Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List

Johnson's Russia List


October 10, 1998    
This Date's Issues: 2422

Johnson's Russia List
10 October 1998

[Note from David Johnson:
1. Moscow Times: James Goldgeier and Michael McFaul, A Flawed Pragmatism.
(Re Russia and Kosovo).

2. Reuters: Russian lawmakers slam 'Armageddon' film.
3. Harley Balzer: Greetings from Petersburg.
4. Frank Durgin: Value destruction.
5. Financial Times (UK): RUSSIA: 'Day of reckoning' fails to spur the people.
John Thornhill on Russians' passivity in the face of a financial crisis, just
the latest disaster to hit the troubled nation.

6. Oleg Cheremnykh: Luzhkov for President.
7. Reuters: Moscow mayor denies Communist alliance.
8. Barry Ickes: Menshikov on the Virtual Economy.
9. Stephen Moody: Ickes re The "Virtual Economy" Debate.
10. RFE/RL: Paul Goble, The Consequences Of Depoliticization.
11. Itar-Tass: Sergeyev: Moscow May Join NATO if it Merges With OSCE.
12. Rossiyskaya Gazeta: Podberezkin on Shokhin, New Government.
13. Reuters: Russia's Lebed increases pressure on Yeltsin.
14. AP: Russia Asks EU for Food, Medicine.]


Moscow Times
October 10, 1998 
A Flawed Pragmatism 
By James Goldgeier and Michael McFaul
James Goldgeier and Michael McFaul are professors of political science at
George Washington University and Stanford University respectively. They
contributed this comment to The Moscow Times. 

In the West, Prime Minister Yevgeny Primakov is often described as "wily,"
"pragmatic," and "a realist" who seeks to carve out a place for Russia as a
major player in the global game of balance-of-power politics. Usually these
descriptions point to the turn in Russian foreign policy away from the
"naive," Western-oriented approach taken by his predecessor in the Foreign
Ministry, Andrei Kozyrev. Expressed support for Serbia in the most recent NATO
showdown with Yugoslav President Slobodan Milosevic over Kosovo is presumably
yet further evidence of these so-called clever foreign policy maneuvers. 
Clever? Pragmatic? Hardly. Russian support for Milosevic is just plain stupid
and has nothing to do with furthering Russian national interests from a
realist point of view or reasserting Russia as a global power. On the
contrary, the Russian defense of Milosevic represents an attempt by Yeltsin,
Primakov and other leaders in Russia to find a foreign policy diversion to
deflect attention away from Russia's more serious economic problems at home. 
In the end, standing tough in the Balkans does little to advance Russia's
reputation abroad and does much to damage the well being of Russian citizens
at home. 
Russian leaders and foreign policy elites have asserted that Russian
resistance to planned NATO military actions in Serbia is a "test" of Russia's
great power status in the international arena. If Russia acquiesces to U.S.
desires regarding the Kosovo crisis, this argument contends, then Russia will
no longer be respected as a serious political actor on the international
From our vantage point, the exact opposite is true. By defending a pariah
state, Russia demonstrates to the rest of the world that the only way Russia
can get attention internationally is to cause trouble, not resolve it. This is
no way to establish an international reputation as a great power. 
As for U.S.-Russian relations in particular, Russian stances regarding Kosovo
only reaffirm the belief of many, especially within the Republican Party, that
Russia itself is a pariah state whose influence in international affairs must
be contained. 
Finally, the assumption commonly heard in Moscow that standing against
"American imperialism" in the former Yugoslavia will re-establish Russia as
the leader of the nonaligned movement, the developing world or a growing anti-
U.S. coalition that stretches from Paris to Beijing is sure folly. Russia
could become a leader of an anti-Western coalition, but its allies will be
Iraq, Serbia and North Korea, not France, India or China. With friends like
these, who needs enemies? 
The damage done to the welfare of Russians within Russia by these ill-
conceived foreign policy forays, however, is even more tragic and detrimental
to Russian national interests. At a time when the Russian economy is in a free
fall with the bottom still not in sight, can Russia afford to be playing
balance-of-power politics in the Balkans? One can hardly believe that
"bonding" with "Serbian brothers" has any resonance for the masses in Russia,
who have more important things to worry about. 
In addition, at a time when Russia is seeking Western assistance to help
survive its latest economic crisis, why feed Western complaints that Russia
remains at heart an adversary? Only the most naive in Russia should continue
to believe the refrain that "Russia is too big to fail" and therefore the West
will always bail Russia out no matter what. Russia already has failed
economically and there is little sentiment in the West today to provide
additional funds to Russia. This sentiment for aiding Russia will disappear
altogether if Russia continues to exacerbate tensions in the Balkans. 
Historically, great powers feed their citizens, stimulate growth in their
economy, and pay their foreign debt. If Russia wants to restore its reputation
as a great power, it will only come through focusing on these issues, not
empty threats to defend rogue states. 
Standing up for Milosevic is damaging both to Russian national interest abroad
and at home. While the policy may play well in a State Duma seeking to vent
its rage against perceived Western injustices, it neither helps with Russia's
near-term problems nor makes or breaks Russia as a great power. 
Finally, if Primakov and Foreign Minister Igor Ivanov do believe that Russia
can only take its place in the pantheon of major powers by choosing policies
independent of and antithetical to Western policies, they should pick their
spots carefully. 
If NATO wants to act, it will act no matter what the Russians say. And if NATO
does not act, it will choose not to do so with little reference to Russia's
embrace of Milosevic in Belgrade. On this issue, siding with the bully of the
Balkans is evidence of the bankruptcy of Russian foreign policy, not of its


