September 16, 1998   

This Date's Issues: 2376• 2377 ••

Johnson's Russia List
#2377
16 September 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Stephan De Spiegeleire: Scenarios?
2. Radiostantsiya Ekho Moskvy: Russia's Gaydar Views new Government, 
'Economic Coup.'
3. Itar-Tass: Primakov Outlines New Government's Priorities.
4. Reuters: Russia recovery will be difficult, Camdessus says.
5. Moscow Times: John Kenyon, Experts Debate Printing Rubles to Pay Off 
Wages.
6. Moscow Times: Natalya Shulyakovskaya, Cabbage Is Wealth in Cash-Free
Villages.
7. TASS Profiles New Russian Foreign Minister.
8. USIA: TEXT: AMB. SESTANOVICH SEPT. 15 ON U.S.-RUSSIA RELATIONS.
9. Vlad Signorelli: excerpt from Jude Wanniski.
10. Jamestown Foundation Monitor: PRIMAKOV TELLS GOVERNORS TO TOE 
THE LINE and NO FOOD FOR RUSSIA'S SOLDIERS. 
11. Interfax: Luzhkov Urges Government To Revise Privatization Results.
12. Fred Weir: end of oligarchs?]

*******

#1
Date: Wed, 16 Sep 1998
From: Stephan De Spiegeleire <sdspieg@compuserve.com>
Subject: Scenarios?

Does anybody have any knowledge of or has anybody been working on scenarios
for the further development in Russia that they could share with JRL
(either the texts themselves or at least the cites)? And on a related
topic: can anybody tell me whether there is an Internet-based
clearing-house for 'operational' ('operativnye') commercial or public
analytical products about the current situation in Russia from the numerous
excellent analysts and think-tanks in Russia (like the truly remarkably
prophetic paper by D.A.Mityaev, which can be found on
http://ethereal.ru/kprk/referat.html). In the meanwhile, there are so many
places like www.russianstory.com or others like it where the more
'journalistic' press can be found at realistic prices. But anytime I go to
Moscow myself, I invariably come back with at least a couple of excellent
papers by Russian analysts for which I'm sure there must be a market in the
West - so even if such a clearing-house doesn't exist, isn't there an
entrepreneurial Russian middle-man out there who could set something up?

Stephan De Spiegeleire Western European Union
Tel. 33-1-53672200 Institute for Security Studies
Fax. 33-1-47208178 43, avenue du Président Wilson
75775 Paris CEDEX 16
weu_iss@compuserve.com France
Homepage: http://ourworld.compuserve.com/homepages/sdspieg

******

#2
Russia's Gaydar Views new Government, 'Economic Coup'
Radiostantsiya Ekho Moskvy 
14 September 1998
[translation for personal use only]
Interview with Yegor Gaydar, leader of Russia's Democratic
Choice and director of the Institute of Economic Problems of the
Transitional Period, by Petr Zhuravlev -- live

[Zhuravlev] Hello, Yegor Timurovich.
[Gaydar] Hello.
[Zhuravlev] We will, of course, go straight to the situation as it is
after the State Duma confirmed Yevgeniy Maksimovich Primakov, and my first
question is this: Not much time has elapsed since 11 September, not much
time at all. But in the democratic camp, if we may call it that, there
have already been some apocalyptic statements. Do you not think that you
are jumping the gun a little? Because very little is known as yet. We only
have four people known to be in the government. You are already saying
that it is clear that the government is bound to destroy the elements of
the market economy.
[Gaydar] In saying this I am basing myself on objective political
facts. I know full well that the Duma majority, in which the Communists
played the main part, have during the past few years -- and the past few
months especially -- done everything to destabilize the financial situation
in the country and to undermine financial stability, by constantly passing
financial laws not backed up by funds, by refusing to adopt Kiriyenko's
stabilization measures, and so on.
I know that today the majority objectively found itself in a position
of support for the government of Yevgeniy Primakov. The man who has been
appointed first deputy prime minister, the first deputy prime minister with
responsibility for finances [Yuriy Maslyukov] is an intelligent enough man,
but he is the former economic leader of that majority, who headed the
economic policy committee of the State Duma.
This gives me the grounds for arguing that the policy of this
government will be pretty closely allied with the economic policy advocated
by the Duma majority. It is a policy directed at destroying financial
stability and at dismantling market mechanisms, or at least at undermining
them, is quite obvious.
I emphasize once again in this connection what I said yesterday and
the day before. I do not know the final line-up of the government. I have
not heard its program. I do not know either how much time it will take to
destroy the market mechanisms in Russia, let us say. That its activity
will objectively tend in that direction is a hypothesis that I consider,
unfortunately, quite justified.
[Zhuravlev] Yegor Timurovich, to what extent are the Primakov
government's resources limited in this situation?
[Gaydar] I think that it will have a very broad room for maneuver in
economic policy, such as possibly not a single Russian government has
enjoyed in the past few years. First, the main point is that the
government really does rely upon the support of the left-wing majority in
the Duma. It will basically be able to get a whole lot of things through
the Duma in two or three days that any other government has taken months to
do. [passage omitted: Gaydar speculates on how the government might
finance its program and warns at length against printing money; Gaydar then
speculates on the personalities in the government and on Western reaction
to what this government may do; he goes on to blame the Communists for the
economic crisis and compares the events to those of 1991, when the
instability was much greater]
[Zhuravlev] Yegor Timurovich, naturally the question in this context
is: what will you do, what will your party and your allies do?
[Gaydar] The first thing is that we are well aware of the limits of
what we can do. We are not at the present time in a position to stop this
social and economic coup that has made its appearance in Russian politics. 
This is one more left-wing Communist experiment in Russia and it will
happen. What can we do? I believe that we can and must achieve twothings.
We can and must ensure that this coup is brief in duration, by
explaining what its consequences are. Second, we can and must ensure that,
when this experiment fails, it is replaced not by a Nazi dictatorship but
by a reforming and liberal government, which will finally implement those
liberal reforms of which a lot has been talked in the past few years, but
which have made virtually no headway in the those years.
In this context, there is one more job that is associated with the
above and is the most difficult of all right now, by which I mean defending
democratic rights and freedoms -- and the freedom of the press first and
foremost -- because whether or not the first two tasks I mentioned earlier
can be resolved depends to a great extent on this. [passage omitted:
Gaydar answers questions on possible allies, criticizes the Yabloko faction
for backing Primakov, and predicts that there will be a democratic
candidate of one sort or another at the next presidential election]

