This Date's Issues: 2519 •
Johnson's Russia List
15 December 1998
[Note from David Johnson:
1. Carol Saivetz: Kirienko.
2. George Marquart: BRING BACK DZERZHINSKI, BUT TURN HIM SLIGHTLY
TO THE LEFT.
3. Cameron Sawyer: Re 2517/Foster-$40 billion.
4. THE JAMESTOWN FOUNDATION PRISM: Alexsandr Buzgalin, ANTI-SEMITISM:
THE TRAGIC CONSEQUENCE OF A CRISIS IN THE SYSTEM.
5. RFE/RL: Liz Fuller, 1998 In Review: Little Progress In Caucasus
6. Stanislav Menshikov: re: Albats in JRL #2518.
7. AFP: Billion dollar EBRD plans gives Russia much-needed
8. Journal of Commerce: Scott Pardee, Russia's chaos scares investors.
9. Moscow Times: Chloe Arnold, Bill Forbids Red Square Alterations.
10. Mr. X: Re: 2517-Foster/Money Abroad.
11. Moscow Times editorial: Legal Route Way to Beat Russia's Mob.]
Date: Mon, 14 Dec 1998
From: "Carol R. Saivetz" <firstname.lastname@example.org>
Having attended the Kirienko talk at Harvard, I thought that I would add
to the comments on his presentation. Kirienko, in the public talk, was
disappointing. He presented what must have been his stock speech for his
week long visit to the US. In it, he defended the performance of his
government; he argued that they had a plan to prevent default, but were not
in power long enough to implement it. He also argued, as you reported on
JRL, that the West should leave doors open to Russia.
The disappointment came in the answers to questions. In response to a
question about agriculture, for example, he answered that he wasn't an
"expert" on agriculture and declined to go further. It was surprising--to
say the least--that as a former prime minister who has attempted to salvage
his country's economy, that he either hadn't or refused to deal with
Russia's agricultural problems.
The disappointment also came in what was left unsaid. He kept talking
about "mass consciousness," but gave no indication that he felt he had any
role to play in helping to form public opinion--either during his term in
office or now. He also never addressed the question of what would push
Russia through those doors he kept talking about.
Having said all that, he was more forthcoming and interesting at the
dinner which followed. He offered a blow-by-blow description of the week
between the devaluation and being forced to resign. He discussed the role
of the press among other issues. My sense was that he was being careful.
He clearly has political aspirations and was treading carefully so as not
to get himself into any political trouble. The bottom line is that he is
still a player and someone to watch over the next several months.
Carol R. Saivetz
Davis Center for Russian Studies
From: "George A. Marquart" <email@example.com>
Subject: Iron Felix
Date: Mon, 14 Dec 1998 1
BRING BACK DZERZHINSKI, BUT TURN HIM SLIGHTLY TO THE LEFT.
This is what I wrote to my company on 22 August 1991 from Moscow: "Last
night, around 11 PM, I took a drive through the center of Moscow.
The area around the Kremlin, that had been a sea of tanks before, showed
not a single tank. All was peaceful
and quiet. I got out of my car on Dzerzhinski Square and stood for a few
moments in front of the Memorial to the Victims of the Gulag. It seemed
to me not only that the threat of the night descending on this country
again was over, but, more importantly, the
nightmare of the last 74 years." The next day, "Iron Felix" was gone.
I have been there since, but it is obvious that without Felix, the other
memorial looses something. When you saw him across the simple stone from
Solovki, you knew that there was a purpose in the juxtaposition of the
monuments. And you were struck by the incongruity: Millions of victims
represented by one stone and one man who caused it all?
Should it have been Stalin instead? Slowly it dawned on me. No one person
could have created that horror by himself. Where are the millions of people
who were the vital ingredient without whom one of the greatest tragedies of
history could not have happened? Those who helped the executioners, those
who denounced their neighbors, those who perpetrated the lie of "the enemy
of the people" knowing that it was a lie, those who enriched themselves at
the price of the unspeakable suffering of their fellow human
beings. We know a few of their names; the rest is legion and anonymous as
their denunciations. Felix represents all of them, just as the stone
represents the victims.
