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Johnson's Russia List
8 October 1998
[Note from David Johnson:
1. St. Petersburg Times: Gianguido Piani, A Drive to the Country Would
Serve Russia Well.
2. Moscow Times: David McHugh, Protests Turn Up Heat on President.
3. Reuters: Russia's Luzhkov outlines plans to rescue economy.
4. Cleve Gray: Summary of briefing by Sergei Rogov in Washington on
"The Political, Economic, and Financial Meltdown in Russia."
5. Patrick Armstrong: PERSPECTIVE.
6. Journal of Commerce: Michael Lelyveld and John Helmer, Once bullish
economist sees collapse for Russia. [Anders Aslund] Even workers strike
fizzles amid tumult.
7. Interfax: Primakov Says Real Economy Must be Allowed to Work.
8. Interfax: Chubays Warns Not to Assess New Cabinet Hastily.
9. International Herald Tribune: Mutsuyoshi Nishimura, Yes, the West Should
10. Intefax: Poll: Majority of Russians Favor Price Controls.
11. Interfax: Zhirinovskiy: Conservative Revolution Under Way in Russia.
12. Reuters: Russia needs IMF cash to solve complex problems.]
St. Petersburg Times
October 6, 1998
A Drive to the Country Would Serve Russia Well
By Gianguido Piani
Gianguido Piani is an engineer and works in the energy sector in St.
FROM the beginning of the financial crisis in Russia, there has been a
proliferation of "cover-your-butt" statements and articles written not so
much to cast light on the situation, but rather to justify and excuse
particular individuals and organizations. Most commentators, financial
experts and political scientists now admit that although all the signs have
long been in place, they simply did not believe in a possible meltdown
scenario. The problem is, these people not only failed to recognize the
situation in time, they contributed to its creation in the first place.
Euphoric tales of the modernization and democratization of Russia, combined
with investments made under the promise of high and quick returns, took the
foundation away from more realistic analyses and related efforts for more
Could the crisis be foreseen? Bankers, for instance, might have noticed the
volume of money pouring out of Russia - an estimated $2 billion to $3
billion a month. Another clue could have been found in the import
structure. Ten Mercedes automobiles at $100,000 each look the same in the
books as industrial equipment for $1 million, but their impact on the
development of the national economy is quite different. Did banks and
financial institutions have access to that simple type of data and people
smart enough to figure out the implications? The foreign financial
community also traditionally avoids the question of where the money
actually went. "Offshore" is a general term, but a check on accounts of
Russian nationals held at Western banks and financial institutions would
provide some interesting answers.
Financial institutions everywhere are used to decrying government
"interference" when the sun shines and pleading for government
"interventions" when it rains. In specific cases, the financial community
in Russia expected the International Monetary Fund, World Bank and Western
governments to continue sorting out the country's affairs while pocketing
the profits themselves. So now, while Western banks are crying losses in
the hopes of being salvaged at the expense of Western taxpayers, they have
kept dead silent on the profits they have made in Russia so far. It's no
wonder that Russians have long understood this type of Western double
standard and are now using the game to their own advantage.
In Russia, the money supply is grossly inadequate when the needs of the
real economy are considered. The Central Bank is responsible for fixing the
amount of cash in circulation, but it is the banks who are then handed the
task of increasing the money supply in the form of commercial credits,
industrial investments, housing mortgages, and so on. In Russia, banks and
investment houses have failed entirely to provide these basic financial
services. Alternative payment schemes like financial off-setting and
veksels are nothing more than an intelligent response from the productive
part of society to the shortcomings of the bank; as money surrogates they
might make no economic sense, but they are nevertheless a sign of the
vitality of the real economy. By choosing short-term speculations instead
of long-term investments, Russian and Western banks alike endangered their
own long-term survival. They made their bed, now they should lie in it.
How can it be that the whiz kids of the world's top investment houses
failed to notice all of these elements? One reason may be because they
confused the virtual parameters of their computer screens with reality.
Another may be simply that this was the toll of hangovers brought on by an
intensive Moscow nightlife. On the Western side, part of the problem lies
in the very nature of a Russian assignment. Most "experts" arrive here
without specific understanding of the local scene, at best knowing only
what they read in the Western press - often a far cry from reality - and
softly cushioned by all-too-generous expatriate packages. Add to this the
boon of a fast-growing securities market, and why bother with nuisances
like investments in the industrial sector? Investment bankers working
almost exclusively out of Moscow have been treated to such good times that
they couldn't help but let the game go on. On the Russian side, the problem
is at least partially due to a yuppie generation that grew up too quickly -
a good degree from Moscow State University, a one-year stint somewhere in
the West, and straight up to moving millions of air dollars on the Moscow
trading floors. Advanced financial skills not only do not foster economic
growth, but make sense only when a sound economy is already in place.
