October 13, 1998   
This Date's Issues: 2427 • 2428 • 

Johnson's Russia List
#2428
13 October 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Los Angeles Times letter: Impeachment.
2. Reuters: Russia hails Kosovo talks, opposes strikes.
3. The Times (UK): Anna Blundy, Campaigning begins as rivals sense 
power vacuum.
4. Chicago Tribune: Elizabeth Rindskopf, WHERE NUCLEAR PERIL LIES
WAITING.
5. Moscow Times: Gary Peach, THE ANALYST: What Primakov's Anti-Crisis 
Measures Should Look Like.
6. Will Harte: letter from Vologda.
7. New York Times: Timothy O'Brien, Journal: Russia's Factories, Prey 
of Bankers, Rust Away.
8. Los Angeles Times editorial: West Must Help Russia.
9. Boston Globe: Jean MacKenzie, With all else failing, Russians bank 
on debt. But private deals mask true picture, analysts say.]

******

#1
Los Angeles Times
13 October 1998
Letter
Impeachment 

In Russia, it takes the complete meltdown of the economy to bring out
calls for the president's resignation (Oct. 8). Here, all it takes is a lie
about sex. 
Pass the vodka. 
THOMAS E. BRAUN 
Littlerock, Calif. 

*******

#2
Russia hails Kosovo talks, opposes strikes
By Peter Graff

MOSCOW, Oct 13 (Reuters) - Russia hailed a breakthrough in talks over Kosovo
on Tuesday, but threatened to provide military aid to Yugoslavia if NATO
attacks it. 
U.S. envoy Richard Holbrooke announced a deal with Yugoslav President
Slobodan Milosevic that would allow international monitoring of Yugoslavia's
compliance with U.N. resolutions calling for an end to a Serb crackdown in
the province. 
Russian foreign ministry spokesman Vladimir Rakhmanin said Russia
welcomed the development and would likely take part in the international
monitoring team once it is organised. 
But he also warned that any unilateral use of force by NATO would force
Moscow to change its policy towards the alliance. 
The defence ministry issued a statement saying it might supply direct
military aid to Belgrade if NATO launches strikes. 
``The defence ministry is studying a complex of possible measures to
defend the national interests of Russia and offer aid to the Serb people if
NATO begins bombardment of Yugoslavia,'' the statement said. 
``First of all, these measures call for a change in the partnership
relations with NATO. Russia will provide military and military-technical
support to Yugoslavia,'' it said. 
But Kremlin spokesman spokesman Dmitry Yakushkin said only President
Boris Yeltsin and the foreign ministry could give official policy and asked
reporters to ``pay no attention to statements by other individuals,
including the military.'' 
Rakhmanin, the foreign ministry spokesman said: ``If NATO will decide the
fate of a conflict through one-sided actions, then definitely this will
affect our relationship toward NATO,'' but would not comment on what
concrete steps Russia might take. 
He also said Russia approved of the appointment earlier of Borislav
Milosevic, the Yugoslav president's brother, as Belgrade's new ambassador in
Moscow. 
The Kosovo crisis has prompted some of Moscow's strongest anti-Western
rhetoric since the Cold War. 
Gennady Seleznyov, Communist speaker of the State Duma lower house of
parliament, said an attack by NATO would be an ``impulse towards a new Cold
War.'' The Duma will send a delegation to Yugoslavia led by
ultra-nationalist Sergei Baburin. 
Deputy Duma speaker Vladimir Ryzhkov said the chamber planned to pass a
resolution calling a NATO strike ``aggression'' and an ``unmitigated threat
to the Russian Federation.'' 
The tough talk comes as Yeltsin, who led Russia's relatively friendly
stance toward the West for nearly a decade, is ill and appears to have lost
his once-solid grip on the reins of state. 
Dmitry Trenin, a defence analyst at the Carnegie Institute for Peace in
Moscow, said the real issue was not Russia's alliance with Serbia, but the
fear Russian generals have of unilateral military action by the Western
alliance. 
``Russia's position on Kosovo does not differ very much (from the
West's). The real issue is that NATO is establishing a precedent of acting
alone without approval from the U.N. Security Council... Russian generals
feel that one day they may be on the other end of the stick,'' he said. 
Trenin said Prime Minister Yevgeny Primakov was unlikely to steer Russia
on a wholly anti-Western course at a time when the country's economic
recovery could still depend on foreign loans, though harsh statements could
be intended partly to remind Western leaders of the high stakes should
Russia's economy fail.

