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Johnson's Russia List


September 14, 1998   

This Date's Issues: 23702372 ••

Johnson's Russia List
14 September 1998

[Note from David Johnson: 
1. Bloomberg: Russia's Primakov Says He Favors `Socially Oriented'

2. Chicago Tribune: Elizabeth Williamson, TANKS ARE JUST MEMORIES 

3. The Sunday Times (UK): Chloe Arnold, Old and poor despair as 
hunger sweeps country.

4. The Independent (UK): Anne McElvoy, Western advice won't help 
Russia, Mr Blair.

5. Moscow Times: Kurt Schuler, Perils of Central Banking.
6. Christian Science Monitor: Judith Matloff, Russia's Chill Felt 
in Former Soviet States.

7. The Independent (UK): Steve Crawshaw, West will reject call for 
loans to Russia.

8. Financial Times (UK): Arkady Ostrovsky, DEMONSTRATIONS: Russia 
'sliding towards command economy.'

9. Reuters: Primakov backs Russia power-sharing deal.
10. Interfax: Nuclear Military Complex Workers Start Protests.]


Russia's Primakov Says He Favors `Socially Oriented' Economy

Moscow, Sept. 14 (Bloomberg) -- Russian Prime Minister Yevgeny Primakov,
approved on Friday, said he intends to build a ``socially oriented'' economy
by increasing the government's role in regulating the market and by supporting
domestic producers. 
Primakov, former foreign minister and once chief of Russia's foreign spy
agency, told the parliament on Friday that he hadn't yet prepared a formal
economic program to repair government finances and boost growth. Today, in an
interview on Russia's NTV channel, he again described his plans in very
general terms. 
``This government will continue economic reforms but will correct mistakes of
previous years,'' Primakov said. ``It's very good to have a banking system and
financial and macroeconomic stabilization, but it should serve the development
of national industry -- so that there would be employment, wages paid and not
such'' wide gap between rich and poor. 
Primakov said he will submit a list of new cabinet members to President Boris
Yeltsin by the end of the week. Under the constitution, Yeltsin appoints
ministers by decree. 
The new prime minister said Russia should seek foreign direct investments in
industry rather than in Russian stock and bond markets. 

`Debt Pyramid' 

He said Russia ``should take loans if terms are favorable'' and said that
previous governments had built ``a pyramid of Treasury bonds.'' He didn't say
how his government will treat bondholders. 
On Aug. 17, the previous government defaulted on 281 billion rubles ($40
billion at the time) of Treasury bills and bonds, and gave up defending the
value of the ruble. It also declared a 90- day moratorium on repayment of some
debts by private banks and companies. The ruble has fallen as much as 70
percent since then and now is down about 45 percent after gaining last week. 
How Primakov's government treats investors and lenders and its plans for
improving tax collection and reducing spending are expected to be key factors
in the International Monetary Fund's decision on whether to pay Russia the
next $4.3 billion installment of its loans from the fund. 
As foreign minister and former chief of Russia's foreign spy agency, Primakov
has no track record in economics or finance. Analysts said his economic
strategy will depend on the composition of the new government and on its
Primakov praised Yuri Maslyukov, former head of the Soviet state planning
agency, who was appointed first deputy prime minister of the new government,
as ``a high-class professional and an independent decision-maker.'' 

`Professionals Wanted' 

He said he doesn't expect Maslyukov, one of the leaders of the Communist
faction in the parliament, to ``follow the line dictated by his party.'' 
Primakov declined to name other members of his government, saying that he will
form the cabinet by the end of the week. He said he hasn't yet received any
proposals from parliamentary factions. He said he is open for proposals but
stressed he's going to recruit ``professionals rather than representatives of
Primakov praised the new chairman of Russia's central bank, Viktor
Gerashchenko, also confirmed by the parliament on Friday. He said ``a group of
very big bankers asked to appoint Gerashchenko'' to the position. Primakov
said Gerashchenko shares his priorities of ``paying wages, boosting assets of
the State Pension Fund, preparing for the winter and providing financing to
the military.'' 
On Friday, Gerashchenko said he favored supporting the ``most efficient''
banks and ``careful'' printing of more money. 
Primakov asked the parliament ``to let the government work'' and spoke against
the impeachment procedure launched by the Communist faction against Yeltsin as
well as against protest actions Communists said they are preparing for
He said he doesn't plan to run for president in 2000. 
``I can work effectively as prime minister before the elections exactly
because I am not intending to run for the office,'' Primakov said. 


Chicago Tribune
September 13, 1998
[for personal use only]
By Elizabeth Williamson. Special to the Tribune. 

