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Johnson's Russia List


October 30, 1998    
This Date's Issues: 2453 2454 

Johnson's Russia List
30 October 1998

[Note from David Johnson:
1. Reuters: KGB psychiatrist to shoot movie ``Bill i Monika.''
2. AP: Aeroflot Ticket Deal Has Big Catch.
3. Reuters: Could ``loose nukes'' go to Mafia? Scholars worry.
4. The Moscow Tribune: John Helmer, NO ROAD BACK.
5. Vlad Ivanenko: Re JRL # 2451/6 Wallace Kaufman: Hough on Polish and 
Russian paths.

6. Newsweek: Nuclear Needs. (Tritium from Russia).
7. Newsweek: Steve LeVine, CASPIAN. Who Needs a Pipeline? Squabbles
over routes, strategic control--and dry holes.

8. Moscow Times: Kevin O'Flynn, Pact With Luzhkov May Split Red Party.
9. Journal of Commerce: Stephen Moore and James Carter, Capitalism 
didn't ruin Russia.

10. Financial Times (UK): Arkady Ostrovsky, Yeltsin 'will not quit before

11. Reuters: Spy trial of Russian environmentalist suspended.
12. Reuters: Russian retailers feel pinch of crisis.
13. AFP: "Yeltsin" Gets Cyber-Medicine on Internet.
14. Itar-Tass: Primakov Favors European Model of Market Economy.]


KGB psychiatrist to shoot movie ``Bill i Monika''
By Peter Graff

MOSCOW, Oct 29 (Reuters) - Of course you knew it was coming. 
Granted, you probably didn't expect it would be announced at a press
conference in the Russian parliament building. 
The Bill Clinton presidential sex scandal movie is on its way. It's called
``Bill i Monika,'' and it is going to be directed by a former KGB
``This,'' said Aleksander Sorokin at a news conference in Russia's State Duma
lower house of parliament on Thursday, ``is the story of our times.'' 
The sex scenes will be explicit, and the producers have offered Monica
Lewinsky $5 million to play herself, although on the off chance she declines,
a Russian actress will be hired to play her, he said. 
Sorokin, who began a second career making films and writing novels after years
working as a psychiatrist at what he says were top secret KGB mental
hospitals, said his film is intended to make a serious cultural point. 
It has something to do with ancient Rome. 
``I am deeply convinced that the sexual organ of Clinton, the vodka glass of
Yeltsin, the wives of (German Chancellor Gerhard) Schroeder -- these are the
totems of our times, the signs that characterise the end of the 20th
century,'' he said. 
``Our democracy is headed toward a time of Caesars,'' he said. ``Caligula.
But he admits that others might see the film in a different light. 
``We will shoot the film in the genre of drama, although it is possible that
the American market will receive it in a different genre. If you accept it as
a comedy, that is fine for our producers,'' he said. 
He already has ``about $2 million'' in funding, he said. 
``It proved sufficiently easy to find sponsors because we found that there are
certain structures that are not quite favourable toward Clinton -- although I
personally love the man very much -- and are prepared to give money.'' 
Sorokin would not say who the backers were, but he did say: ``It's no
coincidence that we are gathered here at the State Duma'' as a venue for the
news conference. 
And the mysterious, Clinton-hating producers have promised to put up ``up to
10 million'' if Monica joins the project, including five million for the
former White House intern herself, he said. 
``We expect to conduct direct negotiations with her.'' 
Aside from the salaries of its stars, the film should not cost much to
produce. ``It is a chamber work. Most of the scenes take place in the Oval
Office or the area around it...We don't have to build much scenery,'' Sorokin
The story of Clinton's affair with Lewinsky has generally been accepted with a
shrug in Russia, which for much of the past few decades has been ruled by aged
and sickly leaders known more for clandestine encounters with cardiologists
than with interns. 
Clinton is popular in Russia, and it has become something of a cliche for
political analysts in Moscow to say Russians would prefer a president with
Clinton's reputation for randiness to a man seen to be ailing and ineffective,
like Boris Yeltsin. 
But most Russians do not seem to be overly titillated by the details of the
U.S. president's sex life. 
The scandal has received scant coverage on news programmes, and a hastily
translated Russian-language edition of the report by independent prosecutor
Kenneth Starr has been described in Moscow press as a flop for its St
Petersburg publisher. 
But Sorokin is not worried. 
``We expect our main market to be abroad,'' he said. ``I think there is plenty
of interest in this theme.'' 


Aeroflot Ticket Deal Has Big Catch
October 29, 1998

MOSCOW (AP) -- Call it the airborne version of Russian roulette.
Aeroflot, Russia's largest airline, announced a great deal Thursday on
roundtrip tickets to and from the United States -- only $260. The catch:
Buyers have to agree to randomly selected dates of departure.
As explained by the ITAR-Tass news agency, Aeroflot has developed and patented
a new ticket-selling technology that it plans to begin using on flights
between Moscow and Washington, Chicago and New York.
The technology, called ``Z-tariff,'' uses an automatic booking system in which
customers are allowed to choose only their destination and length of stay
within a three-month period. The computer then selects the departure date.
The system has obvious advantages for the airline, which can fill otherwise
underbooked flights. Airline officials also noted, rather obviously, that the
system works best for customers who are ``insensitive'' to time pressures.


