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Johnson's Russia List
4 October 1998
[Note from David Johnson:
1. The Nation: John Gray, Not for the First Time, World Sours
on Free Markets.
2. ADDRESS BY SECRETARY OF STATE MADELEINE K. ALBRIGHT TO THE
US-RUSSIA BUSINESS COUNCIL, Chicago, Illinois, October 2, 1998.
3. Moscow Times: Leonid Bershidsky, Politicians Offer Up Platter
of Anti-Crisis Plans.
4. US News and World Report: Christian Caryl, Millions of Russians
may take to the streets in a nationwide strike for their back wages.
5. Reuters: Russian Communist boss says Europe must help.
6. RFE/RL: Robert Lyle, Russia: Popular Political Support Critical
7. Moscow Times letter: MAILBOX: Shame on You Mr. Fyodorov, From an
October 19, 1998
Not for the First Time, World Sours on Free Markets
BY JOHN GRAY
John Gray, a professor of European thought at the London School of Economics,
was associated with think tanks that advised the government early in the
Thatcher era. His book False Dawn: The Delusions of Global Capitalism,
published in Britain in March, will be published in the United States, with a
postscript updating the argument, by The New Press in the spring.
It is beginning to be accepted that global capitalism is in serious trouble.
That has not always been so. When my book False Dawn was published this past
spring, I expected it to be attacked. I was not disappointed. Most reviewers
were incredulous. Some dismissed the claim that the global market was heading
for breakdown as an apocalyptic fantasy. Less than six months after False Dawn
was published, that claim has been largely vindicated. The regime that a
seemingly unshakable consensus took to be permanent has begun to fall apart.
Soon, I have no doubt, it will be an irrecoverable memory. A year or so from
now, it will be difficult to find a single person who admits ever having
believed that a global free market is a sensible way of running the world
False Dawn's reception confirmed one of its central theses. Contemporary
opinion does not know how to distinguish utopian fantasies from historical
realities. It should always have been obvious that refashioning the world's
diverse economies on the singular model of the free market is an unrealizable
project. It is--or should be--self-evident that the world's varied economies
express its diverse cultures. All economic systems are imperfect; none are
suitable everywhere. The attempt to make any of them universal can have only
the most dystopian results. Yet the fantasy that the free market can and
should be adopted throughout the world became for a while a litmus test of
sound thinking, not only on the neoliberal right but also in the ranks of the
The late-twentieth-century political fad for the free market arose at a time
when memory of it had faded. Mid-Victorian laissez-faire was short-lived (some
historians have made the hyperbolic claim that there was never such an
episode). The free market came about in England as a result not of slow
evolution but swiftly, as a consequence of the unremitting use of the power of
the state. Through the enclosures, the Poor Laws and the repeal of the Corn
Laws, a Parliament in which most people were unrepresented turned land, labor
and bread into commodities like any others. Yet as the franchise was widened,
the needs of ordinary people were able to find political expression. The free
market withered away gradually, through the natural workings of democratic
political competition. By the time of the First World War, the economy had
been largely re-regulated.
The short history of the free market in nineteenth-century England illustrates
a vital truth: Democracy and the free market are rivals, not allies.
"Democratic capitalism"--the vacuous rallying cry of neoconservatives
everywhere--signifies (or conceals) a deeply problematic relationship. The
normal concomitant of free markets is not stable democratic government but the
volatile--and not always democratic--politics of economic insecurity.
History exemplifies an equally important fact: Free-market economies lack
built-in stabilizers. Without effective management by government, they are
liable to recurrent booms and busts--with all their costs in social cohesion
and political stability. The Great Depression was partly an aftershock of the
First World War, which destroyed the Romanov and Habsburg empires and left an
unstable balance of power in Europe. But it was also a consequence of
governments' holding to an orthodoxy that believed that so long as inflation
is under control the economy can be relied upon to be self-regulating. In the
thirties, when deflation was a greater danger, this was a recipe for disaster.
It was against the background of slump and political upheaval aggravated by
this orthodoxy that John Maynard Keynes developed his proposals for managing
the economy; but it took the catastrophe of the Second World War to jolt
governments into implementing them.
Different as they are in many important respects, our circumstances today have
some curious parallels with those of the period between the two world wars.
Now, as then, the world has failed to cope with the effects of a cataclysmic
geopolitical shift. The Soviet collapse was not, as Western neoliberals seem
to have imagined at the time, a triumph of privatization policy. It was an
event of world-historical magnitude that demanded an imaginative and clear-
thinking response from the West. Unfortunately, in the nineties as well as in
the twenties, the defeat of one of the world's great powers has been the
occasion of an exhibition of callow dogmatism and hubris.
