September 24, 1998    
This Date's Issues: 2394•2395

Johnson's Russis List
#2395
24 September 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Primakov gives plans, c.bank warns on prices.
2. Reuters: Russia's Chubais predicts crisis to worsen.
3. Baltimore Sun: Will Englund, Ruble's crisis generates another: 
imported food International suppliers find no buyers amid collapsing
economy; Slow day at trade show.
4. Los Angeles Times: Richard Paddock, A New Breed of Gangster Is 
Globalizing Russian Crime.
5. Reuters: Timothy Heritage, ANALYSIS-Primakov tries to tame
Russian regions.
6. Moscow Times: Leonid Bershidsky, World Bank Official Denies Loan
Misused.
7. The Times (UK): Anna Blundy, Satellite 'almost started nuclear 
launch.' 
8. AFP: Polls: Russians Nostalgic for Soviet Era, Not Communism.
9. AFP: Lebed Says Yeltsin Is "Hated" by His People.
10. Lawrence Freedman: Re 2393-Thomas/Inflation.]

******

#1
Primakov gives plans, c.bank warns on prices
By Martin Nesirky

MOSCOW, Sept 24 (Reuters) - Prime Minister Yevgeny Primakov vowed on Thursday
to clear wage arrears and thaw Russia's frozen banking system, but officials
said the initial price could be triple-digit inflation and a rash of bank
failures. 
Primakov, a compromise premier still trying to build a consensus team to
tackle Russia's crisis, outlined several proposals at his first full cabinet
meeting, including tax breaks for investment in industry and a crackdown on
tax dodgers. 
"We understand how important fiscal discipline is and the government will
conduct a tough policy against individual, corporate and regional tax
dodgers," he said in televised comments at the start of the meeting. 
"But administrative measures are not enough. The government intends to lower
the tax burden on both Russian and foreign producers and to create conditions
and guarantees for investors in the real economy," Primakov said. 
He also blasted as "ill considered" the last government's decision to default
on some debt and devalue the rouble. 
In a move that could boost revenue but also raise eyebrows, the 68-year-old
former foreign minister said next month he would impose a state monopoly on
the production of, and wholesale trade in, hard spirits -- including Russians'
favourite tipple, vodka. 
He also said the country's needs exceeded budget income and that expenditure
had to be better organised. 
The opposition-dominated State Duma, the lower house of parliament, approved
Primakov on September 11 after President Boris Yeltsin nominated him as a
compromise candidate, but two weeks on he has not yet completed his government
line-up. 
Many parties and individuals have shown a marked reluctance to join a team
with the thankless task of tackling a grave crisis which has seen the rouble
tumble, prices soar and the banking system teeter on the brink of collapse.
Many investors have put plans on ice and some have cut their staff in Russia. 
Primakov has vowed to push ahead with market reforms but with greater
attention to the needs of industry and the poor. 
He told the cabinet -- many of whom are acting or reconfirmed ministers kept
over from the previous government -- that the measures he was outlining were
elements of his programme, but not yet the whole picture. 
He said he would begin making wage and pension payments on time from October
and at that point would also begin paying a wage backlog that has left
millions of Russians without cash. 
From January 1, the government will compensate citizens for inflation, he
said. Inflation hit 45.4 percent in the first three weeks of September alone
compared with 15 percent for the whole of August, eroding rouble savings and
wage arrears. 
Russian news agencies reported the central bank told the cabinet it forecast
December-on-December inflation could reach 240-290 percent if the rouble fell
further to around 20 to the dollar, and closer to 450 percent if it fell to
30. 
The Russian currency stood at around 15.6 to the dollar in electronic trading
at 0930 GMT on Thursday. 
On August 17 the government of reformer Sergei Kiriyenko and the central bank
issued a statement freezing GKO treasury bills, ordering a 90-day moratorium
on foreign debts by commercial banks and devaluing the rouble. The move
dramatically reversed policy and brought the financial system to a virtual
halt. 
"The August 17 statement was ill-considered and did not take into account
possible consequences. It was done without the president's approval," Primakov
said. 
The Finance Ministry said in a document prepared for Thursday's cabinet
meeting that the crippled banking system would improve after going through
bankruptcies, mergers and the nationalisation of some banks. 
It also said the government should ease requirements for foreign banks which
invest in industry. 
The ministry is still headed by Acting Finance Minister Mikhail Zadornov and
there is no word yet whether he or someone else will get the job in Primakov's
cabinet. 
But while the search went on for ministers, President Yeltsin, who is looking
politically weaker than at any stage in his seven years in office, appointed
one deputy premier. 
He met First Deputy Prime Minister Vadim Gustov and formally appointed
Valentina Mativiyenko, hitherto Russia's ambassador to Greece, as the deputy
premier in charge of social policy. 
The Kremlin also said the 67-year-old president had met the heads of his
domestic and foreign intelligence services. 

