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Johnson's Russia List


October 5, 1998    
This Date's Issues: 24122413

Johnson's Russia List
5 October 1998

[Note from David Johnson:
1. AP: Russian Denies Dollar Prohibition.
2. The Sunday Times (UK): Mark Franchetti, Vladimir the terrible lays 
siege to St Petersburg. (Zhirinovsky).

3. Peter Clateman: "Who lost Russia?" debate: wrong question.
4. Diana Pearson: "Unofficial life" in the Russian Far East last week.
5. Terence Nelan, Russian Crisis Brings Worries. What

6. The Experts Opine. How to Fix the Russian Economy.
(Susan Eisenhower and Clifford Gaddy).

7. Should We Worry About Russia?
8. Moscow Times editorial: Open Dollar Trade Limits Role of State.
9. the eXile: Abram Kalashnikov, Press Review. Hacks Who Lost Russia.
10. Financial Times (UK): CHUBAIS: A crisis of ideas is the real trouble.
The brother of the architect of the failed reform programme says the country's
real need is to find a national identity, writes John Thornhill.

11. Itar-Tass: Russian Spokesman Urges 'Contemporary Adaption' of CFE Pact.]


Russian Denies Dollar Prohibition
October 4, 1998

MOSCOW (AP) -- A top economic official said Sunday that reports of the
government's alleged plans to prohibit use of the U.S. dollar in Russia were
First Deputy Prime Minister Yuri Maslyukov said in an interview with the NTV
television station that the state needed dollars for economic recovery.
``The more dollars in the country, the easier it will be to put the economy
back on its feet,'' Maslyukov said.
Russian media reported last week that the economic program under consideration
by Prime Minister Yevgeny Primakov's government included many elements of the
Soviet-era command economy. The plan leaked to the press, which included
strict control over foreign currencies, was drafted by Maslyukov.
Primakov has said that the government is considering several options. Meeting
with foreign economic advisors on Saturday, he pledged to continue privatizing
state property and appealed for more long-term foreign investment to help
Russia fight its way out of the worst economic crisis since the Soviet
collapse in 1991.
He also stressed that the government had no plans to ban the circulation of
U.S. dollars and other foreign currencies. But he said the government would
take steps to staunch the ``dollar drain,'' the flow of dollars out of Russia.
The Central Bank said Friday that Russian companies had stashed $2.5 billion
outside the country in September alone.
In the NTV interview, Maslyukov said it would be ridiculous to talk of banning
the dollar when only 20-30 percent of transactions in Russia are paid in cash
and more than 70 percent in barter and other non-cash payments such as
promissory notes.
``There are no grounds to say anyone in this government plans to ban the use
of the dollar, limit the import of dollars or the right of residents to buy or
sell dollars,'' Maslyukov said. ``That is nonsense.''


The Sunday Times (UK)
October 4 1998 
[for personal use only]
Vladimir the terrible lays siege to St Petersburg 
by Mark Franchetti 

HAVING threatened to "nuke" the West and publicly challenged a fellow
politician to drink his own urine, Vladimir Zhirinovsky, the enfant terrible
of Russian politics, has set his sights on St Petersburg. He is threatening to
take over the country's second-largest city by cutting off its water supply
and sewage system. 
As the country braces itself for a winter of food shortages and popular
discontent, the ultra-nationalist Zhirinovsky is running for governor of the
Leningrad region that surrounds St Petersburg, the cradle of Russian culture
and liberalism. 
Although the region is a separate political entity from St Petersburg,
Zhirinovsky has announced that if he wins the regional poll, his eventual
target will be the city known as the "Venice of the North". The governor's
post became vacant last week after Vadim Gustov, the incumbent, was summoned
to Moscow by President Boris Yeltsin to become deputy prime minister. 
"Once I run the region, the city will have to merge," Zhirinovsky said in an
interview. "If it resists, I will just switch off its water supply and block
its sewage system. St Petersburg's airport and all its supply routes are on
the territory of the Leningrad region. That will all be mine." 
The people of St Petersburg have faced greater horrors than Zhirinovsky: this
is the city that withstood the Nazis' 900-day siege during the second world
war. Last week members of the local legislature hit back at the latest would-
be invader, passing a resolution seeking to postpone the elections for a year.
Zhirinovsky immediately lodged a complaint in the constitutional court, but
legal wrangling could delay the poll for months. 
Zhirinovsky's candidacy in a region the size of Ireland with 1.6m voters has
caused alarm far beyond the decaying Italianate palaces of Russia's pre-
revolutionary capital. Galina Starovoitova, a prominent liberal deputy in the
state duma, the lower house of parliament, said last week she would stand in
an attempt to stop him. "Sadly, the prospect of Zhirinovsky becoming governor
must be taken seriously," she said. 
"People are exhausted. Life is hard and they are disappointed both with the
communists as well as with the democrats. There is nothing he will shy away
from promising and many will believe him, especially when he starts to give
out presents." 
An unashamed self-publicist who has written his own sex manual and posed for
photographs in his underpants, Zhirinovsky shocked the West when his
misleadingly titled Liberal Democratic party (LDPR) swept into parliament in
1993 with 22.9% of the vote. 
His popularity has waned since. However, if he makes his political
comeback in
the Leningrad region, Zhirinovsky will acquire a powerful platform. He will
automatically hold a seat in Russia's upper house of parliament and control
his own budget at a time when regional governments in Russia are asserting
ever greater authority. 
As economic problems worsen, there is no shortage of discontent for
Zhirinovsky to exploit. According to one poll, 34% of Russians believe
authoritarian rule is the only way out of the crisis. 
Security forces are bracing themselves for a day of nationwide strikes this
Wednesday, when the communists hope millions of angry workers who have not
been paid for months will take to the streets to demand Yeltsin's resignation.
The Red Cross has made an emergency appeal for $15m to help struggling
Russians survive the winter, which, it said, "may be the worst in a generation
from a social and economic view". 


