October 22, 1998   
This Date's Issues: 2443 • 2444• 

Johnson's Russia List
#2444
22 October 1998
davidjohnson@erols.com

[Note from David Johnson:
READ! This will be the last JRL until Monday, October 26.
1. Reuters: Lack of money, direction hobbles Russian military.
2. Bloomberg: Russian Crime Groups Run Almost Half of Banks, Wash. 
Times Says.
3. Anne Williamson: Goldman Sachs.
4. Reuters: China, Russia hammer out arms deals.
5. Stanislav Menchikov: Response to Ivanenko.
6. Journal of Commerce: Michael Lelyveld, US pushes oil firms to build 
Caspian pipeline.
7. Sovetskaya Rossiya: Primakov Should Drop Banks Plan, Readopt Postwar 
Methods.
8. Moscow Times: Leonid Bershidsky, Russia Agonizes Over Accepting Aid.
9. Bloomberg: Russia Wrestles With Spending Plan as Food Shortages Loom.
10. Sarah C. Lindemann: The Good News… It's Civil Society Development, 
Stupid.]

*******

#1
Lack of money, direction hobbles Russian military

MOSCOW, Oct 22 (Reuters) - Russian military reform is being severely hobbled
by a lack of strategic direction and a shortage of cash, an authoritative
annual report said on Thursday. 
``The Military Balance,'' a global survey of arms spending and military
capabilities compiled by the London-based International Institute for
Strategic Studies (IISS), said Moscow's top priority was to upgrade its
nuclear deterrent. 
``At present levels of expenditure, maintenance and production capabilities,
it will be difficult for Russia to maintain its overall strategic nuclear
forces at Strategic Arms Reduction Treaty (START) 1 levels for much longer,''
it said. 
Russia is struggling to cut the size of its conventional armed forces --
beneath a credible nuclear umbrella -- to reflect post-Cold War needs and the
country's reduced circumstances. Now, an economic crisis has made things
worse. 
``In the absence of clear strategic direction, the reform programme has been
primarily driven by economic expediency,'' the report said. The government
faced competing claims for funds but was under pressure from international
creditors to stay tough. 
``Shortage of funds is therefore the most serious obstacle to progress in
military reform, and the resources that are available are not being properly
allocated to cover the cost of closing down units and bases and discharging
personnel.'' 
The report said the military had a paradoxical personnel problem. It was
seeking to cut the number of troops but was having difficulty retaining well-
qualified officers. Most officers' contracts expire this year or early in 1999
and up to half may well decide not to renew them. 
``Already, 32 percent of warrant officer posts are vacant, as are 22 percent
of commissioned officer posts,'' it said. 
The report said the introduction of the SS-27 ground-based nuclear missile,
known in Russian as the Topol-M2, would improve the strategic nuclear force.
Plans have also been approved for new air-launched cruise missiles and
submarine-based missiles. 
Under START-1, Washington and Moscow pledged to reduce their long-range
nuclear forces by 30-40 percent. 
The START-2 strategic arms accord slashes the two countries' deployed nuclear
warheads by up to two thirds. The U.S. Senate has ratified the treaty but
Russia's opposition-dominated State Duma lower house of parliament has held
back. 
``Even if START-2 is ratified by the Duma, it will be difficult for the new
permitted level of 2,300 warheads to be maintained in operation condition,''
the survey said. 

*******

#2
Russian Crime Groups Run Almost Half of Banks, Wash. Times Says

Washington, Oct. 22 (Bloomberg) -- The U.S. Federal Bureau of Investigation
said organized crime groups control almost half of Russia's banks and use them
to launder illegally-obtained money, the Washington Times reported, citing an
FBI report to the Senate Intelligence Committee. The FBI said organized crime
controls 550 Russian banks, allowing the groups to launder billions of dollars
and helping them to play the leading role in moving much of the $200 billion
in capital that has fled Russia in the last decade, the Times said. The
report, completed just before Russia's economic downturn last summer, said
crime groups exert control over important economic sectors such as oil and
consumer products distribution and undercut free-market competition, the Times
said. 
Last month, Russia was rated the world's 10th most corrupt country in a survey
of 85 nations by Transparency International. 

*******

#3
From: "Anne Williamson" <annewilliamson@email.msn.com>
Subject: Goldman Sachs
Date: Thu, 22 Oct 1998 

An exhaustive article focusing on Goldman Sachs' activities in the
Russian market ran in the Sunday NYT
last. I noticed you posted the briefest of summaries, but I suspect a lot
of JRL readers plowed through the entire piece.
It was a classic of the "not-seeing-the-forest-for-the-trees" genre and if
you think it's worthwhile JRL readers might find
the following information of interest. Since I am a great critic of the
bond market the West set up in Moscow so precipitously,
it seems fair (and probably a bit ironic to some) that I should be the one
to defend investment bankers in this instance.

RE: “For Russia and Its U.S. Bankers, Match Wasn’t Made in Heaven”, October
18, 1998.

