Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List
Johnson's Russia List


September 18, 1998   

This Date's Issues: 2381

Johnson's Russia List
18 September 1998

[Note from David Johnson:
1. Reuters: Yeltsin gets earful during impromptu shop visit.
2. AFP: Russian villages threatened with famine.
3. Obshchaya Gazeta: Yevgeniy Leonenko, "'Hands Off Russia!'
Our Crisis Is Roaming the Worldwide Internet to This Slogan."

4. Alexander Golts, Primakov's Style.
5. RFE/RL: Matt Frost, Russian Press Review: Primakov Appoints
A Mixed Cabinet.

6. Komsomolskaya Pravda: Lebed on Economic Crisis, Primakov.
7. Moscow Times: Simon Saradzhyan, Union Leader Warns of Popular

8. Reuters: Neighbours say Russia risks Belarus-isation.
9. Nezavisimaya Gazeta: Leonid Abalkin, Emission: Myths and Facts.
10. Itar-Tass: Spokesman 'Amused' by Chinese Story Linking Lewinsky 
to KGB.

11. Interfax: Luzhkov Urges Modification of Economic Principles.
12. Argumenty i Fakty: Russian Paper Stresses Gerashchenko's 

13. Reuters: Russian economist says need new Duma for reforms]


Yeltsin gets earful during impromptu shop visit
By Peter Graff

MOSCOW, Sept 17 (Reuters) - Kutuzovsky Prospekt -- a broad Moscow boulevard
where black government limousines often cruise -- is not a typical Russian
neighbourhood, nor is the well-stocked grocery store in building number 30 a
typical shop. 
But President Boris Yeltsin, who stopped there unexpectedly on Thursday for a
rare chance to mingle with the masses, got a typical earful of complaints
before he even stepped inside. 
``He said we will all live rich and happy,'' said Olga Mikhailovna, 42, seated
among a row of other small traders on the pavement in front of the store with
a cardboard carton on which she had laid out a handful of beets, potatoes and
``Do we look happy? We are sitting here selling vegetables. I am unemployed.''
Like many Russians, she grows the vegetables on a tiny plot outside Moscow to
feed herself and sells a few for extra cash. 
``We told him we are a poor people. It is impossible to live on our
pensions,'' said Irina Vasiliyevna, 72, selling clumps of cut flowers nearby. 
Her pension -- 400 roubles a month -- has been reduced to about $25 in the
past few days by the rouble's sudden collapse. 
Did she like the president? ``Me? No. We need a new one.'' 
Yeltsin spent about 15 minutes inside the shop on his way from the Kremlin --
where he met ministers in Russia's newly appointed government on Thursday --
back to his country residence in a wooded suburb west of the capital. 
It was not quite an unprecedented political gesture: Yeltsin himself had
stopped at this shop three times before, as had Soviet leader Leonid Brezhnev
before him. 
But Thursday's stop was the first time Yeltsin has greeted his constituents in
public since the rouble began its precipitous slide a month ago. 
Now any appearance at all by the embattled president takes on a new political
Over the past month Russia's mass media have speculated that Yeltsin has lost
control of the country. 
He lost a bruising confrontation with parliament over his choice of a prime
minister. Rumours swirled that he was about to resign or that his health had
On that last point, Irina Vasiliyevna may not like Yeltsin, but she said the
president's health looked ``excellent.'' 
``He is just fine.'' 
Unlike many shops, the grocery store in building number 30 -- which serves a
neighbourhood of fancy apartments built for the Soviet elite -- had plenty of
delicacies on offer. But prices on most of the stock had risen substantially. 
Meat prices had doubled or tripled. Butter had doubled. 
Saleswomen said Yeltsin didn't buy anything. 
But these days neither do many other shoppers, said Yelena Gubchik at the meat
``Chicken legs used to be 14 roubles a kilo. Now they are 34,'' she explained.
``It has cut back demand.'' 


Russian villages threatened with famine

MOSCOW, Sept 17 (AFP) - Officials began sending emergency food aid to 100,000
Russian villagers who are facing famine after an unprecedented summer heatwave
destroyed crops, an official said Thursday.
A Volgograd regional official said food was being sent to villages around
Pallasovka, in the south of Russia, close to the Kazakhstan border.
"People are not dying of famine yet, but it is true that in six districts on
the left bank of the Volga River the situation is extremely difficult. There
is no more bread," spokeswoman Yelena Ostipova told AFP.
"There is a real threat of famine," the Pallasovka administration chief told
the daily Vremia.
Vremia reporter Maria Eismond said some families were close to starvation and
said she was shocked by the state of health of the region's children. She
warned the winter would make the situation worse.
The harvest, which normally brings in three million tonnes of grain, this year
reaped just 900,000 tonnes because of drought, Ostipova said.
She said the many villagers who live by subsistence farming were also badly
Temperatures in the region reached 50 degrees Celsius (122 degrees Fahrenheit)
during July and remained above 30C (86F) throughout the summer.
Ostipova said regional governor Nicolai Maksiuta would attend a session of
Russia's upper house of parliament in Moscow Monday to di


