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Johnson's Russia List


September 22, 1998    
This Date's Issues: 23902391

Johnson's Russia List
22 September 1998

[Note from David Johnson:
1. Reuters: New Russia agriculture boss faces hard start.
2. Reuters: Russia's Zyuganov raises spectre of military rule.
3. Frank Durgin: Printing money.
4. Moscow Times: Boris Kagarlitsky, The Inertia Strikes Back.
5. Vladimir Shlapentokh: Don't Forget the Russian People.
6. RFE/RL: Paul Goble, The End Of The Former Soviet Union.
7. Moscow Times editorial: Crisis Talk Not Based In Reality.
8. Toronto Sun: Matthew Fisher, Russia divided and in disarray.
9. Reuters: Russian depositors don't trust bank bailout. 
10. Jamestown Foundation Monitor: PRIMAKOV SHIES AWAY FROM REGIONAL 

11. Izvestiya: Valeriy Vyzhutovich, Government Politburo Being Formed.]


New Russia agriculture boss faces hard start
By Sebastian Alison

MOSCOW, Sept 21 (Reuters) - Russia's new deputy prime minister responsible for
agriculture started his job on Monday facing the worst harvest in decades, a
farm finance crisis and a looming food import crunch. 
``It was a difficult decision for me,'' Gennady Kulik told reporters at the
State Duma lower house of parliament after President Boris Yeltsin announced
the appointment. 
``In the first place, as you know the situation is serious, and beside that I
already know newspapers are saying that Kulik means a return to the collective
farming system of the Soviet era,'' he said. ``I am sure you understand that
is not so.'' 
The 63-year-old former Soviet-era Russian agriculture minister and now
Agrarian Party member of the Duma told reporters his first duty was to ``work,
work and work'' to feed the country. The Agrarians are allied to the Communist
Turning round the sector will not be easy. A disastrous growing season
characterised by drought across much of Russia has cut the grain harvest from
last year's 88.5 million tonnes. 
The agriculture ministry officially forecasts this year's crop at 56 million
But the independent research organisation SovEcon has cut its forecast to
49-53 million tonnes and said some hard-hit regions which normally send grain
to other parts of Russia will have to import from other regions this year. 
If the SovEcon forecast proves accurate, Russia will experience its worst
grain harvest since the mid-1950s. 
Other crops have also been hit by the weather. On Monday, the Sugar Beet Seed
Producer's Association, Semsvyokla, forecast this year's sugar beet output at
12.94 million tonnes gross. 
This compares with 13.8 million tonnes last year, at that time the lowest
harvest in three decades. 
Analysts say Russia is in no danger of starving this year, as last year's
bumper grain crop resulted in a surplus of 20 million tonnes which is now
available in storage. 
As a result, significant grain imports are not likely. An agriculture ministry
spokesman told Reuters that Russia expects to import two million tonnes of
Kazakh grain to the Russian Far East this year, the same volume as normal. 
But the carryover will not be there next year. Another poor harvest could lead
to shortages going into the winter of 1999. 
One reason Russia's grain needs have fallen is that livestock herds have been
reduced, cutting demand for feed grains. 
With domestic herds down, Russia imports much of its meat directly. The fall
in the rouble since mid-August has raised questions about whether the country
can afford such imports. 
Kulik said Russia should boost support to the domestic poultry industry,
pointing out this was cheap to produce compared with other types of meat.
Russia last year imported $745 million worth of poultry from the United
States, around half of all poultry consumed in the country. 
Other problems facing Kulik include the fact that the main farming sector
bank, SBS-Agro, has been placed under temporary administration with debts of
more than $1 billion to non-residents and is transferring household accounts
to another bank. 
``I am deeply convinced we must preserve SBS-Agro, but we believe the state
should have a controlling share in the bank,'' he said. 
While Kulik has said he will concentrate on building up domestic food
production, Russia's dependence on imports remains a problem. Last year, one
third of all food consumed in Russia was imported, rising to half in Moscow
and St Petersburg. 
Food imports by value accounted for one quarter of all Russian imports in
1997. The value of imports in all sectors was $52 billion, a trade and
industry ministry official said. 
The decline in the rouble's value means many imported goods have already
vanished from shops and markets in Moscow. 


Russia's Zyuganov raises spectre of military rule
STRASBOURG, France, Sept 21 (Reuters) - The leader of the Russian Communist
Party warned on Monday that the military might take power if the new
government headed by Prime Minister Yevgeny Primakov failed. 
"It is important for us to support Primakov's government, but if it fails we
cannot exclude the possibility that the next government will very probably be
made up of soldiers," Gennady Zyuganov told reporters while on a visit to the
Council of Europe. 
"The Yeltsin era is finished. It is very important for us not to end up with a
civil war," he said. "We will give our support to the Primakov government, but
if it follows old policies, we will be against it." 
The Russian Communist Party helped vote in Primakov in a parliamentary debate
earlier this month. Zyuganov is a member of the Council of Europe assembly --
a 40-nation human rights body based in this eastern French city. 