Date: Sun, 04 Oct 1998 
From: "Peter Clateman" <>
Subject: "Who lost Russia?" debate: wrong question

Following the "Who lost Russia?" debate, I've noticed one fundamental
assumption has not been questioned: that U.S. policy has been primarily
concerned with the development and Westernization of the Russian economy.
Or viewed another way, that the goal of the political rehabilitation of
Russia would occur through its successful economic development into a market
economy. It seems to me that economic advice from the U.S. appears more
coherent when this assumption rejected.
Since 1992, I have heard and read a number of times the slogan that
really does seem to be at the heart of U.S. policy: "Capitalize on the
spoils of the end of the Cold War." I have heard this slogan repeated by
acquaintances at the State Department and Treasury. No, the U.S. has not
sent an army or pressed Russia through force or intimidation. However, U.S.
policy and economic advise seems to be mainly directed at "capitalizing" on
the opportunity presented by Yeltsin to: (1) insure that the Communist
party and the Soviet system does not return; and (2) insure that the Soviet
Union is removed from the world stage and that the remaining Russia is a
significantly lesser global player.
The main economic advice given has to be viewed in light of these more
fundamental goals. Our support of the rapid and drastic separation of
Central Asia (economically) and Belarus and Ukraine (economically and
politically) from Russia is not good economic policy for any of these
countries. Rapid NATO expansion also has no economic basis. While I am
sure that Mr. Sachs truly believes that "shock therapy" is good economics,
it seems that this camp of advisors prevailed because of the political
windfall promised by "shock therapy"--rapid power transfer away from the
State and the Party. Furthermore, shock therapy meant death to the Russian
military-industrial complex (if not, as it turns out, the military itself).
Has the U.S. lost Russia if these were it's real goals? It seems that
U.S. policy has actually been relatively effective--and even cost effective
for the U.S. The collateral damage is the current Russian economic collapse
(or rather the most recent stage of its ongoing collapse), but this is not
at all a failure of U.S. policy if its true goals were the political ones
mentioned above. Of course, failure may yet be in store, but the current
semi-return of the semi-communists hardly seems to be a serious threat to
the main goals.
So, does that mean the U.S. "won" Russia? I wouldn't want to say that.
I can't guess what role U.S. support, pressure or indirect action actually
played in bringing about the economic breakup of the Soviet Union or the
rapid transfer of Russia wealth to "crony capitalism". Although I am sure
some folks at State will claim credit and not blame for it soon.
Finally, I must admit that, for various reasons brought on in part by
living in the former Soviet Union for the last two years, I am recently
undecided whether the "capitalize on the spoils of the end of the Cold War"
is a fundamentally flawed policy. Not quite ready to adopt it, but no
longer viewing it as heinous and insane (i.e., not as crazy as some other
options, oh, say, like supporting the Taliban). However, maybe at this
point, even if one adopts this fundamental policy, more serious and sound
economic advice and aid would not be contradictory.
P.S.--Does anyone know where the "capitalize on the spoils of the end of
the Cold War" as a sound bite originated? Did someone famous first
enunciate it?


From: "Diana O. Pearson, M.Ed." <>
Subject: "Unofficial life" in the Russian Far East last week (non-academic :) )
Date: Sat, 3 Oct 1998

I returned yesterday from 17 days to (oops, I mean "in", I've lost my
English AND my Russian prepositions) the Russian Far East (RFE), (my fourth
stay--total 116 days in 2 years). When I began my RFE adventures two years
ago, dragging my feet
all the way, I never expected more than 1 trip . . . and now, when I drag
my feet on the way home instead of the way there, I am shocked that my
visits have gotten more difficult, not easier as one might expect with
acclimatization to any other culture.

