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Johnson's Russia List


September 11, 1998   

This Date's Issues: 2364 2365

Johnson's Russia List
11 September 1998

[Note from David Johnson:
1. Reuters: Primakov last hope to steady Russian state.
2. Fred Weir on capital flight.
3. Randall Stone: Practical policy advice on Russia.

5. International Herald Tribune: George Friedman, Russian Economic 
Failure Invites a New Stalinism.

6. Financial Times (UK) editorial: Mr Primakov's challenge.
7. New York Times letters: Why Should Russia Get Tough on Taxes?
8. Moscow News: David McHugh,Primakov Has Respect but Little 

9. Moscow News editorial: Compromise Of Primakov Offers Hope.
10. Interfax: Poll Shows Russians Think Force May be Used Over Crisis.
11. Theodore Karasik: On Primakov During the Soviet Union.]


ANALYSIS-Primakov last hope to steady Russian state
By Paul Taylor, Diplomatic Editor

LONDON, Sept 10 (Reuters) - Veteran Foreign Minister Yevgeny Primakov,
nominated as Russia's prime minister, may be the only man who can stabilise
the crumbling state and avert a breakup of the country, Western and Russian
analysts said on Thursday. 

President Boris Yeltsin's choice of the old Soviet-era fox, a former spymaster
and Middle East hand, was seen as the best hope of uniting hardline Communists
and liberal reformers behind an emergency programme to deal with an acute
financial crisis. 

His long connection with the security services may make it easier to try to
reassert the state's authority and put a brake on growing lawlessness, the
analysts said. 

"It may be the last chance to stop a chain reaction of disintegration that has
already started," said Andrei Grachev, a respected Russian commentator who was
spokesman for then Soviet President Mikhail Gorbachev in 1991. 

"Primakov represents the last hope of building a bridge between the opposition
and the president and gathering the support of the various factions at a time
when Yeltsin is a wounded president and can no longer claim a monopoly on
power. The alternative is civil war," Grachev told Reuters. 

"Even all Primakov's political skill may not be enough to counter the
centrifugal dynamics of the crisis, with each region having to look for
survival on its own," he said. 

Western leaders know the 69-year-old Primakov well and respect his skill and
wit, even if they find him a slippery adversary at times in international
diplomacy over the Balkans or Iraq, officials say. 

He was the main architect on Moscow's side of last year's landmark NATO-Russia
Founding Act, which turned bitter Russia hostility to the Western alliance's
expansion into former communist Central Europe into the premise of a
constructive relationship between old enemies. 

Polish Foreign Minister Bronislaw Geremek quoted Primakov as saying: "We know
we can't prevent you joining NATO but don't expect us to enjoy it." 

Grachev said he hoped Primakov would give liberal reformer Grigory Yavlinsky a
key role as first deputy prime minister for economic policy, while bringing in
Communist ministers and paying more attention to the country's severe social

"Primakov has the advantage that he is not a presidential contender, so he
does not represent a threat to the competing rivals to succeed Yeltsin," he

Gennady Gerasimov, another Gorbachev-era spokesman who worked with Primakov,
said the foreign minister had proved his political skills by surviving from
the former Soviet president's entourage to become a close aide to Yeltsin. 

"He is all things to all men. He was the only choice," Gerasimov said. "Our
hope is that he can stabilise the state." 

Gerasimov said Russia's far-flung regions were already taking power into their
own hands because of the central government's inability to collect tax
revenue, pay wages or provide subsidies. 

"Because there is no effective central government, every region is on its own.
The Far East region is already more dependent on trade with Japan and China
than with the rest of Russia," he said. 

By coincidence, Grachev and Gerasimov were attending a London conference on
"Cold War heroes, villains and spies," along with senior former British and
American Cold War-era officials when news of Primakov's nomination broke. 

Laughter erupted and one wag joked it was "back to the future." 

But a former British envoy to Moscow, who asked not to be identified, said
Primakov was a loyal servant of the state not tarred with the brush of
corruption nor regarded as a stooge of the West. 

"He will not be an IMF yes-man, but following the IMF's prescriptions now is
politically impossible. Any new prime minister will have to pay pensions, get
industry going and restore some measure of control over the economy," he said.

In a lecture at Britain's Royal Institute of International Affairs in June,
Primakov said his priorities were to preserve the territorial integrity of
Russia and join the world economy not as a mere commodity producer but as a
fully fledged partner in the international division of labour. 

He said Russia had made the mistake of attracting short-term capital flows
into state bonds rather than real foreign direct investment in the productive
economy. Investors then had to withdraw that money to meet losses incurred in
the Asia crisis. 