*******

#3
The Times (UK)
October 13 1998 
[for personal use only]
Campaigning begins as rivals sense power vacuum 
FROM ANNA BLUNDY IN MOSCOW 

WHILE Boris Yeltsin's health fails before his country's eyes, the men who
would take his place have begun their campaigns to succeed him. 
President Yeltsin cut short a visit to Central Asia yesterday on his doctors'
advice. And although he insists he will see out his term, which ends in
mid-2000, there are few who expect him to do so. 
The faux pas for which he is internationally renowned and for which Russians
secretly loved him have become sad, not funny. It is suddenly clear that his
gaffes are the result of illness and incapacity, not drunkenness and joie de
vivre. 
Since his quintuple heart bypass in November 1996, Mr Yeltsin has suffered
various bouts of illness, but has never sunk so much into the political
background as he has today. 
Yuri Luzhkov, Mayor of Moscow, announced his intention to run for President
two weeks ago, and has been forging alliances with men who might help him,
including General Andrei Nikolayev, the former border guard chief. 
There was talk of Mr Luzhkov attaching himself to the Communists and heading a
left-of-centre alliance instead of Gennadi Zyuganov, the Communist Party
leader. Vladimir Zhirinovsky, head of the Liberal Democratic Party and another
contender, said that would be "a good way to get a leader who secured more
support than Zyuganov". 
Mr Luzhkov soon rejected any such plan and moved closer to Grigori Yavlinsky,
leader of the Yabloko Party, presidential hopeful and the more reasonable face
of Russian politics. Mr Luzhkov said that Mr Yavlinsky was the closest in his
view to "the ideas of clean market reforms". The plan, it seems, was to make
Mr Yavlinsky a Prime Minister to Mr Luzhkov's President, although Mr
Yavlinsky, like Mr Yeltsin, suffers from heart problems. Only last month he
had a mild heart attack. 
Viktor Chernomyrdin, the ousted Prime Minister who was first to announce that
he would be running for President in 2000 or before, has been talking to all
the media in an attempt to raise his profile. Although he is unpopular, his
ace card is his lack of volatility: he is regarded as tedious but familiar. 
General Aleksandr Lebed, Governor of Krasnoyarsk, long ago abandoned his army
uniform for a suit in an attempt to seem more presidential, and now he has
perfected his statesmanlike manner, confidently calling for the resignation of
the ailing Mr Yeltsin, which he says is inevitable. 
Gennadi Selyeznov, Communist Speaker of the Duma, Russia's lower house of
parliament, put himself forward as a presidential candidate last week, making
it unclear whether he or Mr Zyuganov would stand for the Communists when the
time comes. Even former President Gorbachev has thrown in his pennyworth,
supporting calls for Mr Yeltsin's resignation. 
Naina Yeltsin, the President's wife, said before Mr Yeltsin fell ill in
Uzbekistan that her husband's health was now "more or less OK". She said he
had no intention of stepping down before 2000. 
Yevgeni Primakov, the Prime Minister, who would become President for the three
months before elections should Mr Yeltsin resign or die, is hoping that polls
will not come early. That, he says, would "lead to divisions and whip up
political passions". 
Premature or not, the hopefuls know a power vacuum when they see one. 

********

#4
Chicago Tribune
October 12, 1998
[for personal use only]
WHERE NUCLEAR PERIL LIES WAITING 
By Elizabeth Rindskopf. Elizabeth Rindskopf, formerly general counsel for the
U.S. Central Intelligence Agency and the National Security Agency, is
executive vice president of the Lawyers Alliance for World Security. 