From: "Frank Durgin" <>
Date: Mon, 21 Sep 1998
Subject: Printing money

It is somewhat bizarre to hear the clamor raised by the nation's
Russian experts over the Russian government's intention to create new
money in order to pay off back debts to workers. 
There has been far more alarm here in the West about this creation of
new money than there was against Yeltsin's expenditure of some $50
billion to conduct the war in Chechnya in order to kill some 100
thousand persons, and destroy over $100 billion of property. The total
of all back wages (private and public at that time was running about
$30 billion.
Russia's current problems (depressed industrial and agricultural
output, unemployed, homeless and hungry people) are clearly rooted in
overly draconian monetarism. The ratio of money supply (M2) to GDP in
Russia is the lowest in the world. In 1996, according to the Bank of
Russia, it was some .13, and in 1997 some .14. The Central Bank's
rediscount rate in June of this year was 80% (up from 24% a year
earlier). Bank loan rates in July of this year were running some 54%,
up from 39% a year earlier. Money shortages are the reason why workers
and taxes are not are not being paid, and why better than 50% of all
transactions in Russia are conducted via barter.
Compare Russia's M2/GDP ratio and current interest levels
with those of the US. The M2/GDP ratio is some .5, the Central
Bank rediscount rate 5%, home mortgage rates less than 7%.Yet
the slightest sign of a weakening in any sector of the
economy produces a clamor for easier money. Imposing Russia's
M2/GDP ratio and rediscount rate on the US would destroy our
economy as effectively as a neutron bomb
The creation of new money is an every day occurrence here in
the US. Every time a bank loans money it creates new money. 
When it grants a construction loan it creates the money without
which the construction project could not and would not have
been carried out. Industrial production in Russia is still
falling and the factories currently operating on average at
some 40% of capacity. To give one example, take that of the
Krasnoyaak Combine Factor. In 1991 it produced 14,000
combines. Last year it produced 655. And while the assembly
lines and workers stand idle, farmers are in dire need of farm
equipment but are unable to obtain credits to acquire the
equipment necessary for harvesting on time- a fact which has
played a role in Russia's 40% decline in agricultural output.
The provision of credits to the farmers (e.g. expand the money
supply) would put the tractor factories back to work, produce
paychecks for the workforce and increase both the supply and
demand of agricultural products
With Russia's enormous backlog of unmet basic human wants on the one
hand, and the vast reserve of idle manpower, plant and equipment on
the other hand, which if put to work could satisfy those wants, the
prospect of inflation is a very unreal one. And even if one wants to
make the case that it is real, given the scale of human misery, which
pervades that nation, it is a very very secondary issue. Russia needs
a US WWII type monetary expansion and budget deficits to wage an all
out war against massive human suffering mounting social discontent. 
As Lebed has said, "The grapes of Wrath are ripening "


Moscow Times
September 22, 1998 
The Inertia Strikes Back 
By Boris Kagarlitsky
Boris Kagarlitsky is a researcher at the Academy of Sciences' Institute for
Comparative Politics. He contributed this comment to The Moscow Times. 