Russian lawmakers slam 'Armageddon' film
By Peter Graff
October 9, 1998

MOSCOW (Reuters) - Russia's parliament Friday demanded the government explain
why it permitted Russian movie theaters to screen the Hollywood film
``Armageddon,'' which a deputy said denigrated the Russian space program. 
Alexei Mitrofanov, head of the geopolitics committee of the State Duma,
parliament's lower house, said the film -- starring Bruce Willis as the leader
of a team of astronauts sent to deflect an asteroid on a collision course with
Earth -- ``mocked the achievements of Soviet and Russian technology.'' 
The film depicts a dilapidated Russian space station that blows apart because
of a leaky pipe. In addition, a frenzied Russian cosmonaut wears a fur hat in
space and fixes his equipment by hitting machinery with wrenches. 
``For five years the Americans have used our Mir space station, and now they
send us this insult,'' said Mitrofanov, a member of ultra-nationalist Vladimir
Zhirinovsky's Liberal Democratic Party. 
The Duma voted to require Armen Medvedev, head of the State Cinema Committee,
to appear before the chamber with an explanation on Oct. 23. 
Raymond Markovich, head of a firm that operates the upscale Kodak Kinomir
cinema where ``Armageddon'' made its Moscow premiere, said the film was ``an
enormous success'' and his theater had received no complaints from viewers. 
``I would imagine it was second only to 'Titanic' in terms of its box office
this year in Russia,'' he said. 
Russian media have occasionally criticized Hollywood for what some Russians
say are inaccurate and negative portrayals of Russian characters. 
The weekly magazine Itogi said earlier this year Hollywood had relied on Cold
War stereotypes to conjure up corny Russian villains for a spate of recent
action films. 
It singled out the Harrison Ford film ``Air Force One,'' in which an evil
Russian nationalist tries to kidnap the U.S. president, and ``The
Peacemaker,'' in which a Russian general steals a nuclear weapon to sell to a
Bosnian Serb terrorist. 
Markovich said his theater had had some reservations about showing ``Air Force
One.'' But he defended ``Armageddon.'' 
``The Russian character becomes one of the heroes in the end,'' he said. ``The
film is about Russians and Americans joining together to save the Earth.'' 
Buena Vista International, which distributes the film, could not be
immediately reached for comment. 
Russia's own film industry has been nearly wiped out by years of economic
crisis, and Russian filmmakers complain that they cannot compete with heavily
hyped Hollywood films. 


Date: Sat, 10 Oct 1998 
From: Harley Balzer <>
Subject: Greetings from Petersburg

Greetings from Petersburg. I was in Moscow the past few days, and have to
say that the demonstrations were a real non-event. Most striking aspect of
the crowds from my (admittedly quite limited) observations was lack of
unity--there wre individuals and small groups, but absolutely no sense of
common purpose. 
Also, I don't know if David Filipov reads JRL, but I would love to know
how his Oct. 5 article about the middle class squares with his statement
on "The News Hour" back in the spring that "the reforms have not touched
99% of the Russian people."


From: "Frank Durgin" <>
Date: Sat, 10 Oct 1998
Subject: Value destruction

Regarding the discussion on value destruction industries: the 
example I offer here is a US example. I offer it to place the 
value destroying issue in perspective. 
Net farm income in 1993 was $43.6 billion. The US Department of
Agriculture's budget that year was $63 billion. 
>From a social point of view, even before one factors in state 
spending on agriculture, agriculture was, and is, very clearly a 
"value destroying" sector. Yet the national leaders praise U.S 
agriculture as the most efficient in the world.


