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6 October 1998
[Note from David Johnson:
1. Moscow Times: Katy Daigle, Maslyukov Moderate On T-Bills and
2. RFE/RL: Floriana Fossato, Vladivostok Politicians Fight Amidst
3. Reuters: Russia Wants IMF Cash, Faces Oct 7 Protests.
4. Los Angeles Times: Richard Paddock, Nuclear Fears Resurface After
Seizure of Russia Sub. Security: Recent takeover by sailor alarms scientists
worried about nation's ability to safeguard arms, plants.
5. AP: Russia Mail Derailed; P.O. in Debt.
6. Boston Globe: Jean Mackenzie, Rally in Moscow recalls '93 clash of tanks
and communist rebels.
7. Janine Wedel: U.S. AID TO RUSSIA: WHERE IT ALL WENT WRONG. (Testimony
before the House Committee on International Relations).
8. Moscow Times: Chloe Arnold, Food Threatens to Eat Up Every Kopek.]
October 6, 1998
Maslyukov Moderate On T-Bills and Ruble
By Katy Daigle
In his first major interview since his appointment as first deputy prime
minister in charge of the economy, Yury Maslyukov said Monday that there would
be no departure from setting the ruble rate on the basis of market trading and
called for fairer terms of restructuring Russia's defaulted domestic debt.
Speaking on NTV's "Night Talk" program, Maslyukov distanced himself from a
harsh communist economic plan attributed to him by the Kommersant Daily
newspaper last week. He said he was dead set against banning dollar
circulation in Russia as well as against the nationalization of banks. He even
won some measured praise for his views from Western analysts.
But he also spoke of what he sees as a major deficit of money in the Russian
economy and called for Russia to produce more nuclear missiles.
Maslyukov is a former head of the Soviet super ministry Gosplan. So when
Kommersant Daily published what it said was Maslyukov's program, few people
doubted that the nationalization, price control and arbitrary exchange rate-
setting proposals came from him.
Maslyukov vehemently denied ever having proposed a ban on dollar circulation,
at the same time defending the view that the Russian economy needs more
"Only an idiot can suggest such an idea," the first deputy prime minister
said. "When money supply amounts to about 20 percent to 30 percent of what is
needed þ only such a person can come up with the idea of banning a currency
that helps fill the gap."
Maslyukov also stressed that the official ruble rate should be set on the
basis of trading results on the Moscow Interbank Currency Exchange, and not
invented by the government and the Central Bank.
If the holders of Russia's defaulted treasury bills were dismayed when reading
in Kommersant that Maslyukov wanted virtually no change to the Aug. 25
draconian T-bill restructuring terms, they could take heart in Maslyukov's
The Aug. 25 plan calls for swapping all of the defaulted debt for long-term
ruble and dollar bonds. Instead, Maslyukov proposed that 80 percent of the
debt should be restructured, and 20 percent paid off in hard currency to both
residents and nonresidents.
The Kommersant plan suggested nationalizing some of the nation's struggling
banks. Maslyukov said Monday that the banking sector needed at least 60
billion rubles ($3.8 billion at Tuesday's official rate) to keep it
functioning normally, but that the government was not considering a general
plan to renationalize banks.
The first deputy prime minister's performance led some economists to rethink
the criticism they voiced on reading the Kommersant plan.
"I can see that Yury Maslyukov is a clever enough man who can understand the
implications of these measures on the marketplace," said Peter Westin, an
economist with the Russian European Center for Economic Policy.
But analysts were not overly optimistic about Maslyukov's economic priorities
as outlined in the interview. Those priorities were paying wage debts,
controlling prices and lowering customs duties on basic staples, and
protecting industry through trade controls. Maslyukov also said Russia needed
to produce 35 to 40 Topol-M nuclear missiles every year in order to avoid
falling too far behind the United States in terms of military security.
Reinstating exchange and import controls is a necessary evil inevitable in
stopping the drain on the country's financial resources, said Russia analyst
Alex Kennaway of Britain's Conflict Studies Research Center. But, Kennaway
added, Maslyukov's significant oversight is that he has yet to address budget
"There must be a halt to all expenditure on projects that cannot be afforded,
some of which have the single aim of promoting an image of a great power,"
Kennaway said, referring to Russia's spending on defense and the space
Russia: Vladivostok Politicians Fight Amidst Economic Crisis
By Floriana Fossato
Vladivostok/Moscow, 5 October 1998 (RFE/RL) -- The political battle is
fiercer than ever in the Russian Far East port city of Vladivostok, at a
very wrong moment.