So we need him back. Without him the meaning of the Memorial to the
Victims of the Gulag is incomplete. Just turn him ninety degrees to the left,
so you can look him straight in the eyes when you come to pay your respects
to the martyrs. Maybe future generations of Russians will not have to avert
their gaze. If they will be able to look at him and say, "We love justice,
freedom, and mercy, more than our very lives," then Felix
and those he represents will have met their match. Then the banks will
begin to function, the economy will thrive, and the land will be filled with
milk and honey.
From: "Cameron F. Sawyer" <firstname.lastname@example.org>
Subject: Re 2517/Foster-$40 billion.
Date: Mon, 14 Dec 1998
That money WOULD be invested in the Russian economy if the Russian
government would eliminate the reasons why Russia is unattractive to
capital. Those reasons are: (a) terrible tax laws; (b) uncertainty about
the value of the national currency; (c) uncertainty about the stability of
the legal system and protection of the rights of investors; and (d)
uncertainty about the stability of the political situation. Of all of
these, (a) is by far the most significant.
Yeltsin's government, for all its mistakes, had done a number of things
to improve the situation, and up until the time of the crisis, capital was
flowing back into Russia. However, the failure to correct the tax system,
and the failure to put state finances on a rational basis, were fatal, with
the results we now all know about. And the default struck a killing blow to
Primakov is absolutely right. Russia should get its house in order and
the money will come back. The numbered accounts is a bit of a crazy idea,
but at least the guy is being creative. And at least he understands that
capital will go wherever it wants to, no matter what kind of restrictions
one places on its movement. If you restrict the flow of capital out of a
country, history proves that in fact you hardly keep a single dollar (or
ruble, or whatever) from leaving. The only thing you really accomplish is
to keep money from flowing in.
Creative, and even radical solutions are needed. Some of the ideas of
the Primakov government are unexpectedly daring. Cutting VAT, which flies
in the face of all of the advice of the IMF, is brilliant.
THE JAMESTOWN FOUNDATION
A BI-WEEKLY ON THE POST-SOVIET STATES
12/11/98 No.24 Part 2
ANTI-SEMITISM: THE TRAGIC CONSEQUENCE OF A CRISIS IN THE SYSTEM
By Aleksandr Buzgalin
Aleksandr Buzgalin is a doctor of economics and a professor at Moscow State
University. In the perestroika period, he was a leading member of the reform
wing of the CPSU. He is now one of the leaders of the Democratic Socialist
Movement in Russia.
A PRETEXT FOR ANTI-COMMUNIST HYSTERIA
More than three weeks ago the press carried brief--and imprecise--reports of
a pronouncement by Albert Makashov, an official of Russia's Communist Party
(KPRF) and a State Duma deputy, that if it came to it he was prepared to
take a dozen or so "nouveaux riches" Jews with him. Makashov, in fact, put
it rather more bluntly. Then, just before November 7th, these reports
suddenly exploded into an hysterical campaign by the pro-presidential media.
For a week, up to one-third of air time on all news programs and huge
newspaper reports thrashed out the issue of anti-Semitism. Simultaneously,
there was a general closing of ranks among the communists--among, in fact,
essentially anyone who disagreed with the way Gaidar, Chubais, Nemtsov and
other retired reformers were dealing with the Makashov issue. No one said,
in so many words, that the entire opposition was anti-Semitic. Careful
editing, however, of the appropriate sequences and commentary from experts
solely from the right-liberal camp gave the viewers and readers that
impression. There were also frequent veiled suggestions that the whole KPRF
was a fascist organization.
There is no disputing that the Zyuganov wing of the KPRF leadership clearly
leans towards a great-power mentality ('derzhavnost') and Great Russian
nationalism. They tolerate self-acknowledged anti-Semites in their ranks.
They did not condemn General Makashov personally, but made a statement in
the Duma condemning all displays of racial hatred. This raises the question:
Why did all the right-liberal politicians and ideologists and most of the
media bear down particularly on Makashov, and particularly because of his
declarations about the Jews?