Harm Seen in Foreigners' Internet Analysis 

Obshchaya Gazeta 
September 10, 1998
[translation for personal use only]
Yevgeniy Leonenko report: "'Hands Off Russia!' Our Crisis
Is Roaming the Worldwide Internet to This Slogan"

"Hands Off Russia!" This was the title of an article by the
well-known American political scientist Richard Pipes which was
published in the New York Times on 31 August and which has since
then been attracting the general attention of Western users of the
Internet. "Hands off" in the sense that helping is pointless, let
the Russians sort things out by themselves. Especially since
intelligent people in the US Government no longer believe their
blackmail from the position of the Communist threat. The threat of a
restoration of Communism in Russia is totally absent--it is time for
the United States to cease interfering and to view everything from a
detached position. Because helping does not seem possible--the "hand
of the giver" may simply be bitten off and swallowed completely unashamedly.
Richard Pipes is not alone in his opinion. For many days now
the Internet has been presenting the serialized "horror movie"
performed by correspondents of Reuters, Associated Press, and Radio
Free Europe on special Web sites about Russia. The basis of the
reports is material with negative evaluations of Russian reality,
and the majority of Western authorities, what is more, are
competing, as it were, in severity and dissecting in mocking fashion
the customs and manners of Russians. And the publications are
becoming more dispassionate literally by the day, what ismore.
Dozens of well-known Western producers and distributors of
news about Russia are working actively in Russia at the present
time. Aside from the priority translation of material from the
Russian press, all agencies are making analytical surveys on
politics, economics, scandal items, and social issues. A large part
of the material goes on line and appears on the Internet two or
three hours after the event and four or five hours after the
corresponding publication in the Russian central and regionalpress.
Aside from the press agencies, the Internet carries detailed
research material on Russia prepared by international organizations
and their "development programs for Russia" in the period 1993-1997.
The range of the subject matter is exceptionally broad, and
practically all aspects of the life of the country are scrupulouslystudied.
Our country on the Internet is also beneath the permanent
"analytical microscope" of specialized information agencies of the
United States and Great Britain, which are contributing to a large
extent to the molding of public opinion on the policy and economy of
Russia in "immediate-response" mode with the aid of their own on-
line services. Frequently such a "response" is ahead of the actual
event owing to the time difference and causes an advance negative
reaction to certain political or financial actions of the Russian
Government. Such today is the "virtual reality" of the Russian
crisis--God forbid that this be in nonstop mode....


Primakov's Style
by Alexander Golts
September 17, 1998 
Alexander Golts is a correspondent for Itogi Magazine. 

The Russian Duma's practically unanimous confirmation of Yevgeny Primakov
as the prime minister somewhat confused many Russian observers. The
problems our home-grown pundits are facing are quite understandable:
Everyone expects these analysts to make clear forecasts about the policy of
the new chairman of the Cabinet, particularly economic policy. 
It is duplicitous of observers to claim they have insufficient information:
Since the end of the 1980s, Primakov has been at or near the center of the
political stage. Still, being afraid to make any definite predictions, most
analysts concentrated on retelling the rich biography of the new premier. 

A product of the foreign policy elite 

Primakov is the subject of hundreds of articles. The majority of the
authors, domestic as well as foreign, stress the fact that Primakov is a
classic representative of the old Soviet elite, with its unwillingness to
seek compromises, its suspicions about the West and its imperial ambitions.
Allegedly he is "anti-Western" by nature, so quite understandably he has
sympathy for authoritarian or dictatorial regimes, which in the first place
came to life as a result of the Soviet Union's struggle for world domination. 
Also, Primakov usually played advocate for those whom the West views as the
sources of all evil: Iraqi leader Saddam Hussein, former Serbian President
Slobodan Milosevic and Cuban dictator Fidel Castro. However, in light of
those alliances , how can one explain Primakov's friendly relations with
people who shape the foreign policy of the leading Western countries --
including the tough U.S. Secretary of State Madeleine K. Albright? 
In reality, to understand Primakov's personality, one must consider not his
past offices but the fact that he is one of the most brilliant
representatives of not simply the Soviet party and government elite, but of
its foreign policy echelon. Unlike most of the party regulars who were
easily transferred from economic to propagandist to international offices,
Primakov has excellent professional skills and knowledge concerning
particular countries. 
When in the spring of 1996 I asked the Foreign Ministry boss how the fight
for the president's office -- which at that time was going full blast --
affected the country's foreign policy, Primakov in a somewhat challenging
manner answered that it did not affect it at all. "Russia," he said,
"pursues its foreign policy not according to some considerations of the
current moment, but on the basis of its historic role, its potential. And
this is primarily the huge intellectual potential of the country. 
"We have significant natural resources, big population, large territory,"
he continued. "That's why I don't agree at all that Russian foreign policy
should be limited to any particular region or should depend on any
particular event." 
Such views are not unusual. The same school of thought (some call it
"political realism") includes former U.S. Secretary of State Henry
Kissinger and former National Security Advisor Zbigniew Brzezinski. One
probably could say that Primakov's hero -- the 19th century foreign
minister Alexander Gorchakov, who headed Russian diplomacy after the
country's defeat in the Crimean War and who in 20 years managed step by
step to cancel all unsuitable treaties -- belonged to that school, too. 