Financial Times (UK)
10 October 1998
[for personal use only]
RUSSIA: 'Day of reckoning' fails to spur the people
John Thornhill on Russians' passivity in the face of a financial crisis, just
the latest disaster to hit the troubled nation

Anyone listening to the rhetoric of Russian politicians this week had cause to
expect revolution in Moscow. Such was the fear among some foreign executives
that they sent their families home and hatched evacuation plans.
The prophesies of cataclysm had come thick and fast. Gennady Zyuganov, the
Communist party leader, warned the "day of reckoning" was fast approaching for
the "barbarians" in the Kremlin. The day of mass protests, called for last
Wednesday, would draw 40m on to the streets and spark such popular outrage
that President Boris Yeltsin would be swept from office.
Alexander Lebed, the populist former general elected governor of the Siberian
region of Krasnoyarsk, thundered that Russia's economic collapse had created a
more explosive situation than in 1917, when the Bolsheviks stormed to power.
Even the authorities' attempts to calm the situation only seemed to highlight
the desperation of their plight.
Unquestionably, Russia's devastating financial crash has intensified social
pain and fuelled popular rage. Government statisticians estimate the economy
contracted by as much as 8.2 per cent in August, while prices have shot up by
43.5 per cent over the past two months. Following the rouble devaluation, the
average wage has dropped to just $70 a month - for those who get paid.
Yet the day of protest - in which 1.3m rather than 40m Russians were estimated
to have taken part - did not result in mass disturbances, nor the ouster of Mr
Yeltsin, let alone a revolution. Why this was so says much, both heartening
and dispiriting, about the state of crisis-struck Russia.
On Wednesday the mood among the protesters in Moscow was of befuddled
celebration rather than threatening anger, evoking memories of the mass
parades of Soviet May Day demonstrations. Accompanied by brass bands and
waving Soviet banners, streams of good-humoured protesters poured across the
main bridge spanning the Moscow river to take their grievances to the Kremlin
On a glorious autumnal day red Communist banners were the most conspicuous
flags of allegiance, but there were also offerings from representatives of
Russian fascists, the Green party, the party of Realists, Anarchists, and an
artistic movement of Left Avant-Guard, which tried to enact a revolutionary
"happening" under the Kremlin walls.
Even 20-year-old Maria Babaeva, who could not possibly have remembered the
"golden years" of the Soviet Union in the 1970s, was carried away by the wave
of nostalgia. "I am sure life will be wonderful under the communists," she
There was undoubtedly a nastier edge to the protests and a hankering for
authoritarian solutions. One middle-aged man carrying a portrait of Joseph
Stalin said: "It is time to restore the Soviet Union and bring back the
Communist party. We want order."
Yet such demands appeared more ritualistic than realistic. Victor Anpilov, the
Communist firebrand who leads the hardline Russian Workers movement, was
forced to go home on the metro after gathering too few supporters at his rival
As local newspapers commented, it seemed the Russian people were wiser than
their leaders. They understood the senselessness of civil unrest. Alexander
Tsipko, an influential political scientist, wrote that the Russian people had
become de-politicised and de-ideologised by seven decades of communism and
seven years of failed reforms.
"The people do not believe in politicians, neither the 'democrats' nor the
'communists'. They can only rely on themselves," he wrote in Nezavisimaya
The passivity of the Russian people is legendary. Already this decade Russians
have endured a worse economic slump than that experienced by the US at the
time of the Great Depression, the overnight loss of the world's biggest
empire, and the collapse of an entire political system.
This year's financial crash is the latest in a long line of disasters rather
than a sudden break with expectations. And, it seems, no political party, or
personality, wants to take responsibility for the economic mess or can offer
any quick-fire solutions.
However much the opposition leaders may rant and rave about Mr Yeltsin's
presidency, they appear to fear revolution more than they welcome it -
complicit, as most of them have been, in helping to shape the post-Soviet
Yuri Katsovich felt compelled to take part in Wednesday's protests but he,
like millions of his compatriots, has now succumbed to a debilitating, and
perhaps dangerous, form of fatalism.
"I wish somebody could explain to me what is happening," he said.


From: Oleg Cheremnykh <>
Subject: Luzhkov for President
Date: Sat, 10 Oct 1998

Enclosed is a brief essay that I have written in response to a mailing list
discussion about chances of Luzhkov of becoming President in the year 2000.
A friend of mine suggested that I should share it with you.