Could ``loose nukes'' go to Mafia? Scholars worry

SAN FRANCISCO, Oct 29 (Reuters) - Organised criminal syndicates such as the
Italian Mafia could be starting to build a global distribution network for
smuggled nuclear material from Russia, scholars said on Thursday. 
At the State of the World Forum, an annual gathering of world leaders and
civic activists, a panel of U.S. nuclear experts said there was disturbing
evidence that organised crime might be getting into the nuclear game. 
``Criminal drug syndicates are known to be seeking nuclear weapons, and have
vast resources,'' said former U.S. Sen. Alan Cranston, a member of the panel.
``In some ways we're in graver danger now than we were during the Cold War.'' 
William Potter, director of the Centre for Nonproliferation Studies at the
Monterey Institute of International Studies, said economic crisis had left
Russia with alarmingly lax controls over its estimated 30,000 nuclear weapons
and stockpiles of radioactive material. 
``The situation is desperate,'' said Potter, who recently returned from
touring various Russian nuclear installations where he studied the problem of
``loose nukes.'' 
``Most of this stuff has never been subjected to a physical inventory ... it
is impossible to say how much of the material may or may not be missing.'' 
Potter said collapsing security at Russian nuclear installations, coupled with
the financial difficulties of the scientists in charge of (nuclear) material,
was a dangerous combination. 
``This is a crucial problem today in Russia that I think we fail to
Dr. Rensellaer Lee, an international security consultant and author of
``Smuggling Armageddon: The Nuclear Black Market in the Former Soviet Union,''
said early trends in the flows of smuggled nuclear material were beginning to
change -- which could be bad news for world regulators. 
While most of the hundreds of recorded thefts of nuclear materials in the
early 1990s involved low-grade uranium or nuclear isotopes that could not be
used for weapons production, there is growing evidence that professionals may
be supplanting amateurs in the nuclear smuggling business and going after much
more dangerous materials. 
``Fifteen cases at least have found plutonium or highly enriched uranium
(capable of being used for a weapon),'' Lee said. ``What is seized may just be
the tip of the iceberg.'' 
Lee said that it appeared much of the nuclear material now in circulation was
``floating westward looking for a market,'' and that organised crime groups
could provide the necessary conduit to buyers. 
``Such groups clearly have the access, and the international organisation,''
Lee said. 
A conference in France last month of experts and lawmakers from 85 countries
unveiled data from police and the World Customs Organisation (WCO) that
appeared to indicate ``a shift from individuals to organised crime'' and a
growing involvement of scientists in smuggling, officials said. 
Interpol Secretary General Raymond Kendall said that while there was no
``clear evidence'' of organised criminal involvement in nuclear smuggling yet,
the world should still ``be aware of the fact that this situation could change
very rapidly.'' 
Lee said he was fairly certain that organised criminal syndicates were already
looking into the nuclear smuggling business -- which could be one reason why
officials had cracked far fewer smuggling cases in recent years than in the
early 1990s. 
``Professional traffickers are much less likely to get caught,'' Lee said. 


Date: Thu, 29 Oct 1998
From: (John Helmer) 