Date: Thu, 10 Sep 1998
Subject: Capital Flight

By Fred Weir
MOSCOW (CP) -- Capital has hemorrhaged out of post-Soviet
Russia on a scale unseen anywhere else in the world, leaving the
country without needed resources to rebuild its economy, a joint
Canadian-Russian report says.
The 18-month study, sponsored by Russia's official
Institute of Economics and the University of Western Ontario's
Centre for the Study of International Economic Relations,
concluded that as much as $140-billion (US) -- almost $2-billion
per month -- fled Russia during the first six years of market
``There has been a very large net outflow of capital from
Russia, and this certainly has aggravated the present crisis,''
says John Whalley, one of the report's main authors.
``It means Russia has lost crucial development capital, 
money that could otherwise have been invested in Russia and used
to generate economic growth.''
Five Canadian and five Russian economists worked on the
study, which is the first to put a reliable figure on the
headlong flight of wealth out of Russia after the onset of market
reforms in 1992.
The amount of money escaping Russia was greater than the
combined capital flight from Brazil, Venezuela, Mexico and Peru
during the turbulent 1980's, the study said.
``While capital movements are very common the world over,
Russia has experienced an abnormal, even cataclysmic, loss of
vital resources,'' said Leonid Abalkin, head of the Russian team.
``Now Russia's economy is like a locomotive headed
The report was completed before Russia's current
financial collapse, but at a public presentation Thursday the
authors said many of the warning signs of incipient crisis were
detailed in it.
Russia's economy has imploded in recent months. The
Moscow stock exchange has lost 80 per cent of its value since
January, the buying power of the rouble has halved in barely a
month, and most private banks are teetering on the brink of
Although Thursday's appointment of the popular foreign
minister, Yevgeny Primakov, as acting prime minister may take the
steam out of a tense political standoff between President Boris
Yeltsin and the opposition-led parliament, Russia still faces
rising social unrest and a growing wave of labour protests.
``We have emphasized that the numbers for capital flight
are so large, this issue is clearly central to Russia's political
disaster,'' said Whalley.
Political instability, a lack of legal property rights,
haphazard privatization of state-owned assets and widespread
official corruption are underlying reasons that Russia's new rich
have exported their wealth in such prodigous amounts, the report
When the study began last year the Russian economists
favoured cracking down on capital flight while the Canadians
argued it was just a symptom that could only be cured by tackling
the basic causes.
But on Thursday their positions appeared slightly
``I have gone from a supporter of strong capital controls
to a believer in the senselessness of trying to fight the problem
head on,'' said Abalkin. ``That would only lead to
criminalization of the process.''
Capital flight will only cease when Russia's legal
environment and business climate become attractive enough to keep
money at home and attract foreign investors, he said.
Whalley said all that is true, but the global financial
meltdown beginning in Asia last year and now tearing through
Russia has given many Western economists pause to rethink a few
``A lot of voices are now arguing that some degree of
insulation from international markets may be necessary,'' he
``The Russians did everything Western agencies told them
to do, and when you look at the outcome now, it's pretty
catastrophic. You can't just come here and tell people it's the
magic of the marketplace.''


Date: Thu, 10 Sep 1998
From: (Randall Stone)
Subject: Practical policy advice on Russia

Practical policy advice on Russia

We have to recognize that the Russian financial meltdown is a product of
two factors: (A) a policy of accumulating debt to cover huge Russian
fiscal deficits, which had been pursued since 1995, and was unsustainable
in the long run, and (B) the increased volatility of global capital markets
in the wake of the Asian crisis. Russian policymakers and international
investors made bad bets, as is obvious in hindsight, but neither the timing
nor the severity of the current crisis is attributable to "economic
fundamentals." As long as the psychology of the market remained rosy, the
Russian financial position was sustainable; as soon as it shifted, meltdown
was unavoidable. This diagnosis leads to several policy implications.

(1) All of the policy responses currently being proposed in Moscow are
incoherent, and the West should not support any of them. Chernomyrdin's
proposed "economic dictatorship," which promised to reintroduce price and
capital controls and reflate the economy by printing money, would have
effectively cut Russia off from international capital markets. This might
work as a temporary expedient in a country like Malaysia; but Russia, which
still desperately needs to restructure its industry, does not have the
luxury of insulating itself. On the other hand, the currency board floated
by Fyodorov is a good idea at a bad time. In normal times, a currency
board sets a nominal anchor for macroeconomic policy because it establishes
the exchange rate as a target that must be defended. During a panic
sell-off, however, the currency peg is just a target for traders to shoot
at. There is no "proper" level at which to peg the ruble in the short run;
it could fall to 100 to the dollar next week, or go back up to six.
Pegging the ruble cautiously provides insurance to sellers, because its
value won't rise above the peg, and pegging it aggressively provides an
incentive to bet against it.