When the Russian government crisis reached a boiling point, I was in
Washington, speaking at U.S. Congressional hearings examining the operations
of the International Monetary Fund. While public attention was focused on
Monica Lewinsky and the Starr report, politicians and businessmen had more
serious matters on their minds. Not only did events in Russia, Southeast Asia
and Latin America cause concern, but they brought into question every economic
principle that only yesterday had been sacrosanct. 
Although Clinton's administration had requested that additional funds be made
available to the IMF, House members voted 229-188 to block amendments
restoring $14.5 billion cut by the Appropriations Committee. For their part,
the IMF's representatives adhered to the traditions of old Soviet propaganda,
arguing that the overall course is correct and that the trouble lies with the
individual errors of negligent bureaucrats. However, it is no longer possible
to ignore the fact that this is a systemic crisis that cannot be pinned on
"the legacy of the accursed communist past," and this casts an even less
convincing light on appeals to continue along the same path. 
Only a few months ago, anyone who even mentioned the idea of establishing
control over capital investment, let alone nationalization, might have been
taken for a "red extremist" and had their views labeled as ridiculous or
dangerous. Now, representatives of American corporations working in Russia are
saying they do not intend to pull out of the market, demanding instead a
radical revision of economic policy and measures that fly in the face of
Western economic sermonizing. 
"If that means instituting age and price controls, or renationalizing basic
industries to ensure supplies and employment, so be it," Deborah Anne
Palmieri, president of the Russian-American Chamber of Commerce, said in the
Journal of Commerce earlier this month. 
The New York Times of Sept. 15 approvingly quoted David Kotz and other radical
critics of the neo-liberal policy in Russia, arguing that the time has come to
recall Franklin D. Roosevelt's New Deal "as a model for helping the Russian
economy recover." And Domingo Cavallo, who was brought to Russia to discuss
the creation of a currency board on the basis of the Argentinean experience,
wrote this month in Forbes Global that such steps are not applicable in Russia
and only a speedy annulment of sham privatization can help. 
The Russian crisis rudely demonstrated how misled the prevalent attitudes have
been. The string of successive "reformist" governments led the country into
such a blind alley that only extreme administrative measures could provide any
hope of a way out. Foreigners who were working with portfolio investments and
playing the T-bill market and those who catered to the whims of New Russians
have already pulled out of the market. Those who remain have invested money
into serious projects, and are here for the long term. They have no time for
ideology, and are willing to support any measures that might help correct the
Meanwhile, in Russia the bureaucrats and politicians are in a far more placid
mood, as the unhurried formation of the government shows. No one shies away
from talk of administrative measures, only from their implementation. Proposed
half-measures such as the creation of special exporters and compulsory
transfer of currency earnings to the government will probably come to nothing,
and rather than signal the engagement of real command economy levers, will
merely cause further disruption to existing market mechanisms. Not even the
threat of famine in the northern regions and the Kaliningrad area appears to
worry the government unduly. 
But the explanation for all of this is not to be found entirely in Russians'
carelessness and their tendency to hope for the best. 
The government's own inability to seize control of anything would appear to be
the main cause of its apparent timidity. Tentative efforts to deal with
commercial banks that are unable to settle up with their own customers ended
in nothing, while the bankers themselves seem prepared to go down with the
entire country rather than concede property and power to the government. 
To undertake something radical yet not touch the interests of the oligarchs is
impossible. Although now practically bankrupt, the 15 wealthiest men in the
country still command colossal political clout, and despite their inability to
effectively use the property they accrued during the plundering of the state
sector, they will not surrender it -- Boris Berezovsky has already warned of
civil war if there is an attempt to nationalize anything. 
In theory, the communists should be striving toward nationalization, but like
everyone else they fear (or respect) the oligarchs even more than the
representatives of the other political parties. When erstwhile Prime Minister
Sergei Kiriyenko raised the idea of the state seizing the property of Gazprom
as the most heinous tax-dodging enterprise, it was the communist majority in
the State Duma who reacted with outrage. Nor did the communists rush to pass
legislation that would allow the nationalization of banks. Over the past few
years the leaders of the "left-patriotic" bloc in the Duma have played by the
rules established by the Yeltsin regime while crushing dissent in their ranks.
The West fears a radical about-face in Russia under a communist government,
when in fact the real threat is that nothing will change. This contemporary
inertia and dread of taking decisive action may ultimately prove to be a far
more awful variant than any return to the past. 


Date: Mon, 21 Sep 1998
From: Vladimir Shlapentokh <> 
Subject: Don't Forget the Russian People