Dear NYT Editor,

Messrs. Kahn’s and O’Brien’s meticulously detailed report of Goldman Sachs'
sharp practice in Russia was yeomen’s work, but their effort failed to
capture the larger picture. Free market economics are not the cause of
Russia’s misery. Misguided government policy and inappropriate government
interference in international markets are the culprits.
Goldman Sachs developed the bond market as traders and underwriters – for
their clients and their own account, but it was the New York Fed’s Bank
Forum project that got the ball rolling. Under the NY Fed chief Gerald
Corrigan’s direction, a deal was struck with Yeltsin in early 1992.
Thereafter, at George Bush’s personal request, private money stepped forward
to fund the project. An American team crowded into the Russian central bank
that winter and all began to play the game of “bonds”. The first issue was
in mid-1993 for less than a million dollars. Simple days, long forgotten.
Once Yeltsin’s team of gangsters understood that foreigners would give them
money for promises, that the IMF would give them more money in loans and all
they had to do was hand some tens of millions back each round to keep the
game going, there was no looking back. As the table stakes grew, so too did
the game's ante and soon the Russians were required to pony up 100s of
millions to keep the game open, then billions until the pyramid collapsed.
Goldman Sachs was but the opportunistic agent of a boneheaded government
policy.
When Goldman Sachs might have done a great deal of good was in 1992. U.S.
Treasury Secretary Robert Rubin, then Goldman Sachs’ chief, and his
colleague Robert Hormats crafted an agreement with the new Russian
government to act as privatization advisors. The firm’s compensation was
unclear, but was assumed to be in kind – office space and various subsidies
from the state economy – as that was then a common arrangement for many
endeavors involving foreign firms. In any case, it was a private
arrangement and Goldman Sachs’ fiduciary responsibility was to Russia.
Functioning as one highly-professional set of the market's eyes and ears
while enjoying the ability to call upon many billions in private capital,
Goldman Sachs would nonetheless have had to deliver acceptable results to
stay in the saddle. This potentially beneficial relationship was soon
severed. Anatole Chubais and Jeffrey Sachs’ publicly-funded, mostly Harvard
team seized control of the privatization brief, their authority enhanced by
the bags of money they said the US aid establishment intended to deliver via
them.
One US accounting firm chief involved in the design of GKI's privatization
program recalled, “It was Sachs vs. Sachs. Goldman Sachs wanted to go deal
by deal, but Jeffrey Sachs said that it’d be more ‘academically interesting’
to throw it all to the market. Jeff Sachs won and Goldman was embarrassed.”
In this case, Goldman Sachs was the victim of boneheaded government
interference.
And now that Congress has handed the IMF another $18 billion to author yet
more misery around the world, we shall have a good deal more of boneheaded
government policies and interventions; a real bailout-o-rama. Where it’s
gonna stop, nobody knows.

*******

#4
ANALYSIS-China, Russia hammer out arms deals
By Christiaan Virant

BEIJING, Oct 22 (Reuters) - Moscow's cash-strapped arms manufacturers have
found an eager market in China, keeping Russian factories humming and
bolstering ties between the once-hostile neighbours, Russian analysts said on
Thursday. 
But differences remain on the issue of technology transfer, with China hoping
for more deals allowing local manufacture of cutting-edge weaponry, while
Russia holds tight to the secrets that make its military industry a world
leader. 
As Russian Defence Minister Igor Sergeyev meets his Chinese counterparts in
Beijing this week, members of his delegation will be scrambling to nail down
lucrative contracts for advanced fighter jets, submarines and air defence
systems. 
Over the past three years, Russia has earned more than $1 billion annually
from arms sales to China. 
Topping the arms deal agenda will be discussions on China's proposed purchase
of more than 20 Su-30 twin-seat multi-role fighters and the transfer of
critical production technology, sources close to the Russian embassy said. 
The two countries signed a memorandum on the deal during a June visit to
Beijing by Valery Manilov, deputy chief of the Russian general staff, but
negotiations have stalled as Moscow debates whether to teach China its
manufacturing secrets. 
``At the centre of the debate is the so-called 'seven-three' policy for
Russian arms transfers,'' said one Beijing-based Russian analyst. 
To prevent a technology outflow, Moscow pursues a policy in which 70 percent
of sales focuses on equipment and only 30 percent involves technology
transfers. 
``Russia wants to keep the software, or expertise, and sell China only
hardware,'' the analyst said. 
Analysts said the Russian position would keep its factories working and ensure
China remains a lucrative market well into the future. But Beijing has
repeatedly refused to purchase large quantities of Russian arms without
corresponding technology transfers. 
Earlier this decade, Russia sold more than 70 Su-27 fighters to China,
dramatically improving air combat capabilities for the People's Liberation
Army Air Force. 
The deal included a 15-year licence to manufacture 200 more planes, which was
hotly debated and only reluctantly approved by the Russian government. 
The $1 billion in annual Russian arms sales to China have accounted for a
substantial proportion of total trade, which fell to $6.12 billion last year,
down from $6.84 in 1996, according to Chinese government tallies. 
As Russian exports to China drop and Chinese consumer goods flood north, the
analysts warned Moscow's arms trade is key to the budding bilateral
relationship and technology transfers jeopardise long-term ties. 
``If all the technology is transferred to China, Russia will have nothing more
to sell and trade will plummet,'' an expert said. 
But Beijing may be gaining the upper hand in the debate as Moscow slides
deeper into economic crisis. 
``We have made it much easier for them because of the absolute failure of our
economic reform,'' said Georgy Arbatov, a director emeritus in the Russian
Academy of Sciences. 
Arbatov, who was architect of Moscow's efforts to normalise ties with Beijing
in the late 1980s, said China was familiar with Russian arms and was likely to
increase purchases in the future. 
However, he warned any bargaining chip had been lost in Russia's economic
chaos. 
``For us the weakest point is the state of our economy,'' Arbatov said. 