*******

#3
Primakov Outlines New Government's Priorities

MOSCOW, September 14 (Itar-Tass) - Prime Minister Yevgeniy Primakov
has chaired the first government meeting in his post early on Monday, the
governmental information department said in a press release.
"At these very difficult times we will work. I ask you to fulfil your
duties according to the presidential decree, without feeling yourselves
time-servers. Of course, there will be replacements. I don't want to say
that all will be retained in their places," he said in opening remarks.
Primakov said Russia is in a "turning moment" and the government
"should try solve (its tasks) without putting off, where it is possible,
until tomorrow."
The cabinet's efforts should concentrate on stabilisation so as "to
lay a groundwork for further movement forward" and "reforming, which will
be continued, has more social meaning," Primakov said.
"We cannot conduct reforms that affect the people adversely. If
therapy gets protracted for almost a decade and any gleam is not seen, this
certainly is not in interests of the country, in interests of the people,"
he said.
Primakov said costs of inflation and price growth should be
compensated, mostly for low-paid Russians.
"This cannot be done immediately, but people should know that the
government firmly and strictly will be pursuing this," he said.
He cited as first priorities the payment of wages and pensions and
clearing wage and pension debts, adding that extraordinary measures might
be in order "for this problem to be resolved once and for good."
"We cannot allow rocking the state," Primakov said.
With this in mind, certain adjustments will be made in the
government's policies, but these will seek forward movement and not
backtracking on reforms, he said.
"Some have been quick to paint the new government in one paint - red -
or call it left, centre left," Primakov said, adding that he is "not a
supporter of such names."
"This is a national government, this is a Russian government which
must take care of interests of Russia, of interests of the people," he
said. "This does not mean at all that we detach ourselves from the world,
that we no more see ourselves as a part of the world economy, that we close
our economy, that we are not interested in cooperation, attracting foreign
capitals," Primakov went on to say.
"This is an absolutely wrong point of view," he said.
However, "there is the need for a certain accentuation" if direct
investment is to be brought into the foreground, although portfolio
investment is also needed, Primakov said.
He said Russia's is in need of "rigorous control of spending."
It is an unacceptable setup where state-owned organisations or
companies with major holdings of the government by hook or by crook take
their profits past the budget to channel them into "construction of
mansions and huge offices."
Primakov promised a "fairly tough" tax policy.
"We will do everything to get the taxes. At the same time we should
understand that increasing taxes is not only and not so much "forcing them
out" as the expansion of the tax base which unfortunately is shrinking like
shagreen skin all the time," he went on to say.
Any efforts for economic stabilisation or rehabilitation of the credit
and banking system should serve the "development of the national economy,
industry, culture, health care," Primakov said.
He stressed that the new government would do its best for "an integral
Russia to exist."
"I am very glad about the statement of Yegor Semenovich Stroyev
(Federation Council upper house Speaker) that all governors who violate the
Constitution must, regardless of weather they were elected or not elected,
be dismissed from work," Primakov said.
He said "here there must not be any indulgence" and if existing laws
do not allow the sacking of regional governors, an alternative should be
"to pass corresponding decisions through the Duma (lower house)", he said.
Primakov called for tighter discipline and law-abiding.
However high they be in their regions, governors must comply with the
Constitution and laws, he said.
Primakov briefly outlined the work of the governmental apparatus,
ministries and governmental departments.
"There must not be and there shall not be any lobbying, any advantages
for organisations or parties, business structures close to you in the
past," he warned.