>From The Moscow Tribune, October 30, 1998
John Helmer

One of the justifications Anatoly Chubais gives for the gigantic 
capital transfer he arranged in Russia since 1991 is, in Chubais's own words,
"so that there would be no road back."
We now know, and Prime Minister Yevgeny Primakov has repeated the point,
that the road Chubais laid was the one down which most of Russia's
capital skipped abroad -- and down which it continues to fly, as you read 
The road back which Chubais wanted to block ends up at foreign bank accounts
operated by Russia companies, institutions, and individuals. In those accounts
also lies most of the cash that Russia's commercial banks -- including
such formerly affluent friends of Chubais as Uneximbank -- took from several
million Russian depositors, before the August crash.
The test of the government's anti-crisis programme should start with 
a clear statement from Primakov, and from the chairman of the Central Bank,
Viktor Gerashchenko, of what they plan to do about the start, and the end,
of the Chubais money trail. Only if they do that in a fashion that 
is convincing to ordinary Russians can there be any chance at all that
Russian savings will ever return to the banking system to do what savings
are supposed to do in normal economies -- finance productive investment.
So far, however, the focus of Primakov and Gerashchenko has been on this
end of the Chubais trail. It would be far swifter and more effective if
they began at the other end. A measure to declare illegal all foreign
bank accounts held by Russian persons, organizations or their affiliates, 
and a concerted effort to retrieve the funds, or offset them by seizure of 
Russian assets, is much more likely to stop capital flight in its tracks, 
than the hard-currency surrender measure already adopted. 
Prime Minister Primakov has already publicly explained why. He said, weeks 
ago, that Russian exporters are ordering their clients to withhold payment 
from Russia, and pay instead to foreign bank accounts. It's obvious they
are doing this, because the sharp fall in Russia's imports should now be
generating growth in Russia's trade surplus, and the recovery, not
the continuing slide, of the rouble.
Although western banks have been reluctant to breach the confidentiality
of their clients' accounts, in the current Russian case -- when western banks
are owed large sums themselves -- they would benefit by participating
in a Central Bank-led disclosure scheme. Indeed, Gerashchenko might even offer
to reward the banks making the most comprehensive disclosure with priority
in getting their debts paid. If the gnomes of Zurich insist on keeping
their numbered accounts secret, they should drop to the end of the repayment 
If there is a convincing start on repaving the money-trail back to Moscow,
Russians will give Primakov and Gerashchenko ample time to do the job. But
the Prime Minister and the Chairman will have do something more to
deserve patience and trust at this end. They will need to demonstrate
that their plan to restructure Russia's banking system will secure
depositors first of all; will comply with the international norms of
bankruptcy administration; and will punish embezzlement, fraud and larceny.
Russian and western economists generally agree that the level of personal
savings in Russia is high enough to finance economic recovery, if
the money is unlocked from the only secure bank left in the country --
the mattress. Estimates range between $40 billion and $60 billion. They dwarf
anything the little men from the International Monetary Fund have
delivered, or are promising.
In their haste to qualify for the IMF money, Russia's government and Central
Bank are once again convincing the citizen savers that the state can't be 
trusted to get the much bigger sum. 
Whatever Gerashchenko and his colleagues settle on in their plan to
revive the banking system, it's not the IMF, but the UMF -- under-mattress
fund -- that should enjoy priority.
For this money to flow again into any Russian bank, Gerashchenko will need
to improve on the details of the proposed deposit guarantee plan that
has been published so far. That makes sense, inasmuch as it salvages
about $300 for each small depositor, and establishes the state savings bank,
Sberbank, as the savings guarantor. 
What is still missing is an explanation from the Central Bank of why it 
believes more than a billion dollars of depositors' funds -- in accounts 
greater than $300 -- should be written off, before such bankrupts as 
SBS-Agro and Inkombank, and their officials, are held legally liable in 
civil and criminal court for their debts, and also for their crimes, if 
Bankruptcy must come before the transfer of depositors' funds. Otherwise,
every citizen saver will conclude that the Central Bank has quietly come to
the rescue of the bank proprietors.
Re-establishing national trust is a difficult purpose for the men who
have run the Central Bank to understand. They thought they were running
a mutual provident fund, in which they placed themselves on the boards
of banks they were supposed to be supervising; directed Central
Bank commissions in transactions they arranged to fund perquisites
they enjoyed; paid themselves enormous salaries and benefit packages;
and called what was left Central Bank profit they refused to hand
over to the state.
Gerashchenko has so much road-work to do, it's understandable that
he has paid so little attention to the quality of the officials he
inherited from his predecessor. In the department of foreign
operations, for example, the same officials are at work today who,
a year ago, blithely declared that they could find no violation of
Central Bank limits in the forward currency hedge contracts the commercial 
banks were writing.
Now that those contracts have come due, wiping out the capital of the banks
and triggering systemic default, these Central Bank officials accept no
fault. They blame the commercial banks for evading the rules
by creating dummy asset balances with fictitious entities. The Central
Bank's department for prudential supervision, whose job it was to
expose these tricks, is still run today by the same man who was in
charge a year ago.


Date: Thu, 29 Oct 1998
From: Vlad Ivanenko <> 
Subject: Re: JRL # 2451/6 Wallace Kaufman: Hough on Polish and Russian

Vlad Ivanenko, Dept. of Economics
University of Western Ontario.

