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Johnson's Russia List
15 September 1998
[Note from David Johnson:
The briefest of editorial comments: The attempt of Russians
to craft a new and broader political consensus, in the midst
of a huge national tragedy, deserves our utmost empathy and
quiet support. And admiration. Much of the carping about "return
of the old" comes from precisely those who bear some of the responsibility
for the failures of the Yeltsin era. Rather then another round of the
endless preaching at the Russians, its time for saying "I'm sorry...
I acknowledge my guilt." Something like Bill Clinton. The judgemental
attitude should be focused at home. This is not said to limit any comments
or discussion on JRL. Let a hundred swans honk.
1. Reuters: Russia left, liberals distanced from government.
2. Russia Today: Fyodorov Wary of Primakov's Intentions.
3. Chris Kedzie: Primakov and the New Deal.
4. John Wilhelm: A Response to Gordon Humphrey's Query.
5. Reuters: NATO, Russia to Discuss CFE Treaty Revision.
6. Los Angeles Times: Vanora Bennett, Restive Regions Wriggling Under
7. Nezavisimaya Gazeta: Yevgeny Primakov's Triumph at the Duma.
8. Novye Izvestiya: Primakov Has a Unique Chance WILL HE BE ABLE TO USE IT?
9. Moscow Times: John Kenyon, NEWS ANALYSIS: West Wonders if Free Market
Is for Russia.
10. The Times (UK): Why no Russian Franco? Moscow putsch? Not likely,
says Richard Overy.
11. Komsomolskaya Pravda: Paper Speculates on Primakov Cabinet's Composition.
12. Interfax: Poll Shows Russia Becoming More Protest-Oriented.
13. Interfax: Poll: Russians Fear Price Hikes, Hunger Most.]
Russia left, liberals distanced from govt
By Oleg Shchedrov
MOSCOW, Sept 14 (Reuters) - Just three days after voting in Yevgeny Primakov
as a compromise prime minister, Russian Communists and liberals on Monday both
cautiously distanced themselves from his still unfinished cabinet.
Reformist Grigory Yavlinsky, who was the first to name the 68-year-old foreign
minister as a figure acceptable to all political parties, said he had rejected
the offer of a key post in the cabinet because he did not share its economic
The powerful Communist Party and its two parliamentary allies said they would
not propose candidates for ministerial posts until the government had
clarified its programme.
Last week President Boris Yeltsin backed down in his confrontation with the
Communist-dominated lower house of parliament, the State Duma, ditching his
initial choice for prime minister, Viktor Chernomyrdin, and naming Primakov.
All Duma parties, except the ultra-nationalists of Vladimir Zhirinovsky,
hailed the appointment as a step which would usher in a new period of
political consensus and help efforts to end Russia's bitter financial crisis.
During parliamentary debates on his confirmation on Friday Primakov urged the
Duma to grant him their full backing.
``If the Duma is not prepared to give the government decisive support, do not
vote for me,'' he told the 450-seat chamber minutes before winning the support
of 317 deputies. Only 63 voted against him.
But by Monday Duma support for the cabinet, which has only a few approved
members so far and no programme, appeared shakier.
Yavlinsky, head of the opposition liberal party Yabloko, said after meeting
Primakov that he had rejected the post of first deputy prime minister, citing
disagreements with Communist Yuri Maslyukov, who already holds the same rank.
``Yuri Dmitriyevich Maslyukov...holds a different view of the course of
financial and economic policy,'' Interfax news agency quoted Yavlinsky as
Ironically, the presence of the independent-minded Maslyukov, former head of
the Soviet-era state planning agency Gosplan who often ignores his party's
line on crucial issues, has failed to impress the Communists.
Maslyukov, who earlier this year openly backed reformist prime minister Sergei
Kiriyenko and was briefly economy minister in his government, has joined
Primakov's cabinet as an expert on Russian industry rather than as a Communist
A joint statement distributed after a meeting of Communists and their allies
-- Agrarians and People's Power group -- said they would not offer their own
candidates for the government.
``The parties in the National Patriotic Union consider it inexpedient to take
part in the government,'' it said.
Communist leader Gennady Zyuganov later said he was unaware of the statement,
but generally confirmed his party's cautious approach towards Primakov.
In theory, the statements by Yavlinsky and the Communists changed little for
Primakov, who said he would not allow his ministers to lobby for their party
interests in the government.
But it could mean Primakov will lack strong parliamentary support for possible
unpopular measures he is forced to implement, though he still enjoys the
conditional support of centrist groups Our Home is Russia and Russian Regions.
However, the reluctance of major parliamentary forces to share responsibility
with the government could encourage Primakov and members of his team,
including Maslyukov, to pursue a more independent policy.
This may be especially important for Primakov, who still has to decide whether
or not to take into his cabinet some reformist figures like outgoing deputy
prime minister and tough monetarist Boris Fyodorov.