*******

#4
Russia recovery will be difficult, Camdessus says

WASHINGTON, Sept 15 (Reuters) - Russia will find it hard to recover because
confidence is low and due to problems including weak banks, a poor fiscal
policy and "crony capitalism", the head of the International Monetary Fund
said on Tuesday. 
"Russia's path to recovery is likely to be quite difficult, since Russia needs
to restore confidence severely weakened by its decision to unilaterally
restructure its domestic debt obligations," Camdessus told the European-
American Business Council. 
A copy of his speech was released in Washington in advance. 
Russia devalued the rouble currency and defaulted on some debts last month as
a $22.6 billion international aid package fell apart. An IMF team arrived in
Moscow on Tuesday to meet the new Russian government and discuss the
possibility of restarting the lending program underpinning the rescue deal. 
Camdessus said Russia's economic reform programs, agreed with the IMF to for
the basis for a series of loans, had been "ambitious and comprehensive, but
implementation fell short." 
He made clear that future payments from the IMF would depend on Russia's
ability to meet its promises on reform. 
"If Russia, like Asia, can begin again to help itself and to do so
convincingly, then we stand ready to help," he said. 
The IMF has continually urged Russia to improve tax collection to meet its
budget targets and it has also highlighted the problems of "crony capitalism"
which enriches people in the government or with close ties to it. 

******

#5
Moscow Times
September 16, 1998 
Experts Debate Printing Rubles to Pay Off Wages 
By John Kenyon
Staff Writer

Perhaps no current issue divides economists from political analysts more than
that of printing money to pay off wage arrears, with one side ruling it out
and the other saying it is the best of many bad options. 
New Prime Minister Yevgeny Primakov and company say the payment of wage
arrears is their top priority, with Primakov adding that "extraordinary
measures" may be required to meet these ends. 
It is assumed that by "extraordinary measures" Primakov means cranking up the
printing presses, a move for which new Central Bank chief Viktor Gerashchenko
has also voiced approval. 
"It is no longer a question of the nature of reforms they are going to pursue
because the nature of these reforms is already known," said Thierry Malleret,
chief economist at Alfa Capital, who believes a monetary emission is
unavoidable. "It's now just a question of degree," he said. 
From an economist's point of view, the whole idea of printing money to pay
wage arrears is based on a fallacy, because the resulting hyperinflation will
make the payments worth only a fraction of their original value. 
"To be brutally frank, I think this is where some of the deputies in the
parliament show the level of their ignorance," said David Riley, an economist
for international ratings agency Fitch IBCA. 
"They think that by printing money they're actually going to pay workers and
pensioners who haven't been paid," he said. "Strictly in nominal terms, that's
true, but in fact what the state is going to do is default on those claims by
inflating them away." 
"They'll just be getting paid in emotional terms," not in real terms, Riley
said. 
But political analysts don't discount the value of getting paid in emotional
terms. While salaries won't buy as much as before, analysts say it is better
to put a devalued bill in workers' hands than to not pay them at all. 
"Something is better than nothing," said Andrei Piontkovsky, head of the
Center for Strategic Studies, a political research center. 
The government fears that a worsening economy may force Russia's
disenfranchised masses to rise up against what they see as an uncaring state. 
"The political price of not printing money is ... a much higher price than the
price of printing money," said Igor Beerman, a Russian-born U.S. economist,
one of the few in his profession who support turning on the printing presses. 
On top of avoiding turmoil, an emission also would carry political benefits,
analysts say. If Russia is headed toward early presidential elections as many
believe, the leaders who pay off arrears could get a boost. 
"My suspicion is that maybe an early presidential election is seen as
inevitable," Piontkovsky said. The pro-Communist "government may well create
some appearance of improvement in the coming four or five months and win an
election on this wave." 

******

#6
Moscow Times
September 16, 1998 
Cabbage Is Wealth in Cash-Free Villages 
By Natalya Shulyakovskaya
Staff Writer