Virtually every Russian military plant boasts an in-house museum
chronicling its glory days. At OAO Kirovsky Zavod, former manufacturing site
of the famed Katyusha missile, nuclear submarine turbines and the T-80 tank,
pride of the Red Army, those glory days lasted 190 years.
Curling photographs document visits by officials ranging from czars to
Lenin. Models of world-famous weapons, Soviet production awards and gifts by
Communist heads of state cram display cases.
But in a dusty corner, there's the exhibit nobody brags about. It's filled
with hubcaps, meat grinders, bottle openers--Kirovsky's first feeble attempts
at post-Soviet conversion.
Indeed, it once seemed that this lumbering behemoth would never bridge the
gap from Cold War notoriety to commercial viability. But it's come a long way,
riding the road to success in an unlikely caravan of tractors, armored cars
and roadbuilding equipment.
Kirovsky tanked back in 1992. The Soviet Union was gone and seemingly
endless T-80 orders from the Kremlin came to an end. Managers hawking the tank
at an arms show in Abu Dhabi, United Arab Emirates, found that manufacturers
in the U.S., Britain and France had established a beachhead in the Middle
East, which the plant saw as its last, best hope for post-Soviet sales.
While other defense plants struggled to maintain production or clung to
dead hopes for subsidies from Moscow, Kirovsky bit the bullet. Plant director
Pyotr Semenenko shuttered the tank works, slashing staff in half to 12,000
workers. Nuclear turbine production ended too.
Vice President Arkady Zaviyalov, a self-professed "tankist," winces at the
memory of those early days.
"We had to find ways to convert not only the production, but the people,"
he says. "This being a Russian military enterprise, we supposed that the state
would help us. They never gave us a single ruble. We had to (restructure) with
our own money, forces and strength."
Kirovsky was helped by its fame, which drew top-notch professionals and
technology from throughout the former Soviet Union.
The plant was privatized in 1991: Management owns 25 percent, the St.
Petersburg bank Promstroybank owns 14 percent and the balance is held by
private individuals and funds.
The company organized itself into 37 business units--from its on-site steel
mill to its tractor-repair divisions--all monitored by computer. For the first
time in Kirovsky's 197 years, managers were made accountable for profits.
After a few false starts (now relegated to the museum), production lines
were retooled to make farm and construction equipment, and new, lucrative
markets found for the plant's steel.
Today, Kirovsky's steel plant, Petrostal, generates half of the company's
gross revenue. Petrostal boasts certifications of quality from Lloyd's
Registry of Shipbuilding, and the German TUV, which verifies quality for
worldwide industrial use.
Thirty percent of Petrostal's steel is sold abroad, in Central Europe,
Germany and the United Kingdom.
The balance goes to Russian automakers such as AO Gaz, AO AvtoVAZ and UAZ,
favored because they pay in rubles, instead of in the bartered goods used by
most cash-strapped local industries.
The tractor division, which in 1924 began supplying Soviet collective farms
with Ford knockoffs, accounts for 30 percent of sales. A Kirovets costs 40
percent less than Western makes, driving a 30 percent surge in orders in 1997.
However, the business is almost exclusively barter, with struggling domestic
farms paying in grain chits.
Kirovsky's armored cars are popular among local banks, and bulldozers,
excavators and more sophisticated farm machinery are in the testing stages.
One of Kirovsky's clients is Peoria's Caterpillar Inc. Caterpillar operates
a tractor assembly plant on Kirovsky's campus and buys some steel and parts.
"They're good managers and good landlords," says Gilbert Holmes, general
director of Caterpillar's venture here, called Caterpillar-Tosno.
However, the Caterpillar connection highlights problems that lie ahead for
The steel mill operates at capacity, requiring expansion and modernization.
Heavy equipment needs a good design overhaul: tractor cabs are spartan
compared to plush Western models, and bubble-shaped armored cars, though they
can withstand machine-gun fire, look cartoonish.
Though sales have climbed steadily since 1995, reaching $272 million last
year, Kirovsky is cash-poor, strapped by its barter business and federal tax
The unforeseen crunch sunk a joint venture with Caterpillar to assemble
roadbuilding equipment when Kirovsky, a 35 percent partner, couldn't commit to
expansion plans totaling $50 million, including a new assembly works.
Caterpillar broke ground in early August for a new factory in Tosno, on the
outskirts of St. Petersburg, though it will continue to buy from Kirovsky.
Holmes says: "They felt they were better served putting limited resources
toward their restructuring. I think they were smart, but if they'd had the
cash, we'd still be partners.
"They need to find a strategic partner who can supply Western (tractor)
design," he says. "Shed some of these extra business (units), sell some of
this real estate, find a good partner--then, you're a tractor-maker."
The plant may well be sitting on a source of cash. Early this year, it
secured ownership from the city of its downtown campus, a 470-acre swath of
prime real estate boasting a seaport and rail lines. Kirovsky leases acreage
and buildings to more than 200 tenants, including Caterpillar, importers,
heavy manufacturers and warehouses.
Kirovsky's old military cronies consider its tanks-to-tractors conversion a
comedown. But Kirovsky, a survivor in a battlefield strewn with failed defense
plants, has had the last laugh.
"There may be a time when we'll produce tanks again. But we don't think
about this today. We don't have to," says Zaviyalov.