The current crisis cannot be weathered without dramatic changes in Russian
economic policies. Consequently, the IMF should withhold the next tranche
of $4.3 billion until Primakov's new government comes up with a coherent,
market-oriented crisis package. This should include allowing the ruble to
fall so that it can rise again and punish the fainthearted. It will also
have to include more effective measures to raise tax revenue.

(2) The West cannot bail Russia out, but that does not mean that we cannot
do anything. It is no longer feasible for central banks or the IMF to
intervene in currency markets decisively enough to stabilize currencies, so
defending currencies has become a matter of tightening macroeconomic
policy--basically a domestic problem. What the United States can do to
dramatically strengthen markets all around the world, however, is to lower
interest rates. Alan Greenspan hinted that this was on the agenda when he
said that it is no longer credible that the United States can remain an
island of prosperity. Using interest rates for any other purpose than
targeting domestic monetary aggregates cuts against the grain of
professional opinion and the very successful experience of monetary
management ever since Volcker. Unfortunately, it's necessary.

Another unconventional step would be to urge the Paris and London Clubs to
forgive Soviet-era debt--all principal and accrued interest. There is a
precedent for this: Poland received dramatic debt reductions from both
clubs as a condition of its IMF stabilization plans in 1991 and 1993.
Creating a firewall around Soviet-era debt would prevent the unfortunate
effect of further undermining the credibility of Russian debt, but would
substantially reduce Russia's obligations. Since this debt has already
been restructured, this would not improve the Russian fiscal position very
much, but it would have a significant psychological effect, because it
would increase the probability that Russia would be able to meet its
obligations in the long term. It would also be a dramatic gesture, and the
West has not made many gestures that supported Russian democracy recently.
The Europeans would complain that the burden fell unfairly on them, and
there would be some cost to the world banking system, but these loans have
all been written down to a small fraction of their nominal value by now.

(3) We should not conclude from recent experience that international
financial institutions are less necessary than we once believed, or that
their advice is less sound. To the contrary, the volatility of global
capital markets means that devices that coordinate market expectations are
needed more than ever, and that unwise macroeconomic policies will be
punished severely.

The function of the IMF is not to bail out unwise investors. It is to tip
the balance of incentives in the short term in favor of policies of fiscal
and monetary restraint. A credible IMF stabilization plan provides a focus
for market expectations, which allows decentralized actors to coordinate
their behavior. Coordinated markets provide strong incentives for
governments to step back from the brink; uncoordinated markets offer them
nothing. If Russia goes ahead with another disastrous round of monetary
expansion and hyperinflation, it will be because its leaders have already
written off the possibility that the market will do anything but punish
them for the politically relevant future. The IMF can change the market's
expectations--but only when it can extract policy improvements in return
for support.

The IMF's advice to Russia has not been unwise. Quite correctly, the Fund
and the Russian Government recognized last spring that their biggest
problem was not economic fundamentals, but market psychology. Devaluing
the ruble would not have accomplished anything except spooking the market
sooner, because the value of the ruble is not set by purchasing power
parities, but by the decentralized decisions of millions of investors and
currency traders. As late as July, it still made sense to think that the
ruble could be defended--not by open market interventions, but by
macroeconomic policy improvements. No one could possibly know when the
market's mood would swing. Such things cannot be predicted, since the
market's current value always takes account of the information that is
currently known.

If the IMF is to be criticized, it should be criticized for being too soft
on Russia. From the Fund's perspective, both the decision to release the
June tranche of the EFF and to approve the rescue package in July were
questionable, because Russia had already failed to meet its targets and did
not commit itself to very much. Unfortunately, however, the IMF does not
have much credibility left with Russia, since it tolerated flagrant
violations of conditionality for years. Russia is simply too important to
the international system to be subject to much discipline from the IMF, so
the Fund cannot demand very much, and markets in turn cannot expect very
much. IMF managers probably made the optimal decision under the
circumstances, which was to give in and hope that a little bit of
improvement would be enough.

Randall W. Stone
Assistant Professor
Department of Political Science
University of Rochester
Rochester, NY 14627
office: (716) 273-4761
fax: (716) 271-1616



Here you can find the Russian parliamentarians' comments on the current
economic and political crisis in Russia. The articles are taken from 9th issue
of the unofficial parliamentary newspaper Kvorum. The newspaper will be
available on-line beginning from Sepember 10, 1998 on


