October 5, 1998    
This Date's Issues: 2412•2413

Johnson's Russia List
#2413
5 October 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Fred Weir on protest plans.
2. AP: Russia Pol Wants Nukes Updated.
3. Barnabas Johnson: RE: Clateman/"Capitalize on the spoils of the end
of the
Cold War."
4. Journal of Commerce: John Helmer, RUSSIAN STEELMAKERS REJECT DUMPING 
CLAIMS. (Response to Clifford Gaddy).
5. Jerry Hough: Re 2410-Albright's Address on Russia.
6. Nicholas Pilugin: Fw: Story for Sale/Bounty Hunter Wanted. (From Expat
List).
7. AP: Russia's Youth Dance Away Crisis.
8. New York Times: Stephen Kotkin, Disappearing Rubles, Omnipresent Rust
Belt.
9. Boston Globe: David Filipov, Russia's middle class falls with ruble.
10. Washington Times: Andrew Borowiec, Moscow's woes cripple Caspian
Sea's oil potential.
11. RFE/RL: Robert Lyle, Russia: German Banker Says Be Pragmatic.]

*******

#1
From: fweir@rex.iasnet.ru
Date: Mon, 05 Oct 1998 
For the Hindustan Times
From: Fred Weir in Moscow

MOSCOW (HT) -- In the first explicitly political mass labour
protest since the demise of the Soviet Union, up to 28-million
Russian workers are expected to take to the streets Wednesday to 
demand President Boris Yeltsin's resignation and a complete change 
of government.
"We spent years making economic demands, just asking for our
wages to be paid, while the situation in the country grew worse
and worse," says Gennady Khodokov, press spokesman for the 50-
million member Russian Federation of Independent Trade Unions,
which has called on workers to down tools and join protest
rallies across Russia on Wednesday.
"If the manager of a factory had run the business to
disaster, workers would call for his dismissal. Yeltsin has
brought Russia to the brink of total collapse, and he must take
responsibility."
Mr. Khodokov says the unions expect 28-million workers to
join demonstrations in thousands of towns and cities across
Russia, to press for Mr. Yeltsin's resignation and fresh
elections for both president and parliament.
"All those in power now are to blame for the destruction of
Russia's economy and impoverishment of the majority of workers,"
he says. "It is clear that only new elections for all branches of
power will allow the people to sweep out the rot and install new
representatives."
Russia's economic crisis has brought bank failure and
runaway inflation in its wake. Prices on many staple goods have
as much as tripled in the past two months, driving millions of
working class families below the subsistence line.
Pensions and wages for millions of Russian workers have gone
unpaid for months, due to the government's near bankruptcy. 
"The situation in the country is unbelievably bad, and
getting worse by the day," says Viktor Levashov, an analyst at
the Institute for Social and Political Studies.
"You may say it's dangerous to see the trade unions adopting
political slogans and calling for the President to quit, but this
accords very closely with the mood of the country. Everyone is
suffering, and everyone blames President Yeltsin personally."

Prime Minister Yevgeny Primakov, appointed barely a month
ago, has made paying public sector wage arrears a key priority of
his government. 
But Mr. Khodokov says the mountain of debt is growing
rapidly. Russian workers were owed 84-billion roubles at the
beginning of October, which would have been about $14-billion
before the rouble was devalued in August. Today the same total is
worth less than $6-billion.
"Russian workers have been deceived again and again, and we
are not going to be robbed this time," says Mr. Khodokov. "There
must be full indexation of the wages owed to us. Why should hard
working, long-suffering people have to pay the price for the
incompetence of the President and government?"
In the past Russia's trade unions have avoided political
entanglements, but in moving toward open opposition to the
Kremlin they have also entered into a de facto alliance with the
powerful Communist Party.
"The Communists accept our political slogans and support our
general demands," says Mr. Khodokov. "It is a trade union
protest, but they are welcome to be with us."
As many as 150,000 people are expected to take part in
Wednesday's action in Moscow alone. A huge rally is planned on
Vassilyevsky Spusk, next to the Kremlin, with the participation
of most of the country's top opposition leaders.
"This will be a powerful demonstration of the popular will,
and also of broad unity among all those who want to pull Russia
out of this catastrophic crisis," says Valentina Katzelenbogan, a
spokesperson for the Communist Party. 
"We are working together to help the people express their
demands, and we only hope Yeltsin will listen. This may be the
last chance."