The Sunday Times (UK)
13 September 1998
[for personal use only]
Old and poor despair as hunger sweeps country 
by Chloe Arnold 

SUICIDE seemed the only way out to Antonina Kotvitskaya. The 61-year-old
pensioner was just managing to survive Russia's economic turmoil by selling
suitcases and shoes in the market in the western Russian enclave of
Kaliningrad. Then, last week, her son lost his job as a construction engineer
at a shipbuilding factory. 
The family of five - the grandmother, her son, his wife and their two children
- were reduced to living off Kotvitskaya's meagre pension and the money her
daughter-in-law earns from cleaning at the local school. It came to just 720
roubles a month - £72 before the rouble collapsed three weeks ago, but now
closer to £25. 
Last Tuesday Kotvitskaya tried to drown herself by jumping off a bridge in the
centre of Kaliningrad and was saved by a passing stranger. "We cannot afford
bread any more," she said. "I'm just an extra mouth to feed." 
Leonid Gorbenko, the governor of Kaliningrad, declared a state of emergency in
the region last week. Cut off from the rest of Russia by Lithuania and
Belarus, the grim former Prussian city of Königsberg has always imported the
majority of its food and fuel. But since the Russian currency nose-dived, the
30m roubles set aside for heating fuel this winter have lost almost two-thirds
of their value. 
"We have only enough fuel to heat the region for a month," Gorbenko warned
last week. "After that, it is not clear how we're going to pay for the next
Kaliningrad's food supply is dwindling by the day as imports are cut back. The
price of the little that remains has jumped as much as 10 times. "Nobody can
afford these prices," said an assistant at a store selling Polish imports.
"This supermarket has turned into a museum." 
Petrol prices have tripled. "Usually it takes a good half-hour to cross the
city at rush hour," said Gennady Frolov, a taxi driver, who has lost most of
his business since devaluation. "Now I can do it in 10 minutes." 
Exasperated motorists and striking police - the entire force has walked out,
owed two months' back pay - are still less of a threat, however, than the
25,000 sailors of the Baltic fleet, many of whom have not seen a pay packet
since May. 
Many of Kaliningrad's pensioners have been forced to go back to work. Valeria
Bulyanenkova, 68, collects empty bottles for a beer company. "I have to
collect 100 bottles a day to qualify for 250 roubles [£12] a month," she said.
"Mostly I find them, but if I've only got 80 I have to rummage through the
dustbins. I have sold my rings and I have stopped eating meat," she added
between sobs. "But I still cannot survive." 
The situation in the surrounding area is even more pitiful. A workers'
dormitory at Prebrezhny, eight miles from Kaliningrad, was deserted one
afternoon last week as the residents combed the woods for mushrooms and
berries. Even more disturbing was the absence of the traditional Russian
stench of congealed meat, rotting potato peelings and boiled cabbage. 
"You cannot smell food because there is no food," said Valentina Pizzhorova,
who shares a single room in the dormitory with her husband and daughter. "The
whole building is full of the smell of hunger." 
Nine time zones and more than 4,000 miles to the east in Vladivostok, on the
Pacific coast, paramedics who have not been paid for 18 months are on strike,
leaving the port city with only four ambulances. Doctors are said to have
fainted from hunger and the hot water has been switched off for days at a
Things are little better even in Moscow, where life has always been easier
than in the provinces. Stanislav Popov, the chief physician at the
Shchyolkovskaya Central hospital, the largest surgical establishment in the
region, has instructed his doctors to carry out only emergency surgery. 
"I have already stopped paying staff to buy the few medicines I can afford,"
said Popov. "Unless we get some help we'll close within a month." 


The Independent (UK)
September 13, 1998
[for personal use only]
Western advice won't help Russia, Mr Blair
By Anne McElvoy

