clock
clicks louder and faster.


From: Peggy Simpson <>
Subject: nonpayment of wages
Date: Sat, 5 Sep 1998 

Has anyone written about the nuts&bolts decision-making process in Russia 
that led to widespread nonpayment of wages? I've seen some references in 
the current crisis by some Western critics that the Russian government 
wasn't paying wages because the money was siphoned off to comply with 
IMF-budget reductions etc. I don't think that's it.

In Ukraine, a minister in Kiev told me the wages were sent out from the 
central government to the regional authorities - who then often used it for 
roads or other infrastructures , rather than payment of wages. It was 
almost a local option, not a central government decision. In Odessa, the 
mayor was using profits from sale of state property to pay back wages owed 
schoolteachers - which were owed by the central government but were not 
being paid. So that was a "local option" to compensate for a 
central-government action.

In Poland, where I've been covering the transition and, now, covering the 
growing business base, there were all sorts of measures used to reduce 
state expenses in state factories. But not paying wages never was one of 
the tools. The central government implicitly let factory directors sign off 
on disability-retirements for tens of thousands of workers, to reduce 
payrolls. That now saddles Poland with one of the world's highest 
disability-retiree populations. But that gave them some small income; and 
wages were paid to those still on the job, which meant workplace support 
for the painful transition moves. And some of those "retirees" started 
small businesses and became part of the small-business base that is fueling 
Poland's economy.

Poles who visit friends or relatives in Russia and Ukraine come back 
astounded that pensions aren't being paid, that wages are months late. I'd 
like to know more about precisely how this happened, and what political 
decisions were made at what levels. And whether anyone was really keeping 
track of it, as this pattern spread.


From: (Rachel Douglas)
Subject: Glazyev: Liberal reformers act like anarchists
Date: Sat, 5 Sep 1998 

Glazyev: Liberal reformers act like anarchists
by Rachel Douglas

"LAST CHANCE." Dr. Sergei Glazyev, former Foreign Economic
Relations Minister of Russia, now head of the Information and
Analysis Directorate of Russia's Federation Council, published a
major article in the Aug. 28 and Sept. 1 issues of {Nezavisimaya
Gazeta}, under the title "The Price of Incompetence."
Glazyev provides a detailed analysis of the Russian
government's GKO-OFZ bond pyramid debacle, which he estimates has
cost the nation 400 billion rubles "net losses." He lambasts the
Central Bank, in particular, as being nothing but a component of
the financial oligarchy.
Granting that the emergency debt moratorium and other
measures, adopted by the Kiriyenko government and the Central
Bank on Aug. 17, did borrow from the Federation Council's
proposals of many months' standing, on debt restructuring,
Glazyev says that the way they were done -- too late, and
without an accompanying policy for the real economy -- amounted
to a provocation. "Turning up bankrupt, our `money powers' opted
to forget about the nation's credit rating; they cancelled the
effect of the tens of billions of dollars, spent to win a good
credit rating, and dashed off headlong to save the
`oligarchs'.... By their decisions, the Central Bank and the
government destroyed the credit rating not only of Russia, but of
every Russian bank." The 90-day debt moratorium, "short-term as
it is, will save nothing.... After those three months, these
decisions will provoke a sharp increase in foreign banks' demand
for repayment of loans to Russian partners, or a substantial
increase of the collateral, which can bankrupt many banks that
are perfectly solvent at present."
"Strange as it might seem," observes Glazyev, "the radical
liberal marketeers who run Russia's economic policy, at the
moment of crisis exhibited the habits of a typical Makhno" -- the
reference is to the famous self-styled "communist-anarchist,"
Nestor Makhno. "First failing to fulfill their obligations to the
population, in order to provide superprofits for financial
speculators, now they are refusing to service their debts, and
have forbidden others to service them.... Insofar as the
government had based its plan to get out of the financial crisis
on the attraction of new foreign loans, to refinance the existing
debt obligations, the decisions now adopted mean the collapse of
the stabilization policy of the government and the Central Bank."
Now, there are only two choices: new borrowing abroad, or
"mobilization of domestic reserves."
There had been a version of the second option, writes
Glazyev, supported by the Federation Council earlier this year.
"It consists in a fundamental change of economic policy, for the
purpose of raising the level of investments and resuscitating
production. It includes measures to mobilize non-tax budget
revenues, at the expense of Central Bank profits, natural gas
exports, alcohol import and circulation, tightened exchange
controls, and restructuring of the GKO-OFZ pyramid, as well as a
system of measures to raise investment activity, revive
production, and create the necessary conditions for economic
growth. The government and the Central Bank, having failed with
the first option [of more borrowing abroad], utilized some
elements of the second, in their new decisions: they restructured
the GKOs, devalued the ruble, and placed limitations on the
export of capital. These half-baked, clumsy, and belated
measures, however, were greeted as the effective bankruptcy of
the Russian financial system and the beginning of an uncontrolled
devaluation of the ruble. They provoked panic, and led to a sharp
increase of capital flight...."
Under the subhead, "The last chance," Glazyev writes that
"there remains only one acceptable decision -- transition to a
mobilization economic policy, by no later than October." Whether
this will work, he concludes, is a political question. "So far,
the choice is being made in the direction of the mobilization
option, but not for the purpose of overcoming the crisis; rather,
for the defense of the oligarchy's interests." He compares the
Russian government to the Provisional Government in 1917,
"balancing between the interests of the West, and domestic big
"One year ago, there was still a possibility to avoid the
debt crisis, through appropriate changes in macroeconomic policy;
six months ago, to exit from the crisis with minimal losses; two
months ago, to adopt just the `modest' system of anti-crisis
measures, proposed by the Federation Council, which included no
actions to be forced upon economic entities; today, there is no
way but to shift to a mobilization policy. If this time, once
again, there is a continued balancing between the interests of
international capital and those of the domestic oligarchy,
instead of the needed anti-crisis measures, the next step of
deepening crisis will have to be answered by the government and
Central Bank employing measures from the arsenal of the
Bolsheviks: nationalize the banks, natural monopolies, and viable
enterprises, economically `close' the country, and suppress the
political opposition by force. If these measures are accompanied
by the transfer of raw materials deposits to foreign capital,...
while the state budget is directed entirely towards debt service,
it is entirely likely that they would be supported by the IMF.
But, do we really need such colonial `socialism,' employing
methods of state dictate, in the interests of a ruling oligarchy
and foreign capital? Was it for this, that our society gave up
developed socialism in favor of the market economy?"