The concrete difficulties were obvious: 1 lost suitcase--blame the US, not
Russia, but nonetheless the defensive conversations with baggage guys (yes,
I am quite sure they are all men) and
customs people, 5 or 6 standing around arguing and sighing about how the
problem CAN'T be solved . . . A very nervous US exchange student waiting
for me to bring cash from his parents as his traveler's checks and credit
card were no longer working and wiring money looked impossible--how could
he have known that I would be the last through customs and he would see me
only after the airport was nearly empty . . . Then, "No rubles for sale"
at any
exchanges when I needed to buy 5 train tickets . . . the Woman in Black
standing nearby the airport exchange (and by the closed Inturist back hall
exchange the next day) had rubles, at a rate of 8 (officially down to 12
THAT day) . . . I later learned that she works at the airport exchange
"when there are rubles." Due to the long baggage and money delay, I quickly
sent my fellow travelers on to their host families, forgetting in the
confusion to retrieve their passports for the purchasing of train tickets.
In further pursuit of the missing suitcase, I was amazed to find there was
an old computer on the second floor which actually told us that my bag had
been sent to Fairbanks (there is progress in Russia) and would arrive in
only 8 days. Feeling encouraged, my Russian friends and I went off to the
ticket agent who is a friend of a friend--but the window was closed--train
travel is down until people see what happens next; so on
to the train station. I sent my charming young male friend to the window of
the female ticket agent and he "kept talking" long after she refused to
sell tickets with only photocopies of passports and visas. A "tip" was
offered and EVENTUALLY we left with tickets. The "tip" was ultimately
refused (there is progress in Russia) . . .Then I learned: no hot water in
Khabarovsk, except at Inturist I suppose, but silly me, I was spending our
dollars (literally, of course, or how could we negotiate a price with the
ruble jumping up and down?) with host
families . . . the hot water explanation (oops--cold water explanation)
varied from checking the system to workers on
strike. Maybe the only one who really knows why is the top hot water guy.

I'll spare you the details beyond the first two hours above, but . . . No
hot water in Blagoveshensk, even at the Central Bank employees' "rest"
retreat; no fuel for sale in Zeya; no film in either place; train ticket
and airport tax prices changing daily, but domestic plane ticket prices are
for the first time the same for foreigners and citizens (there is progress
in Russia). . . Alaska Airlines will stop flying their RFE route on October
8 . . . supposedly ground support is too unstable, one Russian tour
operator predicts that Aeroflot will follow, I imagine Aeroflot's support
has benefited from Alaska's presence . . . Stores are being stocked again,
but prices might change several times a day; tampons and toilet paper are
not to be found everywhere again yet . . . one store owner friend is
sitting on a warehouse full of goods, not knowing what prices to use; some
have given up and changed all ruble tags to dollar tags, even though they
won't always take dollars (rubles are too scarce and you don't know if
you'll need some, oh yeah--and it's illegal)--there is probably a shortage
of price tags by now. Some friends asked me to exchange rubles, some asked
dollars . . . my only official exchange resulted in half the allotment of
rubles, stupidly not discovered until I got to the ladies toilet--then I
had to wait while the devushka counted every kopek in her cubicle before
she gave me my other 1000 rubles (only10/1 that morning). 1 unofficial
exchange (when again no official exchanges had rubles) took place in the
lobby of a commercial bank while we were meeting with the bank president
upstairs (my friend's friend who wanted to talk to us about tourism
development), but the rate WAS supposedly official--it seemed a bit low,
but how would we know?

While none of these concrete difficulties is new to Russia, they had not
been part of
MY last two years' experience. I had always HAD hot water, rubles, stable
prices, and even been paid for my work; the only thing I hadn't been able
to buy was slide film. 

Nonetheless, there was still too much food in too many combinations and too
much vodka, vino, shampanskoye i pivo. People were friendly and interested
as always; we experienced no anti-Americanism; we were on tv as positive
news. I was even offered a supposedly paying private job! The Zeya City
birthday celebration went on with joy despite the mayor's boring speech.
Buses were free that day and for once Americans paid art museum admission
and Russians did not--"no one gets paid their salaries, so . . ."--instead
of the other way around. 

What made this trip most difficult for me was and is the abstract, not the
concrete--being immersed in the vastly increased FEAR (Far East Anxiety
about Russia?)
among my friends and colleagues. They know how to cope with concrete
realities and even with not knowing exactly what will happen next; they all
have coped before quite handily. But they are worn and tired. Some are
panicking. Some are drinking more than I have ever seen them drink before.
It is painful. Perhaps their love of living on the edge, breaking the
rules and ignoring Moscow as often as possible is wearing thinner and
thinner, until they feel that the edge must
break instead of the rules. Maybe they have begun to long for enforced
rules which will help them live a little farther from the edge---it has
seemed very high and dangerous the last few weeks. . . 