IN THE days when President Clinton beamed from our screens as youthful leader
of the free world and not a snivelling sinner pleading for divine forgiveness,
I accompanied him on one of those minutely scripted walkabouts in Moscow. In a
privately owned baker's shop, he asked a woman in the queue which kind of loaf
he should buy. 
"It depends," she said flatly, "what kind of bread you like." 
The interpreter was discomfited; the President's grin wavered. Here was his
symbolic endorsement of the newly liberalised economy and the blessings of
consumer choice being flattened by some grumpy housewife who clearly had not
the slightest interest in a co-starring role in the CNN bulletins. If some
stray Westerner wanted to buy bread, then fine: let him. No reason for her to
get excited. 
Five years on, Russia is adopting the same attitude of indifference laced with
hostility towards the West. It is likely to turn its back on extraneous advice
and warnings for the foreseeable future. If there is one unmistakable message
emerging from the din of Moscow's present chaos, it is that a period of
silence on our part would be welcome. 
Oblivious to this, energetic Western leaders feel a pressing urge to do
something about Russia at the very time that nothing can be done. In that
spirit, Tony Blair, holding the chairmanship of the G7 leading industrial
nations, has called a meeting of the group on Tuesday. Upheaval in Moscow will
not be allowed to pass without a communique of great powers datelined London. 
The net result will be to underline our helplessness in the face of events in
Russia. This is a virility contest among eunuchs. Chancellor Kohl,
particularly jealous of his dignity two weeks before a possibly fatal German
election, has already slapped down Mr Blair's earlier proposal to host a full-
scale summit on the sound principle that such grandstanding is unlikely to
help and may well prove counter-productive. So a host of "senior officials" -
the C list of international gatherings behind Prime Ministers and Foreign
Secretaries - is the best that Mr Blair can do. 
I have had no luck in determining, from those who are supposed to know these
things, what the purpose of the meeting is. We are simply told that the West
"needs to act quickly when a new government is formed in Russia". 
Oh no it doesn't. Acting quickly - indeed, acting at all - is the worst
possible idea just now. In Yevgeny Primakov, the former head of the post-1991
intelligence services, Moscow has produced a stable figure as Prime Minister,
but one whose economic-reform instincts stopped with Gorbachev's perestroika. 
Mr Primakov depends on a coalition of parliamentary support which distrusts
the G7 and all its works. It would be impossible for him to heed its
recommendations even if he wanted to. 
The Government talks of a mission to "save Russia" and adds sagely that any
rescue package would "depend on continued economic reform". The words have
become a mantra, devoid of meaning. There have not been economic reforms for
some time, just bolder and bolder accretions of power by unelected businessmen
and bankers, eroding the authority of a physically weakened and increasingly
confused Mr Yeltsin. 
Western leaders, loath to admit that there might be problems in the world
whose resolution is beyond their immediate control, have succumbed to a form
of Marxist economic determinism about Russia. Hence the fond belief that the
granting or withholding of financial rescue packages will materially affect
its conduct. 
But our relations with Russia are marked by a far more complex and sometimes
dangerous asymmetry. Although rarely able to influence things for the better,
our thoughtless interventions can make things worse. 
E J Dillon's The Eclipse of Russia, written in 1918, reminds us that the
tendency to misunderstand that country is no post-Cold War phenomenon. He
writes: "Of all the Slav peoples, the Russian is by far the most complex and
puzzling. He often raises expectations which a supernatural entity could
hardly fulfil and awakens apprehensions which only a miracle could lay. I have
often seen political measures adopted which were bound to defeat the objects
for which they were planned." 
Exactly so. Our best hope for future dealings with Moscow is that they are too
preoccupied with the task of building a government from the ill-assorted
ideological oddments on offer to get riled by the G7's pieties. The Potemkin
nature of the undertaking is best demonstrated by the fact that one rather
important country will be missing: namely Russia itself. Boris Yeltsin craved
acceptance at the top table in order to combat nationalist claims that he has
weakened the country as a world power. So G7 became G8 at the May summit, only
to have "lost" its new member already - the first time a country has
voluntarily opted out out of the world's elite club. 
Russia has stopped pretending that things are normal or that appearances must
be preserved. No official worth his pension rights would show up in London
this week claiming to speak for the government line. There is no line. There
is not yet a government. When one is formed, it will reflect the demands of
those forces in the country which want an end to liberal reforms. 
Moscow has not even bothered to object that it is not included in the line-up
this time. Articulating those complaints used to be Mr Primakov's speciality
as foreign minister, but he is otherwise occupied. 
Yesterday I spoke with a prominent Russian financier and asked him how he
thought the rouble should be stabilised. "No idea," he said airily. "I don't
busy myself with monetary policy. Ask an economist." 
Here was one of the wealthiest and most powerful men in Russia, indifferent to
the fate of the national currency. The business oligarchs, whose bastardised
capitalism, devoid of social and political responsibility, helped to create
this mess. They have insulated themselves, financially and emotionally, from
the fate of their countrymen. Having snatched control of the levers of power
in the past few months, the speed and destructive force of what followed
eludes even their control. Already, they are fielding candidates to replace Mr
Yeltsin in the Kremlin. The fight for Russia is beginning anew. Time for the
West to watch and wait. We have no other choice. 


Moscow Times
September 12, 1998 
Perils of Central Banking 
By Kurt Schuler
Kurt Schuler is one of the authors of the book "Russian Currency and Finance:
A Currency Board Approach to Reform." He contributed this comment to The
Moscow Times. 

