September 25, 1998    
This Date's Issues: 2396•2397

Johnson's Russia List
#2397
25 September 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Julie Tolkacheva, ANALYSIS-Russia's Zadornov-better a 
devil you know.
2. The Nation: Stephen F. Cohen, ‘Who Lost Russia?’
3. Robert Procope: Re JL 2394 Weimar Germany.
4. Leslie Dienes: value destroying activities.
5. Los Angeles Times: Richard Paddock, Russia Plays Loose With IMF 
Billions.
6. Ira Straus: Who Lost Russia?
7. Reuters: Line-up of Russia's new government so far.
8. The Economist: A Lawyer's Life in Russia.]

******

#1
ANALYSIS-Russia's Zadornov-better a devil you know
By Julie Tolkacheva

MOSCOW, Sept 25 (Reuters) - Mikhail Zadornov's re-appointment as Russian
finance minister on Friday after a two-week vacuum will be welcomed by Western
investors happier dealing with the devil they know, analysts said. 
"It is good that they have appointed somebody," Stephen O'Sullivan, co-
director of research at UFG, told Reuters. 
"He is known...and he is also familiar with all the circumstances that led us
to where we are today, and that in itself means there is no learning curve for
him to go through." 
Russia is deep in economic crisis and the recent appointment of former Foreign
Minister Yevgeny Primakov as prime minister and Communist Party
parliamentarian Yuri Maslyukov as first deputy prime minister in charge of
economy has caused concern. 
Primakov has not yet outlined his economic policy. 
Zadornov, who was a member of a parliamentary liberal opposition faction
Yabloko before becoming finance minister last November, is a monetarist and a
Western-style reformer. 
But the new finance minister, who angered many investors with his
participation in a domestic debt freeze last month, may not be able to pursue
his monetarist agenda. 
Irina Shevchenko, senior fixed-income analyst at Alfa Capital, said Zadornov
did not fit into the overall picture of the new government and doubted he
would succeed in carrying out his economic policies. 
"It (Zadornov's appointment) is neither good or bad, it has a neutral effect,"
she said. 
"The team brought into the government by Primakov is of an older mould and I
am not sure how people like Zadornov will be able to change the weather. Now
individual positions are not the main thing, because we have a certain team in
the government and people who do not belong to the (Primakov) establishment
are unlikely to be able to have an influence on the course of events." 
One of Zadornov's most pressing duties is to complete negotiations with
investors holding frozen government securities that the government has said it
must restructure. 
Analysts were divided about the benefits Zadornov's appointment would bring to
the talks. 
"Zadornov's appointment is a bit surprising. It is difficult to say to what
extent he will be able now to carry out the policy he used to carry out,
because he is surrounded by people of quite a different nature," Shevchenko
said. 
Andrei Chirikhin, director of research at CentreInvest Securities in Moscow,
said Zadornov would keep talks on track. 
"A new man could have shifted the blame on Zadornov and started everything
from the beginning," he said. 
"Now it looks like there will be some sort of continuity. There will be no
formal pretext to drag it out." 
But Shevchenko argued Zadornov would not have much effect, since the central
bank appeared to have the upper hand in talks. 
She also said the original restructuring scheme, which was criticised by
almost all investors, was worked out under Zadornov. 

******

#2
The Nation
October 12, 1998
‘Who Lost Russia?’
By Stephen F. Cohen

Ever since the US government launched an inherently doomed crusade seven years
ago to transform post-Communist Russia into a replica of the American system,
it has been only a matter of time before that missionary arrogance led to
disaster and clamorous shouts of “Who lost Russia?” Fifty years ago, American
politicians and media asked the same question about China, with malignant
consequences. The immediate result was virulent McCarthyism, the enduring
consequence a political “mainstream” as narrow and barren as a dry creek.
The question about Russia must therefore be answered before it too becomes
cancerous. The collapse of Yeltsinism—those US-backed, shock-therapy,
monetarist policies that have helped bring about the worst economic and social
devastation ever suffered by a modern country in peacetime, indeed its virtual
demodernization—is also the collapse of the Clinton Administration’s Russia
policy.
But this does not mean that President Clinton, his advisers or the United
States lost Russia. If by that is meant squandering prospects for democracy,
prosperity and social well-being, it was President Boris Yeltsin and his
“radical reformers” who lost Russia. Nothing and no one forced them to impose
America’s ill-conceived prescriptions on their nation. Not surprisingly, what
Russians have always called their “accursed” question, “Who is to blame?”
again resounds across that tormented land; we can only hope that for once the
reckoning will be left to historians, not to Yeltsin’s political successors.
But America is in danger of losing something equally important in Russia—its
moral reputation. In the name of Yeltsin’s purported “reforms” since 1991, the
US government has closed its eyes and heart to the suffering of the great
majority of the Russian people, whose fate it so lamented when they were the
Soviet people. The Clinton Administration is now compounding the sin by
protesting the new Russian government’s desperate attempt to change economic
policy in order to prevent a still greater human catastrophe. (The
International Federation of Red Cross and Red Crescent Societies has warned
that as winter rapidly approaches, millions of Russian lives are endangered by
shortages of food, medicine and heating, and it has called for a humanitarian
campaign to save them.) Yeltsin may have lost Russia, but we are losing our
soul there.
And even jeopardizing our vaunted “national security.” For the first time in
history, a country laden with nuclear weapons and reactors is on the verge of
complete collapse, its economic, social, political and military institutions
nearly in tatters. Almost every week brings new reports of the disintegration
of Russia’s nuclear safeguards. If it continues, as now seems likely, we will
be confronted with an unprecedented peril, certainly one larger than any we
faced during the cold war.
And yet our President, who swore to uphold both our values and national
security, can no longer do either, only cling to discredited dogmas about
“staying the course” in Russia and at home. Alternately absorbed with the
salvation of his own soul and imagining that he is being persecuted like a
victim of Stalin’s purge trials, he has left the nation leaderless at this
grave moment. 

