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

Johnson's Russia List
 

 

October 17, 1998   
This Date's Issues: 2435 2436 


Johnson's Russia List
#2435
17 October 1998
davidjohnson@erols.com

[Note from David Johnson:
1. The Electric Telegraph (UK): Carey Schofield, Lebed awaits his 
moment to come in from the cold.

2. Financial Times (UK): John Lloyd, LUZHKOV: Mayor sets out scenario 
for route to the top.

3. Interfax: Poll Shows Zyuganov, Yavlinskiy Most Trusted Politicians.
4. The Times (UK): Anna Blundy, Feast or famine for shoppers in Moscow.
5. Reuters: Russia will not revert to ``ugly'' past--Kozyrev.
6. Reuters: Russian economy programme seen ready by end-year.
7. Reuters: Russian bank head says elections needed. (Pyotr Aven).
8. Barry Ickes: Response to Menshikov, Moody, Kaegi and Woodruff.
9. Interfax: Maslyukov Assures Western Investors of Cooperation.
10. Argumenty i Fakty: Paper Views Possible Alliances Ahead of Russian
Elections.

11. Interfax: Russia Expresses Concern Over Millenium Bug Threat.
12. Itar-Tass: Russian Court To Focus on Presidency as Institution.
13. Interfax: Russian Bank Chairman--Increase Money Supply With Reserves.]

*******

#1
The Electric Telegraph (UK)
17 October 1998
[for personal use only] 
Lebed awaits his moment to come in from the cold
By Carey Schofield in Krasnoyarsk 

ALEXANDER Lebed, the bookies' favourite to take over from Mr Yeltsin, bides
his time in his Siberian stronghold as Moscow politicians scramble to declare
themselves presidential candidates.
Mr Lebed, the battle-scarred veteran of endless political controversies, is
determined not to launch his campaign too soon. He says he is concentrating on
rebuilding the battered economy of Krasnoyarsk where he was elected governor
in May. The region is 10 times bigger than Britain, with vast mineral, timber
and other resources, but its dusty capital has only one main street. Run-down
blocks of flats and empty factories sprawl into the Siberian wastes.
The gubernatorial residence is a comfortable house in a pine forest, on the
edge of a cliff overlooking the Yenisei river. Mr Lebed is well set up there,
with Western plumbing and Empire style-furniture in his public dining-room. He
insists that his priority is a radical overhaul of the legal and bureaucratic
quagmire that has deterred investment in his region. On Oct 29 he will present
a package of laws designed to help industry to the regional legislature. These
will involve land ownership, protection for investors, and measures to
encourage small and medium-size businesses.
The strategy is clear. Mr Lebed's popular appeal is undeniable, but he needs
to be able to claim that he has achieved a breakthrough with his new laws. He
said: "It is remarkable that, in spite of all the disadvantages we face here,
this region is fourth out of 89 after Moscow, Petersburg and Tyumen in
economic and social terms. So, for light relief, I try to imagine what things
must be like in the 89th region. It reminds me of the man who went into a
Russian bank, and said, 'I'd like to deposit a very large sum of money. Who
should I talk to?' And the clerk told him, 'a psychiatrist.' "
Mr Lebed is contemptuous of President Yeltsin. He said: "At least 10 million
people demanded that he should retire during the Oct 7 demonstrations and he
seemed to be unconcerned. But today everybody with whom he used to work has
abandoned him. The President is alone now, at home and abroad."'
He bemoans the "lumpenisation"' of the citizens of the former Soviet Union
over the past seven years. "Most people either don't work, or work without
being paid, or get such pitiful wages that they are ashamed to take them home.
When people's dignity is crushed you have to expect confrontations of every
sort. Today, 80 per cent of our people are living around the poverty line, and
another 40 per cent are below the line. Another 40 per cent are very close to
it. If you stretch things a bit you can say that about 10 per cent of the
population belongs to the middle class. But the traditional professional class
- teachers, engineers, doctors, army officers - no longer exists. Only a very
few are very rich."'
Mr Lebed believes that Russia is returning to communism. Several leading
provincial politicians are seeking to build Centre-Left blocs, he says. The
ashtray is filling up, and the Governor is doodling constantly. He stresses
his support for Yevgeny Primakov, the new Prime Minister. He said: "The fact
that we have a new Prime Minister, and the character of the man, are
stabilising factors for the country. He will, at least, act within the law."
Mr Lebed declares his reluctance to criticise the government: "Even a
regimental commander, with 1,500 men under him, is given six months to sort
things out. But the West should admit that helping Russia for the last seven
years has been a mistake. Westerners saw how we illegally bombarded our own
Parliament and they kept silent. For two years they watched the war in
Chechnya and said not a word."
The humanitarian aid would be better sent directly to the regions than
channelled through Moscow, he said. "We're kidding ourselves if we think this
aid is reaching anyone; there is always a businessman somewhere along the line
selling the goods. The situation in the country reminds me of the banker who
telephones a colleague.
"How are things?" he asks. "I've hit rock bottom," his friend replies. "You
always were an optimist," says the banker.