For the last five years nationalism and racism has grown
continuously--mainly on the part of the authorities. From the terrible war
Yeltsin unleashed in Chechnya to Aleksandr Barkashov's openly fascist
Russian National Unity party, this has been the backdrop. Long before
attention was drawn to anti-Semitism, Yeltsin's team launched a campaign of
persecution of the "Caucasian peoples." If you looked like a Chechen, an
Ingush or an Azerbaijani, you would be constantly asked for your papers,
arrested, beaten up by the police. This campaign spawned a wave of ethnic
discrimination. It should be said that the KPRF, to its discredit, while
condemning the policies of the authorities, did not distance itself very far
ideologically. But the liberal and media defense of these ethnic groups, who
were much more dispossessed and repressed than the Jews, was far more
half-hearted than the current clamor surrounding the problem of anti-Semitism.
It is now easy to see that the liberals and media--instead of raising the
issue of fighting any form of nationalism--are defending not principles, but
"their own kind," that is, those who have money. The public understands this
nuance perfectly well. They understand that if, for example, one of the
nouveaux riches or right-wing deputies talked about Bashkiri workers in
equally criminal terms as Makashov did about Jewish bankers, there would be
no media campaign. The question on why Makashov touched a nerve among
liberals has a simple answer: because he was talking about the "sponsors" of
the right-liberal elite and journalists.
The issue is made even more important by the fact that the campaign, in
condemning anti-Semitism, went as far as calls to ban the Communist Party.
Furthermore, the tragic death of Galina Starovoitova, the Democratic Russia
leader, has given a new impetus to the search for enemies. The airwaves and
newspapers are again full of veiled suggestions, even direct attacks, from
"democrats" designed to create the sense of a "red plot" responsible for her
death and therefore an assault on the foundations of democracy. The ground
is being laid for a further worsening of Russia's social and political
contradictions, accompanied by the threat that these contradictions may
develop into a terrible nationalist and racist confrontation. Is this a
THE ROOTS OF GREAT-POWER CHAUVINISM
To talk about the deep-seated reasons for anti-Semitism and great-power
chauvinism in Russia, we have to go back in history several decades, if not
centuries. Stalin and his proteges had a hand in it, but Nicholas II and his
clique also played a large part. It was the monarchy which planted an
atmosphere of anti-Semitism in Russia on a wide scale. It was the monarchy
which encouraged the "Black Hundreds" and shut its eyes to Jewish pogroms in
which hundreds of all nationalities were killed, along with thousands of
innocent citizens. Television seems to need reminding of this, given the way
it has been eulogizing the Tsar for the last few years.
But the important reasons lie not in history, but in the present situation.
First: the collapse of the USSR, which led not to a union of friendly
democratic independent nations, but to continual interracial conflicts.
Second: the loss of social and cultural identity among the citizens of a
country with an ill-defined economic, political and social system.
Third: the disorganization in the state apparatus, the criminalization of
all spheres of public life (we will return to this highly important issue
below), the amorality and mendacity of the majority of the representatives
of the elite.
Fourth (the main reason): the profound social, economic and cultural crisis.
A situation has been created in Russia where the people cannot help asking
who is to blame: for the collapse of the economy, the state, and culture and
for the wild criminalization of all aspects of life.
The entire present-day propaganda machine is totally sincere in its
assertion that the Yeltsins, Kirienkos, Chernomyrdins, Chubaises and
Berezovskys are not guilty. They want the best for the country and are doing
everything as well as they can. Naturally, mistakes have been made, but on
the whole the "path of reforms" is the right one and is being implemented by
the country's best people.
Who is guilty then? The "reds".
But who are the "reds?" In leading the KPRF, Zyuganov and his ilk have
created a monstrous hybrid of great-power mentality, conservative reaction
(in the spirit of Nicholas II, so revered by today's liberal
intelligentsia), and social populism. Such a volatile mixture could not fail
to produce a Makashov, with his calls to destroy a dozen representatives of
Jewish capital, especially because there is a motive: Most of the oligarchs
are, indeed, Jewish. But a motive is not a reason: Whether Russian, Chechen
or Jewish, any "New Russian" (there is only this one social epithet for them
all) who contributes to the triumph of criminal nomenklatura capitalism in
the country and to the poverty and loss of social and cultural respect of
the majority of the population, engenders an atmosphere redolent of the
Black Hundreds and the threat of fascism.