The election of the mayor of Vladivostok degenerated into confusion on
Sunday (Sept. 27) after the local electoral commission, in a last-minute
decision, said the name of controversial Mayor Viktor Cherepkov should be
deleted from the ballot. The decision followed a rule that last week
disqualified Cherepkov for allegedly using city money to support his
The debate around the mayor is an important one in Vladivostok, a city
port of 800,000, eight time zones east of Moscow. He is both loved and
hated by the majority of the citizens, for his eccentric style and his feud
with regional governor Yevgeny Nazdratenko. That feud has caused much
hardship for citizens.
For example, in a city where since this summer ambulances have been on
strike to protest 19 months of unpaid wages, the regional and municipal
administration have been unable to decide who should support the service
financially. Cherepkov told RFE/RL correspondent in a recent interview that
"ambulance-service employees are not the city's responsibility." He added
that he "could create an alternative ambulance service in five minutes" but
"would not do so, because the governor would immediately come up with
another source of conflict."
Frustrated locals say that over the last few years it has become
increasingly "difficult even to survive" in Vladivostok, despite the
possibilities that the proximity to Asian markets could have provided.
The city suffered for years of severe shortages in energy and water
supplies. Many neighborhoods in the hilly city experience protracted water
and energy cuts and even in the city's main hotels hot water is available
for just a couple of hours a day.
Aleksandr Ghelbakh, press secretary of the local energy company
"Dalenergo," that is at the heart of the energy crisis, told RFE/RL that
"this is a non-payment crisis, not an energy crisis."
Cherepkov and Nazdratenko have often traded accusations of corruption
and mismanagement. Despite recognizing the drawbacks of the situation, many
citizens told our correspondent prior to the vote that they would likely
support Cherepkov, because, according to general wisdom, "despite his
devotion to astrology and eccentric practices, if he wants, he can get
things done. For instance, he built very quickly much needed new roads."
Cherepkov and his aides have denied critics' claims that the roads, as
other projects were part of a plan to attract citizens' support. The
English-language newspaper "Vladivostok News," has reported that city hall
had paid for a discotheque four days a week for much of the summer, at a
cost of more than $900 per night. DJs reportedly frequently reminded the
crowds that the mayor was sponsoring the event, but the mayor's office has
said the main goal of the organizers was to "give young people something to
In the mayoral election, some 40 percent of the voters showed up at
polling stations, validating the vote, said Ilya Grichenko, the chairman of
the local electoral commission. However, preliminary results issued by the
commission indicated that more then half of the voters who cast ballots
voted against all candidates. Russian media said officials at some polling
stations had complied with the order to cross out Cherepkov's name, while
others simply refused to do so.
The chairman of the regional Duma, Sergei Dudnik, called the
commission's decision a mistake, because, according to Russian law, a legal
decision on Cherepkov's alleged irregularities had yet to be made. He said
the electoral commission could be replaced and new elections could be
called in the next months.
Dudnik and President Boris Yeltsin's representative in the region,
Viktor Kondratov, had appealed to Yeltsin to leave Cherepkov on the ballot,
warning of possible unrest. Kondratov has said tensions were building in
the region "because of unlawful acts... against the background of
deteriorating economic problems." According to Kondratov, who is not seen
as harboring sympathy for Nazdratenko, the situation is being deliberately
exacerbated so that "the whole indignant population of Primorje region will
take to the streets on the day of the All-Russian protest action, scheduled
for October 7.
Vitaly Kirsanov, head of the Far Eastern Branch of the State Customs
Committee, says the import of goods to the Primorje region has declined by
half since the ruble crisis started hitting Russia. In comments reported in
the "Vladivostok news," he said importers prefer to re-export their goods,
rather then unload their ships. Kirsanov added that traders are reluctant
to ship and deliver goods, preferring to wait for ruble stabilization.
Vladimir Stegni, head of the regional department of International
Economic Relations and Tourism, in an interview with RFE/RL, predicted that
the devaluation of the ruble would heavily hit Primorje, as the region
imports 80 percent of its goods, including foodstuffs, from China, South
Korea, and Japan.
The business of shuttle traders, among the most active travelers
particularly toward China's cheap markets, is rapidly decreasing. Many
traders, who were previously providing markets across the region with
affordable goods, have been working at a loss since the crisis and many,
particularly Chinese, are interrupting activities.
Russia Wants IMF Cash, Faces Oct 7 Protests
October 5, 1998
By Martin Nesirky
MOSCOW (Reuters) - Russia's economic supremo said Monday the International
Monetary Fund shared the blame for a major financial crisis in the world's
second nuclear power and demanded the IMF help solve the problem.
While Yuri Maslyukov took aim at creditors, the interior minister warned
would-be troublemakers not to spark violence at planned protests against
President Boris Yeltsin by thousands, perhaps millions, of people across
``We should not let anyone use permits for the actions for mass disorder
and pogroms,'' Interfax news agency quoted Interior Minister Sergei
Stepashin as saying.