Russia, among other things, needs more than ever a working banking system
and capable managers in touch with reality. A solution for both problems
would be to send all the newly unemployed young financial geniuses to the
countryside to work at local banks for a few years. Who could disagree that
checking energy payments in Vladivostok, handling loans for farmers in
Krasnodar or putting together project financing in Perm would make a
financier savvier and better able to manage securities at Moscow trading
houses at a later stage? Future careers would have to depend on real
results for their banking operations, in the form of either money or social
benefits. Such a system, incidentally, already existed under the communists
and could surely win their approval now.
This countryside experience should be open to foreigners as well as
Russians. If compensation packages are merely "normal" and not "fat,"
anyone with a sense of responsibility might look at such a job as a step
towards a future career at Dresdner Bank or Citibank. Those currently
making careers out of being expatriates would choose to remain home if
offered more modest conditions. And this is exactly what is needed. Only
people with professional language and social skills should run the show
from now on. Otherwise, there will never be any real improvement in the
Russian economy. If the current crisis at least helps to sort the grain
from the weeds in the local financial establishment, then it will not have
been in vain.
October 8, 1998
Protests Turn Up Heat on President
By David McHugh
An increasingly isolated President Boris Yeltsin stayed out of public view
Wednesday as thousands of unpaid, angry citizens marched under fluttering red
banners in cities across Russia, calling for his resignation and demanding
their back wages and pensions.
The marches were peaceful, with organizers and police saying there was no
violence. A Kremlin official claimed only 700,000 took part nationwide, far
less than the turnout predicted by opposition leaders and f despite the
steadily worsening economic situation f an apparent drop from the numbers who
took part in similar protests last year.
Organizers painted a different picture, saying 12 million people had taken
part either by marching or by participating in work stoppages.
There were major rallies in the country's two largest cities, with the crowd
on Vasilyevsky Spusk next to St. Basil's Cathedral estimated at 50,000, though
police said there were 150,000. At least 30,000 gathered in St. Petersburg.
The primary slogan of the day was, "Yeltsin, Resign," with organizers
demanding early presidential and parliamentary elections.
"People are tired," said State Duma Deputy Nikolai Ryzhkov, a former Soviet
prime minister, as he marched at the head of a column with Communist leader
Gennady Zyuganov from the Tretyakov Gallery, south of the Moscow River.
"They're tired of living without money, without social guarantees."
"Yeltsin's ouster is not far off," Zyuganov was quoted as saying by Interfax.
"The president is not working, he is a stone blocking everyone's way,
preventing workers, labor groups and members of parliament from working
normally. He does not guarantee anything but corruption and theft."
However, life in the capital, as elsewhere in Russia, went on as usual away
from the demonstration sites.
Russian news agencies reported rallies in dozens of cities and towns across
the country. Itar-Tass estimated there were 40,000 marchers in Omsk, 25,000 in
the Volga River city of Cheboksary, 15,000 in Volgograd, 10,000 in Nizhny
Novgorod and 6,000 in Perm. In Yeltsin's home town of Yekaterinburg, 8,000
people braved an early snowstorm to gather in the central square, and workers
picketed the gates of the shipyards at Severodvinsk, the Northern Fleet's
arctic base for nuclear submarines.
There were also rallies in the coal-mining center of Kemerovo in Siberia, and
Union estimates of crowd sizes exceeded those of police and news agencies,
sometimes by a factor of five.
Alexander Lebed, the governor of Krasnoyarsk a likely presidential candidate,
led marchers and joined the calls for Yeltsin to quit, telling a rally that
Yeltsin "must take into consideration the demands of the people who elected
him," Interfax reported. Yeltsin "has a historical chance to leave his post
prematurely, without driving long-suffering Russia to sin," he said.
Yeltsin's spokesman Dmitry Yakushkin said Wednesday was a "normal working day"
for Yeltsin, who "continues to carefully keep track of how the protest actions
are proceeding," Itar-Tass quoted him as saying.
But the president did not appear on television and let his subordinates do the
talking. Deputy chief of the Kremlin staff Oleg Sysuyev claimed the overall
numbers of protesters was 700,000 f lower than the 1.8 million police said
turned out for a similar protest last year.
"The civilized expression of protest shows how much our society has matured,
even in comparison with our expectation," Sysuyev was quoted as saying.
The Kremlin did not offer a defense of Yeltsin and his policies.
The president has been pushed to the sidelines of politics, weakened by the
country's economic crash. Yeltsin has said little about the crisis in public
and has spent much of his time secluded at his suburban residences.