Stephen F. Cohen, whose books include Rethinking the Soviet Experience
(Oxford), is a professor of Russian studies and history at New York
University.

*******

#3
From: Robert.H.Procope@granny.rnd.su (Robert Procope)
Subject: Re: JL 2394 Weimar Germany
Date: Sat, 26 Sep 1998 

Comparisons between Weimar Germany and Russia today are a convenient way
for journalists to raise the specter of authoritarian rule in Russia and
conjure up pictures of a society on the edge. Most of our images of Weimar
Germany come straight out of films like Cabaret and the writings of various
gay poets who lived in Berlin at the time and although there are doubtless
parallels between the decadence of life in Moscow today and Berlin in the
20's, historical analogies must be based on more than just a film with Liza
Minelli in it.
One great misconception about Weimar is that Germany's democratic
experiment was doomed to fail from the beginning and that it should be read
as nothing more than a prelude to the Third Reich. Germany has proved since
1945 and briefly did in the 20's that their democratic tradition is a strong
one and that to argue that authoritarianism is in some way rooted in their
culture is nonsense. The Weimar Republic ceded to Hitler not because
democracy was alien to Germany but because society by the early 1930's could
no longer withstand the economic, social and cultural pressure which the
experience of war, the Treaty of Versailles and the Depression had
generated. In this environment Germany became an ideological arena in which
radicals from the left and the right, both committed to the destruction of
democracy, filled the vacuum left by the discredited moderate parties in the
centre. The organization which capitalized on this explosive situation was
a nationalist group which mobilized fear of the international
The similarities between Russia today and Germany then are certainly
striking. Defeat at war, the collapse of an Empire and the subsequent
humiliation and indignity of political incompetence and repeated economic
crises suggest societies in meltdown. The majority are disenfranchised
while a minority indulge every whim, democratic institutions and the powers
that be have forfeited the little respect they once had, both German and
Russian society are flooded with illicit weapons after the end of a lengthy
conflict and a sense of lawlessness and imminent chaos reinforce the
analogy. Zhirinovsky's success in 1995 rightly prompted comparisons with
Hitler's ability to capture the protest vote and perhaps Russia, like
Germany, will seek out a strong hand, a dictator to take charge and impose
some sort of order. 
Whoever that might be, he will have a hard job being more authoritarian
than Yeltsin and it is difficult to see what ideology he could espouse to
excite and unite generations divided by their allegiances to before and
after 1991. The National Socialists distanced themselves from the mistakes
of Weimar's politicians and consistently promised the overthrow of what they
branded a shameful (and by implication democratic) regime. Who in Russia
with any credibility is dedicated to the destruction of democracy? Those
ideological battles have been fought. The far right in Russia is headed by
a joker, while the Communist Party's maneuvering in the Duma has deprived it
of any remaining credibility it may have had as a protest party. In other
words, for all their criticism of Yeltsin and his regime, they are tainted
by their complicity and unlike the Nazis they stand within the political
process. Although some popular resentment may be aimed at the arrogance and
complacence of the West, most contempt in Russia is 
Analogies between Russia now and in 1917 or Weimar Germany are
instructive but, and I hope I am not being naève, misleading. Both Weimar
and the revolution of 1917 (hence Hitler and Stalin) were the direct
products of WWI, probably the most traumatic conflict of the century.
What's more Russia is rarely predictable and it would be a unique case if
all those commentators who have made the comparison with Weimar were to be
proved correct. 

*******

#4
Date: Fri, 25 Sep 1998 
From: Leslie Dienes <dienes@KUHUB.CC.UKANS.EDU>
Subject: value destroying activities

Re: #2394--Barry W. Ickes's reply to Armstrong/Printing money.

I just began to receive Johnson's List and have no idea if these may have
been alluded to earlier by someone. A point about value destroying
activities, expounded lucidly in Gaddy and Ickes's Sept.-Oct. 1998 Foreign
Affairs article and alluded here as well.