From: (Dmitri Glinski Vassiliev)
Date: Sat, 5 Sep 1998 
Subject: Murder of Aleksandr Karasev

Another activist of the democratic opposition in Russia has reportedly
been murdered. His name was Aleksandr Karasev, and he was a Yabloko member and
a civil rights advocate in Chistopol, Tatarstan. Karasev was found dead in his
appartment, with mutiple knife wounds. This was reported today on Yabloko's
discussion list (for more information, e-mail Reportedly, he
was a museum worker, not a biznesmen, so a routine attempt to pursue a
"commercial" line in the investigation will have a low credibility indeed.
Karasev's is the third prominent case in this year, after the murder of Larisa
Yudina, another Yabloko organizer from Kalmykia, and Gen. Lev Rokhlin, Duma
deputy and leader of the Movement in Defense of the Army.
As is well known, Tatarstan's political life is tightly controlled by
president Mintimer Shaimiev, a lifelong CPSU apparatchik, who had openly
supported the failed August 1991 coup, and then the more successful one of
September 1993, when Yeltsin outlawed, stormed and dispersed the parliament.
Shaimiev has been a long-standing ally of Chernomyrdin, and he was one of the
four co-signers, together with Chernomyrdin, Berezovsky, and Lebed, of a joint
political declaration just before Chernomyrdin's appointment as Acting Prime
Minister. More recently, he was among a handful of Russian politicians honored
as Bill Clinton's guest at the Spaso House. As for Yabloko, as the readers
also know, it has been the most vocal and consistent of the Duma factions in
opposing the confirmation of Chernomyrdin. 
A personal note: Western observers are welcome to discuss Russia in terms
of the advancement vs. retreat of the "reforms", of privatization, of the
dangers of monetary expansion, and of currency boards. But the future writers
of its social history will probably come up with quite a different script.
Perhaps, they will see today's Russia as a place, where the criminal ruling
class, funded and encouraged by its supporters in the West, pursued the
financial, psychological, cultural, and, ultimately, physical destruction of
the intelligentsia, the only force that had blocked the way of Russia's forced
reversal to its pre-modern and pre-industrial state.