``The logic is quite elementary. Either the Duma shares responsibility and
enjoys influence on the government, or it steps back and lets the cabinet act
on its own,'' one government official said.
``Without Duma backing Primakov may have many more headaches fighting the
crisis but he will also have more room for manoeuvre,'' the official added.
September 14, 1998
Fyodorov Wary of Primakov's Intentions
Acting deputy prime minister fears economic plans are sliding away from West
MOSCOW -- (Staff Report) Reformist Boris Fyodorov, the acting head of
Russia's tax service and deputy prime
minister, is warning leaders of the G7 industrialized nations to hold off
financial support for Russia until the new government makes known its full
"We don't have a government yet and we don't know (Prime Minister Yevgeny)
Primakov's full intentions," said Fyodorov, in an interview with Russia
Today on Monday -- the same day he was due to find out whether he will keep
Fyodorov warned that Primakov has been vague is in his suggestions for how
to revive Russia's troubled economy. But with at least two Communists
pegged for key positions in the new government -- notably former Soviet-era
planning chief Yury Maslyukov as first deputy prime minister -- Fyodorov
says he fears the country will adopt policies the West will not like.
"It is obviously doubtful that (Maslyukov) and his colleagues from the
Communist Party and parliament can deliver a plan that is compatible with
IMF principles," he said.
The IMF is scheduled to send a multibillion-dollar payment to Russia this
month based on an agreement from earlier this summer. IMF leaders, however,
have said they will not send the money unless Russia shows a commitment to
continue the reform process. Fyodorov said Monday that indications are
pointing toward more state control and away from free markets.
Fyodorov said he is specifically concerned the government will favor fixing
prices and printing more rubles as a short-term fix to Russia's problems.
He ruled out a full return to a command economy, because Primakov "is not
But he still senses a "major change in direction. What direction that will
be, however, nobody yet knows."
Fyodorov has apparently decided to stay on with the Primakov government, so
long as it adopts the economic reforms he advocates. He indicated he
expected to be let go, however, perhaps as early as today.
Primakov has assured foreign creditors that he intends to pay off Russia's
debts while paying workers their wages. Fyodorov believes the two goals are
impossible without printing money. And once money starts to be printed,
it's hard to turn back, he warned.
Date: Mon, 14 Sep 1998
From: "Chris Kedzie" <C.KEDZIE@FORDFOUND.ORG>
Subject: Primakov and the New Deal
On September 10, Reuters quoted Primakov from a speech to
Britain's Royal Institute of International Affairs saying that "Russia
should take a lesson from the New Deal programme adopted by the United
States during the Great Depression of the 1930s." RIIA has no written
record of his speech. Is there anything on public record of Primakov
citing the New Deal as source for ideas out of the crisis?
Date: Mon, 14 Sep 1998
From: John Wilhelm <email@example.com>
Subject: A Response to Gordon Humphrey's Query.
I would like to respond to Gordon Humphrey's query as to whether there
are readers of Johnson's Russian List who have formulates serious and
practical solutions to Russia's economic and fiscal problems. I wished
that I could say that I have done so, but I am not sure that anyone could
make such a claim. But I do have some strong convictions on some of the
issues here and would like to share some of them should they be of interest
In 1990 when I sent in copies of Boris Brutzkus's remarkable 1921-22 essay
on the socialist economic system to people in the Soviet Union
which resulted in the article being reprinted in Novy Mir (#8, 1990), I
did so along with a copies of my letter in Russian to M. Gorbachev about
the importance of the article. In my letter to Gorbachev, I argued that
the persecution of economists like Brutzkus after the Revolution had
decimated economics as a discipline in the Soviet Union and suggested
that if he wanted to carry out a successful policy of economic reform
he needed to recognize this fact and consult with economists outside
of the Soviet Union who knew both the Soviet economic system and the
market system. And in the letter I gave him the name of the following
economists: Jan Winiecki in Poland, Janos Kornai, Thomas Bauer and
Martin Tardos in Hungary and Aron Katsenelinboigen and Igor Birman,
former Soviet economists who had emigrated to the United States.
I think that this advice is still sound, though I might add the names
of Leszek Balcerowicz, the father of the Polish economic reform,
Andrei Illarionov, a well know young Russian economist, and perhaps
Marshall Goldman, one of the few competent Russian/Soviet observers
in the United States. As I see it, the basic failure of the reforms
in Russia has been that they have not been, what I would call, well
structured. That is, much of what has passed for economic reforms
there has been arbitrary ad hockery often carried out by politicians
and economists who have not seemed to understood very well what they
were doing or had to do to improve the situation.