STARIYE PETRISHCHI, Central Russia -- One recent summer morning, economic
catastrophe struck a family in this small village: A third of their wealth
disappeared overnight. 
A national devaluation? A run on the local bank? 
No, the theft of 25 heads of cabbage from their garden, about a third of the
family's annual production. 
In Stariye Petrishchi -- a cluster of about 15 wooden one-story, low-ceilinged
homes in the Tula region, about 210 kilometers south of Moscow -- they don't
talk much about the ruble-dollar exchange rate, the price of imported soft
drinks or the implications of the government's default on its T-bills. 
"What sort of dovlars are you talking about?" asked Vladimir Piskunov, 53,
mangling the word "dollar" and shaking his head at the oddity of questions
about how the financial crisis has hit his village. As he rolled home-grown
Russian tobacco into a cigarette made from a scrap of newspaper, Piskunov said
he and his neighbors hadn't seen rubles in months, much less foreign
currencies. 
This is the moneyless economy that dominates life in Russia outside of Moscow
and St. Petersburg. About 80 percent of the rural population and about 4
percent of the urban population live largely outside the national financial
system, surviving on food they grow themselves, said Lilia Ovcharova, a senior
researcher with the Institute of Social-Economic Problems of the Population. 
In this Russia, more than half of all people grow their own potatoes and their
own cucumbers, according to surveys by The Russian Market Research Co., a
market research group. 
Some are also paid in manufactured goods or products. At the Dzerzhinsky
collective farm near Stariye Petrishchi, for example, workers have been
receiving their salaries in meat and grain for more than three years, said
Director Andrei Kislov. 
Kislov himself survives by raising four pigs and 40 turkey-duck hybrids, 
and by growing potatoes alongside the usual
cabbage-apples-cucumbers-beets-garlic
Russian peasant survival kit. 
This year, Kislov harvested five tons of potatoes, four tons of which he hopes
to sell. He will also try to sell the meat and dairy products produced by his
collective farm. 
But sitting behind an old table in a bare office, Kislov said he was
pessimistic about his chances of success, despite talk in the national media
that the ruble devaluation, by making imported food more expensive, will help
domestic farmers like himself. 
"We tried sending cars to sell our produce and milk in Moscow -- and the mafia
wouldn't let us in. We cannot sell our milk even to the nearby Tula stores,"
Kislov said. 
In Stariye Petrishchi, luxury items -- such as bread or tea -- could be
obtained at the local store until it closed about two weeks ago. But even the
demise of the store was seen mostly as a mere inconvenience. 
"We couldn't go there anyway, we couldn't afford to buy even a pair of socks
there," said Tamara Vinokurova, 65, whosaid her tab of 150 rubles at the store
left her too deep in debt to shop there. 
Sugar -- vital in the fall for canning vegetables and varenye, or homemade jam
from wild berries -- is about the only dry good that villagers in Stariye
Petrishchi really need money for. Sugar is also a crucial ingredient used to
distill moonshine from potatoes or apples, something Piskunov said every
villager does. 
Villagers pool their resources -- and their even-more-important personal
contacts with regional wholesale warehouses -- to buy large sacks of sugar and
divide them up for canning. Those rubles come almost entirely from the meager
government pensions of elderly women who comprise the majority of the
population of roughly two dozen. But pensions have not been paid since June. 
Residents have no gas or running water. They drink well water, use outhouses
and cook on old stoves fueled by wood gathered in the nearby forest. 
Vinokurova and her husband eke out a living by raising goats and chickens,
pickling cucumbers and planting potatoes, cabbages, and beets. The two have
developed heavy callouses on their hands since inflation in the early 1990s
destroyed their life savings -- but today the 50 jars of pickled cucumbers
they have stacked up on rough homemade kitchen shelves provide them with some
security from future financial crises. 
But canned food is no help in time of injury or illness, and there is
virtually no health care system in rural Russia. Some medicines are available,
but medicines cost money, and Ovcharova of the Institute of Social-Economic
Problems of the Population said medicine would grow prohibitively expensive
and rare in the villages. 
"We have no phone and the only doctor's office is 4 kilometers away," said
Vinokurova, giggling nervously as she sat in her sour-smelling kitchen. "If
trouble happens to you here -- all you can do is pray." 

******

#7
TASS Profiles New Russian Foreign Minister 

Moscow, September 12 (Itar-Tass) -- Igor Ivanov was born in Moscow on
September 23, 1945.
In 1969, he graduated from the Moscow State Pedagogical Institute of
Foreign Languages. He has the diplomatic rank of Ambassador Extraordinary
and Plenipotentiary.Ivanov has fluent command of Spanish and English
languages.
In 1969-1973, he worked as junior research fellow at the Institute of
the World Economy and International Relations of the Academy of Sciences of
the USSR.In 1973, Ivanov became second secretary of the of the Soviet Foreign
Ministry's First European Directorate.
In 1973-1977, he was a senior engineer of the Soviet Trade Mission inMadrid.
In 1977-1983, he worked as first secretary, counsellor and
counsellor-envoy of the Soviet embassy in Spain.
In 1983-1984, Ivanov was appointed expert, first class, of the
European Directorate of the Soviet Foreign Ministry.
In 1984-1985, he became a Soviet Foreign Ministry adviser.
In 1985-1986, Ivanov worked as an aide to the Soviet Foreign Minister.
In 1986-1989, he was deputy, first deputy and then head of a
department of the Soviet Foreign Ministry's General Directorate.
In 1989-1991, Ivanov worked as head of the Soviet Foreign Ministry's
General Directorate, a member of the ministry's board.
In 1991-1994, he was Soviet Ambassador Extraordinary and
Plenipotentiary to Spain and then Russian Ambassador Extraordinary and
Plenipotentiary to Spain.
In January 1994, he became first deputy foreign minister of the
Russian Federation and in January 1995 he was appointed state secretary --
first deputy foreign minister.Ivanov is married and has a daughter.