********

#2
Russia Pol Wants Nukes Updated 
By Vladimir Isachenkov
October 5, 1998

MOSCOW (AP) -- The Russian government must update its aging nuclear arsenal
in addition to dealing with its tattered economy, Russia's first deputy
prime minister said. 
``We must guarantee that, in case of any unforeseen incident, we have a
strong nuclear shield that would ensure our security and be capable of
inflicting irreparable damage to the enemy,'' Yuri Maslyukov said in a
television interview Sunday night. 
Maslyukov said he supports ratification of the START II arms reduction
agreement with the United States, which has been repeatedly delayed by the
Russian parliament. 
He added, however, that ratification must hinge on further arms cuts and
speeding up production of the new Russian-made Topol-M ballistic missiles
to replace aging weapons. 
The Topol-M entered service last fall, but the cash-strapped government
has only been able to acquire a small number, according to media reports. 
Prime Minister Yevgeny Primakov's government is trying to come up with a
strategy to deal with the country's economic crisis after Russian currency
and financial markets collapsed in August. International financial
institutions have been reluctant to resume loans until the government
unveils its economic strategy. 
Russia's Finance Minister Mikhail Zadornov and Central Bank Chairman
Viktor Gerashchenko, in Washington for meetings with international lenders,
have asked the International Monetary Fund and the World Bank to deliver a
loan package negotiated earlier. 
The IMF put the $4.8 billion loan on hold following the previous
government's decision to devalue the ruble and reschedule domestic debt,
the very moves the international aid package was intended to avoid. 

Although the outcome of the talks is uncertain, the government has said
foreign loans will be a chief source of revenue to cover a huge deficit in
the fourth quarter. 
Primakov last week strongly urged the IMF and other lenders to deliver
aid and warned that their refusal would push Russia toward ``unpopular''
decisions, which he did not detail. 

********

#3
From: "Barnabas D. Johnson" <bjohnson@aua.am>
Subject: RE: "Capitalize on the spoils of the end of the Cold War."
Date: Mon, 5 Oct 1998 
Peter Clateman writes well, but -- although I have often disagreed with
many aspects of U.S. policy towards the FSU -- I do not think this policy
has been as cynical as he suggests when he says it has been guided by the
slogan, "Capitalize on the spoils of the end of the Cold War." What is
more, in ten years of involvement with this region, including numerous
meetings in which (if Clateman is correct) that slogan would doubtless have
surfaced, I have never heard it. In any event, the best response to the
"Who lost China?" debate of 50 years ago was "We never had China to lose!"
Ditto Russia.
I think the current economic collapse in Russia will be viewed by
historians hence as essentially another chapter in the collapse of the
USSR. I do not believe that the U.S. and the West deliberately and
cynically caused it -- or now welcome it. On the contrary. Any policy based
thereon would be as nihilistic as that of France regarding Weimar Germany.
U.S. policy has been and remains well-meaning, albeit often foolish. For
example, the IMF, World Bank, USAID, and Western "engagement" in this
region never put sufficient emphasis on the necessity for the Rule of Law
... step by arduous step ... as a precondition to genuine reform. 
Sad to say (for I too am a lawyer) many American lawyers and law firms
were in the vanguard of those who ought to have known better but allowed
themselves to do worse by giving "political cover" to so-called reform
processes that were not rooted in genuine legal and institutional reforms.
I don't think this was due to cynicism so much as to greed-induced myopia. 

*********

#4
Date: Mon, 5 Oct 1998 
From: helmer@glas.apc.org (John Helmer)
Subject: RUSSIAN STEELMAKERS REJECT DUMPING CLAIMS

Dear David:
When Mr.Gaddy attacks Magnitogorsk Metal Combine as one of the target
Russian producers he'd like to do away with, claiming it is value-destroying,
I wonder if he's been reading his script to the US steel producers. They
are so threatened by Russian hot-rolled coil imports, they filed an 
anti-dumping complaint last week. Now that's a real test for Mr. Gaddy's 
theory to meet the real world of cost and price evidence (Japanese and 
Brazilian imports are also included in the complaint). The attached, running 
in The Journal of Commerce on Monday, suggests the evidence doesn't support 
either the anti-dumping claim, or Mr. Gaddy's theory about Magnitka. 

BY JOHN HELMER
JOURNAL OF COMMERCE, October 5
RUSSIAN STEELMAKERS REJECT DUMPING CLAIMS
Moscow. Russian steelmakers responded to anti-dumping action in the
United States last week by flatly denying that prices of Russian hot-rolled