Yes, there is talk of Regionalizing in the RFE, and even of saying do
svidanya to Moscow. In the meantime, they would happily trade us

Village teachers in Zeya District (Amur Region) are on strike for September
against the Head of the District as they haven't been paid since March and
the city teachers were paid in April. They demand his resignation. Governor
Belanogov wants him out but can't dismiss him because he was elected two
years ago. There were 10 or 12 candidates, as I recall, but he was an
appointee and therefore a habit, and it was their first election--no
knowledgeof campaigning or decision-making for voting. I try to
imagine if they have a recall process . . . or if they know about it or how
to use it if there is one. Children (5,000 in 17 villages) are literally
crying to their teachers "why can't we go to school?" Teachers feel guilty
when so many others continue to work with no pay, but one principal told me
that they are the most educated and thoughtful in the villages and they are
determined to make a difference. And yet, there was one 2-room
elementary-only school in a remote agricultural village we visited in which
school was happily taking place--picket line scabs were warmly teaching in
the same places they have been working for 20 years. No secondary level
teachers to sway them otherwise. (Just like it would be at home)

And, cultural differences appeared and felt more pronounced to me, due I
believe to increased fear, conscious or sub-conscious, within my Russian
friends and maybe "my" Americans too. I watched carefully as they
interacted. A generalization occurred to me: Many Americans are still sure
they understand everything so they don't bother to stop, listen and think.
Many Russians still think they could understand everything, but they are
terrified that they know nothing, especially now, so it's too frightening
to stop, listen and think. Are any of us really stopping to listen and
think? Here's hoping this economic situation inspired at least a little

And yet there are optimists; people willing to wait; people planning for
more stable times, especially the ones who have had some success in private
business, just in case the unexpected which happens next is positive rather
than negative. We
came home with questions and ideas for business plans and future projects
in tourism, education, exporting, bankers' training, internet marketing and
service businesses, as well as humanitarian work for orphanages and

No my suitcase didn't arrive in 8 days, it took 15, and no one called my
contact or delivered the suitcase as sometimes happens here. 

Russians are metaphorically killing their neighbors' cows more than ever as
there are
fewer cows so they are more evident. The Land of
Stark Contrast remains. Everything and Nothing changes in the Russian Far
East (except the color of womens' hair and lips--thank goodness there is
less pink and orange these days). 

As always in Russia, I continue to expect nothing and hope for the best... 
Let's hope that the next lovely, astounding Russian Magic appears in a
very big way and before it's -40 degrees outside.


October 3, 1998
Russian Crisis Brings Worries 
What Ramifications? 
By Terence Nelan

Oct. 3 — When President Clinton met Boris Yeltsin in Moscow last month, the
crumbling Russian economy was a top item on the agenda. 
Already, a Russian stock plunge had fueled drops in markets worldwide.
Pundits warned that the era of democracy in Russia was dying—along with
Russia’s fledgling free-market economy. 
Since then, Yevgeny Primakov, the new prime minister, has been casting
about for a solution. 
“Since Prime Minister [Sergei] Kiriyenko left office,” says Clifford
Gaddy, an expert on the Russian Economy at the Brookings Institution, “the
Russians have been thinking, ‘If we can just get through today.’ No one has
time to think of what the consequences of today’s solutions will be in three
months or six months.” 
And while Russia is a difficult place about which to make predictions,
one thing is certain: Its mammoth debt—the immediate source of its current
problems on the stock market—isn’t going to shrink soon. 

Moscow Can’t Pay the Bills 

Russia has defaulted on 250 billion rubles in short-term internal debt,
admitting it could not meet the payment schedule and making domestic banks
livid. The government still owes 11 billion rubles in back wages, 25 billion
in defense contracts and 16 billion in welfare payments.
Compared to the international debts, this is peanuts. “Russia holds well
over $70 billion in debt incurred since 1992 and has inherited almost $100
billion in debt from the Soviet Union,” says Gaddy. “Russia is very likely to
be forced into default on its foreign debt.” 
Central Bank Chairman Viktor Gerashchenko and Finance Minister Mikhail
Zadornov flew to Washington on Friday for negotiations with the International
Monetary Fund over a $4.3 billion installment. Primakov said that the
country’s plan would depend on the IMF loan, not the other way around.
No short-term economic plan will be announced for three weeks, sometime
after the IMF makes its decision on the installment, said First Deputy Prime
Minister Vadim Gustov. 

Black Market, Shadow Economy 

Yet, the impact of all this on the Russian people is smaller than one might
“The bulk of the Russian economy is based on barter,” says Dmitri Simes,
president of the Nixon Center, a policy think tank. “Between 40 and 60 percent
of the Russian GNP is produced by the so-called shadow economy, which is not
represented at the stock market.”
But the ruble’s crash is another story.
“Even in Moscow, the people eat primarily imported food,” says Simes.
“Outside Moscow it is even worse. The declining ruble exchange rate means
vastly increased prices for basic necessities, which has a very considerable
impact on ordinary people.” 