Last month I visited Moscow for the second time this decade. In virtually
all respects, this latest visit--even in the midst of Russia's grave financial
crisis--was a far cry from my earlier stay in September 1990. Then, as the
second CIA official to visit the Soviet Union "in true name," I had been
treated to the subtle but effective traveler's aid of the KGB: searched
luggage, thoughtful English-speaking strangers offering assistance, monitored
rooms in a Stalin-style hotel. My second visit, as a private citizen to attend
a conference on nuclear terrorism and export controls, was entirely different.
As a city, Moscow has been transformed. No longer shabby and gray,
beautiful vistas and the sparkling golden domes inside the Kremlin vie for
attention with the freshly cleaned facade of the elegant National Hotel. An
upscale underground shopping mall now occupies space where once the Soviet
Army paraded military hardware. The scene reminded me more of Paris than of
the capital of a power that threatened the world with nuclear Armageddon for
almost 50 years.
The Russian people we met seemed changed for the better as well. Apparently
undaunted by their latest round of financial woes, our colleagues were
friendly and upbeat. Thus, in virtually all respects, today's Russia seemed to
have little resemblance to the former Soviet Union I had known.
In all respects, that is, save one. A visit to the world-renowned Kurchatov
Institute in the Moscow suburbs was a sober reminder that the remains of the
Soviet nuclear arsenal can still threaten U.S. and world security. In the
wrong hands, this material makes the likelihood of a nuclear confrontation
even greater now than during the Cold War.
The stated purpose of our visit to Kurchatov was to tour the facilities of
this premier Russian nuclear research facility and meet its scientists, the
cream of their generation. These world-class scientists showed us with pride
their current research projects on a variety of nuclear technologies, some
done in partnership or with the assistance of the U.S. government in an effort
to occupy them with peaceful projects--a modern version of turning arms into
plowshares.
Yet, as we toured the Kurchatov campus, the decay of the buildings and the
unkempt nature of the grounds were everywhere evident. An abandoned tenement
quality permeated this place that still represents the best of the former
Soviet Union's nuclear science.
And as our tour progressed, the real objective of our hosts became clear.
They wanted our assistance in preventing a loss of control of the nuclear
weapons material that resides in Kurchatov's crumbling structures.
They highlighted their concerns with a set of questions. Why, they asked,
do you believe that no Russian weapons-usable plutonium or highly enriched
uranium has yet to fall into criminal hands? Is it the modest security
devices, paid for from U.S. funds, that now delicately ring one or two
Kurchatov buildings? Is it the Materials Protection, Control and Accounting
Program (MPC&A) that is gradually being applied to the numerous facilities in
Russia where such weapons-usable materials reside? Or is it the incipient but
earnest efforts that the Russian government is making to create a reliable
export-control system ? Or perhaps it is the efficiency of international
police organizations that are tasked with apprehending criminal elements and
others should they obtain access to such weapons-grade material?
Our Russian hosts provided a persuasive explanation. Laudable as those
efforts are, in the end the real reason the world has yet to confront Russian
weapons-usable nuclear material in the hands of terrorists, criminals or rogue
nations is because of the dedication of the Russian nuclear scientists,
engineers and those working with them who have worked to prevent these
dangerous materials from falling into the wrong hands. They are the modern
heroes in the cause of nuclear non-proliferation. Having seen Kurchatov, I
find it difficult to disagree.
Yet even heroes have limits. Today many of those working in Russia's
nuclear labs and storage facilities like Kurchatov have been paid only a
fraction of their normal salaries--or nothing at all--for many months. With
prices sharply rising in Russia during the current financial crisis, this
front line in the fight against nuclear proliferation is being sorely
challenged.
In our conversations, the Kurchatov scientists did not ask for funding for
their own salaries, but they urged us to return to the United States with a
message: With all the money that the U.S. government is spending on programs
designed to prevent proliferation of Russian fissile materials, more thought
needs to be given to the human dimension of non-proliferation.
As an example, they pointed to one Kurchatov building with 100 kg of
weapons-grade highly enriched uranium that has no MPC&A protection (15 kg is
sufficient to make a crude nuclear weapon). The decorative Kurchatov perimeter
fence offers limited protection against intruders and the building itself is
unguarded because the institute cannot afford to pay the required $200 per
month for a guard to watch it.
From the standpoint of U.S. national security, the most important borders
in the former Soviet Union are those of the Kurchatov Institute. It is all
well and good for the United States to provide new equipment for airport
detection efforts and to spend as much as $1 billion in efforts to halt
nuclear smuggling by 2002. These efforts must continue, but they are not
enough.
Last week employees from various Russian nuclear facilities marched to the
Ministry of Atomic Energy to demand unpaid wages; later a hunger strike was
staged at a nuclear power plant in Primorsky and three officials were taken
hostage to reinforce the workers' demands. At the same time, in the Khabarovsk
region, 350 employees of a second nuclear power plant staged a demonstration,
again demanding pay. And right now weapons-grade highly enriched uranium is
unguarded at the Kurchatov Institute because no funds are available to pay for
guards.
What will next week's story be? That weapons-usable material has appeared
on the black market for sale to the highest bidder?

*******

#5
Moscow Times
October 13, 1998 
THE ANALYST: What Primakov's Anti-Crisis Measures Should Look Like 
By Gary Peach
Staff Writer

As desperate as Russia's situation may seem, one mustn't forget that
opportunities have a tendency to arise out of chaos. After every crash there
appears a chance to clean up the mess and start over again. The alternatives
are to adopt a series of half-hearted measures f which essentially will never
repair the underlying damage f or to do nothing and be burned alive. Russia is
at this fateful three-way fork in the road, and within days we will learn upon
which path Prime Minister Yevgeny Primakov's government intends to depart. 

Imposing additional taxes on exporters and relying on this weird idea of a
state monopoly on alcohol (in a country that loves a libation and will always
resist state control over it), as the Finance Ministry is now planning, is
doomed from Day 1. Were it wise, the government would, in its newprogram, take
a shot at unraveling some of the knots in past policies and introducing
overdue reform. Here are several crucial points: 

Debt restructuring. Thanks to devaluation, the size of domestic ruble-
denominated debt has fallen sharply. If, prior to Aug. 17, the size of
outstanding T-bills amounted to $60 billion, now it is hovering at around $25
billion and probably heading lower. Thanks to his predecessor Sergei
Kiriyenko, Primakov can restructure this financial nightmare so that it won't
be such a drain on public finances. Also, once the market is reactivated, the
government can even buy back some of these papers at a huge discount to face
value, thereby resuscitating investor confidence and economizing some funds
for the state. 