*******

#2
Financial Times (UK)
OCTOBER 17 1998 
[for personal use only]
LUZHKOV: Mayor sets out scenario for route to the top
Yuri Luzhkov is lining up support from all sectors of Russian society for a
presidential campaign, writes John Lloyd

He bursts into the room, his short square body throwing off energy. The group
he is meeting consists largely of US investors; he seems not to care, soon
launching into an unsmiling critique of America. He is a Russian man of power,
in his palace, anyone's equal.
Yuri Luzhkov is mayor of Moscow. He is now emerging as the candidate for the
Russian presidency supported by nearly all organised political society - a
formidable backing, at least on paper. Most political observers believe he
will beat the other main candidate - General Alexander Lebed, governor of
Krasnoyarsk region who is too poor, too far from Moscow and too unaccustomed
to the piranha-tank of inner-capital politics to cut the mustard at present.
As Boris Yeltsin fades further into the background Mr Luzhkov looks like the
next president and, as questions mount over Mr Yeltsin's health, the mayor's
chance may come sooner than the due date in 2000.
One US visitor asks him about his presidential ambitions. He sighs. "I have no
presidential ambitions, but I want to see who wants to be president. If those
coming forward are serious about market reform I will support them. But if one
comes up who is incapable of resolving matters capably then I will enter the
fight."
He pauses, looks up and down the stretch of white table and says: "And of
course I will win!" There is a second's pause as the translation catches up,
and then a burst of admiring exclamation.
Mr Luzhkov is developing a narrative which seems set to be the storyline for
his presidential bid. He paints a picture of Russia emerging from the Soviet
Union with a handful of reformers, including himself, determined to lead it to
the market.
In 1991, Mr Yeltsin takes over and installs the group of young radicals round
Yegor Gaidar as the architects of change. "Gaidar released prices all at once.
The second mistake was wholesale privatisation carried out by [Anatoly]
Chubais. He gave everyone a privatisation voucher of Rbs10,000 and in six
months you couldn't buy a kilo of sausages with it. And the West was happy
with all of this."
The government cheated the people in another way, he said; it allowed
fantastic "pyramid" schemes to operate. "But the Government was learning. The
biggest pyramid scheme of all was its own. It sold GKOs (government bonds) at
160, even 200 per cent interest. And that is what has collapsed now.
"We were never involved in pyramid schemes in this city. Our western partners
must come to understand what has happened here. And I say clearly - I am very
much against the announcement in August that the country would renounce its
debts."
Thus has the mayor separated himself from unpopular reforms, castigated the
west for being fooled by the reformers - and positioned himself as a
responsible man. He is already drafting a future cabinet: he says that Grigory
Yavlinsky, head of the liberal-centrist Yabloko party, would be a strong
candidate for premier.
It is a sign that Mr Luzhkov is gathering in the big figures of Russian
politics to his camp. Declaring himself to be a left-centrist, he is now
attracting the apparent support of Gennady Zyuganov, leader of the Communist
party. Mr Zyuganov says that Gen Lebed - whose support he tried to win for his
own bid for the presidency in 1996, is a "fascist". He has indicated that Mr
Luzhkov, as a man of the left, might gain Communist backing.
Much less ambiguous is the new kid on the political block, General Andrei
Nikolaev, who has set up a group called "Power of People and Labour", now
forming a confederation of centre-left parties and groups around it.
Gen Nikolaev, a former head of the border guards, is a handsome, almost
charming man in his late forties; in an interview, he claimed he was
recruiting some 3,000 members a week and declared that he would win the
backing of the country's 42m trade union members. Mayor Luzhkov, he said, "was
the most probable of the presidential candidates". As for Gen Lebed? "This
would be the dictatorship of one man; we want only one dictatorship in this
country, that of law."
If Mr Luzhkov succeeds in getting labour on his side, it will be
counterpointed by big industry. Arkady Volsky, head of the Industrialists'
Confederation, echoes Mr Zyuganov and Gen Nikolaev in calling Gen Lebed a
rightwing extremist and inclines towards Mr Luzhkov. Mr Volsky is an old fox,
close to every leader of Russia/Soviet Union since the early 1980s. If his
nose for power leads him to Mr Luzhkov, it is a good sign for the mayor
Capital and labour; the leading reformer in parliament and the Communist
Party; his own visible achievements in revitalising Moscow - Yuri Luzhkov has
or seems likely to gain all of this. More: his courting of the Church through
the figure of Patriarch Alexei II; his stroking of Russian nationalists
through his demand for the return of Crimea from Ukraine to Russia; the
(presumed) vast wealth available to him from his control of Moscow - these
buttress his already vast influence and make of his short, stocky figure a
giant looming over the Kremlin from his base half a kilometre away in city
hall.
He now needs only the people - still something of a residual in political
Russia, but still with the votes.