*******

#2
Russia's Chubais predicts crisis to worsen
By Irina Demchenko

MOSCOW, Sept 23 (Reuters) - Anatoly Chubais, the architect of much of Russia's
post-communist economic reforms, said on Wednesday that the policies promised
by the country's new authorities would lead to ``Soviet madness.'' 
Chubais, who heads Russia's electricity grid UES but lost his role as the
country's chief negotiator with international lenders in last month's
government shake-up, told a gathering of Western journalists the economic
crisis would only deepen over the winter. 
``You can argue just how deep the retreat will be, what will be its extent.
But the fact that a retreat will come is inevitable,'' he said. 
If the central bank prints roubles as it has promised, they will vanish on the
currency market, driving the plunging rouble even lower, he said. That could
force authorities to squander the country's remaining hard currency reserves
in a vain attempt to support the rouble. 
Soon the government would be forced to take severe, Soviet-style measures to
buy desperately needed imports. 
``Quotas. Limits. Corruption.... The inevitable result of printing money is
all this Soviet madness,'' he said. 
He said the country's only hope was that inflation and shortages would wake up
voters, and they would force the authorities to change course. 
The government ``will have to answer for its deeds,'' he said, adding that if
public anger turned parliament against the cabinet there could be a new
political crisis leading to early elections. 
He said the government would find it difficult to avoid printing money,
because ``emission is convenient for everybody.'' 
``Just about every minister will support such a decision because he is not
responsible for macroeconomic difficulties -- he answers, say, for the
purchase of heating oil.'' 
Every government should have one person who is everybody's ``enemy,'' and can
say 'no' to the rest of the cabinet, Chubais said, adding there was no such
figure in Primakov's team. 
Asked about his own mistakes as one of the leading architects of Russian
reform, Chubais said he had failed to predict any major change in the
country's economy for 1998. 
``We must recognise that we did not fully understand the scale of the process
which we had undertaken. We thought there would be a very difficult three
years, five years, eight years. Now, unfortunately, it is clear that reform
will take decades.'' 
``It is now clear that Russia does not need billions or tens of billions, but
hundreds of billions of dollars,'' he said. 
Chubais was first deputy prime minister until March 23. He oversaw the mass
privatisation of Soviet-era industry, becoming a hate-figure for the Communist
opposition, who accuse him of favouring certain business groups during his
years in office. 

*******

#3
Baltimore Sun
23 September 1998
[for personal use only]
Ruble's crisis generates another: imported food
International suppliers find no buyers amid collapsing economy; Slow day at
trade show
By Will Englund 
Sun Foreign Staff 

MOSCOW -- All would seem right with Russia to anyone who parachuted into the
World Food Moscow trade exhibition, which opened here yesterday with rows and
rows of gleaming and succulent displays of edibles from around the world that
no one will buy.

Spilling through four large halls in a country that imported half its food
last year, a show designed to bring buyers and sellers together looked for all
the world like business as usual. Except for one thing -- there was no
business.

At the moment, there is virtually no imported food coming into Russia. No one
dares to buy it. No one dares to unload it. No one dares to distribute it.
With the banks frozen, no one can pay for the food, and even if they could, no
one would know what to charge in a country where in less than a week the ruble
could gain -- or more likely could lose -- much of its value.

"The only people stopping by are coming for the free pens," said Richard Ali,
director for Russia of U.S. Meat Export Federation.

But a Ukrainian accordion ensemble lent a merry air, and someone dressed up to
look like an Israeli orange strolled around bumping into people. Gloom there
wasn't. Only optimists set out to do business in Russia in the first place,
and the prevailing sentiment was uncomplicated: Somehow, something has to
happen.

Exhibitors, distributors and wholesalers had all turned out for their annual
get-together, to show the flag if nothing else, in hopes of better days to
come. They slapped each other on the back, huddled over cups of coffee,
strolled down lanes of beef and pork, of chicken and Brussels sprouts, of tea
and bourbon, of crabs and pears, of cat food and baby food, of Argentine
grapes and Hungarian salami.

It was a feast for the eyes that won't translate to the table. Outside the
exhibit halls, the only imported food for sale in Russian stores is from
shipments that arrived before Aug. 17, the day the ruble was devalued. More is
sitting inwarehouses, held back by anxious distributors who are selling only a
trickle so as not to lose too much money at once. But conversations here
yesterday suggest that even that supply will run out by November.

"Then things could get desperate," said Ali.

"The pipeline is empty," said Carlos Ayala, directer of international
operations for Perdue Farms, of Salisbury, Md.

Predictions of hunger in Russia have a way of not coming true. Even when the
shelves were completely bare, as they were in 1991, Russians weren't going
hungry. Food was being sold out the back door and from the tailgates of farm
trucks, people were harvesting potatoes at their dachas, importers who didn't
care to pay taxes or risk jail for speculation were bringing in commodities on
the sly.

The difference now is that even smugglers have to have money -- and there just
isn't any, besides the billions of rubles that have been frozen or have
vanished in the continuing economic crisis.