If Primakov is serious about carrying out an effective reform, I
believe that he first needs to educate himself about the economic
policies that he needs to pursue by talking with people like the
above. And he would also need to carry on a discussion with the
society itself to develop a consensus and understanding about what
needs to be done. Without this, I do not see in the Russian context
a very realistic possibility of being able to carry out successful
One problem here, is the political structure. Some time ago Anders
Aslund commented that economists have not given the issue of what is a
suitable political structure for promoting the needed economic changes
the attention it needs. While I disagree with Aslund on some things,
I do think that he was very right on this issue. I believe that the
failure to systematically go through and de-sovietize the Russian
political system was one of the most serious mistakes made. I still
believe that it would be useful to have a constituent assembly to
consider the question of designing a political structure that would be
more conducive to meeting Russia's current needs.
Given the paucity of experience in normal civic affairs that characterizes
the Russian population, any serious effort to restructure the government
requires working with people who have had experience in more normal
structures to come up with ideas. It also requires working with people
who would have a good knowledge of Russian/Soviet conditions and of the
workings of more normal political structures. On the former group, I
could come up with a list of names that might include people like Lord
Carrington, the former British Foreign Secretary and head of NATO, Roy
Jenkins the former head of the EEC, and Helumt Schmidt. But on the
latter group, I must confess that I have no idea on whom one could call,
given what I perceive to be the serious weaknesses of our own specialists
in political science.
The essence of my argument is that, given the legacies of the Soviet
system, what the country lacks most is good intellectual capital in
the areas of economics and political science that can be applied to
the task of reform and that in such circumstances it makes sense to
try to use some of the capital in this area that others might have.
Had we done much more to provide opportunities for Russian students
to study here on a large scale like the Chinese enjoyed, perhaps
we could have done a lot to also help in this area. Perhaps it
is still not too late for this and perhaps it would be useful for
a group of people on both sides, in Russia and here, to work together
for the purpose of putting forward ideas that could help sort the
process out and help develop a consensus as to what we can do
There is no magic solution such as a person or persons (a Russian
Pinochet or a Russian Erhardt) who can solve the problem. What there
is is process of trying to apply intellectual capital to a structured
process of designing the, first political, and then the economic
reforms that can give the Russians the improvements they desire.
Perhaps if the current leadership could promote this, we here could
ask the question of what we are willing to do to assure its
success--something the Bush and Clinton administrations have never
really struggled with.
NATO, Russia to Discuss CFE Treaty Revision
September 14, 1998
BRUSSELS -- (Reuters) Updating the Conventional Forces in Europe (CFE)
treaty, signed in 1990 with the defunct Warsaw Pact, will be the main item
Wednesday on the agenda of this month's meeting of the joint NATO-Russia
council, diplomats in Brussels said.
NATO was previously opposed to letting the NATO-Russia council take up the
CFE issue for fear of short-circuiting official negotiations within the
framework of the Organization for Security and Cooperation in Europe (OSCE)
which have been underway in Vienna for more than two years.
But NATO leaders recently agreed to a Russian request to put the CFE on the
agenda of the joint council, in the hope that it might break the deadlock
in the negotiations which are stalled over Russian demands for exemptions
from some weapons ceilings agreed in the treaty.
With NATO due to take in the former Soviet satellites Poland, Hungary and
the Czech Republic next year, NATO and Russia felt they should "intensify"
efforts to adapt the treaty to the changed situation in Europe since the
end of the Cold War, one diplomat said.
Moscow has warned NATO that if the alliance goes ahead with enlargement
before there is agreement on revising the CFE treaty, Russia would consider
the treaty null and void.
"The faster we go forward in these negotiations, the better that is for
NATO," the diplomat told AFP, adding that NATO did not want to see the
enlargement process "made a hostage" to the CFE talks.
The CFE treaty was signed in November 1990 by the 16 members of the North
Atlantic Treaty Organization and the 14 members of the former Warsaw Pact.
The treaty, which set ceilings on conventional (non-nuclear) arms in Europe
was based on a "bloc-to-bloc" concept that no longer applies in Eastern
In 1996, NATO proposed negotiating a new treaty "between states" no longer
based on military blocs. It made a number of so-called "flexibility"
proposals for the "flank" zones stretching from Saint Petersburg to the
Caucasus and from Norway to Turkey and also on "verification" procedures.
"We must revive the talks with the Russians and we hope they will be more
flexible at the NATO-Russia council than they have been up to now in
Vienna," a diplomat said.
Moscow is seeking a maximum of facilities to deploy its troops in the
troubled Caucasus region and wants as far as possible to keep NATO away
from its own borders and stop it basing weapons on the territory of the
three new East European members.
When the Founding Act of May 1997 which created the NATO-Russia permanent
council, was being drafted, NATO countries made a number of proposals aimed
at reassuring the Russians about eastward deployment of NATO infrastructure.
They said they had no plan to deploy nuclear weapons or permanently station
troops on the territory of the new members, preferring instead to
"strengthen" military capacity only when the need for it arose.