******

#3
Poll Shows Zyuganov, Yavlinskiy Most Trusted Politicians 

Moscow, Oct 14 (Interfax) -- Russian Communist Party leader Gennady
Zyuganov and leader of the Yabloko movement Grigoriy Yavlinskiy are the
most trusted Russian politicians. Each of them won the approval of 17% of
the respondents in a poll held by the All-Russia Center for Studying Public
Opinion (VCIOM) at the end of September.
During the poll which lasted for two weeks, respondents were asked to
name five or six political leaders which they trusted most.
Statistical error stands at about 2% in such polls.
Governor of Krasnoyarsk territory Alexander Lebed ranked third in this
charter, winning the approval of 16% of those polled.
Moscow Mayor Yuri Luzhkov is trusted by 14% of the respondents and
Prime Minister Yevgeny Primakov 11%.
Leader of the Liberal Democratic Party of Russia Vladimir Zhirinovskiy
is trusted by 6% of those polled and leader of the Our Home Is Russia
movement Viktor Chernomyrdin by 5% of the respondents.
Ex-deputy prime minister Boris Nemtsov and ex-prime minister Sergey
Kiriyenko scored 4% of the votes, each.
State Duma Chairman Gennadiy Seleznev is trusted by 3% of thosepolled.
Two percent of the votes went to Russian President Boris Yeltsin,
Federation Council Chairman Yegor Stroyev, Governor of Kemerovo region Aman
Tuleyev, prominent eye surgeon Svyatoslav Fedorov, leader of the Russian
Regions faction Nikolay Ryzhkov and Chairman of the Democratic Choice of
Russia party Yegor Gaydar.
Thirty-three percent of the respondents said that they did not trust
anyone and 15% were undecided.

******

#4
The Times (UK)
October 17 1998
[for personal use only]
Feast or famine for shoppers in Moscow
FROM ANNA BLUNDY IN MOSCOW

THERE are two kinds of shopper in Moscow. One is the ubiquitous old lady in a
headscarf who is on a pension of 450 roubles a month - if she receives it at
all - and has to scour evil-smelling state shops for Spam-like sausage, scraps
of festering meat and cabbage that might still be edible if she tears all the
outside leaves off. 
The other is the well-dressed woman in her twenties who despite the crisis
still shops at places once reserved exclusively for foreigners where
everything is shipped in from Finland, including Roquefort cheese, fresh
lychees and packets of flaked almonds. 
This type can also afford Moscow's various markets, where Georgian men with
black flashing eyes and gold teeth sell perfect peaches (25 roubles a kilo),
whole piglets (200 roubles each) and live langoustines from a tank (100
roubles a kilo). 
There is no in-between. Not because there is a shortage of people earning
between 450 roubles a month and 6,000 a month, but because there is a
produce abyss between luxury and subsistence. 
Since the beginning of the economic crisis on August 17, prices of most goods
have more than doubled, with imports down 45 per cent on last year. The rouble
has fallen from six to the US dollar to around 15. It is expected to fall
further over the next few months, which means that those fortunate few with
dollars to spare are finding life a great deal cheaper. 
But for the vast majority of the Russian population, basic foodstuffs are now
priced out of their reach. Needless to say, their salaries and welfare
payments, such as they are, have not increased with inflation. Last year
Russia imported more than a third of food consumed here. Not only are imports
down by nearly half this year because of the economic crisis, but this year's
harvest is the worst since 1967. 
If you fed your family from state-run shops in Moscow, you would still find
all the staple goods that constitute dinner. In what was billed as a bread
shop, I found some foul spare ribs at 28.30 per kilo, some very sorry-looking
sausages at 30 roubles, bread for 3 roubles, standard Soviet cheese for 35.60,
and flour for 12.50. The real bargain was vodka at 26 roubles a bottle. This
seemed cheap, but a week's shopping would wipe out the average pension. 
Over at the "Jet" supermarket, there was more abundance, although the
management apologised for a temporary absence of fruit and vegetables. Bread
cost 4.20, cheese 110.60, milk 7.30 and a can of Coke 8.60. A month ago, that
can of Coke cost nearly 1, now it is less than 40p. 
At the market, heaps of watermelons, pomegranates and peaches leap out at you
wherever you look, Georgian women in bright scarves shout out their prices and
the air smells of garlic and spices. There was no absence of anything, yet the
country has asked the EU and the US, according to Boris Nemtsov, former Deputy
Prime Minister, for food aid. 
While in the provinces many basic foodstuffs are in painfully short supply, it
would be a lie to say Moscow was suffering a food shortage. But it would be
true to say it was suffering a severe shortage of people who can afford to buy
it. 