Battling to cobble together a coherent economic plan in a disparate
cabinet and facing his toughest test yet on the streets, Prime Minister
Yevgeny Primakov is confronting the additional pressure of a growing crisis
in breakaway Chechnya.
His government is also trying to persuade Belgrade to back off in Kosovo
province to avoid NATO military action which opposition Communist Party
leader Gennady Zyuganov said could start a ``widescale war in Europe.''
Interfax news agency said Yeltsin had discussed the crisis by telephone
with German Chancellor-elect Gerhard Schroeder and told him he had helped
persuade Yugoslavia to accept a mission from the Organization for Security
and Cooperation in Europe.
Yugoslavia said earlier Monday it would let the OSCE go to Kosovo to
witness the withdrawal of troops and police.
Maslyukov, a Communist first deputy to Primakov, told NTV television Russia
simply did not have the resources to tackle a crisis which in which the
rouble has lost nearly two-thirds of its value against the dollar in less
than two months.
``We did not just fall into this pit by ourselves -- it was also thanks
to our 'skilful' partners in the International Monetary Fund,'' Maslyukov,
who is in overall charge of economic policy in the new government, said in
a television interview.
``Our country is not in a position to take care of this big debt.
Therefore there is only one way out -- we must be understood, and we need
help. We demand that help.''
Maslyukov's strident tone seems unlikely to impress the IMF.
The Fund's main policy-making panel said in Washington Sunday the
international community would back ``convincing and effective'' measures on
Russian reform, but gave no date when loan payments could resume.
The IMF's Interim Committee said Russia needed to take urgent measures
to stabilize the rouble, restore the payments system and rebuild shattered
ties with disgruntled creditors and disillusioned investors.
Britain's Inchcape Plc trading group said in London it had agreed to
sell its Russian soft drinks bottling business to Coca-Cola Co for $87
million, dropping the price by $100 million because of the state of the
On a more positive note for foreign investors, Standard and Poor's said
the potential damage to West European banks from exposure to Russia was
manageable because they were large, diversified banking groups.
Maslyukov's economic proposals have raised the specter of a partial
return to a Soviet-style system, although ministers have told the IMF there
will be no retreat to a planned economy.
In Moscow, Stepashin said organizers of Wednesday's planned protests
against the crisis had appealed for order but he did not rule unsanctioned
attempts to destabilize events.
Stepashin estimated several million people would take part in the
organized protests, called to demand Yeltsin's resignation and an
improvement in living conditions.
Fears of an outbreak of violence have been tempered by the knowledge
many Russians take a fatalistic view of the crisis and are too busy making
ends meet or looking for work.
Primakov, a former foreign minister, has said social welfare is one of
his priorities but has also warned Russians not to engage in illegal
actions at the demonstrations.
The prime minister faced an additional challenge on Russia's southern
flank. Interfax quoted Stepashin as saying Primakov would hold talks
Saturday with Chechen President Aslan Maskhadov, who is under pressure from
hardliners to quit.
It was not clear where the two men would meet. A fresh hostage crisis
erupted at the weekend when gunmen kidnapped three Britons and a New
Los Angeles Times
October 5, 1998
[for personal use only]
Nuclear Fears Resurface After Seizure of Russia Sub
Security: Recent takeover by sailor alarms scientists worried about
nation's ability to safeguard arms, plants.
By RICHARD C. PADDOCK, Times Staff Writer
MOSCOW--It was the middle of the night when Alexander Kuzminykh, a
19-year-old sailor, attacked a sentry aboard the nuclear submarine Vepr and
killed him with a chisel. Grabbing the guard's AK-47 assault rifle, the
sailor then killed seven other crew members and locked himself in a torpedo
For 20 hours, the disturbed teenager held control of the submarine at
a naval base near Murmansk last month. He repeatedly threatened to set the
warship on fire and blow it up, creating the potential for what one
scientist called a "floating Chernobyl."
In the end, Kuzminykh ignored the appeals of his mother and killed
himself. But his act of desperation sent a shiver of fear through
scientists and antinuclear activists already worried about Russia's
deteriorating ability, at a time of economic upheaval, to maintain a
sufficient level of security at hundreds of nuclear facilities, both
military and civilian.
With the breakup of the Soviet Union seven years ago, Russia inherited
a vast nuclear empire. Today, its nuclear inventory includes an estimated
10,240 warheads, more than 500 vessels, 29 power plants and hundreds of
storage sites for fissile material. Many are in remote and potentially
vulnerable areas spread across Russia's 11 time zones.
Embarrassed Russian officials were quick to discount the nuclear
danger of last month's incident: "The submarine and the people [in the
vicinity] were absolutely safe," declared Sergei A. Anufriyev, chief
spokesman for the Russian navy's Northern Fleet.