One pole in a multi-polar world 

Today, when Russia can boast neither economic prosperity nor military
might, Primakov's idea of a multi-polar world (which President Boris
Yeltsin likes so much) is actually nothing but a modern interpretation of
the concept of political realism. The theory is based on the belief that an
alliance of several "poles" could outweigh the attraction of the most
powerful pole, the United States. Primakov probably believes such policy
would give Russia certain room to maneuver.
Therefore, it is no coincidence that without refusing "strategic
partnership" with the leading Western states, the head of the Russian
Foreign Ministry still insists on the need for "trusting" partnerships with
the largest developing countries such as China and India. Those countries
have problems that are not the same as Russia's. Because they have similar
illnesses (like outbreaks of separatism), they could understand Russia's
difficulties -- grounds for developing a joint position on key
international issues. 
Also, if you agree to see the world as a multi-polar place, Russia is
guaranteed to be one of the poles. This gives certain moral rights (the
formal right is secured thanks to membership in the U.N. Security Council)
to actively interfere in any international issue, from the Iraqi crisis to
the Balkan one. 
But there is another explanation, too, for Primakov's support of
engagement. Because of special relations with countries that today are in
isolation, Moscow gets some opportunity to influence their policy, albeit
in a limited way. And this has special value for our Western partners
during crises. 
The left-wing opposition to Yeltsin's government -- as well as liberal
critics of Primakov -- have seen in Primakov's activities only attempts to
stick it to Americans. The opposition liked that. 
In addition, Primakov looks just like the successor to former USSR
President Andrei A. Gromyko should: a man of advanced age with puffy face,
clearly not in particularly good health. Add to this his ability to use
meaningless phrases when speaking publicly, and you have a relic of the
Soviet empire beloved by the opposition. 
This is reiterated by the fact that Russia's Western partners are not
particularly fond of the experienced and stubborn negotiator, who even in a
weak position is capable of saying "no." Take Primakov's endless
discussions with American diplomats concerning the Russian-Iranian
cooperation in nuclear energy. 

Common-sense economic policy 

Of course, it is true that solving Russia's economic problems is much more
difficult than solving foreign policy ones, even the ones it faces now. If
international affairs gave the opposition an opportunity to show its
patriotism, the inevitable tough economic measures would directly affect
the interests of those who lobby for financial and industrial groups. But
Primakov undoubtedly has enough skills to get the Duma to approve even very
tough measures. 
However, this will happen only if Primakov believes in the measures
himself. Obviously, he will not limit himself to the role of political
cover for some economic expert acting as a vice premier, as Grigory
Yavlinsky hoped. "I never was a 'marriage-breakfast general,'" Primakov
said to Yeltsin according to certain rumor, "and I am definitely not going
to be a marriage-breakfast dummy." 
So one probably should not pay too much attention to the fact that
Communist Yuri Maslyukov has been promised the job of first vice premier
and that Victor Geraschenko became director of the Central Bank. Even if
they decide to go for some sharp turns in economic policy, they first must
convince Primakov, the man for whom it would be difficult to deny common


Russian Press Review: Primakov Appoints A Mixed Cabinet
By Matt Frost

Prague, 17 September 1998 (RFE/RL) -- The following is a summary of today's
comments in the Russian press.

IZVESTIA: It is impossible to tell what color the cabinet is
Izvestiya notes that the composition of Primakov's cabinet is so mixed that
it is impossible to tell what color it is: red, pink or white. The new
prime minister's cabinet appointments are completely logical, in that he is
obliged to form the cabinet in a political vacuum, without any serious
support from either the authorities or society. That is in conditions in
which a government can neither exist nor function. But two questions
immediately spring to mind, writes Izvestiya. Firstly, how can people of
such divergent views form a coordinated and effective mechanism for
governing the country? And secondly, where is the guarantee of political
support for a government which contains so many representatives of
different parties?

OBSHCHAYA GAZETA: The people in the cabinet is a cause of great concern
Obshchaya Gazeta publishes a statement by the leader of the liberal Yabloko
faction Grigory Yavlinsky on why he turned down the post of first deputy
prime minister for social issues in the new Primakov government. Yavlinsky
says that to accept such a position--without his own team and in conditions
where the real economic issues are being decided by people with different
ideological views-- was not a serious option. In the current crisis, this
arrangement would not have brought about any positive results. We don't
know anything about the government's economic program, writes Yavlinsky. He
confirms his faction's support for Primakov's appointment as prime minister
but notes that the people brought into the cabinet to take control of the
economy is a cause of great concern.