******

#5
Russia will not revert to ``ugly'' past-Kozyrev
By Eric Onstad

AMSTERDAM, Oct 17 (Reuters) - Former Russian Foreign Minister Andrei Kozyrev
said his country had moved too far from its communist past for the new
government to reverse the course of reform. 
``We are not going back to ugly economic ideas or to ugly political ideas of
the communist past,'' Kozyrev told a cocoa industry dinner in Amsterdam on
Friday. 
``Even the communist opposition do not speak of revolution, they speak of new
elections,'' said Kozyrev, now a liberal member of the Russian parliament's
lower house, the Duma. 
Kozyrev said the new government of Prime Minister Yevgeny Primakov was not one
he would have chosen, but it was turning out to be relatively pragmatic. 
``I know 90 percent of the membership of the new government. Many have served
in previous governments, they are trained, educated,'' said Kozyrev, who
resigned as foreign minister in January 1996, regarded as too pro-Western by
the communists. 
``Yes, they will try to accommodate the communist opposition in the Duma...but
I think they now have a more sober assessment,'' he said. 
People should not underestimate the huge changes Russia has undergone over the
past decade, Kozyrev said. The concepts of human rights and private property
were out of the realm of possibility 10 years ago. 
``Seventy percent of the property went from a totalitarian state into private
hands,'' Kozyrev said, adding that the path towards liberalisation would
continue, albeit at a slower pace. 
``This is not the government I would have dreamt of...but it will not change
the fundamental orientation,'' he added. 
Kozyrev said he was convinced elections due in 2000 would be orderly,
constitutional, free and fair. 
In fact, the new government will have to be pragmatic to solve the economic
crisis and win over a suffering populace ahead of the coming polls, he added. 
The most dire and gloomy scenarios of Russia's future under the new government
are painted by members of the domestic Russian media. But this only goes to
show the thirst within the country for quicker and deeper reforms, Kozyrev
said. 

******

#6
Russian economy programme seen ready by end-year

MOSCOW, Oct 16 (Reuters) - Russia will have a medium-term economic programme
ready by the end of the year and the cabinet will determine priority measures
by next Tuesday, Economy Minister Andrei Shapovalyants told RIA news agency on
Friday. 
Finance Minister Mikhail Zadornov, quoted by Interfax, said the central bank
had prepared its monetary programme and banking system restructuring plans to
present at talks next week with an International Monetary Fund mission. 
The IMF mission is due to return to Moscow on Tuesday. 
"They have their proposals and we have ours," Zadornov said, adding that the
proposals covered the end of this year and 1999. 
The IMF has said it would not release further credits for Russia until an
agreed economic programme is in place. The second $4.3 billion tranche of a
multi-billion-dollar loan package announced this summer is being held up. 
Shapovalyants said one of the priorities was to clear non-payments between
enterprises. "We don't plan to nationalise anyone. The government does not
intend to take away property or limit the activities of exporters," he added. 
RIA quoted First Deputy Prime Minister Yuri Maslyukov as saying a list of
priority measures was ready for consideration by a special working group but
still needed to be finalised. 
"If necessary, and if the government session next Thursday does not manage to
consider them, then a special cabinet meeting on Monday, October 26, cannot be
ruled out," he said. 

******

#7
INTERVIEW-Russian bank head says elections needed
By Peter Henderson

MOSCOW, Oct 16 (Reuters) - The head of one of Russia's biggest commercial
banks said on Friday that the country needed elections to usher in a strong
and liberal government to rescue the economy from stagnation. 
Pyotr Aven, an economic liberal who is president of Alfa-Bank, said in an
interview the government of Prime Minister Yevgeny Primakov was pragmatic but
too weak to enforce its will. 
"I think it is a non-ideological government, so it would be unfair to call it
communist...They are pragmatic," he said. 
But Russia needed elections to sweep in liberalism, letting the economy grow
organically, he added. "For real change we need elections -- that is for
sure." 
Alfa has been one of the best survivors of Russia's crisis, meeting
depositors' demands to return funds when others held back, and avoiding
central bank bail-out credits. 
Aven said Alfa predicted the rouble devaluation, leading it to cut T-bill
holdings and balance foreign-denominated assets and liabilities, but it had
still been hit by the event. "We are not trying to make money. We are trying
to stay on the surface." 
He said that under the present government and president, Russia's economy was
stuck in neutral. "I don't think it will really deteriorate seriously...some
inflation, zero growth, (the rouble) step by step going down." 
Aven, foreign trade minister in the early 1990s under price-freeing Prime
Minister Yegor Gaidar, said Primakov was not strong enough to patch up the
budget. 
The government could not collect enough taxes or borrow abroad, leading it to
print money. "There is just no other source," Aven said. 
The economy, under pressure for a year, slid into outright crisis in August
when Prime Minister Sergei Kiriyenko devalued the rouble, froze domestic debt,
and then was sacked. 
Aven said a central bank plan to sort out bankrupt Russian banks, which he
said were victims of devaluation, was also plagued by enforcement problems. 
A copy of the plan published in newspaper Kommersant Daily showed the central
bank would take temporary control of and support major troubled banks and let
smaller ones fail. 
But Aven said the problem would be to get rid of the old owners, tycoons known
widely as the "oligarchs." "I like the programme now. I hope they will be able
to implement it." 
Russian banks have been accused of being coddled and fed credits by the
central bank. 
Critics, mostly foreign, say one of the few ways to avoid recapitalising them
with inflationary credits and to attract an estimated $30-$50 billion in cash
dollars held by Russians at home would be to let foreigners onto the market. 
But Aven said limits on foreign bank activity, especially a ban on taking
household deposits, should stay in place. He said Russian banks such as Alfa
could compete, but people might rush to put funds in foreign banks if allowed
to. 
Ironically, though, Russian banks' future depended on the West as well as a
strong government, Aven said. "The future of any big bank is linked with
getting credits from abroad." 
Before the crisis, Russian banks relied on Westerners for credits to lend
onward to Russian companies and buy securities. 
However, Aven saw no Western loans before spring and said Alfa was
renegotiating credits due at the end of the month. 