*******

#5
Date: Thu, 22 Oct 1998 
From: Stanislav Menchikov <SMenchikov@compuserve.com>
Subject: Response to Ivanenko in JRL 2441

Command economy methods are not needed to solve any of the three problems
indicated by Ivanenko.
1. It is sufficient today to start paying wages and pensions on time and
clearing wage and pension arrears in that area to start raising real
incomes. Wage arrears in the private sector will be paid once point number
two--- inter-enterprise arrears --- is solved. No command economy needed
here.
2. Disentangling payment arrears between enterprises will help reveal those
enterprises with an overall net debt after all mutual non-payments are
cleared. These are singled out as the problem enterprises to be either
sanitised or bankrupted or sold or closed or whatever. Clearing is done on
the basis of actual prices that were used in non-paid contracts. These
prices may be "bad" but they are the only ones available. One has to start
somewhere. The point is to restore normal market mechanisms by making
mutual payments in money the rule and minimise barter. Price changes to the
better should follow spontaneously. No prices in this exercise are set by
the government.
3. Any Russian enterprise needs roubles to operate -- pay wages, pay for
energy, buy supplies, upgrade equipment, etc. It needs working capital
which is mainly in roubles. Just how the money revenue is divided between
more output and higher prices is decided by the supply-demand relationship
and competition. In the absence of competition prices will be higher than
otherwise. Again no need for price controls, except in monopoly situations.
This has nothing to do with the command economy, either.
Mr. Ivanenko probably does not recall what the command economy (central
planning) was like.

*******

#6
Journal of Commerce
October 22, 1998
[for personal use only]
US pushes oil firms to build Caspian pipeline
Talks are scheduled but delay is expected
BY MICHAEL S. LELYVELD

The United States, Azerbaijan and Turkey are pulling out all the stops this
week to persuade oil companies that they should build a major Caspian Sea
pipeline. But reports suggest the decision will be delayed by at least a
month.
Administration officials confirmed that Samuel Berger, President Clinton's
national security adviser, is meeting today with the chief executives of U.S.
oil companies that are members of the Azerbaijan International Operating Co.
The move comes as the AIOC considers the U.S.-preferred route for a pipeline
from the Azerbaijan capital Baku to Turkey's Mediterranean port of Ceyhan.
But the consortium's decision, long scheduled for Oct. 29, has been put off
until November, according to a Bridge News report this week.
One measure of the issue's importance to Washington is that preparations for
the White House session on the Caspian have taken place in the midst of the
Middle East peace talks.
Mr. Berger has also taken part in those meetings between Israeli President
Benjamin Netanyahu and Yasir Arafat, the Palestinian leader, at Maryland's Wye
Plantation. 

Of epic proportions

While it may be a few notches below Middle East peace as a goal, the four-year
campaign to direct the flow of Caspian oil has assumed epic strategic
dimensions as the deadline has neared.
An entire industry of lobbying groups, consultants, bureaucrats and instant
experts in Congress has cropped up since September 1994, when AIOC signed its
$7.4 billion deal to develop oil fields off the shore of Azerbaijan. Other
consortia have followed, but none with a way to get the oil out.
Russia would control it with a main export pipeline to its Port of
Novorossiisk. Georgia has promoted a line to its port of Batumi near an "early
oil" pipeline outlet at Supsa. 

Pushing for pipeline

Azerbaijan, Turkey and the United States have been pushing the Baku-Ceyhan
line, keeping extra tanker traffic out of the Bosporus while avoiding the
peril of route competition from Iran.
Unfortunately for the White House, its chosen 1,075-mile route through the
chaotic Caucasus may be the most expensive, at a time when low oil prices
justify something less than the Cadillac of pipeline plans.
Despite $37 billion of foreign investment in Azerbaijan's oil sector, Caspian
returns have been small so far, also raising doubts about whether the 1
million barrel per day capacity will be needed any time soon. Officials have
been using a $2.5 billion estimate for the line, but industry officials
believe $4.5 billion is closer to reality. Azerbaijani sources privately blame
Turkey for doing nothing to shrink the cost.
An Oct. 29 meeting of the presidents of Turkey, Azerbaijan and Georgia in
Ankara is the most obvious reason for the reported AIOC delay.
Turkey has made vague financing pledges. Sources say Azerbaijan President
Heydar Aliyev will try to nail them down next week to save Baku-Ceyhan.
Mr. Aliyev will sign an agreement for the pipeline with Turkish President
Suleyman Demirel during celebrations of the 75th anniversary of the Turkish
Republic, Interfax reported. But the pact means little unless oil companies
put their cash on the line.
In his meeting, Mr. Berger is expected to repeat promises of funding from the
U.S. Export-Import Bank but also point to the Turkish government as a deep
pocket for the project. 