Luzhkov for president
By Oleg Cheremnykh

I think you are right in not believing in the possibility of
Luzhkov-Communist coalition. As far as I understand, this rumor is not
exactly true. The truth is that after consistently denying that he will run
for President, Luzhkov finally acknowledged during his visit to the UK
(Blackpool Labor conference) that if there are no other trustworthy
candidates for the job by the year 2000, he will run. As there are, indeed,
no other trustworthy candidates (Luzhkov can trust neither Yavlinsky, Lebed,
Zhirinovsky, Iliumzhinov or Zyuganov), this statement can be regarded as a
firm and positive indication that Luzhkov will, indeed, run. Poll after poll
indicates that if Luzhkov gets into the second round (which he, most likely,
will), he will win over Zyuganov, Lebed or Yavlinsky (the strongest other
Personally, I think that Luzhkov is most likely to win the 2000
presidential race and become Russia's next president. There are many reasons
for that. First, Luzhkov is the only potential candidate with a strong and
positive track record in a government job: he has a very demanding and
responsible government job (mayor of Moscow) and he is doing it well. Even
his enemies acknowledge that he is the best city manager in the country and
that Moscow is probably the only one "success story" which reaped the
greatest benefits from reports. Second, Luzhkov was smart enough not to hold
any position in any government or a seat in the parliament which made him
immune to the blame the ordinary Russians are putting on both executive
power (President and the government) and the Duma for hardships that they
have to endure. Therefore, Luzhkov can easily make Russians believe that if
he gets the job, he will make Russia ar least as Moscow is. He was never
openly involved in any questionable financial dealings; neither is he a "New
Russian" (at least, not explicitly).
Third, he has in his possession very substantial financial and other
resources: a powerful financial-industrial group which involves several
banks (including Bank of Moscow - one of the largest in the nation) and
hundreds of other companies owned either directly by the Moscow government
or by AFK Sistema - a holding company closely affiliated with the Moscow
Government (by the way, it owms MTS and MSS cellular services providers).
Luzhkov also controls most of financial flows in Moscow and his job gives
him high visibility and the ability to conduct tacit campaign "for free".
Fourth, Luzhkov is not associated with the Communist past of Russia with its
Stalinist Gulags, shortages of the most basic goods, closed borders, tight
information controls, crackdown on personal freedoms and other
"achievements" of Communism which are currently not very attractive to the
majority of Russians. Also, he exhibits enough of the nationalist and
populist rhetorics to gain support of "proud Russians" suffering from the
diminished role of Russia in the international arena. In addition, he is
very popular among the governors - the regional bosses of Russia - and can
use their resources to get elected. With his down-to-earth, "simple man",
almost proletarian style, he is considered by ordinary Russians to be "one
of their own", a "man next door" who rose to the top thanks to hard work and
managerial ability. He is not affiliated with any "oligach" or any other
visible financial-industrial group. 
There are two additional factors that came up recently which further favor
Luzhkov. With the humiliating defeat of Chernomyrdin ans the subsequent
refusal of Ryzhkov and Shokhin from NDR (Our Home is Russia) party further
exacerbated by refusal of Chernomyrdin to run for the Duma mandate from
Yamalo-Nenetsky district (a Gazprom stronghold which made Chernomyrdin a
sure winner), the "party of power" lost both its potential presidential
candidate and the political party (which existed largely beacuse of the
support of the regional elite). President Yeltsin is now too old and too
unpopular to run for the President in the year 2000 (not to mention the fact
that he can be banned from running by the Constitutional Court). This
created a void which Luzhkov is the most likely to fill. Already many
governors expressed their support for Luzhkov during the contest for the job
of Prime Mimister of Russia. Even close allies (and employees!) of Yeltsin -
press-secretary Sergei Yastrzhembsky and Security Council head Andrei
Kokoshin - lobbied in favor of Luzhkov during the search for a PM (which
subsequently cost them their jobs). The ruling elite - federal and regional
- is concerned that the almost unlimited power of the President can fall
into hands of gravely incompetent and unpredictable Lebed or Zyuganov.
Luzhkov seems the best bet in this scenario.
Therefore, I believe that Luzhkov has all the ingredients to become the
next President of Russia and, frankly, I do not see any serious alternative.
Not that I like Luzhkov too much but I believe that he is the best there is
(i.e. everyone else is much worse). There is, however, a possibility that
the financial crisis in Russia will bring into the fore a totally new
political figure. There are still almost two years left before the elections
and as we all know too well, many things can happen in Russia within this
time period. 
As for his alliance with Communists, I think that there is little to worry
about. As none of the candidates can muster the 50%+1 votes required to be
elected President, Luzhkov (as any other candidate) will have has to join
forces with some other political movement (at least in the second round).
Personally, judging from the polls, I think that the alliance between
Luzhkov and Communists is unlikely, because Luzhkov and Zuganov are the
primary contenders for the presidential position and therefore are likely
not to join forces but to compete fiercely against each other both in the
first and in the second round. I think that Luzhkov is more likely to get
the votes of supporters of Yavlinsky and Lebed in the second round. 
I think that this idea of a Luzhkov-Communist coalition was proposed by
Communist. They need Luzhkov much more than he needs them. In my opinion,
Luzhkov has enough resources to win without Communist support (or even going
against them) . For Communists, supporting Luzhkov and striking a deal with
him may be the last chance to get a chunk of power in Russia (hopefully,
without any responsibility attached to it). It is doubtful that this
alliance will, indeed, take place. After all, in independent Russia,
Communist were always an opposition party and Luzhkov was always in power.
It would be not very logical for them to join forces now. 
As a down-to-earth, professional city manager, Luzhkov is a pragmatist
and has a pretty good understanding of how the economy should (and should
not) work. In the UK, he proclaimed himself as a convert to "New Labor"
ideology of Tony Blair (which is very far from Communism). Therefore, I
believe, that he, in fact, will conduct more of a centrist policy, aimed at
gradually guiding Russia towards a European model of "socially-oriented"
market economy rather than towards the American style market economy
advocated by most of the liberal reformers (Gaidar, Chubais, etc.).