Russia has been in an economic depression for a decade now. The new fall of
the exchange of the ruble illustrates the key weakness of attempts to reform
the Russian economy: They have failed to eliminate Russia's Central Bank.
Central banking harms the Russian economy both by failing to provide a sound
currency and by perpetuating a socialist-style banking system. 
Russia is now caught in a trap. If it prints money and lets the ruble
depreciate against the dollar, as many politicians now favor, it may return to
its quadruple-digit inflation of the early 1990s. But fighting inflation by
defending the exchange rate will probably require rates as high as the 150
percent that government bonds reached before devaluation. Sky-high interest
rates are as bad for economic growth as inflation is. 
The currency problem is compounded by the fact that central banking in Russia
does not work as it does in the West. Rather, it continues to operate in the
spirit of the "Communist Manifesto," which called for "Centralization of
credit in the hands of the state, by means of a national bank with state
capital and an exclusive monopoly." Russian banks are not privately owned in
the sense that banks in the West are. Most are not agents for mobilizing
savings and lending savings for productive activities; instead they are
conduits for the government to redistribute public funds to favored firms. 
Unlike central banks in the West, which generally only influence overall
conditions in credit markets, the Central Bank of Russia directs credit to
particular favored firms, though the banking system. Many of the firms are
former state enterprises that are now nominally private. Their ability to
obtain credit from the Central Bank has enabled them to avoid the discipline
of profit and loss, so they are as inefficient as when the state owned them. 
Russia has modified rather than dismantled the centralized control of credit
that the Bolsheviks established. Without a banking system that cuts off
lending to unproductive firms, there can be little economic growth because so
many resources are wasted. Real banks would cut off lending, but Russia's
current banks have had little reason to do so because they have been able to
cover their losses by obtaining new loans from the Central Bank. Russia
restricts competition against local banks from foreign banks, which could
provide the country with a real banking system. 
There are two good ways to reform the currency and the banking system
simultaneously. One is a currency board, which would fix the exchange rate of
the ruble and back it 100 percent with dollar reserves. At an exchange rate of
6.2 rubles per dollar, for instance, the currency board would hold a dollar
for every 6.2 rubles of its notes, coins, and deposits in circulation. Estonia
and Lithuania, two other former Soviet republics, established currency board-
like systems with great success: Their currencies stabilized, inflation and
interest rates fell, and they experienced economic growth. Argentina also has
such a system, and Russian officials are now conferring with the former
minister who implemented it. 
The other good replacement for central banking is dollarization, that is,
replacing the ruble with the dollar as the official currency of Russia. The
Central Bank of Russia would replace all its ruble notes, coins, and deposits
in circulation with dollars at a fixed rate. Bank deposits, wages, and prices
would be converted into dollars at the same rate. Russia's monetary system
would become like that of Panama or a few other countries that have no locally
issued currency. Panama has been officially dollarized since 1904, and is the
only Latin American state never to devalue against the dollar. 
To a large extent Russians have already dollarized the economy unofficially.
It is estimated that Russians hold at least $20 billion in dollar notes, more
than anyone except Americans. Furthermore, the value of internal trade
conducted with the good currency is supposedly twice the value of internal
trade conducted in rubles. 
A currency board and dollarization work quite similarly, and could even be
implemented together, by establishing a currency board for the ruble and at
the same time giving the dollar equal status with the ruble as legal tender.
The ruble, if it still existed, would become as sound as the dollar. 
A currency board or dollarization would also end socialist-style centralized
credit. By eliminating the Central Bank of Russia, a currency board or
dollarization would cut off the system's head. The way would be free for the
few solid Russian banks in existence and for foreign banks (if Russia allows
them) to reconstruct the banking system on a more solid, decentralized
basis.After years of reforms, Russia still is not a real market economy. A
real market economy cannot exist without a halfway trustworthy currency and
real banks. Central banking is the biggest single obstacle to growth in the
Russian economy. 


Christian Science Monitor
SEPTEMBER 14, 1998 
[for personal use only]
Russia's Chill Felt in Former Soviet States
>From the Baltics to Central Asia, nations still partly dependent on Russia
feel the economic downturn.
By Judith Matloff 

The foundering of Russia's economy is radiating throughout the former Soviet
Union, with a wave of devaluations, stockpiling of food, runs on banks, job
losses, and general anxiety.
Seven years the collapse of the union, many former Soviet states are still
tightly linked to Russia economically, with their currencies tied to the
heretofore stable ruble.
Moscow's bank defaults and stricken ruble are reverberating from the Baltics
to Central Asia.
"Russia's economic situation is extremely dangerous for all these countries,
because they are still in Moscow's periphery," says Sergei Kazyenov, a
regional specialist at the Institute of National Security and Strategic
Research in Moscow. "There is not a single CIS or Baltic country that can gain
from Russia's crisis." The Commonwealth of Independent States (CIS) consists
of Russia and 12 neighboring countries that were once part of the Soviet
Central Asian CIS countries are looking at reorienting trade toward China. The
Baltic states, not CIS members, and Ukraine are more actively courting the
Those already hurting most financially are Ukraine, Armenia, and Belarus. Even
the oil producers - Turkmenistan, Azerbaijan, and Kazakstan - are not
completely buffered by their dealings with the West.
Latvia, Lithuania, and Estonia are in the best position, because they are not
connected as tightly to Russia's economy as the other former Soviet republics.
But a large portion of the Baltic countries' exports goes east to Russia, and
their ports depend on transit business.
Nearly every CIS currency has lost value in recent weeks, directly linked to
the ruble's fall. Economists say that some states will eventually suffer more
than Russia, because they have weaker economies.
A big casualty may be integration moves inside the CIS itself, says Kazak
President Nursultan Nazarbayev. A summit of five countries seeking greater
integration - Russia, Kazakstan, Kyrgyzstan, Belarus, and Tajikistan - will be