The more, the merrier

U.S. officials no longer hope that Baku-Ceyhan will be named as the only
route, but they are fighting to keep it in the mix of "multiple pipeline"
strategy. The more pipelines, the better, one official argued this week.
Diversification will avoid domination of the region by either Russia or Iran,
he said.
The problem is that oil companies are still trying to figure out whether they
can afford even one. One Azerbaijani source predicted this week that the AIOC
decision will be put off indefinitely. 

******

#7
Primakov Should Drop Banks Plan, Readopt Postwar Methods 

Sovetskaya Rossiya
20 October 1998
[translation for personal use only]
Statement by the "Patriotic Informburo" signed by Sovetskaya
Rossiya Editor in Chief V. Chikin and Zavtra Editor in Chief A.
Prokhanov: "Back Into Bondage"

The Primakov-Maslyukov-Gerashchenko government has entered politics at
a time of catastrophe, when the "liberal plague" has devastated the
motherland's living economy, drained the people's vital energy, and
destroyed the potential for development. Radical measures to salvage what
remains of our industry, save the population from extinction, and preserve
Russian statehood's genetic pool are expected of this government.
The government, however, is dragging its feet and demonstrating lack
of freedom and open and hidden dependence on the incapacitated president's
staff, remnants of liberal democrats, and world financial institutions that
have pushed Russia into eternal bondage. It is taking half-measures out of
fear of being regarded as authoritarian, Communist, or revanchist by the
"oligarchic press."
These inexplicable measures include the government's efforts to
reconstruct the "core banks" which perpetrated the principal destructive
work in the years of the liberal experiment. They bled national industry
dry, organized the criminal removal of hundreds of billions of dollars from
the country, and created the "infrastructure of capitalism" which has been
spreading immorality, violence, and desecration of Russia's sacred national
symbols. Precisely those banks, having organized the "pool of 13" in 1996,
were instrumental in getting the sick and socially dangerous Yeltsin
elected for a second presidential term. Precisely those banks encouraged
the hounding of [Belarusian President] Lukashenka, impeding the union of
Russia and Belarus. It is precisely within those banks that the infamous
doctrine of "Russian fascism" was conceived, a doctrine intended to
suppress all endeavors by the people to stand up for their independence.
These bankrupt, light-fingered banks are now being restored. The
people's money is being "pumped" into them at a time when the freezing
North, starving cities, and debilitated garrisons need that money so badly.
When Russia is looking at the world through the eyes of orphans andpaupers.
Patriotic politicians, who have shown confidence in Primakov and who
have political influence on him, should induce the government to give up
the senseless resuscitation of the cadaver banks. To hand their bodies
over to morgues for identification by forensic experts. To apply the
well-tested national methods for restoring the economy, which has been
destroyed by enemies, that rebuilt the Soviet Union in three postwar years
and ensured 50-percent economic growth rates.

*******

#8
Moscow Times
October 22, 1998 
Russia Agonizes Over Accepting Aid 
By Leonid Bershidsky
Staff Writer