But with the reduced manpower and deterioration of its underfunded
military, Russia is relying increasingly on its nuclear weapons as a
deterrent to war. This summer, President Boris N. Yeltsin cited the
importance of the nation's nuclear capability and defended the readiness of
its nuclear corps.
"Nuclear forces are some of the most important factors ensuring the
security of our country," the president said in televised remarks. "The
fact that reports appear here and there in the media that we have got
weaker on the nuclear front--first of all, they are seriously mistaken, and
second, they do not help the state."
U.S. Attempts to Help Russia Boost Security
In 1992, the U.S. Senate ratified the START I treaty with Russia,
which calls for reducing the number of U.S. and Russian nuclear warheads to
6,000 for each nation by 2001. Since 1992, the United States has spent more
than $1.6 billion to help Russia upgrade its nuclear facilities in hopes of
preventing a catastrophic accident or seizure of nuclear materials by
Efforts to reduce the nuclear threat got a modest boost last month
when U.S. Energy Secretary Bill Richardson and Russian Atomic Energy
Minister Yevgeny O. Adamov signed two agreements designed to keep Russia's
financial plight from driving its nuclear scientists and plutonium
stockpiles into the arms of the highest bidder.
Under one pact, the United States will provide $30 million to create
jobs in the private sector for Russian nuclear scientists in 10
high-security cities previously closed to the outside world. The second
agreement clears the way for each country to dispose of 55 tons of
plutonium once intended for making weapons, by breaking it down for use as
"I cannot emphasize enough how important it is to us all that economic
hardship not drive Russian nuclear weapons scientists into employment in
places like Iran and North Korea," Richardson said.
Clinton administration officials generally play down the short-term
threat posed by the possibility of Russian nuclear arms falling into the
wrong hands. And they have discounted reports that arms might soon explode
because of poor maintenance.
But the larger process of reducing Russia's stockpile of nuclear
weapons has stalled with the unwillingness of the Russian parliament to
ratify START II, which would restrict the number of nuclear warheads to as
few as 3,000 for each nation.
Attempting to reassure the West and pave the way for more borrowing,
new Prime Minister Yevgeny M. Primakov said on the day of his
confirmation--Sept. 11, the same day young Kuzminykh seized the Vepr--that
approval of START II would be one of his top priorities.
However, the Russian government is in such a state of paralysis that
it cannot afford to pay the salaries of a vast number of people--including
soldiers, officers, technicians and scientists--working with nuclear weapons.
"People who have nuclear warheads in their hands have not gotten their
salaries for three or four months and are literally hungry," said Vladimir
Orlov, director of the Center for Policy Studies in Moscow. At some
military facilities, he said, officers have used their wives' salaries to
buy safety clothing so they would be in compliance with the regulations for
handling the weapons.
The government's failure to pay salaries has sparked a number of
protests, including a strike by 3,500 scientists this summer at Arzamas-16,
one of the biggest and most important of Russia's nuclear cities.
Meanwhile, the quality of recruits has dropped precipitously for elite
forces such as the submarine fleet, which during Soviet times was renowned
for its high discipline and morale.
Kuzminykh, officials said, is an example of the kind of sailor who
would never have made it into the nuclear fleet of old. They described him
as a misfit and a loner who was obsessed with violence, and they questioned
how he managed to get past the fleet's psychological screening.
Anufriyev, the Northern Fleet spokesman, called Kuzminykh a "latent
"He would derive special inexplicable pleasure from reading crime
fiction books or watching movies that contained scenes of violence,"
Anufriyev said. "He liked being alone. He did not have any friends."
Alexander Nikitin, a former Russian navy captain, said the declining
quality of military personnel creates a growing danger of nuclear disaster
"It is really scary that one day the use of nuclear arms may depend on
the sentiments of someone who is feeling blue, who has gotten out of bed on
the wrong side and does not feel like living," he said. "The probability of
this today is higher than ever before."
3,500 Scientists Strike Over Unpaid Wages
The outspoken Nikitin, who once specialized in inspecting nuclear
submarines, was charged with treason after he wrote a report for the
Bellona Foundation, a Norwegian environmental group, on radiation
contamination by the nuclear fleet in the Murmansk area, above the Arctic
Circle. His trial is scheduled for Oct. 20 in St. Petersburg.
Nikitin said that if Kuzminykh had set a fire on board the Vepr--which
means Wild Boar--it could have caused an explosion of torpedoes and a
meltdown of the nuclear reactor. The reactor would not have exploded, he
said, but a large amount of radiation could have escaped.
"It would have been exactly what happened in Chernobyl, but on a
smaller scale," he said, referring to the 1986 meltdown of a nuclear
reactor in Ukraine.
There are 400 active and decommissioned submarines at the Murmansk
base. Alexei V. Yablokov, a former environmental advisor to Yeltsin,
estimated that a submarine reactor meltdown there could release one-tenth
the amount of radiation of the Chernobyl accident--large enough to affect
Western Europe, depending on the direction of the wind.
