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Johnson's Russia List


November 4, 1998    
This Date's Issues: 2458 2459  

Johnson's Russia List
4 November 1998

[Note from David Johnson:
1. Moscow Times: Andrei Zolotov Jr., Kokh Blames Russians For the 
Country's Crisis. (DJ: Insight into the "young reformer" mentality?)
2. Reuters: Russians test limits with nuclear missile book.
3. Reuters: Sochi doubts it can fix Russia's Yeltsin.
4. Forbes: Robert Lenzner, A new chill? Both leading candidates for 
the Russian presidency are inward-looking nationalists. What does this 
mean for the U.S.? (Views of Condoleezza Rice).

5. Moscow Times: Igor Malashenko, Yavlinsky Born Again.
6. Excerpts from the current issue of Perspective.
8. NTV: Kiriyenko Praises Primakov for Preserving Stability.
9. Interfax: Poll Shows 45% of Russians Would Welcome Humanitarian Aid.
10. St. Petersburg Times: Brian Whitmore, Regional Barons Need Progress 
Before Power.

11. The Irish Times editorial: Managing Crisis in Russia.
12. Jerry Hough: Re Pomer/Hough/2457.
13. Invitation to Nov 10 event at Russia House in Washington DC.
14. Reuters: Cash-strapped Russia tries for more tax.]


Moscow Times
November 4, 1998 
Kokh Blames Russians For the Country's Crisis 
By Andrei Zolotov Jr.
Staff Writer

"Nobody needs" Russia. Its army is such a mess that its nuclear arsenal could
be taken away by a single division of paratroopers. Soon the nation will be no
more than a "raw materials appendage" of the West, one that will eventually
disintegrate into a dozen mini-states. And Russians have no one to blame but
themselves and their own stupidity. 
That was the bitter conclusion offered by Alfred Kokh, a former deputy prime
minister and leading member of the so-called political clan of "young
reformers," to the audience of a Russian-language radio station in New York. 
Kokh, an ethnic German, spoke of Russians condescendingly in the third person
and apparently giggled when offering grim predictions. 
Asked if he saw any economic future for Russia, Kokh said, "Me? No," and
laughed, then added, "Well, if Primakov sees it, let him work," and laughed
He added sarcastically, "They are so in love with themselves, they're still so
delighted by their ballet and their classical literature of the 19th century,
that they aren't in any condition to do anything new." 
When the interviewer observed that it would be nice to hear some good news for
the long-suffering Russian people, Kokh interrupted: "This long-suffering
people suffers for its own guilt. Nobody occupied them, nobody conquered them,
nobody herded them into prisons," Kokh said. "They tattled on each other [to
the secret police], jailed each other and shot each other at firing squads.
That is why this people deserves to reap what it has sowed." 
"No matter how you look at it, it is a bankrupt country," Kokh said. 
A transcript of the interview was published in this week's edition of Novaya
Gazeta - a newspaper that almost single-handedly hounded Kokh from office last
year over his acceptance of a book royalty that looks more like a bribe and
his role in some highly controversial privatizations. 
Kokh is no longer a player in Russian politics. He left office under a cloud
of corruption allegations and prosecutors have accused him of embezzling two
Moscow apartments. 
But Alexander Minkin, a Novaya Gazeta journalist who has long hounded Kokh,
argued that the interview had broader significance for the insight it offered
into the thinking of Russia's "young reformers" - including, Minkin said,
former Prime Minister Yegor Gaidar and former privatization chief Anatoly
Chubais.The interview is already making waves. 
The TV 6 public affairs show "V Mire Lyudei," or "In the World of People,"
made Kokh's views one of its themes Monday night. Of several hundred Russians
who called in, about two-thirds said Kokh should not be let back into Russia. 
"You can't punish someone for his thoughts. Why is it that those people I
showed this interview to had a desire to punish Kokh? Probably because they
understand that he acted [while in government] as he thinks," Minkin wrote in
Novaya Gazeta. 