And there's the harvest -- which is shaping up as the worst in more than 30
years. Farmers will bring in half as much grain as they did last year. Sugar
beet production is down only slightly from last year, but that was the worst
year in three decades. Potatoes are few and of poor quality. If the government
continues to flail, said one seller here, "we could be looking at something
like the Irish potato famine."

Russia does have large stocks of grain left over from 1997, so that prediction
of doom may have been a little alarmist. But even Russians don't live on bread
alone.

More than 850 companies from 48 countries are here at the exhibition, and they
are aching to do business. U.S. firms alone sold $1.2 billion in food here
last year. Poultry amounted to more than two-thirds of the total; 7 percent of
the chickens raised in the United States ended up in Russian pots.

But it takes eight weeks for a chicken to get from a farm on the Eastern Shore
of Maryland to a store in Yekaterinburg -- and that means eight weeks of
financial risk before the chicken turns into rubles, and maybe two weeks more
before those rubles turn into dollars.

Neither the Russian buyers nor the U.S. suppliers are willing to take that
risk right now.

In fact a dozen ships carrying frozen food are reported to be anchored outside
Baltic ports. It's cheaper to pay $5,000 a day to keep a ship at sea than it
is to unload it and get sandbagged by frozen payments and a sliding ruble. The
ports are empty. The sea lanes are full.

Something, the thinking goes here, has to happen.

"From a political point of view, whoever's in power, they're going to want to
keep the people fed," said Ayala. Since Russia only produces half its food,
the country will have to turn again to imports, he said.

"Well, it depends on the government -- but they haven't even formed a
government yet," said Vladimir Kaminsky, of a New York seafood dealer called
International Gold Star Trading Corp.

"Until then," said Kaminsky, "I can't say anything about anything."

Ali believes the new government could move swiftly and contain the problem by
November. But that's if everything goes right.

He said he is especially concerned that Russian distribution networks, built
up over six years of economic transition, may have been wiped out by then, so
that even when money does start flowing again there won't be anyone out there
to buy the beef and pork and get it to the shopper. Plenty of distributors,
one Canadian representative said, never made profits anyway and got along with
well-placed friends in the banks -- but that kind of cronyism could well be
over.

But some people just have to look on the bright side. William Loope, a West
Virginian who heads a firm called Four W. C. P. Inc., has recently signed an
exclusive contract to sell Celestial Seasonings herbal teas in Russia, and
he's ready to go, crash or no crash.

"We didn't know quite what to expect," he said. This is the first food show he
and his three partners have participated in. They were attracting passersby
with what may have been Russia's first display of 1960s-vintage lava lamps,
and then keeping them around by handing out free cups of Lemon Zinger.

"There's been a lot of interest," said Loope, "though we haven't seen too many
qualified buyers yet. We know how much tea is sold in Russia. We hope in five
years to have our tea on every shelf in the country."

Loope figures the turmoil has set them back about six months.

"The Russians have been through worse," he said. "They're not quitters. The
market will still be there when the dust settles. And we'll be there, too."

*******

#4
Los Angeles Times
September 23, 1998 
[for personal use only
A New Breed of Gangster Is Globalizing Russian Crime 
Corruption: Authorities say these wise guys work both sides of the law and
rival the Mafia and drug cartels. 
By RICHARD C. PADDOCK, Times Staff Writer

GENEVA--To Swiss authorities, Sergei Mikhailov is a dangerous man who heads
one of Russia's largest crime groups from the isolation of his Geneva jail
cell. He has been locked up without trial since October 1996 and going to
occasional court appearances in an armored Mercedes with a SWAT team escort. 
Police arrested one of his Swiss lawyers, accusing him of smuggling
Mikhailov's letters out of jail and passing them to an accomplice who faxed
them to Moscow. And, fearing Mikhailov's long reach, the Swiss government took
the extraordinary step of granting asylum to the main witness against him--a
Russian police inspector. 
But to Mikhailov and his defenders, the 40-year-old prisoner is a
legitimate businessman who has been unfairly imprisoned simply because he is
Russian. He is a dealer in the export of gas and oil, they say, a generous man
who buys bells for churches in Russia and donates money to an orphanage. 
"I haven't done anything illegal," Mikhailov protested to a panel of
judges during a recent court hearing. "I am an honest person. If I did
something wrong, show me concrete proof. Where is this alleged criminal
organization?" 
The answer, police say, is: all over the world. Although Mikhailov's
accusers have been slow to bring their evidence to court, authorities allege
that he is the boss of the notorious Solntsevo gang--reputed to be the largest
Russian crime syndicate. If what they say is true, that would make him one of
the most feared and powerful criminals anywhere. 

Since the collapse of the Soviet Union, the operations of ruthless, well-
financed Russian crime groups have spread internationally with lightning
speed. From Moscow to Geneva to Los Angeles, law enforcement officials say the
Russian mob has become one of the world's biggest crime threats over the past
six years, rivaling the Italian Mafia and the Colombian drug cartels in scope
and power. 
"I look at the 1990s as the decade of the Russians," said Larry Langberg,
who heads the FBI's Russian organized crime task force in Los Angeles. "We do
have a big problem. This is a very active group." 

