This Date's Issues: 2427 • 2428
Johnson's Russia List
13 October 1998
[Note from David Johnson:
1. AFP: Just 2% of Russians Have Faith in Yeltsin.
2. Ludmila Foster: re two items on JRL.
3. Renfrey Clarke: ON STRIKE AT THE VOLKOV MINE.
4. Stanislav Menshikov: Reply to Ickes in JRL 2422 on the Virtual
5. Moscow Times: Yulia Latynina, INSIDE RUSSIA: Regions' Barter Games
Aped at Federal Level.
6. Moscow Times: Geoff Winestock, Gaidar Predicts the Rebirth of
7. Reuters: Financial Crisis Deals Health Service a Death Blow.
8. AFP/Reuters: Zadornov Concedes No Anti-Crisis Plan for Russia
before New Year.
9. RFE/RL NEWSLINE: CHURCH ELICITS POLITICIANS' PROMISE.
10. L-I: Fwd: Miners camp in Moscow destroyed by police.]
Just 2% of Russians Have Faith in Yeltsin
MOSCOW, Oct. 12, 1998 -- (Agence France Presse) A mere 2.0 percent of
Russians say they still have confidence in President Boris Yeltsin and only
1.0 percent would vote for him if presidential elections were held today,
according to a new opinion poll carried out for NTV television.
The poll commissioned by NTV each week to gauge the chances of the main
presidential hopefuls, showed a surge in support for Communist leader
Gennady Zyuganov at 21 percent compared to 18 percent last week.
The populist mayor of Moscow, Yury Luzhkov scored 17 percent -- up 5
percent from last time. The governor of Krasnoyarsk region, Aleksander Lebed
was stable at 12 percent tailed by the liberal leader Grigory Yavlinsky at
Date: Mon, 12 Oct 1998
From: "Ludmila A. Foster" <email@example.com>
Subject: re: two items on JRL
Anne Williamson in her very good piece on "Russian
Fundamentals" (JRL 2426) has a small (but important) mistake. Speaking
of Property Rights in the past, she writes: "Since only the Tsar or the
Party had property..." No, under the Tsars, i.e. before the Communists
became the owners of everything, PEOPLE had property rights. My own
ancestors OWNED a house, Alfred Noble OWNED his investment in the
Chechen oil fields, etc.
She also makes the same omission that David Satter made in his superb
review article "The Rise of Russian Criminal State" (JRL 2360). Neither
mentions WHO today's oligarchs are, where they came from, why was it
specifically they who accumulated this fabulous wealth? Berezovsky was a
mathematician, Gusinsky was a theater adnistrator, Khodorkovsky was a
Young Communist League functionary, Smolensky was some kind of a
drifter, jailed for some economic crime, Gaidar was a writer for the
magazine "Kommunist" etc., etc. How did they come into the position of
controlling around 60% of Russia's economy (according to Berezovsky)and
dictating to President Yeltsin who should be the Prime Minister? I
wish, someone would elucidate this point of the "reforms."
#ON STRIKE AT THE VOLKOV MINE
#By Renfrey Clarke (firstname.lastname@example.org)
#KEMEROVO, Russia - Gennady Filatyev, director of the Volkov coal mine near
this city in the Kuzbass industrial region of Siberia, is a bull of a man.
Even his face has something bull-like about it, with its strong forehead
crowned by a mass of white hair. And when he leans across a lectern,
gesticulating as he makes a point, he could be pawing the ground.
#This is one occasion, however, when Filatyev is not about to put his head
down and charge. Before him in the hall are more than a hundred miners, who
have shut down the Volkov mine for the day in protest at its failure to pay
wages in four months. For toiling in primitive and dangerous conditions, the
workers have received nothing, not even the bartered foodstuffs often
provided by cash-poor Russian enterprises in lieu of wages. The miners are
angry, and bawling them out would not be good tactics.
#So Filatyev as he speaks reserves his ire for the Russian market system,
which, he asserts, is "savage" and "criminal", condemning working people to
an "animal-like" existence. To the miners, he is patronising and sorrowful.
"I don't have the right to ask you to work without pay, but I have to say
that I can't pay you." There was due to be money, he explains, from the
state holding company that controls much of the coal industry here in the
northern Kuzbass. But with the financial crisis that has gripped Russia
since mid-August, the promises have turned to dust. The banking system has
largely ceased to function, freezing huge sums in transit from debtors to
#Nevertheless, Filatyev argues, it would be a mistake to extend the strike.
The blow, he says, would only fall on the Volkov mine. And it would be a
crime to force the mine to shut down! Granted, the mine is running at a
loss, but Filatyev insists it can be saved. Without it, there would be no
work for the miners, and no hope for them of obtaining work.. Consequently -
and here is the real point of his speech - the miners should go back onto
the job, while voting to demand the payment within a week of a solid
installment of the funds owing, say a million rubles, with the rest
according to a definite schedule.