The only trouble I have with the idea of the market valuing human economic
activity is that, on the basis of that argument, perhaps a third of the
world population should have died long ago, rather than increase in numbers.
Thermodynamically impossible! Clearly, the market does not value correctly,
the GDP of the Ivory coast, where Abidjan accounts for 15% of the population
and some 2/3d of the GDP. 

Now, obviously, most of Russia's heavy and much of its consumer industries
were truly value destroying, as the inputs cost more than the value of the
products. But that was not necessarily more of the case with Russian
yoghurt, cheese, milk, confectionary, perhaps even some sausages, than it is
true in Western Europe. (Was Russian agriculture more heavily subsidized
than the West European food they import now is? Particularly if one thinks
of the entire symbiotic complex of collectives, private plots, and the
village social sphere, as Robert McIntyre and others have long argued). I am
sure some segments of the aviation industry was similarly salvageable.
Electronics clearly was not! The successful upgrading of parts of the car
industry (with joint capital), much of milk production, the confectionary
industry etc. during the 1990s proves that a substantial portion of Russian
industry could have been upgraded with judicious and moderate protection. I
am sure there were other products and branches. Russia used to export basic
substances for European pharmaceuticals. Now they import the substances even
for their domestic medicaments and cosmetics, which now have only 40% of the
market. Was it rational to just throw the door wide open to all imports so
suddenly? 

Ninety percent of the of the oil and gas industries' cost is in rubles. That
means they are supplied with Russian inputs, a great deal of it clearly
barter. While the two industries, too, are in bad shape, do we know for sure
that the machinery and equipment inputs, are hopelessly uncompetitive within
the Russian environment and unworthy of upgrading. Russian oil equipment
companies professed that they were interested in outside investment. Western
firms wanted to sell the energy producers ready equipment. I interviewed the
manager of an American firm in Ukraine, whose business was to find and
recommend Ukrainian factories for Western investment. (He was interested
only in those which would turn a 30% profit margin. Understandable, given
the political and other risks). He told me, that much of the machinery
industry is surprisingly modern. The problem was the size of the plants, and
how to divide an integrated complex into smaller, much more flexible firms.
Who knows what is salvageable now, with "enterprises using barter to protect
themselves from the market"?

Probably the bulk of the Soviet steel industry was value destroying, for the
managers were virtually taking smelted metal out of the bottom, putting it
back into the top. Yet, there was enough value added in the Russian and
Ukrainian steel industry in the mid-1990s, with its much reduced output, by
which time energy and other input prices have largely aligned to world
levels, even if some of it was paid in barter, or only partially paid. The
export success in steel proves that, dumping charges notwithstanding (These
have been leveled against nearly all East European steel makers as well,
even though they pay for their inputs in real money and at world market
prices). The fact that this steel is produced in a demonetized economy (or
for that matter school books, milk, yoghurt, subway cars, and the new
automobile output from factories modernized with Western cooperation) does
not necessarily mean that these are all value destroying. How can we figure
that out in a barter dominated economy? Nor does that mean that "there is no
effective demand for them." People who swap products at the subway stations
(their pay on pay days) in the largest cities of European Russia do have
effective demand. 

Only part of the "virtual economy" was in the "real sector". The other,
larger part could be found in the sterile circulation of money churning like
wind above the rest. Why did monetarists think that without a decently
developed "soft infrastructure" and a proper legal system in place, it could
impregnate the real sector? Now Russia has inherited the wind.

The above is merely the rumination of a non-economist. But "who shall decide
when doctors disagree?" And apparently a lot of the good doctors do.
Especially if we could hear from the institutionalists and evolutionary
economists.

Leslie Dienes
University of Kansas

******

#5
Los Angeles Times
September 24, 1998 
[for personal use only]
Russia Plays Loose With IMF Billions 
Finances: Central Bank is faulted for squandering emergency loan. 
By RICHARD C. PADDOCK, Times Staff Writer

MOSCOW--When the International Monetary Fund lent Russia $4.8
billion in July, Russian officials said they hoped the emergency funds
would sit unspent in the Central Bank's reserves, bolstering the wobbling
ruble. 
But within weeks of the money's arrival, economists and government
critics say, it was spent on questionable fiscal measures that provided a
windfall for Russian bankers and foreign investors but did little to help
the struggling economy. 
Some critics contend that part of the emergency loan--pushed by the
White House to save Russia from economic collapse--ended up in the Swiss
bank accounts of investors and wealthy Russians, draining the country of
much-needed cash and leaving average Russians empty-handed. 
"The money has evaporated," said Alexander P. Smolensky, one of
Russia's most powerful bankers. "I am really surprised to watch the IMF
doling out money so easily, without any actual response or concern. How can
they keep pumping money into a black hole?" 
Some members of the U.S. Congress are asking the same question. In
particular, they want to know how much of the IMF loan went to banks linked
to Russia's notorious organized-crime groups. 
And Russia's prosecutor general has begun looking into the activities
of the Central Bank, including its handling of money from the IMF. In
addition, the prosecutor's office is examining the Central Bank's
administration of a government bond program widely viewed as a pyramid
scheme, Central Bank spokeswoman Irina Yasina confirmed. It is unclear
whether the bank's handling of the IMF money figures in the inquiry. 