Simple Problem, No Solution 

At the root of Russia’s woes, all three experts agree, is a simple problem
that requires a complex solution: The Russian economy produces very few
products that the people actually want to buy. The result: hardly any capital
created in the system that can be used to pay foreign lenders.
Part of the reason for that shortage is the Soviet heritage, Simes
“The [International Monetary Fund] and the Russian government tried to
fight inflation and have a tight money supply, but never made an effort to
create conditions for economic growth,” he says. “In the absence of
legislation that regulates private companies and taxation that treats them
fairly, who would want to go into business in Russia?” 
What is left? “The core of the Russian economy produces products that are
worth less than the forces that created them,” Gaddy says. “The longer that
goes on, the poorer the country becomes.” 
But simply letting those uncompetitive businesses go bankrupt or
liquidating them is not the answer. That would throw millions out of work and
shatter what confidence is left in the government. So far, the government has
been unable to solve this problem, and there are no signs that it will. 

A Little Good News 

But as Susan Eisenhower, chairwoman of the Center for Political and Strategic
Studies, points out, there is some good news from Russia, although it’s on the
political front. Amid the crisis, she says, there is evidence that the
parliamentary system is gaining strength and legitimacy, fewer than 10 years
after the fall of Communism.
“The transformation in Russia has been astounding,” Eisenhower says.
“Politicians are talking about coalition governments, about gaining the
[parliamentary] support. Ten years ago, these vocabulary words didn’t even


The Experts Opine 
How to Fix the Russian Economy 

Routing the legion of problems bedeviling the Russian economy would be a
superhuman task. The ruble is losing more value by the day, domestic and
foreign debts are mounting. Billions of rubles in taxes go unpaid, as do
government salaries. The industrial infrastructure is hopelessly
uncompetitive. Nevertheless, some experts have ideas for what Boris Yeltsin
should do.

Susan Eisenhower, Chairman of the Center for Political and Strategic
1) The government should create incentives for the repatriation of
capital flight. It is estimated that at least $600 billion in Russian wealth
has fled to foreign banks. “If the Russians could find a way to bring some of
it back, they wouldn’t need foreign aid,“says Eisenhower. “They could finance
their own reform.“
2) Improve the state-run industries. The Russian government supports
countless non-competitive industries and pays their workers salaries. “Russia
has to find a strategy that may not transform, but slowly improve this
infrastructure,“notes Eisenhower.
3) Break up monopolies. Russia privatized its huge state monopolies
wholesale, without breaking them up first. That lets them set whatever price
they want for goods.
4) Establish a mechanism to insure bank depositors like the FDIC.
“Someone would have to fund that,”says Eisenhower. “There would have to be
banking reform across the board.”
5) Nationalization or quasi-nationalization of strategic commodities.
Many of these oil, gas and natural resource concerns have been privatized
already, but they used to be a major cash cow for the Soviet and then Russian
treasury. “Privatization should never have been done in the first place until
Russia had an industrial infrastructure that could export goods,”says
Eisenhower. “But re-nationalizing them is a last resort if Russia can’t get
capital flight to stop.”

Clifford Gaddy, expert on the Russian economy at the Brookings
1) Russia needs to recognize how draining the state-run enterprises are.
Many of them, like the famous Stalin-era steel mill at Magnitorgorsk, produce
products that are worth less than the forces that created them. “The core of
the whole Russian economy is ’value subtracting.’” says Gaddy. “But Russia
can’t shut these industries down all at once. They provide jobs and social
indentity for millions of Russian workers.”
2) A reality check. Russian policy-makers and leaders need to be much
more realistic about Russian competitiveness in the world market. Many have
illusions about the competitiveness of their manufacturing and defense
sectors. “A few enterprises are competitive, but on the whole, this is not the
case,” says Gaddy. “In the long run, operating these enterprises is a dead
3) Russia has to reduce corruption, looting and capital flight by its
financial interests. “Too many of the wealthy get sweetheart deals that allow
them to channel value out of the economy,” argues Gaddy. “Russia needs a
better tax code to reduce government waste, and reduce capital flight.”
4) The foreign lender nations will have to restructure Russia’s foreign
debt. “The West will have to write off a large part of the post-Soviet debt.”
says Gaddy. “Russia can’t pay it. We need a cooperative solution.” A long-term
restructuring package would be necessary to make this work, but it would be
very difficult to push this through.
5) The Russian government needs to start enforcing bankruptcy on these
inefficient enterprises. “This can’t be done over night, but it has to be
begun and has to be suystematically,” says Gaddy. 


Should We Worry About Russia?

Don't Worry:
MINIMAL EXPOSURE: The United States is not heavily involved in the Russian
economy, so it won't be punished if Russia crashes. Russia imports very few
goods from the U.S., and the U.S. returns the favor. Recent market losses in
the U.S. can be traced to investor psychology. Investors are nervous that the
rising markets will not last, and have become very sensitive to any bad
economic news.
FALLING COMMODITY PRICES: As the Russian currency is worth less and less, the
raw materials--oil, furs, timber, minerals--that Russia exports will become
cheaper and cheaper for American buyers.
MINIMAL INFLUENCE ANYWAY: Western aid to Russia is often mismanaged, stolen,
or misappropriated. So, there's only so much the U.S. can do, even if it
wanted to. Throwing money at the problems has a limited effect.