Recent short contribution of Wallace Kaufman has highlighted an
interesting distinction between Polish and Russian reform namely that
"By means both honest and devious manufacturing assets found their way
into the hands of real [Polish] entrepreneurs... The Russians have been
much better and more focused on stealing wealth, cannibalizing their
physical assets, or selling them at salvage value than on getting those
assets into the hands of people who will produce new wealth." 
I wonder why the same institution (that is the ownership of the means of
production by "real producers") had apparently more legal appeal in Poland
than in Russia. So far I have not heard a convincing explanation of this
Suppose the quotation is correct and can be supported by statistic
evidence. Let us assume further that Russians are in general not more
irrational than their Polish neighbors are. Last assumption rules out any
inherent kleptomaniac feature of "Russian soul" or "genetic degradation" 
during the communism era to which Nikolay Shmelev appealed in recent
interview published in JRL. Such an explanation of disrespect for the
ownership would be colorful but analytically unproductive (what would a
person recommend to the Russian government if that person would truly
believe in genetic degradation? Breeding a new "genetically superior" 
generation of Russians would sound like the reference to the alleged
breeding of slaves in the American South). 
If Russians are rational preferring disrespect for the ownership of the
means of production, then it is personally profitable. How is that?
One explanation is historical: Russia has always had a ruler who treats
all the wealth of the state subjects as his/her personal property with the
divine right to confiscate it more or less arbitrarily. As a result, the
Russian has an expectation of confiscation and tries to convert the
property he has access to (whether private or public) into the assets that
are most easy to hide on short notice.
Here is a problem with this explanation. If it is correct, we should
expect Russians to have the same disrespect to the ownership of both
productive and unproductive property (consumables). Seemingly, it is not
the case: anecdotal evidence of potato thieves being punished on spot and
a general impression of Russian crime statistics indicates greater respect
for the ownership of consumables than of productive property.
Second explanation is cultural: Russians have lived in communities for a
long time and the concept of private property on the means of production
is alien to their culture.
It is harder to substantiate on this proposition. The culture amounts to
the institutional framework within which people settle their routine
affairs with each other. In fact, the reference to the culture regarding
economic issue implies that some economic aspect is intertwined with
culture and was omitted from consideration by professional economists. I
am not sure that the economist can help here and expect a historian or a
sociologist to comment on the question: in which way did/does the
prohibition of the private ownership on the means of production benefit an
average Russian? Only when the aspect is singled out, it is possible to
discuss what economic alternatives are available to replace that outdated


November 2, 1998
[for personal use only]
Nuclear Needs

The Clinton administration is considering buying a key ingredient in every
U.S. nuclear weapon, tritium gas, from an unlikely source: Russia. Both
Vice President Al Gore and Energy Secretary Bill Richardson favor the plan,
administration sources say. Tritium, which must be replenished in warheads
every few years, has not been made in the United States since the Savannah
River, S.C., nuclear reactor shut down in 1988. Building a new reactor
would cost more than $4 billion. Renting tritium-making time on a U.S.
commercial reactor would be cheaper but DOE has had no bidders. Gore
supports the plan, sources say, because pumping dollars into the
cash-starved Russian nuclear-weapons industry could keep Russia's
scientists from defecting to rogue states. A key problem: GOP reaction on
the Hill. "It would be a really hard sell," says one U.S. official. 


November 2, 1998
[for personal use only]
Who Needs a Pipeline?
Squabbles over routes, strategic control--and dry holes 
By Steve LeVine 

In the shallow waters of the northeastern Caspian Sea, a submerged salt
dome has become an obsession for the world's biggest industry--and some of
the world's most powerful countries. Geological studies have suggested that
the salt dome sits atop a potentially gigantic oilfield, called Kashagan,
which could be worth billions to the companies that control it--and
Kazakhstan itself. In recent months a near hysteria has enveloped Kashagan,
perhaps the richest prize of this decade's high-stakes competition for
Caspian oil and natural gas. The U.S. government has made the energy-rich
region a strategic priority. Washington dearly wants to deprive the
neighborhood toughs, Russia and Iran, of control over more than a token
share of the oil from Kashagan, the large Tengiz field nearby and thousands
of other smaller wells in the region. To do that, the United States has
proposed the construction of a massive, 1,087-mile east-west pipeline,
which would start from Kazakhstan and Turkmenistan, then run west under the
sea to Baku, the capital of Azerbaijan--and the center of the Caspian oil
business. From there it would cross Georgia and terminate in Ceyhan, a
Turkish port city on the Mediterranean. The key: no oil would pass through
Russia or Iran. 
It is a daring move in an uneasy region. Azerbaijan, Georgia and Turkey
support the pipeline idea. But there is a tiny hitch: Kashagan might not be
the next Kuwait after all. The truth will come out in the next few months,
when a consortium of major oil companies drills preliminary wells. But the
uncertainty, plus generally soft prices for oil worldwide, has set off a
tense squabble between the oil companies, which would have to foot most of
the estimated $4 billion pipeline bill, and the U.S. government, which is
determined to press ahead with the project. "Baku-Ceyhan is going to
happen," Jan Kalicki, the U.S. Commerce Department envoy to the region,
told NEWSWEEK. "The main reason is that the governments want it, and
politics do matter." 
Last week the oil companies--among them Shell, Mobil and British
Petroleum--held a top-level meeting with U.S. officials to discuss the
matter. The outcome of the talks was as muddy as some recent disappointing
dry holes in the Caspian. "We all agreed that Baku-Ceyhan makes sense,"
said an American official. "What we need to do is find ways to make it
commercially viable in the shortest possible time." Meantime, the
Azerbaijan International Oil Co., a group of 12 private and state
companies, will soon deliver to its government an assessment of
Washington's proposed route. 
There were indications last week that an interim plan may be in the works.
According to a document obtained by NEWSWEEK, the Western oil consortium
would be prepared--right now--to build a shorter pipeline, which would
terminate at Georgia's Black Sea port of Supsa. It would be roughly half
the length of the Baku-Ceyhan plan --and cost roughly half as much. Sources
say the announcement could come in early November. What no one--except the
Iranians and Russians--wants: to build a southern route through Iran, or
upgrade an existing line that travels through Russian territory. 
U.S. government officials called the Supsa idea temporary. Before their
meeting with oil executives last week, they were at pains to dismiss any
notion that the original pipeline idea was untenable. Deputy U.S. Secretary
of State Strobe Talbott called reports of its imminent demise "wrong and
inaccurate." Washington's Caspian allies also spoke out. Said Turkish
President Suleyman Demiril: "Azerbaijan is determined [to go ahead with the
Baku-Ceyhan plan], Georgia and Turkey are determined and the United States
is backing the project." 
What's odd about the rush on the pipeline issue, of course, is that nobody
yet knows whether Kashagan is flush with oil, or a major dud. Definitive
drilling tests won't start until December, and the results won't be
available until next summer, at the earliest. Oil-company managers stress
that, much more often than not, exploratory wells typically produce pools
of worthless water. Still, no one has forgotten the early seismic studies
showing that Kashagan could be two and a half times as large as
Kazakhstan's Tengiz, the Caspian's largest proven field. Tengiz has 6
billion to 9 billion barrels of produceable reserves--a remarkable field by
world standards. The governments backing Baku-Ceyhan worry that, unless the
pipeline is started soon, a major geostrategic opportunity will be missed.
But there is no rushing Mother Nature. The region's harsh winter is at
hand. When it arrives, the 10 feet of water in which Kashagan sits will ice
over, making it difficult to service any new drilling platforms. So the
White House waits--one of its most important policy initiatives delayed by
a swampy mystery. 