Moscow mayor denies Communist alliance

MOSCOW, Oct 9 (Reuters) - Moscow's ambitious and influential mayor, Yuri
Luzhkov, who said last week he might run for president, denied reports on
Friday that he had formed an alliance with the country's Communist Party. 
"No discussion about any union with the Communists is under way," Luzhkov, who
controls a powerful media empire and the capital's financial muscle, said in
remarks reported by Interfax news agency. 
But the mayor, once a key ally of President Boris Yeltsin, hinted that an
alliance with the Communists would be less problematic than in the past,
saying Russia's leftists had moved toward the political centre since clashing
with Yeltsin's tanks in a showdown in 1993. 
"The left has realised that only through constitutional means can it bring
about change," he said. 
Luzhkov has cultivated a reputation as a man who gets things done, staging
lavish public events and sowing huge monuments across Moscow. 
The city has thrived, relatively speaking at any rate, while most of the rest
of Russia has been driven ever deeper into poverty by economic reforms. 
But his autocratic management style has drawn some fierce criticism and it is
widely thought he would need to broaden his political base to win the
Since announcing his presidential ambitions, Luzhkov has spoken of increasing
state controls over the economy, a platform similar to that of the Communists,
fuelling reports he was courting their backing for his presidential bid. 
He has spoken of plotting a middle way between socialism and capitalism in the
manner of British Labour Prime Minister Tony Blair, while Communist leader
Gennady Zyuganov has forecast a centre-left alliance that could involve
Some analysts have speculated that the Communists, struggling to produce an
electable presidential candidate of their own, could rally behind Luzhkov as
president in return for key positions in government. 
Nonetheless Luzhkov has had some trouble winning Communist confidence, in part
for the role he played in the 1993 clashes when he backed Yeltsin against
leftist parliamentary rebels. 


Date: Fri, 09 Oct 1998 
From: "Barry W. Ickes" <> 
Subject: Menshikov on the Virtual Economy

I suppose that to Menshikov anyone who disagrees with him is hollow or
prejudiced, but your readers deserve some response to his comments anyway. 
Menshikov ignores the issue of what prices. He is sure that energy and
labor costs constitute only 13% of the total cost of producing steel. Let
us suppose his facts are correct (though I doubt anyone would believe this
for obvious reasons). At what prices are those magnitudes calculated? The
calculation only makes sense if these are the actual cost of the resources
that go into steel production. If steel companies pay one-half the price of
the energy they consume, then the total energy cost of producing steel
would be twice the figure he quotes. Without knowing the actual terms of
trade how can we assess accounting figures. Enterprises engage in barter
and non-monetary transactions precisely to hide the value of transactions.
The Karpov commission looked closely at the revenues of large enterprises
in Russia. They found that the prices that revenues and costs were recorded
in were not close to the actual market value of the goods. One enterprise
booked receipts at some 500 billion old rubles, but half of its receipts
were received in barter. The market value of these goods, the investigators
determined, was about 54% of the booked values. Another large share was
received in veksels. These, it turned out, traded at even greater discount.
Only 2/5 of one percent of receipts were in cash. So the output was
inflated by much more than half. 
The point of this example should be clear. You cannot simply wave around a
number that the cost of steel is X without referring to how it is paid for.
This point ought to be obvious. Why it is not, I do not know.
Menshikov wants me to look at an input-output table to see that no sector
is value destroying. But I know that in a closed economy no sector will be
value destroying as a whole if its output is needed for production. In a
closed economy prices will adjust to cover these costs. (In a closed
economy enterprises can destroy value even if the sector as a whole does
not.) At world prices a sector can be value destroying, but looking at an
input-output table will be of no help in this regard. This ought to have
been obvious as well.
Menshikov remarks that prices of energy are rising faster than for
industry as a whole, according to Goskomstat. As Reagan used to say, "there
you go again." What matters is the price actually paid. We know that
Goskomstat received less than 10% of its revenues in money during 1997.
What does it matter if the reported price is high, but the actual price
that producers pay is much lower, either because they delay payment or pay
with barter goods that are over-priced? Why is this not clear?
As to the depression comparison, Menshikov believes (along with the
Economics Section of the RAS) that output is down due to a contraction in
demand. If the deflationary gap is closed he thinks output will pick up. I
argue that output has fallen because the Soviet economy was producing the
wrong things (related to what people with purchasing power) want to buy. I
cannot see how one can compare Russia (1992-1997) where there was an
xplosion in banks, the money supply, high inflation, to the US where there
were massive bank failures. Credit collapsed in the US. In Russia credit
was used to buy other things. If real incomes in Russia suddenly tripled to
you think Russians would run out to purchase vcr's manufactured in Voronezh
or in Seoul?
Menshikov does not understand the meaning of opportunity costs. The
opportunity cost of an activity is not a theoretical concept. It is what
the enterprise must give up to purchase that service or good. It has
nothing to do with stock prices or theoretical calculations. Again the
point to be made about Russia is that the reported costs of Russian
enterprises are not the actual opportunity costs, because the instruments
used to pay for the goods (barter, veksels) cost the enterprise less than
the money price that is recorded. That is why they use these items rather
than money. They cost less. Recorded prices and opportunity costs differ.
If you talk to any enterprise director you would know this. This means that
values measured in accounting prices do not reflect opportunity costs.
Directors know this; this is how they survive in the Russian economy. 
I still do not understand why this is so hard to understand. But I would
argue that until this notion is understood it is hard to say anything
serious about the Russian economy.