NUCLEAR PROLIFERATION: Economic privations and a breakdown in military funding
could push military or nuclear technicians to sell their skills to nations
like Iraq or North Korea. The nightmare scenario: A nuclear warhead goes
RESURGENT HARD-LINERS: Hard times could provoke a protest vote from the
Russian populace come the 2000 elections. The prospect of a hard-line
nationalist or Communist leader is not reassuring for the West.
MARKET CRISIS: Instability could fuel investor wariness on all emerging
markets, punishing countries like Brazil and Mexico and necessitating
bailouts. With IMF reserves reportedly low, this could require the IMF itself
to be bailed out.


Moscow Times
October 3, 1998 
EDITORIAL: Open Dollar Trade Limits Role of State 

No one in the government actually mentioned the idea. It was just a suggestion
to President Boris Yeltsin by Eduard Rossel, the governor of the Sverdlovsk
But even before any official announcement was made, the rumor spread across
Russia. It was a terrible nightmare, a return to the Soviet past. The
government was going to ban the free purchase of U.S. dollars! 
In a country that accepted the invasion of Chechnya with barely a shrug and
has more recently accepted the collapse of its entire banking system, this was
one threat that could provoke mass unrest. 
The government was immediately forced to deny even having countenanced the
idea. Prime Minister Yevgeny Primakov and Central Bank chairman Viktor
Gerashchenko went on the air to scotch the rumors. 
It may not seem patriotic but the right to own dollars is one of the few
achievements of the past seven years that almost all Russians treasure.It is a
perverse symbol of the right to personal wealth that was denied for 70 years
under the Soviet Union. 
Under the 88th paragraph of the Soviet criminal code, trading in dollars was a
crime comparable to murder. Mikhail Bulgakov devoted chapters of his
masterpiece "The Master and Margarita" to the nightmare of Soviet campaigns to
flush out hard-currency speculators. 
Over the past seven years, Russians have learned to value the fact that they
can own one thing that cannot easily be taken away by government incompetence
or corruption. By some estimates ordinary Russians have $40 billion stashed
under their mattresses. 
This is not just a fight over symbols. Some Russians may want to return to the
Soviet past, but this week's dollar scandal is a sign that there is a broad
political constituency that will oppose any attempts to undo the fundamental
steps that Russia has made toward the free market. 
The dithering Primakov government has at least been forced to decide that it
must allow Russians to buy dollars. This entails a whole range of consequences
for all sectors of the economy. 
Keeping open trade in dollars for citizens will in turn force the government
to maintain a reasonably free hard-currency market. This will place limits on
its ability to crack down on other areas or to thumb its nose at the world
financial community. 
Perhaps, some day, Russians will be ready to accept bans on the circulation of
the dollar. But that will only be once they trust the ruble as a currency and
once they trust their government. Until then, the dollar must be allowed to
trade freely. 


the eXile
September 24 - October 8, 1998
Press Review
Hacks Who Lost Russia
by Abram Kalashnikov 