There is no government, no currency exchange rate. You can't get your
money at a bank. But the country is not thunderstruck - not in the least!
True, there is a certain sense of anxiety. Everybody is perplexed and keep
asking one and the same question - "What's coming on next?". Long queues have
formed at drugstores after the news came that two largest pharmaceutical
companies had announced they quit all deliveries to Russia.
Yet there is no wailing, no tears - just some nervous giggling perhaps.
We have not forgotten the queues yet, so this has not come as a blow. Neither
is a constant fall of our national currency. God save us! - the whole country
has been living like that for the last two years - so what? Only the owners of
currency exchange offices seemed to be content - at that time, and they are,
sure enough, quite happy now. Well, everyone should have his moments of joy,
On the other hand, following the logic of economics, which by the way,
has to a certain extent caused this crisis, you'd think the so-called
"national producer" could benefit from the sinking ruble. Alas! - no. All
lessons taught by the Centrobank proved to be futile. Heaps of new priceless
kopecks have again been emitted whereas the population still sticks to
"conventional units".
Even in regions where the barter exchange is in full swing and the most
popular credit amounts to 12 rubles, the price for a bottle of the Osetin
vodka, prices are reacting to the current changes in the dollar exchange rate
just as briskly as in the Moscow boutiques.
Billions of dollars spent by the Centrobank in its attempts to support
the ruble seem to have vanished into thin air. Yet, it's just what it seems to
be. This money has certainly been accumulated on accounts belonging, according
to a fair number of stock analysts, mostly to our own, Russian-bred Georges
So, monetarism and "hot-money" games have resulted in a crisis which is
perfectly natural in a young and fully speculative stock market. The crisis is
there. Yet, could we call it a collapse? The answer is YES, providing we base
our conclusion on official figures of the debt and the budget deficit. However
there is a different outlook showing the whole thing as a vigorous and long-
anticipated shake-up, - but no tragedy. It is based on a well-known truth -
not the life-goes-on-type, but just as self-evident: at least 50% of our
economy, or maybe even 75%, operate on laws, very different from those studied
by the Wall Street analysts.
Deep in the shadow, there are no Federal Loan Bonds or T -Bills, or
budget deficit, or payment crises. What we mean is not only the MAFIA, or bank
clerks who get their salary through insurance and deposits, but also public
markets where cash registers exist to be generally regarded at "something-can-
always-be-done-about-it" angle , an attitude which has virtually affected
everybody in this country - it can be wood-cutters getting their wages in
boards, or the population in the regions, long accustomed to
trading a bag of oats for a pair of wellingtons.


International Herald Tribune
September 11, 1998
[for personal use only]
Russian Economic Failure Invites a New Stalinism
By George Friedman International Herald Tribune
The writer is chairman of Stratfor Systems, which provides forecasting to
corporations. This comment has been adapted by the International Herald
Tribune from a longer newsletter.

