This Date's Issues: 2431 • 2432
to CDI's Home Page I Return
to CDI's Library
Johnson's Russia List
15 October 1998
[Note from David Johnson:
1. Interfax: Moscow Denies Russia Printing Rubles.
2. Fred Weir on controversy over Yeltsin's health and leadership.
3. Bloomberg: Russians Living in Poverty Form 40% of Population,
4. AFP: Lebed: Yeltsin Plans to Die in Office.
5. Joseph McCormick: Pepsinomics.
6. Tom Adshead: Response to Jerry Hough's question on trade.
7. M. J. Ellman: Re Jerry Hough's query on the depreciation of the
8. RFE/RL: Paul Goble, The Economics Of Press Freedom.
9. Moscow Tribune: Lyuba Pronina, Russia's Northern Regions Face
10. AFP: Russia Creates Emergency Two-Week Food Reserve to Survive
11. Moscow Times: Andrei Piontkovsky, SEASON OF DISCONTENT: Oct. 7
Protest Cast Luzhkov As 'Godunov.'
12. Komsomolskaya Pravda: Yeltsin Possible 'Senile Dementia' Theory
13. The Guardian: James Meek, Brezhnev Jr aims to show red is Russia's
14. Marian Dent: Comments on Russian Fundamentals.
15. Interfax: Chernomyrdin: Middle Class Hardest Hit by Crisis.]
Moscow Denies Russia Printing Rubles
MOSCOW, Oct 13 (Interfax) -- The rise in the volume of cash turnover
does not mean Russia has started printing money, Russian Deputy Finance
Minister Oleg Vyugin told the press Tuesday, commenting on reports that in
the first 25 days of September 17.5 billion rubles had been printed.
He said that if the rubles had been converted into dollars, it would
signify unsubstantiated money issue. However, the real situation is
somewhat different, Vyugin said. He said there is an increase in the
demand for cash rubles partly due to inflation.
Date: Wed, 14 Oct 1998
For the Hindustan Times
From: Fred Weir in Moscow
MOSCOW (HT Oct 14) -- Russian President Boris Yeltsin defied
doctors' orders Wednesday and returned to work, hoping to silence
the growing chorus of voices demanding the chronically sick
Kremlin leader resign.
"These cyclical illnesses of Yeltsin's cause great harm to
the country," says Alexander Konovalov, an analyst with the
independent Institute of Strategic Assessments.
"He has all power concentrated in his hands, but he seems
incapable of using it. So Russia is trapped in the depths of
crisis without leadership."
Mr. Yeltsin, 67, had to cut short a state visit to
Uzbekistan and Kazakhstan on Monday due to what his spokesman
described as a bout of bronchitis. Doctors subsequently ordered
him to cancel all his meetings and rest for at least a week at
his country home near Moscow.
But on Wednesday morning Mr. Yeltsin, who is notorious for
his stubborness, went to his Kremlin office to hold meetings with
Prime Minister Yevgeny Primakov, Foreign Minister Igor Ivanov and
Defence Minister Igor Sergeyev.
"Yeltsin is struggling against the growing perception that
his presence is irrelevant to the political process in Russia,"
says Nikolai Petrov, and analyst at the Carnegie Endowment in
Russians have grown used to their President's regular
absences from the job. Mr. Yeltsin underwent quintuple heart by-
pass surgery in 1996, and has been sidelined for weeks at a time
by what his spokesman has described as colds, bouts of flu and
other infections at regular intervals ever since.
Analysts say that in recent months Mr. Yeltsin has been
unable to work for more than a couple hours a day.
The Kremlin generally keeps a tight lid on information about
the President's health, and while he is in Moscow he is carefully
stage-managed in brief televised appearances that give little
But during this week's trip to Central Asia Mr. Yeltsin was
more in the media spotlight than he has been in months. Cameras
caught him stumbling, shuffling in the wrong direction and
apparently unable to sign his name on a document. Observers say
he appeared incapable of reading a prepared toast at a state
dinner with Uzbek President Islam Karimov and finally muttered
something about being pleased with "the objects and the shops" he
had seen in Uzbekistan. He didn't visit any shops.
The Russian media has begun speculating that Mr. Yeltsin's
illness is far worse than has been admitted. The weekly
Sovershenno Sekretno newspaper published an interview with an
unidentified member of the Kremlin medical team who was quoted as
saying Mr. Yeltsin is suffering from Alzheimer's disease.
The daily Nezavisimaya Gazeta noted that even if Mr. Yeltsin
only has a cold, his constant absences are killing Russia. "The
President is aging from one day to the next, something which,
against the background of Russia's crisis, is starting to look
like a national catastrophe," it said.