Moscow Times
October 30, 1998 
Pact With Luzhkov May Split Red Party 
By Kevin O'Flynn 

The Communist Party leadership is to meet Friday to discuss an electoral pact
with Moscow Mayor Yury Luzhkov that analysts said could split the party. 
The party's central committee is to convene for a plenum in which strategy for
the forthcoming parliamentary and presidential elections is to be discussed. 
While analysts said it was too early for the Communists to commit to an
alliance, the possibility of linking up with the moderate Luzhkov is worrying
some on the left of the party, who fear it would be a sellout. 
Sergei Reshulsky, the whip for the Communist faction in the State Duma,
parliament's lower house, cautioned against any hasty alliances that could
alienate sections of the party's electorate. 
"Today people are guided by symbols," Interfax quoted him as saying. "The
Communist Party is a symbol of opposition to the regime." 
In a further indication of the resistance to a pact with Luzhkov, Viktor
Anpilov, leader of the far-left party, Working Russia, denounced Luzhkov as a
"political prostitute" at a news conference Thursday, and said that Communist
leader Gennady Zyuganov had already signed a deal with the mayor. 
Anpilov, who regularly fills his speeches with vitriol against President Boris
Yeltsin and his government, is on the margins of Russian politics. But his
views are shared by many in the Communist Party. 
Though the Communist Party has not announced who it will back in the 2000
presidential elections, Zyuganov has said he would welcome talks with Luzhkov.
The Moscow mayor has issued no public response to these overtures. 
On the face of it, the two are strange bedfellows, with Luzhkov, at least
until recently, a strong and loyal supporter of Yeltsin while Zyuganov is
staunchly opposed to the president. 
Luzhkov enthusiastically backed Yeltsin in the 1996 presidential election and
was strongly behind him when Yeltsin sent in tanks to fire on the parliament
building five years ago. 
Vladimir Pribylovsky, president of the Panorama thinktank, said a pact could
scare off some Communist voters. "Zyuganov always wants the ... radical and
the moderate electorate," he said. 
However, the analyst noted that the Communist Party under Zyuganov's
leadership had been steadily moving to the center ground of politics.
Therefore a union with Luzhkov may now prove a viable option. 
"They're already practically not a communist party," said Pribylovsky of
Zyuganov's party, "They're a left-nationalist party with a more or less
moderate view." 


Journal of Commerce
30 October 1998
[for personal use only]
Guest Opinion
Capitalism didn't ruin Russia
Stephen Moore is director of fiscal policy studies at the Cato Institute.
James Carter is a former economist at the Republican National Committee. 