Danger of instability

The impact of Russia's turmoil could be political as well as financial. With
separatist tensions in Georgia and Azerbaijan and civil war in Tajikistan,
there is a danger that economic instability will drive insurgents deeper into
battle or the arms of Muslim radicals.
Here's how Russia's crisis has affected its close neighbors so far:
Ukraine is a leading victim. Nearly all its gas is imported from Russia, which
accounts for roughly 40 percent of Ukraine's external trade. Ukrainians who
work in Russia, especially in the construction market, now face unemployment.
On Sept. 4 Ukraine effectively devalued its hrvyna currency, widening the
foreign-exchange corridor to 2.5-3.5 to the dollar from 1.8-2.25. Panicked
Ukrainians have rushed to buy dollars and staple goods. Gasoline prices have
soared 60 percent and food prices at least 20 percent.
Moody's rating agency has downgraded Ukraine's currency bonds, owing to a drop
in gold and currency reserves.
The only good news is a $2.2 billion loan approved by the International
Monetary Fund.
Belarus, Russia's closest partner in the CIS, is taking a major beating. The
zaichik currency collapsed along with the ruble, and citizens are stockpiling
food. Russia supplies all of Belarus's oil and gas and most of its
Moldova's agrarian economy looks to Russia as its main export market. It
relies heavily on imported energy from Russia, too. President Petru Lucinschi
estimates that so far Russia's financial crisis has cost Moldova 5 percent of
its gross domestic product (GDP last year was about $1.85 billion).
Lithuania's GDP growth may fall to 5 percent from 7 percent this year owing to
the Russian crisis, says Gitanas Nauseda, head of policy at the Bank of
Lithuania. Trade with Russia accounts for about 20 percent of exports and
imports. Some ventures have already stopped in the food, transport, and
construction industries.
Latvia's banks suffered from investment in Russian GKOs (short-term debt that
was restructured at a huge loss to investors). The Bank of Latvia calculates
about $300 million, or 8 percent of local banks' assets, were put into GKOs.
Estonia is geared toward the European Union, which it is joining. But it is
hurting from trade with Russia, which accounts for 10 percent of exports and
imports. Producers of dairy, butter, meat, and fish are distressed.
Kyrgyzstan government spokesman Kurmanbek Ramatov hopes that the country's
market, which is the cheapest and most open in Central Asia, will remain
attractive to investors. Shuttle traders who operate in Russia, however, have
been hit by lower proceeds and are orienting business toward other countries,
such as China.
Tajikistan, beset by civil war, is dependent on help from Russia. The prospect
of less Russian support could weaken the regime.
Turkmenistan is a poor country that hasn't fully developed its substantial oil
reserves. It is looking to other regions to increase economic ties.
Kazakstan is potentially Central Asia's richest country because of its huge
mineral resources. Its liberalized economy attracts Western investment.
Foreign Ministry official Akybai Smagulov says the economy is vulnerable
because 36 percent of trade is with Russia.
Authorities are trying to cut spending, limit interbank contacts with Russia,
and seek investors and trade elsewhere, such as in China. The national bank is
considering restricting transactions in foreign currencies. Authorities are
urging exporters not to accept rubles as payment.
Uzbekistan's agrarian economy is based on cotton production. President Islam
Karimov estimates total annual trade with Russia at $1.3 billion, or 15 to 17
percent of Uzbekistan's overall trade. One positive development of the Russian
crisis is increased demand for Uzbek cars, which are cheaper for Russia to
import than Western European models.
Armenia has seen panic buying of hard currency. Banks connected with Russia
halted withdrawals of money. Leana Tamrazyan, spokeswoman for the Finance
Ministry, says the full impact will come later. Hundreds of thousands of
Armenians depend on the wages of relatives working in Russia.
The political consequences may be greater, if Russia can no longer provide
support to Armenia in its conflict with Azerbaijan over the disputed territory
of Nagorno-Karabakh.
Azerbaijan authorities say they can ride out the storm because of the
investment of Western companies involved in oil and gas on the Caspian Sea.
But independent observers say currency exchanges are suspending sales of
dollars and that black-market trading has returned.
Georgia presidential aide Timur Basilya says it will no longer be profitable
for Georgian exporters of wine and mineral water - essential industries - to
sell to Russia and other CIS countries.
Officials worry that Russia's political instability could feed conflict in
Georgia, which is grappling with separatist tensions in Abkhazia and South
Ossetia. The financial crisis is especially hurting these two regions, where
the Russian ruble is in use.