Another turn of the screw: In answer to the reds' great-power and
nationalist resolution of the problem, the liberals and their propaganda
machine identify left-wingers en masse as fascists--at the same time,
significantly, sparing right-wing market-oriented nationalists from
criticism. In effect, people are being told: If you want to support the Left
and its criticism of the present system, you will also be supporting
anti-Semitism. But how can people fail to support the Left, if the Right
tells them: "You have to live within your means." That is, that people
should not demand that salary arrears should be paid up, or that pensions
and child benefits should be paid on time, because this hampers the
balancing of the budget. On the other hand, the tax burden on "New Russians"
should be lightened. They should not be prevented from taking capital out of
the country and so on, because otherwise they would not be able to
demonstrate their initiative and talent. Yet it is considered reasonable not
to index-link the incomes of public employees--effectively imposing a 70
percent tax on doctors, teachers, workers and academics, not to mention
pensioners, students and others who willfully refuse to live within their means.
Parenthetically, Russian media is sometimes unaware of what it is doing.
First it reports that Berezovsky has bought another mansion abroad costing
millions of dollars. Then it reports that he is calling for the KPRF to be
banned because the communists are trying to pass a law in the Duma banning
the export of capital. Another pearl: While pensions and wages for teachers,
doctors and professors are being cut to US$500-1,000 per year, an analyst
launches an angry attack on left-wingers calling for all purchases over
US$10,000 to be registered, arguing that "this would entail getting
permission for every ordinary purchase--this would be totalitarianism!"
When ideas of a social orientation for the economy, of fairness (modern
market fairness, where the rich pay 50 percent income tax, embezzlers and
corrupt individuals are in prison, and pensioners receive the pensions they
have earned on time) and of democracy for everyone (envisaging control from
below, including control of large-scale expenditure, as practiced in
developed countries for some time now)--when all these ideas are tarred with
the brush of anti-Semitism and Makashov, it creates a powerful impetus for
the public to support anti-Semitism. The principle of reverse logic is set
in motion: If you attack those who criticize the Berezovskys, then those you
are censuring must be right. There must be something in this anti-Semitism.
This vicious circle leads to terrible results. To the "ordinary" person--but
not to the arrogant analysts and experts of the media--it is
straightforward: Berezovsky and co., who are responsible for the crisis,
take capital out of the country but do not want to pay taxes, and demand
that the "reds" be banned, identifying them with anti-Semites and fascists.
The "reds" (as represented by Makashov) defend the "ordinary people" and
blame everything on Jewish capital. The media gets all worked up, but keeps
quiet about those who are responsible for the crisis, in effect taking them
under its wing. What conclusion can the ordinary person draw? That the
Makashovs are right and that the Jews are responsible for the crisis.
Thus the vicious circle is complete, and both sides--the Makashovs and their
defenders, the Berezovskys and their ideological propagandists--stir up
nationalist hysteria and increase the threat of a victory for the far right.
RAMPANT CRIME: THE BASIS FOR THE LONGING FOR A FIRM HAND
We mentioned above the criminalization of Russian society as an important
factor in the rise of nationalism, but we did not elaborate upon this link,
which is a very important one. There is an increasing wave of unchecked
criminality in the country. The murder of Starovoitova was just one of many
significant examples. Incidentally, the murder of a KPRF deputy did not
evoke a fraction of the clamor surrounding the death of the Democratic
Russia deputy. People really do want order. At the same time there is a
growing sense of exasperation with those responsible for the situation. If
outrageous embezzlement and corruption--against a background of terrible
crisis--is to remain the norm, we will not have long to wait for overt calls
for terror tactics as the only way to impose order.
This is a terrifying prospect for all those adhering to the values of
democracy or of socialism, because socialism cannot triumph on blood--this
goes against its very essence. What, then, is to be done?
To avoid a fascist version of the order the country needs, everyone needs to
understand that it is impossible to build a democratic society without
defending, as zealously as in the fight against anti-Semitism, the
dispossessed majority from those who have made their lives so desperate.