*******

#8
Date: Fri, 16 Oct 1998
From: "Barry W. Ickes" <bwickes@psu.edu>
Subject: Response to Menshikov, Moody, Kaegi and Woodruff

Let me first point out that I have never asserted that Russian steel
producers are value destroyers, nor have I accused anyone of dumping. What
I have been concerned to point out is that the statistics that have been
offered to "prove" that these enterprises are not value destroyers are
uninformative unless we know the actual prices at which transactions are
made. The simple, but important point remains that when transactions are
reported in ruble values but paid for with instruments that trade at a
discount, the resulting figures cannot demonstrate what people are claiming
they do. Respondents, however, continue to overlook this point. 
Menshikov argues that reported costs of energy are 7% of total costs. If
they pay only one-half of the true cost, then the energy they use is 14%
not 3.5%. If I buy cheese at a 50% discount and my expenditure on cheese is
$1, then the value of the cheese I have consumed is $2, not 50 cents as
Menshikov argues. Leaving that point, the reason I doubted his figures on
the energy and labor cost of steel is that they sum to too little. If his
figures are correct it means that iron ore and capital services make up 84%
of the price of a unit of steel. This seems hard to believe, but I leave
that to people who know more about this industry than I do.
Menshikov's argument seems to be that measuring value added at world
prices is of no relevance. He is correct to state that no matter how
inefficient is manufacturing Russia must have a comparative advantage in
some activity. But in that case Russia' comparative advantage may not be in
manufacturing. If Russian manufacturing uses energy less efficiently than
foreigners do, then the theory of comparative advantage says it should
export the energy and import the manufacturing goods.
There are too many confusions in Menshikov's comments on opportunity cost
to discuss here, so I will limit myself to one comment on his Dutch cheese
example. Even if Dutch cheese sells at a higher price in Moscow than
Amsterdam, selling cheese in Holland only destroys value if the cost of
producing the cheese is less than 15 guilders. His claim that they are
destroying value in mass is a non- sequitur. I suppose Menshikov wants to
argue that they are foregoing profitable opportunities (which they are not,
since they are selling cheese in Russia, by his example), but that does not
imply value destruction. (Moreover, there are extra costs of selling in
Russia over Amsterdam besides transportation costs. Retailers in Moscow
face high taxes and often must make payoffs to mafia organizations. These
will also add to the price differential.)
The key issue between Menshikov and myself appears to be over the causes
of the crisis in Russia. Menshikov sees the output decline due to lack of
demand. I see it as the result of too many inefficient producers that
cannot compete in an open economy. Without protection, Russia exports
commodities and imports consumption goods. Menshikov sees an increase in
nominal spending leading to an increase in output as consumers buy the
output of Russian industry. I see an increase in nominal spending leading
to increased purchases of imports and a resurgence of inflation. Menshikov
sees an increase in credits to these industries leading to a revival of
production. I see an increase in credit to these industries leading to more
unusable production. The Russian government may be about to conduct the
experiment. We will learn from the outcome of that.
I would certainly agree with Moody that barter and over-pricing are
distinct phenomena, and not necessarily linked together. What is
interesting about Russia, however, is that the former is used to accomplish
the latter (though that is not the only reason that firms use barter).
Lossmaking enterprises need some means to survive and the fact that they
use barter for this, as a means of overstating prices, is interesting.
I would also note that barter is not 50% of GDP. At best, it is 50-70% of
transactions in industry. Much of the new economy transacts with money.
Also, the growth of barter is of recent vintage. In 1994 barter was about
20% of transactions between enterprises, up from 5% in 1992. So over time
the share of barter transactions is on the increase. So it is not fair to
say that the monetary authorities have never had control of more than 14%
of the economy. 
It is interesting to learn from Kaegi that Russian steel producers have
varied performance. But I fail to understand the relevance. Just because
some enterprises lose money does not mean that if they booked transactions
at the actual terms of trade they would not show even greater losses. I
don't see how any of these data impact on the point that when you conflate
transactions that are conducted with instruments that do not trade ruble
for ruble you are adding apples and oranges. And just to be clear, I have
never quoted any document from the Accounting Chamber. The Karpov
Commission was an inter-departmental commission set up by the Russian
government to study the non-payments problem in Russia. 
I also would suggest that this business of disregarding any information
because a person writes for a certain employer is a very slippery slope. If
Kaegi is so ready to impugn the motives of Latynina because of her
employer, why should I believe what someone who works for an investment
bank writes without interest? Don't they have an interest in selling the
virtues of their financial analysis. Once you start on this path it is very
hard to stop. I would prefer to focus on the arguments.
David Woodruff argues that Gaddy and I overlook commercial common sense
when we fail to recognize that "sellers will want to give price cuts when