Humanitarian food aid -- again? 
Prime Minister Yevgeny Primakov has asked for it. International Monetary Fund
Managing Director Michel Camdessus has reportedly offered it. Wheat prices are
jumping up and down in Chicago, Minneapolis and Kansas City in rising and
falling anticipation of it. 
And Russian media are wondering whether the nation may soon be in for another
series of aid-related corruption scandals, like those in the early 1990s, and
slamming Camdessus as a lobbyist for overproducing, subsidy-hungry Western
farmers. 
"Thank you, kind uncle Camdessus, for your concern about poor Russians, who,
as everyone predicts, face a tough winter," the daily Komsomolskaya Pravda
wrote Wednesday. "But who's going to help whom is a moot point. þ Whether he
intended to or not, Camdessus spoke merely as a lobbyist for the interests of
American and European farmers." 
In the West, officials are anxious to be seen helping Russia even while they
deny Primakov's government further loans. 
"There is very little likelihood of more IMF loans for Russia now," said
Anthony Thomas, an analyst with Kleinwort Benson in London. "But the last
thing the IMF wants is to be blamed for hunger in Russia this winter. So it is
offering a short-term solution in the form of food aid." 
There are also those in the West who believe food aid would be a boon to
everyone involved f American and European farmers and rural Russians wiped out
by economic collapse, and anxious over how to survive the winter. 
Professor Jerry Hough of Duke University in North Carolina recalls the
American Relief Association, a food aid program set up by U.S. President
Warren Harding's administration to feed about 12 million people in Soviet
Russia and Ukraine during the famines of 1921 and 1922. 
"Harding, a shrewd Ohio politician, no doubt was primarily interested in
helping the Midwest farmers," Hough wrote recently on Johnson's Russia List, a
bulletin of news and commentary that is sent by e-mail to subscribers. "Today,
American farmers are in a terrible situation. The politics on the Republican
side are easy because of the Harding analogy, and both parties should be eager
to court the farmers in an election year [by advocating food aid for Russia]."
Camdessus would be an unlikely intellectual ally for Hough, who is an opponent
of pure free-market economics. The IMF has long opposed agricultural subsidies
in Russia, and the food aid offer, which would mean massive subsidies to farms
in the West, might seem like a departure from the fund's economic principles. 
But Thomas of Kleinwort Benson said it would be unfair to accuse Camdessus of
lobbying for farmers, as a one-off aid-inspired package of subsidies would be
of little help to them. 
Other aid critics are less concerned with the purity of Camdessus' free market
principles than with the potential for corruption aid programs have always
carried here. 
In the early 1990s, Russia was one of the biggest food aid recipients in the
world. In 1993 alone, it received 3.2 million tons of grain in aid through the
United Nations' World Food Program f three times more than Africa and the
Middle East combined received. 
The government sold much of the grain inside the country, and claimed to have
spent the proceeds to assist the needy. But it is unclear to this day exactly
how the money was used. 
"Much of the charitable aid f food, medicine, etc. f that has gone into the
post-Soviet republics has ended up on the black market, the eternal problem
being one of control of its distribution," said Roman Serbyn, a historian at
the University of Quebec. "To reach the needy population, control must be
exercised by the donating agencies and not left to the [local] authorities." 
Another problem is that hundreds of millions of dollars worth of junk food,
alcohol and tobacco were brought into Russia in the early 1990s under the
guise of "humanitarian aid." 
The imports came through a host of private charitable organizations, chief
among them the now-infamous National Sports Fund and funds representing the
interests of Afghan war veterans f and even through the Russian Orthodox
Church, which specialized in cigarette and wine imports. No customs duty and
no-value added tax, or VAT, was levied on such "humanitarian aid." 
The bonanza lasted until 1996, when the government struck excise-taxed goods
like liquor and tobacco from the list of possible "humanitarian" imports. Now
the State Customs Committee lets only small cargoes of food, clothing and
medicine, valued at less than 10,000 ecu ($8,300), cross the border untaxed as
humanitarian aid. 
More expensive humanitarian aid cargoes must be approved by a government
commission now run by Deputy Prime Minister Valentina Matviyenko. 
According to an official close to Matviyenko's commission who spoke on
condition of anonymity, importers of these cargoes must prove they are sending
the aid to socially significant institutions such as orphanages or nursing
homes. The recipients must report to the commission within a month of
receiving the cargo. And as of September 1997, no one is allowed to sell goods
received as humanitarian aid. 
In the first six months of 1998, $65.3 million worth of humanitarian aid was
brought into Russia, according to customs spokesman Sergei Salnikov. 
The official with Matviyenko's commission said all of that aid went to Russian
hospitals, orphanages and churches and came from foreign charitable and
religious organizations. 
Of course, in Russia there is always the chance that regulations will be bent
to suit corrupt officials. But it is hard to make a conclusive judgment on
that now f the aid commission will only gather for the first time under
Matviyenko next Tuesday, her press secretary Svetlana Kryshtanovskaya said. 
The official close to the commission said Wednesday the body was not
participating in any concerted talks with Western donors. Primakov's public
comments aside, Russia has never actually put in a formal request for aid.
Commodities traders in the United States are even getting discouraged, and on
Tuesday December wheat futures dropped in several U.S. cities, news agencies
reported. 
"The Russian government is going to put off its decision on whether or not to
formally request aid until the last moment," said Andrei Ryabov, an analyst
with the Carnegie Endowment. "Doing it now would weaken the government's
position. It was OK to request aid in 1992, when Russia was considered to be
in a difficult transition from communism to capitalism, but now, after seven
years of reforms, asking for humanitarian aid would mean admitting total
failure." 

*******

#9
Excerpt
Russia Wrestles With Spending Plan as Food Shortages Loom

Moscow, Oct. 22 (Bloomberg) -- Russia's government extended debate on
emergency spending plans as the Red Cross warned malnutrition in some regions
has worsened and starvation is possible. 
The government says it will approve only essential spending through the end of
the year to ensure a steady flow of food supplies and payment of back wages to
workers who haven't seen a paycheck in as long as a year or more. Social
spending cutbacks are inevitable, finance ministry officials say, because
Russia lost access to financing after defaulting in August on $40 billion of
ruble debt. 
``Now before the government is the single task of survival,'' said Alexander
Livshits, a former aide to President Boris Yeltsin. ``They're dealing with how
to provide food, unclog payments in banks. These are essential steps before
the Russian winter.'' 
The government has been promising all things to all people in recent weeks.
The prime minister, finance minister and other cabinet members are seeking to
reassure the public that all back wages will be paid and companies that taxes
will be reduced. They've also told foreign investors that Russia will cover
about $3 billion in foreign debt payments this year, and international lenders
that the government will cut spending to balance the budget. 