Anyone wanting not to be identified with criminal nomenklatura capitalism
must separate the wheat from the chaff. On one hand, there is the problem of
fighting nationalism, racism and fascism, where left-wing and right-wing
democrats should be united against the Black Hundreds. On the other, there
are the acute social and economic contradictions, where the defenders of the
interests of the workers--the Left (and there are many internationalists
among them, within the KPRF and especially outside it)--appear to be the
most important element of representative democracy within the framework of
the "democratic" fight against the Right. The most important task facing
those who do not want to disseminate lies is to support the position of all
democrats in the first case and to shed an honest light on the positions of
both the Left and the Right in the second.
In Russia the main opposition force--the KPRF--does indeed show great-power
tendencies. This is dangerous. However, it is possible to criticize the KPRF
for its Stalinism and the Makashovism, while admitting the reality of social
problems and the validity of the Left's criticism of the current system. It
is also possible to censure all left-wingers as fascists, thus provoking a
rise in nationalism and anti-Semitism among the majority of the population.
1998 In Review: Little Progress In Caucasus Conflicts
By Liz Fuller
Prague, 14 December 1998 (RFE/RL) -- While little progress has been made
this year toward political solutions to any of the simmering conflicts in
the Caucasus, only Georgia's Abkhazia region has seen a serious resumption
In his New Year's address to the Georgian people, President Eduard
Shevardnadze proposed a "Bosnia-style" solution to the Abkhaz conflict. The
solution would have involved deployment of NATO troops to enforce a
settlement and protect returning Georgians forced to flee their homes during
the 1992-1993 war.
But the international community failed to endorse the option, which
Russia flatly rejected. Low-level terrorist activity in Abkhazia's
southernmost Gali region continued in early 1998.
In late May, attacks by Georgian guerrillas on Abkhaz Interior Ministry
forces in Gali escalated into full-scale hostilities which the Russian
peacekeeping force deployed in the region failed to prevent. Up to 35,000
Georgians who had returned to Gali after having fled in 1992-3 were again
driven from their homes, hundreds of which were destroyed.
After several rounds of UN-mediated negotiations and bilateral talks
between top Abkhaz and Georgian representatives, Shevardnadze announced in
late Fall that he would meet Abkhaz leader Vladislav Ardzinba to sign a
formal protocol on the return of displaced persons and a second agreement
renouncing the use of force.
But that meeting was repeatedly postponed, with each side accusing the
other of seeking to revise previously agreed provisions.
The year is also ending without a resolution of the dispute over South
Ossetia. Neither Shevardnadze's face to face meeting in June with South
Ossetian President Lyudvig Chibirov, nor subsequent talks between Georgian
and South Ossetian representatives, yielded a mutually acceptable framework
for future relations. Chibirov, however, would accept autonomy within a
federal Georgian state, in contrast to Ardzinba, who is holding out for a
confederative agreement that would give Abkhazia equal status with Georgia
and international recognition.
In Armenia, fundamental disagreements within the Armenian leadership over
the merits of the Nagorno-Karabakh draft peace plan proposed in September
1997 by the OSCE Minsk Group sparked the resignation of Armenian President
Levon Ter-Petrossian in February.
"I have received a demand for resignation from state agencies well known
to you. Taking into account that in the existing situation the use of
constitutional prerogatives by the president could destabilize the country,
I accept this demand and tender my resignation."
His successor, Robert Kocharian, called for a resumption of the peace
talks without preconditions, but Baku declined. Following the October
reelection of Azerbaijani President Heydar Aliyev, the Minsk Group
co-chairmen proposed a new blueprint for resolving the conflict. That plan
reportedly advocated that Azerbaijan and the unrecognized Nagorno-Karabakh
republic should form a "common state."
Yerevan and Stepanakert both signaled their acceptance of that draft as a
basis for further negotiations, despite reservations on certain points. But
Baku rejected it categorically as violating the territorial integrity of
Azerbaijan, and repeated that it was prepared to offer Karabakh only "a high
degree of self-rule."
Violence in Karabakh was confined to the occasional exchange of fire
along the line of contact separating Karabakh Armenian and Azerbaijani troops.