SEVODNYA: Georgy Boos to head the tax service
Sevodnya says that the new deputy prime minister for economic affairs
Alexander Shokhin insisted on the appointment of Georgy Boos to head the
tax service in order to avoid a split in the Our Home is Russia faction in
the Duma. Both Shokhin and Boos are leading members of the faction led by
former prime minister Viktor Chernomyrdin. Boos is considered by many
experts to be a supporter of Moscow Mayor Yury Luzhkov. Sevodnya notes that
by appointing Boos to a government position Shokhin rules out the
possibility of Boos splitting the Our Home is Russia faction into Luzhkov
and Chernomyrdin camps. Sevodnya writes that Luzhkov is also happy with the
arrangement since he now has his man in a key position in the new
government. (The review was compiled by RFE/RL's Moscow Bureau)


Lebed on Economic Crisis, Primakov 

Komsomolskaya Pravda 
17 September 1998
[translation for personal use only]
Report on press conference given by Krasnoyarsk Kray Governor
Aleksandr Lebed in Krasnoyarsk on 16 September, "transcribed by
special correspondent Olga Bakushinskaya": "General Lebed's 100
Days. 'I Have Formed a Team, Gotten Hold of Half a Billion
Rubles, and Stocked Up on Felt Boots!'"

Krasnoyarsk -- At a meeting with journalists the governor of
Krasnoyarsk Kray evaluated the political situation in the country and his
own successes in his three and a half months' rule.
[Lebed] -- Today more than ever before it takes a lot of legwork to
keep the wolf from the door. You have to run around, fly here and there,
meet with people. In one place I "turned up" 370 million rubles [R]. It
went to pay teachers and medics. In another place I found R108 million --
agricultural bonds were paid off and the roads were cleaned up. No region
except ours has found any money during the crisis period. So I will be the
one to decide who to meet with, when, and where, and where to govern the
kray from. People elected me and I am responsible for everything. If I
screw up, there's a draft law ready and waiting on the procedure for
recalling the governor. I'm not afraid of that. I am confident I am on
the right path.Budget funding is taking place at the level of 4 percent of
was planned. People have been reduced to desperation. People living in the
wilds of Krasnoyarsk Kray don't care who is in charge -- Lebed or anyone
else. What matters to them is that their pockets are empty and their kid
has forgotten what candy looks like. I know people will curse me. But I
also know what I want and how to get it.
The main thing is that in these three months the backbone of a strong
professional team has been created. I personally monitor its work. 
Everyone bears personal responsibility for his mistakes. It's not our
custom to make people pay with their heads, so they pay with their jobs. 
We have managed to keep the kray poised on the brink of the crater that is
sucking in the entire Russian economy.
I want to thank those entrepreneurs who, in a period of soaring prices,
did not give way to the general panic and did not hike prices in
Krasnoyarsk. Thanks to their self-control the situation remained
manageable. In the past 100 days we have not gotten richer, and many
people have gotten twice as poor. We will issue food compensation to the
poorest. I have no power to save the whole of Russia today. In the kray,
the main problem has been resolved -- we've survived. The coming winter
will show whether I've become a real Krasnoyarsker. I've stocked up on
felt boots.
Preparations for winter must be completed by 1 November. I understand
the striking miners, they've been working without pay for six months. But
their strikes lead to very unpleasant consequences.
I have no view on the system that has now collapsed. I was part of it
for a time, when I stopped the carnage [in Chechnya] in 1996. We would
have collapsed much earlier if we had been fighting too.
Primakov is a decent man. He must be helped. It's time just to stop
giving orders from Moscow, then the country will get strong regions.
The important thing now is not to lapse into hysteria and all the
associated squabbling. The banking system has collapsed because the people
abroad are no fools either. They take our bonds but if they fall below a
certain level, they sell them back. I heard we are 17 billion in debt. I
intend to rely on medium-sized and small banks. They did not have access
to the wonderful GKO [short-term state bonds] feeding trough and they
developed naturally, and therefore they are more effective.
Special studies that were carried out showed that 97 percent of
servicemen, even if given the order, will not lift a finger to defend the
constitutional system. That may have been the decisive element in the
president's decision to withdraw Chernomyrdin's candidacy. The way the
Russian president is built, he always takes things to their logical
conclusion. This time he did not. What did this mean?
I think the president will be left without his usual team by the end
of the year, and I don't think the new people will pursue the same policy. 
Especially since the mood of the IMF is well known. A lot of time has been
wasted and the results are negative.
The Honor and Homeland movement will enter the next State Duma
elections with its allies. The minimum program is to cross the 5-percent
barrier.Ours is a country of crooks. There is no dividing line between those
who are "clean" and those who are "dirty." Tax evasion is a national
sport. So in our economy crooks are the normal thing at the moment. 
[Lebed ends]S. Today Aleksandr Lebed plans to meet with Primakov in Moscow to
discuss "agreements reached earlier." Then there is a trip abroad and
talks with foreign banks about credits.