Yasina defended the Central Bank's operations and said it acted properly
in its administration of the IMF loan. 
Of the $4.8 billion from the IMF, she said, $1 billion was transferred
to the federal budget, where much of it was spent to pay off investors who
had bought the controversial short-term government bonds, known as GKOs, at
interest rates of up to 200%. The payments came just before the bond market
collapsed. 
The remaining $3.8 billion was kept in the Central Bank's reserves and
cannot be distinguished from other money deposited into the account, Yasina
said. While an equivalent amount was spent to stabilize the ruble after the
loan was received, she said, the Central Bank still has reserves of about
$13 billion. 
"Of course, the Central Bank of Russia spent about the same amount [as
the IMF loan] and more," Yasina said. "But since money doesn't smell, as
they say, and the same sum is still sitting in our reserves, it's a loan we
have to pay back." 

July Payment Went to Prop Up Ruble 
Despite her assertion that the Central Bank still has the money,
independent banking analysts in Russia and the United States say the bank
spent the IMF loan almost as soon as it arrived, squandering most of it
trying to prop up a ruble that was vastly overvalued. 
Sometimes, the Central Bank spent $500 million in a single day to buy
unwanted rubles--in effect subsidizing banks and investors seeking to
unload Russian currency. 
"It's conventional wisdom that a lot of that money they lent found its way
to banks and that the banks took it out of the country," said Robert A.
Litan, a Brookings Institution banking expert. "We assume that part of it
is in Switzerland. I'd be surprised if any more than a tiny fraction of it
is still in Russia." 
IMF officials in Washington acknowledged that they do not know what
the Central Bank has done with the money. Once Russia received the loan,
there were no restrictions on how it could be spent, and the lending agency
has no way to trace where it went, they said. 
"We don't know exactly what the Russian Central Bank, dollar for
dollar, did with the money we gave them," said one IMF official who asked
not to be identified. 
Dmitri V. Vasiliev, chairman of Russia's Federal Securities
Commission, said the IMF loan was ripe for abuse because of the Central
Bank's potential conflict of interest. 
While the Central Bank was responsible for administering the GKO bond
market, it also had bought GKOs on the secondary market through subsidiary
banks it controls. Vasiliev charged that the Central Bank itself was one of
the beneficiaries of payments from the IMF fund that it controlled. 
"The [IMF] money is all spent," Vasiliev said in an interview. "It
went to foreigners and Russian speculators, including the Central Bank.
They got payments from their GKOs, converted the rubles into cheap dollars
and took them out of the country." 
Yasina denied that the Central Bank has any conflict of interest,
noting that it is not a profit-making enterprise. 
IMF officials say they have a "very good relationship" with officials of
the Central Bank and believe they are trustworthy. Some of those bank
officials have now been dismissed with Russia's change of government and
the appointment of a new Central Bank chief. Some, including the former
acting head of the bank, also have been interviewed by the prosecutor
general's investigators. 
Last week, the IMF sent a team to Moscow to discuss Russia's economic
recovery and the prospects for another loan installment, this time for $4.3
billion, that had originally been scheduled for this month. 
The IMF, created more than half a century ago to help struggling
economies around the world, is funded largely by the United States. In the
past 18 months, it has lent $37 billion to bail out countries such as
Indonesia, Thailand, South Korea and Russia. Since the Soviet Union
collapsed in 1991, the IMF has lent Russia $18.8 billion. 