In Russia's breakaway republic of Chechnya, the standoff between
President Aslan Maskhadov and radical field commanders Shamil Basayev and
Salman Raduyev continued, with the latter two repeatedly accusing the
president of treason for his willingness to continue negotiations with
Moscow. But those tensions erupted into violence only twice. In late June,
Raduyev's supporters shot dead a senior Chechen security official in Grozny.
Three weeks later, clashes erupted east of the capital between government
troops and forces loyal to a militant Islamist field commander.
Kidnappings in Chechnya continued unabated, the most prominent hostage
being Russian presidential envoy Valentin Vlasov, who was held captive for
six months before Russian officials negotiated his release. Moscow,
nonetheless, continued to back Maskhadov.
Two successive Russian prime ministers -- Sergei Kiriyenko and Yevgeny
Primakov -- met with the Chechen president in August and in October
respectively. Both assured him that Moscow would finally deliver on its
promises of financial aid to restore the republic's war-shattered
infrastructure. In late November, Russian President Boris Yeltsin suspended
work on a formal treaty outlining relations between Moscow and Grozny. It
was an indication that Moscow may have finally realized that continuing to
pursue the illusion of a formal treaty is futile and could undermine
Elsewhere in the Caucasus, the leadership of the Russian republic of
Dagestan switched tactics in August, abandoning its policy of blaming
domestic unrest and terrorism on militant Islamists and instead launched a
major crackdown on crime.
The election in January of Aleksandr Dzasokhov as president of the
Russian republic of North Ossetia raised hopes that tensions with
neighboring Ingushetia over the return of ethnic Ingush could be resolved.
They fled ethnic cleansing in North Ossetia in late 1992. But low-level
violence between the two ethnic groups continued. In late October, Ingush
President Ruslan Aushev accused Moscow of clear favoritism toward the
Ossetians, and hinted that his republic, like Chechnya, might seek to leave
the Russian Federation.
The potential for future inter-ethnic violence throughout the Caucasus
therefore persists. So does the threat of political unrest within Russia's
Caucasus region. That may be particularly true in the Republic of
Karachaevo-Cherkessia in the runup to presidential elections next spring in
which the opposition is determined to oust long-time incumbent Vladimir
Preoccupied with its financial crisis and anticipating President
Yeltsin's demise, the Russian government may find its ability to influence
events in the region rapidly eroding.
Meanwhile, the international community is impatient to resolve the
Karabakh and Abkhaz conflicts for fear that regional instability may
jeopardize the export of Azerbaijan's Caspian oil via Georgia. Still,
foreign governments may find it impossible to mediate solutions acceptable
to all parties.
From: Stanislav Menshikov <email@example.com>
Subject: re: Albats in JRL #2518
Date: Mon, 14 Dec 1998
Albats is right on Nemtsov not belonging to Nizhni Novgorod Komsomol
structures. It is also true that belonging or not belonging to party or
Komsomol structures does not make Russian politicians what they are today.
Yeltsin did belong, Chubais did not. They ended up in the same category.
But strictly speaking, what made up a party structure? Gaidar WAS member of
the editorial board of "Kommunist", then of "Pravda". Both were certainly
top party positions in top party structures and were included in Poliburo or
Hough wanted to say that neither Kiriyenko or Nemtsov were professional
economists which is true. He is correct at least in that assertion. That
they were blown up into geniuses by some in the West is also true. But one
does not need to be a professional economist or a genius to be able to run a
country. The issue is whether one is competent enough as a leader and
whether he succeeds.
Billion dollar EBRD plans gives Russia much-needed filip
MOSCOW, Dec 14 (AFP) - Russia's sickly economy got a much-needed boost Monday,
with the EBRD bank holding out the prospect of up to one billion dollars in
investments in 1999 as Moscow predicted an IMF deal on loans in the new year.
European Bank for Reconstruction and Development (EBRD) chief Horst Koehler
said after a foreign investors conference here that the EBRD was mulling "up
to one billion dollars" in new direct investment in 1999.
His comments were the first sign that foreign investors were ready to return
to Russia with significant funds since the August financial debacle which sent
its economy into tailspin and cost investors billions of dollars.