Date: Fri, 09 Oct 1998
From: Stephen S. Moody (
Subject: Ickes re: The "Virtual Economy" Debate

Barter and "value destruction" (or, more simply, overpricing) are two
distinct phenomena which are not necessarily related. Barter does not cause
overpricing in contracts between industrial enterprises, nor is it even a
necessary prerequisite. Hardly endemic to Russia, "padded invoices"
(overpricing) are regular features of commerce in Western monetized economies,
and certainly a much more widely practiced phenomenon than barter.
Of the two practices, however, especially in the Russian case, barter has
much greater macroeconomic significance than overpricing. Indeed, since
bartered transactions account for more than 50 percent of Russian GDP, barter
renders any attempt to conduct monetary policy ineffective; that is, since
half the transactions in the economy are cashless and occur outside the
fractional reserve commercial banking system, the Central Bank's attempts to
control new credit formation (Accounts Receivable) or new emissions (veksel'
and other monetary surrogates) by raising or lowering the rediscount rate
(ychetnaya stavka) or bank reserve requirements are essentially pointless.
Worse yet, when the prevalence of barter is coupled with the fact that 85
percent of the nation's savings are denominated in dollars rather than rubles
and held in old socks rather than commercial banks, the futility of conducting
monetary policy in Russia--tight or otherwise-- becomes painful obvious.
One could argue that at no time since the inception of economic reform did
the Central Bank of Russia have measurable control over more than 14 or 15
percent of the Russian economy. Under those conditions, one could reasonably
conclude that the tools of monetary policy (i.e., the IMF, the Central Bank,
the commercial banking system, and the very currency itself) are virtual, and
that the "real" economy shed all pretense long ago when it abandoned the ruble
in favor of barter and banks in favor of old socks. 


Russia: Analysis From Washington -- The Consequences Of Depoliticization
By Paul Goble

Washington, 9 October 1998 (RFE/RL) -- The failure of Russian Communists on
Wednesday to mobilize the large number of demonstrators party leaders had
predicted and Russian officials had feared appears to reflect a fundamental
shift in popular attitudes on the role of the state, rather than support
for or opposition to any particular program or policy.
According to a survey released this week by the Moscow Center for
International Sociological Studies, only 12 percent of the Russians
surveyed said that they counted on the state to take care of them. In
contrast, some 61 percent said that they now rely only on themselves.
Polls taken earlier suggest that this represents a major shift away from
the attitudes toward the state that Russians and others living under
Communism often displayed in the past.
But while this depoliticization of the population is both a necessary
precondition for and a reflection of the emergence of a civic space between
state institutions and individual citizens, it also has three consequences,
not only for the Russian Federation but also for other post-Communist
countries as well that may present problems for both the state and its
First, as people turn away from the state as the source of support, they
inevitably care less about what the state does and are less willing to act
on their opinions. That means that neither the state nor the opposition can
mobilize them to take action for or against anything.
As a result, the opposition cannot easily get large numbers of people to
demonstrate, even if the opposition is taking positions that polls suggest
most people agree with. And the government cannot draw on popular support
even when it may be doing things that the people have said they want.
And that means that the size of demonstrations for or against anything or
anyone are an increasingly poor indicator of what the people want or don't
want the state to do.
Second, precisely because people are focusing on their private lives and
taking responsibility for them, they are likely to become increasingly
upset when the state attempts to intervene in their lives even for the most
benign purposes, particularly if it does so in an ineffective manner.
Such attitudes, widespread in many countries and important in limiting the
power of state institutions, nonetheless pose a particular danger to
countries making the transition from communism to democracy. 
While they do help promote the dismantling of the old state, they also
virtually preclude the emergence of a new and efficient one. In that case,
these countries are likely to find themselves often without the effective
state institutions that modern societies and economies require if they are
to be well regulated.
And third, countries with depoliticized populations are especially at risk
when they face a crisis. The governments cannot count on support because
people no longer expect the governments to be able to deliver, and the
opposition cannot generate support because people no longer think that the
opposition can do anything either.
That danger is especially strong in countries where the governments cannot
draw on strong national sentiments. In the Baltic states, for example, the
governments have been able to keep depoliticization in check because of the
importance of national rebirth to most people living there.
But in other countries, and Russia is the classical example, neither the
government nor the opposition is in a position to draw on national
sentiments. Not only do many Russians blame the current political system
for their problems, but both they and the government are aware that an
openly nationalist course would cause alarm bells to ring in many places.
As a result, the depoliticization of the population in the Russian
Federation is very much a two-edged sword. It has helped to open the
psychological space necessary for the emergence of a vibrant civil society
capable of regulating itself on many issues.
But it has also hobbled the regime in a way that means that the Russian
government is likely to have a harder time in coping with crises -- and
also that the Russian opposition is likely to have an equally difficult
time in responding to whatever the Russian government does. 