Mr. Yeltsin's visible debility has led to growing calls for
his resignation. The powerful Communist Party, which already has
launched impeachment proceedings in parliament, is demanding a
special health commission to investigate the President's fitness
"Yeltsin's obvious inability to perform his functions is
damaging Russian state authority," said Viktor Ilyukhin, a
leading Communist and head of the State Duma's security
committee. "This is a direct threat to the country's national
security and a factor of serious concern over Russia's nuclear
Russians Living in Poverty Form 40% of Population, Agency Says
Moscow, Oct. 14 (Bloomberg) -- More than 40 percent of Russians live below the
official poverty line, said Vitaly Linnik, acting director of the lower house
of parliament's labor and social policy committee, Russian news agency
Interfax reported. The minimum wage in Russia totals about $5.50 per month and
poverty has spread since Russia's financial crisis began in August, he said.
The number of unemployed in Russia totals about 15 million, the agency
The Ministry of Finance said yesterday it will announce revised guidelines of
its fourth-quarter budget early next week.
Lebed: Yeltsin Plans to Die in Office
MOSCOW, Oct. 14, 1998 -- (Agence France Presse) Russian President Boris
Yeltsin intends to die in office, former national security chief Aleksander
Lebed said Wednesday, after the latest health scare surrounding the man he
hopes to replace in the Kremlin.
Lebed, a virulent Yeltsin critic, blasted the head of state's performance
during a weekend trip to Central Asia, when only the supporting arm of his
Uzbek host Islam Karimov prevented the Russian leader from falling over.
The spectacle, and the decision by Kremlin doctors to order Yeltsin to cut
short a visit to neighboring Kazakhstan, renewed intense speculation about
the Russian leader's state of health and ability to govern effectively.
"Our president intends to die in office," Interfax cited Lebed as saying.
"Russia lives according to the Yeltsin constitution now. Previously, there
were the Brezhnev and Stalin constitutions," he said, referring to two
former Soviet leaders whose twilight years were marked by speculation about
their health before they died in office.
Airing a widely held view that Yeltsin would succumb to his various
complaints before presidential elections due in 2000, Lebed warned that
early elections could lead to instability in the country.
But fresh polls were preferable to the power vacuum created by a president
incapable of running the country, he said.
"If the president falls and cannot get up, how can he then be governing the
country?," the man who would be president said.
Yeltsin appointed Lebed as secretary of Russia's influential Security
Council after the gruff-voiced general backed Yeltsin's re-election in
1996, having won an unexpected third place in the first round of the poll.
Lebed was dismissed four months later after losing out in a Kremlin power
struggle and, say observers, for failing to make a secret of his
Lebed, who during his brief tenure as security chief brokered an end to the
debilitating 21-month Chechen war of independence, has been a constant
thorn in Yeltsin's side.
Date: Wed, 14 Oct 1998
From: "Joseph McCormick" <email@example.com>
Here's a tongue-in-cheek contribution the value-added / subtracted debate.
a. Svyatoi Istochnik brand water consists of one ingredient, water
(available for free from a holy spring in the ground), packaged here in
Russia in a nice plastic bottle. The production process is relatively
simple: you pour water into bottles. Svyatoi Istochnik water advertises on
billboards and used to cost about 5 rubles per liter before the August
b. Pepsi Light consists of many ingredients: water (Russian), the secret
Eau de Pepsi flavoring (imported from the vaults at Pepsi Central),
NutraSweet (imported), food coloring (imported), and lots of carbonation
(local Russian bubbles, one presumes). It's bottled here in Russia after a
complicated mixing - blending - fizzing production process. Pepsi
advertises everywhere -- in addition to billboards and magazine ads,
they've got a nationwide TV campaign going. Amazingly enough, before the
crisis Pepsi Light also cost about 5 rubles per liter.
Considering the effects of devaluation, which immediately drives up the
cost of imported raw materials but gives local production a distinct
competitive advantage, which product should now be more expensive? Svyatoi
Istochnik (the entirely local water), or Pepsi Light (the soft drink with
lots of imported ingredients and a massive promotions budget to boot)?
The water, of course, which has more than doubled in price, to 12 rubles
The cost of Pepsi Light has gone up modestly, to 6 rubles per liter (and
with the big 2 liter bottle you even get a small 7-UP thrown in for free).
Question: Does this mean that Pepsi's addition of NutraSweet and other fine
imported ingredients subtracts value from the main raw material, water?
[Sources: As of 11 October, a 1.5 liter bottle of uncarbonated Svyatoi
Istochnik cost 18.50 rubles at the Sedmoi Kontinent near Smolenskaya.