AUSTIN, Texas - The ''new world order'' has collided with reality, and reality
seems to be winning.
As the Russian financial markets collapsed, Russia passed beyond the help of
the IMF, the World Bank or anyone else. The financial meltdown in Russia is
irreversible. There is nothing that the West can possibly do to resurrect the
Russian economy.
It is not a matter of money. The problem is that in Russia, money does not
turn into capital. All investments are hopelessly squandered through a
combination of inefficiency and theft.
For money to turn into capital, for investments to flourish, institutions must
exist which guarantee such things as the lawful, predictable enforcement of
contracts, reliable transportation of goods from one point to another,
government neutrality in economic competition, and so on.
None of those things exist in Russia. Contracts are unenforceable, basic
reliable infrastructure is nonexistent, and the government is not only
unpredictable in its treatment of participants but at times deliberately
Russia is a different place. But the ideology of the new world order held that
there are no different places, that all reasonable people behave in the same
reasonable way and that, therefore, given advice by Harvard and Goldman Sachs,
Russia would evolve economically.
It was also assumed that Russia would evolve politically, because it was
assumed in general that, with a growing economy, all reasonable people would
come to look like everyone else. Prosperity would yield liberal democracy, and
liberal democracy would make Russia an enthusiastic member of the
international community, just like people from Wisconsin but with more beets
in the diet. 
Instead of this happy scenario, we see the re-emergence of the Communist Party
as the decisive force in Russian politics. The political issue has not been
what Boris Yeltsin or Viktor Chernomyrdin would do, but what the Communist
Party, the largest party in the Duma, would permit them to do.
The fact is that Mr. Yeltsin can no longer govern without the support of the
Duma, and power in the Duma lies in the hands of the Communists andthe
nationalist parties, including the strange fascist Vladimir Zhirinovsky, as
well as other factions.
On the surface, this would seem to create a split in the Duma that the
Yeltsin/Chernomyrdin faction should be able to exploit. In fact, there is a
much closer bond between the Communists and the nationalists than one might
think. Indeed, it is this commonality of interest that brings us to the end of
the new world order. 
The Communist Party speaks for the lost Russia. It was a Russia of relative
poverty but not of the utter misery that has gripped most of Russia since the
collapse of the Soviet Union.
More importantly, Russia was a land in which the misery was shared, on the
whole. The fantastic gap that has opened between a tiny oligarchy of wealthy
men, who have used the new regime to enrich themselves, and the masses, who
can barely feed themselves, powers the Communists' claim that, as bad as the
past might have been, at least it was better than the present. 
Thus it is the Communists who have been pressing Mr. Yeltsin to reject the
demands of the IMF and the West that economic reforms be maintained and even
expanded. Arguing that Western help hurt Russia, and also that no further help
is being offered anyway, the Communists are demanding that reforms be rolled
back. They want to renationalize the economy, impose wage and price controls,
reinstitute central planning, and end the convertibility of the ruble. In
other words, they want to return to the status quo ante. 
Implicit in the Communist position is a rejection of the assumption that
Russia's salvation lies with the West. This technical anti-Westernism among
the Communists is reinforced by the visceral anti-Westernism of Mr.
Zhirinovsky's Liberal Democrats, the third largest party in the Duma.
For Mr. Zhirinovsky and other nationalists, the economic disaster is coupled
with a geopolitical disaster. Under communism, Russia was a superpower, with
standing equal to that of the United States. Today Russia is seen as a vassal
of the United States, with any deputy assistant undersecretary of anything
having the right to lecture and scold Russia's leaders as if they were
Even more infuriating, the great Russian empire was given away, in return for
nothing. Not only Eastern Europe but also the Baltics, Ukraine, Central Asia
and the Caucasus were lost. Even parts of Russia itself, like Chechnya, can
barely be contained. 
The economic anti-Westernism of the Communists combines with the geopolitical
anti-Westernism of the nationalists to create a powerful ideology that used to
be called Stalinism. Central planning together with powerful internal controls
and a deep sense of the geopolitical interests of the Soviet Union was, after
all, Stalin's greatest achievement.
Personalities aside, this Stalinism will now re-emerge, as it is the only
logical outcome of the current situation. Because no meaningful Western help
is possible, and mild internal reforms cannot possibly contain the situation,
power will devolve to the Communists and nationalists. 
The logical bridge between the two is Alexander Lebed. My company wrote in its
forecast for 1997: ''If the Westernizers surrounding Yeltsin manage to squeeze
Lebed out or into irrelevancy, they will have sown the wind. The whirlwind
will be a counter-revolution of epic and bloody proportions. If Lebed is given
room to maneuver, he may manage a restoration that keeps the vestiges of
democracy and capitalism alive. In either event, liberal democratic capitalism
in Russia will fail in 1997 - and its replacement will be the traditional
Russian alternative to Westernizing businessmen and intellectuals: xenophobic,
Slavophile bureaucrats and policemen.''
We were premature on our date, but we believe we were correct on our core
prediction. Mr. Lebed was forced out. The whirlwind is at hand. 
It is therefore time for the West in general, and the United States in
particular, to begin defining a post-reform policy toward Russia.
Russia's foreign policy will be eminently clear - first, and above all else,
reclamation of the old Soviet borders. The key to this, of course, is Ukraine.
Russia is already in a close confederation with Belarus, and the reintegration
of Ukraine is thus critical. Here the Bush-Clinton obsession with Moscow's
nuclear weapons will cost the West dearly. Rather than strengthening Ukraine
to resist re-emerging Russian imperialism, Washington focused on strengthening
ties with Moscow, hoping to encourage reform. This has left Ukraine vulnerable
to Russian pressure. It will not be able to resist. 
It is the West's good fortune that recovering the Soviet empire will take the
Russians a generation. But that process leaves the West with critical
decisions to make. The United States has made massive investments in Central
Asia. To what extent will the United States resist Russia's return? Will it
extend NATO protection to the Baltics? If not, what policy does the United
States propose?
Iran and Turkey will both oppose Russia's return to the Caucasus. What will
U.S. policy be? If the Russians become more assertive, should NATO be further
expanded to include utterly strategic Slovakia? If not, should it attempt to
include Poland and Hungary, or are they too exposed? 
And then there is the return of the abysmal and eternal German question:
Should the United States shoulder the burden of defending Europe again, or
should Germany be forced into that role, recreating the problem that has
burdened Europe ever since German unification in the 19th century?
Fortunately, Russia's strategic position is such that it will not readily
return to global eminence. Many Armenians, Lithuanians and Uzbeks will have to
die before that comes.
But even a regional imperialism by Russia poses a critical question to which
Madeleine Albright and Sandy Berger appear not to have given any thought: What
is U.S. policy on a thousand issues if Mr. Yeltsin falls and, for example, Mr.
Lebed takes power?
The new world order assumed that political and military questions were now
marginal. Therefore, strategic planners in the Clinton administration, which
inherited and celebrated the strategic legacy of the Bush administration,
continue to ignore these questions in favor of familiar issues like IMF
bailouts and reforms.
These issues are closed as far as Russia is concerned. Mr. Clinton does not
seem to realize it. Critical questions are being ignored in favor of a
fantasy: that the Russian experiment in economic liberalism is not yet dead. 
Mr. Clinton's recent visit to Russia had all the makings of a disaster. First,
he met with a political corpse, and may have angered the leaders who already
usurp power in every sense but the official. Second, he discussed economic
issues that can no longer be managed, rather than posing the difficult
political and military questions that now frame Russia's relations with the
The new Stalinism cannot be stopped. Communists and nationalists will form a
coalition to govern Russia, sooner rather than later. They have a very
different agenda from that of the outgoing regime. Mr. Clinton's summit made
no sense, save that he believed that the economics-centered new world order
could still be saved.
We expect that he met with Mr. Lebed and others. But what was he going to say
to them? What was America's strategy? Thus far, it appears to be to avoid the
obvious and to pretend that what is impossible can happen if we close our eyes
and wish real hard. 