"Capitalism has failed." That's the spin European socialists and American
liberals are attaching to the economic meltdown in Russia. The Russians have
finally discovered "the high costs of a free market," writes left-wing
economic commentator Robert Kuttner.
Whatever the cause of the Russian economic free fall, it is absurd to blame
the free market. There has never been anything resembling capitalism in
Russia. It is a nation that has no rule of law, no property rights, no culture
of capitalism and a currency of no value.
Trying to engage in normal commerce in Russia today is like trying to drink
chicken broth from a fork. The lawless economic environment is virtually the
antithesis of Adam Smith's notion of free-market capitalism.
At the root of virtually every national economic crisis -- whether in Asia,
Europe, Africa or Latin America -- is a collapse of the currency. So it is
with the ruble today. After several years of monetary prudence, the Russian
government has committed the age-old sin of trying to inflate its way out of
its economic woes.
After the devaluation this summer, the ruble lost half its value relative to
the dollar. Latest reports are that inflation is running at nearly 40% a
month. Russian peasants standing in lines at stores complain that prices rise
three times before they reach the checkout counter. Hyperinflation appears to
be right around the corner.
Cronyism is another debilitating feature of the Russian economy. According to
the Hudson Institute, "20,000 crimes connected with official corruption are
recorded every year, but this is probably less than 1% of the real total. A
recent poll of Moscow businessmen revealed that several thousand bribes are
given and taken in the capital every day."
Corruption and crime act as confiscatory taxes and make normal, unfettered
commerce a virtual impossibility.
Few Americans appreciate the extent of the economic collapse in Mother Russia.
The Russian economy has a comparative advantage in virtually nothing, other
than arms production and vodka, and now the "reformers" in Russia want to
nationalize the liquor industry.
The "Made in Russia" label is a pseudonym for junk. In Silicon Valley, I spoke
with a chief executive of a major semiconductor company who had recently
visited a leading Russian chip maker. He said the plant was an anachronistic
joke producing copycat technology that was five to 10 years out of date. Bad
policies translate into disastrous economic results. The stock market is in
free fall, having lost 80% of its value in a year -- the equivalent of the
U.S. stock market's falling from 8,000 to 1,600.
Industrial production and gross domestic product have sunk by almost 10% since
January. Store shelves are emptying.
Social statistics are grim as well. Life expectancy has actually fallen by
several years over the past decade, and two leading causes of death are
suicide and alcoholism.
What is worrisome is that, by wrongly blaming capitalism for this economic
virus, the Russians are rejecting the very policy prescriptions that can
arrest the decline.
The snake-oil ointments now under consideration by the Russian government are
disastrous: ever more money created to liquidate bad debts, renewed economic
subsidies for favored industries and higher taxes and stiffer tax collection
efforts. No wonder investors are fleeing while they still can.
What should be the U.S. response to this Russian crisis?
First, we should stop treating Russia as an economic ally and start treating
it as the national-security threat it still is. Russia is America's 32nd-
largest trading partner, ranking behind even the Dominican Republic. It
accounts for a puny 1%. Economically, Russia is an inconsequential Third World
But Russia's nuclear arsenal makes it a first-class military threat. And the
instability of the Russian government makes a powerful case for accelerating
development of a U.S. strategic-defense initiative.
Second, we should stop pouring good money after bad into Russia via the
International Monetary Fund. American taxpayers should not be forced to fund a
welfare safety net for U.S. banks and investment firms that foolishly dumped
money into a country that is notoriously inhospitable to capital. It is a
breach of Congress' fiduciary duty to require U.S. taxpayers to repeat
financier George Soros' $2 billion investment folly.
Finally, the profoundly ineffective Clinton administration foreign policy
toward Russia should be dismantled.
The Clinton White House has placed too much emphasis on democracy in Russia
and too little on encouraging genuine capitalism. Pseudo-democratic elections
in Moscow have led only to a game of political Russian roulette, in which one
former communist bandit is replaced with another.
Polls now indicate that a majority of Russians would favor a return of the
communists if an election were held today. What they long for is some sense of
It is critical for U.S. foreign policy-makers to try to convince the Russians
that chaos and economic decline were not caused by capitalism -- but by its
enemies at home and abroad. 


Financial Times (UK)
30 October 1998
[for personal use only]
Yeltsin 'will not quit before 2000'
By Arkady Ostrovsky in Moscow