His political support has waned and many observers say it's possible he will
resign before the expiration of his term in 2000. With a new, left-leaning
government headed by Prime Minister Yevgeny Primakov in place, the focus at
the rallies was not so much on the Cabinet but on Yeltsin.
"The president is alone," Lebed said.
Yeltsin's wife, Naina, was quoted Wednesday by the Argumenty i Fakty newspaper
as saying that the president "knows and admits his mistakes" but that much
criticism was unfair. "When they criticize just to humiliate f when they begin
to discuss his health, his gait, how he adjusts his suit jacket f this is
She said doctors reassure her that the president's health f the subject of
much speculation given his history of heart trouble and reduced working
schedule f "is more or less normal."
The protests began in Vladivostok, eight hours ahead of Moscow, with a crowd
of about 3,000 gathering in the town's central square, where they burned an
effigy of Yeltsin, and toting a coffin labeled "Education" down the city's
Protesters, disproportionately gray-haired and dressed in Soviet-style suits,
included unpaid factory workers, underpaid doctors, and hundreds of retirees.
Even those who are up-to-date on their pay, such as teachers, were angry.
"They only pay us 490 rubles ($30.63) a month," said Alevtina Grigoryeva, a
teacher. "In order to earn the same salary, a teacher has to teach twice as
She said educators now teach two sets of students at the city's overcrowded
schools in shifts.
Many unpaid workers, however, stayed on the job or at home. Raisa Kramarenko,
49, a cook, stood in the doorway of her canteen and watched hundreds of
shipyard workers parade by. She hasn't been paid in four months, she said, and
her husband hasn't received his wages in two years at the household
maintenance company where he works. They survive off food they grow at their
But while she supports the strikers, she said, she had to work Wednesday.
"What else can we do?" Kramarenko said. "We need to live."
In St. Petersburg, a crowd estimated by police to number 30,000 marched down
Nevsky Prospekt to Dvortsovaya Ploshchad in the center of the city.
The police estimate was disputed by Yevgeny Makarov, chairman of the local
union federation, who said the crowed numbered 80,000.
Protestors held up a variety of anti-regime and pro-socialist
placards. "Drunk, Chatterbox, and Loafer. Down With Yeltsin," read one.
Despite the discontent, most people in the crowd were good-natured and calm.
"All we want is for the law to be observed and that workers will be paid on
time for the work that they do," said Valentina Gorastayeva, union chairwoman
at the Almaz shipyards.
"Privatization at first brought some improvement for Almaz, but in the end
things have worsened, especially because the government owes us 42 million
rubles for ship orders over the past two years."
Gorastayeva added that the shipyard's 1,000 workers, whose average salary is
1,500 rubles a month, have not been paid since July.
"Our salary is 500 rubles, and it is a miracle that we are
able to survive," said Galina Zakharova, age 54, a worker at the Sovietskaya
Zvezda textile factory. "We cannot even afford to buy fruit or new clothes,
and we only don't die of starvation thanks to what we grow on our summer
Russell Working and Nonna Chernyakova in Vladivostok, and John Varoli in
St. Petersburg contributed to this article.
Russia's Luzhkov outlines plans to rescue economy
By Karl Emerick Hanuska
MOSCOW, Oct 7 (Reuters) - Powerful Moscow Mayor Yuri Luzhkov outlined plans on
Wednesday for tackling Russia's economic crisis, stressing that the priority
was to restore investor confidence.
The portly mayor, expected to be a strong candidate in the next presidential
elections in 2000, said he supported policies of Prime Minister Yevgeny
Primakov's government aimed at reviving the real sector of the economy.
He welcomed the rejection of "wild, foolish monetarism" -- a reference to the
tough anti-inflationary stance taken by previous governments -- but suggested
more could be done to improve the investment climate.
"We will suffer serious difficulties both in the economic and social spheres
if we do not restore the faith of our foreign partners," he told a news
He called for the convening of an international conference to develop a plan
to compensate investors for losses suffered as a result of the financial
He stressed the word "compensate," saying Russia lacked the cash to repay tens
of billions of dollars in Russia-related losses of the international financial
Russian and foreign investors were hit hard by a decision on August 17 to
effectively devalue the rouble, freeze domestic debt and declare a moratorium
on some foreign debt repayments.
The terms of a domestic debt restructuring plan have also been denounced as
confiscatory and biased in favour of local banks. The government is now
negotiating a new deal.
Luzhkov, a fierce critic of former Russian privatisation supremo Anatoly
Chubais, said investors should be compensated for their losses with shares of
"illegally privatised" enterprises that would be renationalised by the
Top on Luzhkov's list of properties to be nationalised are the holdings of
Russia's so-called oligarchs -- a group of elite and influential businessmen
whose close ties to the government allowed them to take over privatised
enterprises at prices well below their true values.