Still Hopeful 

Finance Minister Mikhail Zadornov said yesterday that the government still
expects to receive additional loans from the International Monetary Fund this
year. 
Few expect the money to come through until the government presents a credible
financing plan on its own. So far, the government said it plans to slash
spending through the end of the year, using central bank foreign exchange
reserves to help cover foreign debt payments and printing money to cover back
pensions and wages, policies unlikely to win the support of the IMF. 
``It's a pipe dream to think the IMF will give money before the Russian
government declares openly what its plans are,'' said Alan Rousso, director of
the Carnegie Moscow Center. 
Meanwhile, the government has few plans for increasing revenue and has not yet
approved a new spending plan. The previous budget became irrelevant in August
because it depended on government borrowing of more than $1 billion per week,
which is now impossible. 
IMF Managing Director Michel Camdessus said last week that Western nations
should provide food aid to Russia to avoid starvation. Red Cross officials
warned that the situation in many areas already is becoming severe. 

Facing Reality 

``A country which is in this sort of crisis does not want to give into the
reality that it can't feed its own people,'' Rousso said. 
The government may have no choice. 
Russians' average wage has tumbled to about $60 per month since the central
bank abandoned its defense of the ruble in mid-August and the currency plunged
more than 60 percent in a month. A quarter of the population now lives below
the poverty level. 
About half of Russia's children are underdeveloped mentally and physically due
to malnourishment, according to the International Federation Red Cross and Red
Crescent Society. The Red Cross has expanded its aid in Russia to 12 regions,
up from nine last year and aims to triple donations. 
``The situation has certainly worsened,'' said Caroline Hurford, information
delegate at the Red Cross in Moscow. ``We can't afford to underestimate the
possibility of starvation in some areas. It's quite shocking how appalling the
conditions are in some regions.'' 

Stoic 

Even so, many Russians remain philosophical. In the countryside, they've
survived for the past few years on food grown in their own garden, as wages
and pensions went unpaid. 
``I might end up eating less meat if all goes as bad as the TV says it will
be, but it will only make me thinner, which is good,'' said Yulia Markelova,
64. ``It's the cat I worry about most. He's used to canned food and biscuits
my daughter used to buy him.'' 
Russia's agriculture ministry said the country likely will face shortages in
milk and meat products, which are largely imported. 
Russia already has requested food aid from the U.S. and European Union, though
no aid has yet been pledged. 
Demand for bread and potatoes, traditionally high in Russia, may rise this
year as Russians, hit by the financial crisis, will have to buy cheaper food
to substitute expensive imported products. 
Russia's grain crop is expected to fall about 45 percent from last year
because of drought followed by heavy rains, which may force the country to
import grain. At the same time, rains have damaged the quality of potatoes
harvested this year as they become more susceptible to fungus, which makes the
tubers rot quickly.... 

********

#10
Date: Thu, 22 Oct 1998
From: "Sarah C. Lindemann" <echo@mail.nsk.ru>
Subject: The Good News… It's Civil Society Development, Stupid

The Good News… It's Civil Society Development, Stupid
By Sarah Lindemann (ECHO@mail.nsk.ru)

As an American who has been living in Novosibirsk for almost 7 years I have
been excited to see in JRL some encouragement for support to civil society
projects in Russia because they are the only projects I have seen produce
substantive results. I did not come here as a grassroots activist.
Growing up in Greenwich Connecticut and graduating from Exeter and Columbia
(post radical 60's period) as a political science major it was the last
thing I expected to be doing. I got involved because people kept coming to
me for information on how to get organized. Since that time one thing has
lead to another and Western supported civil society projects have had a
profound impact on democratic development in Siberia. Still I continue to
hear about lowering support for these initiatives and increasing support
for business oriented projects. Since "the business of America is
business" this may make sense to those living in the context of a developed
economy and stable democracy. However, in Siberia, the more operative
phrase should be a twist to the infamous 72 Clinton election team
breakthrough phrase, "it's civil society development, stupid". 

There must be business success stories out there but based on what I have
seen in Novosibirsk it is positively mystifying how the idee fixe remains
business. I think there are two reasons for this. Fran Lebowitz best
explains the first in a July 1997 Vanity Fair interview. In response to the
question "People believe that with the collapse of the Soviet Union
worldwide Communism died a sorry death, and that capitalism is clearly
triumphant. Do you agree?" Lebowitz said, "Not only triumphant but
rampant. Not only rampant but annihilating. Annihilating in the sense that
because of this victory the distinction between capitalism and democracy
has been almost entirely eradicated. In the Soviet Union capitalism
triumphed over Communism. In this country capitalism has triumphed over
democracy." During the last 7 years America has transplanted this mindset
to Russia and, thus, we have very little democracy building. Siberians,
encountering capitalism and democracy in one big wallop, have a completely
fuzzy idea about where capitalism ends and democracy begins. The second
reason for this focus is policy making on the basis of academic analysis
and journalism that is dominated by contacts with the Russian elite. 