Boris Yeltsin, Russia's ailing president, will outline his new reduced
political role in an address to parliament early next year, but does not
intend to stand down before his term expires in the summer of 2000, Oleg
Sysuyev, a senior Kremlin aide, said yesterday.
Mr Sysuyev yesterday told the Financial Times that Mr Yeltsin should not
interfere in the day to day running of the economy now that Russia had a
government formed with the support of parliament.
But he stressed Mr Yeltsin must preserve his constitutional powers in order to
ensure the next presidential elections, a campaign for which appears to have
begun already, are democratic. "The political situation in the country has
changed. In the past, the president engaged in every aspect of running the
country," said Mr Sysuyev, deputy head of the presidential administration.
Earlier this week, Mr Yeltsin's incapacity was highlighted when he cancelled a
trip to Vienna because of health concerns, and he was replaced by Yevgeny
Primakov, the prime minister, at a summit meeting with European Union leaders.
Mr Primakov yesterday stole the limelight again when he flew to Vladikavkaz,
in the North Caucasus, to meet Aslan Maskhadov, president of the breakaway
republic of Chechnya. They announced joint measures to combat organised crime
and kidnapping.
Mr Primakov's activity in both the international and domestic arena suggests
that de facto power has now been transferred from Mr Yeltsin to the prime
minister. Andrei Piontkovsky, director of the Strategic Studies Centre, a
Moscow-based think tank, likened Mr Yeltsin's retreat to that of Vladimir
Lenin, the Bolshevik leader in 1922. Lenin was secluded for the last two years
of his life in a sanatorium outside Moscow. "What we are seeing is the 'soft'
resignation of Yeltsin," Mr Piontkovsky said.
The Kremlin administration, which once tried to conceal the real state of Mr
Yeltsin's health, now freely admits the president is unable to perform his
functions. "The Kremlin has changed its line. It only speaks of the head of
the country as a stubborn and difficult patient," wrote Yelena Tregubova, a
commentator for the liberal Izvestiya newspaper. "We have to admit that the
position of the president's administration no longer reflects the position of
the president himself."
The fading of the president's authority has prompted the start of the next
presidential election race, but political observers say none of the
contenders, including Yuri Luzhkov, the powerful Moscow mayor, and Alexander
Lebed, the governor of Krasnoyarsk, would benefit from Mr Yeltsin's immediate
"The Russian people are always sympathetic to the weak and the ill, and
kicking Yeltsin, who is already down, would not be a popular thing," Mr
Piontkovsky said.


Spy trial of Russian environmentalist suspended

ST PETERSBURG, Russia, Oct 29 (Reuters) - Court hearings were suspended on
Thursday in the case of a former Russian naval officer accused of spying after
he alleged the navy had been dumping nuclear waste. 
Alexander Nikitin, who co-authored a report with a Norwegian environmental
group which made the allegations, is being tried in St Petersburg for spying
and revealing state secrets. 
Nikitin's lawyer, Yuri Schmidt, told Reuters the proceedings, which began on
October 20, have been suspended and the case sent back for further
``The case has become an ignominious failure and has been returned to the
stage of a preliminary investigation, which already lasted for three years,''
he said. 
He did not explain what reason the court gave for its decision or how long the
suspension might last. 
The case has drawn protests from international environmental and human rights
A similar case against a naval officer in Russia's Pacific port of
Vladivostok, who was accused of treason after reporting on pollution to
Japanese media, was postponed earlier this month. 


FEATURE - Russian retailers feel pinch of crisis
By Karl Emerick Hanuska

MOSCOW, Oct 30 (Reuters) - Russia's economic crisis has dealt a severe blow to
a retail industry that was thriving after decades of Soviet gloom as consumers
at all levels of society cut back on spending and tighten their belts. 
Trendy, up-market shops whose sales were driven by the conspicuous consumption
of the once-carefree ``new Russian'' rich have also felt the pinch. 
Big foreign retailers such as Finland's Stockmann seem determined to ride out
the crisis although their sales have suffered like everyone else's. 
``I knew things were getting tough when people started asking the prices of
things...New Russians never worried about price tags before,'' said a clerk in
a Moscow shop belonging to the fashion group Hugo Boss. 
She said she hadn't rung up a sale in nearly two weeks. 
``Before people would come in, point to what they wanted and hand over a
credit card barely saying a word. Now they're peeking through the window or
asking what's on sale.'' 
For poorer Russians, who have born the brunt of seven years of economic
reforms, the difference is even more dramatic. 
After recently making the rounds of her local stores, one Moscow pensioner
said she had forgone buying what were now ``luxury items'' -- socks and
``That's a sure sign of how bad things have become,'' said one Western
observer. ``How can anyone expect stores to survive when oranges have become a
luxury all over again here?'' 


Panic buying at the start of the crisis, triggered by a rouble devaluation on
August 17, softened the initial effect on retailers by fuelling sales that
month of nearly 85 billion roubles ($5.2 billion), up 5.4 percent over August
But the rouble's slide made the dollar value of those sales worth just half
the monthly pre-crisis average of $12 billion, when the exchange rate was at
around six roubles to the dollar. 
``Of course the crisis has had an effect on our business, a serious effect,''
said a member of the sales department at sportswear shop Adidas Moscow-Ltd.
``Now we wait and hope things will get better but that's not easy right now.''
It's a bitter blow for an industry that had not long ago been hailed as a
leading sector after a decade of growth that saw cavernous shops stocked with
shoddy Soviet goods evolve into glittering boutiques under top retail names. 
The State Statistics Committee said 1997 retail turnover in Moscow alone grew
9.8 percent over the previous year and helped fuel development of retail
property all over the country. 
But as customers disappear, many retailers are struggling to pay for goods to
stock increasingly bare shelves. As a result, imports fell more than 45
percent in September on August. 
``Things are pretty grim,'' said a leasing agent for a major department store
scheduled to open in Moscow later this year. 
``Too many of the companies that we had deals with are calling to say no, that
they have to rethink their position on the Russian market...I don't know how
we'll be able to open.'' 
While most big-name retailers refused comment on how the crisis had hit them,
analysts doubted many could avoid problems. 
``Those retailers that hadn't felt the full severity of the crisis before are
certainly feeling it now,'' said MFK Renaissance retail analyst Kim Iskyan. 
``Fewer customers are coming in their doors and less is on the shelves to
interest those who do... Many (retailers) will shut down if there isn't some
good news soon,'' he said. 
Iskyan said suffering retailers would try to hold out until the end of the
last quarter of the year, typically the strongest for the industry, in the
hope that the situation would improve, but that the new year would likely
bring large-scale closures. 