The attempt to impose free markets on Russia has been ruinous. Placing the
control of inflation above any other objective has not only caused the economy
to shrink by half--a development that is unprecedented in any advanced country
during peacetime. It has also made hyperinflation inevitable, and a second
change of regime increasingly probable. The government that emerges from the
coming Russian winter will be authoritarian even if it retains the apparatus
of democracy, it will be in some degree anti-Western, and it will defect from
the policies imposed upon the country by the Western economic consensus. These
are not remote or hypothetical possibilities. By now they are near-
Economic collapse in Russia is the first unequivocal sign of the breakdown of
global laissez-faire, but East Asia has been signaling severe strain in the
world economy for at least a year. Contrary to triumphalist and frequently
racist interpretations current in the Western media, the Asian depression does
not signify a crisis of Asian capitalism--Asia's economies are too dissimilar
for that--but a fast-developing crisis of global capitalism. Uncontrolled
capital flows have inflicted heavy and lasting damage on Asian countries as
different as Thailand, Indonesia and South Korea. The depression they have
produced has spread to China. Now footloose capital threatens to destabilize
other regions of the world, notably Latin America. The myth that Asia's
economic difficulties are a symptom of the peculiar vices of its "crony
capitalism" is no longer credible--even in the United States.
In its early stages, the global economic crisis actually helped prolong
America's boom, as the "flight to quality" from emerging markets boosted Wall
Street. Now that US markets have at last begun to realize their vulnerability,
full-scale panic among America's private investors, estimated by the New York
Stock Exchange at 65 to 70 million, is a real possibility. Yet the political
class in the United States is currently preoccupied with whether serial
fellatio constitutes a sexual relationship. As in the thirties, a crisis of
the global economy is unfolding at a time when the international community is
United States Information Agency
TEXT: ALBRIGHT REMARKS TO US-RUSSIA BUSINESS COUNCIL, OCTOBER 2
(US is "retargeting" aid to Russia to support reform)
Chicago -- Secretary of State Albright says the United States is now
"reexamining" all its aid programs for Russia, "retargeting money
where it can be used effectively to support economic and democratic
In a speech to the US-Russia Business Council in Chicago October 2,
she said the Clinton administration "will increase our support for
small business and the independent media, and try to bring a much
larger number of Russian students, politicians, and professionals to
live and learn in America."
Albright said these programs are needed now more than ever "precisely
because these are troubled times in Russia."
The Secretary of State emphasized that "big bailouts (from the
international financial institutions) are not by themselves going to
restore investor confidence in Russia. Nor will they help the Russia
economy unless the Russian government is committed to sound fiscal and
"Foreign funds," Albright said, "should continue to be used to help
Russia pursue credible reforms, but not to help it delay them. They
should be used to support a policy of tax reform, not to make up for
tax revenues the government is unable or unwilling to collect. They
should be used to support a program that strengthens banks lending
money to entrepreneurs, not banks set up to bet on currency
fluctuations. They should be used to support policies that help the
neediest Russians, not that enrich off-shore bank accounts."
The Secretary urged patience with Russia, saying that "the drama of
Russia's transformation from a dictatorship and an empire to a modern
democratic state is far, far from over. We cannot say that Russia has
lost its way when in fact it has just begun its journey."
Albright indicated she was concerned about suggestions that the new
Russian government might resort to printing new money, indexing wages,
imposing price and capital controls, and restoring state management of
parts of the economy. "We can only wonder if some members of (Prime
Minister Yevgeny) Primakov's team understand the basic arithmetic of
the global economy," she said.
Following is the State Department text, as prepared for delivery:
U.S. DEPARTMENT OF STATE
Office of the Spokesman
Text as Prepared for Delivery
SECRETARY OF STATE MADELEINE K. ALBRIGHT
TO THE US-RUSSIA BUSINESS COUNCIL
October 2, 1998
Thank you Ambassador Strauss for that introduction. As our nation's
first Ambassador to a democratic Russia, the experience, perspective
and authority you bring to the subject at hand are truly unmatched. I
am glad to see Gene Lawson here -- he and I started our PhD's at
Columbia on the same day.
And I'm very glad to see in the audience some of the old Russia hands
who treated me to a stimulating dinner seminar two nights ago. Today
they're going to hear me cribbing their ideas -- shamelessly.
Ambassador Vorontsov, distinguished guests: I am happy to be in
Chicago and delighted to address a group that shares President
Clinton's conviction that what happens in Russia matters profoundly to
our security and prosperity. Let me now invite you all to sit back,
digest your lunch, and formulate some polite, easy questions to ask me
after my speech.