Officials Admit Bonds Were Pyramid Scheme 
In July, Russia found itself in serious financial trouble because it
had relied for two years on a dubious system of issuing the GKO bonds, then
paying off the bonds with the proceeds of new bond sales. Government
officials acknowledge now that the bonds were a classic pyramid scheme. 
"You may call it a pyramid or something else, but the fact remains
that in the conditions of crisis, the government could no longer service
this debt," Finance Minister Mikhail M. Zadornov said. 
The debt from the GKOs, which get their name from the Russian initials for
Government Short-term Obligations, had grown so large by this summer that
it could not be financed through either the sale of more GKOs or the
diversion of money from the government's operating budget. 
Facing pressure to devalue its currency, Russia appealed for help from
the international community. The IMF was reluctant to provide more aid to
the beleaguered nuclear power because the country had not made the
fundamental changes in its economy that had been a condition of previous
loans. But the Clinton administration, after a personal appeal from
President Boris N. Yeltsin, urged the IMF to lend Russia more money. 
On July 13, Russia, the IMF and the World Bank announced agreement on
a loan package promising Russia $14.8 billion in addition to $7.8 billion
in loans previously promised. Russian officials said they hoped that the
money would remain in the Central Bank reserves, where it would discourage
attacks on the ruble. 
They also announced a plan to eliminate GKO bonds and to restructure
the debt into longer-term loans under terms to be negotiated with the GKO
bondholders. Anatoly B. Chubais, Yeltsin's representative in the
negotiations, stressed that only GKO owners would have the right to decide
how their investments would be converted into longer-term loans. 
"The government guarantees this," Chubais said at the time. "The plan
has been worked out quite professionally." 
The first, $4.8-billion installment was approved by the IMF on July
20. The money was placed in the Central Bank's reserves, but it didn't do
much to calm investors. 
Foreign and domestic investors began pulling their money out of the Russian
market in larger and larger numbers, exchanging their rubles for dollars
and, in many cases, sending their money out of the country. 
The Central Bank, trying to prevent devaluation of the ruble,
continued its policy of spending its reserves to prop up the ruble--an
increasingly expensive exercise. 
While some economists argued that the ruble was worth only 15 or 20 to
the dollar, the Central Bank continued to set the exchange rate at about
6.2 to the dollar--thus buying rubles at what these economists said was
three times their true value. 
The number of banks and investors trying to sell rubles far
outstripped the number wanting to buy them, so the Central Bank kept the
exchange rate steady by buying up the surplus at the official rate. 
The Central Bank spent about $9 billion buying rubles in July and
August. Critics contend that the $4.8-billion IMF loan was included in this
amount and that it quickly vanished into the murky world of Russia's
commercial banks. 
When the IMF loan arrived, the Central Bank's reserves jumped from
about $13 billion to $18 billion. Less than four weeks later, the reserves
had dropped back to about $13 billion. 
"This tremendous sum was not spent by the Central Bank to restructure
the debts and not even to pay overdue wages," said Andrei A. Nechayev, a
former economics minister and currently co-chairman of the Russian Business
Round Table, which unites the financial oligarchy. "All this money was
squandered." 
On Aug. 17, four weeks after the $4.8-billion loan was approved, the
Russian government reneged on its promise to restructure the GKO bonds and
pay foreign investors. Instead, it announced that it would freeze
international debt payments, pay GKO investors pennies on the dollar and
abandon the effort to prop up the ruble. The ruble went into free fall,
reaching a low of more than 20 to the dollar. 
Vasiliev of the Federal Securities Commission said he personally
warned the IMF in July of the Central Bank's potential for mishandling the
money. 
"To me, the huge surprise is not the appearance of such a scam in the
country," he said. "But I cannot explain why the Western financial
institutions and the government didn't pay serious attention to the
presence of such things. More than once, I mentioned this in my meetings
with my Western counterparts." 
At a hearing of a House banking subcommittee earlier this month,
members of Congress questioned officials about allegations that the $4.8
billion from the IMF had ended up in the hands of Russian and Western
financial dealers who led the run on the ruble while pulling out of the GKO
market. 
David Lipton, a U.S. Treasury undersecretary, testified that the
Central Bank policy of buying up the ruble was a justified attempt to
stabilize Russia's economy and prevent devaluation. 
"There's no way to know exactly who got how much money," Lipton told
the committee. "There were ordinary Russian citizens in that category.
There were Russian businessmen. There were Western businessmen who had
brought money into Russia and decided to take money out." 
But Rep. Bernard Sanders (I-Vt.), a member of the committee, questioned
whether U.S. taxpayers' money was being used wisely by the IMF when a
recent report had found that half of Russia's 256 major banks were linked
to organized crime. He also questioned whether it was right for wealthy
investors in Russia to get their money when ordinary workers do not. 
"If you're a miner in Russia," Sanders said, "and you haven't been
paid for six months, and you're reading that American banks and Japanese
banks are getting 100% rate of return on their loans, you might feel a
little that something is not quite right." 
Times staff writer Art Pine in Washington contributed to this report. 

******

#6
From: IRASTRAUS@aol.com (Ira Straus)
Date: Thu, 24 Sep 
Subject: Who lost Russia?