Today a 2 liter bottle of Pepsi Light cost just over 12 rubles in the
Date: Wed, 14 Oct 1998
From: Tom Adshead <TAdshead@ufg.ru>
Subject: Response to Jerry Hough's question on trade
Jerry Hough raised an interesting question. Looking at commodity prices and
the terms of trade are crucial to understanding Russia's finances. In the
case of the dollar/yen turmoil, the net effect on Russia is not that great,
because Russia does not buy that much from Japan (2.3% of imports in 1995,
the last year for which I have numbers to hand). However, the aid package of
about USD 1 bn that was promised by Japan was presumably denoted in yen, and
so will now be worth more in dollar terms.
The real key for Russia right now is oil prices - one of the main triggers
for Russia's problems was the general fall in commodity prices last year.
Dollar weakness is bad news for Russia, but only weakness in relation to
European currencies, where the bulk of imports are sourced.
We did some calculations in the late 80s which showed that as a result of
the oil price fall in 1984, and the 1985 Plaza accords to devalue the
dollar, the DM purchasing power of one barrel of oil fell by 40% (my memory
is rusty on the numbers). This was a huge blow to the Soviet Union's
solvency, and may have been one of the triggers for economic reform.
Date: Wed, 14 Oct 1998
From: "Prof. M. Ellman" <firstname.lastname@example.org>
Subject: Re Jerry Hough's query (#11) in JRL #2429.
The answer is that the depreciation of the dollar is bad news for Russia
because it means a worsening of Russia's terms of trade. Russia mainly
exports for dollars (gas, oil, metals etc) and imports from the EU for
DM/Euros. The result is that a fall of the dollar against the DM/Euro is
bad news for Russia (the yen is not very relevant because Russian trade
with Japan is reklatively small). The same thing happened in 1986 and was
one of the reasons for the economic problems of the perestroika period.
What benefits the Russian terms of trade is an appreciation of the dollar
against the DM/Euro.
Faculty of Economics & Econometrics
1018 WB Amsterdam
tel: + 31-20-5254235
fax: + 31-20-5254254
Russia: Analysis From Washington -- The Economics Of Press Freedom
By Paul Goble
Washington, 14 October 1998 (RFE/RL) -- Russia's deepening economic crisis
appears likely to claim yet another victim: the chance for the development
and maintenance of a diverse, free and independent media in that country.
The losses that individual entrepreneurs and enterprises have suffered are
forcing them to cut back on the amount of advertising they can place in
newspapers and in the electronic media. According to one media watchdog
group last week, orders for new advertisements have fallen 50 percent in
the last two months alone, and one Moscow advertising agency has cut its
staff from 45 to three.
And this dramatic decline in advertising revenues -- the lifeblood of most
privately-owned media outlets -- has already had three severe consequences
on the Russian media and their chances to remain both in operation and free
of centralized control.
• First, in the most dramatic fashion, the fall-off in advertising revenue
has forced some newspapers to close and others to cut back on their
reporting. The closure of the Moscow business newspaper "Russkiy telegraf"
last month was perhaps the most dramatic, but it is far from the only
newspaper whose finances have become shaky in the wake of the country's
Other papers and even radio and television stations may soon follow suit.
But even if they survive, they are going to be less than they were, with
reruns taking the place of new programming and news budgets cut back or
even eliminated as managers try to find the cheapest rather than the best
way to run their operations.
• Second, the absence of significant amounts of advertising revenue needed
to supplement income from subscriptions and sales has already made many
newspapers more dependent on publisher-owners. Not only has that reduced
the ability of editors to stand up to owners on political issues, but it
has also led the owners to demand that editors do everything they can to
turn a profit.
Both of these shifts in the balance of power within Russian media outlets
have reduced the ability of editors to maintain journalistic standards on
many issues, and that in turn has left the Russian reader and listener less
well-served than he or she was only a few months ago.
• And third, such pressures on Russia's privately-owned media both from
without and within may ultimately have the effect of shifting the balance
between privately-owned and state-owned media in the direction of the latter.
To the extent that the decline in advertising revenues force private
outlets to close or cut back or hew a political line dictated by their
owners, Russians will have little choice but to turn to electronic outlets
for their news.
And as has been repeatedly demonstrated over the last seven years, the
state-controlled electronic media have been significantly less free and
critical of government actions than have the privately-owned newspapers.
But if the Russian economic crisis continues for some time -- and every
indication now suggests that it will -- it could have yet another
consequence for the media: demands for an increased state role in both the
print and electronic realms.
Indeed, some political figures in Russia have suggested that the government
will have to play a bigger role if the Russian people are going to continue
to get their news from domestic sources, with a few openly advocating a
return to state ownership of all media outlets.
That is not likely to happen anytime soon. Like most Russian enterprises,
the Russian government also does not now have the cash needed to take that
step. But to the extent that the current economic crisis pushes the Russian
government and the Russian media in that direction, the Russian people will
find themselves with fewer news outlets than they had before.