Don't Forget the Russian People
Vladimir Shlapentokh

On September 1, President Clinton delivered a monumental speech at the
Moscow State University for International Relations. Among other things, he
discussed the challenges of the global economy and the "clear lessons" to be
learned from "international experience." Considering the extraordinary
length of the president's address, it is remarkable that he avoided one of
the fundamental precepts of democracy, an issue which he, himself—perhaps
more than any of his predecessors—is usually extremely responsive to: the
voice of the people. Throughout the course of his speech, President Clinton
refrained from any reference to the Russian's real attitudes toward the
liberal reforms, privatization, social inequality, not to mention their
predilections toward the future of their country. Instead of attending to
the wants and needs of the people, he offered a rudimentary grocery list of
recommendations—topping enlightenment's list was the suggestion that people
ought to pay their taxes. The only statistical figure he used in relation
to public opinion was the percentage of those who participate in elections. 
Clinton's attitude is far from atypical. In numerous articles and reports,
both optimists and pessimists among American experts ignore the views of the
Russian people on issues of social and political development. When public
opinion data is used, it is restricted to the popularity ratings of
individual Russian leaders or possible presidential candidates, and even
this is rare. 
What is more, this same type of disregard is also typical for most of the
major players of the Russian political establishment, liberals and
Communists alike. In Russia, tempers flare and debates in the media and
parliament rage on, yet not a single participant cites the views of the
Russian people. While both American and Russian politicians, experts, and
media snub popular opinion, or narrow it to a superficial analysis of
presidential hopefuls, dozens of Russian polling firms continue to collect,
using scientific methods, and publish massive amounts of public opinion data.
Part of the reason for this general disregard for the Russian public stems
simply from the fact that the people's voice runs counter to the liberal and
communist platforms. Let us begin by considering the relevant public
opinion data in relation to the liberal camp. Notwithstanding the number of
Russians who support the current situation—about one-third of the
population—the majority of the people are against the liberal reforms.
According to the Public Opinion Research Foundation, prior to the August
financial catastrophe, only 6 percent of the Russians were convinced that
the country was headed in "the right direction;" 54 percent believed Russia
was moving in the "wrong direction." When survey questions addressed more
specific "reform" issues, the results were typically negative. Fifty-eight
percent of the population are against privatization—only 25 percent favor
the sale of state property to private owners. About two-thirds of the
Russians consider a society with private property and market laws
incompatible with equal opportunity. Privatization in Russia is thought of
as "illegitimate" and "inequitable." The people attribute the great
amassments of wealth in the country to "dishonesty" (76 percent),
"connections" (88 percent), and only in part to "hard work" (39 percent). 
The Russians equate liberal capitalism with the society in which they live.
They disregard the statements of both foreign and domestic experts claiming
"Russian capitalism" is "abnormal" in its present state and can be radically
improved in the future. According to the All-Russian Center for Public
Opinion, 80 percent of the Russians ascribe poverty to the "actual economic
system." In August 1998, another polling firm, the Fund of Public Opinion,
found that 58 percent of the Russians assessed their life as "bad" or "very
bad;" only 4 percent said life was "good." In the minds of roughly
two-thirds of the population, privatization and the rise of the market
economy opened the flood gates for corrupted bureaucrats, dishonest
businesspeople and criminals. According to a poll conducted in January
1998, 51 percent of the Russians believed their society was run by
criminals, 26 percent said "corrupted oligarches," 25 percent said
"corrupted bureaucrats," and only a slim minority—less than 10
percent—responded "democratic institutions" (the respondents were allowed to
select more than one response). The August financial crisis only worsened
liberal capitalism in the eyes of the majority of the Russians.
While the Russian people reject liberal capitalism, they do not advocate
the communist ideology or a return to the Soviet past—thus adding the
Communist Party to the mounting list of those who are disinterested in
public opinion. Even though the majority of the Russians believe that their
material life was better under communism, two-thirds are against the
reinstatement of a Soviet-like order. The Russians cherish their political
and economic freedoms. The Fund of Public Opinion survey in 1997 showed
that 91 percent of those who responded greatly appreciated the freedom of
the press; 82 percent supported the freedom to move and travel abroad; and
81 percent were in favor of free presidential, parliamentary, and
gubernatorial elections. 
While yearning for an "iron hand" to combat crime, corruption and social
unrest, the Russians are leery of communist driven initiatives aimed at
restoring the repressive Soviet-style system. For this reason, the
Communist Party never garnered more than one-third of the votes in both the
parliamentary elections in 1995 and the presidential election of 1996. Even
now, in a climate of political and economic turmoil, the communist leader
Gennadii Ziuganov is only supported—according to the September Fund of
Public Opinion poll—by 17 percent of the population as a vying presidential
The Russian public disagrees with the two most pronounced political forces
in Russia. On one hand, they favor semi egalitarian ideals, a paternalistic
state with repressive attitudes toward crime and corruption, and a
confrontational, though not aggressive, stance toward the West—ideas deemed
unacceptable by the liberals. On the other hand, they advocate a fully open
society, equipped with both political and economic freedoms—ideas deemed
unacceptable by the communists and their allies among radical nationalists.
Contempt for the masses is routinely demonstrated by both political
extremes. Liberals criticize the Russians for their unwillingness to work
as hard as the market requires and their tendencies of shifting the blame
"for their bad life to everyone but themselves," as written in Izvestia a
few days after the start of the last financial crisis by Alexei Uliukaiev,
vice director of Gaidar's Institute of the transitional economy. Radicals
among Communists and nationalists are no less obtrusive with their
disapproval. Several articles in Zavtra have revealed their anger toward
the Russians for their refusal to resort to violence in order to destroy
"the regime of occupiers" supported by the American special services and
While it is evident that the Russian public remains largely ignored by
politicians, the reason for this disregard goes much deeper than the
people's reproach for the views of the liberals and communists.
Eighty years separate the current economic crisis from the bloody civil
war, and in that time the Russians have remained extremely passive
throughout the political landscape. Faced with political and social
calamities, they proved reluctant to storm the streets and express their
frustrations. In 1992, they stayed relatively calm while their standard of
living dropped catastrophically with the introduction of liberal reforms.
Thus far, the people have remained reticent in the wake of the August
economic catastrophe of 1998. It is this passivity which allows the
political elite of Russia and the West to dismiss what ordinary people think
and feel. Here lies the real reason for the elite's indifference toward the
views of the Russian people. 
But this sort of leadership is not only contrary to the democratic
principles preached by Russian and American politicians, it is potentially
dangerous. Relying on the resiliency of the Russian people, as strong as it
may seem, is like asking the future never to repeat itself. It is quite
possible that the passivity and patience of the Russians has its limits, and
that an ever worsening economic dilemma may trigger a wave of Bolshevik-like
extremists. One needs only to remember the chaos of 1917, to realize the
propensity of such individuals to disrupt passivity, awaken aggression, and
fuel the imposition of an ugly dictatorship in Russia. This comparison of
1917 and 1998 is almost a fixture in the Russian media. In September 1998,
the All-Russian Center for Public Opinion found that 66 percent of the
Russians expect that "force may be used" to deal with the present crisis. 
To ignore what Russians think and feel is as dangerous as it is
impractical. Let us hope that the new Prime Minister, Evgenii Primakov,
will be more sensitive to the public than his predecessors in the Kremlin.
Indeed, the "clear lesson" to be learned from "international experience"—the
essential precept which President Clinton, along with Western and Russian
experts, fail to illuminate—is that nothing good comes from the revolution
opposed by the voice of the people. 