Dmitri Glinski Vassiliev
George Washington University/Russian State University for the Humanities


The Sunday Times (UK)
September 5 1998 
[for personal use only]
West fears 'loose nukes' from desperate men in command 

When President Yeltsin steps into his Mercedes limousine for the short
trip into the Kremlin each morning, he is shadowed by a young officer
carrying a heavy suitcase with orders that he hopes he never has to carry out. 
The ailing Russian leader may be losing his grip on power as the country
slides into economic chaos and his rule is challenged daily by his
opponents. However, at any time of day or night, as Commander-in-Chief of
the Russian armed forces, Mr Yeltsin can summon the officer and order the
country's vast nuclear arsenal into action. 
The Kremlin may have lost its empire, but it remains a frightening
military superpower with as many as 40,000 nuclear warheads, fitted to
long-range missiles in silos, loaded on board nuclear submarines, attached
to bombers or stored at depots across the country. 
The black suitcase, nicknamed the "football" in America but known in
Russia as Cheget, is a mobile communications system which enables the
President to give the order to fire to the military's general staff. Once
the command is received, the launching process would be initiated and eight
minutes later the first warheads would be airborne. 
In the present turmoil of the international markets and the Kremlin
intrigues, the role of the military in Russia is often neglected, even
though it represents arguably one of the greatest dangers to mankind today.
Whether by accident, theft or sabotage, Russia's nuclear weapons are
becoming more vulnerable as central authority weakens and the military has
fewer and fewer resources to pay and feed its 1.2 million men in uniform. 
"These conditions are very dangerous because they make the armed forces
more unstable, they loosen the lines of control," said Pavel Felgenhauer, a
military analyst for the daily Segodnya newspaper. "It's like [Congolese
President Laurent] Kabila's army, only his soldiers have Kalashnikovs - ours
have nuclear weapons." 
Both Western and Russian military experts are at pains to point out that
no nuclear weapons have ever gone missing, and aside from the occasional
theft of nuclear materials from research laboratories the arsenal is well
However, there are doubts about how much longer a Third World economy can
maintain a superpower military structure. Already the signs are alarming. 
Near Saratov, on the Volga river, the Tamanskaya Division is in charge of
a battery of ten Topol missiles, Russia's most sophisticated
intercontinental ballistic weapon. 
Colonel Vladimir, a senior officer at the base, explained that he last
received his salary in April and in desperation to feed his family had
borrowed from his mother-in-law, who like many elderly Russians had kept the
money for her funeral. 
"It was not an easy thing to do but I told her 'even if, God forbid, you
die, I will bury you'. Reluctantly she gave me 1,000 roubles [then worth
under £100] which will probably last us one month and a half," he said. 
Other officers recounted similarly depressing stories, including a
husband and wife, both in the armed forces, who were forced to send their
children to stay with grandparents while they volunteered for as many combat
exercises as possible, since they are fed high calorie meals. 
"When we volunteer for excercise we get four days of good meals and for
three days we diet," said Tatyana, a military doctor. 
Other officers have taken more desperate measures to survive. According
to Western military sources, theft of military equipment and stealing among
the servicemen themselves is commonplace. 
Experts insist that most Russians are hardy and resourceful and can
survive even without pay. But that assumption does not take into
consideration the threat now posed by the dangers of hyperinflation and the
risk of remote areas running out of food or fuel in winter. 
In one recent incident an army major went on the rampage in a tank in
central Russia to protest at the failure to pay wages. The money was quickly
found for him and his whole unit. 
Aleksandr Golts, the military correspondent of Itogi magazine, said that
commanders in some areas were using servicemen as virtual slaves, working in
construction or doing odd jobs in order to barter for bread and electricity. 
With the officer corps becoming small-time businessmen in order to
survive, a doomsday scenario is not difficult to imagine. 
Graham Allison, a former US Assistant Defence Secretary now at Harvard
University, gave a warning this week that there was little to stop "a
colonel and two lieutenants" effectively privatising a dozen nuclear warheads. 
He added: "The overriding reason why Russia's economic meltdown matters
is that it magnifies the threat of 'loose nukes' - the theft of one or a
dozen weapons, sale to a rogue state or terrorist group, and use of these
weapons to threaten or attack ... " 