"They (the oligarchs) garnered their properties in what could hardly be called
legitimate ways," Luzhkov said.
The mayor also said it was necessary for the government to funnel money into
Russia's crisis-stricken banking sector.
"That would not be an inflationary move and it would not be lost money. The
resources would be immediately used to boost economic turnover," he said.
Luzhkov said reanimating the banking sector also demanded that the central
bank lower commercial banks' obligatory reserves and that banks be repaid
their full investments in frozen GKO treasury bills.
However, the mayor said large and highly illiquid banks -- such as those
controlled by the oligarchs -- should be renationalised.
"I don't believe the banks of the oligarchs will return to pressure society
and interfere in the policies of the authorities."
Date: Wed, 07 Oct 1998
From: Cleve Gray <firstname.lastname@example.org>
Subject: Rogov Briefing
REPORT ON ROGOV BRIEFING AT THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
WASHINGTON, D.C., October 6 - Mr. Sergei Rogov, President of the Center for
National Security and International Relations and Director of the USA and
Canada Institute in Moscow, spoke this week at the Center for Strategic and
International Studies on "The Political, Economic, and Financial Meltdown in
On August 17th of this year, Rogov said, the bankruptcy of the Russian
officially recognized. In July, the gross domestic product of Russia was 460
billion rubles. This figure is one quarter of the GDP ten years ago.
the declaration of bankruptcy on August 17th, revenues dropped to 10% of the
GDP. The government stopped performing its basic functions. According to
Rogov, the bankruptcy occurred because for each ruble received, 12 were paid
out. Foreign borrowing, in turn, became the only solution to Russia's
troubles. Then, Rogov said, Russia stopped paying its bills. The problem was
further compounded by the fact that 70% of the Russian GDP belonged to private
owners, who would take their money elsewhere, Rogov said. The result was a
federal government revenue of less than one billion U.S. dollars.
Russia is at a "crossroads," a juncture in history where the country may
embark upon three different paths. One of the paths Russia may take is the
road to "continued stagnation and decline." A second path is one which
demonstrates an effort to restore an "administrative command regime." The
third path is the path of "slow economic recovery" and the
"institutionalization of political democracy."
Granted that Russian statistics are unreliable, Rogov said, it has been
estimated that 75% of all transactions in the Russian economy are barter
transactions. Should the Russian government decide to print more money at
this time, it will not provide a quick solution. If 75% of the government
without money, "think how much [money] it is necessary to print," Rogov said.
Today, there are more U.S. dollars in Russia than there are rubles.
Rogov spoke of Russia's three-tiered debt "pyramid." On one level is the
sovereign debt owed by Russia to international financial institutions.
debt is owed by Russia to its banks. Perhaps the greatest and most important
debt, Rogov said, is to the citizens, the people of Russia. "The credibility
of the government is very much at stake," he said. The payment of wage arrears
is an important step in restoring Russian citizens' trust in the government,
Rogov said. It is quite clear, however, that Russia is unable to pay its
foreign debts. This year, Russia owes approximately four billion rubles.
Next year, it is expected to repay 18 billion rubles, and after 2002, the
expectations are for repayment of 30 billion rubles, Rogov said. Restoring
faith in the Russian government abroad can be done by the Duma's ratification
of START II, Rogov said. There is currently not much resistance to
ratification of START II in the Duma, Rogov said, but delay in ratification is
a result of the "restructuring" occurring within the Russian government. U.S.
policy towards Russia "collapsed with the collapse of the Kiriyenko
government," Rogov said. As a result, the U.S. must now formulate a new
approach to dealing with Russia. The United States can either work with a new
Russia, accepting its new government, or it can use Russia's weaknesses to
force it to follow U.S. instructions.
The political system in Russia also collapsed in August, Rogov said. The
Russian Constitution of 1993 established no checks and balances, permitting
dominance of the government by the executive branch. Furthermore, the
executive branch was "divided and fragmented." Under such a system it is
"impossible to understand who is responsible for what." As a result, the
system collapsed on September 10th when the State Duma refused Viktor
Chernomyrdin's nomination as prime minister. Civil war was averted in
September with the economic collapse because the people "don't want a
repetition of October 1993." The Russian people are different now, Rogov
Discussing Yevgeniy Primakov's new position as prime minister, Rogov said that
he is the first prime minister who was "truly elected," in that he was able to
acquire the support of major political parties in Russia. He was supported,
for example, by Our Home, Yabloko, and the Communist party. In addition,
said, Primakov "really had credentials and authority." Nevertheless, like
those before it, Rogov said, "the Primakov government will make its own
mistakes." Rogov said that just as it took Nixon to go China, it will take
Primakov to bring foreign investment into Russia.