#With the moving of Filatyev's motion, the absurdity of the situation really
hits home. This is a strike meeting, and there on the stage in front of the
workers, alongside the provincial chairperson of the miners' trade union,
are two representatives of the coal company, and the mine boss. Filatyev
does not seem aware of the paradox. This is a meeting of the mine's labour
collective, and doesn't he work here? Won't he lose his job along with
everyone else if the mine shuts down?
#The miners do not seem to find his presence odd either. On the other hand,
they do not seem intimidated, replying to him forcefully from the floor.
That's all very well, speaker after speaker asserts, but when are we going
to see some money? Give us a definite date.
#Here Filatyev's patronising aplomb starts to slip. The miners' requests are
put to him civilly enough, with the verbs in the respectful <I>vy<D> form.
But when he responds, his tone is sharp and overbearing, and the form of
address is the familiar, condescending-in-the-circumstances <I>ty<D>. Fellow
worker? No way. The relationship, even the language, is that of an old-time
Russian landowner, a <I>baryn,<D> talking to his serfs. And if the mine were
to close, would the director have to try to survive by growing potatoes on
his garden plot, along with the ex-miners? Hardly. With his commercial
contacts, Filatyev would go straight into private business, and no doubt thrive.
#But meanwhile, the meeting is continuing. Viktor Bunin, the provincial head
of Rosugleprof, Russia's main coal trade union, rises to speak. The Russian
state authorities are profoundly anti-worker, Bunin declares, their
so-called reforms a shambles. But an isolated strike would make no impact.
The best course, Bunin argues, is for the miners to take part vigorously in
the country-wide trade union protest campaign that is to culminate in mass
actions on October 7.
#An alternative motion is moved from the floor: for work at the mine to stop
until a million rubles are paid, and pledges are given that the remaining
debts will settled according to a fixed schedule. Then the meeting votes,
and it is Filatyev's motion that is carried, 65 to 60. For the Volkov
miners, it will be back down the pit, with no particular hope of being paid
for months to come.
#The meeting over, Filatyev makes a beeline for me, a foreign journalist.
"Honestly, I didn't know what I could tell them," he says regretfully.
"They've got a brutal life, and now I can't even promise them money. If it
were up to you, what would you do?"
#Why not say it? The only way out for the miners, for all hired workers in
Russia, is to set about building a massive political movement that really
fights for their interests....
#Filatyev reflects on this for a moment. "Yes, that's it!" he exclaims.
"What Russia needs is a strong leader!"
#He invites me to his office for a question-and-answer session before he,
trade union leader Bunin, and the coal company representatives talk over the
day's decision. But before Filatyev can take his seat, there is a woman
petitioner in the corridor. I watch through the open door as the mask of
benevolence drops away. Suddenly livid with fury, the mine director screams
at the woman, sends her packing. The patriarch is also a despot.
#Just as suddenly, the mask is back in place. Where are you from in
Australia, Filatyev asks me jovially. The mine director, it turns out, was
in Sydney himself once.
#I begin asking questions. How does the Volkov mine rate? Is it considered
to have prospects? One of the coal company officials smiles ironically.
Technically, he says, the mine should be dying. It produces low-grade
steaming coal, and the equipment is old and worn-out. Under any other
director, the official maintains, the mine would have shut its gates five
years ago. But its productivity is in fact relatively good, because of a
skilled workforce, good labour discipline and tight organisation. The mine
could survive, deserves to survive. But now, with the country's finances
blown apart, nothing can be guaranteed.
#I take my leave. Out on the steps of the mine offices, a dozen or so miners
are standing about. They ply me with questions and comments.
#"Why don't you come down the mine with us? You wouldn't come up again -
what's down there would scare the life out of you."
#"We have to go down there every day - we're forced to. And we don't even
get paid for it."
#"Up there," says someone else, gesturing toward the office where the
director is in conference, "that's the Russian middle class. Did he tell you
he's been to Australia? We can't even afford the bus fare into Kemerovo."
#And is Filatyev getting paid, I wonder aloud. Half a dozen voices together.
"You bet he is. And well, too." Whatever the truth here, the miners are not
to be convinced that the director is living as meanly as they.
#Meanwhile, people want to know, what's life like for miners in Australia?
How much do they make each month? I hazard a guess. There are whistles, and
#"But listen, they didn't get where they are by doing as they were told.
They built strong unions and fought like hell. And if they stopped fighting,
it'd all be gone in no time. They'd be like you are now."
#An awkward silence. People seem to be thinking: What the hell have we got
to fight with? Who gives a damn if we go on strike?