Russians test limits with nuclear missile book
By Martin Nesirky

MOSCOW, Nov 3 (Reuters) - A dogged group of Russian academics funded by two
U.S. foundations published a dazzlingly detailed book on the country's nuclear
arsenal on Tuesday -- but not before deleting some secrets to avoid trouble. 
After 18 months of careful checks, and somewhat slimmer than intended,
``Russia's Strategic Nuclear Forces'' nonetheless pushes to the limit what it
is possible to publish and could soon even grace the bookshelves at the
Defence Ministry itself. 
``We made a special effort to ensure the information we published did not
contain any secret details,'' Pavel Podvig, the editor and one of the seven
authors, told a news conference. ``We took a long time to check everything
very carefully. 
``As a result we had to sacrifice something but the book you have in your
hands is basically the one we set out to produce.'' 
The authors were particularly mindful that two men have been put on trial for
spying after publishing military details. The St Petersburg trial of one, ex-
navy captain Alexander Nikitin, has been suspended. A similar case in
Vladivostok is pending. 
``There are no analogies to the Nikitin case here,'' Podvig said, noting none
of the authors had secrets security clearance. 
Podvig said two U.S. charitable organisations -- the W. Alton Jones Foundation
and the Ploughshares Fund -- had financed the book but not interfered in the
authors' work. 
Another of the new book's authors, Boris Zhelezov, told Reuters the book had
been completed a year and a half ago but had then gone through the difficult
process of being vetted, even though all the information was gleaned from
public sources. 
``It tests the limits of what it is possible to publish,'' he said. Some
sections, particularly on the structure of the forces and military doctrine,
had been deemed too sensitive. 
Podvig, who works for a Moscow-based arms control research centre, said the
book was not officially censored. The authors gave manuscripts to serving and
ex-officers and others to check. 
Vladimir Byelous, a reserve major-general whos career was spent in nuclear
forces, was one of those asked to vet the book. He said he advised the authors
to delete some unspecified parts and anecdotal material that could have landed
them in trouble. 
``Five or six years ago it would not have been possible to publish such a
book,'' he said. 
Podvig said he and his fellow authors were inspired to collate the book after
translating a U.S. publication earlier in the 1990s. They felt some details
were outdated or inaccurate. 
The result is a 478-page volume with a print run of 2,000 copies. He was sure
it would become a standard reference tool for ministries as well as academics
and military buffs. 
The eight chapters and detailed appendix cover everything from the history of
atomic weapons in the Soviet Union to the latest Russian Topol-M ballistic
Asked whether Russian funding would have been preferable, research centre
director Anatoly Dyakov said: ``If I'm honest, yes. But you know only too well
the state of the Russian economy and to find money here for that is simply


Sochi doubts it can fix Russia's Yeltsin
By Elizabeth Piper

SOCHI, Russia, Nov 4 (Reuters) - The people of Sochi have seen ageing Russian
leaders come and go, seeking strength from their warm climate and pure water.
They don't expect miracles for their latest guest, President Boris Yeltsin. 
``It's a shame, but Boris Nikolayevich has had his day - just like me. He
should take up fishing,'' said former factory worker Mikhail, 58, resting a
fishing rod against a pier in the Black Sea resort. 
``All of our leaders came here to disappear as they got older. Even Stalin
thought he could get better here and he was wrong too,'' Mikhail said,
declining to give his last name. 
Yeltsin, 67, flew to this seaside town on Friday after doctors said he should
seek a milder climate than already-wintry Moscow to recuperate from exhaustion
and unsteady bloodpressure. 
As the first snow of winter fell in Moscow on Tuesday, Sochi was enjoying a
balmy, if damp, 17C (63F). 
``Even Sochi cannot perform miracles,'' says Galina Moryeva, an engineer who
works as a secretary to make ends meet. 
``Who or what can help him now he is in such a bad way?... Yes we have a good
climate here. Yes he can hide from the press and the world here. He can rest,
but he will never fully recover.'' 
Sochi earned the nickname ``Hospital Town'' during the Second World War, when
its hospitals nursed soldiers back to health. 
The resort, where mineral water from the Caucasus mountains rushes into the
sea, has long been used as a health retreat for Russia's elite. 
Josef Stalin, the Soviet dictator, was a frequent visitor to Sochi towards the
end of his life, where his dacha, painted green to blend in with the
surrounding wood, became a work place as well as a place for rest and
He encouraged the building of colossal rest homes, sanatoriums and health
spas, which stand at every turn of the town's main road, towering above tall
fir trees. 
Yeltsin's country house, which overlooks the beach, is protected by steel
gates and high walls. Four policemen guard the road leading to its grounds,
which have their own spring. 
``My friend saw him this time, but his car sped off before she could get a
good look at him,'' said Lucy Lionova, 18. ``He's an ill man, the country
needs someone younger.'' 
``People get the wrong idea about Sochi,'' added political student Lena
Chevchenko, 18. ``The place is not all about health and illness, it's actually
good fun. 
``This town has nothing to do with (Yeltsin). We never see him when he comes,
we just hear about it...he just rests up there.'' 
In years past, Yeltsin was often shown on Russian television playing tennis
with top officials in the autumn sunshine. 
He met his defence minister on Tuesday and was seen on TV moving slowly in a
cardigan sweater and open collar. He looked unlikely to pick up a racquet any
time soon. 