*******

#8
United States Information Agency 
15 September 1998 
TEXT: AMB. SESTANOVICH SEPT. 15 ON U.S.-RUSSIA RELATIONS 
(European Affairs Subcommittee of SFRC hearings) (1760)

Washington -- Strategic arms reductions, non-proliferation, peace in
the Balkans, a stable currency, Europe without antagonistic dividing
lines -- these are in Russia's interest as well as U.S. interest, and
they provide a "solid continuing basis for working together,"
Ambassador Stephen Sestanovich told a Senate subcommittee September
15.

"The test will be whether the Russian government continues to share
that view and acts accordingly," said Sestanovich, who is
ambassador-at-large and special adviser to the secretary of state for
the New Independent States. He spoke at a hearing on U.S.-Russian
relations, before the European Affairs Subcommittee of the Senate
Foreign Relations Committee.

U.S. policy goals toward Russia "are realistic goals precisely because
they reflect Russian interests as well as our own," he said.

Sestanovich said President Clinton went to Moscow early this month "to
deliver a very clear, straightforward message. First, that we still
have a strong stake in Russia's success. Second, that we stand ready
to work with Russia to advance our common interests. Third, that how
much we can do together depends, as it always has, on choices Russia
makes."

Discussing the new Russian Prime Minister Yevgeniy Primakov,
Sestanovich said, "There should now be at least a brief pause in
Russia's political storm. But the economic crisis knows no pause. The
new Primakov government will soon be forced to make fateful decisions
that will determine Russia's future and the kind of relationship we
have with it."

The ambassador expressed concern that some of the policies being
proposed in Russia "printing money; wage, price, and capital controls;
and restoring state management of the economy -- are likely to have
disastrous results, above all for the Russian people....

"To create a stable and prosperous economy, Russia needs to improve
tax collection, bring its budget under control and thereby reduce its
crushing borrowing needs, deal with the deepening banking crisis,
improve the climate for foreign investment, simplify and de-regulate
small business creation, control corruption, and strengthen the rule
of law.

"There may be more than one path toward stability and growth, but
without these elements Russian economic policy simply cannot succeed."

Following is his prepared text:

RUSSIA AND U.S. RELATIONS

Stephen Sestanovich
Ambassador-at-Large and
Special Adviser to the Secretary of State
for the New Independent States

Senate Foreign Relations Committee
Subcommittee on European Affairs
September 15, 1998

Thank you, Mr. Chairman, for this opportunity to discuss with your
committee recent developments in Russia and the results of President
Clinton's visit to Moscow. We are at another one of those moments of
uncertainty about where Russia is headed, and it is especially
important that Congress and the Administration think through together
what is happening and its implications for the United States.

I would like to touch on three questions: first, what's happening;
second, the choices facing the new Russian government; and third,
their meaning for our policy toward Russia.

Before the President left for Moscow, there were many -- including
some in the Congress -- who questioned his decision to go. The moment
hardly seemed conducive to a careful review of U.S.-Russian relations.
With the ruble sliding, the Russian government faced the most severe
economic crisis since the collapse of the Soviet Union; President
Yeltsin had just nominated a new prime minister, and Moscow was
gripped by rumors about the policies and personalities that would
guide Russia out of its troubles.

President Clinton went to Moscow to deliver a very clear,
straightforward message. First, that we still have a strong stake in
Russia's success. Second, that we stand ready to work with Russia to
advance our common interests. Third, that how much we can do together
depends, as it always has, on choices Russia makes -- in remaking its
economic and political institutions, in dealing with threats to
international security, and in redefining its role in the global
economy.

Last Friday the Duma voted overwhelmingly to confirm President
Yeltsin's nominee as prime minister, Yevgeniy Primakov. There should
now be at least a brief pause in Russia's political storm. But the
economic crisis knows no pause. The new Primakov government will soon
be forced to make fateful decisions that will determine Russia's
future and the kind of relationship we have with it.

Prime Minister Primakov is already well known to us. He and Secretary
Albright have conferred frequently on a broad range of issues, and
their conversations are based on utter frankness. On issues such as
Iran and the Baltics, their talk has sometimes been very blunt. At the
same time, they have recorded some important achievements, among them
conclusion of the NATO-Russia Founding Act last year. As foreign
minister, Primakov was also a strong, if so far unsuccessful, advocate
of START II ratification.