Banking reform. An economy cannot work if it does not have a functioning
banking system. A majority of Russian banks have acted as treasuries, hedge
funds or money-laundering vaults. They should be made accountable and forced
to improve transparency, e.g., by switching to International Accounting
Standards. Regulators should nudge banks to play less on the market and to
lend more. One way to accomplish this is through competition: The statement by
the Central Bank's Andrei Kozlov last week that the 12 percent foreign-
ownership limit in Russian banks should be increased represents the finest
words to come out of government in many months. Hopefully action will follow. 

Deposit insurance. Russia needs investment desperately. In developed economies
the greatest source of finance is the population's savings f deposited in
banks. Normally 60 percent of a commercial bank's assets comes from private
savings; Russian banks could only manage 30 percent, and this figure is
certain to sink fast. A system has to be developed to lure Russians' sizable
capital back into the very places from where it can theoretically filter into
the real economy. To change the tide and begin winning back depositors,
accounts should be guaranteed by the government. Definitely not all banks all
at once; only those that provide utmost transparency and are in constant
compliance with Central Bank ratios should be eligible. 

The danger here is insuring a bad banker's lousy loan portfolio with
taxpayers' money. This is a risk inherent in any deposit insurance program,
and former Central Bank Chairman Sergei Dubinin was correct in not wanting to
insure deposits during his term, as he as well as anyone was familiar with the
incompetence in the industry. 

But as things stand now, only Sberbank has a government guarantee on its
deposits, which ultimately does little for the economy: This institution has
been nothing but a giant reserve of cash for buying up the government's
treasury bills, hard-currency bonds and various financial junk (such as
agrobonds). The banks need assets; the government ought to help find them. 

Tax reform. Russia's economy will never recover as long as taxes are not
lowered. They stifle investment f both domestic and foreign f and choke the
nation's biggest enterprises. The entire system of taxation should be
revamped, with a consideration of Russia's federal structure. 

In the past, the government and the legislature have shown an utter lack of
initiative in implementing such sweeping changes, despite how acutely these
changes were needed. There is an exceedingly strong chance that something can
be done right now, if the Finance Ministry can demonstrate leadership. 

Fiscal reform. All changes in the Tax Code should flow out of a complete
rethinking of what Russia's fiscal policy should be. A deficit is un-
realistic; it cannot be afforded, no matter where the borrowing would take
place. The best option is to pass a balanced budget for 1999. Then, for sake
of a surplus, there will be an incentive to increase tax collection. Closing a
revenue gap through emissions is the same as receiving a blank check: No one
in government will have an incentive to go out and work. 

In sum, an opportunity exists to implement a few ideas that have been
consistently put off or neglected in the past. The government should seize
this opportunity. The merit of its program can and will be judged by how it
addresses each of these ideas. 

*******

#6
From: "Will Harte" <wkh@vologda.ru>
Subject: letter from Vologda
Date: Mon, 12 Oct 1998