November 16, 1998
[for personal use only]
A new chill? 
Both leading candidates for the Russian presidency are inward-looking
nationalists. What does this mean for the U.S.? 
By Robert Lenzner 

CONDOLEEZZA RICE, provost of Stanford University, has been mentioned as a
possible Secretary of State in a Republican administration. She is an
expert on Soviet affairs, and from where she sits, neither the election of
Luzhkov nor that of Lebed bode well for Russian-U.S. relations. 
"We have suffered a huge defeat for U.S. foreign policy," she said in a
recent interview with FORBES. "For a brief moment there was a faint hope of
a liberal Russia. Now it's a foreign policy opportunity gone dead. 
"Our relationship has become a contrarian one that's likely to get chillier
no matter who wins the election, Luzhkov or Lebed. 
"Whoever wins will likely have more nationalist-sounding policies. They'll
be even less cooperative over policy. It's going to be tough sledding." 
Rice predicts Russia will lean increasingly toward Arab nations, including
Iraq, and will refuse to cooperate in peacekeeping efforts. 
"They claim to be worried about global stability, but they are not vigilant
about nuclear materials and ballistic missile technology," she says,
pointing out that Russia is already helping arm Iran. "We're not able to
make further progress on the proliferation of weapons of mass destruction.
There is more reason to worry about the transfer of nuclear materials." 
And we can expect trouble in the Balkans from Russia, which, going well
back into history, has regarded itself as protector of the Serbs. "We gave
Russia too big a voice in NATO in 1996 as the price of allowing expansion
of central Europe into NATO," she worries. "If every time the alliance gets
together we feel we have to invite Prime Minister Primakov, who lacks any
motive to cooperate with the U.S., it will be tough to get anything done.
The Russians are recalcitrant on Kosovo." 
She worries, too, about Russian economic policies. "I don't think they'll
do outright nationalization, but they may be desperate to find ways to tax
Western investors," says Rice, who serves as a director of Chevron and
Transamerica and is a member of J.P. Morgan's international advisory council. 
"I don't know if they even understand the implications of their default,
that it impacts confidence and their reputation across the globe. Russia's
default on its government obligations has set back Western investment in
Russia by years, probably decades." 
She thinks Western policy was overly optimistic. "We were mistaken that the
IMF program and private capital could transform Russia from a statist to a
market economy. Some $50 billion [in international aid] went down a rathole." 
She sees Russia's global options as quite limited. "Russia is no longer a
world power, but wants to be a major player. That gives it limited options:
to be a thorn in the side of the U.S. or to cooperate. I think they'll
choose the former." 
What should the U.S. do? Put up with it and wait for a new generation of
Russians to take over, who will understand what democracy and economic
freedom mean. "I believe there'll be another opening for real reform," she
says, "but not under Luzhkov or Lebed." 


Moscow Times
November 4, 1998 
Yavlinsky Born Again 
By Igor Malashenko
Igor Malashenko is the former head of the NTV commercial television station
and current deputy for political relations to the Media-MOST company. He
contributed this comment to The Moscow Times. 