Yet despite such grim prospects, many large retailers insist they will not be
driven out of the Russian market. 
``We haven't even considered changing our plans, and that includes opening our
new store,'' said Hannu Penttila, the head of department store operations for
Finnish Stockmann. 
Stockmann is to open a 5,300 square metre (57,050 sq ft) department store in
central Moscow in December at a time when many other retailers are worried
about staying open. 
Penttila admitted that sales at three of Stockmann's four shops in Moscow had
suffered, but remained optimistic. 
``This isn't the first Russian crisis that we have had to endure,'' he said. 
A spokeswoman for the historic GUM GUMM.RTS department store -- which lost $15
million when the government froze the domestic debt market -- adopted the same
tone. However, it acknowledged problems attracting retailers for its new 3,000
square metre (32,290 sq ft) annex, just behind the main store. 
``We celebrated our first centennial not long ago -- that means GUM has
already survived revolution and war...I think we'll make it fine to the end of
our next 100 years,'' she said. 


"Yeltsin" Gets Cyber-Medicine on Internet 

MOSCOW, Oct. 29, 1998 -- (Agence France Presse) Russian Internet users have
been rushing in the last few days to log onto a new site where they can
play at treating -- or leaving for dead -- the country's ailing president,
Boris Yeltsin. 
The site is based on Tamagochis, the electronic toys whose popularity swept
the world a few months ago, and which had to be "fed" by pressing buttons
or they would "die." 
The real Yeltsin, 67, is currently resting at a sanatorium near Moscow
after extreme exhaustion forced him to cancel a visit to Austria for
Tuesday's European Union-Russia summit. 
In the Internet game, each player can choose a range of treatments,
including minor cures such as aspirin or vodka -- Yeltsin's favorite tipple
-- a visit to a Russian sauna, or rather more drastic measures such as
electric shock treatment. 
And if the user wants to lift the gloom of Russia's financial crisis and
the lean winter ahead from Yeltsin's head, then they can order a course of
laughing gas, or a telephone conversation with U.S. President Bill Clinton,
who of course has certain problems of his own. 
The users of the game divide into Yeltsin's supporters and those who want
to get rid of him. 
The former group can opt for treatment which will lower his temperature and
keep his heart ticking over, while opponents can lead him to an early death
with vodka binges, a tough aerobics workout or even a night with U.S. White
House intern Monica Lewinsky. 
The effects of each treatment is shown in graphic form. Reading the doom
and gloom in the newspapers, for example, increases the virtual Yeltsin's
blood pressure, while penicillin stabilizes his temperature. 
Not surprisingly, one of the most beneficial treatments consists of
receiving $20 billion of aid from the International Monetary Fund (IMF). 
In the real world, the IMF has for several months been blocking more than
$4 billion of aid to Russia. 
Ordering the dissolution of the Duma, Russia's parliament, or dismissing
his government gives Yeltsin a boost, while trying to gain the Duma's
support for a new prime minister is bad for his health. 
Of course, back in the real world, Yeltsin's first choice for premier after
the ruble collapse, Victor Chernomyrdin, was repeatedly rejected by
parliament, forcing the president to turn to Yevgeny Primakov. 
Internet uses order the treatments by e-mail on the following address: 
Users have sent a mixed bag of greetings to Yeltsin, ranging from those
wishing him a messy death to others hoping he will get better soon. 
Other users have advised the president, whose health has been in question
for the last few years, to use traditional cures such as a fermented milk
drink called kefir or a potent mixture of methylated spirits, ginseng and
other roots. 
The site has gained a loyal following since it was created just over a
month ago, with users logging on from Moscow to the Volga, in southern
Russia and even in the far east of Russia. 


Primakov Favors European Model of Market Economy 

Saransk, 28 Oct (ITAR-TASS) -- Russian Prime Minister Yevgeniy
Primakov today spoke in favor of building "a modern socially-orientated
market economy" in Russia. He believes that a relevant ideological basis
is required for this.
Speaking in Saransk on 28 October, the Prime Minister made it clear
that he favors the European market model which Europeans themselves regard
as socially-orientated. "State regulation is currently required in
Russia," he said.


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