coil in the U.S. market are below their cost of production. 
An influential Moscow trader, who requested anonymity, said in interview
that the cost of Russian hot-rolled coil "depends very much on whether the 
plant fixes its prices for its raw materials in hard currency or in rubles. I 
would say that the cost of production of hot-rolled coil for Russian 
producers is between $153 and $173 per metric ton. This also depends on the 
internal structure of production, and the way the management operates."
These figures are low enough to refute the complaint by American steelmakers
that current prices for Russian hot-rolled steel at Gulf or Great Lakes
ports are unfair, below what it costs the Russian mills to produce
the steel.
The Russian trader noted there are significant cost differences between
leading producers like Severstal, Novolipetsk Metal Combine (NLMK), and 
Magnitogorsk Metal Combine (MMK). "Severstal has transportation tariffs that 
are lower than NLMK. It gets its pellets from northern ore-producers in 
prices that are fixed in roubles. Even for NLMK and MMK, who have a 
considerable share of prices for their raw materials fixed in hard 
currency, the cost of production firmly stays within the $153-$173 limit." 
A London-based trader of Russian steel told Steelweek, a European
industry publication, the FOB price of Russian hot-rolled coil is $200, 
and the price ex-factory is $162, attributing a freight and loading charge 
of $38. The trader said he believes the cost of production is 14% higher at 
$182, supporting the American charges.
According to Vladimir Kraynov, deputy head of Severstal's export department,
the London estimate "exaggerates the situation. Most of the Russian steel 
makers are more than 50% export-oriented, and have been working on the export 
markets for a long time. The plants just don't have the financial resources to
enable them to have a 10% to 15% difference between the cost of production 
and the price at which most of the metal has been sold over a period of seven 
years."
Andrei Kimryakov, steel trader for Cargill Incorporated in Moscow, said
he has never of Russian plants trading metal at an ex-plant price of $162, 
explaining that the London estimate, and the Americans too, have exaggerated 
Russian freight charges and other factor costs.
Yana Mirontseva, spokesman for NLMK, said that her plant's
declared profits last year are an obvious sign the company does not
trade steel below the cost of production.
"Russian producers can't sell at prices lower than the cost of production,"
she said, "because according to Russian law, this would be treated as
evasion of the profits tax by the authorities. Secondly, in 1997 
NLMK had quite big profits, which is an indirect indicator that steel 
was not exported at dumping prices. Starting from 1997, NLMK has 
implemented a cost reduction program which made it possible to 
cut some costs of some products by as much as 15%."
Igor Kuzmin, commercial director of the Moscow metals consulting group
MAIR, claimed that, if the Department of Commerce investigates, it will
find no evidence of Russian dumping. 

"We know Severstal, for example, didn't have real losses last year,"
Mr.Kuzmin said. "It now exports metal with profit, especially given the
higher 
dollar rate. Given that the prices for cash on the domestic market 
are about the same as export prices, we can say there is no dumping.
MAIR's estimate of the cost of production of Russian hot-rolled
coil is "around $160 per ton for the major plants."
Severstal's Kraynov attacked the U.S. anti-dumping complaint for 
discriminating against Russia. "We are not in Korea, where the state actually 
supports domestic producers. In Russia there is only talk about support. I 
think there is no dumping by the Russian producers. But dumping from 
elsewhere should be looked at, particularly in South East Asia. We know 
pretty well the price of slabs and plate at which the Asian producers buy 
metal here. We also know the prices for hot-rolled coil from these countries. 
Given the fact that the Asian steel-making plants are very young, and their 
production capacities haven't repaid their outlays yet, they really can't 
afford to trade at the prices they are trading at now."

*******

#5
Date: Mon, 5 Oct 1998 
From: "Jerry F. Hough" <jhough@acpub.duke.edu>
Subject: Re: 2410-Albright's Address on Russia

It is encouraging that Secretary of State Albright has signalled 
that we are beginning to understand that democracy means, for better or 
for worse, an economic policy that is different from that which the Chicago
economists want. No one has understood this better in the US than 
President Clinton, and it is a total mystery why the Administration has 
never been guided by this consideration in its Russian policy.
It is discouraging, however, to see the Secretary repeat the old 
cliches about aid to small business, new institutions, etc. We are now 
quite aware of the con game that was played on Western investors by the 
major "reformers". In finishing my book, I have been reading the 
journal of the Ministry of Finance, Finansy, the last week. It made 
absolutely clear what was coming and makes absolutely clear that what the 
top financial officials were telling the West was different from what they
knew. 
But why does anyone think the aid programs were different? I 
saw it work in small-scale grants. The money went to the same Moscow 
strata and their friends. "New institutions" meant ripoffs. I have 
worked for five years with a truly wonderful group of people at Moscow 
University and the Institute of Ethnology, headed by Sergei Tumanov and 
Mikhial Guboglo. They are utterly professional, utterly dedicated, and 
they work with a network of university scholars in each region. Their 
prices are reasonable. We have collected 110,000 questionnaires, and 
they include 60 sociological questions supervised by Susan Lehmann at 
Columbia. It will be the great data set on the period of revolution
for Western and Russian scholars to use for a century. (Susan is going to 
put it on line for scholars to use). Our Russian scholars are told to use
the data, and an enormous amount of publication has come out.
I have tried to get them institutional support in a variety of 