The author thanks Joshua Woods for assisting with this piece.


Russia: Analysis From Washington -- The End Of The Former Soviet Union
By Paul Goble

Washington, 21 September 1998 (RFE/RL) -- The continuing economic and
political crisis in the Russian Federation has claimed yet another victim: the
widespread belief that Moscow will somehow be able to restore a common
economic space on the territory of the Former Soviet Union. 
Instead, it has demonstrated just how different the economies and political
systems of the 11 other former Soviet republics and the three Baltic states
now are and why they are likely to become less integrated, rather than more,
in the future. 
Over the last month, many observers have focused on the immediate impact of
the Russian crisis on exchange rates and stock market averages in these
countries, a pattern they argue reflects just how integrated these countries
are and how dependent the non-Russian countries remain on what happens in
But these same observers have devoted significantly less attention to three
other developments that point in the opposite direction: the anger the leaders
of those countries most closely tied to Russia now feel toward Moscow, the
success those least tied to Russia have had, and the obvious calculation that
suggests to others thinking about the course they should adopt in the future. 
Last Friday, Belarusian President Aleksandr Lukashenka reflected the anger
that many in the non-Russian republics feel toward Moscow. He lashed out at
the Moscow leadership for failing to warn its partners in the Commonwealth of
Independent States about just how serious the Russian economic crisis in fact
Moscow's failure to do so in a timely fashion, Lukashenka continued, has meant
that "we have suffered substantial damage from the collapse" in the Russian
Federation. And he called on the new Russian leadership to follow an economic
policy in line with "the principles according to which Belarus has been
working for a long time already." 
But Russian leaders are unlikely to see Lukashenka's words as encouraging.
Only two days earlier, the Belarusian president imposed new and sharper
restrictions on the export of food from Belarus, where prices are controlled,
to Russia, where they are not. 
Thus, those associated with the idea that the CIS should be strengthened, have
been forced by the Russian collapse to say and do things that will make any
move toward tighter integration that much less likely. 
At the other end of the spectrum in this region are countries like Estonia
that have almost totally severed their economic links with the Russian
Federation and are thus the least exposed to the consequences of developments
in the Russian marketplace. 
While the Russian crisis has hurt them -- Estonia's stock market averages have
fallen significantly in recent weeks -- it has also made them more, not less,
independent of the Russian market. That repeats a pattern of six years ago. 
At the beginning of 1992, Moscow insisted that Estonia pay world prices for
its energy purchases from the Russian Federation, a policy that forced Estonia
to turn to Western sources. At that time, the Scandinavian countries came to
Tallinn's aid. 
Now, many Russian firms cannot pay their debts, something that has hit
Estonian fish and dairy exports to the Russian Federation. And once again, the
West is helping out: The European Union last week cut restrictions on Estonian
fish and dairy products to help that Baltic country avoid the most serious
consequences of the Russian crisis. 
The Belarusian and Estonian experiences are having an impact elsewhere in the
region, suggesting to ever more governments that they must seek to limit their
exposure to the vagaries of the Russian marketplace and find ways to integrate
with the broader world economy. 
Ukraine may be a bellwether in this respect. The Russian crisis has hit the
Ukrainian economy hard: Ukraine's currency has dropped some 30 percent since
the Russian ruble was devaluated. And Ukraine's leaders see no immediate way
out of the situation, a conclusion reflected in Kyiv's decision on Friday to
announce plans for some economic coordination with Moscow. 
But over the longer term, Ukraine too is looking away from Russia. On
Wednesday, visiting Polish Foreign Minister Bronislaw Geremek told Ukrainian
leaders that Russia's crisis serves as a reminder of the need for speeding up
economic reforms in Ukraine and speeding Kyiv's integration into Western
Promising that Warsaw would do everything "to support Ukraine in this
difficult moment," Geremek called on Kyiv to impose full control over its
eastern borders in order to permit the preservation of visa-free travel to
Poland and integration into Western institutions. 
If the Ukrainian leaders follow his advice -- and the Russian crisis makes
that more rather than less likely given that Polish firms pay and Russian ones
don't -- Kyiv too will be moving away from Moscow as well. 
And whether because of anger, opportunity or concern, ever more of Russia's
neighbors are likely to make a similar calculation, one that help put an end
to discussions about the FSU as any kind of common economic space. 