In late 1992, a syndicated Republican columnist asked "Who lost Russia?" and
answered, with disarming candor: the Bush Administration. Today people are
asking the same question again, and now the answer is usually: the Clinton
Administration. 
Both answers are right. To be sure, they're a bit exaggerated: Russia was not
completely lost in 1992, and it hasn't been lost definitively even now. But
each time, Russia has gone through a major stage in the process of being lost.
And both the Bush and Clinton Administrations have been losing it.
In 1992, the damage was done by the cold, unhelpful attitude of the Bush
Administration toward the new Russia. Today the issue is more complicated. 
Several schools of thought are saying that Clinton is to blame precisely
because he has tried to help Yeltsin's Russia. Not surprisingly, this is being
heard from Russian nationalists and Communists, from Gorbachev, and from some
of the Bush people. It is also being heard from the Kissinger group, which
agrees with Primakov that Russia should not be an ally of the West but a
separate pole of power politics. The West should be careful in interpreting
the complaints of these groups, since far from being truly distraught, they
all seem happy about Yeltsin's defeats and the return of Primakov and some
semi-Communists to the Kremlin. 
The Bush-Clinton years need to be seen as a continuity, in contrast to the
Reagan-Carter years (it is misleading to speak of "the Reagan-Bush years").
President Reagan advocated a muscular policy of support for democratization,
following up on Carter's missionary advocacy human rights. But Reagan was
replaced at the critical moment, in 1989, by a lesser man, one who disdained
those grandiose ideals and ridiculed the suggestions for making a major effort
to get a democratic Russia. 
The Bush Administration gave only token aid to Yeltsin's Russia, providing
instead overbearing advice on the need for draconian reforms. All the while,
it dropped hints that the reforms weren't likely to work out anyway, and that
whenever anything went wrong and people suffered from them, it didn't mean
some help should be given or the reforms should be humanized; no, it meant
only that Russia was a basket case and more draconian reforms were needed. It
is a fair question whether this advice can really be understood simply as
intended for creating a viable democratic Russia, or whether it wasn't also a
way of washing our hands of Russia. By raising to a socially unbearable level
the bar of the reforms that would be needed to save Russia, it became easy to
argue against any large-scale aid; it was simply said that the aid would get
wasted and go down the bottomless drain of hopelessly bad economic practices,
if it came before all the draconian reforms were in place.
The Bush policies of minimal aid and maximal advice have been mostly continued
under Clinton, except for a cosmetic change: Clinton has given personal
support to Yeltsin and to pro-Western forces in Russia, rather than continuing
to subject them to wanton unwarranted humiliations and predictions of failure.
Even this cosmetic change seems to have been enough to buy precious time. It
gave Yeltsin a chance to stabilize his government, which Bush officials had
kept hinting would fall in a matter of weeks, and which really was on the
verge of toppling by the beginning of 1993. It could not reverse the trend of
Russian sentiment back toward anti-Westernism -- a trend that was proceeding
at breakneck speed in the course of 1992, as Russians reeled from the
humiliation of sailing off on a honeymoon with America, only to find that the
U.S. was still sitting on the shore scoffing at the idea -- but it enabled
Yeltsin to put a brake on the trend. In 1996, two more years of time were
bought: a $10 billion loan was finally made, and NATO kept quiet about
expansion long enough to let Yeltsin win re-election, staving off a strong
challenge from the Communists. But now a day of reckoning has come.
Fortunately, in those extra years of grace, the pro-Western orientation was
consolidated in most of Eastern Europe. All the Russian troops were withdrawn
from the area. The periods of neo-Communist rule in Poland, Hungary, Romania,
Bulgaria and Lithuania were safely outlived. If instead of Yeltsin, the
Communists had been in power in Moscow during those years, the electoral
victories of neo-Communists in these countries might have been irreversible,
leading to a neo-Communist neo-empire. Yeltsin's Russia was the de facto
guarantor against this. We are in process of losing that guarantor, which we
still need for Ukraine and for several other states.
Russia-1998 bears comparison to Germany-1929. Germany wasn't lost in 1929, it
was finally lost in 1933. But in 1929 it entered into a new phase of the
Weimar process of decay. Ditto for Russia today. There is still time for a
major salvage operation -- probably several more years -- but without
guarantee of success, since the conditions are far more difficult than in
1991. 
Today there is a palpable temptation to wash our hands of Russia. Despite the
high price of losing Russia -- higher even than with Nazi Germany, which after
all never had a single nuclear weapon -- our politicians are contenting
themselves with the standard arguments for doing nothing. "Russia was never
ours to lose." "It's not our business anyway." "We've tried and the money was
wasted." "They don't appreciate our help." "Nothing that we do can make a
difference." "Only Russians can save their country." "Every country is
responsible for its own fate." "Russia is a hopeless case." "Who lost Russia?
Why, the Russians themselves."
It's like asking, "Who lost Weimar Germany?" and answering, "The Germans
themselves." As Alexander Yanov, author of Weimar Russia, has pointed out, the
answer is true but a bit silly. We all paid the price for it. It was our
business. After 1945 we learned the lesson and figured out how not to lose
Germany again. Evidently we could make a difference when we really wanted to.
What is rarely remembered is that we did help Weimar Germany -- we gave it
probably more money, by the standards of the times, than we have given to
Russia since 1991, and we tried to integrate it diplomatically with the West.
But the aid and integration efforts were intermittent, inconsistent, incapable
of providing real hope, much less of achieving real integration. They paled
before the punitive measures against Germany, the wanton humiliations, and the
steps for strategic isolation of the former enemy. It is as if we were writing
a precise script for what we have been doing with Russia since 1991. Is it any
surprise that we are losing Russia, too?
The Reagan Administration believed in the coming death of Communism. It
publicly promised an energetic policy of promoting democracy and changing
enemies into friends. But Mr. Bush came into office arguing that all that
Reagan idealism stuff was naive. He appointed two Kissingerians, Scowcroft and
Eagleburger, to top positions. If, as they argued, permanent national
interests determined everything, then nothing could really change, and
Gorbachev and his overtures for friendship could only be just a more clever
form of enmity -- "a plot to divide and deceive the West," as the mantra went.
They resented the popular enthusiasm for Gorbachev and invented a litany of
excuses to avoid helping him. Later, as Yeltsin made even more open overtures
for becoming an American ally, they transfered the resentment to him, along
with the excuses for not helping.
In 1992, almost everyone was aware of the negative role of the Bush
Administration. Its personal contempt for Yeltsin, its public humiliation of
Yeltsin's pro-Westen foreign minister, Andrey Kozyrev, its years of ridiculing
proposals for helping Russia -- all this was well-known. While the
Administration did splice together a stingy program of technical assistance in
the middle of 1992, it was too late. Yeltsin had made it clear in October 1991
that prices were going to be freed January 1, 1992, in order to head off a
looming crisis of disappearance of goods from the stores, and that a major
program of aid would be needed to stabilize the ruble and avoid
hyperinflation. The aid didn't come; instead, the hyperinflation came. With
this, the Russian people got the exact opposite of a honeymoon with democracy
and with the West. The later dribblets of American "aid" were a bad joke among
Russians. When Clinton became President, he began giving personal rhetorical
support to Yeltsin, and Republicans began attacking him for this. A myth was
born: the myth of strong American support for Yeltsin's Russia. The reality,
however, is that behind the change in rhetoric, the basic Bush policy has been
continued.
In their feelings about the market, democracy, and the West, Russians were
already half-lost in the course of 1992. All the dangerous Russian attitudes
we are reading about nowadays -- how the Russians distrust "the democrats",
distrust the IMF, believe the West has been plotting to ruin their country
with its economic "advice", believe the West plotted the break-up of the
Soviet Union and is trying to divide even Russia into pieces, think the West
is trying to isolate Russia -- they were all strongly in evidence by late
1992.
Who lost Russia? We all did, Russia and the West together. We are all still
doing it. And we all stand to pay a very high price for it.