October 14, 1998
Russia's Northern Regions Face Possible Evacuation
By Lyuba Pronina
For most of Russia's northern regions, it may be a dire winter as food and
oil deliveries are lagging behind schedule and the navigation season comes
to an end. However, evacuation of locals is unlikely, officials say.
With the whole of the country hit by the economic crisis, the picture is
even "grimmer" for the north, according to Boris Misnik, head of the State
Duma committee for the northern and Far Eastern regions' affairs.
According to data released at parliament hearings last week, as of Sept.
20, the northern regions received 2,071,400 tons of oil (63.8 percent of
the annual supply), 2,523,000 tons of coal (58.6 percent) and 489,600 tons
of food (46.7 percent). That includes a 10 percent cut on overall
deliveries this year.
Separately, some regions give even harsher statistics. So far, the Amursky
region has received only 6,200 tons of oil (14.1 percent of the annual
supply) and the Koryaksky autonomous district received 5,800 tons (12.6
percent). Only 1,500 tons (5.5 percent) of food has been delivered to the
Chukotsky autonomous district.
Lack of money is usually blamed, especially in this time of crisis. For
three years the Finance Ministry has been arguing for cancellation of the
article in the budget providing for federal support for deliveries to the
north. In its place the ministry suggested drawing funding from
multipurpose transfers to the regions, which runs counter to federal law.
"Of course the governors, the deputies and Goskomsever (State committee for
northern regions affairs) never agreed to that: it would destroy the whole
supply system," Valeryan Georg of Goskomsever told The Moscow Tribune.
This year, the northern regions received about 53 percent of allocated
budget money: out of 2.64 billion rubles ($165 million) prescribed in the
budget only 1.4 billion rubles ($87 million) has been paid so far.
Reluctance of the Finance Ministry to dispense further sums stems from
previous years when the regions took on federal credits they could not pay
back. In worst-struck Koryakiya, debt has reached 182 million rubles ($11.4
million), while in Yakutia it has soared to 3 billion rubles ($187.5
As last year's practice of mutual debts canceling is no longer applicable,
the northern regions are plunging into more debt, whilst receiving less
The prime minister's recent resolution authorized the Finance Ministry to
offer full financial support to the northern regions. However, to ship the
remaining coal and food, the regions require a further 4.3 billion rubles
($269 million). As time for navigation is running out, air carriers will
eat up at least two to three times as much money, which will reflect on the
local prices, according to Georg.
The governors have for some time been voicing their concern for the need of
evacuation. However according to Goskomsever, local monitoring services
proved there was no such need. "The local authorities are using talk of
evacuation as a means to drag out federal money, but we are aware of the
real situation." Georg says there is high probability people will be
evacuated from Yakutia, with Koryakia coming second on the list. Others
will have to survive in conditions of "extreme economy."
Russia Creates Emergency Two-Week Food Reserve to Survive Winter
MOSCOW, Oct. 14, 1998 -- (Agence France Presse)
Russia has created an emergency two-week food reserve to help the
population survive the coming winter, Interfax news agency quoted Prime
Minister Yevgeny Primakov as telling a session of parliament on
The food program will cover the needs of about one-third of the nation's
147 million people at a cost of 600 million rubles (about $40 million).
"We cannot afford any more," Primakov said, Interfax reported. "The
government's conscience is clean with regard to food and the countryside,"
Primakov added, Itar-Tass news agency said.
Russia's new leftist government has warned it might have to import grain
and take large humanitarian shipments from the U.S. and the European Union
to prepare for winter in a time of economic crisis.
Primakov said last month that some of Russia's more remote regions would
face critical shortages of food and fuel. He accused several regional
governors of hoarding supplies instead allowing them to be shipped to other
parts of the country.
Russia's energy chief warned earlier this month that Russia was "53 to 56
percent ready for winter."
Each autumn the government sends supplies to distant Northern and Far East
regions of Russia that are cut off from access to main delivery routes
during the winter freeze.
But senior cabinet officials said those shipments had been delayed this
year owing to a leadership crisis in Russia before Primakov was confirmed
as premier on Sept. 11.
On Tuesday Primakov blamed the withholding of payment of a loan installment
of $4.3 billion by the IMF, which Russia had been due to receive last
month, for some the food shortages this year.
"We did not receive the IMF tranche, our imports fell to a quarter of what
they were, while imports of food fell even worse," Interfax quoted him as
telling senators in the Federation Council.
A Russian trade minister said this month that a slump of the ruble against
foreign currencies had caused Russia's imports to shrink by 65 percent in
October 15, 1998
SEASON OF DISCONTENT: Oct. 7 Protest Cast Luzhkov As 'Godunov'
By Andrei Piontkovsky
Special to The Moscow Times
The protest and march of the trade unions on Oct. 7 by the Kremlin walls could
have passed for a large open-air production of Alexander Pushkin's tale of the
tsar, "Boris Godunov."