Moscow Times
September 18, 1998 
Union Leader Warns of Popular Unrest 
By Simon Saradzhyan
Staff Writer

The leader of Russia's largest labor organization said Thursday that life for
workers across the nation had worsened "beyond our most horrible dreams" and
warned of possible civil unrest next month. 
Mikhail Shmakov, leader of the Federation of Independent Trade Unions, said
wage arrears to workers had grown dramatically this month. 
At a news conference in Moscow, Shmakov said he worried he might not be able
to control a long-planned one-day national strike on Oct. 7. 
Asked if that day's protests, which are scheduled to begin in a little more
than three weeks, might degenerate into violence, Shmakov said, "They might,
they might." 
"We will do all that we can so that there will not be ... any pogroms or
spontaneous outbursts [on Oct. 7]," he said. 
Interior Minister Sergei Stepashin also vowed Thursday to quell any outbursts
of violence in October. Stepashin assured President Boris Yeltsin during a
meeting at the Kremlin that his ministry's servicemen would monitor the
October protest closely to ensure it does not take a violent turn. 
Vladimir Putin, the chief of the Federal Security Service, also hinted
recently that his agency, which is the main successor to the KGB, would meet
any October street violence with force. 
Stepashin said he would personally meet leaders of the leftist opposition to
warn them keep their followers restrained next month. The Communist Party and
other Kremlin opponents have announced that they, too, will take to the
streets Oct. 7, although Shmakov and other labor leaders have toldth em not to
The interior minister also suggested that Yeltsin should make a public
statement ahead of the protests to clarify what exactly the government is
doing to help the country's poorest people, who have been hit hard by Russia's
deepening economic crisis, Itar-Tass reported. 
The president also signed a decree during his meeting with Stepashin that
would discharge 54,000 of the Interior Ministry's 257,000 servicemen by next
Those cuts fit with a plan Yeltsin approved earlier this year that called for
reducing the number of Interior Ministry troops down to about 120,000 by 2006.
Analysts praised the government's determination to cut the Interior troops. 
"This regime will always need a truncheon [for use] against the people, but it
doesn't make sense to keep it that big and expensive," said Yury Lebedev, a
retired general and the deputy chief of the RAU think tank. 
The troops will be restructured into three rapid deployment groups, for use
mostly in dealing with massive unrest, the disarmament of large gangs or the
patrolling of areas hit by calamities, said Vasily Panchenkov, a spokesman for
the Interior Ministry's troops. 
That means the troops will spend less time guarding railways or helping city
police patrol streets, he said. 
The Interior Ministry's troops had swollen considerably under General Anatoly
Kulikov, who had commanded them before being promoted by Yeltsin in 1995 to
head the ministry. 
Kulikov was replaced by Stepashin this year, and Stepashin has criticized his
predecessor for lavishing money on Interior Ministry soldiers at the expense
of criminal investigators and detectives. 
To improve the funding of rank-and-file law enforcement efforts, Stepashin
asked the president on Thursday to order regional governments to shoulder more
local police costs. 
Yeltsin complied, signing a decree transferring all police patrol units from
the jurisdiction of the Interior Ministry to that of local governments in ten
Russian provinces for the next 2 1/2 years. 
Yeltsin's decree Thursday also transferred responsibility for transporting
convicts from the Interior Ministry to the Justice Ministry, which is assuming
command of Russia's gigantic prison system. 