Waiting for the Man
By Will Harte

It is just after eight in the evening and already another bright fall day
in Russia has slipped into darkness, lying down to await the lover she knows
will come. Winter. What will he bring her? Roses? Sweet Promises? A
frigid kiss that sears the heart?
The manner in which Russia has dropped the charade of post-Soviet
prosperity over these first few weeks of autumn is stunning, both for its
speed and because it all seems so final. Like that first cold front coming
in and erasing any hope of a return to summer, the August 17 devaluation of
the rouble and almost instantaneous collapse of the country’s house-of-cards
economy ran a chill through Russia overnight, laying bare the ephemeral
nature of President Boris Yeltsin’s reforms and leaving everyone wondering
out loud about trouble ahead.
Two weeks later, after Yeltsin had dismissed Sergei Vladlenovich Kirienko
as Prime Minister and recalled the “heavyweight” Viktor Stepanovich
Chernomyrdin, President Clinton was in Moscow trying to talk up support for
his friend Boris. While Clinton ended up looking like someone who had
walked in on a heated argument, he at least had the sense to leave quietly.
As a result, Russians—who cannot understand what in the world all the fuss
over Monica Lewinsky is about—hardly took note of the president amid the
start of a new school year and the growing crisis in the Kremlin.
If no one here stopped to ask just how much responsibility Clinton and
his foreign policy team bore for this latest trauma to Russian society, it
was only because people were too busy keeping an eye on the rouble-dollar
exchange rate. Arcing, curving, swooping, spiraling, the rouble underwent
an unnerving evolution beginning in late August, mirroring various sordid
events occurring on Russia’s political arena. Of course, it did not help
things that the country’s financial system had collapsed, or that people’s
savings in all major private institutions had been frozen by the Russian
Central Bank. Four years of increasing consumer confidence were dashed.
Panic hit the streets.
Against this background, Yeltsin in early September attempted to force
the unsavory morsel of a resurrected Chernomyrdin down the nation’s throat.
Deposed as prime minister in the spring and now, almost unbelievably, called
on by a president clearly losing his marbles, the dull but dangerous Viktor
Stepanovich was soundly rejected in two votes by a parliament quickly losing
its patience. Politicians and pundits began predicting civil war—an old but
potent threat around here—and after several tense days as the world watched,
word came from Yeltsin’s dacha that Chernomyrdin was being passed over for
the compromise candidate, Minister of Foreign Affairs Evgeny Maximovich
Primakov. Boris could not have made a better choice, and for the time being
Russia was back from the brink.
Primakov—whose real name is Finkelstein but has earned the moniker “the
sphinx”—comes to the Russian White House with the most impeccable of
credentials. Cold war spy master, Gorbachev confidante, savior of the KGB
after the fall of the Soviet Union, and the man who has brought about a
renaissance in Russian foreign affairs, Primakov is wily and well-spoken. A
smooth, no nonsense foreign minister for the last two years, Primakov was
the debonair Elephant Walk maitre d’ to Madeline Albright’s gum chewing
diner doll, delivering up diplomacy on platters palatable to all from Saddam
Hussein to William Cohen.
Unfortunately, the appointment of Primakov as Prime Minister promises to
do little in the short run to make the lives of his countrymen any better.
Russia is in a rut, and while Evgeny Maximovich is perhaps the only man who
can hold Russia together until the next election in June, 2000, the
direction this country is heading is dictatorship, not democracy; Pinochet,
not privatization.
Primakov is known for the strength of his convictions, and respected for his
ability to lead. However, whether he can lead Russia out of its current
mess with at least a remnant of the country’s former free market system
intact will depend to a large degree on the Russian people themselves. How
much more of Yeltsin can they take? As last Wednesday’s muted national day
of protest showed, Russians may be calling for Boris’ head on a platter, but
they are not yet ready to put it there.
A guy I know here, Anatoly, tells the following story about a friend who
recently emigrated from Russia: Settling in Germany, his friend buys a
bicycle and begins using it to go to the grocery store around the corner,
taking daily trips and enjoying his new found freedom. Pretty soon, though,
a policeman stops the Russian and orders him to dismount, pointing to a
no-bicycles-allowed symbol. The friend reluctantly goes the rest of the way
to the store by foot. A couple of days later, though, he is back on his
bike, and blows by the sign only to be confronted once again by the vigilant
officer. The Russian pleads forgetfulness in broken German and is glad to
escape without a fine. The next day he flaunts the odds and ventures out
again on his bicycle, only to be stopped for a third time by the now
familiar keeper of the peace. He dismounts immediately and is sheepishly
offering an apology when the policeman, looking around for a second, takes