Regarding the oligarchs, Rogov asked, "Who created the oligarchs? Who gave
them property? The same people in charge of privatization." Rogov said that
Primakov is "unconnected to the oligarchs," which puts him in a position to
"keep them under control." In the future, Rogov said, the oligarchs resources
for bribery and corruption will be more limited.
Current political, economic, and financial reforms will produce "something
different in Russia," Rogov said.
Center for Defense Information
1779 Massachusetts Ave, NW
Washington DC 20036
Date: Wed, 07 Oct 1998
From: Patrick Armstrong <email@example.com>
As frequent readers will know, I am always
tiresomely going on about how important
perspective is. If we agree that it will take a
"generation" to change Russia, then we've got to
take a longer term perspective.
"In August was the jackal born
The rains came in September
'Now such a fearful flood as this,
said he, I'm sure I can't remember'".
I arrived in Moscow the month before the October
Events and left three years later as the Chechen
war ended. I can remember hotels in the provinces
where there was no water at all! When I arrived,
1000 rubles would buy 1 USD; when I left, it was
about 6000/1. Now that was inflation! Shopping
took ingenuity and patience (with that awful three
point sales system). There was an actual war --
with bullets -- between President and Parliament.
The first winter I watched garbage overflow a skip
until it blocked Starokonyushenniy Street.
Remember all the abandoned and cannibalized cars?
The leprous buses? The missing manhole cover on
the turnoff in front of the Kievskiy Voksal? The
completely empty dining car on the TSR near
Baykal? The arrival of kasha in the dining room of
a hotel in Minsk? Those great evenings in
Intourist hotels -- the band putting out a million
decibels, female hippos dancing with each other
while their male counterparts got plastered? The
morning Zhiguli beer on the way to work? Being in
a money changing booth -- just you, eight hoods
and a dozen submachine guns? How frightening it
was to see a helicopter fly over the city (the
first time was just before October and the second
the day the Chechen war began)? Fighting one's way
onto aircraft? And people who were there earlier
had even more harrowing experiences (the hotels
that asked guests to check their weapons
at the door). Etc etc.
I want to thank Vladimir Menkov (JRL 2415) and
Peter Necarsulmer (JRL 2411) for their
contributions and comparisons of then and now.
It's not 1992 any more. (If for no other reason
than the fact that there are billions and billions
of dollars owned by Russians).
Journal of Commerce
8 October 1998
[for personal use only]
Once bullish economist sees collapse for Russia
Even workers strike fizzles amid tumult
BY MICHAEL S. LELYVELD & JOHN HELMER
JOURNAL OF COMMERCE STAFF
In less than two months, Russia has lost its reform government, its credit
rating and its direction. Now, it has also lost its most bullish supporter
among Western economists.
"I think that we are looking at a total collapse," said Anders Aslund, senior
associate at the Carnegie Endowment for International Peace in Washington.
"The country is dominated by completely corrupt elites that are fighting over
the next minute instead of worrying about any long-term results."
Gloom and doom seen
The gloomy assessment agrees with many others offered since Aug. 17 when
Russia effectively devalued the ruble and defaulted on its treasury bills. But
Mr. Aslund's conclusion may count for more in light of his 1995 book entitled,
"How Russia Became a Market Economy."
It is now hard to argue that the Russian economy is functioning at all.
On Wednesday, workers staged a nationwide strike in protest over unpaid wages.
But that, too, appeared to fizzle into ineffectiveness.
The promise by Russia's Federation of Independent Trade Unions to mobilize 28
million workers fell far short in the number of protesters counted on the
Although the unions won payment promises from the government, their demands
for President Boris Yeltsin's resignation and early elections fell flat.
On the eve of the protest, the government agreed with the Independent Coal
Miners' Union to start paying one month's back-pay every month, until the
arrears owed to the miners -- from six to 12 months' wages -- are cleared.
Government can pay
A former labor minister, Oksana Dmitrieva, said in an interview that the
government will be able to pay its share of the overdue wages, because the
debt of 8 billion rubles ($500 million) is small enough not to raise the
budget deficit significantly. Most of the 84 billion rubles in unpaid wages
being claimed by the protesters is owed by Russia's private enterprises.
But seven weeks into the crisis, the larger question of Russia's economic
course remains undecided. Officials in the government of Prime Minister
Yevgeny Primakov have still not said whether they will print rubles to cover
the deficit or continue to hang on in the remote hope that the International
Monetary Fund will extend new loans.
On Wednesday, Mr. Primakov announced that First Deputy Prime Minister Yuri
Maslyukov, who once headed the Soviet central planning agency Gosplan, would
be placed in charge of all economic policy, trade, privatization and
negotiations with the IMF. But even the dreaded Mr. Maslyukov has been unable
to settle on a course.