"It would be a floating Chernobyl," he said.
Government officials dismissed the nuclear danger, saying a fire
aboard the Vepr would have been extinguished by automatic sprinklers before
any harm could come to the submarine's reactor. They also insisted that
there were no nuclear weapons on board--and even if there were, they said,
the weapons' casings would have protected them from fire or explosion.
"When someone starts talking about a local or even a global disaster, this
makes me laugh," said Anufriyev, the fleet spokesman. "These people must
never have been in a submarine and do not know what they are talking about
But while government spokesmen were anxious to dispel concern about
the possibility of a nuclear disaster after Kuzminykh's seizure of the
submarine, some officials are privately worried.
"When I realized that a maniac armed with an automatic rifle had
seized an atomic submarine, this threw me into a cold sweat," said a
Murmansk agent of the Federal Security Service--the main domestic successor
to the KGB. "No doubt we were dealing with a crazy person, but the last
thing I wanted was to witness a Chernobyl without actually even leaving my
Times staff writer Paul Richter in Washington contributed to this
Russia Mail Derailed; P.O. in Debt
By Vladimir Isachenkov
October 5, 1998
MOSCOW (AP) -- Many of Russia's railways have stopped carrying mail because
the post office isn't paying its bills, stranding hundreds of rail cars
around the country stuffed with letters and packages.
The post office owes the railways about $13 million, said Valery Zudin,
a spokesman for the Railways Ministry. Many of the country's 17 railways
are refusing to carry mail until the post office pays up.
The problem is part of the overall crisis in Russia, where a tangled web
of non-payment of bills and wages has all but paralyzed the economy. The
government is the largest debtor, failing to pay wages and pensions to
millions of Russians or for goods and services.
Russians rely heavily on mail as their main method of communication,
especially in far-flung regions where there are few telephones. Few Russian
TV networks broadcast throughout the country, so people also depend on
newspapers delivered by mail for news.
The Railways Ministry also accuses the post office of carrying
commercial cargo in mail cars, charging customers commercial rates while
paying the railways the special cheap rates set for mail delivery -- then
pocketing the difference.
``We don't believe the post office's claim they lack cash to pay us,''
Zudin said in an interview.
``We wouldn't complain if they only carried mail, but they are involved
in commerce. They carry vodka and cigarettes in mail cars.''
The post office, which is chronically in debt, says it is owed money by
the government and others. It refused to give any figures on its revenue or
Officials at the Railways Ministry were also unable to cite the total
amount of money owed to them, or their debt to the government.
``It's too complicated,'' Zudin said. ``In some cases, our customers,
like the military, fail to pay us for carrying their goods, but we are
still supposed to pay taxes for that income we never got.''
October 5, 1998
[for personal use only]
Rally in Moscow recalls '93 clash of tanks and communist rebels
By Jean Mackenzie, Globe Correspondent,
MOSCOW - A small wooden chapel stands in the park in back of the Russian
White House, seat of the government and, in 1993, home to the parliament.
The chapel was built in memory of those killed five years ago, when
President Boris N. Yeltsin called out tanks against his rebellious
parliament. The clash killed more than 140 and left millions embittered.
``It is called Trinity Chapel, and it was meant as a place of
repentance,'' said Alexander Alekseyev, head of the Russian Spiritual
Center publishing house, who collected funds to build the chapel. ``We
wanted people to forgive each other.''
But little forgiveness was evident around the White House yesterday, the
anniversary of what Russians call ``the October events.'' It was a day of
red flags and fury, with hard-liners like General Albert Makashov, a
Communist member of parliament and one of the leaders of the 1993
opposition to Yeltsin, calling for the overthrow of the present regime.
``We'll make soap out of Yeltsin, and take those reformers down to Red
Square and flog them,'' he thundered, to loud applause.
Five years ago, Yeltsin was perceived as an embattled reformer, with his
Soviet-era parliament the chief stumbling block on the road to democracy.
His attempt to dissolve the legislature led to a bloody confrontation, and
Yeltsin called out the army to rout the lawmakers. Then, it seemed a
necessary evil. Now, with reformers in retreat and democracy in danger, the
sacrifice looks more and more empty, and the opposition is out for revenge.
The demonstrations, which brought up to 6,000 Muscovites to the streets
of the capital, were seen as a dress rehearsal for the All-Russian Day of
Protest, scheduled for Wednesday. The authorities were taking no chances on
the situation getting out of control: More than 1,500 police were on hand
to control the crowd.
Protest is in the air these days in Moscow. An economic crisis has
paralyzed the banking system and the economy. The three-week-old government
of Prime Minister Yevgeny Primakov seems to be making little progress
toward resolving the country's financial problems, and the increasingly
feeble Yeltsin seems to be losing his grip on events.