Neighbours say Russia risks Belarus-isation
By Peter Henderson

MOSCOW, Sept 17 (Reuters) - Russia is being urged to look to its neighbours
for guidance on what to do and what not to do as it struggles to find a way
out of financial chaos. 
Political analysts and economists said on Thursday Moscow must choose the
tough economic policies of former Soviet satellite Bulgaria or tiny Central
Asian Kyrgyzstan if it does not want to stagnate into a huge Belarus. 
Russia once led Eastern Europe and is still a large psychological influence,
but its vanguard days appear to be numbered as the economy grinds to a halt,
with the rouble at 14.6 to the dollar, down 34 percent in two days. 
As a senior central banker said on Thursday the printing presses were about to
be turned on to give the banking system some liquidity, critics said Russia
seemed to be tending towards the example of Belarus -- which has four
different exchange rates, professes a Slavic future and is widely accused of
political repression. 
Dr Oleg Manayev, a political scientist at the independent institute of socio-
economic and political studies in Minsk, said life had not improved in Belarus
since maverick Slavophile Alexander Lukashenko became president in 1994. 
"Belarus's experience in economic reforms is that there have been no economic
reforms in Belarus," he told a news conference. 
Russia's collapse had fuelled anti-reform sentiment, he added. 
"Once again, there is talk of a third path, a Slavic way, and there has been
talk of the Belarus-isation of Russia. You have had four weeks of this
experience, and we have had four years." 
But taking the opposite path, embracing reforms and taking harsh measures to
support the rouble, would hurt, neighbours warned Russia. 
Tiny Kyrgyzstan, a landlocked state of 4.5 million people in Central Asia,
with minimal natural resources, is due to officially join the prestigious
World Trade Organisation shortly, about five years after leaving the "rouble
Irina Makenbayeva, coordinator of the studies programme of the World Bank's
institute for economic growth, said the mainly agricultural state had begun to
grow as small companies processing produce began to revive the sector. 
But Kyrgyzstan still lived with high, but stabilising unemployment and had
gone through the pain of closing many of its banks, unlike Russia. 
"The first generation of banks is practically ruined," she said. 
The central Asian state had floated its currency while Bulgaria, which
suffered an economic meltdown similar to Russia's at the end of 1996, tied its
currency to the German mark after a new government was elected. 
Emil Tsenikov, a senior analyst at the centre for studies of democracy in
Bulgaria, said that his countrymen had only backed reforms after the worst had
already passed. 
"We had such shocking circumstances at the end of 1996 and the beginning of
1997 that there was no alternative." 
When reforms began to bite, Communists complained but could offer no realistic
programme, he said. 
That stormy path may be the way forward for Russia, said independent economist
Andrei Illarionov. Illarionov said the present Russian government appeared to
be embracing print and spend economics with limited rouble convertibility. 
Russia's chance would come in new elections for parliament, which now has a
strong hand in picking the government. The State Duma lower house faces a poll
before late-1999, and in the meantime Russians must suffer and learn, he said.
"This difficult lesson must be lived through on our own," he said. 


Date: Thu, 17 Sep 1998 
From: (Renfrey Clarke) 
Subject: Abalkin on emission

From what I can tell no-one has posted a translation of
Abalkin's Nezavisimaya Gazeta article of 16 September. I was asked to
excerpt and translate anything in it that seemed controversial.
Readers may find these selections interesting.
Renfrey Clarke