out his baton and starts whacking away. “Russische schwein!” Now Anatoly’s
friend understands. Now he walks to the store for his groceries.
It is hard to come to terms with this apparent need Russia has for an
“iron fist,” as it is equally difficult to explain. Alas, as the past six
years prove, democracy is unlikely to take root here any time soon. The
great freedoms enjoyed by Russia today are more than offset by grotesque
levels of thievery, exploitation, and violence born of these very freedoms.
Russians talk constantly about the “oligarchy,” a small clique of fabulously
wealthy Jewish men, led by the Rasputin-like Boris Berezovsky, who
supposedly run both the Kremlin and the country. While reality is obviously
much more complex, Russians are want to look for simple answers and a strong
leader to correct the economic injustices prevalent today. Is it their
history, their genes, or the exuberance with which the west fostered its
ideas and values on an unsuspecting nation? It does not really matter.
Russians are now waiting for the man. Whoever he is, he will carry a big
stick. And use it.
Be this as it may, the overriding concern in Vologda this fall was with
the rain and whether people were going to have any potatoes to put away for
the winter. Contrary to scenes of long lines of frantic Muscovites at ATMs
and the blustery rhetoric of politicians, most Vologodians were initially
unaffected by the rouble’s collapse, mainly because they had nothing in the
bank to begin with. Also, people in Vologda had better things to do with
their time than watch Yeltsin mumble his way Brezhnevesque through a
nationwide television interview or to listen as parliament ranted on about
who was to blame for Russia’s mess. People here knew the score. The
country may be broke, but the Russian Central Bank just put the finishing
touches on a gleaming regional headquarters in Vologda. Standing out on the
bank of the Vologda River before half-submerged fishing boats, rotting log
houses, and the crumbling carcass of an unfinished hotel begun years ago,
the glass and stone palace is a fitting symbol for Russia in 1998.
Anyway, as I said, people had better things to do than play chorus to the
cynical farce being acted out in Moscow. After all, mother nature offered
up one of the warmest, sunniest autumns in memory, and what with all the
rain northern Russia had got this summer, it was a banner year for mushrooms
and berries here. Vologda’s forests and bogs were awash in edible gifts and
the bounty to be found was truly amazing. Blueberries, cloudberries,
bilberries, cranberries, white mushrooms, brown mushrooms, “little foxes”.…
Russians were out and about en masse this fall, pushed by the prospect of
“golod i kholod,” hunger and cold, this winter, but pulled by the soft
morning light and the thought of a warm bonfire at day’s end. “Za gribami,”
looking for mushrooms. No phrase quite conjures up the potent images these
two words do. Try, if you can, to imagine the smell of pine trees and
rotting leaves and sour cigarettes and sunlight. This is Russia’s essence.
This is why it will survive the latest crude joke called devaluation and all
that lies ahead.
Six weeks into the crisis, though, even those who spent autumn in the
woods have sat up and started to pay attention. Prices are higher
everywhere in Vologda and store shelves have regained only a fraction of the
luster they had before everything began to come apart at the seams. Locally
made items such as bread, sausage, and dairy products remain roughly what
they were, but even these are beginning to inch their way upward. In
Moscow, the Primakov cabinet remains mired in the mud of personality
conflicts and unclear goals. Just recently, someone promoted the notion of
forbidding the free exchange of U.S. dollars in Russia. The instant
hysteria this created in early morning Moscow reached Vologda around noon.
When banks here reopened for business after their hour lunch break, people
trying to unload their greenbacks quickly depleted the rouble supply in
town. Yeltsin had no other choice than to appear on television later in the
day and dismiss the idea publicly. Perhaps recalling that it was Yeltsin
who on August 15 had told reporters that there would be no, repeat no,
devaluation of the rouble, Primakov went on air in the evening, too,
assuring everyone that dollars could still be exchanged in banks. Do
Russians trust Primakov’s word? Time will tell.
Regardless, people go about their lives today much in the same way they
did before August 17. While bankers wonder whether this will be their last
day on the job, pretty girls in long coats and dress hats stroll by, smiling
in the midday sun. Young men in crew cuts and creased pants strut their
stuff on Cathedral Hill, the still waters of the Vologda River below
reflecting bright yellow birches and red maples against a pale blue sky.
Elderly couples just back from the dacha stand sentry at bus stops with
knapsacks full of carrots and cabbages for the months to come. Men just off
the job sit together on park benches, enjoying a smoke and a bottle of beer
in the growing twilight. Another day in Russia turns into night. Winter is
on its way. Life is good. Life is hard. Life goes on. 