First, the organizers and speakers verbally demolished Tsar Boris for a couple
of hours. Then, after the crowd had been suitably warmed up, came the
culminating moment, the real reason the Moscow union chiefs had organized the
demonstration. Having been bought off by City Hall, these, the noblemen of the
production, then tossed the political slogan of the day to the crowd, urging
them to cries of "Long live our new tsar, Yury Mikhailovich [Luzhkov]"
In Pushkin's play, the stage direction here reads "Crowd is silent." But the
contemporary boyars got an even worse reaction than their predecessors 390
years ago. Instead of falling silent, this crowd responded with catcalls,
whistling and hissing, a far cry from the kick start to the Moscow mayor's
victorious presidential campaign that the producers of this demonstration had
His numerous analysts and image-makers would do well to reflect upon this. The
similarly cold reception received by the mayor in April in the Siberian city
of Krasnoyarsk prior to the gubernatorial elections was plausibly put down to
the traditional enmity of the provinces toward Muscovites. But to fail at a
demonstration in Moscow is too alarming a signal to ignore. In true biblical
fashion, the mayor was "weighed in the balances and found wanting." Clearly,
this energetic, corpulent gentleman in the flat cap, with his simple
Pickwickian temperament and build, is just too aesthetically challenged when
it comes to appealing to the unfortunate millions that lost out during the
In the Krasnoyarsk region, the gubernatorial elections were won by someone who
made no attempt to hide his disinterest in local problems; who is
professionally illiterate to the extent that he can put his signature to two
contradictory economic programs on the same day; and who is a professed
fighter of crime and corruption yet doesn't hide his dependency on the
millions of Boris Berezovsky and local crime bosses.
Alexander Lebed became governor simply because his rough muzhik's face, bony
figure and coarse, gravelly voice stood out against all the smooth faces and
rounded bellies of those who united against him: Luzhkov, the incumbent local
governor, Valery Zubov, and the leader of the Communists, Gennady Zyuganov.
Since Peter the Great's time, Russia has been tragically split in two f the
Russia of the muzhiki, or ordinary men, and the Russia of the lords. Far more
than just class distinction, this was a metaphysical, civilizational and
Now the social inequality that has rapidly taken shape over the last few years
has rekindled this enduring Russian schism. At the Oct. 7 protest, the most
popular slogan was "All bosses are scum."
Tormented by the apparition of the tsar of the muzhiki headed for the capital
from the Siberian taiga, politicians in Moscow are now feverishly searching
for "left-centrist coalitions" and resorting to radical rhetoric. Today,
Luzhkov demands "confiscation of the enormous amounts of property illegally
privatized by the new bosses," as if to say that the empires of the Potanin's
and Berezovsky's rose from the filth of corruption and theft, but the mayor's
own pet holding company Systema rose from the foaming sea like Aphrodite ...
Yeltsin Possible 'Senile Dementia' Theory Viewed
13 October 1998
[translation for personal use only]
Report by Andrey Kabannikov: "Yeltsin and Reagan -- Friends
Washington -- It is difficult to make diagnoses at a distance -- but
it is even more difficult to refute them, claiming that the cause of the
Russian president's indisposition is a simple cold. A wide variety of U.S.
publications is currently discussing the alarming "Vinogradov theory,"
particularly as the same disease has already deprived Ronald Reagan of his
memory.If so, then the president's facial expression and his heavy tread are
not quirks of "Czar Boris'" extravagant temperament, but symptoms of a
serious and incurable diseases afflicting the Russian president -- rapidly
progressive senile dementia.
I would remind you that the same diagnosis was made of Ronald Reagan
in 1995. Today the 87-year-old Reagan, who ceased to be president in 1989,
is still in pretty good physical shape. But his contacts are limited to
his own family: Reagan cannot remember having been U.S. president, he has
forgotten about his own children, and it takes him a long time to compose
simple sentences. He is one of 4 million Americans over the age of 70
suffering from an illness against which doctors are still impotent.
Yeltsin's facial expression, his gait and movements, and speech
problems, according to Mikhail Vinogradov, are indications of the same
disease. Unfortunately for our president, he has to appear in public, so
his deteriorating health is obvious to all.
Vinogradov is aware that it is risky making a diagnosis based on
outward appearance, without being able to examine the patient and use
methods that provide a 100-percent accurate result. But independent
psychiatrists have no physical access to the president.
If Vinogradov is right, then how would a U.S. president act in such
circumstances? He would probably take it upon himself to inform the nation
of a disease that prevents him from governing the country. On learning of
his illness, Ronald Reagan, who had left the White House six years before,
nonetheless saw fit to bid a public farewell to his fellow citizens, while
apologizing in advance to family and friends whom he would be seeing in the
next few years and whom he would one day suddenly cease to recognize.