Billions Smuggled From Homeland 
Western countries that once worried about the Soviets' military might are
now trying to combat the invasion of the brutal and disciplined Russian mafia.
With the collapse of the Iron Curtain, Russian gangs have smuggled as much as
$50 billion out of Russia and into other parts of Europe, Asia and the
Americas, Interpol estimates. 
Much of this newfound wealth has been laundered through banks in
Switzerland, as well as Cyprus, the Caribbean and other offshore banking
havens, officials say. Billions of dollars have gone to finance criminal
operations ranging from prostitution and car theft rings to extortion and
contract murder. Billions more have been used to buy into legitimate
businesses and purchase real estate in locations from the Mediterranean to
Manhattan. 
Cunning survivors of one of the harshest regimes in history, Russian
criminals have easily moved their operations into more than 50 countries,
according to the FBI. In the process, they have struck up cooperative
relations with powerful international mafia clans and drug cartels. 
"What was once organized crime has become transnational crime," said Stephen
Handelman, author of the book "Comrade Criminal" and an expert on the Russian
mafia. "The Russians were better prepared than other crime groups to take part
in the global economy. They have now emerged as a full-blown network, passing
huge amounts of money around the world." 
Russian gangs have roots deep in the Soviet past. Despite the Communists'
efforts to destroy them, they formed a close-knit brotherhood with strict
rules of behavior. Their training grounds were Soviet prison camps, and their
operations were often run from behind bars by senior bosses. 
During the final years of Soviet rule, the mafia grew increasingly
stronger, forging alliances with corrupt Communist officials. The black market
became one of the principal distributors of goods throughout the
country--helping to keep the economy running and the Soviets in power. 
When the Communist state collapsed at the end of 1991, the crime
syndicates were in a perfect position to take advantage of privatization.
Cooperating with corrupt officials, they took over government enterprises and
factories and won a controlling stake in the country's economy. Then they
stripped wealth from their homeland, shipped it abroad and went into business
in the West. 
Russian gangs have proved themselves to be a new breed, bringing together
crime overlords, entrepreneurs, former KGB operatives and government
bureaucrats and engaging in diversified activities on both sides of the law
"As a former superpower, with intelligence links all over the world, they
could take advantage of the channels of information for greed and profit,"
Handelman said. "Because of the global economy, you have transnational groups
now doing legitimate and illegitimate business. It's hard to draw the line
between what is illegal and what is legal." 
Officials estimate that there are more than 6,000 mafia groups in Russia,
many with international ties. More than 200 operate in the United States,
according to the FBI. 
Russian crime groups, having evolved in a totalitarian state, typically
impose rigid discipline on their members and display a callous disregard for
anyone outside their circle. While cruelty and contract murders are
commonplace methods of doing business, the gangsters are also willing to
negotiate profit-sharing agreements with potential rivals. 
And in the day-to-day fight between law enforcement and organized crime,
it appears that the Russian syndicates are winning. Authorities say crime
groups are often better organized and better financed than police agencies.
Their operations cross so many international boundaries that intergovernmental
collaboration to curtail them can be awkward. 
"They cooperate with each other much better than we do," said Gwen
McClure, who heads Interpol's organized crime section at its headquarters in
Lyons, France. "Unfortunately, organized crime groups have fewer laws, less
bureaucracy. They share intelligence much better. They have much more money
than we have. They can afford to get the best technology." 

FBI Task Forces in Major U.S. Cities 

In the United States, the Russian mafia found ready victims and a good
base of operations in the communities of Russian Jews who immigrated during
the Soviet era. Recognizing the mounting Russian crime threat in 1994, the FBI
formed task forces in Los Angeles, San Francisco, Chicago and New York to deal
solely with the Russian mafia. 
In 1996, the U.S. government scored its biggest success with the New York
extortion conviction of Vyacheslav Ivankov, the top Russian crime boss in the
U.S. and an alleged associate of Mikhailov. 
In Los Angeles, the FBI says, the Russian mafia is involved in protection
rackets within the Russian community and in frauds such as staged auto
accidents and phony medical insurance claims. Russian criminals also engage in
scams such as stealing credit card numbers or "phone cloning," in which they
illegally obtain cellular telephone numbers from the airwaves and sell them. 
Outside their homeland, Russian criminals are most active in the United
States, Switzerland, Cyprus, Canada, the Caribbean and Israel, authorities
say. In major European cities, Russian syndicates have built a thriving
prostitution business, bringing in women from the former Soviet states as
virtual slaves. 
Money laundering is central to Russian criminals' operations as they try
to legitimize their earnings. Russian syndicates have bought as many as two
dozen banks, mainly in Cyprus and the Caribbean, to hide illegal money,
according to Interpol. In Berlin, Russian mobsters launder money through more
than 200 gambling parlors they own or control, police say. 