*******

#7
New York Times
October 12, 1998
[for personal use only]
Journal: Russia's Factories, Prey of Bankers, Rust Away 
By TIMOTHY L. O'BRIEN

VOSKRESENSK, Russia -- Slender birch trees, their leaves turning gold and
orange in the early autumn air, line roads leading to this humble, fraying
town about 50 miles southeast of Moscow. 
But closer to Voskresensk, the fresh country air turns acrid with the
noxious odor of fumes belched from smokestacks atop one of Russia's largest
fertilizer plants. 
Menatep, a Moscow bank that is now insolvent, bought the decrepit plant in
1995 and was supposed to modernize it, bringing it into the vanguard of
Russia's march into modern capitalism. But little has changed. 
"I've worked here a long time, and it's never gotten better, no matter who
owns it," said Vasily Yevdokimov, 70, a machinist who has worked at the plant,
now know as Voskresenskiye Joint Stock Co., for 50 years. "They haven't spent
anything renovating this factory." 
There are legions of workers across Russia who can make the same claim. 
When Russia began a vast selloff of formerly state-owned companies three
years ago, Russian banks were among the biggest buyers. Today, there is little
evidence to suggest that banks did anything other than use the factories to
fill their own coffers. Indeed, many in Russia suspect that more money was
taken out of the companies than was ever put in. 
Modernizing Russia's antiquated industrial base is in fact a Herculean task.
Many factories are too outmoded and have long since passed the point of
becoming profitable. And decades of state subsidies for workers and their
families in factory towns cannot be undone without creating wrenching social
problems. 
Even so, Russian banks accepted these challenges when they began buying the
factories, and Voskresensk, a town of about 150,000, is one example of the
human impact of this squandered opportunity. 
"Sometimes I visit my friends working there, and it's gotten much worse
since I left," said Alexander Devyatkin, who worked at the fertilizer plant
from 1994 to 1996 and is now a fireman. "The air was very polluted and it was
very hard to breathe. Acid was everywhere. I think you make a lot of money if
you own the factory but not if you work there." 
Menatep, and Mikhail Khodorkovsky, chairman of Rosprom, the holding company
that controls the bank, declined repeated requests for an interview. The
management of the fertilizer plant refused requests for a tour. 
Voskresensk is a well-known hockey town, and residents proudly remind
visitors that Igor Larionov left here to become a star center for the Detroit
Red Wings. When Menatep bought the fertilizer plant, it also got the title to
Khimik, the local hockey team. An outwardly impressive hockey stadium
dominates the center of town and residents' social calendars. 
But Khimik is struggling from a lack of funds. Inside the hockey stadium,
above large, colorful murals depicting the team in action, tiles are peeling
away from the ceiling and pockmarks are visible in parts of the roof. A
regional governor recently took over the team, promising, residents said, to
spend more money on it. 
"This is the only thing in town that we take pride in," said Vladimir
Vasilyev, the hockey team's coach. "There is nothing to be proud of about the
chemical plant. The most important thing in Russia now is to be paid, and the
plant is hardly paying people anything." 
Yevdokimov, the machinist, said that the average salary at the fertilizer
factory is the equivalent of about $100 a month, although he said he is paid
about $47 a month. Or at least that was what he was once paid. Yevdokimov said
his wages are now a month overdue. 
He also said that about 50 percent of the plant's 5,000 workers had been
laid off since Russia's economic crisis began in mid-August, a much larger
number than the town's elders acknowledge. 
Yevgeny Simonov, Voskresensk's mayor, said that only about 100 people had
been laid off from the plant. "People are worried, but at the same time I'm an
optimist," he said brightly. 
Simonov enthusiastically distributes a brochure published by the fertilizer
plant. The leaflet shares the mayor's rosy outlook, noting that the factory
houses "remarkable imported equipment and state-of-the-art technologies." 
Yet while Simonov notes that a French company took over a nearby concrete
factory and made great strides modernizing it, he is hard pressed to offer
comparable examples of how the Voskresenskiye plant has been upgraded. Indeed,
Simonov eventually became angered by repeated requests for a tour of the plant
and hustled visitors out of his office. 
But walks around the outside of the sprawling factory, and interviews with
residents of Voskresensk, indicate that there is very little that is state of
the art about the plant. Large parts of its superstructure are rusting and
some heavy equipment visible through the gates looks as if it has been idle
for a long time. 
"Things are very hard because of the ruble's collapse, and now less people
are working at the factory," said Yevgeny Ovsyankin, another fireman who knows
workers at the plant. "It is not an up-to-date factory. It has lots of
problems." 
Now, with most of the country's largest banks insolvent and the overall
economy in tatters, it is unlikely that Russia will have the resources it
needs to do anything with its sagging factories and the towns they anchor. 
Russians have a well-known ability to endure both disappointment and
hardship, and few of them seem surprised that the country's factories were
poorly served by the banks that still own them. After all, many Russians note,
there is very little they can do about it anyway. 
"Menatep was supposed to invest money in the plant, but they took money out
of it," said Vladimir Petrov, who sells construction materials in Voskresensk.
"But what can we do? We can't force them to give the money back." 

*******

#8
Los Angeles Times
October 13, 1998 
Editorial
West Must Help Russia 

These are grim and perilous days for Russia, and worse may be coming.
President Boris Yelstin's unmistakable physical and mental decline has left
him incapable of functioning effectively. In Moscow, the new prime minister
and finance minister concede they don't have a clue about how to manage the
deepening economic crisis. And now Russia faces its worst harvest since the
1950s. Already heavily dependent on food imports, Russia has had to alert
the European Union, the United States and Canada of its need for huge
emergency shipments of grain, meat and other commodities, as well as medicines. 
That help should be given, first because it is a humanitarian
necessity, but no less because the West would be damaging its political
interests if it fails to act. Unrelieved food shortages over the coming
winter could prove the precursor of a radical political upheaval that would
be likely to see power pass into the hands of ultranationalists and
communists. In recent years, as Yeltsin's grip on power has weakened, the
West has found Moscow harder to work with than in the heady days of
international amity that followed the collapse of the Soviet Union. If
radical forces take power in Russia, a new era of confrontation would loom. 
Russia almost certainly cannot afford to pay for all of the food and
other help it needs. Much of what it seeks will have to be financed through
long-term credits or provided as a gift. Some, especially members of
Congress, are sure to balk at such generosity. It will be up to wiser heads
in Washington--no doubt with plenty of help from the farm lobby--to persuade
the doubters that prudent aid is very much in the interests of the United
States. 
But looming food shortages are only one aspect of Russia's crisis. On
Monday, Russians and the world had a dramatic reminder of the political
uncertainty hanging over the country when a clearly ill Yeltsin was forced
to cut short his visit to neighboring Kazakhstan. Once again, the official
explanation was that the president has a respiratory infection. The Russian
press on its part attributes Yeltsin's woes to Parkinson's or Alzheimer's
disease, aggravated by renewed heavy drinking. 
Whatever the truth, it seems increasingly less likely that Yeltsin will
complete the remaining two years of his term. In this volatile climate,
timely humanitarian aid from the West--again, in its own interests--could
have some positive influence on the political direction Russia takes. 