If the worst comes to the worst Congress is entitled to demand an
independent, authoritative, and reasonably confidential evaluation of the
President's state of health.
15 October 1998
[for personal use only]
Brezhnev Jr aims to show red is Russia's new black
By James Meek in Moscow
Russia's autumn collection of political fashions is streaked through with
subtle Soviet revivalist shades. But Andrei Brezhnev went one step further
yesterday when he sauntered on to the political catwalk wearing nothing more
than his grandfather's genes.
Brezhnev Junior, grandson of the late Soviet general secretary Leonid, who
ruled the USSR with growing absent-mindedness for 17 years, announced
yesterday that the new black of politics was red and that his new party, the
All Russian Communist Movement, would put the country back on the path to
"Under my grandad there was a stable middle class, who received 200 roubles a
month and had their own flats and cars. People want that life back again,"
said the newcomer, whose party stands no chance of getting off the ground.
Many older Russians do look back wistfully to the meagre certainties of the
Brezhnev era, with its minimal guarantee of food, affordable travel within the
USSR, certainty of pay whether you worked or not, good basic education, low
crime and decent pensions.
Few feel any affection towards the Brezhnev family themselves, emblematic of
the corruption, small-mindedness and laziness among the communist elite which
lent his reign the tag "the era of stagnation".
Andrei Brezhnev declared yesterday that politics was in his blood, and
attacked Russia's other communists for selling out to the government.
But he seemed confused by the word "communism", saying that the country should
seek inspiration from Stalin, modern China, and Gerhard Schroder.
Leonid Brezhnev, became an object of ridicule in his later years, the butt of
thousands of jokes, like the one where he is reading a speech to open the
"Oh," he says. "Oh, Oh, Oh... " An aide nudges him. "Mr Brezhnev, stop," he
says. "You're reading the Olympic symbol."
Date: Wed, 14 Oct 1998
From: "Marian Dent" <email@example.com>
Subject: Comments on Russian Fundamentals
To date I have been reading this list silently and have been
extremely impressed with the level of knowledge and thought put into
the submissions. But I must comment on Anne Williamson's submission
on "Russian Fundamentals," which contradicts everything I have seen
working here in Russia for the last seven years.
It is easy and popular these days to criticize the Clinton
administration's policies as causing the current Russian crisis.
Indeed, mistakes were made; but hindsight can be and was distorted by
Ms. Williamson. From this distorted perspective that all previous
support and efforts were wrong, she argues that the West should step
away from supporting Russia. Contrarily, now is the time that
the West must refocus its support towards legal development and
The Clinton administration was right, at the beginning of this
decade, in perceiving Boris Yeltsin as a popular leader who should be
supported. Working as the Moscow rep of an AID contractor on rule-of
law at that time, I don't believe though, that anyone I met in AID, the
Embassy, or the State Department, thought of Yeltsin in the way Ms.
Williamson describes (as "a great democrat determined to destroy the
Communist system for freedom's sake").
I also can't agree that Russian popular opinion of Yeltsin at that
time was as a usurper of power. I recall Yeltsin being extremely
popular--the big boistrous bear who took Russia out of crisis. They
were proud of him and most saw him as an alternative to Gorbachev who
would finally get things done decisively.
If anything, I remember the US government being cautious and slower
than popular opinion in Russia about jumping on the Yeltsin
bandwagon. I seem to recall numerous comments from that era about
the US still supporting Gorbachev when it was clear that Yeltsin was
the wave of the future. I remember a very cautious US stance on
support for Yeltsin and his administration. AID contractors were told
to be wary of government corruption and to carefully check into those
with whom they were dealing. This is difficult to do in a society
which grew up with the idea that withholding secrets from the West
was a patriotic priority. Nonetheless, I believe that most
US government programs were targetted to those who, as far as anyone
could tell at the time, were most likely to use it for the greater
If US government policy went wrong, it was not from a blind effort to
support someone while ignoring the facts, but was instead from the
problem common to all established governments--they are generally and
unfortunately slow moving. Governments follow trends rather than
lead them. Thus, by the time the Clinton administration began really
supporting Yeltsin, the Russian population was already beginning to
come down from its 1991 euphoria about the man. I remember a distinct
public impression that Yeltsin's administration was having trouble
getting moving and forming any specific policies in 92 and 93. Lack
of ANY law adequate to a free, capitalist society, and even lack of
knowledge about what was needed, was what hampered the reforms.
By the time the West came to the idea of supporting Russia's changes
financially, the need for expertise, a legal regime for privatization and
business development, and the development of, at least some
policy--any policy--was so pressing that it removed the luxury of
lengthy debate about which policy route was economically better.