sources--not big money, but in the tens of thousands. We advertised in 
the Green Book asking business to use them for marketing research. It 
has been a total failure. "They are Moscow University, and MGU is 
conservative. We need new institutions." It is total bullshit. 
Every fool knows that, for better or for worse, MGU is going to be the 
premier university in Russia in 2010, 2050, and 2100. If we are going 
to improve university education in Russia, we are going to have to improve 
MGU. Tumanov doesn't speak English, he doesn't know how to game the
granting 
agencies with applications that are as false as anything produced by 
Minfin, he really is interested in helping his regional scholars and 
ensuring they do good work. Those are the signs he is so serious and 
professional. But it is not only, to quote Fedorov, the IMF that 
pretended to see reform and then funded it. The US programs on 
democratization have been been as bad or worse. Colton's and my 
new book, Growing Pains, has many examples of the way the 
support for Russia's Choice was wasted and ripped off.
We need to reread Duverger. Successful parties are almost never 
created by intellectuals. Yabloko is the classic textbook example of a 
party of intellectuals that does not have a clue about how to form 
coalitions and gain mass support. Parties are based on solid
institutions. 
(The references to Duverge are in my concluding chapter of Growing 
Pains.) The literature on democracy talks about pacts among elites. The 
precondition is solid elites in solid institutions. Eastern Europe has 
the Catholic Church, it has parties connected with West European parties, 
etc. Russia has none of that, and we support those who attack any solid 
institution. One hopes that the Secretary of State will modify our 
policy in this realm, as we modify our policy in the economic realm.

********

#6
From: "Nicholas Pilugin" <nwpilugin@glasnet.ru>
Subject: Fw: Story for Sale/Bounty Hunter Wanted
Date: Mon, 5 Oct 1998

David:
Thought you might be interested in this for your list. It is cross-posted
from the Moscow Expat List.
Incidentally, the Moscow Expat List now has some 670 subscribers and
generates anywhere from 30 to 70 postings per day, mostly mundane items
such as how to get a visa, personal items for sale, etc. But occasionally
we get into lofty issues such as the political situation, or the one below.
Commercial advertising is not allowed on the list.
For more information on the Expat List send an email to
nwpilugin@glasnet.ru.

Nicholas W. Pilugin
Expat List Manager 

----------
From: deepthroat@cheerful.com
To: Expat@irex.ru
Subject: Story for Sale/Bounty Hunter Wanted
Date: Sunday, October 04, 1998 9:50 PM

In 1997 I was hired by a Big 5 consulting firm in Moscow to help it
eliminate a potential liability of several 
million dollars in taxes, import duties, penalties and interest for capital
investments it had imported under 
the mandatory re-export regime. Paradoxically, this same high-visibility
organization is also involved in 
advising the Russian government as well as private and public entities

throughout Russia on matters including tax and duties policies.

The resulting, successful, illegal operation was carried out at their
express direction, with their direct 
knowledge, and at their sole expense. As is often the case in such kind of
problem, this client was willing 
to pay quickly and with few questions before the work was completed. But
now that the work is finished, I 
find myself having difficulty collecting my last invoice in an amount in
excess of $30,000.

I am therefore making all details of this transaction available to the
highest bidder exceeding $30,000. 
This information includes original documents, first-hand knowledge,
corroborating witnesses and other direct evidence, such as signed
contracts.

Who could use this information profitably?

A. Bounty-Hunters. The Russian government has had a policy of paying 10% of
the revenues accrued to them from such information, therefore the reward
should exceed $100,000 and may be as much as 3 or 4 hundred thousand
dollars.

B. Competitors. Release of this information, if publicized, will have a
direct effect on said consulting organization's competitive position and
reputation in the international arena. Moreover, the US government may
well be interested in investigation and/or prosecution under the US Foreign
Corrupt Practices Act.

C. News Media. The story is obviously news-worthy information
corroborating what most Russian and 
non-Russian's suspect - that expensive western consulting firms advising
the Russian government have a
two-faced internal policy, i.e., they do not have the discipline or
morality to live inside of the law or the
system which pays their fees. If routine journalism has no money for this
story, perhaps there is a distressed oligarch with media holdings who might
find some financial reward in it.

Interested parties please reply to this email address.

********

#7
Russia's Youth Dance Away Crisis 
By Nick Wadhams
October 5, 1998

MOSCOW (AP) -- At the Propaganda dance club, manager Masha Maslyukova
watched calmly as her harried bouncers held back a line of young people
pushing and shoving to get in. 
It could have been a crowd of depositors frantic to remove their money
from one of the city's failing banks. But the rumbling techno music within
-- not Russia's financial crisis -- was whipping up this crowd. 
``I've got no fear of this club closing,'' Maslyukova said. ``Whatever
happens, we will be the last one in Moscow.'' 
Russia's younger generation seems determined to keep partying in the
face of the country's latest eonomic crisis. The crowds are still turning
up at many of Moscow's popular dance clubs and casinos, though smaller
establishments are seeing a dropoff in attendance. 
Under communism, Western-style clubs did not exist, or were secreted
away from the government's eye and hard to find. Since the 1991 breakup of
the Soviet Union, discos, casinos and restaurants have sprouted throughout
Moscow and in other cities, creating an energetic night life. 
``We come here to unwind,'' 23-year-old Anya Sidnenko shouted over the
sound of blaring music in Propaganda, located in downtown Moscow a five
minute drive from Red Square. ``It's better to go dancing than sit around
moaning.'' 
The Propaganda crowd, young Russians dressed in the latest fashions, did
not seem at all affected by the crisis. They piled into the club's steamy
main hall or sat in booths on balconies overlooking the dance floor,
sipping cocktails and beer. 