According to a NATO diplomat, it is also in Russia's own interest to
finalize the revision of the CFE treaty before the scheduled date for NATO
enlargement next April.
Until enlargement actually comes about, Moscow is in a stronger position to
influence the discussions. Afterwards, it would be more difficult, the
NATO diplomats said they were hoping that some "progress in principle"
would have been achieved by the time OSCE foreign ministers met in Oslo on
Dec. 2 and 3.
A new CFE treaty might be ready by the autumn of 1999 for a summit of OSCE
heads of state, they said.
Los Angeles Times
September 14, 1998
[for personal use only]
Restive Regions Wriggling Under Moscow's Thumb
Russia: Local leaders use political and financial collapse at
center to gain power over their economies.
By VANORA BENNETT, Times Staff Writer
MOSCOW--Worried that they will be destroyed by the financial and
political collapse in the Russian capital, the far-flung regions of this
giant country are trying to save themselves by getting out from under
Regions from east to west have been using the chaos in Moscow to seize
more power, declaring their own states of "economic" emergency to justify
possibly illegal price controls.
Last week, powerful Krasnoyarsk Gov. Alexander I. Lebed signaled that
restive regions could go further still--by bringing in their own currencies
to escape the consequences of the Russian ruble's collapse and what he
called the central government's "forced passivity." This, he told national
ORT television, would signify the beginning of the dissolution of Russia.
The possible consequences of growing regional power are a hot topic in
"Ultimately, Russia may become a contemporary Holy Roman Empire with a
wide-ranging spectrum of political regimes, from anti-Semitic dictators in
the Krasnodar region to a corrupt patriarchal regime in Moscow and liberal
capitalism in Novgorod," political analyst Yuliya Latynina said.
"From a purely economic point of view, such an outcome may actually be
a welcome one. . . . However, the problem with this particular outcome is
that the West would have to deal with 88 nuclear powers . . . with leaders
no more competent than Saddam Hussein or Moammar Kadafi."
The confirmation Friday of a new prime minister, former Foreign Minister
Yevgeny M. Primakov, may calm regional leaders' immediate political
fears--that Moscow's leadership has imploded and they must fend for
themselves. Until Primakov's confirmation, President Boris N. Yeltsin and
parliament had been at an impasse over who could run the country.
But the underlying cause of the political crisis is an economic
catastrophe that cannot be voted away. Even though the country has a new
prime minister, many of Russia's 150 million people are still in dire
straits now that the ruble, banking system and markets are crippled.
The Russian Federation is a patchwork of 89 republics, regions and
territories stretching over 11 time zones. Only a few of them are rich
enough--in gold, diamonds, timber or oil--to contribute to the federal
budget. Eighty survive at least partly on subsidies from Moscow. The rich
few, and ethnically non-Russian republics, have long harbored desires to
escape Moscow's control but been kept in check by the might of federal
Now, however, those central structures are weaker than they have been
since the Soviet collapse in 1991. The government and Central Bank are in
crisis. Tax collection and payment of state-sector wages are paralyzed.
A more long-standing indicator of an imperiled federal system is
Russia's military disintegration, a constant feature in the post-Soviet
period, noted Graeme Herd, deputy director of the Scottish Center for
International Security at the University of Aberdeen.
"The army has ceased to exist as an effectively coordinated entity. Only
key elite units have fuel or back pay, and even their loyalty is under
question," Herd said. "Across Russia, many military units have, in effect,
The regional power grab, however, is only an acceleration of a process
that has been going on quietly for some time, said the highbrow daily
"De-privatization is in full swing in the provinces," the newspaper
said. "It is not nationalization, because property is taken from private
hands and returned to regional bodies and not to national, federal
institutions. This process is going on in all regions regardless of their
governors and electorate."
The strengthened regions have also been trying to take property away
not only from private owners but also from the center. Noviye Izvestia said
the regions are increasingly insisting on the right to control their own
Not only that, but regions are adopting laws that differ from federal
ones. While the lower house of parliament, the Duma, opposes private
ownership of land, for instance, the Saratov and Novgorod regions trade in
land, and the region around Moscow is following suit. Tatarstan and
Bashkortostan, ethnic republics in the region of the Volga River, want to
create their own judicial systems.
The paper said regions are increasingly insisting on keeping part of
the taxes they collect for the federal budget to offset delays in payments
due from the chronically inefficient center. They are also trying to remove
barriers to borrowing directly from abroad and want greater freedom to
organize their own banking systems and budgets.
Although government administration chief Igor Shabdurasulov said
indignantly last week that "declaring a state of emergency in Russian
territories is the sole prerogative of the president," Moscow seemed
powerless to enforce its views on increasingly powerful regional governors.
"By regulating prices, I certainly place myself on the brink of
violating the law, but I consider these actions quite warranted," Lebed
boomed as he imposed an emergency economic regime on his Siberian
territory. "The emergency situation forces me to take emergency measures."