In Israel, where Russians make up one-sixth of the population, the
Russian mafia has brutally shoved aside Israeli criminals and taken over
prostitution, gambling, money laundering and racketeering operations. 
In one prominent Israeli case, Russian mobster Gregory Lerner pleaded
guilty in March to defrauding banks of $48 million and trying to bribe
officials, including members of parliament and Shimon Peres when he was prime
minister. Lerner is serving eight years in prison and has become something of
a cult figure. He placed fourth in a "most popular immigrant" poll conducted
by a Russian-language newspaper. 

Notorious Killer Slain in Greece 
One of Russia's most notorious gangsters, Alexander Solonik, was found
strangled last year in an Athens suburb. Solonik murdered four Russian police
officers in 1995 and then escaped from prison. Police say he was dealing in
arms and running a prostitution ring in Greece. The week he died, he was
reportedly due to carry out a murder in Italy, where police say he kept an
apartment stocked with weapons. 
In Geneva, the case of Mikhailov has demonstrated the difficulty of
prosecuting an alleged mafia chief who has conducted his activities around the
globe. 
A waiter in Moscow during Soviet times, Mikhailov was first schooled in
the world of crime when he was 26 and spent six months in jail for falsely
reporting his motorcycle stolen to claim the insurance. After his release, he
allegedly began organizing the Solntsevo gang, named after a district in
southwest Moscow. The gang grew to dominate much of the city after winning a
series of bloody turf battles with rival gangs. 
In 1989, he was arrested on extortion charges but released after the main
witness refused to testify. In 1993, he was detained in the killing of a
casino operator, but the case fell apart for lack of evidence. At one point,
he had one ID saying he was a CNN correspondent and another saying he was a
member of the Kremlin security detail, according to "Who's Who in the Russian
Criminal World" by Alexander Maximov. 
Mikhailov, also known as Mikhas, moved to Israel in 1994 and was granted
automatic citizenship because of his marriage to a Jewish woman. Last May,
seven Israelis--including former employees of the Israeli Interior
Ministry--were convicted of helping Mikhailov and other Russian mafia figures
obtain citizenship by forging documents and arranging fictitious marriages. 
While the nature of his business activities is unclear, Mikhailov has
built a far-flung empire with dealings in the United States, South America,
Israel, Austria, Belgium, Hungary and other parts of Europe. His attorneys say
he was involved in negotiating gas and oil deals with Russia. Press reports
say he was building a five-star hotel in the Hungarian capital, Budapest, and
exporting bananas from Costa Rica. Authorities say he was involved in arms
dealing, drug trafficking, blackmail and money laundering. 
He moved to the village of Borex outside Geneva, where he traveled around
in a blue Rolls-Royce. He allegedly bought a villa there through a Swiss
intermediary. 
Costa Rica made him an honorary consul and gave him a diplomatic
passport--although Russia refused to recognize his appointment. He was
carrying the Costa Rican passport--along with Russian and Israeli
passports--when the Swiss police arrested him on his arrival at the Geneva
airport in 1996. 

Mikhailov is charged with being a member of a criminal organization,
laundering money, falsifying evidence and buying real estate illegally. The
police froze $4 million in his Swiss bank accounts. 
"This is not preventive detention," said Swiss Atty. Gen. Carla del
Ponte, who has been personally involved in the case. "He is kept in jail so he
doesn't flee and so he doesn't tamper with evidence." 
But Mikhailov's Swiss defense team protests that the government has kept
him behind bars for nearly two years without enough evidence to go to trial. 
"I have to emphasize that Mikhailov did not commit any crimes on Swiss
soil," attorney Alec Reymond said. "In Russia, he is not accused of anything
either. I think the prosecution doesn't know what to do with him, and that's
why they are keeping him in jail for so long." 
During Mikhailov's recent court hearing, armed guards were posted
throughout the courtroom, and police officers with machine guns stood watch
outside. Mikhailov seemed frustrated and weary from his long detention. 
"If Russian authorities have concrete proof, let them show it," he told
the court. "I haven't been to Russia in four years. All the evidence the Swiss
supposedly have is false. Why does Switzerland treat an innocent man this way?
I don't feel guilty." 
Times staff writers Rebecca Trounson in Jerusalem and Richard Boudreaux
in Rome, Times researcher Christian Retzlaff in Berlin and special
correspondent Maria Petrakis in Athens contributed to this report. 

*******

#5
ANALYSIS-Primakov tries to tame Russian regions
By Timothy Heritage

MOSCOW, Sept 23 (Reuters) - Prime Minister Yevgeny Primakov is trying to draw
Russia's 89 diverse and in some cases fiercely independent regions back into
the fold to prevent the country being wrenched apart in economic turmoil. 

Primakov's first speech to the State Duma, the lower house of parliament, on
the day of his appointment contained a stark warning that the world's second
nuclear power could collapse during its worst economic crisis for years. 

Since then, he has taken advice from a host of regional chiefs, revamped the
government to give local leaders a role in decision-making and made prominent
governor Vadim Guskov one of his two first deputy prime ministers. 