#Across a gully, spread out across the slope opposite, are the houses of the
miners' settlement. They are far from being the worst houses to be seen in
Russian villages, I comment. Most are solid and spacious, and many are of
#"No-one's built anything new here for years," someone notes. "See those
cars there? They were all bought ten years ago." Back then, people
volunteer, this wasn't a bad place. You worked, you got paid, and in the end
you at least finished up with something.
#My bus rolls up. Handshakes all round.
#"Tell it to your Australian miners from us!"
#"And if anyone offers you some perestroika, say you don't want any."
From: Stanislav Menshikov <email@example.com>
Subject: Reply to Ickes in JRL 2422 on the Virtual Economy
Date: Mon, 12 Oct 1998
I do not see why Mr. Ickes is so angry. His assertion that "to Menshikov
anyone who disagrees with him is hollow or prejudiced" has no basis. Nobody
who knows me would ever claim such a thing. I am ready to learn from anyone
who convinces me he is right on the basis of logic and hard evidence.
Getting angry is not my preferred style of academic discussion. When you get
angry, you make more mistakes. So let us take a minute to calm down and think.
As you can see from my previous comments, I do not "ignore the issue of
what prices". I specifically indicate that actual absolute and relative
prices can be different from those reported, but when reported electric
energy and gas costs constitute only 7 per cent of the reported average
price of steel on the industry level(labour costs are a separate issue),
their adjustment to reflect actual prices does not make materially affect
the conclusion as to whether that industry is a value creator or not.
"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
(Menshikov) quotes", writes Ickes. Wait a minute. My figure of 7 per cent
relates to reported costs, not actual costs. If steel companies pay only
one-half the reported price of the energy they consume, then their actual
energy costs should be twice lower, not higher, i.e. only 3.5 per cent. If
you were not so angry, Mr. Ickes, you would not have gone into the wrong
Because the sales price of steel may actually be lower than the reported
price, the share of actual energy should be in the area of 3.5-7 per cent.
These changes do not materially change the position of the steel industry as
Mr. Ickes doubts "anyone would believe this (my figures) for obvious
reasons". Would be interesting to know what these "obvious reasons" are. If
he could simply quote some figures indicating the actual share of energy
costs in the price of Russian steel and quote a serious source to support
his evidence, he would really add substance to his discussion and make it a
bit more serious. Obviously, different steel plants have different cost
structures per unit of output. My figures relate to average costs for the
industry as reported by Russian statistics. Would be interesting to see what
figures Mr. Ickes has in mind.
The more interesting point is why should energy producers which are mostly
natural monopolies in Russia accept payment in overvalued steel and thus
undervalue their own products? The claim that they are doing so under
pressure from the government is not credible. It could be that they are keen
on underreporting their revenues and profits and thus reducing their tax
bills. If that is the case, then why would the steel industry, on the
contrary, inflate its reported revenues and profits and make itself liable
to more profits?
The answer to these questions is, I suspect, that no individual industries
gain too much via barter interchange. In fact, as plenty of field reports
suggest, it is the natural monopolies that mostly gain from barter and the
use of promissory notes. The discounts on the latter are usually smaller
than on the veksels of other industries.
Ickes quotes the Karpov commission which cites instances of overreporting
sales. But does it not also cite instances of overreported costs? From a
plant manager's perspective that would be a more natural mode of behaviour.
Barter and promissory notes are generally used to hide revenues and inflate
costs, not vice versa.
I am not sure I follow the Reagan humour re Goskomstat. Its price indices
are the only ones that we have to judge the relative movement of prices in
steel and energy. Over the years, according to these data, the terms of
trade have been changing against steel. If Mr. Ickes has other indices that
show a different picture up his sleeve, why not produce them?
I do not particularly want Ickes to look at an input-output table. I am
sure that would substantially inflate his opportunity cost of writing
articles and papers. People do not usually get famous by operating with that
conglomerate of figures, but most of them are respected professionals in
their area of work. For some reason Mr. Ickes believes the input-output
table that I used is one calculated for closed economy. But the table that I
refer to relates to 1995, not to 1990 when Soviet Union/Russia was indeed
somewhat of a closed economy. By 1995, due to market reforms, it was rather
open. In 1995, for instance, the Russian steel industry exported 36 per cent
of its total output and was
calculating its costs mostly in dollars, not in roubles. For the economy as
a whole imports were 17 per cent of Russian GDP in 1995. The figure for the
open economy of the US was only 11 per cent in the same year. Surely, by now
everybody knows that before its recent crisis Russia imported half of its
foodstuffs sold in retail trade and a third of its total food consumption
and that the crisis was largely due to the excessive opening of Russian
financial markets to short-term capital inflows and outflows. So much for
the "closed" Russian economy.
The fact is, however, that in ANY economy, not just in a closed economy,
"no sector (to quote Mr. Ickes) will be value destroying as a whole if its
output is needed for production". That is the main point in the whole
discussion about the "virtual economy" and I am glad that Mr. Ickes admits
it. Practically all of Russia's current output is needed either for
consumption or for capital investment or for production in other sectors.