When I think about the situation in Russia today, I can't help
thinking about a story I first heard on one of my early visits to that
A train is going through Siberia when it runs out of track. In Lenin's
day, the leadership says: "Our workers are strong and brave; they will
keep building." Stalin says: "No, they're lazy, threaten to shoot them
and then they will build." Khrushchev says: "Russia is going forward,
not backward, so we can use the rails we've passed over to finish the
track, ahead." Brezhnev says: "It's too much work, let's close the
blinds and pretend we're moving." Gorbachev says: "Open the windows
and let's see what happens."
Then President Yeltsin and the Russian people get the train going
again. Except it's moving fast and he keeps changing engineers. And
now there are two tracks ahead. One looks tempting, for it goes
downhill; but it leads to the abyss. Only the perilous track through
the mountains will get Russia to its destination.
As you can guess, that's an old story, but I made up the ending. And
the Russians keep writing new ones themselves.
These are, to use the Russian expression, smutnoye vremya, troubled
times. The Russian economy is expected to shrink significantly in the
coming year. A hard winter lies ahead.
To many Russians, it may seem as if the promise of a better future has
been betrayed once again. To many Americans, it may seem that the
greatest opportunity of the post-Cold War era, building a genuine
partnership with a stable, democratic Russia is now a more distant
Of course, this is not the first crisis of post-Soviet Russia.
Tomorrow will mark the fifth anniversary of the tragic showdown
between President Yeltsin and the Supreme Soviet. And it was only two
years ago that Russians were expected to reject Yeltsin in Russia's
Each time, there were people eager to declare that Russia's transition
was over for good. Each time, some people were ready to substitute
soundbite for serious analysis, by asking rhetorically, Who lost
But that has always been the wrong question. The drama of Russia's
transformation from a dictatorship and an empire to a modern
democratic state is far, far from over. We cannot say that Russia has
lost its way when in fact it has just begun its journey. Nor can we
say that Russia is ours to lose. We can help Russia make tough
choices; but in the end Russia must choose what kind of country it is
going to be.
The real question today is what will the new government of Prime
Minister Primakov choose? Will it take sensible steps to stabilize the
economy without triggering hyperinflation, a currency meltdown, a
collapse of the banking system, or shortages of basic goods? Will it
reconcile the political and moral imperative of meeting human needs
with the imperative of economic revival? Will it recognize that, in
fact, it cannot fulfill either one of these imperatives without
fulfilling the other?
On the day he was confirmed by the Duma, Prime Minister Primakov told
me that the answer to these questions was "yes." He also asked us to
watch his actions and to wait until his team assembled.
I cannot yet say we are reassured. We have heard a lot of talk in
recent days about printing new money, indexing wages, imposing price
and capital controls, and restoring state management: of parts of the
economy. We can only wonder if some members of Primakov's team
understand the basic arithmetic of the global economy.
So we cannot say with confidence that Russia will emerge from its
difficulties any time soon. Nor should we assume the worst, for there
are still plenty of people in Russia who will fight against turning
back the clock.
A true and lasting transition to normalcy, democracy, and free markets
in Russia is neither inevitable nor impossible. It is an open
question, the subject of a continuing debate and struggle. That has
been true ever since this great but wounded nation began to awake from
its totalitarian nightmare and it will be true for years to come. That
is why our policy must continue to be guided by patience, realism and
I want to talk today about the Administration's strategy for
responding to both the challenge and the opportunity that Russia's
transformation poses. I want to speak with you not only as Secretary
of State, but as someone who has spent much of her life studying and
teaching about the societies that once fell on the far side of the
Over the years, my bookshelves filled with the literature of the Cold
War, with books about the Soviet Communist party, about US-Soviet
relations, about nuclear strategy. Nothing gives me greater pleasure
than the knowledge that so many of them are now obsolete.
The books that still speak to us are those about Russian history. They
tell a story of countless efforts to transform Russia, each leaving
its mark, and yet each left unfinished.
Four hundred years ago, Peter the Great sought to open Russia to the
West. Yet not till today has Russia had a chance to complete the
journey it began when St. Petersburg first rose on the Neva. More than
eighty years ago, the Russian monarchy was replaced not by a communist
revolution but by a constitutional democracy, which collapsed before
its hopes could be realized. A few years later, Stalin tried to move
his country in a radically different direction. He failed, too; even
his ruthless precision did not turn Russia into a permanent prison.
Today's democratic reformers cannot afford to leave their work half
finished, because Russia cannot afford to be half free. But to beat
the odds, they must still beat the legacy they inherited from the last
failed effort to transform Russia. And to understand their task, we
need to understand just how hard overcoming the legacy of communism
has been and will be.