After President Boris Yeltsin's visit to Uzbekistan and Kazakhstan, and
notably after his failure to go to Austria, most members of the Russian elite
are obsessed today with the simple question: Who will be the next Russian
The Yeltsin era is clearly drawing to an end. Yeltsin demonstrates all too
visibly both physical and political weaknesses that cause many people to doubt
that his presidency will last until the year 2000. The Communists in the State
Duma, the lower chamber of parliament, have started impeachment proceedings,
and key regional governors are calling for Yeltsin to go. Two of the most
popular presidential candidates, Moscow Mayor Yury Luzhkov and Krasnoyarsk
Governor Alexander Lebed, are openly pushing for early presidential election. 
There are obvious reasons for Luzhkov's and Lebed's impatience. 
The powerful mayor of Moscow is very close to forging an alliance with the
Communists, whose leader, Gennady Zyuganov, whilst presiding over the most
powerful party machine in Russia, is not popular enough to win election. His
willingness to join forces with Luzhkov, however, could be a short-lived
phenomenon, as the Communist Party may be facing a split over the plan.
Luzhkov's greatest achievement, a relatively prosperous Moscow, has been
severely hit by the economic crisis. In a matter of months, if not weeks,
Luzhkov will start to lose his reputation as an economic miracle-worker. 
Lebed boosted his political status enormously when he won the governor's seat
in the vast Krasnoyarsk region. The area, however, is economically depressed,
and there are no quick solutions to most of its problems. Lebed desperately
needs to get out of this long-term trap by standing for, and possibly being
elected, president. 
It should not, however, be taken for granted that the presidential elections
will be held ahead of their scheduled date of 2000. It is not in the interests
of many members of the Russian elite to get Yeltsin out of the Kremlin right
now. Yeltsin largely exercises a live-and-let-live approach when it comes to
regional bosses and government bureaucrats, many of whom are fearful that a
new president would start a purge to strengthen the Kremlin's power. 
Many politicians and experts alike are concerned that Yeltsin's early
retirement would send new shock waves through Russia's depressed economy,
destabilize the underdeveloped political system, and undermine the fragile
constitutional order. 
Moreover, Yeltsin may accept a much more limited role for himself,
transferring most of his power to Prime Minister Yevgeny Primakov and
secluding himself in his residence near Moscow. With some self-restraint,
Yeltsin has a realistic chance of living well beyond 2000, even with his
impaired health. 
If the presidential elections are held on schedule in 2000, leaders such as
Luzhkov and Lebed are inevitably going to lose much of their momentum. 
Some experts have started already to consider Primakov as a strong
presidential candidate, but since he will preside over major economic
depression in the next few months he is also unlikely to maintain his
popularity and political status. 
Who will benefit if the elections are held on schedule? The answer may not be
obvious: the leader of the Yabloko faction, Grigory Yavlinsky. 
Yavlinsky is a veteran of the presidential campaign trail. He is the only
presidential candidate who is also a professional economist with a detailed
program to tackle Russia's economic ills, and is also probably the only one to
have a professional team ready to run a future government. Yavlinsky and his
faction in the State Duma have the most consistent record of voting according
to their political and economic principles, never yielding to pressure from
the Kremlin. 
Yavlinsky appears routinely in all kinds of tables showing the ratings of
presidential candidates, usually trailing Luzhkov, Lebed and Zyuganov. It is
worth noting that all three of the latter recently started to make favorable
statements about Yavlinsky and his economic program, clearly hoping to win his
support for the next elections. 
Yavlinsky is widely respected for his political courage and consistency, but
few people believe - or believed until recently - that he can win the
presidential race. He is perceived as too intellectual, too impractical, too
liberal and too different in his appearance from a typical Russian ruler.
Perhaps even more important, he himself has not always projected firm belief
in his ability to become president. Many experts believe that the best-case
scenario for Yavlinsky is to perform convincingly in the first round of a
presidential election and then to bargain for the position of prime minister,
enjoying strong popular support under any new president. 
Yavlinsky recently suffered a major blow. In the search for a solution to the
recent political crisis in Russia, he proposed Primakov as prime minister, in
order to preserve a minimum of social and political stability in the country.
His immediate "reward" from Primakov was the unacceptable offer of the
position of deputy prime minister in charge of welfare programs, one of the
worst dead-end jobs in Russian government. Predictably, he declined. 
Following his recent heart attack, the fully recovered Yavlinsky looks a
different man after his return to political life; more mature, more decisive
and more ruthless, as he has demonstrated with his anti-corruption campaign.
He finally looks like a person who has subordinated all his life to one goal:
to become president and to stir the nation to take a new and more promising
It is absolutely necessary to believe in yourself in order to become
president.Yavlinsky has now been born again with just such a deep and
pervasive belief. With Luzhkov, Lebed and Zyuganov each making a false start
and losing momentum, Yavlinsky's new sense of mission may give him a decisive
advantage. Time may be working for him. 


Date: Tue, 03 Nov 1998
From: Miriam Lanskoy <> 
Subject: the current issue of Perspective

Dear David,
I hope you can post the brief excerpts from the articles that constitute
the current issue of Perspective. 

I would also like to invite your readers to use our database. It describes
in detail major events, trends, policies, institutions, and personalities
from the Gorbachev period onward. A broad range of materials from various
sources has been utilized to provide what is believed to be a comprehensive
collection of information, commentary, and analysis on post-Soviet affairs. 

To access full texts of the most recent Perspective articles, back issues
of Perspective, the Database, the Editorial Digest, and information about
the Institute and its work, please see our web site at

Best Wishes,
Miriam Lanskoy

Volume IX, Number 1 (September - October 1998)

In this issue:
Behind the Mask: Biological Warfare 
Although the Soviet Union was a party to the 1972 Biological and Toxin
Weapons Convention, it continued a high-intensity program to develop and
produce biological weapons through at least the early 1990s. The size and
scope of this program were enormous. In the late 1980s and early 1990s,
over 60,000 people were involved in the research, development, and
production of biological weapons. Hundreds of tons of anthrax weapon
formulation (2) were stockpiled, along with dozens of tons of smallpox and
plague. The total production capacity of all of the facilities involved
was many hundreds of tons of various agents annually. (...)

After the collapse of the Soviet Union, in early 1992, Russian President
Boris Yel'tsin signed a decree banning all biological weapons-related
activity. Considerable downsizing in this area did indeed occur, and
included destruction of the existing biological weapons stockpiles.
However, there still remains doubt that Russia has completely dismantled
the old Soviet program.