Russia may not be producing too many sophisticated goods, but it does
produce goods that are needed inside the country and also in foreign lands.
Predominance of barter and intra-enterprise arrears does not change that
main fact and runs contrary to the widely held but
largely uneducated view that Russia produces goods that nobody wants. That
is the most important fact testifying against Mr. Ickes's view that most of
Russian industry is value-destructive. If products are needed, acquired and
actually used, their producers cannot be that destructive.
Mr. Ickes is right that Russian input-output tables are calculated in
current Russian prices. This is common practice in any country.
Recalculating the table in world prices is not too difficult. Such
calculations have been made in the early 90s. They did show that most
Russian manufacturing was not covering its costs. But WHAT COSTS? To Russian
producers they were never real. The only real costs for them is what they
I remember how some US experts in the olden days used to recalculate Soviet
military expenditure in US prices and wages of soldiers and officers. The
total was so big as to be unbelievable when compared with total Soviet GDP.
Such calculations are partly meaningful for comparing real magnitudes in
different countries. But they have little meaning for explaining economic
relations inside a foreign country. The inevitable conclusion would be that
the other country was either "virtual" or heading there. The foreign mirror
is always somewhat crooked.
But suppose we start comparing the Russian economy recalculated in world
prices directly with the western economies. As is known from the theory of
comparative advantage even if all Russian products were more costly to
manufacture than abroad, there would still be room for their production
because that would ADD, NOT SUBTRACT product and value from the world total.
There is also some misunderstanding of the causes of the Russian economic
downturn. But the main point is why the economy fails to recover. Russian
output is down for many reasons. But contraction of demand is certainly one
of them. This is not a matter of my belief but of fact. Personal consumption
in Russia is down because real incomes are down. Machinery production is
down because capital investment is down. Military output is down because
defence spending is down. It does not matter which VCR's Russians would buy
if their incomes doubled or tripled (as Mr. Ickes hypothetically suggests)
-- those domestically produced or imported. They would certainly buy many
more of all
kinds of consumer goods. VCR's are not the things 60 per cent of the
population puts a priority on right now. Personal consumption in general
would increase substantially and so would GDP together with capital
investment and everything else.
The comparison with the US of the 30s is valid not because the Russia and
American depressions are identical in nature, but because Russia is in a
deep contraction, as the US was 60 years ago. In such a depression, the
assessment of industries as value-destroyers are wrong for the simple reason
that the same industries and enterprises that are profitable in normal times
could be temporarily unprofitable in times of depression. These are abnormal
times in Russia, as they were in the US in the 1930s. And it is not the right
time to make a decision on who creates and who destroys. This will be
settled my the market in the course of economic recovery.
Mr. Ickes believes that repeating the classroom definition of opportunity
cost solves the problem and probably thinks that the concept is unknown in
Russia. Contrary to that belief, opportunity costs (on the macro- and micro-
level) have been calculated way back in Soviet times by economists who
wanted to make planned prices reflect the full cost of lost benefits and
thus make central planning a worthwhile exercise. The concept is old and
very familiar in our country.
Opportunity costs are a theoretical concept which most business concerns
both in the West and in Russia follow by instinct because it is simply
another way of loss minimisation. The Russian companies are driven by the
same logic when they choose barter or promissory notes. In a classical
market economy market prices are the main basis for making such decisions.
They do not necessarily truly reflect company's opportunity costs. Most
firms are price receivers. Those who set their prices do so largely on a
cost-plus basis. In Russia loss minimisation is a complex problem which
includes market prices
and other factors, such as barter, taxes, IOU's, etc. But it exists
independently of the fact that reported prices may be different from actual.
The reported costs of Russian enterprises are not the actual opportunity
costs not because, as Mr. Ickes writes, "the instruments used to pay for the
goods (barter, veksels) cost the enterprise less than the money price that
is recorded", but because market prices are rarely equal to opportunity
costs in any event. If the instruments are cheaper for the enterprise than
the money price, than that is true for all or most enterprises and then the
difference tends to equal out, particularly over whole industries. Of
course, the directors
know it. But any executive in the West knows it as well, though he does not
use these instruments. While in theory he should always consider all
possible alternatives and choose the best one, because that procedure
minimises his potential losses, in real life he simply, as a rule, plans for
small increments in market share of his products, or works for an acceptable
break-even point between dividends and executive compensation, or strives to
maximise market capitalisation of his company, etc. Ask him why doesn't he
work with true opportunity costs, and watch his reaction. I do not see why
it is hard to understand how this relates to the stock market. If it is, ask
a company executive to clear it up for you.
Let me cite another example. Currently, Dutch cheese is being sold in
Moscow shops for the equivalent of 60 Dutch guilders (about $35) per
kilogram. In Holland, the average price of the same cheese is 15 guilders
($5.70). Transportation and other costs do not explain the difference.