Some casinos around the city also said they were still doing reasonably
well, though the crisis is less than two months old and could get worse. 
Still, the first wave of cutbacks has already hit. Some club and casino
owners said they were reducing their menus, laying off staff, cutting wages
and shortening their hours of operation. 
``Of course the crisis is hurting us,'' said Janna Volkova, manager of
the A-Club, a favorite spot for the older-20s crowd. ``Most of our clients
are from the middle class, and they're the ones who are hardest hit.'' 
A more somber feeling was in the air, Volkova said. 
``People are still showing up, they're just drinking more vodka,'' she
said. ``I hope we'll survive, but it's just impossible to predict what will
happen.'' 
Some clubs have begun listing their prices in dollars to guard against
the recent swings in the Russian ruble. 
As Saturday night gave way to Sunday dawn, a group of clubgoers agreed
that popular places like Propaganda, with a low cover charge and a young
crowd would survive, but their numbers would shrink. 
``Things are just super right now,'' gushed 20-year-old Klara Tamnachuk,
as she stood outside a club to escape the heat of the crowded dance floor.
``We're relaxed ... but only while there's money.'' 

********

#8
New York Times
October 5, 1998
[for personal use only]
Disappearing Rubles, Omnipresent Rust Belt
By STEPHEN KOTKIN
Stephen Kotkin is director of Russian studies at Princeton University.

PRINCETON, N.J. -- Yevgeny Primakov, Russia's new Prime Minister, would
seem to have little choice but to pony up back wages owed to millions of
Russian workers, some of whom haven't been paid in more than two years. But
Primakov's solution -- printing a mass of new rubles -- has an air of
unreality about it. 
Money can be printed, but how much of it will reach the unpaid? Rubles
transferred by Moscow to the country's 89 regions continue to disappear
without a trace, as local officials siphon them off for themselves. Russia
has an inordinate number of state functionaries but no functioning state.
This paralyzing circumstance constitutes the essence of the political crisis. 
No less confounding is the economic crisis, which derives from
Communism's most enduring legacy, the world's largest-ever Rust Belt. Heavy
industry and mining, spread out in hundreds of factory towns, still employ
a majority of the population. 
Russia more than any other former Communist economy needed not just a
decisive break from full state ownership and management, but a strategy for
dealing with its Rust Belt -- a transition that capitalist economies, with
far less heavy industry, made with great pain several decades ago. Yet
accelerated mass privatization and an effort to encourage investment by
taming inflation and making it easy to convert rubles to other currencies
did not bring about significant industrial restructuring. 
Vastly more money than the International Monetary Fund lent to the
Russian Government was shifted abroad (where it remains). Most of the
capital that circulated within Russia, including that of foreigners, went
not into productive investment -- even the money-generating oil and gas
sectors have been allowed to deteriorate -- but into short-term treasury
notes that paid substantial interest. While the ruble became exchangeable
and stable, raw materials were exported, and finished goods and foods were
imported. The Rust Belt rusted. 
Instead of finger pointing, Russia needs industrial triage. The model
for addressing Russia's predicament is neither the post-industrial United
States of the 1990's nor the centrally planned Soviet Union of the 1980's.
Rather, it is postwar France and Germany, where unavoidably activist
governments directed reconstruction of war-ravaged market economies. 