'Impeachment,' Russian Style
Unfortunately, the existing Constitution of the Russian Federation
excessively complicates the process of forcing the president to take
responsibility for his actions by making the removal of the president
nearly unfeasible for the legislative branch, and hence for the electorate.
The practical inapplicability of the existing impeachment mechanism has
allowed the current president to behave with arrogance and impunity. The
absence of a credible punitive mechanism actually encouraged his repeated
attempts to act at his own discretion, with no reference to the
constitution or the laws of the Russian Federation.

Regions Carp as Center Flounders
It is too soon to claim that centralism is dead; but for the first time in
modern Russian history, significant political authority can be found in
areas outside of palace, party, or president. A review of the structure of
Russian federalism, the actions of the regions in response to the crisis
and Moscow¹s abrogation of leadership, suggests that some devolution of
power is occurring.


United States Information Agency
03 November 1998 
(American University Center hosts legislators, seminar) (690)
By Rick Marshall
USIA Staff Writer

Washington -- A group of Russian legislators visited Washington
recently to learn more about how the United States deals with official
corruption, money laundering, and organized crime. On October 30, they
gave a press conference at American University, whose Center for the
Study of Transnational Crime and Corruption had hosted them for their
week-long stay.
Valery Vorotnikov, whose committee in the Russian Duma recently
drafted legislation aimed at suppressing money-laundering, expressed
hope that the new law would help drive Russia's substantial "shadow
economy" toward more legitimate business practices.
"We want to change the business culture so that the payment of taxes
becomes a sacred duty," he said. But he was quick to add that his
committee is "fully aware that implementing this law is going to be
very difficult."
Vorotnikov said that the Duma members had discussed a related problem
-- capital flight -- with the Federal Bureau of Investigation (FBI)
and other government agencies during their stay in the hope of
recovering at least some of the huge funds which have fled the
The visit, which included meetings with members of Congress and their
staff as well as law enforcement officials, was extremely useful,
Sergy Boskholov said. We intend to make use of the experience, he
stated. A member of the Duma's Security Committee, Boskholov noted
that the Duma had already established regulations governing Russian
police and security organizations.
Unfortunately, he added, their work "has met some obstacles." Indeed,
he said through a translator, "there are people in the Duma and the
executive branch who are not eager to see these kind of laws passed."
Michael Dipretaro, an FBI official who was the U.S. legal attache at
the U.S. Embassy in Moscow from 1994 to 1997, said that he had found
"very professional people" in Ministry of Interior and the other
Russian agencies with which he worked.
"As Russia fights the crime problem, we fight it together," he
commented, pointing to a number of criminals sitting in U.S. and
Russian jails now thanks to the two countries' cooperation. He added
that he was heartened at the Duma's recent efforts to crack down on
corruption. The recent money-laundering legislation, he added, is "an
excellent piece of legislation."
Nonetheless, he commented, "Russia has been looted." FBI
investigations have pointed to thefts of diamonds, oil and gas worth
upwards of $500 million.
Sergy Maximov, a fellow at the Moscow Center for the Study of
Organized Crime, which is affiliated with the American University
program, opened his remarks by noting the lack of control over the
financial aid which the West has given Russia since the collapse of
the Soviet Union. Most of these funds "have been spent and wasted," he
said. "Large sums of money are missing from bank accounts."
The United States made a mistake by relying too closely on the Russian
government, fearing what the Communist Party, which is the largest
party in the Duma, would do if it had access to the funds, Maximov
said. Instead, control was given to a handful of officials who
disposed of it with a singular lack of transparency. Given this
history, it is time to reevaluate how Western assistance is monitored,
he said, suggesting that a mechanism be established to give the Duma
more say in how international assistance is used.
This view was echoed by Dr. Louise Shelley, the director of the
Center, who said that the lack of Duma oversight had contributed to
Russia's economic problems.
Concluding this part of the program was Vladimir Brovkin, an associate
research professor at American University, who noted that Western
investment in Russia has been "miniscule" so far this year. Only one
percent of global investment has been placed in Russia, and even that
is fleeing, he said. The reasons are clear, he said. Investors have to
have functioning, transparent banking, financial and legal systems.
Without them, he added, the Russian system is going to continue to
On the other hand, he proclaimed himself heartened at what he heard
from the Duma members at the session.