Nezavisimaya Gazeta 16 Sept. 1998
Leonid Abalkin
Emission: Myths and Facts
At a forum in St Petersburg in June Central Bank Chairman Sergey
Dubinin set out the principles of his monetary and credit policy.
Asked why money was being withdrawn from circulation (contrary to the
established practice), Dubinin replied, "We are implementing a
stricter financial policy." Behind this approach stands the primitive
concept, elaborated in theoretical terms by Yevgeny Yasin and remote
from the reality of our lives, that inflation depends directly and
rigidly on the quantity of money in the country. No doubts are even
entertained on this question.
The following conclusion flows from this position: the policies
being followed in Russia are correct, and the whole point is to
implement them more firmly...
Now for the truth. In March 1995 the government's Centre for the
Economic Conjuncture, whose then director Yakov Urinson later became
minister for the economy, came to the following conclusion: "The
excessive money supply that was present in the economy at the
beginning of the reforms has now been done away with long since, and
restricting the growth of the money supply can only have negative
consequences: the growth of non-payments in real terms, the decline
of industrial production, and as a result, a fall in budget revenues,
a budget deficit, and a further progressive breakdown in the
circulation of capital." The continued restriction of the growth of
the money supply led to the predicted course of events being
confirmed precisely....
In the first half of 1997... the economy entered a phase of
growth. This was made possible by measures for the state regulation
of the economy (limits on the prices charged by natural monopolies,
controls on the liquor industry) and by a reduction of imports, which
stimulated the growth of production.
And what happened with emission? An active process began of
saturating the economy with money. The supply of ready money (M0)
rose from 103.8 billion rubles on 1 January 1997 to 141.6 billion
rubles on 1 September. The increase in ready money over these eight
months amounted to 37 per cent. The overall money supply (M2) also
grew, from 288.3 billion rubles on 1 January to 368.8 billion rubles
on 1 November (here and subsequently the sums are in new rubles).
Meanwhile, 1997 also saw the lowest inflation rates during the six
years since the beginning of the Russian reforms....
Then an unexpected turn was made. Instead of persisting with the
changes that had been begun (it was impossible to escape from the
crisis with the monetarization of the economy at the level of 12.5
per cent) the authorities began a massive and consistent withdrawal
of money from circulation....
The volume of ready money in circulation was cut to 130.4
billion rubles on 1 January 1998, to 119.1 billion on 1 April and to
129.9 billion (according to the latest available data) on 1 June.
The overall volume of the money supply (M2) now stands at 370.4
billion rubles compared with 374.1 billion at the beginning of the
year. When the international reserves of the Central Bank of Russia
are taken into account, the reduction in the money supply becomes
even more substantial.
The time has also come to discuss the causes of the black August
and September of 1998. The massive impoverishment of the population
and the destruction of the banks are linked to emission, and require
compensation. The collapse of prices has not been the result of a
fall in the volume of output. Moreover the budget, as a result of
taxes connected to total production and sales, should receive
proportionately increased revenues in the coming month. These
revenues can serve as the basis for compensatory payments. The
simple, purely technical servicing of trade demands quantities of
money sufficient for the normal settling of accounts.
For all the importance of carrying out this task, it is only
part of what is required to solve the universal crisis of the economy
and the budget. Here there are strict rules described in Fisher's
famous equation MV=PY, which sets out in mathematical fashion a well-
known formula of Marx. Here the money supply (M), multiplied by the
velocity of its circulation (V), is equal to the price index (P)
multiplied by the volume of GDP (Y). From this it is clear that the
money supply exerts an equal effect both on the level of prices
and/or on the volume of production. In particular circumstances
either one result or the other will prevail....
The velocity of the circulation of money is to a large extent
derivative. It depends on the relationship between the propensities
of the population to consume and to save. In June and July, for the
first time in many years, the propensity to save began to decline.
Deposits in Sberbank declined from 128.4 billion rubles on 1 June to
123.4 billion on 1 August 1998. The degree of tension in the consumer
market (linked to the growth of wage arrears) increased.
This again affects the current situation. In a general theory
long-term tendencies are important. Classical theory presupposes
equilibrium on the market, with goods sold for real (or, as we are
accustomed to say, "live") money. In Russia about 20-25 per cent of
all payments are made using such money. The rest consists of barter,
non-payments, or various types of money surrogates. At present
overdue credit debts are equal to six months of GDP. The ability to
circulate goods in the absence of money is a unique property of the
economy that has come into being in Russia....
In these circumstances the money supply (M) needs to be divided
into two parts: real money (M2) and all the forms of money
substitutes, from barter to overdue debts (MX). The money supply then
takes on the following aspect: M=M2+MX. In order to create a normal
system of payment-settlement relations, and to begin a real
transition to the market, all forms of quasi-money have to be
gradually forced out of circulation. This can only be done with the
help of emission. Then taxes as well will be paid with "live" money,
the budget system will acquire solidity, and businesses will acquire
the circulating capital that is so essential to them. There is simply
no other way.
That is the truth. Either demonetization of the economy
accompanied by declining production, a deplorable state of the
budget, and the growth of wage debts, or reasonable, managed
emission. Carrying out this task at one blow is impossible. The need
here is for a logical, consistent series of steps, precise regulation
of the channels of the money market, and a high level of professional
skill. No serious economist has ever urged a mechanical, unthinking
policy of flooding the economy with money.


Spokesman 'Amused' by Chinese Story Linking Lewinsky to KGB

MOSCOW, September 16 (Itar-Tass) - Russia's special services have been
amused with a Chinese media report alleging that former White House intern
Monica Lewinsky is a KGB agent, intelligence service spokesman Yuriy
Kobaladze told Tass on Wednesday.
"We do not comment on allegations about whether separate people belong
to Russia's Intelligence Service (SRV)," Kobaladze said.
"Such assertions are likely to be a manifestation of notorious Chinese
shrewdness," he said.
In its latest issue, Guandong Writer magazine has published an article
titled "Is Lewinsky with the KGB?" claiming that Lewinsky is a Russian spy.


Luzhkov Urges Modification of Economic Principles 

Moscow, Sept 16 (Interfax-Moscow) -- Moscow Mayor Yuriy Luzhkov has
said the new Russian government should primarily concentrate on stabilizing
the ruble and streamlining the banking sector.
Retail prices should be scaled down soon because "price growth has hit
the least well-off Russians," Luzhkov told reporters Wednesday [16September].
"The principles and goals of the economy should be modified," he said.
Production of goods should be the key goal, Luzhkov added.
The tax policy should also be changed. "Current taxes are strangling
companies, which encourages the gray economy," he said.
The Russian budget could receive additional revenues from a state
monopoly on alcohol, tobacco, and audio and video products, Luzhkov said.
The new government should discipline taxpayers, he said, adding "No
taxes, no government."
Customs policy should be corrected by reducing import tariffs on
equipment and increasing import tariffs on finished products, Luzhkov said.
The Cabinet should protect Russian producers and help them to become
more competitive, he said.
The territorial divisions within Russia should also be changed,
Luzhkov said. "A prime minister cannot deal with 89 regions. (A prime
minister) should rely on 12 conglomerates based on regional agreements," he
said. "They should be the main conductor of the government's decisions
throughout Russian territory."
The results of privatization should be revised "in cases when
companies were bought for a song and are not being used properly,"
The organizers of financial pyramid schemes should be put on trial "in
order to discourage others from doing the same," he said.
The new Cabinet led by Yevgeniy Primakov is able to deal with all
these problems, Luzhkov said.