******

#7
Line-up of Russia's new government so far

MOSCOW, Sept 25 (Reuters) - Following is a list of ministers so far appointed
to Russia's new cabinet headed by Prime Minister Yevgeny Primakov, as of
Friday. 

FIRST DEPUTY PM IN CHARGE OF ECONOMY - YURI MASLYUKOV, 60, a moderate
Communist and a former Soviet-era Gosplan central planning chief. His
appointment raised fears of a return to Soviet-style economics. 

FIRST DEPUTY PM IN CHARGE OF CONSTRUCTION, YOUTH POLICY, REGIONAL AND ETHNIC
POLICY - VADIM GUSTOV, 50, a mining engineer by background, Gustov has been
governor of the Leningrad district surrounding St Petersburg for two years. He
is an industrialist in favour of attracting foreign investment but also
supports the idea of printing cash to help clear debts. 

DEPUTY PM FOR FINANCIAL POLICY AND RELATIONS WITH INTERNATIONAL LENDERS -
ALEXANDER SHOKHIN, 46, parliamentary leader of the centrist Our Home is Russia
party. He was deputy prime minister in charge of relations with international
lenders in 1992, served as economy minister and led talks with Russia's
commercial creditors and government creditors in 1994. 

DEPUTY PM FOR INDUSTRY AND COMMUNICATIONS - VLADIMIR BULGAK, 57, science and
technology minister in the outgoing goverment. He was a deputy prime minister
in the previous government and communications minister from 1991 until the
ministry was disbanded in 1997. He tried to stop foreign investors gaining too
large a share in the telecommunications industry. 

DEPUTY PM FOR SOCIAL ISSUES - VALENTINA MATVIYENKO, 49, little-known former
Russian ambassador to Greece. 

DEPUTY PM FOR AGRICULTURE - GENNADY KULIK, 63, former Soviet-era Russian
agriculture minister and Agrarian Party member in the State Duma, the lower
house of parliament. The Agrarians are allied to the Communist Party. 

FINANCE MINISTER - MIKHAIL ZADORNOV, 35, served with two previous governments
of Viktor Chernomyrdin and Sergei Kiriyenko. Is widely regarded as a reform-
minded professional but accused by some foes of aggravating latest financial
crisis. 

FOREIGN MINISTER - IGOR IVANOV, 52, a career diplomat and a former ambassador
to Spain, with a long experience of working under Primakov, most recently as
his first deputy at the foreign ministry. He is expected to maintain
Primakov's line of defending Russian national interests. 

DEFENCE MINISTER - IGOR SERGEYEV, 60, retains the job he has held since May
1997. A former head of Russia's Strategic Nuclear Forces, Sergeyev has the
difficult task of overseeing widescale reforms in the demoralised, cash-
strapped armed forces. 

INTERIOR MINISTER - SERGEI STEPASHIN, 46, was appointed interior minister in
April to replace the ambitious Anatoly Kulikov. Stepashin had served in
earlier Yeltsin governments as justice minister and as head of the FSB
domestic security service, where he took a hawkish line on breakaway Chechnya.