Sergeyev: Moscow May Join NATO if it Merges With OSCE

ATHENS, October 8 (Itar-Tass) -- Visiting Russian Defence Minister
Igor Sergeyev said on Thursday Moscow did not rule out joining NATO if the
alliance merged with the Organisation for Security and Cooperation in
Europe (OSCE).
"We do not rule out that in order to provide European security, it may
be acceptable to set up an international system on the basis of admitting
all European nations, including Russia, into NATO, and simultaneously to
create quite a new bloc-free system on the basis of the integration of this
organisation with the OSCE," Sergeyev said at the National Defence Academy.


Podberezkin on Shokhin, New Government 

Rossiyskaya Gazeta
2 October 1998
[translation for personal use only]
Interview with Aleksey Podberezkin, deputy chairman of the
Committee of the State Duma for International Affairs and leader of
the Spiritual Heritage social and political movement, by Lyudmila
Semina; place and date not given: "Time for Compromise"

[Semina] How do you assess the situation following A.
Shokhin's resignation? With his departure, does the government not
lose its coalition character?
[Podberezkin] I would not yet call Primakov's government a
coalition government: it is being shaped more by the "will of
circumstance." The premier is putting together a cabinet while
trying to impart to it more political clout and greater political
support. I believe that Shokhin appeared as vice premier for
precisely this reason: Primakov aspired to the support of NDR
[Russia Is Our Home]. But at the last moment Shokhin pulled back,
afraid of the real responsibility with which he had been invested.
In my view, Shokhin is motivated by personal, not national,
interest, as should be the case with a real state absolutist.
[Semina] Why do you not consider the new government a
coalition, various parties and social forces are represented, after
[Podberezkin] A coalition government is not simply a
collection of party representatives. It means always an agreement on
compromise. Only Primakov himself in the present cabinet is a
compromise figure with whom all are comfortable. Shokhin's arrival
and departure, therefore, essentially changes nothing. He is a
passing, not a contractual, figure.
[Semina] Perhaps it is not yet time for coalitions, accords?
Your movement, for example, is taking part in the 7 October protests
with an antipresidential slogan. You understand that this will not
strengthen but rock the situation in the country, contribute to a
continuation of the crisis....
[Podberezkin] The impotence of the authorities is contributing
to the crisis. We are taking part in the demonstration because the
demonstration is a civilized form of social protest, as distinct
from rebellion, "senseless and pitiless." All of us, regardless of
political programs, have one common field of action, where
compromise and agreements are always possible--the field of national
interest. But, of course, the politicians have here to put their
ambitions and their party interests on the back burner here. This,
truly, does not always happen....