Russian Economist Predicts Rocketing Inflation 

Argumenty i Fakty, No. 36
September 1998
[translation for personal use only]
Interview with Andrey Illarionov, director of the Economic
Analysis Institute, by an unidentified correspondent, in the
"Authoritative Opinion" column: "Will Dollars be Banned?" -- first
paragraph is AiF introduction

The economic forecasts of Andrey Illarionov, the director of the
Economic Analysis Institute, have so far proved to be correct almost to a
letter. We have asked him to answer a few questions on the circulation of
foreign currency in our country.
[AiF] Is it true that the circulation of dollars in our country will
be done away with in the immediate future?
[Illarionov] A free exchange of rubles for foreign currency is now
essentially being stopped. We are standing even now with one foot in an
economy with the nonconvertible ruble. This is essentially a return to the
socialism of the early 1990s.
[AiF] Should we rush to get rid of our foreign currency?
[Illarionov] You can only get rid of your foreign currency by buying
rubles. Since inflation is most certainly likely to rocket (at least up to
60-100 percent by the end of this year) the rubles bought for dollars will
quickly lose their value and those who will part now with their dollars
will sustain enormous losses.
[AiF] What should people do if their dollar investments have been
frozen? Will the state, which has pledged to guarantee the safety of their
investments, return them to the public?
[Illarionov] In the present situation, the state cannot return any
investments deposited in commercial banks in dollars, regardless of the
pledges it may have given. It cannot do it simply because it does not have
the money. It has no cash funds.[AiF] What about rubles?
[Illarionov] Theoretically, the state will be able to pay their
investors in rubles -- provided it starts printing money. Naturally, this
will lead to rocketing inflation. Moreover, the ruble rate the state will
use to pay their bank customers will indeed be symbolic and will have
nothing to do with the real market rate. But even that is doubtful since
the state has not yet returned the investments which were deposited by
people in the Savings Bank and which lost much of their value during the
1990s inflation. [passage omitted: Illarionov explains in general terms why
banks had to buy foreign currency during the latest financial crisis with
particular reference to the August decision to devalue the ruble.]


Zyuganov Tells Clinton Situation 'Critical' 

MOSCOW, September 2 (Itar-Tass) -- Communist Party leader Gennadiy
Zyuganov said Western countries "want legislative bodies to work and
reforms to be carried out in Russia instead of having the aid provided to
us now misappropriated."
Speaking after a meeting with U.S. President Bill Clinton on
Wednesday where he was invited among about two dozen other Russian
politicians and regional leaders, Zyuganov described the situation Russia
as "critical and dangerous".
"They (Americans) are very concerned and alarmed by what is happening
in this country now," he said.
Zyuganov stressed that the American leadership "does not fearcommunists."
He said the meeting with Clinton was "useful".
"We managed to express our point of view about what is going on in
Russia," he added.
Zyuganov said he had "detailed discussions" with Clinton and Secretary
of State Madeleine Albright and tried to explain to them that "the
situation in the country has reached the absolutely critical point."
He stressed that "it would be impossible to get out of the crisis
without concerted measures by legislative and executive branches."
"I think the U.S. Administration is very concerned about what is
happening in Russia," Zyuganov said.
"We shall hope that at this crucial time for Russia and not only for
our country, those who have worked and contacted with us actively lately
will understand (the situation) and make appropriate conclusions," he said.


Russians' Quiet Desperation Deepens
September 5, 1998

TULA, Russia (AP) -- Taisa Yevmanenko kept working even though she hadn't been
paid in 11 months. Finally, after weeks of watching the ruble fall and prices
soar, she left her factory job for the picket line.

``We get dribs and drabs so we don't starve to death,'' she said inside the
tent in front of the Tula government buildingthat has been her home for the
last two weeks. ``We're tired of being trampled and oppressed.''

Chronic unpaid wages and mass unemployment in industrial cities like Tula,
compounded by the plunging ruble and rising prices, are eroding Russians'
ability to endure further hardship.

So far, only a few protesters have joined the picket line in front of the
local government building, but the quiet desperation of the people in this old
Russian city 120 miles south of Moscow runs deep.

``We can't go down any farther. We have to get up, but there is no way,'' said
Valentin Ponamarev, who oversees economic planning for the city. ``If things
don't change, people will be out in the streets, and I'll join them.''

Visiting Tula is like taking a trip back in time to a poorer, more run-down
Soviet Union. Moscow's recent prosperity has not reached this industrial city
of 580,000 on the Upa River.