Kiriyenko Praises Primakov for Preserving Stability 

October 31, 1998
[translation for personal use only]

[Announcer Tatyana Mitkova] Russia's former Prime Minister Sergey
Kiriyenko has also commented on the government's program. Together with
[former Deputy Prime Minister] Boris Nemtsov, he is now visiting
Dzerzhinsk, Nizhniy Novgorod Region, which may become Russia's new economic
test site.
[Kiriyenko] Primakov can be praised for managing to guarantee
political stability. Unfortunately, the price is economic uncertainty. A
compromise can be achieved only if nothing happens in the economy, or if
the proposed set of measures contradicts itself. Unfortunately, judging by
the parts of the program that I have already seen, there are reasons for
concern. They are trying to mix fresh food with pickles or, as I said
before, to give the economy both a soporific and a purgative. It does not
work. They should make a choice.
Many things are absolutely the same as what we proposed in the summer.
I think this is right, not because these are our ideas, but because
certain things about the economy are inevitable. Two by two is not
determined by a referendum or by political preferences. There are
compulsory measures that should be taken.
The question is whether it is a populist program that will not change
anything, or whether it is a real one, but that would be the end of the
political compromise. Then conflicts will start immediately, and somebody
will be dissatisfied. But this is the usual choice between political
popularity and tough economic actions that faces any Russian Government.
[video shows Kiriyenko speaking to journalists on the street in Dzerzhinsk]


Poll Shows 45% of Russians Would Welcome Humanitarian Aid 

Moscow, Nov 1 (Interfax) -- Forty five percent of the Russian citizens
would welcome Western humanitarian aid this winter; 39% of the population
have a negative attitude to this idea, the All-Russia Public Opinion Center
(VCIOM) told Interfax with reference to the results of an opinion poll
among 1,608 Russian citizens held on October 23 to 26.
Independent entrepreneurs, school pupils and students, employees,
people under 40 and with incomes higher than average, who live in Moscow
region or in large cities, on the whole have a positive attitude to thisidea.
By contrast, pensioners who do not work, housewives, unemployed,
people over 40 whose incomes are lower than average and who live in small
towns, have a sharply negative attitude to such a prospect.
Experts think that behind this paradoxical attitude to Western
humanitarian aid stand political preferences.
Most of those who support Western humanitarian aid voted for Boris
Yeltsin in the 1996 presidential elections. Most of those who voted for
Communist leader Gennadiy Zyuganov oppose this idea.


St. Petersburg Times
November 3, 1998
Regional Barons Need Progress Before Power 
By Brian Whitmore

SINCE the advent of Russia's latest crisis, there has been endless talk of an
impending shift of power from the federal center to the regions. 
Is this a good idea? It depends on whether the process will result in the real
empowerment of Russia's regions or simply in granting more prerogatives to
regional elites. The difference is crucial.
Talk of a so-called new Russian federalism has been fueled mostly by regional
governors who seek to augment their own authority at the expense of the
Kremlin's. Regional leaders have used the crisis and the weakness of the
federal government to actively lobby for more control over taxes, customs and
currency regulations. 
In theory, greater federalism would be a good thing for Russia. But in
practice, transferring more power to unaccountable regional autocrats like
Primorsk's Yevgeny Nazdratenko, Kalmykia's Kirsan Ilyumzhinov and
Bashkortostan's Murtaza Rakhimov, would be an unmitigated disaster.
These and other regional executives have become brazenly authoritarian,
flaunting the law, ignoring the Constitution and routinely violating human
rights and democratic norms. Once elected, most governors rule like monarchs,
using pocket parliaments, corrupt regional law enforcement bodies, and local
mafias as vassals to carry out their will - reaping the profits from
"privatizing" regional assets and holding onto power using all means at their
disposal. Many have also fixed elections, bribed courts, strong-armed media
and bullied opposition.
In the absence of public, parliamentary or judicial control, the only check on
the authority of regional governors has been the very erratic hand of the
federal government. In Primorsk, when Nazdratenko illegally removed political
rival Viktor Cherepkov from office as Vladivostok's elected mayor, it was the
Kremlin that intervened and restored him to his post. In Kalmykia, when
investigative journalist Larisa Yudina - who was reporting on corruption in
Ilyumzhinov's administration - was found murdered, with multiple stab wounds
and a fractured skull, a federal investigation stepped in and arrested three
of Ilyumzhinov's cronies.
Here in St. Petersburg, Governor Vladimir Yakovlev has also turned to heavy-
handed methods to preserve his power, strong-arming the Legislative Assembly
and bullying the media into doing his bidding. And Yakovlev's recent decree
expropriating for City Hall a 25-percent share from several St. Petersburg
banks - which in essence amounts to a "soft nationalization" of those banks'
assets - should give pause for thought to anybody wanting to transfer power to
regional leaders.
True federalism in Russia should replace the long arm of the Kremlin, but it
will only work when governors are under greater public control. Any transfer
of power must be accompanied by measures like strong independent regional
parliaments and judiciaries that can act as checks on Russia's regional
barons. It also means strengthening local authorities in cities, towns and
villages across the country. Only when these measures are taken will greater
federalism mean empowering the regions, not just regional elites. 
This is why St. Petersburg's City Charter - the democratic provisions of which
have no precedent in Russia - can serve as a model for the whole country.
Unfortunately, Governor Yakovlev's extremely negative reaction to that
document is indicative of how regional leaders across the country would likely
react to similar controls on their authority.