We need to remember that a short time ago, Russia was a country where
enterprises completed to produce the biggest piles of junk; a country
where the dollar was at once illegal and supreme; a country that did
not care for its poor because it did not acknowledge their existence;
a country where crime and graft were jealously guarded state
monopolies; a country where school books derided the rule of law as
The task of rebuilding has been harder still because, unlike the
Czechs and Poles and Balts, Russians have no living memory of
political and economic freedom to guide them; they are creating
something new, not regaining something they had before. What is more,
precisely because the collapse of the Soviet system was remarkably
peaceful, many responsible for the old order are now struggling over
the shape of the new one.
Seen from this perspective, it is remarkable that Russia is as open to
the world as it is today. It is remarkable that power is devolving
from Moscow to the regions. It is remarkable that people who want to
know what is going on inside Russia can call up today's online edition
of the St. Petersburg Times, or the New Siberia weekly, or the
It is remarkable that the leaders of American business can gather here
to discuss the stake in Russia's future that they share with millions
of workers and investors in Russia.
And it is remarkable that Russia is becoming a functioning democracy,
that its new government came into being because the President and
Parliament played by the rules of its post-Soviet constitution. That
is not, to put it mildly, the way Russian politics worked in the past.
But it is the way most of the experts I've talked to expect it to be
played in the future.
I will not downplay Russia's present crisis, or suggest Russian
reformers have made all the right choices. It is a troubling fact that
many Russians have come to equate reform with theft. There is a danger
many will come to see political and economic freedom as just another
utopian promise that never comes true.
I am deeply concerned about what is happening in Russia. But I also
agree with a motto that hangs in the office of our Ambassador to
Russia, Jim Collins: "Concern is not a policy."
My job as Secretary of State is not to describe the worst possible
outcome in Russia or anywhere else. It is to devise policies that
protect American interests and encourage the best possible outcome.
That has been our objective ever since the Russian tricolor rose above
the Kremlin in 1991. And while none of our policies should be exempt
from scrutiny or criticism today, I believe it is a sound objective
Our policies towards Russia will continue to be guided by several
The first principle is that our most important priority in dealing
with Russia is to protect the safety of the American people. That is
an interest we pursue no matter who is up or down in the Kremlin or
which direction Russia is heading.
Our efforts have paid enormous dividends.
Today, there are no nuclear weapons in Belarus, Kazakstan and Ukraine.
Presidents Clinton and Yeltsin have agreed on cuts to be made in a
START III treaty that would reduce our nuclear arsenals by 80 percent
from their Cold War peak. Russia has joined us in banning nuclear
testing and in ratifying the Chemical Weapons Convention. Our experts
have worked together to upgrade the security of nuclear weapons and
Today, 75 percent of our assistance dollars in Russia are devoted to
programs that diminish the threat of nuclear war and the danger that
weapons of mass destruction will fall into the wrong hands. Just last
week, our countries announced a program to help scientists and workers
in Russia's closed nuclear cities start commercial, non-military
ventures, so they are not tempted to sell their expertise to those who
wish us harm.
Today there are no Russian troops in the Baltic States. Instead,
Russian troops are serving with ours in Bosnia. Russian officers are
working with our allies at NATO headquarters. Our diplomats been
working together to bring peace to the Caucasus and to Kosovo.
Yevgeniy Primakov and I worked closely together when he was foreign
minister. We each came to see in the other a forceful,
straight-talking advocate of a major power's national interests. We
have been able to advance our cooperation where our interests converge
and to manage our differences honestly and constructively.
The question now is whether that cooperation can continue.
There are many voices in Russia who want to shift the emphasis in
Russia's interaction with America and our allies from one of
partnership, to one of assertiveness, opposition, and defiance for its
If that happens, it would be a double disaster for Russia: First,
because our ability to help Russia help itself will go from being
merely very, very difficult to being absolutely impossible. Second,
because a shift of the kind some are advocating in Russian foreign
policy would be contrary to Russia's own interests.
After all, Russia needs an effective non-proliferation regime -- and
it does need to see that nations like Iran do not acquire nuclear
weapons or missiles that can hit its territory. Russia needs strategic
arms reduction and a treaty limiting conventional arms in Europe.
Russia needs peace in the Balkans and an end to conflict on its
borders. Russia needs good relations with NATO. Russia needs neighbors
in central Europe and the New Independent States that are secure,
thriving models of market reform -- for in a global economy success
and confidence are as contagious as failure and panic.
Above all, Russia needs to project a preference for cooperation to its
partners in trade and investment around the world. The confrontational
policies that did Russia no lasting good even in the nuclear age are
certainly not going to advance its interests in the information age.