Financial Times (UK)
11 September 1998
Leader (editorial) 
Mr Primakov's challenge

The nomination of Yevgeny Primakov to be Russian prime minister should at last
end the vacuum of power in Moscow. Whether he can put together a government
capable of pulling the country out of its political and economic crisis is
another matter.
The ultimate survivor from the Soviet era, closely linked throughout his
career to the KGB and its successor intelligence agencies, Mr Primakov can
claim the remarkable feat of support from both Grigory Yavlinsky, leader of
the liberal Yabloko group, and Gennady Zyuganov of the Communist party. He is
the only senior Gorbachev man to have survived in Boris Yeltsin's government.
He may not be very popular in Washington, because of close ties with Saddam
Hussein going back to his past as a top Middle East expert. But as foreign
minister in recent years he has been popular at home as someone who stood up
for Russia, for example in attacking the expansion of Nato.
The most important thing, however, is putting together a new government, and
then drawing up an emergency policy to stabilise the rouble. Mr Primakov says
he will pursue economic reform, although he has criticised the last government
- and the International Monetary Fund - for excessively strict monetary
policy. But he may have to make concessions to the Duma to ensure his approval
as prime minister. There is a majority there for a return to old measures of
the command economy, such as price controls and protection for industry. Those
would be retrograde steps.
If he brings Yuri Maslyukov into a senior economic position, as the Communists
want, it would mean a return to the past. He was once head of Gosplan, the
state planning committee, and seems to have learned little of what makes a
market economy tick since he left it. But if Mr Primakov puts Grigory
Yavlinsky in charge of economic reform, western investors could rest more
easily. He would pursue something much closer to a social democratic agenda.
Moreover, both Mr Yavlinsky and Mr Maslyukov have said they would like to curb
the powers of the financial barons who now control so much of the Russian
If Mr Primakov is to please both factions, he will have to perform an
extraordinary balancing act. His career suggests he may be capable of it. His
intelligence connections may help to control the financial barons and regional
governors who rival the government's authority. He is also a man without
pretensions to succeed Mr Yeltsin, which means he is not a threat to any of
the other contenders. But there is no evidence yet to suggest that he has the
vision to get the Russian economy out of its hole.


New York Times
September 10, 1998
Why Should Russia Get Tough on Taxes?

To the Editor: 
You claim that the Russian Government's printing of rubles, as proposed by
Acting Prime Minister Viktor S. Chernomyrdin, would guarantee a period of
hyperinflation and the turning off of foreign investment and International
Monetary Fund assistance (editorial, Sept. 5). 
The Russian economy today resembles Franklin D. Roosevelt's economy in the
1930's, with comparable unemployment of labor and capital. Under these
circumstances, the increase in tax collections to move closer to a balanced
budget may poison any economic system. When Roosevelt did this in 1937, he
produced a sharp decline in economic activity in the 1938 recession rather
than any significant increase in the rate of inflation. 
The hyperinflation danger is today a bogyman, as can be seen in the experience
of Belarus, where wages and pensions are paid regularly and output is growing
by double-digit proportions, as a result of the printing of Belarussian
Ann Arbor, Mich., Sept. 5, 1998
The writer is professor emeritus of economics at Hofstra University.  

To the Editor: 
A Sept. 6 Week in Review article on Russia's economic crisis mentions the lack
of water or sometimes electricity in Vladivostok this summer, and no wages for
submarine-factory workers except coupons for bread. 
But these facts have been true for several years now. Since the fall of
Communism, Moscow has not been able to support its outlying regions. 
The suffering in these regions is chronic and old. 
And in Vladivostok, the conditions are worsened by a long-running political
struggle between the local governor and those in Moscow who aggressively
oppose him. 
Seattle, Sept. 7, 1998
The writer is editor of the Russian Far East Update. 