Relations with IMF unclear
Mr. Maslyukov said future relations between Russia and the IMF remained
unclear, Interfax and Bridge News reported.
"That's why the government has not decided yet on the plan of financial and
economic policy to stabilize the situation," Mr. Maslyukov said. Earlier this
week, the government pushed back the date for submitting its fourth-quarter
budget plan until Nov. 1 amid forecasts that annual inflation rates will top
200% by the end of the year.
Mr. Aslund said that if the Primakov government still believes in an IMF
bailout without monetary and fiscal discipline, it is desperately waiting for
"There is no IMF program, nor can there be any IMF program," said Mr. Aslund.
"They haven't got any numbers together at all."
Although Russia's financial crisis is recent, concerns about arrears and
reform backsliding have existed for years. In early 1996, Mr. Aslund had
already started to warn that profiteers had made off with some 30% of Russia's
gross domestic product in the early days of reform.
Since then, little has been accomplished either by the IMF or a succession of
Russian governments to halt tax evasion and capital flight by the country's
"oligarchs," or to solve the chronic arrears problem.
The government said this week that it collected only 9.3 billion rubles ($620
million) in September, about 18% less than in August when the crisis began.
Mr. Aslund said the only hope for reformers is to pick up the pieces and start
again after the economic collapse is finished, as in Bulgaria two years ago.
But there is little agreement even among Western economists.
Edwin Dolan, president of the American Institute of Business and Economics in
Moscow, argues that if the government prints rubles to pay workers, the
immediate spending stimulus to the economy may be better than none at all.
"Those advisers who advocate controlled emission of rubles," Mr. Dolan says,
"have a better case than those who oppose printing any new rubles at all."
Primakov Says Real Economy Must be Allowed to Work
Moscow, Oct 6 (Interfax)--The most important thing for Russia is to
create conditions enabling the real economy to work, Russian Prime Minister
Yevgeniy Primakov said in a TV address Tuesday evening.
"To do this we are prepared to receive aid, foreign investments,
chiefly in the manufacturing industries, agriculture and infrastructure.
But we are aware of the need to place emphasis on the expansion of domestic
production," he said.
"Speaking of domestic production we do not mean a producer isolated
from the world market or the world economy," Primakov said.
"It is exactly with a view to creating the most favorable conditions
for production growth and not only for political reasons that I am saying
again that we will honor our commitments to both foreign and Russian
investors," he said.
The real economy will not start working and gaining momentum "until we
succeed in resuscitating the banking system that collapsed on August 17;
eliminating clots in all channels such as nonpayments between the budget
and enterprises and between enterprises themselves; and setting up a
taxation system which would encourage producers, private and state."
Primakov said.He spoke of steps taken to make this possible.
The Russian Central Bank carried out operations September 18,
September 25 and October 2 to help interbank payments along. Thirty
billion rubles of the 40 billion that got stuck in the banking system
reached their destinations. Most of that amount reached budgets of all
levels and extrabudgetary funds. As a result, non- payments were avoided
in numerous regions.
"We are aware of the fact that this is not enough. The entire banking
system must be overhauled and fast," Primakov said.
The Central Bank and the government "are separating the banks into
those that can and must continue operating and those that are to
We will certainly help viable banks. We will help reform even some
large banks which have proved insolvent but whose liquidation would bring
about considerable undesirable socioeconomic consequences. But bankers
should not push the government to nationalize them. This is not what we
should do."We will guarantee savings in these banks. We are not and will not
flinch at this job" Primakov said.
As for the mutual payment of debts "which are a kind of fetters for
both the state and enterprises and have become a perennial problem," the
government "will break the vicious circle of non- payment shortly," he
said. The issue of fines and penalties imposed on enterprises will be
resolved simultaneously, Primakov said.
A comprehensive operation in which mutual settlements will be made by
the state and enterprises is in preparation, he said.
"I can assure you that the operation has been planned so that no new
unbacked money will be printed," Primakov said.
"To avoid abuse, all transactions will be carried out through state
channels, circumventing accounts of commercial banks so as to avoid the
siphoning of the money into the currency market and to protect the ruble
from further upheavals," he said.
The government intends to make proposals shortly on improving the
taxation system, in particular by reducing the producer's tax burden,
tightening the tax administering system and fighting the shadow economy,
Primakov said. "What we need, however, is more than fighting. The
taxation system must be built so as to move much of that economy from the
shadows and enable it to operate in line with regulation, with the law,"
Chubays Warns Not to Assess New Cabinet Hastily
Moscow, Oct 5 (Interfax)--Anatoliy Chubays, Chief Executive of the
Unified Energy Systems of Russia (UES) grid provider, has urged "not to
assess the current Cabinet hastily."