The West has not jumped to Russia's aid, taking a wait-and-see attitude
before advancing any cash. The situation is considered dangerous, and the
Russian government is poised for an explosion of social tension.
``There will be no explosions,'' Alekseyev said. ``Not today, and not on
Wednesday. The people are too demoralized, and too disorganized.''
Hundreds assembled in the small park near the chapel, which some entered
to light candles for the dead and to pray. Trees were adorned with red and
black ribbons, and portraits of the dead were placed on the ground,
surrounded by flowers.
People clustered in large groups around agitated speakers.
``Russia has been sold for some stinking greenbacks'' hollered one
elderly woman. ``I would shoot anyone with dollars.''
Another crowd was venting its wrath against the United States for NATO's
threatened air strikes against the Serbs in Kosovo. Many Russians feel
kinship with Orthodox Serbia, and see NATO's threats as a blow against
``The US secretary of state has said `we vanquished Communism, now we'll
get rid of Orthodoxy,''' said a middle-aged, blond woman, vigorously
supported by dozens of others. ``But we will not let them. We will destroy
America, in 24 hours!''
Alekseyev watched it all with a gentle smile: ``They are in despair.
They are just trying to survive. One has to learn to forgive them.''
Alekseyev knows something about forgiveness. His efforts to build the
chapel cost him his first child. In 1995, his pregnant wife was severely
beaten by people opposed to the project. Alekseyev believes the attackers
were from another Orthodox group unwilling to share power.
``Orthodoxy itself is divided,'' he said.
But Alekseyev persevered, collecting private contributions and money
from various Orthodox organizations, and the chapel went up in two weeks in
It is a simple structure that could fit no more than a dozen or so
people comfortably. Hanging on the walls are cheap reproductions of icons.
``The shooting of the White House was a tragedy,'' said Alekseyev.
``Tragedy usually unites people, but not here. People are just not ready.''
A policeman approached Alekseyev, the two exchanged the traditional
three kisses, and the policeman walked away.
``He's from the 11th precinct,'' Alekseyev said. ``They protect the
park. That policeman became Orthodox and was baptized in the Trinity
Chapel. So you see, we are changing the world, little by little, right here
in the center of Moscow.''
Complete text available (with footnotes):
U.S. AID TO RUSSIA: WHERE IT ALL WENT WRONG
Testimony before the Committee on International Relation
U.S. House of Representatives
Janine R. Wedel
Associate Research Professor,
Department of Anthropology; and Research Fellow,
Institute for European, Russian, and Eurasian Studies
The George Washington University
2110 G Street, N.W., Washington, D.C. 20052
Phone: 202-994-6346 Fax: 202-994-6097
September 17, 1998
The United States has been asleep at the switch of its aid policies
toward Russia. There have been many signs of trouble, but these have been
ignored by the Clinton administration and largely overlooked by Congress.
Our challenge now is to foster friendship with the Russian people after
having facilitated bad policies and anti-American sentiment and to act
before we are faced with an international crisis.
The United States, over the past seven years, has embarked upon a fairly
consistent course of economic relations with Russia. Three interrelated
policies characterize this course: 1) the provision of billions of dollars
in U.S. and other Western aid, subsidized loans and rescheduled debt; 2)
the urging of radical economic "reforms," including the privatization of
state-owned assets; and 3) the backing of a hand-picked political-economic
group, or "clan," to perform these so-called "reforms." The United States
has consistently supported President Boris Yeltsin and a cadre of
self-styled Russian "reformers" to conduct Western aid-funded reforms and
negotiate economic relations with the West. U.S. support for Anatoly
Chubais, Yegor Gaidar, and the so-called "Chubais Clan" (dominated by a
decade-old clique from St. Petersburg), bolstered the Clan's standing as
Russia's chief brokers with the West and the international financial
institutions. The Chubais Clan -- not the Russian economy as a whole -- was
the chief beneficiary of economic aid from the U.S. Agency for
International Development (USAID).
Throughout the 1990s, Anatoly Chubais was a useful deputy for Russian
president Boris Yeltsin. In November 1991 he headed Russia's new
privatization agency, the State Property Committee (GKI). He then also
became first deputy prime minister in January 1994, and later was a useful
lightning rod for complaints about economic policies after the communists
won the Russian parliament (Duma) election in December 1995. Chubais made a
comeback in 1996 as head of Yeltsin's successful reelection campaign and
was named chief of staff for the president. In March 1997, Western support
and political maneuvering catapulted him to first deputy prime minister and
minister of finance. Although fired by Boris Yeltsin in March 1998, Chubais
was reappointed in June 1998 to be Yeltsin's special envoy in charge of
Russia's relations with international lending institutions.