customers cannot afford their goods, and in particular will want to charge
different customers different amounts, depending on what they can afford to
pay." This is rather strange common sense. Most producers refrain from
selling to those who cannot afford to pay (which is the reason I do not
drive a Porsche). Commercial common sense says you price discriminate based
on elasticity of demand, not on ability to pay. Who price discriminates on
ability to pay? A player in the great game of redistribution of value (see
the note below on the lottery), that's who! In other words, it's not
"commercial common sense" that drives this. It's POLITICAL common sense."
Contrary to commercial logic, you give the price cuts to the needy as part
of a grand deal. Your benefit from the deal is being allowed to stay on as
owners of Gazprom---the lottery prize winners---and being allowed to pocket
a good bit, though perhaps not all, of your export revenues. 
A price-discriminating monopolist wants to charge different prices to
consumers who have differing elasticities, if they can segment markets. But
most firms are not charities; they discount prices only when these prices
exceed marginal cost. 
This brings us to the key issue: what is the marginal cost of the gas that
Gazprom sells for bartered output? If the gas cannot be exported its
marginal cost may be low, which could explain why Gazprom would accept a
lower price from some producers. But why can't they export more? Their
potential for expansion is limited because of limited pipeline capacity.
Suppose that Gazprom announced that it was expanding its capacity to export
and would refuse to sell gas domestically for less than the world price of
gas. Does anyone believe that they could get away with this? Of course not.
They would be re-nationalized immediately. See the accompanying note, below.
Now there is one important point about price discrimination that supports
Woodruff's general argument that he fails to make. A monopolist can only
price discriminate if he can segment markets, and thus charge different
prices to the different groups. This is very hard to. But barter is a
convenient tool for this, because it makes the prices at which transactions
take place less transparent. Barter keeps markets segmented. If all
transactions were conducted with money, at different prices, Gazprom would
have to worry about resale destroying their ability to sell to the
customers who pay the higher price.
I agree that Karpov did not understand all the implications of virtual
pricing. In fact, he thinks domestic gas rates can and should be reduced by
90%! Well, at least that would have the virtue of removing the pretense.
Free gas would be recognized as just that ... free gas. But this is just
another way of re-writing the bargain over the ex-post distribution of value.
Bartles and rubles. This metaphor is somewhat misleading. It is not two
currencies, but two types of goods that are crucial: soft goods which can
only be bartered and hard goods which can be sold for real money. But
continuing with Woodruff's story, notice that there is no gain from
"devaluation" unless this causes someone's costs to fall. If all prices
changed proportionally nothing would change. Some relative price must
change for this to matter. In the case of Russia two matter most. First,
Gazprom now sells energy for less. Second, firms pay taxes with depreciated
"currency." So rather than get cash, Cheliabinsk gets a subway, that they
value less than the offset taxes. But the "devaluation" does not create
more resources. The same value was produced before and after. What the new
"currency" results in is a redistribution of value. From Gazprom and the
government to the producers who supply the bartles. This is the key point
about the virtual economy that Gaddy and I have been emphasizing, and if
Woodruff's metaphor makes it easier to understand, I am grateful.
Menshikov starts, in his first message, by accusing me of hollow
theorizing and talk of prejudice, then is taken aback when I point this
out. Fine. We will just forget that and focus on issues.

Barry W. Ickes 
Department of Economics Phone (814) 863-2652
The Pennsylvania State University FAX (814) 863-4775 
University Park, PA. 16802
USA e-mail: bwickes@psu.edu
world wide web: http://econ.la.psu.edu/~bickes/index.htm
and 

The New Economic School
Nakhimovsky prosp. 47 Phone (7-095)-129-3722/3844
Moscow 117418 FAX (7-095)-129-3722
Russian Federation e-mail: obudjko@nes.cemi.rssi.ru

*******

#9
Maslyukov Assures Western Investors of Cooperation 

Moscow, Oct 14 (Interfax) -- Russian First Deputy Prime Minister Yuriy
Maslyukov said that Russia remains an important strategic partner for
leading international corporations planning long-term operations in
thiscountry.
He spoke at a Wednesday [14 October] meeting with the President of
R.J. Reynolds International, Pierre de Laboucher, and a group of key
company executives.
The meeting was initiated by the company leadership which asked
several times to meet Maslyukov to discuss future investment plans, new
forms of government control over the tobacco market, and closer cooperation
with the Consultative Council for Foreign Investments under the government.
J. Reynolds is one of the top 10 world corporations making consumer
goods and it was the first international tobacco company to directly invest
in Russian production. Its investments have reached $400 million.
In Russia it produces goods at modernized facilities in St. Petersburg
and several other Russian cities. It has opened over 5,000 well-paid jobs
in the country.
Company representatives said the corporation is sponsoring several
socially significant projects in Russia and stressed that it does not
intend to revise its strategic programs on the Russian market at the time
of crisis.