The Irish Times
November 3, 1998 
Managing Crisis in Russia 

Day by day Russia's economic circumstances are changing for the worse, as new
uncertainties assail its political leadership. The Prime Minister, Mr Yevgeny
Primakov, has announced an economic plan emphasising tax cuts, price controls
for selected goods and credits for ailing industries and agriculture. Money
will be printed to pay wage arrears. The plan is an interim measure, which has
not gained the confidence of negotiators from the International Monetary Fund.
They say a credible Budget for next year must be published before they will
release funds agreed after Russia's effective default on some of its external
debts last August. There is little confidence that a more comprehensive
default can be avoided as the country faces into the winter months.

That Mr Primakov is effectively taking over from the ailing President Yeltsin
has now been openly stated by government spokesmen. He stood in for the
President at a meeting last week with the EU in Austria and has assumed a high
profile in the Russian media. Many believe he will agree to stand as Mr
Yeltsin's successor when and if the President stands down in 2000 - or before
that if ill-health forces him to resign. Such a scenario has upset the other
contenders for the office, but it does not surprise long-time observers of
this canny and skilful politician, who commands support across most of the
political spectrum. His skills are sorely needed at this juncture in Russia's
history, but they will be severely tested by the profoundly difficult problems
facing his government.

Aside from his own uncertain constitutional position, these include a host of
structural weaknesses and shortcomings. They were conveniently summarised by
Mr Primakov last week. He said he would restore order to the Budget; defend
property rights; enforce tax payments; and clamp down on the shadow economy.
The government's tax revenues come to a mere 6 per cent of the country's gross
domestic product - one of the lowest rates in the world. They will cover only
half the government's planned expenditure for that period. Such fiscal
feebleness makes it difficult indeed to mobilise resources, whether to repay
international debts, to fund food imports, to pay huge arrears in wages and
salaries or to shore up industries. Mr Primakov's undertaking to print money
is not surprising in these circumstances; his commitment to avoid inflation is
not to be believed.

Mr Primakov is hardly in a position to organise substantial reforms in the
system of government so as to make the Budget credible, as the IMF demands.
Tax collection has become prey to competition between the industrial magnates
and mafia who profited so enormously from the privatisation of State assets
and is a very dangerous occupation indeed. These magnates are intimately bound
up with the Yeltsin regime. They have so far displayed little or no sign of
becoming a quasi-normal investing capitalist class, as expected by the
ideologues of transition. Rather have they sent their money outside the
country. Mr Primakov could surprise so far as his commitment to reform is
concerned; but he has precious little scope to escape from pure crisis
management and depends on a coalition between liberal reformers and
communists. Things are likely to get worse before they get better in Russia.
The effects will not be confined within its own borders.


Date: Tue, 3 Nov 1998 
From: Jerry F. Hough <>
Subject: Re: Pomer/Hough/2457

Marshall Pomer is quite right. The plan looks fine. The 
problem is what it means. (1) Primakov talks about government regulation 
and subsidies. Yeltsin had enormous subsidies and enormous 
government regulation through control of barter, loans, changing of tax 
arrears to tax credits, etc., etc. The plan does not say whether the 
subsidies and regulations will be increased or decreased or their 
character changed. (2) The big plants had low effective tax rates through
arrears. Does the tax change simply recognize the fact, with the old 
"barter" continuing? Are the arrears still in place, so like debts in 
the old kolkhoz system, they are simply a mechanism to extract whatever 
surplus any enterprise has? (3) Are the back wages going only to state 
workers (not a huge sum) or also to the workers of the "privatized" 
quasi-state institutions? (a huge sum) The low emission figures seem to 
imply the former, but politically coal miners in the second category are more
dangerous than teachers in the first. (4) Will an increase in 
purchasing power through emission produce inflation or, as many Russian 
economists claim, will it simply stimulate demand in a depression without
increasing prices? The argument has a certain plausibility within 
limits, but if they believed it, why didn't they do it immediately? 
Presumably out of a fear that the rubles would pour into dollars. Will 
the same not occur now, and are internal currency controls step two? (5) 
The peculiarity of Russia was it could have a huge depression with a
relatively lesser drop in consumption in the cities because of a big cut in 
defense and investment and an exploitation of agriculture, and then 
because of inflow of dollars to subsidize consumption. The consumption was
unevenly distributed because so much went to imported food and consumer goods
for the big cities, and it fell as the depression continued and there was no 
investment for restructuring plants for the market. (This, not 
managerial conservatism, was why the plants did not respond to the 
market.) But that means that this crisis has a peculiarly big impact on 
consumption and especially in the big cities as the imported goods disappear.
This plan seems totally oblivious to this central fact. It is why 
I think they should have looked at Roosevelt in 1942, not in 1933. However, 
Russia has large currency earnings, but large interest payments coming due to
foreigners. If they don't pay the latter, they have a lot of money for 
food and consumer goods. Is part of the plan non-payment and, therefore, 
de facto large Western aid, except from the Western private sector instead of
the IMF? Let us hope the private sector has adjusted its books and doesn't
have earnings surprises coming.
On the surface, the plan probably means more of the same. But 
if it is serious, it may not be to the right of Gaidar, but close to his 
assumptions about the centrality of monetary policy as an automatic 
solution to problems. A cut in subsidies to the "privatized" sector, the
10 percent drop in production Yavlinsky predicts and a bigger drop of 
consumption in the big cities, the hope that increased money supply will
translate into demand which eventually will translate into production, 
and the belief that Western de facto aid will remain high except through 
non-payments. In short, a shock therapy, but with the hope that higher
money supply will be a panacea instead of lower money supply. And if
Yeltsin dies in the next six months to a year, a work force in the big 
cities so angry that Lebed may be elected on the first round or that 
there is the strike that brings the system down. But it is precisely that
kind of political threat that always led to backtracking in the past. That
likelihood is what leads many Russians to forecast much higher emission 
and much higher inflation--and the gradual introduction of ad hoc controls. 
I would be glad for economists in your readership to educate me 
on where I am wrong.