Working closely with Harvard University's Institute for International
Development (called HIID), the Chubais Clan controlled, directly and
indirectly, millions of dollars in U.S. aid through a variety of
institutions and organizations set up to perform privatization, develop
capital markets, form a Russian securities and exchange commission, and
related activities. Between 1992 and 1997, the Harvard group received $40.4
million from USAID in noncompetitive grants for work in Russia and was
slated to receive another $17.4 million until USAID suspended Harvard's
funding in May 1997, citing evidence that Harvard principals were engaged
in "activities for personal gain." The first highly unusual aspect of these
awards is that Harvard secured most of the money without competitive
bidding. Competition had to be waived at the highest levels of the Clinton
administration. Top officials of five U.S. government agencies, many
connected to Harvard, including the Department of Treasury and the National
Security Council (NSC) -- two of the leading agencies formulating U.S. aid
policy toward Russia (and Ukraine) -- signed waivers. From Treasury, the
Harvard-linked Lawrence Summers and David Lipton backed Harvard projects.
The waivers stated that awards were being given to Harvard for "foreign
policy" considerations -- that is, the national security of the United
Another highly unusual -- and highly damaging -- aspect of the U.S.
arrangement with Harvard is that the United States, under cover of economic
aid, delegated foreign policy in a crucial area, involving complicated and
controversial choices, to Harvard University -- a private entity. In
addition to receiving millions of dollars in direct funding, Harvard and
the Chubais Clan helped steer and coordinate USAID's $300 million economic
reform portfolio, which encompassed privatization, legal reform, capital
markets, and the development of a Russian securities and exchange
commission. In other words, the United States put Harvard in the unique
position of recommending U.S. economic aid policies while being a chief
recipient of the aid as well as overseeing other aid contractors, some of
whom were Harvard's competitors.
Further, economic reform was not necessarily the driving agenda of the
Harvard-Chubais Clan partnership. Members of the Chubais Clan -- the very
group which Deputy Treasury Secretary Summers called a "dream team" -- were
consistently under investigation in Russia, and many reports of personal
enrichment from public and foreign monies have been convincingly
substantiated. The Harvard group appears to have been similarly engaged:
USAID cancelled most of the last $14 million earmarked for Harvard, citing
evidence that the project's two managers had allegedly used their positions
as advisers to profit from investments in the Russian securities markets
and other private enterprises. These men remain under review by USAID's
Inspector General and the U.S. Department of Justice. In 1996 the U.S.
General Accounting Office (GAO) concluded that USAID's management and
oversight of Harvard was "lax." Clearly, the United States failed to
adequately monitor the Harvard group.
Much more important, the U.S. strategy of reform through aid to one
group has totally failed. Millions of dollars have been wasted, and the
transparent, accountable institutions so critical to the development of
democracy and a stable economy for this world power have yet to be
Toward a New Foreign Policy
Given the continuing socioeconomic deterioration of Russia, what should
the United States do? If the U.S. government wants to adhere to its own
declared objectives and help promote in Russia sound economic development
and equitable growth as well as viable and transparent democratic
institutions, it has no option than to reverse its current policies and
The U.S. role in creating a system of tycoon capitalism and the current
economic meltdown, coupled with military policies such as NATO expansion,
have fueled anti-American sentiment in Russia. The first thing we should
do, as Joseph Stiglitz, a leading World Bank economist, correctly suggests,
is to adopt "a greater degree of humility...(and) acknowledgement of the
fact that we do not have all of the answers." Washington must also accept
that the future shape of Russian society will and must be determined by the
Russian people. U.S. policy should at least try to adhere to some of the
principles that it preaches, such as participatory democracy and the rule
of law or even "no taxation without representation." In line with this, the
U.S. must stop its policy of support-at-all-costs for Yeltsin and the
Chubais Clan, not only in USAID targets but also in U.S. influence in IMF
and World Bank lending.
Second, the U.S. government should recognize that a healthy banking and
financial system cannot arise without a revival of production and
distribution in the "real" economy. Measures that emphasize increases in
tax collection and reductions in government expenditures under the current
extremely depressed conditions simply guarantee accelerated decline of the
real economy and social-political chaos. The United States should use its
great influence on the IMF and World Bank to reduce their pressure on
Russia to pursue such suicidal policies.
Not only did the IMF bailout fail to restore confidence, but the
international aid has been fundamentally ill-conceived. As Veniamin Sokolov
warned: "Giving more loans to the Yeltsin government is comparable to
giving a drug addict a fresh supply of narcotics. Any new loans will only
go to the realm of financial speculation and to prop up support for Boris
Yeltsin. Russia does not need any further such lending." In sum, further
aid will go to the same corrupt niches and is likely to make the situation
worse, not better.