"Assessments based on names and projects, such as those given to
(First Deputy Prime Minister) Yuriy Maslyukov's so-called program, are
somewhat premature," Chubays, the former presidential envoy for liaison
with international financial institutions, told journalists on Monday
"The Government is facing a very difficult situation. Absolute iron
will and strict team work is needed to pull out of it. It is premature to
say if (the Cabinet) is succeeding or not," he said.
"Let's see in at least two or three weeks, when not names, but actions
will be evident. A government and its potential must be evaluated on the
basis of decisions and their implementation. It is simply too early," hesaid.
"Given an overall firm and consistent line for the Cabinet - which I
think is possible--we can resort to a slight retreat (which is already
occurring) instead of giving up all positions and destroying everything
that has been built over the past years," he said.
"However, the consequences could be most severe, much more severe than
anything we have seen up to now, if the Cabinet fails to consolidate and
pursue a comprehensive course," he said.
Chubays said that today he will stand by his statement made two years
ago that Yeltsin's victory at the presidential polls "drove the last nail
into the seal on communism." "Certain fundamental elements of the
foundation of the Russian economy will never be destroyed, for instance,
private property," he said.
"Not a single political regime can survive today if it tries to
deprive people of private property by nationalizing it," he said. The
latest statements of the Communists represented in the government prove it,
he said."Compromises may be reached on such difficult issues as macro-
economic stabilization, emission, tight budget. However, the privatization
of property is for good," he said.
Regarding the current talks with the International Monetary Fund,
Chubays said that the "IMF earmarked the money, documents were signed for
$14.8 billion until the end of the year, and it was not struck from
The documents "stipulate quite firmly" how to distribute the money.
Most of it would go to the budget and a smaller part will be channelled to
the Central Bank of Russia currency reserves for supporting" the ruble, he
said. "The IMF has traditionally shown flexibility in re-distributing funds
depending on the current situation in the Russian economy," he said.
Chubays said that since he is with the UES, "it is not obvious what
the prospects for receiving the IMF money are."
International Herald Tribune
October 8, 1998
[for personal use only]
Yes, the West Should Engage Russia
By Mutsuyoshi Nishimura
The writer is a senior Japanese diplomat working on the Japan-Europe
relationship. He contributed this comment to the International Herald Tribune.
TOKYO - The West is apprehensive about Russia's possible state interventionist
orientation. The specter of Russia leaning toward its former command economy
frightens those who believe that modern-day macroeconomic prescriptions,
particularly the tight money mantra, would transform Russia into a market eco-
nomy within years.
Yet state intervention has played a real role in economic policy for both
developed and developing countries in the modern world. Most industrial
democracies, including Japan, have experienced it in one form or another as
they pursued their path toward economic growth.
Why then is state intervention considered to be deleterious? To deny Russia
such a tool would be like tossing a bundled baby into a river and expecting it
Payment arrears, one of the most pressing problems on Russia's doorstep, now
compel the state to intervene by printing new money - so argue some Russians.
The West is holding its breath lest a devastating bout of hyperinflation
Whether to print money is something only Russia can decide. Whatever it
decides, it must have a value-producing system. It must produce real goods and
services so as to grow and combat inflation.
For Russia's ''virtual economy'' to produce goods and services, a new,
comprehensive set of policy measures has to be introduced. Rigorous
restructuring of enterprises is absolutely vital. Enterprises must be value-
Bookkeeping should be fully transparent and reliable. Laws governing cash
payment should be enforced rigorously. Insolvent firms should face swift
bankruptcy, and the directors of those firms should be dismissed. It is a
simple as this.
Of course, the banking system must be modernized as quickly as possible. The
infusion of new money into the banking system can be justified only if it
finances real value-adding manufacturing industries. This is the most orthodox
and probably the only possible avenue for banks to earn the trust of the
people as well as that of the outside world.
Through these and other measures, the virtual economy may recede, thereby
paving the way for a new real economy. Goods and services must flow to the
market to meet the new ruble. However slow and painful it may be, this is an
absolute necessity. With or without the new ruble, this must occur.
What makes the market economy tick is not the money game, nor a mere pretense
of production. It is real value-producing industry. It is a positive,
continuous recycling of savings and investments. The West should therefore
- That printing new money only triggers inflation unless concrete measures are
vigorously and urgently adopted that will transform the virtual eco-nomy into
a real one.
- That policy tools, experience and expertise abound in the Western world which
can assist the transformation.
- That the choice is for the Russians to make.
- And that we stand willing and ready to cooperate massively with Russia and
provide all needed assistance.
Most Russians yearn for their country to become a full and integral
participant in the world economy. They have the right to choose the path to
that goal. The decision is theirs. We must assist them in that endeavor.