Almost everyone in Russia, even most Gorbachev-era retreads,
understands that a return to central planning is not feasible and that
Russia needs a vibrant private sector. But almost everyone also recognizes
the need for an interventionist state to choose among industrial sectors
and individual factories, to help salvage some and bankrupt the others. In
some ways, it would be less daunting if the thousands of obsolete factories
were literally bombed out. 
Less well understood in Moscow, unfortunately, is that a state-sponsored
industrial triage must be accompanied by the introduction of private
property in land and housing. Currently, relocation from one city to the
next is nearly impossible because most apartments are still owned by
factories and institutions. Without a private housing market there can be
no labor market. Such measures have been blocked by the Duma, but they have
much more of a chance to pass if included with a concrete program to
rebuild industry selectively. The population would be willing to undergo
further sacrifices for clear aims. 
The lack of capital is a huge stumbling block. The valuable oil and gas
industries were sold on the cheap to insiders, who have taken much of their
revenue abroad, while reformers deliberately undermined many of the
country's world-class military industries. With no hope for a Marshall
Plan, the Russians have to create their own investment funds, by conducting
privatizations more effectively, controlling revenue from the export of
natural resources more tightly, renewing sales of military equipment and
attracting private foreign capital. 
Easier said than done. The Primakov Government is not yet a government
and is overwhelmed with crises of the moment, like how to pay salaries and
rescue bank deposits, and what to do about obligations to big creditors.
But even if such short-term financial crises could be overcome, the
Government's ability to put a long-term strategy into effect is in doubt. 
Russian officials have admitted that none of the vast sums sent to
rebuild Chechnya reached their intended destination -- no surprise, given
the existence of an unaccountable regime in the Caucasus. Money sent during
the summer to the Siberian region of Kemerovo to pay the back wages of
agitating miners ended up enriching the 15 local criminal organizations.
Large swaths of the country are de facto controlled by gangsters. 
Yet who needs gangsters when you have elected politicians? Provincial
officials form private businesses to which they award the most lucrative
Government contracts and then have those businesses charge greatly inflated
prices. Others simply instruct bookkeepers to invent fictitious contracts
and transfer money directly to personal bank accounts. 
By whatever method local officials appropriate public money, they make
sure to blame George Soros, the I.M.F., the C.I.A. and Moscow for unpaid
wages and budget shortfalls. 
Federal prosecutors have made numerous arrests, accompanied by extensive
media coverage. But the ranks of the national bureaucracy are no more
scrupulous than those of the localities while the country's most successful
protection racket is run right under the Kremlin's nose by the Moscow city
government. The old disciplinary mechanisms of the hierarchical party-state
were never fully effective, but their replacement by the ballot box has
given officials a freer hand. Russia labors under the platitude that honest
and efficient regulatory bureaucracies are the sine qua non of civil
society and the market. 
Even relatively less venal local officials do not take much heed of the
central Government. More and more, governors and presidents of the ethnic
republics rule as they see fit, flouting federal law. Until the rulers of
Russia's 89 regions are given or are forced to take a stake in the federal
center, "anti-crisis" programs announced in Moscow will remain
inconsequential. Primakov is a captive not of the Communists in the
Parliament but of the Rust Belt and the regions. 


******

#9
Boston Globe
October 5, 1998
[for personal use only]
Russia's middle class falls with ruble 
By David Filipov

MOSCOW - Amid the carnage caused by Russia's economic collapse - the
billion-dollar losses incurred by foreign investors, the worldwide shock
waves and the deepening domestic turmoil - lies a less obvious, but no less
significant, casualty: Moscow's middle-class dream. 
Tens of thousands of urban, upwardly mobile Muscovites suddenly have
found themselves out of work, and more are set to follow. That is far more
important to the mood of the country than the foreign adventurers who have
lost their well-paid jobs and the high-flying oligarchs who have watched
their financial empires crumble. 
The people who not long ago provided a ray of optimism in this
long-suffering country have suddenly fallen under a deep spell of gloom. 
``I felt so confident; I knew would happen tomorrow; I could make plans.
... I could afford more and more,'' said Natalya, 25, an executive at a
public relations company that was booming weeks ago but now is about to go
bust. ``I got so used to it that I still cannot accept that this is no
longer the case.'' 
Even before the crisis, Russia did not have a middle class in the
American sense of a stable, prosperous majority. Crime, corruption,
political squabbling and bureaucratic inertia have sapped efforts to reform
Russia's economy and have left much of the country no better off than they
were under communism. 
But what Russia did have, especially in Moscow's booming economy, was a
gradually growing class of young professionals who subscribed to many of
the values of the middle class in Western countries. 
These Russians found work at private companies that were prohibited in
the communist system, but which flourished after the Soviet collapse in
1991. They earned salaries that allowed them to spend their money in ways
that were unavailable to all but a few elites under communism. 
Unlike generations of Muscovites before them, but like their
counterparts elsewhere, these Russian yuppies had hard evidence that with
professionalism, hard work and dedication anyone could write their own
ticket to a better life. 
They dreamed of a Russia one day integrated with the league of stable,
prosperous democracies, and they saw themselves as a big part of that
future. Many Western policy makers and commentators bought into that dream,
predicting the inevitable expansion of Moscow's middle-class values to the
rest of the country. 
But the dream vanished on Aug. 17, the day the Russian government,
facing bankruptcy, devalued the ruble and defaulted on its foreign and
domestic debts. The ensuing panic froze the country's biggest banks,
instantly wiping out the savings of millions of people, halting business
across nine time zones and bringing in a government that is toying with the
idea of bringing back the state-controlled economy of the past. Moscow's
optimistic young generation of professionals was left its first taste of
failure and an uncertain future. 
"It's a very important psychological defeat. We thought we were the
masters of our own destiny,'' said Lena Porman, 28, whose job as an
importer of fine French wines dried up overnight as the plunging ruble made
imports too expensive. ``We thought everything we dreamed of was just
around the corner. Now it's hard to say what will happen.''
Porman had a plan that was based on the idea that people would always
pay good money for someone who could tell a $2,000 bottle of Chateau Mouton
Rothschild 1961 from an ordinary Bordeaux. She saved and invested wisely,
or so she thought, until her earnings disappeared on Aug. 17. She thought
she would soon be able to afford a new apartment, and someday start a
business of her own. And Porman, like a dozen other young Muscovites
interviewed for this story, firmly believed that Russia had a stable and
irreversible market economy. 