Alarmed by a decline in President Boris Yeltsin's authority and the danger
that resource-rich regions could slip out of Moscow's sphere of control,
Primakov wants to give regional leaders enough power to keep them happy and
part of Russia. 

``We are facing a serious danger, a serious danger of our country
fragmenting,'' Primakov told the Duma when it met to confirm him as premier on
September 11. 

``We must do all we can so that all regions and republics can act, within the
framework of the constitution and legislation, autonomously on all
questions.'' 

In the 12 days since he was confirmed by the Duma, Primakov has been accused
of being slow to complete the lineup of his cabinet, to unveil his full
economic plan. But he has been putting his words on the regions into action. 

The culmination of his efforts was a presidential decree on Tuesday outlining
the structure of the new government. It gave eight regional leaders a role in
decision-making ``on a par with federal ministers.'' 

The eight represent regional associations from right across the country and
look set to include upper house speaker Yegor Stroyev, Sverdlovsk region
governor Eduard Rossel and Nikolai Pivovarov, who represents the troubled
North Caucasus region. 

Primakov has already held an urgent meeting on tensions in the North Caucasus,
plans a broader crisis meeting on the situation next month and spoke by
telephone on Wednesday to Aslan Maskhadov, president of the breakaway Chechnya
region. 

He will explain his economic plans to regional governors on September 29 and
about 500 municipal leaders on October 2, and has met many regional leaders
individually to rally support. 

Primakov's actions acknowledge that Yeltsin, weakened by health problems and
now economic turmoil, is no longer the force he was and that Moscow's
authority in the regions has waned. He wants to ensure Moscow does not become
totally impotent. 

Several regions have taken the law into their own hands to deal with the
economic crisis. One region declared an emergency and others outlawed price
rises, showing the shift of power towards the regions. 

``The crisis has shown that real power in the Kremlin extends only to the
territory of the (president's) out-of-town residence at Gorky-9,'' the
Sevodnya newspaper wrote. ``The other subjects of the Russian Federation are
left to their own devices.'' 

Many regions are tied to Moscow by economic necessity, with few putting more
into state coffers than they take out. 

Regional leaders are now freely elected and must keep their voters fed and
happy if they are to be re-elected, making it a priority to keep relations on
track with the Kremlin and the government, which control the purse strings. 

But economic collapse in Russia would put this fragile relationship in
question. If financial links break down, some regions might be tempted to
ignore Moscow completely and simply go it alone. 

That would have serious economic and political consequences. Regions would
carry out threats to withold tax and Moscow could lose control of vast natural
resources such as oil and gas. Its control of nuclear weapons could also be in
doubt. 

Primakov hopes to give the regions enough autonomy, and enough of a say in
federal power, to keep them happy. 

``Strong regions means a strong Russia so the government should offer support
to governors,'' Krasnoyarsk governor Alexander Lebed said in a recent
television interview. ``That is our only salvation, that is how we will get on
an even keel.'' 

But Primakov is determined to stop short of giving up central rule. 

``If we don't rule Russia from the centre, then the regions will develop at
different speeds,'' Gustov, former governor of the Leningrad region around St
Petersburg and now in charge of regional policy, said in a television
interview on Tuesday. 

``We cannot allow that,'' he said. 

Primakov faces an uphill struggle. He has vowed to find cash to pay pensions
and wage arrears and help domestic industry, which is music to the ears of
regional leaders and their voters. 

But giving regional leaders a role in the government could further clog the
decision-making mechanisms in a team which already has a vast array of
conflicting interests. 

``The suggestion that regional governors should be brought into government
will further widen the political base of the government, but will make it
harder for them to reach any consensus,'' said Tom Adshead, co-director of
research at United Financial Group in Moscow. 

******

#6
Moscow Times
September 24, 1998 
World Bank Official Denies Loan Misused 
By Leonid Bershidsky
Staff Writer

The World Bank's top official in Moscow has denied allegations that the
Russian government has misspent $1.4 billion in his bank's loans, saying the
auditor making the allegations has never contacted him about the matter and
has a history of unsubstantiated charges. 

"We have checked a fair proportion of [Western] loans and I am ashamed to say
that several billion dollars have not been used for their intended purpose --
and some of it was simply stolen," Veniamin Sokolov, an auditor with the
Auditing Chamber, a budgetary watchdog agency, said in a recent BBC interview.

But Michael Carter, the World Bank's representative in Moscow, said Sokolov
had not informed the bank about the Auditing Chamber's probe, and had
apparently misunderstood the nature of the loans he was investigating. 

Carter also said Sokolov had once before alleged misuse of a different World
Bank loan, and at the World Bank's request had promised to substantiate his
claims, but then did not follow through. 

Sokolov was unavailable to comment. But in a statement Tuesday he said he
found it irregular that World Bank funds were used to service Russian state
debt and pay back wages rather than for structural reforms. 