When the going gets tough, the tough get going. But what do reporters do in a
crisis? Answer: a lot. They negotiate for raises. They turn the volume up on
their television sets. And they work the phones night and day to make sure
that their opinions on the unfolding events are cited in print more often than
their competitors' opinions. It's hard work, and it makes for trying times for
the average stability-loving hack.
The recent financial crisis has forced the corps of Western hacks and pundits
to bound into action, with each more desperate than the next to look like the
most prescient, right-thinking, and responsible voice out there. The standard
currency in the resultant print traffic is a thing people are calling the "Who
Lost Russia?" piece, an article which ostensibly seeks to assign blame for the
Russian socio-economic collapse. There are several required elements of a "Who
Lost Russia?" piece. Among these are:
a) a tone of calm, steely unconcern, as if to say, "What are you all excited
about? I expected this to happen all along," and "I told you so."
b) Lots of matter-of-fact references to complex economic phenomena which the
hack never discussed under his byline before, but which he now feels obligated
to demonstrate through-and-through knowledge of. "Of course, as everyone
knows, a currency board only works in a country with a dependable central
bank," is the kind of comment you'll frequently find emanating from the "Who
Lost Russia?" piece, despite the fact that just a week earlier the hack in
question had no idea what a currency board is.
c) A macho emphasis on passages courageously predicting "hard times ahead" and
"sacrifice" and "pain," in a tone suggesting that the reporter himself will be
suffering right along with the Ivanov family from Izhevsk.
d) Passages assigning blame for the crisis to communists, or to oblique and
unsubstantiated "corruption" in the Russian government, or to the failure to
"go far enough" in backing reform. In short, everyone must be blamed except
the actual guilty parties.
Just as we expect them to be the breaking news leader, Russia watchers should
turn to The Washington Post first when seeking the Conventional Wisdom answers
to their favorite "Who Lost Russia?" questions. Fortunately, Post writer Fred
Hiatt, the same man who last year praised "Baby Billionaire" Vladimir Potanin,
came through with a classic "Who Lost Russia?" piece just this last week.
Hiatt's self-conscious "Who Lost Russia" eulogy first anticipates the critics
of establishment figures like himself, then answers them ahead of time with a
list of ready-made excuses:
"A popular version goes something like this: Russia's self-proclaimed
reformers stripped a modern nation of its industrial might, impoverished the
masses and enriched a corrupt elite. Things could have turned out differently
had the reformers privatized more slowly and fairly, put in place a social
safety net, tolerated some central planning and supported the nation's
industrial heartland. But in their heartless Chicago-school fanaticism, the
young reformers spurned a softer, Sweden-style capitalism that Russians might
have tolerated in favor of a rigorous Chile-style market.
"This argument always reminds me of something Yegor Gaidar, Russia's first and
still most admirable reformer, told me soon after the Soviet Union collapsed,
as he pondered the economic and social wreckage - not to mention empty coffers
- that Mikhail Gorbachev and predecessors had bequeathed him. If we do
everything right, maybe in 20 or 30 years we will have the luxury of choosing
between the Chile model and the Sweden model, Gaidar said then, adding that he
could be happy with either. Right now, he said, he was just looking for a way
to survive."
Thanks to Hiatt, we can now safely blame last month's financial collapse not
on Anatoly Chubais, or the abovementioned "admirable" Gaidar (who has been
living off rent from an academic building he privatized into his own ands
while still Prime Minister), but on the insurmountable financial difficulties
caused by 70+ years of Soviet government. You see, actually, in the end, it
was all the communists' fault.
More importantly, Hiatt's "Who Lost Russia?" piece makes sure we don't forget
the most important thing about the Russia story-namely, that Hiatt is on a
first-name basis with Russia's Prime Ministers. If there's one thing we learn
during this crisis, it should be that.
Like Hiatt, most "Who Lost Russia?" authors don't move from their seats more
than they ever did, but they compensate by being more hysterical than usual.
Kari Huus of MSNBC, for instance, made the most out of a stay in the Radisson-
Slavjanskaya Hotel, making sure to give online readers up-to-the-minute
reports "on the ground" from the inside of the four-star hotel:
"Leaving behind Russia's economic maelstrom last week required one last, ugly
bout with it. As I waited to check out of Moscow's Radisson Slavyanskaya
Hotel, the front desk printer zipped back and forth tallying up several pages
of phone charges, at $7 a minute. (Calling the U.S. from Moscow costs more
than three times the same call originating in the U.S.) Then it tacked on 20
percent for value-added tax. Ouch."
Boy, Russia really is feeling the crunch! Later in the piece, Huus glances
around the lobby to give us more crisis news:
"Criminal gangs have carved the country into fiefdoms said to control more
than 50 percent of all economic entities, including state firms, banks, and
stock exchanges. You certainly can't miss, for instance, the beefy guys who
populate the lobby of the Radisson Hotel."
Folks, that's not just reporting the story, that's reaching out and grabbing
it by the throat. Somebody call the Pulitzer committee, quick! Kari Huus found
the Russian mafia! They're disguised as security guards in the Radisson. One
thing I always hate to see, as a media critic, is a reporter who limits
himself to mere relating of facts, suppressing his/her creative and
intellectual instincts in favor of the bloodless formulae of straight
journalism. Huss, thank God, was never in danger of that, bravely overcoming
the pressure to conform and refusing to deny her readers the great wisdom she
knows she's capable of sharing. She ends her "Who Lost Russia?" piece on the
correct note, with a moralizing conclusion that serves notice to us all:
things would have been a hell of a lot different if Kari Huus had been in
"But the real key is careful building of legal institutions and sensibilities.
Regardless of the players in government, the details of their economic plan,
or the involvement of international lenders, restoring faith in the system is
the challenge."
I don't know about my faith in the system. But my faith in the security of
Radisson hotel lobbies is definitely restored. In fact, I think I'll head over
there right now. I wouldn't want to miss the big story.