Moscow Times
September 22, 1998 
EDITORIAL: Crisis Talk Not Based In Reality 

After the tough talking of past months, Russia's relations with the world
financial community have recently taken on a surreal, benign quality. 
Perhaps the weirdest statements have come from Prime Minister Yevgeny Primakov
and his deputy Alexander Shokhin, who seem to think that, if they cringe
enough, Russia has some chance of receiving money from the International
Monetary Fund. 
Can Shokhin and Primakov not be aware that the IMF and the West are facing a
financial crisis of world proportions and Russia is about bottom of their
Why should the IMF lend any money to Russia when it will be stolen just like
it was in the past? The Central Bank is now blithely printing billions of
rubles that end up in the hands of the same bankers who did most of the
stealing the last time around. 
Perhaps even more unreal are suggestions from Shokhin and barely acting
Finance Minister Mikhail Zadornov that Russia will renegotiate its debt on
treasury bills owed to foreigners. 
The Russian government last month offered a deal that would repay only a few
cents on the dollar. Shokhin and Zadornov now say that a new, more just deal
is in the offing. They even promise that foreigners will be offered the same
terms as Russians. 
This would be music to the ears of foreign investors except they know full
well that Russian banks have already received favorable terms to sell their T-
bills to the Central Bank. The Russian government has already discriminated
against foreigners. 
And foreigners also know that Russia lacks the money to negotiate any sort of
improved settlement on T-bills. It will be a miracle if Russia is able to
maintain payments on $17 billion of hard-currency debt that falls due next
The West too has more than its share of preposterous rhetoric in its financial
dialogue with Russia and it is the Eurocrats who lead the way. While everyone
from the United States to Australia has let Russia know that it will not get
any money, the European Union has tried to sugar this bitter pill by saying
that instead of money, Europe wants to help Russia with advice and know-how. 
That particular pill is enough to make Russia vomit. If there is one thing
that the Primakov government was elected not to do, it is to follow the
prescriptions of overpaid, fly-by-night Western consultants. 
All of this nonsense only underlines that Russia is now completely isolated
from the rest of the world. These statements are just idle chat. 


Toronto Sun
September 21, 1998 
[for personal use only]
Russia divided and in disarray
Sun's Columnist at Large

MOSCOW - The ruble lost another 20% of its value last week on news the
central bank is prepared to defy the International Monetary Fund and print
billions of rubles to pay its domestic debts. 
Even by the most generous estimate, this year's wheat harvest in Russia will
be the worst in more than 40 years and down nearly 40% from last year because
of wet weather and shortages of fuel and machinery. For the same reasons, the
potato harvest is poor. 
Because of unusually hot weather, there are reports of famine in villages in
areas bordering Kazahkstan. 
Anatoli Chubais, the much loathed reformer who now heads Unified Energy
Systems, has told Russian news agencies that if forecasts of a much colder
winter prove to be true it would be "very difficult" to heat Russian homes
this winter. 
A British-based medical agency reports that a drug-resistant strain of
tuberculosis which is already feeding an epidemic in Russia's prisons and
running amok in the hinterlands is about to become a global menace. 
The Moscow Times says at least 160,000 well-paid professionals in Moscow have
lost their jobs since Russia stopped meeting its international debt
obligations last month and that more than 5,000 job seekers turned out on
Thursday for a city-sponsored job fair in the capital. 
An Italian furniture company which was thriving in Moscow and St. Petersburg
saw its business disappear overnight and was told last week that all the
payments it received this summer had been frozen by its Russian bank until at
least November. 
The American Chamber of Commerce, which regularly used tomake ludicrous
pronouncements about Russia's economic future, estimated four days ago that
American companies lost US$465 million when the Russian economy collapsed. 
This pile-up of bad news was the disturbing backdrop when I met with perhaps
30 students from Moscow State University's law faculty. I had been invited to
speak about the legal powers and future of the British monarchy. But as so
often happens in Russia these days, it wasn't long before we were discussing
Russia's pitiable economic prospects. 