Fortunately, in the last few weeks, we have welcomed signs that the
Russian leadership continues to see, as do we, that there is a basis
in mutual benefit for cooperative U.S.-Russian relations. Just last
week, for example, Russia joined us in the UN Security Council to
support a resolution under the peace enforcement provisions of the UN
Charter demanding an end to the Serbian offensive in Kosovo. We have a
lot of hard work to do in the coming days to see Milosevic gets that
I spoke to Foreign Minister Ivanov this morning about the atrocities
of recent days, about the need to see that Milosevic understands our
determination. We're continuing to work with Russia throughout this
crisis, but let me be clear; if at the end of the day we disagree
about whether force has to be used, the United States and its allies
must be prepared to act.
Russian ratification of the START II treaty would further confirm this
positive trend. Prime Minister Primakov has said this will be a
priority. His government has, by recent Russian standards,
unprecedented support in the Duma and therefore an unprecedented
opportunity to get this done.
At the same time, we need to recognize that the cash-strapped Russian
government is already hard pressed to slice apart missiles, destroy
chemical weapons stocks, and meet the costs of other obligations. Over
the long haul, arms control saves Russia money; but in the short run,
it carries costs we and our partners must be ready to help Russia bear
-- not out of charity, but because our national interests demand it.
That's why it's so important that Congress voted to increase this
year's Nunn-Lugar funding to $440 million.
The second principle guiding our policy is that we also have an
interest in standing by those Russians who are struggling to build a
more open and prosperous society. As President Clinton made clear at
the Moscow summit, we will continue to do that in every way we can.
At the same time, we should acknowledge that helping Russia will
probably be harder for some time. And the best way to help Russia now
is not necessarily to send more money.
Much of the progress Russia has made in the last seven years has come
with the support of international institutions like the IMF and the
World Bank. These institutions helped Russia to conquer
hyperinflation, to liberalize prices, and to make the ruble
convertible. They pressed policies designed to encourage competition
and discourage corruption.
At the same time, more big bailouts are not by themselves going to
restore investor confidence in Russia. Nor will they help the Russian
economy unless the Russian government is committed to sound fiscal and
Foreign funds should continue to be used to help Russia pursue
credible reforms, but not to help it delay them. They should be used
to support a policy of tax reform, not to make up for tax revenues the
government is unable or unwilling to collect. They should be used to
support a program that strengthens banks lending money to
entrepreneurs, not banks set up to bet on currency fluctuations. They
should be used to support policies that help the neediest Russians,
not that enrich off-shore bank accounts.
In the long run, the gap between Russia's needs and its resources must
be met not by foreign bailouts but by foreign investment. Furthermore,
what will truly help Russia now is not more people betting on its
T-Bills, but more people betting on its factories, oil fields, and
We need to remember that Russia has tremendous inherent wealth. Yet it
has only attracted a trickle of outside investment where there should
have been a bonanza. Had the conditions been right, it is estimated
that investors could have pumped more than $50 billion into Russia's
oil and gas sector alone. As it was, in 1997 energy investment didn't
even reach $2 billion.
Just think how much could have been done if investment on this scale
had been coming in to Russia from the very beginning of the 90's.
Those who blocked it have a lot of explaining to do to their people.
One of the obstacles has been Russia's inability to approve adequate
legislation on production sharing agreements, and to create a stable,
predictable tax system, which would create an environment for
A related obstacle has been the sense among many Russians that
accepting foreign investment means selling their country. President
Clinton and I have been making the case that this is a dangerously
short-sighted view. We have pointed out that foreign investment has
fueled growth in every thriving emerging economy from Latin America to
central Europe, that it helped build America in the 19th century and
that attracting foreign capital to America is one of our highest
By welcoming long-term, committed capital, Russia is not giving away
its national patrimony gaining, it is jobs, growth and tax revenues.
It is gaining advances in technology that will allow it to market its
resources at competitive prices. It is gaining a corporate culture
that will help it to replace robber barons with responsible stewards
of its national treasure. It is gaining investors who will not fly
home or move their money to Switzerland at the first sign of trouble.
I gather that some of those who are beginning to understand all this
include Russia's governors -- who see, like our own governors, how
much foreign investment can do for them.
Let me acknowledge the many members of the US business community who
have had the guts to hang in there despite all the difficulties you
have suffered and uncertainty you have faced. I thank you all for
As long as the Russian government is willing to play by global rules,
foreign governments and institutions will help it to weather tough
times. And whatever the policies of the government, we will try to
support programs that help the Russian people and advance our shared
interest in democracy.
In response to the current crisis in Russia, we have been reexamining
all our assistance programs, retargeting money where it can be used
effectively to support economic and democratic reform. We will
increase our support for small business and the independent media, and
try to bring a much larger number of Russian students, politicians,
and professionals to live and learn in America.