Other regional bosses have joined Lebed in introducing possibly
illegal price-capping measures: the coal-mining Kuzbass basin in Siberia;
the oil-rich Tatarstan republic on the Volga; the Communist-sympathizing
Voronezh region of southern Russia; Kaliningrad, a military exclave beyond
the nation's main western border; the Arkhangelsk and Murmansk regions in
the far north; the mostly agricultural Chuvash republic; Bashkortostan in
the southern Ural Mountains; and northern Russia's Vologda region.
Prices Are Rising While Wages Lag
The danger that governors say they are trying to avert is real.
Russian consumer prices went up 36% in the first week of September alone;
in some regions, such as the Far East's Nakhodka free trade zone, prices of
staple foods soared 200% to 300%, according to the Itar-Tass news agency.
But wages are not going up, and Russia's harvest this year is believed to
be down nearly 50% from last year's.
Imported goods make up 60% or 65% of food products sold in Russia--and
up to 85% in Moscow. But they have stopped coming.
Many foreign companies are canceling deliveries to Russia because they
have no faith in Russian banks, while Russian import companies have stopped
buying abroad because they cannot afford customs duties or are afraid they
will be unable to exchange rubles for dollars.
Andrei A. Kokoshin, secretary of the Russian Security Council before
his dismissal last week, sought to reassure the country, saying there is
"no danger of famine in Russia" because there are still 18 million tons of
grain from last year's harvest in stock. But he admitted that the situation
is "dangerous" in several regions, such as the Pacific coast territory
One of the main tasks facing the incoming central government will be
winning the regional governors' support. But federal officials will have to
pay for it.
Greater Conflict Seen Between Moscow, Periphery
Aberdeen University's Herd warned that increasing conflict is likely
in the near future both between Moscow and the outlying regions and between
"donor" and "consumer" regions.
"Russian center-periphery relations would then be governed by a
vicious spiral of vice: As federal subsidies dry up, tensions between
counter-elites in dependent regions are exacerbated, and competition for
control of the limited handouts then becomes more intense, leading to
disorder and higher levels of corruption," he said.
Possible later outcomes, he said, might then include the unraveling of
federal control into a confederation of regional blocs, with consequences
ranging from "a protracted and unstable assimilation of the confederation
by the regions" to the "final and most frightening outcome," civil war.
"At present, the disintegration scenario has yet to be substantiated
by events--but nevertheless remains waiting in the wings," Herd said,
"should the meltdown of federal structures continue."
But, he added, continued uncertainty is the likeliest outcome: "It is
more likely that the current federation will retain its patchwork 'unity,'
as stagnation, disintegration and democratization processes continue to
September 12, 1998 (?)
Yevgeny Primakov's Triumph at the Duma
THE POWERS IN RUSSIA HAVE AGED 20 YEARS. IT IS IMPORTANT THAT THE SAME
THING NOT HAPPEN IN POLITICS.
Yevgeny Primakov's 10-minute speech to the Duma on Friday contained
statements that both the left and the right, patriots and pro-Western
politicians, wanted to hear. Everyone was happy with the candidate for the
premiership, except ultranationalist Vladimir Zhirinovsky, and this
resembled the old Communist party plenum, the daily wrote.
The daily published pictures of leading economic and political officials,
saying it appears that there are none younger than 60.
The daily said it pitied liberal economist Grigory Yavlinsky, the Yabloko
faction leader who was the first to support Primakov's candidacy, because
the new premier will not likely use any provisions of Yavlinsky's economic
The daily added that the threat of the Communists' revenge is becoming very
real, and once again the Russian people are not participating in decisions
about their fate, which is now being discussed in closed meetings of the
The Vice President and Others
Editor-in-chief Vitaly Tretyakov wrote that Yevgeny Primakov, who was
approved as the new prime minister on Friday, will in fact play the role of
vice president of the country.
He said the confirmation is most positive, because it ended the political
crisis that had dragged on for three weeks. For the first time in its
history, Russia has passed through a crisis without using the measures of
dictatorship. He noted that although top officials and Duma deputies were
ready to draft a dictator, which could have been Moscow Mayor Yury Luzhkov,
Krasnoyarsk Governor Aleksander Lebed or Communist leader Gennady Zyuganov,
this did not happen.
However, it is not clear yet whether Primakov will secure the country from
a new redistribution of property, which Tretyakov termed economic civil war.
Primakov's advance has greatly reduced the potential of the presidential
ambitions of Luzhkov, Lebed and Zyuganov, because it means that elections
will not take place soon, as it was expected during the crisis.
September 12, 1998 (?)
Primakov Has a Unique Chance WILL HE BE ABLE TO USE IT?
Otto Latsis wrote that the president fronted Yevgeny Primakov's candidacy
for the premiership because he did not want to dissolve the Duma, which
would have been unavoidable if he had introduced Victor Chernomyrdin as his
nominee for the third time.