Mr. Chairman, Yevgeniy Primakov was clearly a compromise choice as
prime minister, but his selection -- and the Duma's quick confirmation
of him -- reflected the strong domestic resonance of a theme he
sounded more than any other as foreign minister. Russia's policies, he
has argued, must be based on a hard-boiled calculation of its own
needs and interests, even if these lead it in a different direction
from what other countries might prefer.

Mr. Primakov applied this idea to diplomacy, but it has an analog in
the arguments that some Russians make about economic policy -- that
Russian reform has to reflect the country's unique historical legacy,
that Russia has to find its own policy formulas, that outsiders do not
fully understand the Russian way of doing things, and so forth.

Mr. Chairman, these are truisms, even banalities. Obviously Russian
foreign policy aims to advance Russian interests, and Russian reform
will always have distinctively Russian features. But these ideas have
often been put forward by people with no real commitment to reform and
whose policy prescriptions would threaten Russia with ruin.

This is the dilemma Prime Minister Primakov faces today. His
"do-it-Russia's-way" prescription can be a way of coping, of building
political support for difficult reforms, or it can be a recipe for
disaster. Many, including some of the former Soviet officials Primakov
has restored to positions of influence, will insist that all they have
in mind is to cope better. But the policies they propose -- printing
money; wage, price, and capital controls; and restoring state
management of the economy -- are likely to have disastrous results,
above all for the Russian people.

In today's global economy, there is no real "third way." The search
for one presents myriad dangers, including the risk of runaway
inflation and the flight of investors to safer harbors. As President
Clinton said in Moscow, "There is no short-cut to developing a system
that will have the confidence of investors around the world. These are
not American rules, or anybody else's rules. These are [the rules] in
a global economy."

To create a stable and prosperous economy, Russia needs to improve tax
collection, bring its budget under control and thereby reduce its
crushing borrowing needs, deal with the deepening banking crisis,
improve the climate for foreign investment, simplify and deregulate
small business creation, control corruption, and strengthen the rule
of law.

There may be more than one path toward stability and growth, but
without these elements Russian economic policy simply cannot succeed.
Russia's unsteady progress toward them over the past seven years is
the root cause of its predicament now -- a predicament made worse by
falling commodity prices and the global financial crisis that began in
Asia a year ago. Today, unless it gets its fiscal problems under
control, Russia is poised for a punishing round of high inflation.

President Clinton, Secretary Albright and others discussed these
issues with Russian leaders at the Moscow summit and since. In a
conversation with Secretary Albright last Friday, Prime Minister
Primakov stressed his commitment to market reform -- and to social
welfare and industrial strategies. He has also said that Russia will
honor its debts and should draw on its own resources to foster growth
without major new foreign borrowing. Above all, he asked that Russia
be judged by its actions, not by any preconceptions about what he or
any of his colleagues intend.

Mr. Chairman, our focus over the past several weeks has been on
Russia's economic crisis. How that crisis is resolved has profound
political implications. It has created nearly a month of political
turmoil that Russian democracy appears to have weathered in a
constitutional, orderly way. Russian democracy seems to have put down
real roots. All the same, we have to recognize that there are players
in Russian politics who have no more than a tactical commitment to the
democratic process. They will be prepared to exploit economic and
political turmoil to gain power, and neither we nor Russia's elected
leaders can ignore this fact.

We must also wrestle with the foreign policy implications of Russia's
current crisis. I've heard grim predictions that U.S.-Russian
cooperation will gradually break down, either because foreign policy
will be subordinated to Russia's domestic drama, or because domestic
difficulties will push Moscow's leaders into a more confrontational
approach toward the outside world.

Either of these predictions could come true. But we should not think
that the goals of our policy toward Russia represent some long list of
favors that we want the government in Moscow to do for us. They are
realistic goals precisely because they reflect Russian interests as
well as our own.

Russia needs strategic arms reductions, and a responsible Russian
government will see that. Russia needs an effective non-proliferation
regime, and a responsible Russian government -- one that advances
Russian interests and sees the danger in the spread of nuclear and
missile technology -- will work to strengthen it. Russia needs a
Europe without new, antagonistic dividing lines. Russia needs stable,
mutually beneficial relations with prosperous neighbors, from Japan to
the Baltic states. Russia needs peace in the Balkans. And it needs a
stable currency and access to international financing.

These interests -- Russia's, as well as ours -- provide a solid
continuing basis for working together. The test will be whether the
Russian government continues to share that view and acts accordingly.

Mr. Chairman, I began my remarks by recalling questions from two weeks
ago, as to whether the President should go to Moscow. Our answer, all
the stronger with the summit behind us, is emphatically "yes."s We
have too many interests at stake to put U.S.-Russian relations on
hold.

Thank you, Mr. Chairman.