*******

#10
Argumenty i Fakty, No. 939,
October 19988 (Signed to Press 13 Oct)
[translation for personal use only]
Konstantin Sergeyev article: "On Political Coupling"

The main feature of the future presidential elections in Russia has
become obvious: candidates are going to engage in the struggle not on their
own but in pairs -- a president with his future prime minister. The
possible duos are easily predictable because the main figures have been
known for a long time: Aleksandr Lebed, Gennadiy Zyuganov, Grigoriy
Yavlinskiy, and Yuriy Luzhkov.
The Lebed-Yavlinskiy duo would be very much to the West's liking. In
the United States, the Democrats, seriously damaged by Monica Lewinsky,
will soon be replaced by the Republicans who took a liking to the governor
general long ago. They believe that Lebed is capable of ensuring nuclear
safety and rigid semimilitary discipline in Russia, while well-known
economist, reformer, and democrat Grigoriy Yavlinskiy should represent a
liberal "front" for the general's boots. It is likely that surviving or
drowning oligarchs -- B. Berezovskiy, V. Gusinskiy, A. Smolenskiy, M.
Khodorkovskiy, and others -- will support this "coupling."
From the point of view of political technologies too, a tandem of a
general and a liberal is quite interesting because their votes do not
overlap but add up: the so-called protest electorate (supporters of Viktor
Anpilov, Vladimir Zhirinovskiy, and a proportion of Communists) will vote
for Lebed whilst Yavlinskiy usually gets the votes of the intelligentsia in
major cities.
Incidentally, this "promising duo" is already being actively promoted
by the Media-Most holding and NTV television. For this purpose, numerous
programs and articles were devoted to General Pinochet who, assisted by his
liberal economists ("Chicago boys" ) had saved Chile.
"Luzhkov-Yavlinskiy" is another possible duo. It is known from
trustworthy sources that part of Luzhkov's team and Yavlinskiy himself have
been intensely flirting on account of a possible strategic alliance. 
Yavlinskiy's nomination as candidate for the post of Moscow Region
government with the Moscow mayor's vigorous support could become a test for
the alliance.
However, Yavlinskiy is hardly able to help Luzhkov in the presidential
elections. Moscow will vote for its mayor anyway and does not need
Yabloko's canvassing for this, whereas the support won by Yavlinskiy in
other Russian towns will be negligible compared to the number of votes that
Yuriy Mikhaylovich can get thanks to an alliance with the Communist Party.
In addition, taking account of Grigoriy Alekseyevich's character, we
should have no doubt that he will conclude unsigned secret alliances with
both Lebed and Luzhkov: I am bound to come third in the elections and, in
exchange for the post of prime minister, I will call on my electors to vote
only for you in a second round! Evidently, if such an agreement should be
suitable for either of them, it should be for Lebed the romantic but not
Luzhkov the pragmatist.
Incidentally, it is precisely because he does not have "a pair" that
Communist candidate Gennadiy Zyuganov will certainly reach the second round
of presidential elections but only to lose it as certainly. Therefore the
Communist leadership will have either to replace the leader, most likely
with Gennadiy Seleznev, the current State Duma speaker, or to refrain from
nominating its presidential candidate at all and lend its support to
Luzhkov in exchange for the government and the post of Russian primeminister.
Meanwhile, last week Seleznev himself said that, given certain
conditions, he is prepared to become a presidential candidate from the
left-wing forces, this having been preceded by Gennadiy Nikolayevich's
dazzling performance in the Ukrainian Supreme Council.
For this reason, the Luzhkov-Seleznev duo looks much stronger and more
promising than the "Luzhkov-Yavlinskiy" duo.
All the versions considered have, in certain circumstances, election
prospects. Last Friday, at the St. Daniel Monastery, a virtual
presentation of future candidates for the presidency, first of all Luzhkov,
took place under the aegis of the Russian Orthodox Church. By chance or
not, but only Lebed and Yavlinskiy were absent. It looked like all other
contenders are able to find a common language.
Yevgeniy Primakov's position remains a subtle point, though. In the
event of the President's early resignation, Primakov is to take over all
the powers of the head of state. He may want to keep them. In this case,
there will be a chance of a new "duo," which will be able to fulfill the
main prerequisite for victory in the elections -- to nominate a single
presidential candidate from "the party of power."
There is still time, though, to think about restoring the post of vice
president and, according to old Russian tradition, to put three headstogether.