Thus, I believe that the Clinton administration was correct in
supporting Chubais and his privatization plans. Support for IMF
lending and the "targeted division of national assets" may indeed have
been, as Ms. Williamson states, what brought the current, corrupt
business leaders to power. However, as I recall it, a much more
obvious theft of state assets was taking place at the time under the
noses of the government. Assets were simply being shipped out of the
country with no law in place to prevent it. The need was to act on
the immediate facts at hand--to create a legal regime for privatization,
and a legal
regime that would at least start to bring fledgling businesses some
stability--rather than to speculate about whether those benefitting
from the privatization might be likely to result in, as Ms Williamson
correctly says "a more economically competent criminal class." Had
the West delayed more in supporting the creation of any law based regime,
the Yeltsin administration would have been even more pressed to take
action without any legal basis, blatantly surpressing property rights
and human rights.
Ms Williamson is correct that the new elite seems to have learned
more about amassing wealth than creating it, but this too was not the
fault of US policy. Far from mere support for quick privatization,
the US provided numerous opportunities for training the new elite in
the West. Direct government programs such as the Muskie Fellowship
and Freedom Support Act Fellowship, as well as numerous training
programs run through government contractors and subcontractors, such
as those sponsored by the Eurasia Foundation (whose directors have
recently contributed an article to this list), created numerous
opportunities for training Russian business-people in ethical
business. I currently run a private training center (not supported,
directly or indirectly, by any government money) in Moscow, and am
highly impressed with the intelligence, ethics and just plain
business smarts of the young managers and "new elite" that come into
our center. It is not those who are Western trained that created the
problems, but is those who avoided Western training. The corrupt
leaders are not those that the West supported, but those trained as
Red directors whom the West could not reach.
I agree with Ms Williamson that the Clinton administration went too
far in supporting Yeltsin through thick and thin, even after it
became clear that the regime was losing support and contained a high
level of corruption. I have not been a Yeltsin supporter since the
1993 events. But contrarily, I cannot seriously blame the Clinton
Administration for its continued support. Again, I think it is just
a function of government being slow to function and make a decision--
perhaps due to the need to process all its numerous conflicting
imputs from us experts. By the time the West had an inkling that
continuing to support Yeltsin might not have been the best course,
there was no time to decide upon an acceptable alternative policy.
With a known quantity ahead versus an unknown all around, an
experienced captain, perhaps mistakenly but completely
understandably, maintains course.
Ms Williamson attributes her the second "mistake of the Clinton
administration" to a disregard for Russian culture and the concept of
private property in the country. She explains, quite well and in
excellent detail, why the private peddling of influence and favor,
rather than ownership of assets, has been the historical basis of
Russian society. Thus, she concludes, extortion and subterfuge and
corruption result. She lucidly explains, that privatization
conducted in such a way as to distribute property to the people and
create an open securities market would have resulted in a more
successful system than that which the West supported of creating big
I agree that Russia needed (and still needs) a shareholding culture
and an open securities market, but I disagree that the West ignored
that need in favor of supporting "big capitalists" who would come in
and take over. I think Ms. Williamson mischaracterizes the US
government efforts in this direction.
I seem to recall considerable US money being poured into publicizing
voucher privatization. Television campaigns, newspaper articles and
billboards encouraged ordinary Russian citizens to use their vouchers
to invest rather than to sell them to speculators. The failure of
Russians to do so, and the resulting takeovers by inefficient Red
directors, was not due to lack of US efforts but to the intrenchment
of Russian distrust in all government schemes. This proved more
difficult to overcome than anyone could predict.
Also at the time, the worker control that Ms Williamson suggests was
proving ineffective. Workers were lobbying for more workers' rights
without considering the long term effects on company growth.
Understanding of capitalism was just too thin. The sound idea of
mutual funds to manage large blocks of shares and therefore have a
more educated and stronger influence on company management, was
rightly suggested by the West.
The main problem leading to failure of investment funds and other
evils of the new securities market was a failure of the law in
keeping up with the changing society. Western money was judiciously
placed into creating a legal basis for the market, but only so much
could be done. We were not in a position to impose securities
regulation on Russia, but only to suggest and advise. Much US
government funded work was done by the IRIS project of the University
of Maryland, the CEELI Project of the American Bar Association, and,
the infamous Harvard/ILBE, in helping to revise and create a new
system of civil law, company law and securities law. (It is
unfortunate that, if the press reports are true, some in the Harvard
project appear to have had a conflict of interest in the development
of insider trading legislation; but to my understanding AID dealt
swiftly with that problem when it was discovered.)
Again, the US government was a bit slow off the mark in recognizing
the need for this legislation (American legal advisors were
suggesting the need approximately two years before the government
funding started), but the suggestions made to Russia on creating and
implementing securities regulations were sound ones. The US
correctly advised the Russian government about its experience in '40
Act regulation, suggested the creation of shareholders' right
legislation, and insider trading rules. European advisors provided
similar information about their own systems. Associations of
shareholders' rights sprung up, the regulatory mechanisms were started.