The dissolution of parliament would have been absolutely legitimate, Latsis
emphasized, but the outcome would have been hard to predict, because the
president's political support has weakened.
This move has given the executive powers new strategic opportunities to
conduct economic reforms, because Primakov does not carry the burden and
responsibility of past errors in economic policy.
Latsis said he hoped that Primakov will be able to reject the advice of the
Communists. Yury Maslyukov, the first deputy premier in the new government,
may be offset by Boris Fyodorov, if the latter remains head of the tax
service and deputy premier.
Well-Known Faces Again
Novye Izvestiya wrote about Victor Gerashchenko, who was appointed the head
of the central bank, replacing Sergei Dubinin.
According to the author, Gerashchenko used Soviet methods of management in
his work as the USSR state bank chairman from 1989-91 and central bank
chairman from 1992-94.
He conducted two monetary reforms (in 1991 and 1993), when people had to
rush to banks to change 50- and 100-ruble notes to new money. They had to
explain the source of the money in the first case, and, in the second, the
volume of exchanged money was limited to 35,000 rubles. Many economists
admit, however, that Gerashchenko is a very experienced and professional
From 1992-94, Gerashchenko had tough confrontations with Deputy Prime
Minister Boris Fyodorov, who was responsible for economic policy. At the
time, Fyodorov spoke about the need to dismiss Gerashchenko many times.
They will hardly be able to work together now, the daily concluded.
September 15, 1998
NEWS ANALYSIS: West Wonders if Free Market Is for Russia
By John Kenyon
The new government headed by Prime Minister Yevgeny Primakov and his Communist
ally, First Deputy Yury Maslyukov, seems destined to enact some sort of
protectionism for Russian industry.
"The state should interfere in the economy and regulate many economic
processes," Primakov said in a speech before the State Duma last week with
rhetoric that until recently would have sent foreign lenders into a tizzy.
But as Russia's financial crisis deepens and the gateways to foreign financing
slam shut, Western economists and analysts are beginning to ponder the concept
that maybe -- with its barter trade and hidden subsidies -- Russia was never a
free market at all.
And by that token, maybe -- just maybe -- protectionism has its place.
"People are starting to think the unthinkable," said Ed Butchart, an economist
and equities strategist for Merrill Lynch in London. "A number of people have
felt, certainly myself included, that in light of what has happened in Russia
recently, we were deluding ourselves in thinking there was a market economy.
"Maybe some sort of protectionism makes sense for Russia if it's not a market
economy," Butchart said.
This sort of talk coming from such a citadel of capitalism as Merrill Lynch
would normally be heretical, but Butchart is not alone.
"In theory it's not illogical to say that companies that are facing temporary
liquidity problems should be assisted to get them through these problems so
that in the future they can continue to operate," said another Western
economist, who asked not to be identified.
"In theory, that's not an illegitimate stance," he said. "But the issue is if
that's really what's going to be implemented."
That is the point where Western economists say their views and those of the
current Russian government probably will diverge.
Many analysts say a case can be made for temporary import tariffs to help a
local industry become competitive.
David Riley, an economist with the international credit ratings agency Fitch
IBCA, had praise for a 3 percent surcharge on imported goods that former Prime
Minister Sergei Kiriyenko's government had promised to introduce.
"[This] was a reasonable thing for the Russian authorities to announce," he
said. "It is tax-based and not excessively discriminatory and ... is seen as
temporary -- so if they push ahead with [the tax], it wouldn't necessarily be
such a bad thing."
But Riley warned against more disruptive forms of protectionism, such as
"The real danger of [import quotas] in the Russian context is that A, these
aren't temporary, and B, that they just lead to corruption and graft," he
But many fear import quotas are precisely the type of measures that the
government will take.
"That's a danger with this particular government," Riley said. "That
protectionism is a way of putting off reform and not a way of saying 'OK guys,
you have 12 months to get your tractor manufacturing company competitive and
then we're going to phase out import tariffs."
With quotas, society ends up paying to support noncompetitive industries, said
Arnab Das, emerging markets strategist for J.P. Morgan.
Das said he was against any sort of barrier to free trade, be it an import
quota or import duty. But tariffs -- short-term -- were better than quotas, he
"[Protectionism] is a burden that's going to be distributed across the economy
to support that sector," he said.
Though some have argued that long-term protectionism in such a politically
unstable environment as Russia would prevent riots by unemployed workers, Das
said that ultimately, protectionism would become too expensive to maintain.
"That's what central planning was all about," he said. "It was that policy
writ very very large across the economy as a whole."
"It's a slippery slope," he said. "You start to protect one industry here and
another there and pretty soon you've ended up having rigged the whole
The Times (UK)
September 15 1998
[for personal use only]
Why no Russian Franco?