*******

#9
From: "Vlad Signorelli" <vlad@garden.net>
Date: Tue, 15 Sep 1998 
Subject: excerpt from Jude Wanniski

Following is an excerpt of Jude Wanniski’s client letter from Monday,
thought you might find his bullish take pretty interesting.

RUSSIA
...It actually was bullish news to me that the Duma rejected Boris
Yeltsin’s “heavyweight” nominee for PM, Viktor Chernomyrdin, a heavyweight
crook with a heavyweight Swiss bank account, and chose Primakov, who is
suspected of being an honest man. I’m even more cheered by Primakov’s
choice of Viktor Geraschenko as head of the central bank. The U.S. news
media uniformly describes Geraschenko as a Communist responsible for the
1994 inflation. He’s actually the fellow who invited me and former Fed Gov.
Wayne Angell to Moscow in 1989, when he headed the Gosbank in the Gorbachev
government. Nobody knows and appreciates my arguments for a gold ruble
better than Geraschenko, who was muscled out by the Harvard/IMF “shock
therapy” crowd, the real culprits in the inflation. His sidekick, Oleg
Mozhaiskov, was a fan of Milton Friedman when we first met, but I won him
over with gold. His daughter Julia translated The Way the World Works into
Russian. Wouldn’t it be nice to buy Russia at the bottom?

*******

#10
Jamestown Foundation Monitor
15 September 1998

PRIMAKOV TELLS GOVERNORS TO TOE THE LINE. Primakov told the cabinet
yesterday that he intends to get tough with regional governors who pursue
policies that are out of line with their statutory powers. Governors who
violate the constitution will be suspended regardless of whether or not they
were elected, the prime minister declared. No exceptions will be made. This
is a threat once heard quite regularly from President Yeltsin who, for the
first few years of Russia's independence, had the power to appoint and
remove regional governors. Over the past two years, however, all of Russia's
governors have been democratically elected. The Kremlin made a couple of
feeble attempts to claim that the president retained the right to fire
governors who stepped out of line, but it was not a right that the president
ever dared to put to the test. Even in the early days, when he did have the
right, his efforts to exercise it often ran into such strong regional
resistance that he was forced to back down. Yeltsin would be on very shaky
constitutional ground if he tried to fire an elected governor now, even
though Russia's self-assertive regions have taken some increasingly
questionable actions in recent years. The turmoil of recent weeks has forced
many of them to adopt extraordinary measures--such as halting the transfer
of tax payments to the center and banning the export of locally-produced
produce--in an effort to protect their populations from hardship. Primakov
will be on extremely insecure ground if he tries to carry out his threat
(RTR, September 14).

NO FOOD FOR RUSSIA'S SOLDIERS. Russia's armed forces--already troubled by
falling budgets, readiness and morale, continued violence in the barracks,
and a host of related maladies--may now be facing a new humiliation: an
increasing inability to feed the troops. According to government officials,
budgetary shortfalls have left the army unable to buy food, and mounting
debts have led food suppliers in Russia's regions to cut off deliveries to
the army. The problem is not new--stories of Russian soldiers begging in the
streets have become common. But recent reports suggest that the food
shortages may be reaching unprecedented levels (Russian Public TV, September
13; Itar-Tass, September 14).

If Russia's Defense Ministry is to be believed, many bakeries supplying the
army last received payment sometime in the spring. Some twenty-nine of
Russia's regions have demanded that the Defense Ministry immediately clear
up these debts. In some areas, the Defense Ministry says, food is simply no
longer available to the army on credit. The Defense Ministry claims that the
Finance Ministry's food-related debts to the army over the first six months
of this year now amount to more than 800 million rubles, and that the
government's last allocated funding--in May and June--amounted to just
one-third of what was planned. No moneys for food have been received since
then, the Defense Ministry says (Krasnaya zvezda, September 11).

*******

#11
Luzhkov Urges Government To Revise Privatization Results 

MOSCOW, Sept 12 (Interfax-Moscow) -- Moscow Mayor Yuriy Luzhkov has
said he will propose that the new Russian Cabinet revise the results of
privatization and "put on trial the organizers of financial pyramids."
He told reporters in Moscow Saturday that the heads "of banks which
have purposefully become bankrupt" should also be held accountable.
Priorities for the new government include clearing wage and pension
arrears, reducing taxes, revising customs tariffs and lowering energy
tariffs, Luzhkov said.
The new Cabinet should protect national producers and introduce a
state monopoly on liquor, tobacco, audio and video products, he said.
Representatives of regional administrations and heads of regional
associations should be included in the new government, Luzhkov said. He
also said he is certain that the new Cabinet will continue to implement
economic reforms.
Luzhkov said he supports new Prime Minister Yevgeniy Primakov. "He
does not have that much experience in economic affairs. But he is a clever
man. I think he will make the right decisions," the city mayor said.