Two camps 
What emerged during the talks was that the students were divided into two
camps. As is often the way of these things, especially in chauvinist Russia,
the young men in the classroom held much firmer views than the young women. 
One of the factions blamed Russia's political leadership, the former
Communist party elite and the Russian underworld for the country's deplorable
finances. Four-letter words learned from Hollywood films peppered their
The focus of the other faction was radically different. It thought the U.S.
and, in particular, the CIA, was to blame for everything. One particularly
argumentative fellow went so far as to accuse Pope John Paul of being an
American agent who had been bent on destroying the Soviet Union and was still
bent on humbling Russia. 
Those who blamed Boris Yeltsin and his cronies remained great admirers of
western democracy and capitalism. In fact, several of them continued to be so
smitten by the West that they wanted to know what Canada required for them to
emigrate, how long it took immigrants to acquire a Canadian passport and,
perhaps most tellingly of all, whether Canadian passport holders required
visas to travel to the U.S. and Britain. 
Those who saw Washington's dark hand pulling Moscow's strings were unshakable
in their belief the only way for Russia to become a great power again was for
it to solve its own problems in its own ways. 
The students' stark differences over why Russia is in such disarray and what
to do about it is mirrored in Yeugeny Primakov's new government. Old style or
only slightly reformed Communists who are part of the new prime minister's
emerging power structure are bitter over American involvement in their economy
and hanker for the kind of colourless stability leaders such as Leonid
Brezhnev provided. 
But Primakov's team still includes a few liberal thinkers. They believe the
only way for Russia to get through bad harvests, keep warm, tackle calamitous
health care problems and create an economy dynamic enough to pay off the
country's crushing debts is to keep channels to the West open. 
Whatever side wins, the differences of opinion here are so sharp and so
profound that a lot of people are going to be very unhappy. 


Russian depositors don't trust bank bailout
By Peter Graff

MOSCOW, Sept 21 (Reuters) - ``Whores!'' was the first word the elderly man
said as he stumbled out of a bank branch at Moscow's central Triumfalnaya
Square on Monday. 
``Whores! Dogs! Criminals! They won't give a kopeck!'' 
Russia's central bank is working overtime to breathe life back into the
carcass of Russia's banking system. 
But in one of the numerous queues outside banks across Moscow where depositors
were hoping to squeeze the last of their savings out of frozen accounts,
optimism was in short supply. 
The central bank announced a plan late last week to pump more roubles back
into commercial banks in the hope that some institutions may yet emerge from
the country's financial crisis. 
On Friday commercial banks were allowed to use some of their mandatory central
bank reserves to pay debts they owe to depositors, each other and the
government. The central bank has also promised to buy -- for cash -- some of
the state bonds that a previous government declared nearly worthless last
Banks had said that the collapse of those bonds left them too broke to pay
their depositors. 
In an effort to stop banks from blowing their fresh roubles on a dollar-buying
binge, the central bank halted foreign exchange trading on Monday and said
banks that had not submitted lists of their outstanding debts would not be
allowed to buy dollars on the main exchange when trading resumed. 
But on Moscow's streets, depositors queuing up for their money had little
faith that the measures would give them relief. 
``They've already given the money out (to the banks). The money disappeared.
Nobody gave it to us,'' said a middle-aged woman in a grey coat in line at a
branch of Menatep bank. 
``It is a crime. Pure and simple,'' said a 65-year-old retired scientist who
gave his name as Pyotr Sergeyevich. 
Most Russian commercial banks, facing a run by frightened depositors since
mid-August, have offered depositors a choice of some kind of restructured
account with their current bank or a chance to transfer their deposits to the
state-owned savings bank Sberbank some time in November or December. 
Those who transfer their accounts to Sberbank will see the value of their
deposits wither with the plunging rouble. 
The result, at branches across the city, has been tough choices, long queues
and hot tempers. 
At Menatep, depositors who choose to stay with the bank can ask for IOUs,
called ``Vekseli,'' denominated in dollars at the current official exchange
rate. The bank promises to pay them back in instalments over three years. 
Pyotr Sergeyevich said he had decided to bet his life savings on the IOUs.
``The hope is that, with these veksels, they will steal a little bit less,''
he said. 
``Frankly, I don't believe them one bit. But what else can you do? There are
no good choices here. Just two awful options.'' 
``For me this is a strong blow. At my age it is difficult to lose your
The elderly man who tore out of the building fuming about whores and criminals
had opted for an account at Sberbank. ``When I get my money it will be
worthless. But at least I get something. What's a veksel?'' 
One grey-haired woman who, like many, would not give a name, said she knew
where the money had gone. ``(Alexander) Smolensky and (Boris) Berezovsky have
set up a little firm in -- what's the name of that republic? Some small
republic. I read it,'' she said, referring to two of Russia's most powerful
But Pyotr Sergeyevich said the depositors themselves might have been to blame
for daring to trust Russia's banks. 
``We wanted to believe that, with perestroika (restructuring or reforming the
economic system), they could build good, solid, honest and reliable banks.
Millions of people believed them. It turned out not to be the case,'' he said.