I am the first to admit that high politics, money, power and business is a
lot sexier then grassroots civil society development. However, there was a
time when sex and the elite (business and high politics), did not
constitute the sum of democracy. By focusing on the elite we are missing
the perspective of the defining element in a democratic society, the
people. The goal of the elite now in Russia is to defend their position in
society; the job of the average citizen is to establish one. By obsessing
on business and high politics we are only reinforcing the position of those
already in power. Is that really what builds a stable democracy?
deTocqueville didn't think so. Public associations in civil life were what
he saw as the defining element in American democracy, "… the most
democratic country on the face of the earth is that in which men have…
carried to the highest perfection the art of pursuing in common the object
of their common desires…Is this the result of accident, or is there in
reality any necessary connection between the principle of association and
that of equality?" 

Over 150 years later Robert D. Putnam, in his well-known book "Making
Democracy Work: Civic Traditions in Modern Italy", answered the question
presenting empirical evidence of the connection between civic associations,
good governance and economic prosperity. Everything I have learned about
transition in a post-communist society came from my daily experiences and
the only positive democratic
change I have seen in Siberia has come through support for grassroots civil
society development. Vouchers for deadbeat state enterprises, privatizing
an apartment in desperate need of repairs or even casting a vote on
Election Day doesn't constitute ownership in a society, community
involvement does. You get people caring and acting, give them the
knowledge and skills they need to be effective, set standards for honesty,
hard work and excellence and economic growth and political stability will
follow naturally, especially in a country as resource rich as Russia.
I can only speak about Siberia but here, prior to Western support for
civics initiatives, there was no Third (non-profit) Sector. What existed
were a number of organizations trying to address the needs of their
community. The critical role that a healthy NGO sector plays in a
democratic society was totally unrecognized even by the organizations
themselves. Most groups were unaware of the existence of others operating
in their sphere and there was only one on-going coalition of NGOs in the
region which was created and controlled by the government. Volunteerism was
considered a waste of time since "we were all volunteers during the
Communist era and it didn't do any good." There were no local trainers,
experts or Russian language books on the subject of NGO development
available in the region. 

There were no government departments or mechanisms for relating to NGOs on
the municipal or oblast level. There were no local laws or initiatives on
social contracting or grants for NGOs on a competitive basis. Government
funding for NGO's was done exclusively behind closed doors. The dominant
impression of NGO activists held by bureaucrats was a bunch of people who
did nothing but ask for money and bored you to death about their problems.
There was no unified voice, no sense that these organizations had something
they could offer to government and, subsequently, no respect or
cooperation. A similar image of NGO's was held by business. Corporate
giving was also limited due to the absence of tax incentives. Concerns
about the money being spent for its intended purpose was another problem.
The practice of corporate giving as a marketing tool was unknown.
Introducing this idea alone wouldn't improve the situation because press
interest in covering NGO events was minimal and NGO's had no skills in
promoting themselves. The few articles that appeared were often
inaccurate. 

On the positive side, a solid legislative base had been established to
support the existence of these organizations. Despite these legislative
initiatives the potential for developing the sector was complicated by
several factors. Firstly, these laws also pertained to the registration of
political parties and religious groups. Secondly, the remaining groups were
divided into two categories, grassroots organizations and those that were
created and supported by the government during the Soviet era. In the
latter category, many groups responded positively to the introduction of
new ideas, others were resistant to change because it meant competition and
the possible loss of government support being offered to them on a
non-competitive basis without any form of accountability. Finally,
non-profit organizations had a PR problem rooted in the well-publicized
criminal activities of a small percentage of groups. In 1995 if you asked
a man on the street his attitude towards NGOs the response would most
likely be negative, suspicious or confusion and you would have to explain
the difference between a business that is not making money and a non-profit
organization.

This all started to change at the end of 1994 when the Eurasia Foundation
conducted targeted grant competitions in Eastern and Western Siberia. They
also gave my organization a grant to open an NGO resource center in
Novosibirsk that included the first public free access Internet node in the
region. These were critical first steps but did not provide the necessary
impetus to start a movement. In the spring of 1995 US AID provided funding
to create the Siberian Civic Initiatives Support Center Network. The
model, designed by a group of us in the region, was based on the hub
principal with the already existing center in Novosibirsk coordinating
activities, developing pilot programs and providing training and technical
support to 11 affiliate organizations in major cities across Siberia
(Tyumen, Omsk, Tomsk, Kemerovo, Novokuznetsk, Barnaul, Gorno Altaisk,
Krasnoyarsk, Irkutsk, Ulan Ude and Chita). Affiliates were selected in
open competition from already existing organizations that were interested
in expanding their mandate. Quarterly meetings were introduced to exchange
information on the status of development in each of the cities, introduce
new program ideas and discuss Network development. 