To the Editor: 
I'm not convinced that Russians will get by no matter how tough things get
(Week in Review, Sept. 7). 
I propose that we spend $22 billion a year for five years to insure that every
person over 65 in Russia, some 18 million of them, receives $100 a month in
United States currency. This would not by itself solve Russia's economic
problems, but it would go a long way toward promoting stability. 
The $100 would surely be spent on necessities, opening up pathways of supply
and starting up circles of employment and self-employment where little or none
existed before. 
The $22 billion would reflect our own self-interest. It could also reflect our
recognition of the suffering and heroism of a generation, now elderly, that
defeated Hitler's armies and endured Communism and the cold war. 
Renton, Wash., Sept. 7, 1998


Moscow News
September 11, 1998 
Primakov Has Respect but Little Economics 
By David McHugh
Staff Writer

In Yevgeny Primakov, Boris Yeltsin has chosen a tough-minded pragmatist who in
2 1/2 years as foreign minister built wide consensus for a more anti- Western
stance in world affairs -- but whose views on economics are unclear. 

Primakov has spent his entire career in foreign policy and intelligence,
starting as a Soviet radio correspondent in the 1950s and later serving as the
head of foreign intelligence before becoming foreign minister in January 1996.

As an advocate of a foreign policy that seeks to promote Russia's interests as
a great power independent of the West, he has won wide support among Russia's
political elite since taking over from the more pro-Western Andrei Kozyrev. 

Despite friendly relations with Iraqi President Saddam Hussein, he has also
won respect from Western leaders and diplomats as well, even while pursuing a
foreign policy that often challenges Western initiatives -- particularly NATO
expansion, of which he is a leading opponent. 

Now, however, he faces not geopolitics but a financial crisis, with the ruble
sharply down in value, the banking system in collapse and store shelves swept
clean by panic buying. 

"I don't think he has any clear and concise program about what's to be done.
He will have to look for advisers," said Yevgeny Volk, a political analyst who
heads the Moscow office of the Heritage Foundation. 

Although he has not criticized the government's moves toward a free market
economy, his background suggests that his sympathies lie in the other
direction, said Volk. 

"His preferences are quite clearly associated with people associated with the
classical statist government regulation policies," said Volk. "And the
Communists, on whom he will depend very much, will never allow him to conduct
a free market policy." 

Primakov was born in Kiev but spent his childhood in Tbilisi, the capital of
Georgia, and thus speaks good Georgian as well as the Arabic he learned while
working for Pravda newspaper in the Middle East. His English is passable, says
one reference source. 

>From 1956 until 1962, he held a series of positions with the State Committee
on Radio and Television, joining the Communist Party in 1959. During the 1960s
and '70s, he was a top Pravda correspondent in the Middle East -- a job that
indicates he almost certainly had a connection with the KGB early on. His work
in the Middle East enabled him to cultivate the acquaintance of future leaders
in the Arab world, including Saddam Hussein and Hosni Mubarak, who later
became president of Egypt. 

He was a close foreign policy adviser to Mikhail Gorbachev, serving on the
Presidential Council in the waning days of the Soviet Union. Gorbachev
appointed him head of the KGB's foreign intelligence directorate in September
1991. When the KGB split into domestic and foreign halves, Primakov became
head of the Foreign Intelligence Service, known as the SVR. 

As foreign minister, he has sought cordial relations with the United States
and the other Western powers, while maintaining that Russia sometimes has
distinct interests. 

His pursuit of a "multipolar" world, in which there is no one superpower, has
led Russia to resist U.S. attempts to force Iraq to permit full access to UN
inspectors looking for weapons of mass destruction. Primakov has also sought
to keep NATO from acting against Serbia over its suppression of ethnic
Albanian independence fighters in the province of Kosovo, saying all such
decision must be made by the United Nations, where Russia could block them. 

His nomination for prime minister was influenced by his apparent lack of
interest in becoming president, and his lack of connections with Russia's so-
called oligarchs, the financial moguls who control much of the country's
natural resource base and financial assets. 

At 68, Primakov is older than Yeltsin. He underwent a complicated gall bladder
operation in April 1997 and diplomatic sources say there are lingering doubts
about his health. 

But those perceptions may be deceiving, said political analyst Vladimir
Prybylovsky, head of the Panorama research institute. 

Under the constitution, if Yeltsin were to die in office, Primakov would
assume office for 90 days until new elections. As acting president, "he is
automatically one of the top five contenders" in any special election,
Prybylovsky said. 