Neither does risk. Traders who sell the cheese in Moscow are not bartering
but accept cash only. Based on these figures, Dutch producers and traders
are destroying value in mass by selling their stuff at home and ignoring the
true opportunity costs. Go and tell them that and see their response. The
response is that they are more interested in what they can get in Holland
today than in what they loose by not
going to Russia. The marginal utility of staying at home and doing one's
business at known prices and costs is enormous compared with the cited price
differential. But would anybody in his right mind want to make all those
calculations in order to come to such an obvious conclusion? What a waste of
time and mental energy for finding something that is clear by simple
October 13, 1998
INSIDE RUSSIA: Regions' Barter Games Aped at Federal Level
By Yulia Latynina
Yulia Latynina is a staff writer for Expert magazine.
Last week one of the last achievements of Anatoly Chubais' government, a ban
on the use of money substitutes to make payments to the federal budget,
crumbled quietly and unnoticed.
The first money substitute appeared in Russia in the fall of 1994 in the form
of promissory notes issued by the Finance Ministry, devised as a way around a
freshly signed agreement with the IMF limiting ruble emissions. Instead of
printing more money, then deputy finance minister Sergei Alexashenko simply
proposed issuing veksels guaranteed by future ruble emissions.
When the IMF realized in 1995 that parallel to the Central Bank, the Russian
Finance Ministry had also become a source of emissions, it demanded a stop to
this nonsense. The government then converted state promissory notes into state
tax exemptions, going on the assumption that it would be impossible to use
these exemptions in place of money since they were meant for specific
enterprises. A new trade in tax exemptions began nevertheless, with exemptions
selling for 30 percent under their face value. It wasn't the actual tax
exemptions themselves that were being purchased, but rather the right they
afforded to collect taxes owed.
While federal budget payments were being offset with pseudo-securities f
promissory notes, tax exemptions, credits underwritten by the Finance
Ministry, etc. f practices were far simpler at the regional level, where up to
70 percent of budget payments were made by means of barter transactions.
Since these arrangements would require authorization from local bureaucrats,
abuses were naturally rife. People who wished to barter at a favorable rate
often had to make contributions to special funds operating under the local
A company called Aktsiya that was founded by the deputy governor of the Omsk
region acquired the right to collect taxes owed by the joint stock company
Transsibneft and then settle Transsibneft's obligations to the local budget.
Since Transsibneft uses a combination of money and oil to pay its taxes, it is
a closely kept secret just how low-grade the oil is that Aktsiya forwards to
the budget, and at just how high a rate it is priced in the process.
Generally, instead of receiving money from regional budgets, any firm that
buys up coal for central heating on behalf of municipal authorities is given
the right to retain taxes on the coal supplied. As a result, the price of that
coal is set at two or three times higher than the norm, and the company
becomes a direct mechanism for turning taxes into money for the benefit of the
local mayor or regional governor.
Up to now, the use of securities to fulfill obligations to the federal budget
has enriched the banks, while offsets at the regional level have alleviated
the tax burden on enterprises and enriched the local authorities. Now it seems
that regional practices have spread to the federal level. Gazprom has promised
that it is ready to supply the army with munitions, and make its compulsory
payments to the state medical insurance fund by providing it with medicines,
no doubt at the highest prices possible.
And since there is no discussion of any new form of securities, the already
weakened banks have now been excluded entirely from the circulation of budget
funds, and possibly from the Russian economy altogether.
October 13, 1998
Gaidar Predicts the Rebirth of Liberal Reforms
By Geoff Winestock
Yegor Gaidar, the father of Russia's market reforms, met foreign journalists
to talk about what has gone wrong in the past seven years.
Geoff Winestock was there.
Anyone expecting Yegor Gaidar to take the blame for the collapse of the
Russian economy will be disappointed.
Despite seven years of reforms that he inspired, the Russian economy is a
mess. The ruble, which he boasted he had turned into a real currency, is once
again a worthless joke. Just as they were seven years ago, Russia's people are
devastated by raging inflation and their trust in the government is zero.
But Gaidar, at a briefing last week for foreign journalists, says none of this
is his fault. "I would not have changed any of the major things I did. My only
mistake was not having enough confidence that I was right," he said.
The policies he first initiated in 1991 as acting prime minister are not
wrong, Gaidar claims. They were just thwarted at every turn by the Communist
opposition, the financial oligarchy and, perhaps, worst of all, by President
Boris Yeltsin's inconsistency.
Even the infamous decisions of Aug. 17 when then Prime Minister Sergei
Kiriyenko and Central Bank chairman Sergei Dubinin announced a ruble
devaluation and an effective default on state debt win a vote of approval from
For him the disaster began not with Aug. 17 but either much earlier or much
later. Earlier because Russia should have done something to rein in its budget
deficit years ago. Or later, because for Gaidar the real trouble started Aug.