Carter said that was actually quite in order. "This was untied funding for the
[Russian federal] budget which could be used for the same purposes as taxes,
and that includes debt servicing and salaries," he said. 

Both the Auditing Chamber and the Prosecutor General's Office are
investigating, at the State Duma's request, how Sergei Kiriyenko's Cabinet and
the Central Bank under chairman Sergei Dubinin used foreign loans and other
funds during this summer's financial crisis. 

Immediately upon opening their separate investigations, prosecutors and
auditors claimed they had found evidence of wrongdoing. 

The BBC originally said Sokolov was speaking about an International Monetary
Fund loan of $4.8 billion received on the eve of the decision to devalue the
ruble and default on Russia's domestic debt. Subsequently the BBC reported
Sokolov had been misquoted, and that his allegations actually concerned two
World Bank loans totaling $1.4 billion. 

As Sokolov was making and correcting those allegations, Prosecutor General
Yury Skuratov said his own investigation of the Central Bank was already
showing that "not everything is clean." 

Some political players in the Kremlin and the parliament, meanwhile, said they
expected the various investigations were more about scoring political points
and are certain they will end up leading nowhere, similar to high-profile
investigations launched after November 1994's "Black Tuesday" ruble crash. 

"There is no question that some of the Western funding was not used wisely,
but I very much doubt that the probes will prove it was used illegally," said
Ivan Grachev, a Yabloko faction member and deputy head of the Duma's
privatization and economic activity committee. "The investigations are a
political action." 

"If Skuratov and Sokolov are looking for a criminal cabal of top government
and Central Bank officials who misappropriated foreign loans, they will not
find anything," a senior Kremlin official said on condition of anonymity. 

*******

#7 
The Times (UK)
September 23 1998 
[for personal use only]
Satellite 'almost started nuclear launch' 
FROM ANNA BLUNDY 
IN MOSCOW 

THE Soviet Union was a mere 20 minutes away from a nuclear strike against the
United States in September 1983, the respected Russian magazine Kommersant
Vlast reports this week. An Oko satellite, part of the country's early-warning
system, mistakenly signalled the launch of a American Minuteman
intercontinental ballistic missile early on September 26. 

Lieutenant-Colonel Stanislav Petrov, duty officer in charge of the warning
system, had less than ten minutes to analyse the information before reporting
to the Soviet leadership. He decided it was a false alarm and Dmitri Ustinov,
the Defence Min-ister, did not inform the Politburo but did order an
investigation. 

The investigating commission was reportedly horrified by the unreliability of
the Oko satellites. Colonel Petrov was taken to hospital for stress and later
discharged from the military. 

According to Aleksandr Goltz, a military expert on Itogi magazine, such
incidents are comparatively common. "They happen in this country and in the
United States but the early-warning systems are always double-checked by other
systems and there is no real threat of nuclear strikes." 

In 1995 a research rocket sent up jointly by Norway and America to study the
Northern Lights was spotted by Russian radar and an alert was sent to Moscow.
President Yeltsin was brought his nuclear-command suitcase while he discussed
the matter over the telephone with his Defence Minister. 

A report last year by Germany's Peace and Conflict Research Foundation said
that, because of serious problems with early-warning systems in Russia,
nuclear weapons were often kept on a permanent state of alert and could thus
be launched within minutes of a real or imagined attack. 

The report suggested that poor security standards or technical errors might
lead to an unauthorised launch. With the break-up of the Soviet Union much of
Russia's early-warning network is no longer on its territory but in former
Soviet republics. 

Since the Cold War's end incidents involving early-warning systems have become
rarer, but Russia's strategic-forces command system is ageing, with no new
money to update it. Russia and America have 20,000 nuclear warheads between
them. 

******

#8
Polls: Russians Nostalgic for Soviet Era, Not Communism 
23 September 1998
MOSCOW -- (Agence France Presse) The majority of Russians are nostalgic for
the Soviet era and the order and international prestige their country
enjoyed but are opposed to voting the communists back into power, according
to polls published Tuesday. 

Members of the public asked to describe recent historic periods praised the
Leonid Brezhnev era for its security (78 percent), success in science and
technology (67) and Russia's international standing (65). Brezhnev ruled
the Soviet Union for 16 years until he died in 1982. 

Russia under Joseph Stalin (1922-1953) represented discipline and order (81
percent) and patriotism (52), but also fear (68), according to the poll by
the Institute of Social and National Problems. 

In contrast, today's Russia was characterized by criminality (94 percent),
uncertainty over the future (88) and national conflicts (86). Only 18
percent said Russia had nothing to be proud of during the Soviet era. 

Meanwhile a survey of 3,000 Russians by the German Sinus polling institute
found that only one in 10 Russians supported the communists, in a poll that
showed that 16 percent of those questioned considered themselves centrists.
Nearly 60 percent said they did not trust any of the political parties.

*******

#9
Lebed Says Yeltsin Is "Hated" by His People 
September 23, 1998
PARIS -- (Agence France Presse) Russian President Boris Yeltsin is "hated
by his people" who will join a protest movement next month that will
continue until he resigns, Krasnoyarsk Governor Aleksander Lebed said
Tuesday during a visit to France. 