EMERGENCIES MINISTER - SERGEI SHOIGU, 43, has been reconfirmed in a post which
he has held since August 1996, and is the longest surviving minister in post-
Soviet Russia. An energetic minister with a background in construction. 

CENTRAL BANK CHAIRMAN - VIKTOR GERASHCHENKO, 60, Soviet-era banker who headed
Russia's central bank from 1992 to 1994. He has already said that Russia's
economy needs an injection of cash. He generally favours cheap credits to the
economy and printing of cash. Formally he is not part of the government but
participates in its meetings and is one of the key figures. 

FUEL AND ENERGY MINISTER - SERGEI GENERALOV, 35, techocrat who served as
deputy minister under Chernomyrdin and replaced Kiriyenko when the latter
became prime minister in March. 

TRANSPORT MINISTER - SERGEI FRANK, 38, technocrat who served in Chernomyrdin
and Kiriyenko's governments. 

NATIONALITIES MINISTER - RAMAZAN ABDULATIPOV, 52, long-time parliamentary
deputy and deputy prime minister in charge of ethnic policy in Chernomyrdin's
cabinet. 

FOREIGN TRADE MINISTER - GEORGY GABUNIA, 46. First appointed in May, he is a
veteran of Soviet and Russian trade negotiations and led efforts to get Russia
into the World Trade Organisation. 

ECONOMY MINISTER - ANDREI SHAPOVALYANTS, 46, worked for Communist-era Gosplan
and then in economy ministry under all post-Soviet Russian governments. Has
been first deputy minister of economy since 1993. 

JUSTICE MINISTER - PAVEL KRASHENINNIKOV, 34. A professional lawyer promoted
from first deputy minister in April. 

RAILWAYS MINISTER - NIKOLAI AKSENENKO, 49. A railway engineer who has headed
the ministry since last year. 

SCIENCE AND TECHNOLOGY MINISTER - MIKHAIL KIRPICHNIKOV, 52. Prominent
molecular biologist, headed government department for science and education
before becoming first deputy science and technology minister under Bulgak in
August this year. 

CIS RELATIONS MINISTER - BORIS PASTUKHOV, 64. Till now first deputy foreign
minister under Primakov. Was Soviet ambassador to Denmark, then to Afghanistan
from 1989 to 1992. 

IN LIMBO: 

ACTING HEAD OF THE TAX SERVICE - BORIS FYODOROV, 40, was promoted to a deputy
premiership only last month, days before the previous government was sacked.
He has said he will not resign but a new government spokesman has said there
is no role for him to play in the new government. 

******

#8
The Economist
September 26, 1998
[for personal use only]
A Lawyer's Life in Russia 
My bond is your word

WESTERN lawyers in Russia grumbled, during the country’s financial boom,
that they felt like poor relations. No longer. As the country’s financial
markets implode—Russia’s stockmarket has lost nine-tenths of its value this
year—Moscow-based investment bankers are fretting about their mortgages.
Meanwhile the city’s lawyers are happily turning recriminations over losses
into profitable lawsuits. 
Their most obvious target is the government, which paid scant attention to
its own laws when it announced its default and devaluation on August 17th.
One brave Moscow hedge fund is indeed planning to sue the government—and,
for good measure, in a Russian court—albeit with little hope of victory:
“it’s mainly to make a point,” concedes the proprietor. 
Even in friendlier foreign courts, however, most investors are still
marshalling their firepower, rather than actually suing either the
government or the Russian banks that are sheltering behind the moratorium
imposed on private-sector debt. For one thing the new government seems to
be rethinking the dismal terms of its forced debt rescheduling, which left
foreign bond-holders with as little as three cents on the dollar. For
another, bankers remember how Russia punished ING, a Dutch bank, which
froze the accounts of the Soviet foreign trade bank when the Soviet Union
collapsed in 1991. ING was pointedly excluded from Russia’s first Eurobond
issue when the country later returned to the capital markets. 
The easiest targets for lawsuits are other westerners—and, in particular,
those banks that sold forward foreign-currency contracts. These were bought
by western investors in Russian debt to protect themselves against the risk
of devaluation; for extra safety, most were bought via western not Russian
banks. Unfortunately, most banks have refused to honour the contracts,
leaving investors with billions of dollars of losses after the rouble’s
plunge. Some unlucky ones, such as a fund run by III, an American hedge
fund, have been forced into bankruptcy. It plans to sue the banks—Deutsche
Bank, ING, Crédit Lyonnais and Société Générale—that sold it forward
contracts. 
With only limited chances of success, however. Those who bought forward
cover, such as Dana McGinnis, who used to run San Antonio Capital, a
Texas-based hedge fund, before it went bankrupt in August, insist that what
happened in Moscow should not affect a contract struck in New York or
London. But the banks argue that they were simply acting as brokers for
such contracts between investors and the Russian banks: they should not be
blamed if the Russian banks now renege. Moreover, the contracts were
subject to force majeure clauses, which voided them if the government did
something really outrageous—as it very arguably did. Citibank, a big dealer
in forward contracts, says it will happily see Mr McGinnis in court. 

*******