Jamestown Foundation Monitor
September 2, 1998

rejected calls for Russia's eighty-nine republics and regions to be
redivided into a dozen or so big administrative units. He told journalists
on September 18 that while the idea was "reasonable... eighty-nine is too
many," and such a reform would be too contentious at a moment when Russia is
facing a serious financial crisis (Russian agencies, September 20). The idea
has been put forward repeatedly by Liberal Democratic leader Vladimir
Zhirinovsky and was repeated last week by Moscow Mayor Yuri Luzhkov. Such a
reform would, however, be fiercely opposed both by Russia's ethnically based
republics and by many of the krais and oblasts, which prize their hard-won
autonomy. The Republic of Tatarstan, for example, insists that, since the
collapse of the USSR, it has regained the sovereign statehood it lost to the
armies of Ivan the Terrible in 1552. Primakov said it would be
"counterproductive" for his fledgling government to embark of policies that
would split society and distract Russia from essential economic reforms.

Many analysts argue that Russia could be governed more efficiently both if
it were broken up into larger administrative units and if all the provinces
were placed on an equal footing vis-a-vis the federal government, with a
single set of rules applicable to all. This would replace the present
system--of individually negotiated power-sharing treaties between the center
and the regions--which lacks transparency and gives rise to endless
leapfrogging as regions try to negotiate preferential conditions, especially
as regards taxation. To complicate matters, the bilateral treaties are
backed up by numerous supplementary agreements between the center and
regions, details of which are rarely published. Under the previous
government there was much discussion of moving to a general set of rules
applicable to all regions. This provoked strong opposition from the more
powerful regions and republics, and Primakov is clearly unwilling to revive
the debate at present. 


From: "Mark Scheuer" <>
Subject: Funny you mention it. . .
Date: Mon, 21 Sep 1998

I thought JRL readers interested in Albert Weeks' query on the absence of a
politburo. I found this on FBIS today:

Proposed Government Structure Likened to 'Politburo' 
September 19, 1998
[translation for personal use only]
Commentary by Valeriy Vyzhutovich: "Government Politburo Being Formed"] 

On 18 September Yevgeniy Primakov submitted to the president a draft
for the government's structure. Here too the new Russian premier -- this
master of compromise and creator of the "multipolar world" -- remained 
completely true to himself. His diplomatic experience
of "tying interests together" has on this occasion found expression in the
government presidium -- the highest ruling organ of the cabinet -- which from
now on will also include a number of governors. 
The previous government's presidium contained vice premiers, power
department heads, the finance minister, and the State Tax Service head. Now 
regional heads have joined this distinguished Areopagus. The geography of 
political compromise, which until now has been restricted to the area
between Okhotnyy Ryad [State Duma] and Krasnopresnenskaya Embankment
[Council of Ministers], is being extended to the wide-open spaces of Siberia 
and the Volga Region as well as to other places noted for the prestige and 
influence of their rulers. 
There is every sign that Yuriy Luzhkov's proposal to give governmental
status to the leaders of interregional associations is being implemented. 
They include Eduard Rossel ("Ural Region"), Anatoliy Guzhvin ("Greater Volga"),
Anatoliy Lisitsyn ("Central Russia"),n Viktor Ishayev ("Far East
and Transbaykal"), Vladimir Yakovlev ("Northwest"), and several other
"The presidium's composition has not yet been determined," the premier's
newly appointed press secretary, Igor Shchegolev, informed Izvestiya. "But
it is 
actually being proposed that it include regional leaders. As yet it is not
how many. It is possible that not all association heads will be represented." 
You can imagine what a throng will appear at the door of the presidium as it
is being formed during the next few days and how many governors and republic
presidents will try to establish their right to a seat on the government 
politburo. The actual principle of forming this organ undoubtedly goes
back to the traditions of the CPSU [Communist Party of the Soviet Union]
when the first secretaries of large Soviet republics, krays, and oblasts were 
guaranteed a permanent seat in the Kremlin alongside the general secretary. 
Drawing historical parallels is, of course, a risky business. But how can a
government presidium with this structure prove to be more effective than the 
previous one, which was delimited by the Moscow beltway? 
It is unlikely [to be more effective]. We can confidently predict that
having gained governmental status the governors will rapidly turn the presidium
into a group of regional lobbyists, clash with ministers, and become mouthpieces
for their own corporate interests. The country will have gained a
second Federation Council in miniature which will displease all those
senators who have not gotten into the "government club." 
It is as yet unclear whether the "regional comrades" will merely be allowed
to express a view or will actually be able to vote in this politburo. In
their powers have not yet been defined. But who, for example, can guarantee
having become a member of the presidium, Eduard Rossel,
who recently instructed his government to initiate a program of "civilized
renationalization," will resist the temptation of applying his local
experience" to the whole country as oblast party committee secretaries did when 
allowed to take the state's helm? 


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