And we intend to launch a lifeline to non-governmental organizations
whose hinds have been frozen in Russia's banking crisis.
Precisely because these are troubled times in Russia, these programs
are needed today more than ever. They are in our nation's interest and
they support the interests of the business community. We asked the
Congress to increase our funding for 1999, and we need your support
now, before this year's session ends, to make that happen. This is no
time to cut programs that have such an important pay off for us.
A third principle we need to keep in mind is that the solutions to
Russia's problems will not stick unless they have popular legitimacy
I do not want to suggest that there is any uniquely Russian way to
prosperity. If the Russian government prints too many rubles, there is
nothing inherent in Russian culture, nothing imprinted in the Russian
character that will prevent inflation from crushing its people's
dreams. The laws of economics may work in mysterious ways, but they do
not vary from culture to culture any more than the laws of physics.
But I do believe that even as we urge what is right, we must not treat
Russia as a ward of the international community. Russia is too big,
and too proud, for that. The policies we would like the Russian
government to pursue have to be worked out democratically, with the
support and understanding of the Russian people, or they are going to
This means we need to be patient with the workings of the democratic
process in Russia. Under the best circumstances, there will be
compromises between economic orthodoxy and political reality. After
all, democracy is not rule by economist-kings. It is a system that
allows pragmatic politicians to build a consensus for policies that
cause short-term pain.
It also means we should not start each day by taking a census of
reformers in the Kremlin or hold our breath every time there is a
leadership change. We should be interested in policies, not
In this respect, it is a good thing that Russia now has a government
with a mandate from both the Parliament and the President. It is a
good thing that Communists and Agrarians in official positions have to
face voters with the results of what they do. They'll learn they have
to do more than just complain and denounce. It is a good thing that
Russia will hold parliamentary elections next year and presidential
elections in the year 2000. Far from fearing the outcome, we should
look forward to what should be the first peaceful, democratic transfer
of power in Russia's history.
The historian James Billington has written that many times in their
history, "Russians have sought to acquire the end products of other
civilizations without the intervening process of slow growth and inner
understanding." Today's reformers do not have much time to go through
that process. For in today's global marketplace, Russia's will be
vulnerable to external shocks as long as basic market reforms remain
Russia's transition to true freedom, stability and prosperity will
take time, indeed it must to be lasting and genuine. Meanwhile, we
need to defend our interests and speak clearly about the choices we
hope Russia will make. And we must be ready to stick with this effort
for the long haul.
>From the beginning of Russia's incredible journey toward freedom, I've
tried not to be too euphoric when things are going well, or too
discouraged when things are going badly. Everything I know about
transitions from communism to democracy teaches me to be a short-term
realist when it comes to Russia. But it also teaches me to be a
This period is different from all the other periods of change and
reform in Russia's history in one important way. Unlike in Peter the
Great's time, Russia is not seeking to enter a Europe of absolute
monarchies in perpetual conflict. Unlike in 1917, it does not need to
escape from a Europe engulfed in the senseless slaughter of a total
Yesterday, Europe was organized around alliances of countries that
knew what they were against. Today, the rest of Europe and much of the
world is coming together around a consensus for open markets, for
cleaner government, for greater tolerance and peace. In the late 20th
century, the forces that pull Russia toward integration, and that
counteract the autarkic, self-isolating forces within Russia itself --
are more powerful than at any time in history.
It is our job -- because it is in our interest -- to manage the
aftermath of the Soviet Empire's disintegration, to help Russia
integrate into the community of which we are a part, and eventually to
help Russia thrive, not just muddle along. That means remaining steady
in defense of our principles, interests and objectives. And it means
standing with Russia as it moves forward -- as long as it is moving on
the right track.
I will continue to dedicate my best efforts to this hard-headed,
principled enterprise, and I solicit yours as well.
Thank you very much.
October 3, 1998
Politicians Offer Up Platter of Anti-Crisis Plans
By Leonid Bershidsky
In Russia these days, everyone has an anti-crisis economic program f except
Prime Minister Yevgeny Primakov says his Cabinet is now looking at six
different economic survival plans. The public can also take its pick.
On Friday, the Yabloko faction in the State Duma published the guidelines of
its economic rescue plan in the daily Nezavisimaya Gazeta. The day before, the
daily Segodnya printed a program written by former acting Prime Minister Yegor
Gaidar's team of liberal economists. The daily Kommersant joined the program
race with a copy of what it claimed to be First Deputy Prime Minister Yuri
Kommersant, in fact, seems to specialize on hard-line Communist economic
plans. On Sept. 15, it published a draft program by a team of Soviet-era
economists led by Dmitry Lvov, Leonid Abalkin and Oleg Bogomolov.