Moscow News
September 11, 1998 
EDITORIAL: Compromise Of Primakov Offers Hope 

In Russia's current dire straits, Yevgeny Primakov is an excellent choice for
prime minister. He is likely to sail through the Duma, giving Russia what it
needs most -- a government. 
Primakov is a compromise, someone all agree upon; yet unlike most compromises
in politics, he is no pushover. He is a bold, assertive, big-picture
politician. As foreign minister he did hold some worrisome ideas, most notably
his support for union with Alexander Lukashenko's Belarus. But despite his
Cold Warrior past, Primakov is not an ideologue of either the right or the
Perhaps best of all, his lack of political affiliation or presidential
ambitions means there may even be hope of revitalizing Russian democracy. The
last presidential election saw the Kremlin and the business elite agreeing
upon a single candidate -- Yeltsin -- and then using their combined political,
financial and media power to force that candidate upon the nation as a fait
Next time, however, if Primakov can truly keep his government neutral, then
Russia's business elite will have a harder time agreeing on one candidate. In
1996, it was only because they knew they could not resist the Kremlin
successfully that they all so quickly fell in line behind Yeltsin. If no
incumbent is running, suddenly it may be a real race. The oligarchic business
elites and their media might well back separate candidates, and that limited
plurality of ideas could look suspiciously like a democracy -- albeit a
democracy suffering the same illnesses of, say, the modern-day American
democracy, with its corporate media monopolies and corporate-funded
The big test for Primakov, of course, will be how he handles the economy,
particularly in these absolutely crucial coming few weeks. Primakov is a
former Politburo-level KGB man. He has no pretensions to expertise in
economics and will tap others to advise him. 
Surely it will be tempting to look to old colleagues like Yury Maslyukov, a
former head of Gosplan. Maslyukov, however, has little to offer, judging from
the Communist economic program he helped author. (A program that boils down
to: take it all back.) 
Not all of Russia's free-market economists are dogmatists like Anatoly
Chubais, who brags of swindling Western taxpayers. A better alternative are
the liberals in the Yabloko movement. Yabloko members understand that the
health of a free-market economy is judged not by whether hedge funds see
equities there as an "exciting emerging market opportunity," but by the health
and well-being of the people. Primakov should listen to another old Politburo
colleague -- Nobel Prize-winner Mikhail Gorbachev -- who has urged him to look
to Yabloko for talent and ideas. 


Poll Shows Russians Think Force May be Used Over Crisis 

Moscow, Sept 4 (Interfax) -- A poll held by the Public Opinion
Foundation on Thursday [3 September] shows that the majority of Russians,
66%, believe that force may be used to deal with the present crisis in a
way similar to the tank attack on the Russian Supreme Soviet in October 1993.
Another 25% of the 1,862 pollees rejected such a scenario as
impossible, and 9% were undecided.
Half of the Russian population, 50%, believe that Russian President
Boris Yeltsin's resignation would do the country good. Another 19% of
respondents said such a decision would be dangerous.
On the other hand, 20% of respondents said Yeltsin's resignation would
not help to correct the situation in Russia. Another 11% of respondents
were undecided.


Date: Thu, 10 Sep 1998 
From: Theodore Karasik <>
Subject: On Primakov During the Soviet Union

Primakov's candidacy to the PM slot is attracting attention to his economic
credentials, comments, etc. Especially useful were the excerpts from
Primakov's speech at the British Royal Institute of International Affairs on
25, 1998 (JRL 2363). But I think the following quotes may help illuminate
Primakov's inclination on market reform as the Soviet Union unraveled. In
1990-1991, Primakov was serving on the USSR Security Council.

Primakov was responsible for economic issues in the revamped USSR Security
Council beginning in late 1990. Primakov worked with MVD chief Vadim
Bakatin to structure the USSR Security Council and detail its agenda
especially in regard to international economic contacts i.e. the G-7 and the
IMF. In May 1991, Primakov, during a visit to the United States, met with
IMF Managing Director Michel Camdessus [[Yavlinskii travelled with
Primakov]]. He stated that the USSR would need $30-$50 billion a year to
underwrite market reform. On May 29, 1991, Primakov made remarks during a
"q and a" joint news conference at the U.S. State Department following a
meeting with U.S. Secretary of State James Baker. Primakov states:

"The way out of the crisis situation will be to establish some stabilization
programs but aimed at the direction of moving toward a market economy."

"Well, what it calls for [the anti-crisis program] is primarily
liberalization, privatization, destatization, getting away from the
liberalization of prices, and getting away from the policies of the
administrative structure that had been existent previously."

On the domestic front during the same month, he reported to the USSR
Security Council on his rejection of the GOSKOMTSEN poverty level in the
Soviet Union (calculated at that time by a IMEMO analyst to be R207 a
month). But Primakov faced obstacles from other Soviet bureaucrats who
withheld budget information (namely from Prime Minister Pavlov who was also
a USSR Security Council member) according to several newspaper accounts. 

May I also add the following fact:

--Primakov and Maslyukov served together in the USSR Presidential Council in
1989-1990. But this body, attached to the USSR presidential apparatus,
failed to truly function.

More to follow....


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