*******

#9
Boston Globe
October 13, 1998
[for personal use only]
With all else failing, Russians bank on debt 
But private deals mask true picture, analysts say
By Jean MacKenzie, Globe Correspondent

MOSCOW - Russia's banking system has crashed, its financial markets are
dead, and its economy is paralyzed. Normally, this would spell disaster. But
savvy financiers are doing a brisk business in the one thing that is still
plentiful: debt. 
During the past few weeks, an active debt market has sprung up in Russia,
mostly in the form of private deals between large companies and banks. 
It sounds like a great idea: Companies are picking up promissory notes at
fire-sale prices, and then using them at face value to settle their own
debts. In theory, a lot of bad debt could be canceled or written off. 
But analysts say that what looks like a rational plan for saving troubled
banks and companies is more of an elaborate shell game, designed to hide
real liabilities and assets from the prying eyes of regulatory bodies and
foreign creditors. 
''The aim [of the debt trading] is to scramble, to obfuscate the books,''
said Clifford Gaddy, a fellow at the Brookings Institution. ''Traders are
not buying debt so much as an ink blot on their balance sheets.''
In many cases, cash-strapped banks are trading assets for promissory
notes. Since the true value of many of these assets never has been
determined, the shuffle serves more to obscure a bank's financial picture
than to clarify it. 
These debt trade maneuvers represent another aspect of the ''virtual
economy,'' a concept formulated by Gaddy and Barry Ickes, a professor of
economics atPennsylvania State University. 
Ever since the pair published a study of the degenerating Russianeconomy
in July, the term has been gaining prominence as a shorthand for the
surreal, cashless Russian market. According to Gaddy and Ickes, the Russian
economy is ''based on illusion, or pretense, about almost every important
parameter of the economy: prices, sales, wages, taxes, and budgets.''
''This debt market is an extension of the virtual economy,'' Gaddy said.
''This is `virtual debt.' No one expects it will ever be paid.''
Russia's banks, in particular, have embraced the new debt trading as a
way to help salvage their future. 
The banks are in deep trouble: On Aug. 17, the government announced a
''restructuring'' of its treasury bills, a move that amounted todefaulting
on a towering pyramid of internal debt. Many of Russia's largestbanks were
heavily involved in the T-bill market, and the default hasbrought them to
the edge of bankruptcy. 
The government is negotiating with domestic and foreign creditors, but
there has been no concrete agreement so far. Meanwhile, the bankingsystem
has ground to a halt: Deposits have been frozen, paralyzing industry and
panicking depositors. 
Most observers expect that at some point the government and thecentral
bank will have to step in, closing or nationalizing banksthat are totally
insolvent and trying to bail out those consideredtoo big to fail. But to
determine a bank's viability, thegovernment will need a clear picture of its
assets and liabilities. The current debt trading will muddle that picture
even more, analysts warn. 
Still, there are legitimate reasons to engage in debt trading. ''The
market is growing,'' said Maria Nikolakaki, a specialist in distressed debt
trading at MFK-Renaissance investment bank in Moscow. 
The advantages are obvious, she said: A company could, theoretically,
acquiredebt at alarge discount, and use the promissory note to cancel its
ownliabilities. ''The whole structure assumes that the bank will acknowledge
the original debt,'' she said. ''We are still in the process of testing this.''
The bulk of the trade is in the form of private arrangements betweenlarge
companies and banks with debts in the tens of thousands of dollars. 
While the high rollers spin their deals, small investors are left out in
the cold. ''These trades, of course, are not in the interests of
othercreditors,'' said a debt specialist at Inkombank, Russia's
third-largest bank. ''There will be nothing left over for depositors.''
Debt trading is not unique to Russia, and buying ''distressed debt'' in
crisis economies is standard practice, according to banking specialists. But
in most cases, this trade is conducted in the belief that the long-term
value of the paper will increase, or that the buyer will be more successful
in wringing a settlement out of the debtor than the original creditor. 
''If a company has lawyers who specialize in debt proceedings, for
example, it will buy debt cheaply knowing that it can sort things out,''
said one Western economist. ''But what is going on in Russiais totally
unheard of.''
In other societies where the banking system has crashed, he added, the
government or the central bank steps in to oversee the recovery, imposing
controls or, in some cases, nationalizinginsolvent institutions. 
But in Russia, federal authorities have remained largely out of the fray.
Analysts say there is no political will to tangle with the powerful
oligarchs who control the banking industry. 
Sergei Dubinin, former head of the central bank, tried to nationalize
SBS-Agro, Russia's largest private savings bank, shortly after the system
crashed in mid-August. He was spectacularly unsuccessful. Three days after
the nationalization plan was announced, it was rescinded, and one week after
that Dubinin left the central bank. 
Dubinin's successor, Viktor Gerashchenko, has not yet madean attempt to
rein in the oligarchs. If and when some order is imposed, it may be too late. 

******