Third, the United States should launch a high-level drive to try to
recover monies from aid organizations and international financial
institutions that have ended up in private unregulated bank accounts
outside of Russia. This would show concern for the Russian people, who
otherwise would be held responsible for paying back loans from which they
did not benefit. It also would demonstrate U.S. commitment to the rule of
Fourth, the United States should embark on a broad-based policy to
encourage governance and the rule of law. It is essential that the United
States discontinue support of non-inclusive organizations and the bypassing
of democratic process through decree. Some U.S. aid funds have gone for
"democracy building," including strengthening and revamping the judiciary.
However, these efforts have been a low priority and have been undermined by
the practice of U.S. encouragement of the Chubais Clan to enact swift
"reforms" without approval of the Duma, Russia's popularly elected
The United States needs to adopt a pro-democracy stance that encourages
institution-building and as broad a range of democratic positions as
possible. We must cease to select specific groups or individuals as the
recipients of uncritical support, which both corrupts our "favorites" and
delegitimizes them in the eyes of their fellow citizens.
Fifth, U.S. officials and advisers need to establish contact and ties
with a wide cross-section of the Russian leadership -- politicians,
economists, and social and political activists -- and not only Yeltsin and
his allies. How Russian elites perceive the efficacy of U.S. aid programs
and politics should be a source of concern, especially because many
Russians have questioned American intentions.
Although a reversal of policy will require a long and resolute process
of diplomacy, Clinton administration officials can take steps, by, for
example, meeting with members of the Duma and a diversity of Russian
elites. Some aid-funded people-to-people exchanges and programs to develop
the economy from the bottom up have been useful and have created goodwill
among the Russian people. Given the unfortunate record of U.S.-Russia
relations, exchanges that involve a broad section of the Russian
population, especially at local and regional levels, are now crucial.
October 6, 1998
Food Threatens to Eat Up Every Kopek
By Chloe Arnold
It may sound strange for a city as nouveau riche as Moscow, but even before
financial flu set in this August the average Muscovite was spending about two-
thirds of his income on basic food. Now, as the ruble's drop has driven
inflation, that figure could climb to near 100 percent.
The results can already be seen at the once-bustling Butyrsky Market behind
the Savyolovsky Station, where stall-keepers complained on Monday that sales
were worse than ever f and shoppers balked at the prices, shrugged and walked
"People just come to my stall and stare," said Yulia, a fruit-seller from
Moldova who refused to give her last name. She said she had never seen such a
depression in the market. "They cannot afford to buy fruit and vegetables
anymore f only potatoes."
Yulia said she offered pensioners reduced prices, but even so many were unable
to afford them. "They ask for the bruised tomatoes, the over-ripe grapes, the
cracked eggs," she said. "Even then they can only buy a tiny amount."
Nina Lidet, a pensioner on 400 rubles a month who was shopping at the Butyrsky
market, said she now spends her entire pension on food.
"Before, I could save a little to buy smoked herring for a birthday, or a
packet of chocolate for my grandson," she said. "Now I don't even have enough
to buy a single banana."
Ironically, it is the bare essentials that have swelled in price f far more
than have luxury goods. A tin of red caviar still costs around 23 rubles, but
utter, milk, eggs, macaroni and porridge oats are three to five times more
expensive than before the crisis, shoppers said Monday.
A front-page story Saturday in the popular daily Moskovsky Komsomolets
reported that flour had jumped 2.2 times in price, eggs 2.3 times, sugar 3
times, Russian cigarettes 3.3 times and buckwheat 4.3 times since devaluation.
A senior researcher at Moscow's Institute of Socio-Economic Problems of the
Population, Lilia Ovcharova, offered even more depressing statistics. By her
count, the price of essential goods have soared by 500 percent, and Muscovites
who once on average spent about 60 percent of their wages on food now spend
all of it.
In 1992, Russians were spending 68.3 percent of their wages on food, 20.7
percent on consumer products, 9 percent on utilities and 2 percent on tax,
Ovcharova said. "That year the cost of gas, water, electricity and the
telephone increased, and people were forced to spend [proportionally] less on
food," she said. "But since Aug. 17 this year, [the day the ruble devalued],
food prices have shot up and Russians have been forced to spend all or almost
all of their wages on sustenance."
For many, that has meant cutting out essential foodstuffs from their diets.
For example, many Russians have stopped eating meat because they can no longer
afford it, said Caroline Hurford, the information officer at the International
Red Cross Moscow Office.
"This is a major source of vitamins, which they are simply cutting out of
their diet," Hurford said.
Pensioners like Lidet, meanwhile, have spent most of the day wandering between
markets. "If I hear that milk is two rubles cheaper at the Dmitrovsky market,
I will walk there to buy it," she said. "Every kopek is important these days."
All the same, Lidet said she considered herself one of the luckier pensioners
because she gets support from her children and grandchildren.