Moscow putsch? Not likely, says Richard Overy
The author's latest book, Russia's War, is published by Penguin.
Ever since the collapse of the Soviet system there have been persistent
rumours of a military takeover in Russia. There is a rough logic. The Cold
War rationale that supported vast military expenditure and a special place
for the military leadership in public life has gone. The Soviet Empire has
fragmented, leaving Russia, like Britain in the 1960s, looking for a new
national role. Russian society and economy are in deep crisis, reflected no
less in the decline in the morale and performance of the Russian Army in the
savage war in Chechnya. This is the stuff of military coups the world over.
Above all there is General Aleksandr Lebed perhaps waiting for his chance
to be Russia's Franco; a forceful personality, perhaps a man of force, whose
time will come. Why, then, has it not happened? The simple answer is that
this is Russia, not 1930s Spain. One striking fact from Russia's
roller-coaster century is that the military has never taken over the ruling
of Russia. It tried with Kornilov in the summer of 1917, but it is not clear
that even had he succeeded he would have made himself military ruler of
Russia. Otherwise, despite the size and influence of the vast apparatus at
its command, the military has avoided overturning the regime.
This has not stopped speculation in the past. In 1937 Stalin, unduly
influenced by the false trails laid by his own security chief, the evil
Yezhov, destroyed the army leadership around the flamboyant and successful
Tukhachevsky. He and his fellow prisoners were forced under torture to admit
that they had conspired with German generals to overturn Stalin, but there
has never emerged a shred of evidence to suggest anything of the kind. The
leading marshals were shot, but most of those purged were later reinstated.
They included men who had every reason to hate their leader, but they never
did what the July Plotters tried to do to Hitler.
After the Second World War Stalin was so consumed with envy of the
victorious Red Army stars that he banished or imprisoned scores of them.
Suspicion rested on Stalin's wartime deputy, Marshal Zhukov. The KGB dossier
suggested that Zhukov was plotting to overthrow Stalin. He escaped death,
but was insultingly sent to command the Odessa military district. Again
there was not a jot of truth in the allegations, though poor Zhukov was
sacked again by Khrushchev in 1957 because of the lingering whiff of
Modern Russia has no tradition of the pronunciamento. General Lebed, if
he harbours such ambitions, will be breaking new ground. Hitherto the
Russian Army has produced a narrow functional elite, technically versed but
politically naive. From the early 1930s to the 1980s generals were happy to
enjoy the priority given to the military-industrial complex at the expense
of a sensible policy on living standards. From 1945 the Soviet regime traded
on Red Army victory over Hitler to legitimise the Communist system and
generals remained high in its pecking-order. But the relationship between
army and society is changing rapidly. It is no accident that veterans awash
with medals front the protests with icons of Stalin.
General Lebed is much more likely to become the power behind someone
else's throne. If there is any precedent worth exploring, it is the
tradition of the harsh security state in Russia. When there was dirty work
to do in the revolutionary civil war it was done by the Cheka. When Stalin
wanted the peasants collectivised the conscript army proved so unreliable
that the element of force was left to the NKVD security troops.
During the Second World War the loathsome Beria purged and punished
thousands of soldiers of every rank. After the war the KGB and Smersh (the
military counter-espionage bureau) kept the Red Army in check. Khrushchev
was one of thousands of Communist Party leaders assigned during the war to
keep a political eye on the Red Army, and the "commissar generation" never
lost the habit. The bridge between politics and force in Russia has been
built by secret policemen, not soldiers.
There is no reason to suppose that this is not still the case. The
generals have had time to shunt President Yeltsin aside and establish
military authority. Soldiers unpaid for months, subject to a regime of
corruption and abuse that has echoes of the ramshackle army of the 1920s,
have reason enough to rebel, but it has not happened.
A temporary parliamentary alliance may be formed that enjoys sufficient
popular goodwill to begin a programme to recover some of the power the State
forfeited so readily in the early 1990s, to restore economic health and
respect for the law. But it is just as possible that the rule of law will be
imposed by a leader whose credentials are those of the security apparatus
that held the Soviet Empire together. The army might well prefer the
nationalism and authoritarianism of the old order to the crisis of
decomposition it confronts. Whatever the outcome, Russia's generals should
learn from Tukhachevsky and Zhukov and watch their backs.
Paper Speculates on Primakov Cabinet's Composition
12 September 1998
[for personal use only]
Report by Aleksey Makurin and Vasiliy Ustyuzhanin:
"Maslyukov, Gerashchenko and Volskiy Arrive. Memories of Times
Past? It Seems That the New Russian Government Will Consist of
the Heroes of Days Long Gone"
Yevgeniy Primakov faces a dilemma -- how to retain the West's
confidence and at the same time not disappoint the opposition's hopes.