They thought so because Moscow's economy boomed despite the street
fighting in 1993 and the war in Chechnya, despite the wage and pension
arrears suffered in most regions outside the capital since 1995, and
despite the recent political instability caused by President Boris N.
Yeltsin's shaky health. 
``We are used to having a sick czar, to hearing gunfire, but this is
totally new,'' said Sergei Lysakov, 24, the deputy editor of Russian
Financial News, an agency that supplied business news to financial
companies working in Moscow. Right now, most of those companies have shut
down, and Russian Financial News is likely to follow them. Lysakov was
making $1,500 a month, over five times the official average Russian wage.
He just bought a new apartment, which he has spent most of his money on
furnishing. Now, he faces unemployment, or, if he can latch onto a job, a
huge pay cut. 
This comes as a shock to people whose lives have only improved over the
past few years: people like Stas Ivashkevich, 27, who steadily worked his
way up from the housekeeping department at a Moscow hotel in 1993 to
assistant manager at a new Holiday Inn that was supposed to open outside
the capital this year. Now the project has been put on hold, and
Ivashkevich's job is in doubt. 
``We are used to living freely and having money, we are used to the idea
we can go to the store and buy jeans,'' Ivashkevich said. ``It's hard to
imagine standing in line for toilet paper.''
There are no toilet paper shortages in Moscow yet. But other certainties
he has grown accustomed to have disappeared in the crisis, such as a steady
paycheck. Ivashkevich's employers are paying him only a portion of his
salary. Most companies that have survived have begun cutting staff and
slashing salaries and benefits - a practice no American middle-class
workers would stand for. 
But few Muscovites who have jobs dare challenge their employers. One
reason is that most professionals are paid a portion of their salary under
the counter, as part of employer schemes to avoid payroll and income taxes.
Another reason employees keep their grievances to themselves is the
uncertain job environment. 
An estimated 200,000 professionals have been laid off in Moscow, and
indications are that more layoffs will follow. At a recent job fair in the
capital, securities analysts and auditors who had been pulling down
salaries in the mid-five figures lined up for work in factories, the city
bus system or in other state-owned entities that offered wages of about
$100 a month. 
Anyone who has a job spends his time worrying how long he will keep it. 
``It's the waiting that gets to you,'' said Oksana Pevnaya, 21, an
accountant with the struggling Russian oil major, Yukos, who was recently
laid off. ``After a while, you don't work. The last month, everyone was
waiting for the bad news, drinking a lot of coffee and thinking about being
unemployed.''
Pevnaya got the ax on Aug. 27, 10 days after the crisis began, when her
whole department was called to a meeting where their boss gave them the news. 
In a way, she was lucky. Some of the firings over the past few weeks
have been much messier. One brokerage announced firings by reading the
unlucky employees' names over an intercom. At another firm, workers checked
their voice mail to find a message notifying them that they were
unemployed. The news magazine Itogi reported that often, workers have shown
up at their jobs to find their offices sealed shut. 

Merciful as it was, Pevnaya's firing put a damper on her plans for this
fall to get married to Maxim Nechayev, 21, a sales manager at the Moscow
office of German consumer goods giant Bosch/Siemens. So far, Nechayev still
has his job - Russians have rushed to buy consumer goods as their faith in
the ruble evaporates. But his plans to seek a career in a multinational
auditing firm are on hold. So is that big honeymoon, and the apartment the
two hoped to buy; instead they will squeeze into her parents' apartment.
And the big victim is the young couple's belief in the stability of their
young lives. 
``It turned out to be an illusion,'' Nechayev said. ``You can't trust
the government, you can't trust the banks. Nothing will ever be the same.''

*******

#10
Washington Times
October 5, 1998
Moscow's woes cripple Caspian Sea's oil potential
[for personal use only]
By Andrew Borowiec

NICOSIA, Cyprus 
Russia's economic turmoil is reported to be shattering energy projects
that had been expected to turn the Caspian Sea area into a major source of
oil and gas supplies.
One by one, Western companies, which had pledged to invest billions of
dollars in pipeline and other development schemes, are either withdrawing
them or putting them on hold, according to Middle Eastern petroleum experts.
Russian companies, including the giant Gazprom, are reported to have
withdrawn their participation in such projects as a pipeline across
Afghanistan, another under the Black Sea to Turkey, as well as in the
development of Iran's huge South Pars gas field.
"The projects are collapsing like a house of cards," one expert here
said of the plans that previously had galvanized the petroleum industry.
"Until recently, Russia was able to play political games to control the
region's energy exports. Now it must struggle just to survive."
Oil production at the Karachaganak oil and gas field in northwestern
Kazakhstan has been cut by about two-thirds because of the Russian
financial crisis, Larry Anderson, a vice president of the U.S. oil giant
Texaco, said yesterday in Almaty, the Kazakh capital, according to Agence
France-Presse.
"On a barrel-per-day basis, we were producing upwards of 60,000
barrels a day and we're down to less than 20,000 now, and we're going to
stay that way for quite a while," said Mr. Andersen, who attended the
opening of Texaco's first gas station in Almaty.
The field, which exports its oil to Orenburg, Russia, was expected to
produce three to four million tons of oil annually before the production
cutbacks occurred two weeks ago, he said.
"We can't continue to sell products into Russia and not get paid," he
said.
According to Middle Eastern oil experts, the current threat to energy
projects affecting Central Asia has been caused by a combination of
factors, including Russia's economic woes, the insecurity of the former
Soviet republics in the Caspian Sea area and the glut of oil on world markets.
The key question, according to an industry analysis available here, is
"why increase oil supplies at a time when many countries are scaling back
production to keep the prices steady?"
As far as Arab oil exporters are concerned, the developments in
Russia, inevitably affecting the projects in the Caspian Sea area, are good
news. They appear to be confirming the Middle East as the main supplier of
oil and related products to Japan and Western Europe.