There are some modern shops and a couple of banks, but much of the commerce is
carried out on the streets in kiosks, sidewalks or markets scattered
throughout the city.

Apartments in working class neighborhoods are falling apart, and the streets
are lined with half-finished buildings started in the flush of economic
reforms. Even Tula's water supply is suffering.

``Our water is terrible. Ten years ago, you could drink water from the tap.
Now, you can't even take a bath in it,'' said Ponamarev.

The Soviet-era proletariat that once could rely on full employment and a
secure retirement now lives in a state of anxiety and bewilderment over the
current economic turmoil.

At least 70,000 people have lost their jobs as a result of reforms introduced
in 1992. Industrial production has virtually collapsed, and the government
hasn't paid for state orders for the last several years.

Even the local vodka factory is only producing at 25 percent capacity.

``The situation is very critical,'' said Ponamarev. ``Unemployment is a
colossal problem. Federal policies give us no optimism.''

City officials and teachers haven't been paid for at least three months. Some
factory workers in Tula haven't seen a full month's pay for the past year.

Most Tula residents had learned to cope with unpaid wages, but the devaluation
of the ruble Aug. 17 and the price increases that followed stirred resentment
and old fears of shortages.

Unemployed workers and miners recently put a straw dummy of President Boris
Yeltsin with a couple of apples in his arms and a bottle of vodka in his hand
across railway tracks in front of the government building.

Several red Soviet flags with the golden hammer and sickle fly in front of
makeshift tents where demonstrators sleep at night.

``Capitalism - Dung. Zionism - Dung,'' read one poster. ``President, get a
cold and die,'' said another. ``Socialism or death,'' and ``If you vote, you
lose,'' said others.

Pro-communist sentiment is not surprising in Tula.

The governor is Vasily Starodubstev, a hard-linerwho spent time in jail as one
of the coup plotters against former Soviet leader Mikhail Gorbachev.

But even Yeltsin's former supporters are turning against the president.

Dmitry Dzurtsev Irbek, 42, said he was a defender of the White House, the
former Russian parliament building where Yeltsin stood up to the hard-liners
who tried to overthrow Gorbachev in 1991.

Now Dzurtsev Irbek wears the button of the radical Russian Labor movement.

``I wanted reforms. I wanted to be a farmer. I waited, and waited, but there
were no reforms,'' said the unemployed coal miner. ``The politicians are
criminals. Except for imports, there are no reforms.''

But like local officials, the protesters don't know how to fix the economy.
They also don't know what good demonstrations will do or whether more workers
will join them.

``I don't want to go back to the old system,'' said Yevmanenko, who worked for
30 years in a defense factory. ``I want the government to make sure the
reforms are carried out for the people.''


Zhirinovskiy Predicts Lebed's Rise to Power in Russia 

Moscow, Sept 3 (Interfax) -- Leader of the Liberal Democratic Party
Vladimir Zhirinovskiy has said that governor of Krasnoyarsk territory
Aleksandr Lebed will inevitably rise to power as a result of the current
turmoil in Russia and a dictatorship will be established.
"Even though the Kremlin is afraid of Lebed, it is even more afraid of
the weak (acting Prime Minister Viktor) Chernomyrdin without the support of
the State Duma," he told a Thursday [3 September] news conference inMoscow.
Russia "objectively needs a dictator" today, he said. However, Lebed 
"will fail to keep the situation under control," Zhirinovskiy said.
He said he doubted that Chernomyrdin as the head of the Cabinet would
be able to pull the country out of the crisis.
Zhirinovskiy predicted that during the second vote the Duma would
approve Chernomyrdin as prime minister. He said Liberal Democrats would
vote for Chernomyrdin, together with the Russia is Our Home faction and
part the group Russian Regions.
Moreover, there will be deputies in left-wing factions "who realize
that in voting for Chernomyrdin they will save their factions and parties,"
Zhirinovskiy said."Bad as Chernomyrdin may be, he has experience. A surgeon who
butchers and sends to the morgue 200 patients becomes an experienced
surgeon," he said.
Zhirinovskiy said it is possible that if Chernomyrdin is rejected for
the second time, "the Kremlin is ready to submit a different candidate for
the post of prime minister."