Financial Times (UK)
October 3, 1998
[for personal use only]
CHUBAIS: A crisis of ideas is the real trouble
The brother of the architect of the failed reform programme says the country's
real need is to find a national identity, writes John Thornhill

Any reader of Dostoevsky's novel The Brothers Karamazov will know all about
sibling rivalry. Rarely, though, has a family debate been conducted on as
elevated a level as that between the two brothers Chubais.
As a senior minister during much of President Boris Yeltsin's administration,
Anatoly, the younger and better known of the brothers, has been the chief
motor behind Russia's drive towards a market economy and an eloquent advocate
of economic liberalism.
Yet Igor Chubais, a distinguished philosopher and sociologist eight years
older than Anatoly, has been one of the sharpest critics of Mr Yeltsin's
regime. He has frequently condemned the debasement of democracy, the Chechen
war, and the mass privatisation programme conducted by his brother.
"What is reform?" asks Igor. "It is practically a synonym for a terrible
Russian word, anarchy."
While Anatoly has long argued that only the growth of an effective market
economy can lay the basis for a prosperous and democratic society in Russia,
Igor believes the reverse is true. Confined to the margins of public debate
for the past few years, Igor's views have assumed a greater resonance as
Russia tries to comprehend the reasons for its latest financial crash and the
apparent failure of reforms.
"The most painful crisis facing society is economic but the most profound,
overwhelming all others, is the crisis of ideas," Igor wrote in a recent
polemical tract, Russia In Search of Itself. "Until Russia has solved the
problem of how it looks on the world it cannot solve any other problem."
Sitting in his book-lined study in a half-built suburb in north Moscow, the
bearded, bespectacled Igor argues that Russia desperately needs to rediscover
a system of values to underpin a new social and political order and provide
consensus for real reform. It is symptomatic of the country's confused state,
he says, that Russia still has not developed a concept of national security
nor approved any words for its post-communist national anthem.
"We understand that we are no longer the Soviet Union. We understand that we
are not the Russian empire. We understand that we are not western Europe. But
then who are we? Until we have developed a new identity we cannot conduct
serious, reasonable, logical, consistent policies."
Igor is personally trying to restart the wide-ranging debate about Russia's
national identity that was begun nearly a century ago and truncated by the
Bolshevik revolution of 1917. Before the revolution, a group of Russian
philosophers tried to steer the discussion by publishing a series of essays,
called Vekhi (Signposts).
As editor of a series of pamphlets called Novye Vekhi (New Signposts), Igor is
trying to build on that earlier work and help Russia discover a new moral
compass for itself. One of the most important tasks he identifies is for
Russians to understand more about their own tragic history, distorted by
Soviet propaganda and still the subject of bitter political wrangles.
Igor believes Russia should learn from the experience of postwar Germany,
which stared deep into its national soul in 1947-48 to purge itself of Nazism.
"Without a common acceptance and understanding of what happened in the past it
is impossible to agree on a route map for the future," he says.
Igor suggests Russia should set up a national institute to study the country's
history and culture and develop school courses to educate the young. He argues
that political leaders should be forced publicly to debate their understanding
of Russia's past rather than be allowed to spout empty promises about the
future. And he encourages the development of civic institutions and non-
governmental organisations, which can fill the void that exists between power
and the people.
He fears that if Russian democrats fail in this task then the nation's
ideological playing field will be left vacant for the red-brown coalition of
Communists and fascists. Igor argues that fascism arose in postwar Germany in
the 1930s precisely because the country lost its sense of identity and grasped
at an ersatz package of convenient, evil, national myths.
"The same thing is happening with us. Fascism is a reaction to a lack of an
identity," he says. "It is like a mental asylum where the patients think they
are Napoleon or Alexander the Great because they do not really know who they
As he struggles to raise money to continue publishing Novye Vekhi, Igor
remains gloomy about the future. "I think Yeltsin wasted a historic chance and
a colossal opportunity in the free conditions of August 1991 when it would
have been possible for Russia to recreate Russia," he says.
"If society were organised, then there would be reasonable, normal channels
for expressing the people's will and wishes. But because there are not any
such channels then people have to resort to ever more extreme methods until
the authorities react."


Russian Spokesman Urges 'Contemporary Adaption' of CFE Pact 

MOSCOW, October 1 (Itar-Tass) -- Contemporary adaptation of the treaty
on conventional forces in Europe (CFE) will be of key importance to Russia
relations with NATO, said Vladimir Rakhmanin, the Russian Foreign Ministry
spokesman."The Russian side proceeds from the view that the adjustment of CFE
mechanism with taking into account new conditions will help ease negative
consequences of the spread of the alliance for European security and will
virtually confirm statements that the military policy of the North Atlantic
Alliance is not directed against Russia and other East European countries,"
Rakhmanin said.
"In order to avoid complications at the talks in Vienna and not to
create difficulties for the operation of the current treaty, it is
necessary to find a mutually-acceptable solutions to the basic problems of
adapting the treaty prior to the accession of new members to NATO,"
Rakhmanin said.
"Most states, participants in the CFE, go along with this. At the
recent Russo-American summit the presidents of the two countries expressed
the intention to ensure that these talks are completed within a short
period of time," he said.
In this connection the Russian delegation in Vienna was given new
directives promoting well-considered, balanced decisions, the spokesmansaid.
The Russian side hopes that its proposals will give a new impetus to
the talks and will help conclude them soon, Rakhmanin said.


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