The problem of creating a legal regime for the market, however, is
not merely one of writing and passing the laws, but also one of
implementing the laws. Implementation here was the sticking point,
as, even when the new laws were passed, the legislation had to flow
down the channel to the Ministries, to the local authorities, and to
the police. Institutions had to be restructured or newly created to
deal with each new proclamation of government. And at each level was
a wealth of conflicting opinions and misunderstanding about the
purpose and function of new legislation. The delay in implementing
new laws or regulations caused lawmakers to believe their efforts
were ineffective and to pass yet more, often conflicting, laws and
regulations. Little coordination took place between various
agencies. The President's (Yeltsin's) Administration was often at
war with the Government.
Here, in the inefficient implementation of law, not in any policy of
the US Administration, was where the corruption was allowed to
flurish. Indeed, directors of privatized companies stashed profits
abroad through middle-man companies, withheld employees' wages and
speculated with the money, and formed numerous private spin-off firms
to take the profitable contracts away from those enterprises they did
not wholly own. But I just don't see how we can simply hold the US
"What interested the Clinton crowd," Ms. Williamson said "were Russian
not Russian needs." Understandably, the Clinton administration
supported the efforts of American capitalists in investing in Russia.
After all, isn't one of any government's main foreign policies to
support the efforts of its own citizens/economy in profiting from
foreign markets? Understandably too, US investment managers are not
out for the long term benefit of the Russian people but are, by law,
required only to take into account the interests of their clients
back home. I don't think anyone in Russian government failed to
realize the interests of American advisors when chosing to take
advice from them.
In sum, I agree with Ms. Williamson that a corrupt regime and
misunderstanding and disregard of private property rights are at the
root of Russia's evils. But I completely disagree with her
characterization of these problems as the fault of the West and the
Clinton administration. To
cast the blame like this is an easy way out, but requires her to
disregard or oversimplify the facts in making her argument.
Ms Williamson's conclusion is that the West should cease all
subsidies, allow market mechanisms to run their course, and allow
the banks to fail is perhaps not far off the mark. I am not an
economist, so I will not comment on the economic wisdom of this.
Ms. Williamson also recognizes that the continued development of an
established legal regime for the market is necessary for economic
recovery. But she suggests that Russians should be left to work out
a legal regime for property rights on their own. Here she is wrong.
The West must not now take a hands off attitude, but must continue
to support the development of a law-based-state, the enactment of a
sound legal and tax system to support the market, and the development
of mechanisms to implement legal reforms. The legal regime had just
started to ensure property rights and develop market confidence
before the crisis. It it largely distrust of potential changes in
the regime that is keeping business quiet now. So now Western legal
development efforts must be increased. Western training of both
future business leaders and the general public should be continued
and stepped up to ensure that the next generation of Russian
executives will not have the same attitudes to their country as the
current oligarchs and Red directors.
Unlike in the past, the Clinton Administration must not hesitate
and wait to see what happens, but must step in to fill the void now.
I understand that some is being done already with grants in the area
of tax reform. We should stop criticizing and encourage more such
If we step away now, we will have indeed lost Russia. If we
refocus Western efforts and concentrate of law and education, not now
but perhaps a generation from now everyone will be the winners.
(American Business & Legal Education Project)
Chernomyrdin: Middle Class Hardest Hit by Crisis
MOSCOW, Oct 9 (Interfax) - Our Home Is Russia (NDR) leader and former
Russian Prime Minister Viktor Chernomyrdin said that the financial and
economic crisis in Russia hit the recently established middle classhardest.
The middle class is NDR's "is chief foundation and chief strength," hesaid.
The number of unhappy people in Russian "became even greater than
before," and "nobody knows in which direction the people's opinion will
head," Chernomyrdin told a press conference at the Interfax head office
Friday. "Economic conditions alone will determine the political situation
and the distribution of political forces. If there is no improvement, we
should start preparing for worse times," he said.
The decisions taken by the Sergey Kiriyenko government August 17 were
"a crude mistake," he said. "I cannot see any evil intentions there," he
added. These decisions were discussed neither at a government meeting nor
by specialists, he said.
Prime Minister Yevgeniy Primakov has asked economists from the Russian
Academy of Sciences to help draft a program for pulling Russia out of the
crisis. "We have known the authors for a long time. It is a hopeless
step," he said. "It would mean not only a stalemate but a retreat," hesaid.
Regarding left and centrist leaders who have declared their
presidential ambitions, Chernomyrdin said he was not interested in sorting
out "who is more important." "Let them find out themselves. If not today,
then tomorrow (these politicians) are bound to start a fight. That will
end everything," he said.