This will determine whom he invites into his cabinet. He has already paid
a tribute to Zyuganov and company. Yesterday morning, just before the vote
on his candidacy in the Duma, he stated that he would like to see Yuriy
Maslyukov, a former colleague in the CPSU [Communist Party of the Soviet
Union] Central Committee Politburo and head of the Soviet Gosplan [State
Planning Committee], as first vice premier. Viktor Gerashchenko, another
economist with a left-wing reputation, has the best chance of becoming
Central Bank chairman, a post which he quit in 1994 after "Black Tuesday."
Maslyukov will most probably be put in charge of the economy (the
national economy). He will direct industry, foreign trade, agriculture,
and planning, which is very close to his heart. It goes without saying
that Yakov Urinson will not remain at the Ministry of the Economy, which
will be under Maslyukov's supervision. Who will replace him? It is not
ruled out that it will be Yuriy Voronin, one of the leaders of
Khasbulatov's Supreme Soviet who is close to Maslyukov in terms of views
and work on the Duma Economic Committee.
To replace the insipid Viktor Semenov at the Ministry of Agriculture
and Food, Primakov is being offered another two well known Duma members --
Gennadiy Kulik, former agriculture minister in the RSFSR [Russian Soviet
Federated Socialist Republic], and Aleksey Chernyshev, another member of
the agrarian nomenklatura. And Arkadiy Volskiy would like to become
minister of industry and trade. Primakov's friendship with him goes back a
long way.Friendship is one thing but the government cannot get by without
professionals with modern economic ideas. The choice here is not great.
It boils down to members of the Kiriyenko cabinet -- Vice Premier Boris
Fedorov, Finance Minister Mikhail Zadornov, and Labor Minister Oksana
Dmitriyeva. They have a chance of retaining their posts. There could be
new people from Yabloko, which was first to put forward Primakov's name in
the Duma. Grigoriy Yavlinskiy is ready for the first time in recent years
to discuss working in the government without conditions. But if the new
premier invites him to become his deputy, Boris Fedorov will not be
alongside him: Two bears do not get on well with one another in the samelair.
There is a problem with the post of vice premier for social questions.
There are few takers for the dirty job that Oleg Sysuyev used to have.
Could they not offer it to one of the governors? Samara Oblast's
Konstantin Titov, for example?
There are several predictions to fill the vacancy at the Foreign
Ministry. Igor Ivanov, the incumbent deputy foreign minister, and
Yabloko's Vladimir Lukin, chairman of the State Duma Committee for
International Affairs, are the best bets. The incumbent leaders of the
Ministry of Fuel and Energy, the Ministry of Atomic Energy, the Ministry of
Education, the Ministry of Health, and the Ministry of Culture will most
probably retain their posts. Everything is clear regarding the power
ministries -- the president has already appointed them. But there is talk
that Andrey Kokoshin, dismissed from the post of Security Council
secretary, will be sent to the government to coordinate their work at vice
premier rank.Possibly it will become known this weekend who is actually going
to fill the suites at the White House. The country has lived for too long
without a government to put this question on the backburner.
Poll Shows Russia Becoming More Protest-Oriented
MOSCOW, 10 Sep (Interfax) -- The latest political, financial and
economic developments have sharply increased the potential of Russian
citizens to participate in actions of protest or strikes, the Public
Opinion fund told Interfax Thursday [10 September].
Whereas in September 1997 only 17% of the Russian citizens said they
planned to take part in actions of protest, in September 1998 this
percentage increased to 27%, according to opinion polls held by the fund
on September 20, 1997, and September 5, 1998.
As a rule, the number of people who say they are ready to join
protests is much greater than the number of those who actually join
demonstrations: only 8% of Russians say they have ever taken part in a
protest or strike. However, the statements attest to growth or decrease in
public discontent, and to the population's protest potential.
Some 71% (1997) and 59% (1998) did not intend to protest, and 13% and
14% were undecided.
Whereas a year ago 26% of Russian citizens expected a growth of
massive protests in their home regions, territories and republics, now 58%
expect such developments. Seventy-six percent of those polled expected an
increase in protest activity in Russia as a whole, compared to 38% in the
autumn of 1997.
Poll: Russians Fear Price Hikes, Hunger Most
MOSCOW, 10 Sep (Interfax) -- In the current turmoil Russians fear
total price growth most of all, according to a poll of 1,500 urban and
rural residents conducted by the Public Opinion Foundation on September 5.
Of the 13 possible answers, price hikes were called the greatest
threat by 49% of respondents, hunger by 43%, an end to the payment of
pensions and wages by 38%, mass unrest by 29%, mass unemployment by 24% and
shortages of goods by 15%.
The least given answers were the separation of individual regions from
Russia (3%), the limitation of political and civil rights (3%) and foreign
Some 49% of those polled said they would prefer availability of all
goods but at higher prices, compared to 32% who wanted goods to be sold at
moderate prices but by cards and coupons.