23 when Yeltsin sacked Kiriyenko and opened the door on months of political
instability and a communist renaissance. "It was one of Yeltsin's most serious
mistakes," he said.
Perhaps most audaciously, Gaidar does not even accept that the game is up now.
He believes that the current government will make such a mess of things that
within a year the political situation will change dramatically. He believes
that his liberal views could enjoy a revival once it becomes clear how
unpleasant the alternative is. He recently published a new economic program
and says he is now looking for political allies.
Some people may think this is just another sign of how out of touch he has
Corpulent, condescendingly intellectual, fluent in English, Gaidar is the high
priest of the liberal dream that for many failed over the past two months. He
embodies a Russia that spurns the populist Soviet tradition and looks to the
West for capital and modern ideas. From a famous literary family, he is a
former editor for Pravda newspaper who as acting prime minister started
Russia's "shock therapy" of free-market reform. He was dismissed by the
Communist-dominated Supreme Soviet the next year, returned briefly in 1993 and
then quit the Cabinet to take a seat in the State Duma.
While few doubt his mastery of Western economics, his political touch is less
sure. Since his Russia's Choice party was decimated in the elections in 1995,
he has had no formal office, only heading the much diminished party and also
working at his Institute for the Economic Problems of the Transitional Period.
Even though he has been a political nobody for the past three years, his
influence in the government remained strong. Former Deputy Prime Ministers
Anatoly Chubais and Boris Nemtsov are soul mates and, when Chubais quit to
head Unified Energy Systems, Gaidar continued as a close adviser to the
This is the first completely left-wing government in the past seven
years,Gaidar says, but he is not expecting a full-scale return to communism.
Rather, he says, new Prime Minister Yevgeny Primakov will be trapped between
Communists in the State Duma pushing for Soviet-style socialism and the
conflicting demands from the rest of Russia for a market economy.
The most likely outcome is a mix of bad economic policies with high inflation
generated by printing money and tighter government controls. But Gaidar does
not completely dismiss Communist First Deputy Prime Minister Yury Maslyukov
and new Central Bank chairman Viktor Gerashchenko.
"They do not believe in the fairy tales they are being told by [perestroika-
era] academics who say that, if they boost the money supply, it will not cause
inflation but will instead raise production," Gaidar said. "I think the
government will try very hard to do nothing, but that will very difficult."
Gerashchenko, who will now decide on how much money to print, is, for Gaidar,
one of the most mysterious of the left-wing figures in the government. "You
can never really tell whether he really believes what he is saying."
Apart from the recalcitrant Communist-dominated Duma that blocked tax and
budget reform, Gaidar blames the financial oligarchs for destroying the
Kiriyenko government and pushing Russia over the brink.
For Gaidar, the summer of 1997, when the "young reformers" Chubais and Nemtsov
held top economic portfolios, was a sign of what could be achieved by a
moderately reformist government. Big companies were forced to pay their taxes,
the budget deficit fell, pensions were paid on time, tax reform was pushed
ahead and there was economic growth.
Even before contagion from the Asian crisis started to hit Russia, this was
ruined by the so-called "bankers' war" in which Russia's financial elite
launched a smear campaign against the young government. Gaidar says the
government failed to take the necessary measures to rein in expenditure soon
enough partly because of the offensive it faced from Russia's financial
The attacks were intensified when Kiriyenko took office in March , making no
secret of his commitment to restrict the role of the oligarchs.
But the worst blow occurred Aug. 23, when Gaidar says the oligarchs convinced
President Boris Yeltsin to sack Kiriyenko. The signature on the decree was
Yeltsin's, but Gaidar is convinced that the oligarchs f he did not identify
tycoon Boris Berezovsky by name f persuaded Yeltsin that sacking Kiriyenko and
replacing him with their friend, the political "heavyweight" former Prime
Minister Viktor Chernomyrdin, would win immediate support in the State Duma
and somehow right the economy.
In fact, Chernomyrdin was thrown out by the Duma and the economic situation
has shown little sign of improvement. The loss of prestige to the oligarchy
has been "almost the only positive development of the past few months," Gaidar
If Gaidar had had Yeltsin's ear in those critical days in August, he would
have told a completely different story.
Gaidar says the government had no alternative Aug.17 when it defaulted on its
debts and devalued the ruble.
While he accepts that a devaluation might have helped Russia's trade position
earlier in the year, it was never a costless option. Given the massive
overhang of short-term state debt and the hard-currency forward contracts to
which Russia's banking system was mortgaged, any devaluation would have caused
a banking and budget crisis.
The government Aug. 17 accepted that devaluation was inevitable and Gaidar
believes the Kiriyenko team was well placed to minimize the losses until
Yeltsin and the oligarchs pulled the rug out from under its feet.