Six months ago, in the face of the insecurity of the Middle East, a
number of West European countries were looking toward the Caspian basin as
a possible replacement for Arab crude. Russia's economic problems, combined
with the difficulties of shipping the area's oil westward, are now putting
a huge question mark over a number of projects.
The area affected includes Azerbaijan, Kazakhstan, Turkmenistan and
Uzbekistan, which among them have proven oil reserves of 68 billion
barrels. This estimate was recently increased by the State Department to
200 billion barrels.
The major problem before the dramatic collapse of Russia's economic
structure was how to get that oil westward through areas plagued by border
disputes and ethnic conflicts.
According to experts, the existing pipelines are in poor condition,
have low capacity and are controlled by Russia, which is seeking a maximum
profit. Although building new pipelines was considered to be too risky and
costly, a number of Western companies have invested as much as $20 billion
in various feasibility studies.
Russia's political instability is an enormous factor, experts say,
pointing out that energy's share in Russian export earnings is expected to
drop to 38 percent -- compared with 70 percent at the time of the Soviet
Union's collapse.

********

#11
Russia: German Banker Says Be Pragmatic 
By Robert Lyle

Washington, 5 October 1998 (RFE/RL) -- The chairman of Dresdner Bank,
German's second largest commercial bank, says its time to stop being
excessively dogmatic about how Russia deals with its financial crisis.
Bernard Walter says the west prefers that Moscow use market-oriented
solutions to try to work its way out of its financial collapse, but that it
is more important "not to isolate Russia now with excessive insistence on
dogmatic purity."
Speaking with a group of international financial journalists in
Washington Sunday, Walter said that while the economic repercussions for
the West -- and especially Russia's Western European neighbors -- are
unfortunate, the greater concern has to be for the social and political
stability of Russia. 
"We need to be pragmatic," said Walter. If Moscow feels compelled to
employ some money printing, some price controls, and some currency
management for a short time, it just might give the country some breathing
room to tackle the more basic structural reforms that must be dealt with
for the long term.
Russian officials have denied they intend to impose draconian
restrictions on foreign currencies, but have hinted at printing more rubles
to cover wage and other arrears and creating new government credits to
cover budget short-falls.
The International Monetary Fund (IMF) and the G-7 group of major
industrial nations have strongly warned Moscow against using any of these
measures. The G-7 finance ministers and central bank governors, after
meeting with senior Russian financial officials on Saturday in Washington,
said that to print more money or create new credits would only reignite
inflation, cut desperately needed tax collections, and overall make the
crisis deeper, not better.
The Dresdner chairman doesn't disagree, but says so long as the steps
are short term, it might be better to compromise.

German banks are generally believed to have the heaviest exposure to
Russian debt, which has been subject to a moratorium and forced
rescheduling. Dresdner says it has $7.8 billion of that exposure. However,
says Walter, a large chunk of what Dresdner holds is former Soviet debt,
major parts of which are covered by insurance. Much of the newer Russian
debt is covered by oil and gas deliveries to the European Union.
Walter did not reject another rescheduling of Russia's debt, so long as
it is done in honest negotiation with commercial lenders in the so-called
London Club and with official lenders in the Paris Club. Second or third
reschedulings are not all that unusual, he said, adding only that Russia
must "do its homework first" before coming to the negotiating table. 
As to Russia's searching for another large financial assistance package,
however, Walter agrees completely with IMF and G-7 officials who say no new
money until an agreed reform plan is firmly in place.
Under present circumstances, the Dresdner chairman says, it would be
very difficult to establish conditions acceptable to both lenders and
borrower. Besides, he says, Russia now has ten times more U.S. dollars in
circulation than rubles and that won't change until "people will be willing
to take their dollars out of their pillows or safes and take them to the
bank again." Only when confidence in the ruble is restored among the people
will the ruble again be able to play a role in Russia, he said. "Right now
it doesn't," he says.
According to Russian Central Bank figures, there is at least $150
billion in U.S. currency circulating in Russia. 

********