Sverdlovsk regional Governor Eduard Rossel reportedly has not one economic
program but two, and he has submitted both to Primakov and President Boris
It feels like 1990 again. Back then, the Soviet Union was in a crisis at least
as deep as Russia's current one, and the government was unusually open to
suggestions. The most famous of them, the 500 Days plan, was co-authored by
Grigory Yavlinsky, who also wrote Friday's Yabloko program. The 500 Days plan
was adopted by Yeltsin's separatist Russian government but was never actually
"This is a good time to publish an economic program f people might actually
read it or at least go through it, which they would never do in calmer times,"
said Vladimir Pribylovsky, a political analyst at the Panorama research
center. "It's also a good way to remind people that you exist and to tell them
where you stand while the government is looking elsewhere for answers."
Hence the Yabloko plan, Pribylovsky said. Since the party refused to join the
Primakov Cabinet, the only way for it to get its views across is to publish
them in a newspaper.
For Gaidar, according to Pribylovsky, the main goal is to "justify himself and
distance himself from the Aug. 17 devaluation and default."
As for Maslyukov and the academicians, Kommersant wanted to publish their
plans more than the authors did: Their ideas are already getting plenty of
attention from Primakov, Pribylovsky said.
Although the plans' drafters are on different sides of political barricades,
some of the measures they propose are quite similar.
For example, the Yavlinsky plan calls for the obligatory sale of 75 percent to
100 percent of exporters' hard currency revenues on the domestic market.
Maslyukov's program, if adopted, would also force exporters to sell 75 percent
of foreign currency earnings, and the group of academics led by Lvov suggested
they sell 100 percent. Though Yavlinsky is considered a social democrat and
Maslyukov is a card-carrying Communist, they have some common ground.
All the plans, including Gaidar's, call for lowering taxes. Gaidar insists on
getting rid of the sales tax and lowering income tax to a flat 20 percent for
everyone. Yavlinsky agrees with the latter proposal and wants the value-added
tax reduced. Maslyukov's plan calls for lowering both income tax and value
There are other similarities. All the plans call for canceling the Aug. 17
moratorium on the repayment of Russian banks' debts to foreign creditors. The
authors of most of the programs agree that the Aug. 25 restructuring scheme
for Russia's defaulted domestic debt should be reconsidered. But the methods
Yavlinsky would offer investors the most favorable terms: He would convert the
defaulted treasury bills to two-year or three-year dollar-denominated bonds
bearing 7-8 percent annual interest. Gaidar would be less generous, offering
either to buy back the T-bills at 20 percent of the nominal value, or to
convert them into long-term dollar bonds.
The Lvov team and Maslyukov would be the least generous, denying foreign
portfolio investors any change to the harsh Aug. 25 restructuring terms but
offering Russian insurance companies and some banks a special deal.
Every plan except Gaidar's is based on the premise that inflation will be high
in the next few years. Gaidar, the only one who stresses balancing the budget,
insists that inflation can be kept down to between 1 percent and 2 percent a
month, but he believes the Russian budget can be balanced with fresh foreign
loans, in which few other program writers believe. Gaidar also argues that the
government is now collecting a high "inflation tax" because taxes should rise
with prices while spending will remain stable. The extra money, Gaidar says,
could be used to pay off debts to the public sector.
Primakov has already adopted some of the measures on which most of the plans
agree, telling exporters that they will have to sell 75 percent to foreign
receipts in Russia. But he will be hard put to find consensus on some burning
issues like the T-bill restructuring.
US News and World Report
Millions of Russians may take to the streets in a nationwide strike for their
BY CHRISTIAN CARYL
MOSCOW--Unpaid, underfed, and often unemployed, industrial workers in Russia
have plenty of reason to protest. And in recent years they have done so with
gusto, though not to much effect. But recently their banners have displayed a
slogan with truly revolutionary implications, however odd it might sound to
American ears: "Down with the trade unions--an extension of the government!"
After a decade of haphazard reforms, Russia's state-supported labor unions are
losing control of workers. A nationwide strike this Wednesday is set to bring
millions of people into the streets at a crucial moment, right on the heels of
the collapse of the banking system. Arkady Volsky, a Russian business leader,
has warned that the demonstrations on October 7 may turn violent and that back
wages must be paid "to stop the impoverished, hungry people before it is too
Soviet-style union. Skeptics discount such dire talk and point out that
Russians have shown a high threshold of economic pain. One of the main shock
absorbers has been the misleadingly named Federation of Independent Trade
Unions, known by the Russian initials FNPR. It was founded in 1990 as a
successor to Soviet trade unions, which had little in common with organized
labor in the West. Membership was obligatory for Soviet workers; unions
delivered many social services, from child care to packaged vacations, but
never presented grievances or called strikes.