Gaidar notes it was in the week after Kiriyenko was sacked that the ruble
crashed to 20 to the dollar and shelves started to empty. "I understand what
Kiriyenko and Dubinin were trying to do [on Aug.17]. We now have exactly the
scenario they were trying to avoid," he said.
As the economic situation deteriorates even further, Gaidar sees a dynamic
political situation. He disputes the current accepted wisdom that General
Alexander Lebed and Moscow Mayor Yury Luzhkov, the two populist strongmen of
Russian politics, will inevitably benefit.
While he slams Yeltsin's mistakes, he insists it is crucial that Yeltsin
remain as a counterbalance to the communists' ambitions to control the media
and the armed forces.
Gaidar's own economic program is a familiar mixture of liberal, monetarist
economics. He says the government must continue the fight to raise taxes but
points out that a 300 percent price rise over the next three months will
create a huge bonus for the government f revenues will surge but expenditures
are fixed. This, he says, provides leeway for some indexation of social
Gaidar's solution for the banking crisis is to let foreign banks take over
moribund giants such as SBS-Agro and Inkombank. This part of the program, he
candidly admits, would be impossible to sell to the nationalist public, but
then Gaidar has never been much of a populist politician.
He is, however, a realist, and he predicts that for the next six months
Russia's banking system will be kept half-afloat by Central Bank credits.
State-owned banks will be the most healthy sector, he says.
For the West, Gaidar's advice is not to panic. He believes that the
International Monetary Fund will find it almost impossible to support the sort
of policies Primakov is pursuing. But he predicts things may change in six
months once the government is seen to have failed. Who knows? The
disillusioned middle class may even be politicized to the point where they
have some time for Gaidar.
Financial Crisis Deals Health Service a Death Blow
MOSCOW, Oct. 12, 1998 -- (Reuters) Russia's financial crisis has dealt a
deadly blow to the country's faltering health service, leaving doctors and
nurses without wages and medicine and equipment in short supply, the health
minister said on Friday.
"The socioeconomic crisis has hit all aspects of the health system,
stopping us from doing our job," the newly appointed minister, Vladimir
Starodubov, told a news conference.
"People cannot get medical help when they need it...and the crisis is
making people ill."
He said the rate of illness in Russia had grown in the first eight months
of this year, with 21.5 million registered cases in a population of 150
Cash earmarked for the sector in the government budget fell by 26
percent. He gave no further figures.
"We want to support our employees, but we are not in a position to
support them," Starodubov said.
"They want do their job and they've got hands and brains, but not the
Some doctors, nurses and other public health employees have not been paid
for between three and eight months and, according to official figures, were
owed some 3 billion rubles ($187 million), he said.
Trade unions say the backlog stands at 5 billion to 10 billion rubles.
Millions of Russians in both the public and private sectors are owed
wages stretching back many months, prompting some to attend rallies calling
for President Boris Yeltsin's resignation on Wednesday.
The government blames the delays on a complex web of debt that has built
up between companies and between firms and cash-strapped state bodies
including the armed forces.
Starodubov called for some additional capital to encourage a greater
domestic involvement in the pharmaceuticals market, which is swamped with
Western tablets and syrups.
The supply of imported medicine has declined sharply in the past two
months as the ruble has lost two-thirds of its value.
"We have worked on far-reaching reforms for the health system despite
living through this country's crisis," he said.
He said he hoped to introduce standardized training for doctors, new
equipment for hospitals and guarantee people an effective health service.
Many Russians lost faith in public medicine after the collapse of
communism and alternative medicines have thrived as the average life
expectancy for men has plunged by some six years to 58 over the past decade
due to a combination of poor health care and diet and heavy drinking.
Some Westerners have begun to campaign for a higher level of public
health awareness in Russia.
Bob Swan, president of the Corporation for Russia-American enterprise,
has set up a campaign called "Heart-to-Heart" to fight heart disease and set
up an AIDS awareness program.
"Russia's health care crisis can only be solved if the private sector
steps forward in this hour of need," Swan said.
He said he has called on foreign firms to give one percent of their sales
in Russia to support the public health education drive. Cough and cold
remedy maker Quigley Corp. has agreed, he said.
"What is at stake is the very future of Russia and her magnificent,
although presently quite unhealthy, people."
Zadornov Concedes No Anti-Crisis Plan for Russia before New Year
MOSCOW, Oct. 12, 1998 -- (Agence France Presse, Reuters) Finance Minister
Mikhail Zadornov conceded Sunday that Russia would be unable to meet IMF
demands to produce a clear anti-crisis plan to haul its collapsing economy
off its knees before the New Year.
The minister, who is conducting difficult negotiations with the
International Monetary Fund and Russia's international creditors, said the
fast-moving crisis meant it was difficult to draft a coherent plan quickly.