The Network mechanism and programs developed have proven to be
extraordinarily successful. Today, not only are their more NGOs addressing
a wider range of issues, but also they are regularly called upon by the
local government for advice, information and cooperative projects. For
example, in Novosibirsk when a large number of LDPR deputies were elected
to the city Duma the mayor's office asked the Siberian Center and other
NGO's to sit in as observers during critical Duma sessions. There are
departments for relations with NGO's throughout the Siberian Center Network
territory. Laws for providing grants on a competitive basis have been
implemented in Tyumen Oblast and in Omsk and Chita on a municipal level.
Similar laws are being developed in all other cities. A volunteer movement
is active in all 12 cities with volunteer agencies established in 5 of
them. Press coverage for NGO events is extensive and media outlets
regularly call their local Siberian Center affiliate for news and
information. A corps of highly qualified Siberian trainers and experts has
been developed and local government officials in all 12 cities have invited
Siberian Center trainers to conduct seminars on inter-sectoral relations.
All cities have coalitions of organizations addressing issues including NGO
associations in most. Recent examples of actions by coalitions include the
clean-up of a mineral spring in Chita Oblast with 70 people participating,
tree-planting to beautify 8 neighborhoods in Novosibirsk City with 800
people from 25 organizations taking part and a breast cancer awareness
event which attracted 1,000 women in Novosibirsk. NGO Fairs, a concept
developed in Novosibirsk in 1996, have become a tradition and this summer
Fairs took place in 13 Siberian cities with over 500 organizations
displaying their activities to the press, government officials, business
representatives and citizens. In several cities government officials serve
on the organizing committees. Fair grant competitions with funding from
government and business were conducted in Novosibirsk, Kemerovo and Gorno
Altaisk. 

Similar success in encouraging civic involvement and inter-sectoral
cooperation has taken place in Krasnoyarsk where we opened the first school
based community development resource center in Siberia, the Krasnoyarsk
Center for Community Partnerships (KCCP). The idea here was to revive the
sense of community that had been lost when the majority of factories and
institutes (around which community was structured during the Soviet era)
were closed or experienced dramatic downsizing. Also, if democratic habits
are to become part of the fabric of Russia culture it must begin in the
schools. As de Tocqueville noted about America "The citizen of the United
States is taught from infancy to rely upon his own exertions…he looks upon
the social authority with an eye of mistrust and anxiety, and he claims
assistance only when he is unable to do without it. This habit may be
traced even in the schools, where the children in their games are wont to
submit to rules which they themselves have established..." 

12 schools from Krasnoyarsk Krai and Khakasia were chosen in open
competition to take part in a community school-training program last year.
The group included a virtually private school in the City, a school from
the steppes of Khakasia and two from the closed city of Zheleznogorsk. By
the end of the year equally dynamic results were demonstrated in all
environments. 10 of the 12 schools created school funds. Community actions
took place in all towns such as fundraising for the local national park, an
anti-smoking campaign, a youth program "You, Me and our Community - Rights"
and schools from 3 towns conducted a joint action to collect winter boots
for an orphanage (400 pairs collected). 80% of the schools have become
resource centers for civic action providing materials and training to other
schools. School #2 that was scheduled to be closed for repairs for 2 years
demonstrated the real impact of community organizing. After the training
program participants started a campaign to save the school and 200 parents
got involved. They invited the press to cover these events and the regional
and Krai administration responded by reversing their decision keeping the
school open while conducting on-going repairs. All of this positive
activity attracted the attention of the new Krai Minister of Education and
KCCP was the only non-governmental institution invited to make a
presentation at the Krai education conference this summer.

So, amidst all the discussion about what the US did wrong it is important
to make sure people hear about something we have done very right and build
on those lessons. Once again we need only dust off our de Tocqueville for
reinforcement "Nothing in my opinion, is more deserving of our attention
then the intellectual and moral associations of America. The political and
industrial associations…strike us forcibly; but the others elude our
observation…It must be acknowledged, however, that they are as necessary to
the American people as the former, and perhaps more so. In democratic
countries the science of association is the mother of science, the progress
of all the rest depends on it." If we genuinely want to support
democratic development in Russia we should invest in the people. 

To encourage a healthy and just democracy we must take a more integrated
approach. Developing ties between sectors is especially important in
post-totalitarian countries where the value and range of citizen
participation is only now being understood. The trickle down theory didn't
work in economics and it doesn't work in democratic development. Trickle
up does. Projects aimed at the grassroots level with an inter-sectoral
approach creating opportunities for dialogue between sectors have a
resonance that transcends the interests of a particular group. The
Russians I work with in the Third Sector created the phrase "effective
partnerships" to describe the linkages necessary for intersectoral civil
society development. By encouraging such partnerships the West will not
only be helping civil society development but enhance the legitimacy of
government and business. The other night I was visiting a Russian
colleague. Her son-in-law who is Director of a local bank said, "I just
don't understand why a smart woman like you wastes your time on such silly
things as NGOs". Before I had a chance to reply his wife, a stockbroker
provided the answer, "At work we are now talking about starting an
association for the rights of the middle class". 

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