The Western world believes that Russia should prosper. To that end, we should
stand firmly behind them as friendly partners, not as patronizing preachers.
Poll: Majority of Russians Favor Price Controls
MOSCOW, Oct 3 (Interfax) -- The majority of Russians, 83 percent,
favor restoring state control over prices, shows a poll conducted by the
Russian Center for Public Opinion Research, also known by its Russian
acronym VTsIOM.Only 9 percent of the population does not support the measure,
according to a representative poll that questioned 1,714 Russians
September 25-29. The poll's margin of error is 4 percent. The combined
percentages are less than 100 percent because those answering undecided
were not included in the results.
As many as 77 percent of those polled support reinstating a state
monopoly on the sale of alcoholic beverages and cigarettes. Only 10
percent of respondents opposed the measure.
Another 70 percent of respondents support nationalizing major
companies that have been privatized since 1992. Another 15 percent
oppose nationalizing privatized property.
Some 64 percent of respondents support introducing a fixed exchange
rate for the ruble and combatting foreign exchange deals on the black
market; 18 percent of respondents opposed the measure.
Another 63 percent of respondents favor tightening the collection of
taxes from individuals and organizations. Some 24 percent of respondents
said tax procedures were tight enough already.
Half of respondents support nationalizing commercial banks. Some 26
percent of respondents want commercial banks to stay private.
Opinions were split evenly on banning free sale and purchase of
foreign exchange in Russia. Some 41 percent of respondents said they
support the ban, and 44 percent oppose it.
Zhirinovskiy: Conservative Revolution Under Way in Russia
Kaliningrad, Russia, Oct 2 (Interfax- Northwest)--Ultranationalist
Liberal Democratic Party (LDPR) leader Vladimir Zhirinovskiy said on Friday
a "conservative revolution" had begun in Russia. As a result "neither the
left nor the right are satisfied with the new government," Zhirinovskiy
told a news conference in Kaliningrad.
But the LDPR decided to "support the government of (Prime Minister)
Yevgeniy Primakov after party member Sergey Kalashnikov was appointed
minister of labor and social policy," he said.
The LDPR leader said he was against electing Cabinet ministers. Only
the president and lower house deputies should be elected, he said.
He also reiterated his proposal for enlarging Russian regions. Russia
"should be divided into 12 guberniyas (provinces) with 10 million people in
each," four guberniyas being situated in Asian Russia and eight in the
country's European part, and the president should appoint the "governor
general" for each guberniya, Zhirinovskiy suggested.
Answering a question by Interfax, he said the LDPR was against a plan
to hold a nationwide protest campaign on October 7. Moreover, the party
was "categorically against any action by working people," he said.
"If I was the president of the country, I would ban all communist
organizations and associations on October 8, after the protest action," the
Liberal Democratic leader said.
Zhirinovskiy had arrived in Kaliningrad, capital of a Russian exclave
on the Baltic, to back LDPR member Valeriy Seleznev, who runs for citymayor.
Russia needs IMF cash to solve complex problems
WASHINGTON, Oct 7 (Reuters) - Russia needs help from international financial
institutions to resolve its complex economic problems, Finance Minister
Mikhail Zadornov said on Wednesday.
Zadornov, in a speech prepared for the annual meetings of the World Bank and
International Monetary Fund, said Russia was making every effort to solve its
domestic debt problems, improve tax collection and revitalize the banking
"International assistance, above all from the Bretton Woods institutions, is
absolutely essential for a successful solution of these highly complex
problems," Zadornov said. "We intend to maintain open and constructive
relations with our partners and we are counting on their understanding."
Zadornov said Asia's financial crisis had dealt Russia a severe blow, changing
the attitude of investors toward developing countries and those in central and
eastern Europe and affecting short-term capital flows.
The situation had worsened in recent months, he added. "The crisis has been
transformed from local into global, and from financial into systemic," he
But Zadornov also said the world community had done a poor job of learning
lessons from previous financial crises.
"The principal efforts are now focused, as in the past, on coping with the
crises rather than on measures to prevent crisis-related problems," he said.
"There remains a major unresolved question: what are countries to do if they
have allowed short-term foreign capital into their markets without adequate
preparation and without the appropriate conditions. Obviously when there is a
sudden outflow of capital, these countries find themselves in a desperate
situation and are often forced to take measures that meet with disapproval in
the international community."
Russia invoked outrage from the international financial community in August
when it devalued the rouble currency and defaulted on some debts.
Russian officials have been urging the IMF to approve new payments from a $23
billion aid package agreed in the summer.
The IMF, which is sending a team to Moscow later this month, says it cannot
pay until the government comes up with a clear economic program and fund
experts have had a chance to assess the plan.