He told state-run RTR television that an overall rescue package would not
be ready until early 1999, after passage of an emergency fourth-quarter
budget designed to plug huge holes in federal finances.
"I think that it is difficult today to draw up an integral (anti-crisis)
plan because, first of all, the situation is changing quickly, and secondly
it is too complicated to try and tackle it in just one plan," he said.
Asked if that meant the government would resort to a series of stop-gap
measures over the next three months rather than producing a full-blooded
anti-crisis plan, Zadornov said: "I think that, precisely, these measures
will form the base, so that in 1999 we can set some medium-term objectives."
The liberal finance minister is the sole Cabinet survivor of the
monetarist team that sanctioned an Aug. 17 ruble devaluation and brutal debt
default, which triggered a sharp acceleration in Russia's chronic economic
crisis and toppled reformist premier Sergei Kiriyenko.
The debt default pushed the country's fragile banking sector to the
brink, while the move to unhook the ruble from its stable dollar peg sent
the currency nosediving against the greenback and inflation rocketing.
But a senior parliamentarian said on Friday that Russia should rely on
its own resources for the fourth-quarter budget because Western financial
support, if it is offered, will not be available until late in the year.
"In preparing the budget for the fourth quarter ... the government and
the Duma can only rely on their own strength," Aleksander Zhukov, head of
the Duma budget committee, told Ekho Moskvy radio.
"If there is some kind of foreign support, under the most optimistic
forecasts, it is unlikely to appear in Russia before December."
Zhukov, part of a delegation that just returned from talks with
representatives of the World Bank and the International Monetary Fund in
Washington, was critical of the two separate budgets -- optimistic and
pessimistic -- that are being worked on by the government.
"I think that we only have one version: as much as we may not like it, we
need to tighten our belts even further and direct available finances to the
biggest problems that we have today," he said.
But Zhukov said that did not mean Russia should give up on receiving
Western support, but should continue talks with international creditors.
He said that passing a revised fourth-quarter budget was a waste of time
with only just two and a half months left in the year and that for the rest
of the year the government can only afford to pay wages, pensions and
finance the military.
Prime Minister Yevgeny Primakov and his center-left Cabinet which came to
power on the back of the fiasco have toyed with printing money to clear 110
billion rubles in arrears to pensioners, state sector workers and the
military, revive the banking sector and aid moribund industry.
But the plans, devised by economy supremo First Deputy Prime Minister
Yury Maslyukov, have provoke IMF warnings of hyperinflation and led to a
bitter cabinet duel between the Communist official and a Zadornov fighting
to keep Russia on the fiscal straight and narrow.
Primakov disowned a draft Maslyukov anti-crisis strategy widely leaked to
the press, dispatching Zadornov and central bank chief Victor Gerashchenko
to Washington to present Russia's emergency budget plans to IMF officials.
Russia wants at least $2.5 billion of frozen IMF loans released to make
up for shortfalls in spending until the years end, but the Fund has ruled
out transferring any cash until Russia has devised a coherent strategy to
tackle its economic and financial morass.
RFE/RL NEWSLINE Vol 2, No. 197, Part I, 12 October 1998
CHURCH ELICITS POLITICIANS' PROMISE. Patriarch Aleksii
II of Moscow and All Russia hosted a forum for top
Russian politicians on 9 October at which they pledged
to start working together to ease the nation's economic
crisis. According to Interfax, forum participants
included State Duma chairman Gennadii Seleznev,
Federation Council chairman Yegor Stroev, First Deputy
Prime Minister Vadim Gustov, Moscow Mayor Yurii Luzhkov,
armed forces chief of staff Colonel-General Anatolii
Kvashnin, a number of regional governors including
Kemerovo head Aman Tuleev, and Duma faction leaders such
as Communist Party head Gennadii Zyuganov. JAC
Date: Mon, 12 Oct 1998
From: mark david mandel <firstname.lastname@example.org>
> Subject: L-I: Fwd: Miners camp in Moscow destroyd by police
> Date: Mon, 12 Oct 1998 07:29:13 PDT
> From: "bill wayland" <email@example.com>
> Reply-To: firstname.lastname@example.org
> To: email@example.com
> >On the 10th of October at 4 a.m. the miners picket tent camp outside
> the govt building in Moscow was attacked by police. The camp was smashed.
> the tents, the slogans, the personal things were completely destroyed. The
armed policemen had beaten defenceless workers from Vorkuta, Kuzbass,
Samara, Moscow, after that around 18 people were detained and spent the
whole night in a policestation without water, food, bed or communication.
Nobody explained them the reason. The next day the majority of them was
convoyed by the police to railway stations and forced to leave Moscow. Some
of the members of the All-Russian strike committee who were among the
detained workers have escaped and come back to Moscow. They'll organise a
press-conference on the 12th of October.
to CDI's Home Page I Return
to CDI's Library