The Independent (UK)
14 September 1998
[for personal use only]
West will reject call for loans to Russia
By Steve Crawshaw in Moscow 

Russia arrives in London today as a supplicant at a specially-scheduled
meeting of the leading industrialised countries, G7. The meeting at Lancaster
House will address the Russian crisis, but the chances of the Russians
receiving any kind of financial satisfaction are slim. 
One concession has been made: Russian officials will be allowed to make an
appearance to make their case directly. But the concept of G8 - in other
words, where Russia was allowed to join the top table, as happened in
Birmingham just a few months ago - has now gone by the board. 
The Russian government had liked to boast of its G8 membership, proving that
it was seen as a leading economic player. But, in the words of Kommersant
daily, "The crisis has shown that that was premature; again, the West has to
save [Russia]." 
The West is less eager to be held responsible for Russia's salvation. As one
Western diplomat in Moscow noted, there is "no chance" of Russia's demands
being satisfied in London today. The general perception is that until Russia
comes up with a credible economic policy, any new loans to Moscow would be
merely throwing good money after bad. 
Most Western governments issued vague or warm endorsements of the new prime
minister, Yevgeny Primakov, when he was approved on Friday. He is regarded (to
use Margaret Thatcher's line on Mikhail Gorbachev) as "somebody we can do
business with." 
But Viktor Gerashchenko, the new chairman of Russia's central bank, and Yuri
Maslyukov, the deputy prime minister who looks set to be the new economic
supremo, are less than natural partners. Both men appear to be enthusiasts for
the command economy, on the one hand, and for printing more roubles to solve
money supply problems on the other. Diplomats say that some of the "welcome,
Yuri" messages released on Friday were penned before Western government
leaders realised the nature of Mr Primakov's chosen economic team. 
One of the main reformist politicians, Grigory Yavlinsky, whose Yabloko party
approved the nomination of Mr Primakov last week, has made it clear that
Yabloko will not participate in the new government because of its current
Boris Fyodorov, a key economic reformer in the previous government, has said
publicly he will not resign. If Mr Primakov sacks him, yet more of the
government's credibility will be squandered. 
Mr Primakov held a meeting yesterday of law-enforcement ministers, including
the new interior and defence ministers, at the headquarters of the foreign
intelligence service (which he used to head); details of the meeting were
In a reminder of the continuing chaos at the heart of Russian policy,
President Yeltsin's loyal press secretary, Sergei Yastrzhembsky, was forced
out at the weekend. Apart from Mr Yeltsin's own daughter, Tatyana, there is
now almost nobody left in the presidential circle of confidants who has
survived the repeated purges of recent years. 
There was a reminder, too, of how murky Russian politics are liable to appear.
The general prosecutor has opened a criminal case for bribery and abuse of
power against Anatoly Sobchak, the former mayor of St Petersburg who was once
seen as a leading light of Russian reform. Mr Sobchak has denied the charges. 


Financial Times (UK)
14 September 1998
[for personal use only]
DEMONSTRATIONS: Russia 'sliding towards command economy'
By Arkady Ostrovsky in Moscow