Lebed, who ran for president against
Yeltsin and is now, told French television that the president is also hated
by "the political elites, he is scaring off foreign investors, even his old
friends are leaving him." 

He pointed out that anti-Yeltsin protests planned across the whole of
Russia for Oct. 7 "will not stop until the president quits." 

"I will do what I can to make sure the protest does not degenerate into
violence in my region and across the country," he said. 

Lebed, on a two-day trip to France in his capacity as governor, was kinder
to the American president. He said that Americans would regret having
ridiculed their president over the Monica Lewinsky sex-and-perjury affair. 

The gruff general, who brokered a peace deal in Chechnya, said: "It's
monstrous ... they ridiculed the president. They have ridiculed their own
country." 

Lebed met at his own request parliamentary president Laurent Fabius and
expressed his regret that he would not have the chance to meet President
Jacques Chirac. 

He said: "I am very impressed by his loyalty to the Russian president. He
acts like a man who does not abandon his friends, you have to respect him,
one day we will meet." 

The former military head arrived in France Sunday on a visit arranged by
French film star and businessman Alain Delon. His meetings focused mainly
on economic issues.

*******

#10
From: "Lawrence Freedman" <lfreed@glasnet.ru>
Subject: Re: 2393-Thomas/Inflation
Date: Thu, 24 Sep 1998 12:58:29 +0400

Mr. Thomas's statement that inflation is the product of expectations rather
than money supply (JRL #2393) is not accurate.

Inflation is quite simply a rise in the price of goods and services relative
to the supply of goods on the market -- i.e. too much money chasing too few
goods. Expactations are relevant but not decisive in the absence of
"ratification" of those expectations by an increase in the money supply.

If sellers believe prices of replacement stocks will rise, they will raise
their current prices to compensate -- and if buyers also believe prices will
rise, they may oblige and buy goods available at higher prices. This
happened three weeks ago in Russia as prices initially shot up in the
expectation that the value of people's money would plummet catastrophically.
CNN showed scenes of Russians lining up to buy vodka for over 60 roubles a
bottle, 50% more than before the rouble crash.

However, in the absence of an increase in the money supply, buyers will run
out of the money they need to buy at higher prices and prices will fall
back, regardless of what initial expectations may have been. This is
happening with vodka too. Despite the vodka lines reported on CNN, good
vodka is today widely available at the wholesale markets scattered around
Moscow at the "old" price of 30-35 rubles. This availability has driven
prices in the center back down as well. For the time being at least, people
have run out of roubles to pay inflated prices for vodka which is still
widely available.

The same holds true for ruble purchases of dollars which are, after all,
simply another commodity which one may buy for rubles. If people think that
other commodities will hold their value better than the ruble - whether
dollars, DM, vodka or toilet paper - they will bid up the price of those
commodities in terms of rubles. Without a change in the money supply,
however, people will soon find that they have run out of rubles and prices
will fall back. I see this happening informally. Despite my expectation of
another ruble collapse and the knowledge that 16 roubles are not worth one
dollar, I have to pay my phone bill this week, so I will have to change
money at this absurd "official" rate. There is indeed a market for roubles
at 16 to the dollar. Once the expectation of inflation is ratified by
monetary emission, however -- i.e. when freshly-printed roubles begin
falling into the hands of pensioners, bank account holders, bond holders,
etc... -- there will be no shortage of people willing to give me a much
better rate.

Mr Thomas is also confused when he writes that if people expect there will
be inflation, "(this) will drive up the price of dollars in terms of rubles,
which is the same thing as saying that the value of the ruble will fall,
which is the same thing as saying there will be inflation." Short-term
exchange rate fluctuations are not the same thing as changes in the price
level: the value of a currency may rise or fall in the short-term for
reasons other than the price level. That the US dollar has lost 8% of its
value against the French franc this summer does not mean that the absolute
value of the dollar has fallen by that amount, nor that there has been or
will be that much inflation in the US.

Monetary emission is a forced re-distribution of value, essentially theft.
By printing money, the government, in effect, steals value from people who
are holding roubles to give to whomever it chooses -- pensioners, miners,
bondholders, itself, etc. Monetary emission only delays the inevitable day
of reckoning, at a high cost of severe economic dislocation. The initial
surge in "value" is illusory as the money printed is used to bid up prices
of goods and services. As prior period expenses are paid off, current
expenses rise, and the problem begins anew, beginning the
downward spiral toward hyperinflation.

As a policy choice, emission causes huge damage to people's confidence in
the national currency. It is this expectation -- that the government will
steal value from them by in effect printing money -- rather than some
general expectation that prices will rise, that causes people not to want to
hold roubles. Messrs. Geraschenko, Primakov and other members of the new
administration may believe this is an appropriate choice of policy in the
current crisis. But they should not wonder why nobody wants to hold on to
their roubles.

*******