Today, the official unions that make up the FNPR include not only rank-and-
file workers but also factory managers. "In the old days they were an
appendage of the state," says Victor Popov, a labor leader in Novosibirsk.
"Now they're twins of the directors, the managers."
This credibility problem has led to the creation of dozens of smaller,
genuinely independent unions. Their members are all workers, not managers.
They have begun to sue employers--and even to win. "In that way the free trade
unions are much more aggressive than the FNPR," says Irene Stevenson, an
American labor activist working in Russia. "They're also much more aggressive
in collective bargaining."
One of the more rambunctious unions, the Independent Miners, blocked the vital
Trans-Siberian railway line this year. The miners have also adopted such in-
your-face tactics as camping out in front of the Russian White House, the
prime minister's office. Alexander Sergeev, one of their leaders, says they
will try to prevent violence this week but will not stop demanding that
President Boris Yeltsin resign. "The people who once believed in democracy
here have had all their hopes dashed," Sergeev warns. "And when you con
people, they're capable of anything."
Russian Communist boss says Europe must help
BONN, Oct 3 (Reuters) - Russian Communist Party leader Gennady Zyuganov said
in an interview released on Saturday he hoped President Boris Yeltsin would
soon be toppled and warned economic collapse could send millions of refugees
fleeing to the West.
He told Germany's Der Spiegel news magazine that mass trade union protests
called for next Wednesday ``have the aim of forcing Mr Yeltsin to resign.''
Zyuganov accused the West, including outgoing German Chancellor Helmut Kohl,
of helping Yeltsin run Russia into the ground. He said Europe needed a stable
Russia and would have to help it recover.
``If we have mass unrest Europe will be flooded by millions of refugees from
Russia, and NATO won't be able to help you then,'' he said in the interview
which was released ahead of publication on Monday.
Russia: Popular Political Support Critical For Reforms
By Robert Lyle
Washington, 2 October 1998 (RFE/RL) -- Leading financial officials are making
a point thn Russia to succeed, there must be broad and strong popular
International Monetary Fund (IMF) Managing Director Michel Camdessus said
Thursday that the failure of the Russian government to win broad political
support from the Duma and even regional government leaders helped sink the
IMF-designed program this summer.
But Camdessus' top deputy, Stanley Fischer, said that it was worse than just
failing to have support. Russia is a country "in which a large number of
people want to go back to the old system," he told a world economic conference
"It's a country in which a large number of people want a different way of
doing things," he said.
The IMF, at the world's behest, went in and worked with Moscow to develop a
plan for shifting from central planning to a market-based economy. "And for
seven years, Russia made progress in reform," said Fischer. "Russia stabilized
its inflation. Russia began to grow in 1997."
But, he said, "It was always a battle -- every single year."
For the IMF and the international community to have stood back and not weighed
in on the side of market economics "would have been inexcusable," he said. "I
think there are no apologies owed for what was attempted in Russia."
Fischer's comments were echoed by U.S. Treasury Secretary Robert Rubin. In a
speech at a financial conference in New York, Rubin said that building popular
and political support for reform is "undeniably difficult," but that events in
Indonesia and Russia have "amply demonstrated that the politics of reform are
as important as the policies of reform."
Rubin said that in the nations where "political will and economic reform have
gone hand in hand, such as Korea and Thailand, we are now seeing some progress
October 3, 1998
MAILBOX: Shame on You Mr. Fyodorov, From an Old Friend
In response to recent comments by ousted tax chief Boris Fyodorov that the
International Monetary Fund should withhold further loan disbursements to
Dear Boris Grigoryevich,
I have known you for a number of years. Throughout this time I have followed
your career with great interest. I have had the highest respect for your
professionalism and for your judgment.
But today I am very disappointed. I have just read in Thursday's issue of The
New York Times your advice and admonishment to the IMF not to provide further
financial aid to Russia. SHAME!
You say: "The IMF should learn a lesson from the past five years. The IMF was
pretending that it was seeing a lot of reforms in Russia. Russia was
pretending to conduct reforms. The Western taxpayer was paying for it."
Have you forgotten that in the very same past five years you had been twice a
senior member of the government? Indeed a minister of finance and until a few
days ago, a deputy prime minister? You were even a member of the Kiriyenko
government on that day of infamy, Aug. 17, 1998 f a day, which will go down in
history, when the most stupid economic decision was ever taken by a government
of Russia. A decision that has adversely affected and impoverished millions of
your own countrymen.
General Director Prima Industries Moscow