From: (Edward Lozansky)
Date: Tue, 3 Nov 1998
Subject: Invitation to Nov 10 event at Russia House

You are cordially invited to the Russia House on Tuesday, Nov 10 at noon for
the presentation on current Russian Affairs by two well known experts from
Lidia Grafova - a well known journalist from Literaturnaya Gazeta will talk
about Refugee Problems in Russia. 
The title of her talk: "Russia - the Coming Migration Explosion?"
Arkady Murashev - a leading democrat, former Member of Russian Parliament and
Head of Moscow Police. Currently is working to unite democratic forces behind
the team Gaidar - Chubais - Nemtsov - Kiriyenko.
The title of his talk "Can Russian Democrats Unite?"
Reception to follow.
Please RSVP by phone, 202-986-6010, fax 202-667-4244, or e-mail:
Give your name, affiliation, phone or e-mail.
I am looking forward to greeting you on November 10 at Russia House.
Edward Lozansky 


Cash-strapped Russia tries for more tax
By Julie Tolkacheva

MOSCOW, Nov 3 (Reuters) - Russia on Tuesday announced yet another effort to
solve its long-running problem of low tax revenues by using both persuasion
and punishment. 
The State Tax Service, which has already decorated Moscow with posters saying
"It Is Illegal Not To Pay Taxes," has sent to the government for consideration
a package of measures aimed at increasing tax collection and supporting
producers, tax service head Georgy Boos said. 
"The scheme is simple and traditional. There is a carrot and a stick: if you
do not like the carrot, live with the stick," he told a news conference. 
Russia has been constantly criticised for its failure to collect taxes. The
International Monetary Fund (IMF) has several times suspended paying tranches
of aid, urging the government to make a stronger effort to improve tax take.
The tranches were eventually paid out. 
Boos said the tax service, which also has its own internet web site, had
proposed the introduction of criminal punishment for systematic tax evasion in
a country where not to pay taxes is considered more natural than paying them. 
Another proposal suggested shifting the tax burden to consumers from producers
to revive the economy. 
"The first is a significant relief of the tax burden on the producer," Boos
He said Value Added Tax (VAT) for companies, currently up to 20 percent,
should be cut as soon as possible. 
"Now there is no worse destroyer of the real sector than VAT," he said. "It
soaks up companies' turnover. 
Russian companies continue to perform badly, with industrial output down 14.5
percent in September in year-on-year terms. 
Boos also said the tax service had proposed cutting income tax and a number of
other taxes levied on salaries. 
The government was also considering barring access to export pipelines to oil
firms not paying cash taxes in full. 
"If you get hard currency revenues, then why should you not pay taxes -- you
get the revenues in cash?" he said. "If you do not pay taxes, why should you
be given this revenue?" 
The steps would bring actual tax revenues down in the first quarter next year,
calling for new sources of budget revenues. 
However, Boos said, the currently huge gap between tax targets and reality
would shrink significantly. 
Many of the measures Boos announced had been contained in a government tax
code sent to parliament last year, which rejected it. 
However, Boos's measures may have a better fate as he said that all the
leaders of the State Duma lower house of parliament had approved his plans. 
He was optimistic on fourth quarter tax collection, saying the government had
ordered the Tax Service to collect a little over 35 billion roubles ($2.21
billion) of cash taxes by the end of the year. 
"The figure which the government and the finance ministry have given us as a
target is quite realistic," Boos said. 
In the fourth quarter of last year, Russia collected 36.28 billion roubles of
taxes, he said. 
($=15.82 roubles) 


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