*******

#11
Russia Expresses Concern Over Millenium Bug Threat 

Moscow, Oct 14 (Interfax) -- Russia does not have enough funds or
enough professionals to deal with the millennium bug that is threatening
computer systems throughout the world, the Russian State Communications
Committee said in a report which will be delivered at a meeting of the G-8
task force for the millennium bug in London October 15-16.
The main concerns over the millennium bug includes possible
disruptions in the operation of the defense and energy industry, health
care, pension funds, communications providers, banks, land transport and
air traffic controls, the committee said.
The State Communications Committee and the Russian Foreign Ministry
agreed that Russian specialists should take part in the work of
international organizations handling the millennium bug.
The Russian Foreign Ministry is also working to have the matter
discussed at meetings of the Russian-U.S. Commission for Economic and
Technological Cooperation and the Russian-French Commission for Economic
and Technological Cooperation.
Early estimates show Russia may need up to $500 million to tackle theproblem.
About 51,000 of the more than 96,000 computers in Russia will be
susceptible to disruptions at the turn of the century. Half of the 50
operating systems and 100 software programs used by Russian government
structures are facing serious problems due to the millennium bug.

*******

#12
Russian Court To Focus on Presidency as Institution 

Moscow, October 15 (Itar-Tass) -- With the Constitutional Court in
scrutiny of the Russian president's eligibility for a third term, in
question is not the case of Boris Yeltsin but evolution of Russia's
institution of the presidency, said representative of the Duma lower house
of parliament which filed the inquiry.
The Duma representatives to the Thursday [15 October] hearing of the
court said Yeltsin's name was not mentioned by the inquiry.
However, Yelena Mizulina, one of the inquiry's writers, admitted at
the hearing that it was prompted by "unofficial statements by high
officials," in particular former presidential press secretary Sergey
Yastrzhembskiy and Federation Council Speaker Yegor Stroyev, that suggested
a possibility of Yeltsin's running in the presidential elections in 2000.
"Their statements have been the reason for the issue to begin to be
debated in the State Duma," Mizulina said.
She told Itar-Tass that the parliament's current Constitution-
amending process in Russia's present-day situation could lead to a setup in
which a new president could be elected under new laws.
Aleksey Zakharov of the Yabloko faction in the Duma lower house, who
was one of initiators of the inquiry, said there were no grounds for an
expanding interpretation of the Constitution's Article 81 which was cited
by several lawyers as meaning that Yeltsin was first elected as president
"in another country," or Russia within the Soviet Union, implying that one
of his terms could not count as the presidency of Russia.
Zakharov said the Central Election Commission registered Yeltsin for
running in 1996 presidential election exactly for his second term. Given
that, defining his current term as his first under the new edition of the
Constitution would make questionable the legitimacy of the 1996 election,
he said.Oleg Tiunov, one of reporters at the Constitutional Court's meeting,
explained the logic behind the Duma's inquiry.
Under the current Constitution, the president exercises his powers
until expiry of his term, he said.
Continuity of constitutional provisions regarding federal executive
and judiciary authorities is laid down by several "final and interim"
arrangements, and the president retained his powers, along with court
judges and the government, after the new Constitution was adopted in June
of 1993, Tiunov said.
The second presidential election in July of 1996 was held after the
president's powers ended.
Article 81 stipulates that one person may not be president for two
successive terms, he went on to say.
However, the article does not specify whether this provision applies
to a person who had been elected as president before the current
Constitution took effect.
Based on this reasoning, the Duma asked the Constitutional Court for
an interpretation of whether the presidential term prior to the new
Constitution's taking effect was the term stipulated by Article 81.

*******

#13
Russian Bank Chairman--Increase Money Supply With Reserves 

MOSCOW, Oct 14 (Interfax) -- Central Bank Chairman Viktor Geraschenko
has said that the money supply should be increased by increasing gold and
foreign reserves.
The fourth quarter and 1999 budgets make it necessary to increase gold
and foreign reserves, and this would make it possible to increase money
supply, Geraschenko told the Federation Council Wednesday [14 October].
Geraschenko stressed that this does not mean a money emission.
He asked senators to offer gold reserves in the regions to the CentralBank.
Geraschenko also said that the Gokhran state repository should be
controlled by the Central Bank, not the Ministry of Finance.
Speaking about the situation in the gold-mining industry, Gerashchenko
said that "if the Central Bank takes charge of Gokhran, the industry will
work normally."Regarding the budget for the fourth quarter he said that state
revenues are estimated at 70 billion rubles, receipts on VAT accounting
for 40% of this sum, excises 35% and profit tax 17%.
"The question is, though, whether this money will ever arrive to the
federal budget," he said. However, he refused to elaborate in the presence
of journalists.

*******





 

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