*******

#12
From: fweir@rex.iasnet.ru
Date: Wed, 16 Sep 1998 13:45:41 (MSK)
For the Hindustan Times
From: Fred Weir in Moscow

MOSCOW (HT) -- The return of Gorbachev-era politicians in a
government led by Prime Minister Yevgeny Primakov could spell the
end for the powerful capitalist oligarchs who have shaped
Russia's post-Soviet economy, analysts say.
"Our oligarchs have lost their political clout and are on
the run," says Andrei Piontkowski, director of the independent
Centre for Strategic Research. "They have lost out in the latest
power struggle."
Russia's new prime minister, Mr. Primakov, is a man with no
ties to the top economic elite and who is very likely to reach
for solutions that solve the country's problems at their expense.
"The oligarchs wanted a leader like (former Prime Minister
Viktor) Chernomyrdin, because they knew they could influence
him," says Mr. Piontkowski. "But the political crisis proved too
strong, and Primakov was brought in to deal with the situation.
But Primakov will install a Communist-leaning government which
will enact policies that are death to the oligarchs."
Mr. Primakov has appointed Yury Maslyukov, a Communist, as
first deputy PM in charge of the economy, and Viktor Geraschenko,
a former Soviet head banker, to run the Central Bank. And in a
television interview last weekend, Mr. Primakov discussed a list
of about half a dozen top academics, including economists Dmitri
Lvov and Leonid Abalkin, whom he would be consulting in his
search for new policies.
What all these names have in common is that they were
advisers to former Soviet leader Mikhail Gorbachev and architects
of his perestroika reform program. Since the collapse of the USSR
few of them -- with the exception of Mr. Primakov himself -- have
had much political influence.
"These are a different kind of men from the young reformers
we've had for several years," says Viktor Levashov, an analyst at
the Institute for Social and Political Studies in Moscow. "They
will not be easy for bankers and tycoons to order about."
Russia's so-called oligarchy comprises as few as seven top
financiers and raw materials moguls who reputedly control up to
50 per cent of the country's wealth.
These tycoons, all of whom were winners in the harsh post-
Soviet scramble for wealth, coalesced in 1996 to help President
Boris Yeltsin fight off an electoral challenge from Communist
Party leader Gennady Zyuganov.
The group includes such figures as Boris Berezovsky, who
parlayed a car dealership into an estimated $3-billion fortune;
Vladimir Potanin, a former official of the Soviet ministry of
foreign trade who now heads Uneximbank, a titanic financial and
natural resources empire with assets of $32-billion; Vladimir
Gusinsky, a banker turned media mogul who has been dubbed the
Rupert Murdoch of Russia; and other other top bankers and oil
magnates. 
"Getting Yeltsin re-elected demanded big money, and those
who gave the most have been the closest to him ever since," says
Alexander Konovalov, an analyst at the Institute of Strategic
Assessments in Moscow. "Berezovsky has become the closest of
all."
Proximity to the Kremlin brought the oligarchs political
influence and vast increases in wealth. Mr. Yeltsin often seemed
to defer to the power of the tycoons by publicly consulting with
them on economic policy.
But Russia's dire financial crisis has deeply wounded the
oligarchs. Many of the banks they own are teetering on the verge
of insolvency, and falling global commondities prices have cut
sharply into profits from the oil and metals resources they own.
Analysts say Mr. Primakov is unlikely to show sympathy for
the oligarch's problems. Nor will Mr. Yeltsin, whose position has
been weakened as a result of the crisis, be able to help them.
"Berezovsky exercised his influence mainly because he is
close to the President," says Mr. Piontkowski. "But Yeltsin is
fading, and the Primakov government will probably make most
crucial decisions without him."
Russia's financial bankruptcy has also ended the flood of
cheap foreign credits, on which the oligarchs fed, and created a
radically changed economic landscape -- one in which they are
unlikely to survive. 
"The main activity of the oligarchs was speculating on
government debt, and this is how they built up huge fortunes,"
says Mr. Levashov. "But now the debt pyramid has collapsed and
this whole sphere of activity is finished. From now on money will
have to be made by investing in the real economy, and that
requires a very different kind of person and plan."
Russia's political winds are shifting against the oligarchs,
perhaps decisively, says Mr. Piontkowski.
"Everybody blames the oligarchs for the wretched condition
of Russia today, and they're right," says Mr. Piontkowski.
"Oligarchic capitalism enriched a few at the expense of the
nation."
The new government, headed by men of a different generation,
has already warned that it will make sharp changes in the
country's economic course.
"There is talk of re-nationalizing natural resources.
Primakov's government, backed by the Communists, might just do
that, and it would break the back of the oligarchy," says Mr.
Piontkowski.
"Even if this new government accomplishes nothing else, it
will do Russia a huge favour by crushing the oligarchs." 

********