Russia's abandoned reformers warned yesterday of a dangerous slide towards a
Soviet-style command economy as Yevgeny Primakov, the newly elected prime
minister, prepared his new communist-oriented government to start work today.
Yegor Gaidar, the architect of Russia's first attempt at reform in 1992,
yesterday led a demonstration in central Moscow urging the city's battered
middle class to block a "creeping coup" which could take Russia back to high
inflation and a communist regime.
Only some 200 people turned out to hear Mr Gaidar, however, leaving Mr
Primakov to prepare his cabinet undisturbed.
Mr Primakov was voted in on Friday, ending a three week stand-off between
President Boris Yeltsin and the lower house of parliament. The outcome greatly
diminished Mr Yeltsin's authority and marked a significant shift of power to
the communist-dominated parliament.
Over the weekend, Mr Yeltsin sacked his spokesman and foreign policy aide,
Sergei Yastrzhembsky, who, according to Kremlin sources, had opposed Mr
Primakov's appointment.
Mr Primakov's appointments to date indicate a sharp lurch to the left. Last
Friday, he appointed Yuri Maslyukov to oversee the economy as deputy prime
minister. Mr Maslyukov headed Gosplan, the Soviet-era planning agency, from
1988 to 1991 in the days of perestroika under the then Soviet president,
Mikhail Gorbachev. Though still a communist, Mr Maslyukov is in the party's
moderate wing. On Sunday he told Echo Moskvy radio that he would produce a
plan to stabilise the rouble today.
The Duma has meanwhile approved Victor Geraschenko as head of the Russian
Central Bank. Mr Geraschenko lost that post four years ago after the rouble
collapsed, mainly due to his inflationary monetary policies.
In his first televised interview since his appointment, Mr Primakov said the
idea to return Mr Geraschenko to his old job had come from Russia's powerful
private bankers.
Mr Primakov also denounced what he called the "GKO pyramid", the Russian
government's market for short-term borrowing, which recently collapsed. He
said he would continue to encourage foreign investors to come to Russia, but
only to invest in the "real economy".
Mr Primakov also appointed Igor Ivanov, his former deputy, as the new foreign
minister on Friday. Mr Ivanov is a career diplomat who specialises in European
affairs, but little is known of his politics.
Kommersant, Russia's influential business daily, said the appointment of Mr
Primakov and his communist deputy marked the end of an era for President
"A constitutional coup has effectively take place in the country. Russia,
which was a presidential republic, has become a parliamentary republic."
But Otto Latsis, one of Russia's most respected liberal columnists, said Mr
Primakov's government has unprecedented political support from both the
communists and the liberal Yabloko party to make necessary economic reforms.
"The main problem of all governments in the past few years was the lack of
political resources in order to pursue necessary economic reforms," he said.


Primakov backs Russia power-sharing deal

MOSCOW, Sept 13 (Reuters) - Russian Prime Minister Yevgeny Primakov on Sunday
said an agreement drafted last month to redistribute powers between President
Boris Yeltsin and parliament should now be formally signed. 
``I am in favour of this agreement,'' Primakov told Russia's NTV television in
his first major interview since being approved by the State Duma (lower
chamber of parliament) on Friday. 
``It can be updated and made final if necessary, but it must be signed.'' 
The agreement would pave the way for altering the 1993 constitution which gave
broad powers to Yeltsin, formally give the prime minister a free hand to
appoint his ministers and give parliament greater rights to oversee certain
It was drafted late last month as Yeltsin tried to persuade the Duma to accept
his candidate for prime minister, Viktor Chernomyrdin. 
But it unravelled when the communists, the largest faction in the Duma, backed
out, saying they had no guarantees Yeltsin would stick to its provisions. 
The Duma's communist chairman, Gennady Seleznyov, told Russia's RTR television
that the accord was necessary to enable Primakov to get down to work. 
Asked whether he believed the accord would be implemented, he replied: ``I
think it will, definitely. I want to see the agreement taken through to the
end, and also the text that we have all initialled, even the president.'' 
Seleznyov described the agreement as ``an extraordinarily important document
which, for example, contains guarantees that the new government can do its job
without hindrance. 
``It enshrines the president's obligation not to interfere in the government's
business, that is, it unties the government's hands.'' 
He said the document's provisions to redistribute powers was ``extremely
important for us.'' 


Nuclear Military Complex Workers Start Protests 

Moscow, Sept 7 (Interfax)--Workers in the Russian military nuclear
complex on Monday started a massive protest to demand payment of overdue
wages and payments on the government's defense production order, a deputy
chairman of the Trade Union of Nuclear Energy Workers, Ivan Gradobitov,
told a news conference in Moscow.
The federal budget owes the Nuclear Energy Ministry 3.309 billion
rubles, including 2.769 billion rubles in governmental defense orders, he
said. Nuclear industry workers have not been paid their wages for a period
of three to ten months. Wage arrears in the sector exceed 800 million
rubles, Gradobitov said.
The protest started at the Chelyabinsk-70 nuclear research center, he
said. More than 4,000 people suspended work for one hour and took part in
a rally, he said.
Similar protests will be held in other nuclear centers, Gradobitov
said. Warning strikes have already been staged at two nuclear centers. 
Six nuclear enterprises are in the state of massive labor disputes, hesaid.
Another deputy chairman of the Trade Union of Nuclear Energy Workers,
Vladimir Kashkin, said nuclear industry workers had to protest against
their hopeless situation. "The point is not only that no one can live
without money, especially in closed towns, but also that the country's
defense capacity is threatened," he said.
"It is necessary to keep unique specialists who know everything about
nuclear weapons, create conditions for an inflow of young specialists into
the Russian military nuclear complex, ensure stable operation of
enterprises in the sector, streamline state governance of such enterprises
and ensure the reliability and security of the nuclear arsenal," Kashkinsaid.
All Russians and the whole world are interested in such measures
because "an accident similar to the Chernobyl nuclear disaster must be
averted," he said.
On Tuesday, nuclear industry workers will picket the Nuclear Energy
Ministry in Moscow. On Wednesday, a similar protest will be held in front
of the Finance Ministry, and Thursday the picketers will be standing in
front of the State Duma.


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