Russia's Lebed increases pressure on Yeltsin
By Timothy Heritage

MOSCOW, Oct 10 (Reuters) - Regional governor Alexander Lebed increased
pressure on President Boris Yeltsin on Saturday, saying he could face a revolt
if he does not respond clearly to ordinary Russians demanding his resignation.
Lebed, a probable presidential challenger, said he was alarmed by the
Kremlin's silence over protests across the vast nation last Wednesday calling
for Yeltsin to resign. 
``The high and mighty silence of the Russian authorities after the protest
action on October 7 could lead to a revolt by the people,'' Lebed told
Interfax news agency. ``Instead of peaceful protest actions, we could get
something much worse.'' 
Lebed, a former Yeltsin security adviser who is now governor of the
Krasnoyarsk region in Siberia, did not say what form a revolt might take but
urged the Kremlin to do more to hear out the complaints and proposals of
ordinary Russians. 
He has a vested interest in criticising Yeltsin because he is expected to
stand in the next presidential election, due in 2000. But calls for Yeltsin to
resign have become widespread as Russia slipped into economic crisis in the
past few weeks. 
Yeltsin, 67, said on Thursday he planned to see out his term until mid-2000
but has not commented directly on the protests, which the trade union
organisers said attracted 25 million people although police say only 1.3
million took part. 
Despite the unions' bravado, the turnout was lower than they and the
opposition Communist Party had hoped. 
Even so, Yeltsin has been weakened by Russia's worst financial crisis for
years and has made few public statements of substance on problems such as the
collapse of the rouble against the U.S. dollar and the government's default on
some debts. 
Russia's new prime minister, Yevgeny Primakov, has promised to wipe out the
wage and pension arrears which partly prompted last Wednesday's protests but
has failed to produce an economic plan a full month after he was confirmed in
Primakov met education officials on Saturday to discuss the problems of one of
the sectors that complain of underfunding in the past few years. 
``The government attaches great importance to sustaining Russia's intellectual
centres and intellectual potential without which it is impossible to raise the
economy and pave the way for our development `` Itar-Tass news agency quoted
him as saying. 
Interfax news agency quoted Education Minister Vladimir Filippov as telling
reporters his ministry had drawn up a plan for ensuring places of learning
receive funds promised under the annual budget. It gave no figures. 
Primakov faces a host of problems other than the economy and is expected soon
to meet Aslan Maskhadov, leader of the breakaway Chechnya region, over rising
tension in the North Caucasus. 
In the latest incident in the volatile region, an explosion and fire on a
military train killed a soldier and a fireman in Russia's southern region of
Interior Ministry officials in Dagestan said it was not known what caused
Friday's blast but Tass said it could have been a mine or some other kind of
explosive device. 


Russia Asks EU for Food, Medicine
October 10, 1998
MOSCOW (AP) -- Russia has asked for food and medicine from the European Union
to help make it through the winter, an official said today, while the country
faces plunging imports, a sinking currency and its worst harvest in decades. 
Prime Minister Yevgeny Primakov told European Union President Jacques Santer
in Moscow on Friday that such aid ``would be welcome,'' said Bertrand Soret,
the chief EU spokesman in Russia. 
While many store shelves have been empty in recent weeks, Russia hasn't
experienced any serious shortages and is likely to ride out the winter as it
has previous difficult periods -- with or without food aid. 
Russia's long-standing economic problems developed into a full-fledged crisis
in mid-August, and the government is planning to drop or lower import duties
on basic foods such as meat, butter and grain in a bid to restock them. 
The government insists it doesn't plan any centralized grain imports this
year, but Russian agricultural executives are heading to the United States to
negotiate grain purchases next week, the Agriculture Ministry said today,
according to the Interfax news agency. 
Reports of a U.S. food aid package to Russia propelled a brief surge in grain
markets earlier this week. Although talks between the Department of
Agriculture and Russian officials were said to be informal, some say Russia is
looking to import as much as 3.3 million tons of donated grains. 
Details on what food and medicine Russia needs and what the EU could offer
will be worked out in committees, Soret said. The EU insists that the
distribution of any such aid will be carefully controlled. 
Other Russian officials, meanwhile, were seeking to play down the shortages. 
Deputy Agriculture Minister Vyacheslav Chervoivanov said Russia would not
import any grain this year, despite a paltry harvest of 55 million tons caused
by prolonged droughts, Russian news agencies reported. That's down from 88.5
million tons last year, and is the worst harvest in more than 40 years. 
Russia has imported grain several times in recent years, mostly for fodder. 
Overall imports -- which Russia used to depend on for nearly half its consumer
goods -- plunged 45 percent in September because most people can no longer
afford them, the government said Friday. When the ruble was devalued Aug. 17,
it sent prices soaring. 
In some categories the decline was even more dramatic. Pharmaceutical imports
were down 71 percent, while milk and sugar imports both fell more than 80
Many are concerned that the government has not yet come up with a
comprehensive plan to deal with the economic crisis after nearly two months.
While Primakov has been in office since Sept. 11, his Cabinet is still
formulating an economic rescue plan. The government has said it will be
announced before Oct. 20. 
Primakov reiterated Friday that the government's plan hinges on whether the
International Monetary Fund releases the next installment of a $22.6 billion
loan negotiated before the crisis. 
Without that boost, Russia is widely expected to start printing more money,
which will stoke inflation. 
Russia badly needs foreign aid to pay off a mountain of debts, but
international lenders have not been willing to provide money until they know
the contents of Russia's economic program. 


Return to CDI's Home Page  I  Return to CDI's Library