The Independent (UK)
6 September 1998
[for personal use only]
Print more roubles and to hell with the markets
Moscow is ignoring advice from the West and cranking up its currency 
presses, writes Phil Reeves 

THE WEST'S policy of keeping Russia from abandoning the path to a market 
economy, by urging it to stick to tight monetarist rules, is finally in 
ashes this weekend. 

Moscow has made clear that it plans to print roubles, ignoring the 
stance of the International Monetary Fund and the advice of Western 
leaders. Two senior Russian officials - Viktor Chernomyrdin, the acting 
premier, and Boris Fyodorov, head of the tax service - say the currency 
presses will be allowed to roll, at least for a while. Talk of 
protectionism abounds. 

Although the country is under a temporary government, such an approach 
has the blessing of the Kremlin. And none of the other possible 
candidates for premier - should Mr Chernomyrdin be rejected by 
parliament or withdraw - is any more pro-market. Never has the West's 
dream of turning post-Soviet Russia into an internationally integrated 
market economy, the "painful" holy grail outlined yet again by Bill 
Clinton during his two-day summit to Moscow last week, seemed so remote. 

The favourite as a replacement candidate for premier, Yuri Luzhkov, the 
62-year-old mayor of Moscow, yesterday spelt out his economic philosophy 
in blunt terms that will deepen the chill now running up spines in 

Speaking at a Soviet-style ceremony to celebrate Moscow Day, he pressed 
the case for protecting domestic producers: "Why should we be commanded 
by Western economists and countries which want to face no competition on 
the Russian market after suppressing Russian producers and making Russia 
just a supplier of natural resources?" 

The Communists, the largest parliamentary party, still oppose Mr 
Chernomyrdin, despite renewed efforts to woo them with a power-sharing 
agreement. The acting premier's confirmation goes to a second vote in 
the lower house, or State Duma, tomorrow. If it rejects him three times, 
parliament will either be dissolved or there will be a constitutional 
crisis, with a stand-off against the Kremlin. 

Opposition forces were pressing for an alternative candidate yesterday. 
They proffered five other names, though none would produce anything but 
even longer faces and deeper sighs in the West. 

The list includes not only the tub-thumping Mr Luzhkov, but also a 
Soviet-era central bank chairman, Vladimir Gerashchenko, and the former 
head of the Soviet state planning committee, Yuri Maslyukov. These are 
not exactly members of a monetarist dream team. 

After spending billions of dollars propping up Russia and Mr Yeltsin, 
efforts by the West to persuade the country to sort out its economy - 
such as introducing a working tax system - have never looked so wasted. 
An IMF-supervised $23bn (£14bn) rescue package is in disarray, with a 
question mark over whether it will give Russia a second $4.3bn tranche, 
some of which is due this month. 

The IMF's head, Michel Camdessus, has made clear his feelings about the 
proposals in unusually sharp tones, telling Moscow to "stop printing 
money for the wrong purposes and put the budget in order". 

To be fair, Mr Chernomyrdin has said Russia only plans "a limited rouble 
emission". But once the presses start, the temptation to keep them going 
will be immense, deepened by clamouring banks, broken-down industrial 
empires and an unpaid population. Inflation shot up to 15 per cent last 
month, and is now higher. On Friday, the rouble lost more than a quarter 
of its value. The streets of the capital yesterday were crowded by 
people stocking up with goods. 

It is also true that Mr Chernomyrdin, who outlined his strategy in a 
speech on Friday, has made other promises that will not jar with the 
West. He has vowed to continue with reforms, to create a flat rate 
income tax of 20 per cent, and to install an "economic dictatorship" to 
force companies to pay debts or face bankruptcy (or possibly 

Russia's plan is to print roubles only as long as it needs to and then 
to introduce a currency board next year to peg the rouble to gold and 
foreign reserves. But to do that, it will need more international 
support - a figure Moscow estimates at $15bn. Getting extra funds in the 
current climate, let alone such a large amount, is going to be extremely 

But without the money the plan is wishful thinking. While roubles are 
churned out, Mr Chernomyrdin's proposals will collapse under the weight 
of other problems: insolvent banks, unsafe nuclear stockpiles and bases 
(the biggest Russian submarine builder has sent its employees on 
compulsory holiday for fear of social unrest), a waning president and 
political in-fighting. 

The list of woes grew even longer yesterday in an unstable area that 
Moscow regards with anxiety - Russia's southern flank. Interior Ministry 
troops were rushed into Dagestan, which borders Chechnya, after a car 
bomb killed 17 people and injured more than 80 others. 