Russian Paper Stresses Gerashchenko's Incorruptibility 

Argumenty i Fakty, No. 38
September 1998 (signed to press 15 Sept)
[translation for personal use only]
Report by Natalya Zhelnorova: "Viktor Gerashchenko Behind The
Scene and on Stage"; first paragraph is published in bold; passages
within slantlines published in italics; subheadings published inbold

Hercules or Viktor Gerashchenko has once more been appointed chairman
of the Central Bank. [passage omitted on extracts from Russian press
articles over the last three or four years, quoting Gerashchenko's economic

Hero or Monster. 

Let us start with Gerashchenko's children. He has
two of them. His daughter Tatyana worked first as a teacher and later did
an evening degree course at an economics department, after which she worked
for several years as an ordinary cashier at the Promstroybank. For all
those years, none of her colleagues knew that she was a daughter of the
Central Bank chairman. When by accident they did find out a few days
before she left, they did not say anything for two days. They could not
understand why such modesty. At the moment, she lives in a small 30 square
meter flat with her husband and two children and has no opportunity to move
into a bigger one. [passage omitted on more extracts from the press]
Gerashchenko's son, Kostya, had to interrupt his university course
when he was called up into the army. He served in the Northern Fleet, and
nobody there knew whose son he was. His unit had to take part in a Red
Square parade once. Thanks to this, Gerashchenko, Jr. found himself close
to home. No mother could have stayed away from the temptation to get her
son home, but the command could not be persuaded and he was not allowed out
of the barracks. So, his mother had to persuade his father. They say it
was the only time when he gave in and got into his company Chayka [car] and
went to see the command and to request leave for his son so that the latter
could stay at home for one night. The command were surprised when they
realized that the chief banker's son modestly served in their unit.
[passage omitted on more quotes from the Russian press January 1996;
Gerashchenko on inflation]
At present, his son with his wife and two grown-up children live at
his mother's-in-law. People who know well the life of this family say that
Gerashchenko has never helped his children.Wife as an Apprentice [subhead]
[passage omitted stating that he met his wife "at the institute" where
he studied. The institute is not named. His wife spent all her life at
home, looking after the children]
The breadwinner's salary had to feed 10 of them, and Nina
Aleksandrovna Gerashchenko had no confidence that their joint pension would
be enough to provide for all in old age. Nina Aleksandrovna asked her
husband to find her a job so that she could boost her pension. But in
vain. [passage omitted on many words about how he refused]
The stubborn woman found a job in the end at the Kasnogorskiy craft
works which, among other things, manufactured banners and pendants. She
was hired as an apprentice to work in a fixed- contract team. For two
years, Nina Aleksandrovna had to commute to the factory outside Moscow to
paint banners.

Tragedy at home 

I rang Viktor Gerashchenko at home, but he was not expected until late
night, and I congratulated his wife on his new appointment. But she
replied: "For us this event is a like a tragedy. A few years of quiet life
are over: we began to have money. Our daughter left work to look after the
children. He has improved his health a little, staying with us at our
dacha. I cannot understand why he had to go to the Central Bank. He did
not tell me one word about his appointment. I found everything out from
TV." [passage omitted on more lamentations from the wife and more extracts
from Gerashchenko's statements published in the press in the past fewyears]


Russian economist says need new Duma for reforms

MOSCOW, Sept 17 (Reuters) - Russia's reformist future depends on electing a
new parliament which would approve an uncompromising liberal government,
independent economist Andrei Illarionov said on Thursday. 
Policy directions indicated by senior economists in the newly forming
government suggested there would be high inflation and limited rouble
convertibility, he told a news conference. 
"In December 1992, Viktor Vladimirovich Gerashchenko (the new central bank
chief, who held the same post then) set a record for increasing the monetary
base in Russia -- he doubled it in a month," Illarionov said. 
Illarionov was at that time an adviser to liberal acting prime minister Yegor
Gaidar's government, which had been at odds with Gerashchenko. 
Now fallout from the recent political crisis pitting the opposition-dominated
State Duma lower house of parliament against the president had resulted in
more power for the legislature, which could work in Russia's favour, he said. 
"Practically our only way out of the crisis is to elect another legislature,
which will form a different government." 
New Russian prime minister, Yevgeny Primakov, said on Sunday that an agreement
drafted last month to redistribute powers between President Boris Yeltsin and
parliament should now be formally 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
Duma elections must be held by late next year, and Illarionov, a liberal
economist who successfully forecast the devaluation of the rouble, said Russia
would have to suffer before the next election to make a proper choice. 
"This difficult lessen must be lived through on our own," he said. 


Return to CDI's Home Page  I  Return to CDI's Library