The worry is that Moscow - overwhelmed by the burden of a collapsing 
economy and deep social strife - will have another explosion in the 


Vladivostok News
September 4, 1998
Russia needs New Deal 

Jo Brewer, one of a group of visiting Rotarians from Longview, 
Washington, happened across a demonstration outside the White House 
recently. The ambulance doctors and drivers haven’t been paid in 18 
months, since the city stopped funding their service. And doctors and 
patients from the Vladivostok Psychiatric Hospital, similarly abandoned 
by Mayor Viktor Cherepkov, haven’t received city money in over a year, 
leaving the hospital unable to pay workers or buy food or medicine. 

Brewer snapped a few photographs, and she caught one of the 
demonstrator’s attention. The protester strode over and immediately 
asked for money. 

“She said she had five children and no food in the house,” Brewer 
recalled. “She started naming her children as she counted them off on 
her fingers.” 

Like many who visit here, Brewer ran into a reality that runs deeper 
than the ruble crisis that hit Aug. 17, toppling the government of Prime 
Minister Sergei Kiriyenko. Much of the Far East – indeed, Russia as a 
whole – was suffering from a depression long before the ruble lost half 
its value against the dollar. The situation endangers Russia and the 
rest of the world. 

Russia faces “an unprecedented, all encompassing economic catastrophe — 
a peacetime economy that has been in process of relentless destruction 
for nearly seven years,” Stephen F. Cohen of New York University wrote 
in an essay posted on a Russia-related news group. 

In a scathing critique of Western policy toward Russia, Cohen says the 
gross national product has fallen at least 50 percent and perhaps as 
much as 83 percent. Capital investment is down by 90 percent, and meat 
and dairy livestock herds have dwindled by 75 percent. Except for 
energy, the country now produces little. Cohen writes: 

“So great is Russia’s economic and thus social catastrophe that we must 
now speak of another unprecedented development: the literal 
de-modernization of a twentieth-century country. When the 
infrastructures of production, technology, science, transportation, 
heating, and sewage disposal disintegrate; when tens of millions of 
people do not receive earned salaries; [when] some 75 percent of society 
lives below or barely above the subsistence level and at least 15 
million of them are actually starving ... all this and more is 
indisputable evidence of a tragic ‘transition’ backward to a pre-modern 

What shall we then do? Cohen, for one, calls for an end to the 
“calamitous” policies of the International Monetary Fund. Rather, Russia 
needs public works programs akin to Franklin Roosevelt’s New Deal, in 
which the government spends money in order to boost the economy. The 
nation could launch road-building campaigns, pay scientists to invent, 
offer filmmakers and writers money to work. Getting money into the hands 
of the people would help kick start the economy. 

This must be done in tandem with encouraging the growth of a market 
economy that the West hopes will take hold here. Few pine for a return 
to communism, and the last thing Vladivostok needs is a command economy 
dictated from 6,000 miles away in Moscow. Yes, Russia should open up for 
investment in everything from Sakhalin oil to Ford auto plants in St. 
Petersburg. But if Russia isn’t yet strong enough to enter the 
free-for-all of Anglo-American-style capitalism — if in some areas it 
protects the shambles of its industry – the West will have to live with 

Russia is too important to decline to a Third World status. It is time 
for both President Yeltsin and the West to accept that current policies 
have failed, and for humanitarian and strategic reasons, the West must 
help Russia renew its strength as a nation. The alternative, a northerly 
Sudan stretched across the top of the globe, governed by 
neo-nationalists, and armed with nuclear firepower, is too chilling to 


Poll Shows Two Thirds Blame Yeltsin for Financial Crisis 

MOSCOW, Sept 3 (Interfax) -- Two thirds of Russians -- 67% -- placed
the main responsibility for the current financial crisis on President Boris
Yeltsin, according to a poll conducted by the Public Opinion foundation
August 29 among 1,500 Russians.
Some 34% blamed the old government of Viktor Chernomyrdin, 17% the
Duma, 13% the government of Yegor Gaydar and only 10% the recently fired
Cabinet of Sergey Kiriyenko.
While Yeltsin is held responsible by approximately equal numbers from
different age groups, the government of Chernomyrdin is most often blamed
by those aged 40-45 (41%) living in Moscow and St. Petersburg (43%) and
having a higher education (44%).


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