Koehler said some 150 million dollars would be released by year's end for
previously-agreed projects, making good on a bank pledge in September to stand
by Russia despite losses due to the summer crisis of some 170 million dollars.
Speaking after a meeting of the Foreign Investment Advisory Council here, the
German however warned that fresh funds would come with strings attached --
notably swift government action to improve the investment environment.
He urged radical reform of the banking sector, notably prompter action by the
Central Bank to force bankrupt banks out of business, adding that a 3-5 year
"comprehensive plan for the banking and financial sector in Russia" was under
discussion with the authorities.
Improvement in corporate governance -- notably transparency and minority
shareholder rights -- are other areas where the EBRD has long demanded
Prime Minister Yevgeny Primakov for his part said attracting foreign
investment was a "priority" for his left-leaning government, which has worried
western investors with its social policy rhetoric.
Primakov pledged to create a new agency to protect foreign venture capital
with a "powerful government insurance body -- the Investment Guarantee
Agency," the Interfax news agency reported.
Russia's Communist economy supremo Yury Maslyukov rammed home the message,
saying Russia "must give large strategic investors the green light" to inject
resources into the country.
Economy Minister Andrei Shapovalyants said the government hoped for 4-5
billion dollars in direct investment next year.
That would help underpin a government strategy of boosting Russia's real
economy, a key element in Primakov's strategy to turn around an economy where
output is now just 55 percent of the 1990 level.
But new EBRD-backed investment, while an important psychological fillip to a
government still struggling to recover from the fallout of the August 17 ruble
devaluation and debt default, does not help the government balance its books
The 1999 finance bill, approved by the cabinet last week, is premised on
Russia paying only 9.5 billion dollars of the 17.5 billion dollars of foreign
loans due in 1999, and securing debt relief on the remainder.
Maslyukov indicated that the government was close to clinching a financial
lifeline from the International Monetary Fund (IMF) which, experts say, could
pave the way for a raft of rescheduling agreements with foreign lenders Russia
so badly needs.
"We are close to signing an agreement in January," Interfax cited Maslyukov as
saying. "This agreement will be signed at the beginning of February at the
latest. I am sure about that," he said, while admitting problems remainded.
It was not clear however whether the first deputy prime minister was referring
to millions of dollars of loans frozen by the Fund since the summer financial
rout, or Moscow's attempts to secure some breathing space over 4.5 billion
dollars in IMF loans which mature in 1999.
Failure to cut a deal could force the government to print billions of rubles
to fund its budget, leading to three-digit inflation and a collapse in
Russian officials are engaged in difficult talks with foreign and domestic
investors to resolve the debt morass which resulted from the August debacle.
While domestic holders of frozen government bonds have agreed terms,
westerners holding a third of the paper -- worth around 11 billion dollars at
the time -- dispute government claims they too have struck a deal.
Journal of Commerce
15 December 1998
[for personal use only]
Russia's chaos scares investors
BY SCOTT E. PARDEE
Scott E. Pardee is a senior lecturer and executive director of the finance
research center at the Sloan School of Management, Massachusetts Institute of
Technology. This article was distributed by Bridge News.
Investors fear Russia. Let me count the ways.
Leadership is weak. Boris Yeltsin is largely an absentee president and may not
live out his term.
Prime Minister Yevgeny Primakov has formed his government by retrieving ex-
Soviet apparatchiks from the dustbin of history, and he has the inside track
to be the next president -- but he is older than Mr. Yeltsin.
Reformers are in disarray. Under Gennady Zhuganov, the Communists are very
well organized in Russia's legislature, the Duma, and as a political force
around the country, linking with the nationalists.
The reformers are either leaders without followers or ex-bureaucrats with
The murder of reformist Duma member Galina Starovoitova in Leningrad shows
that reformers may be targets for assassination in the next cycle of
elections, in 1999-2000.
Fiscal policy issues are unresolved. The Russian government is just finishing
up its draft budget for next year, which will again have a horrendous deficit,
and will include some supply-side tax cuts to "stimulate" business.
A team from the International Monetary Fund has been in Moscow reviewing the
drafts, and it will be a major stretch for the fund to resume lending under
the agreement reached last July.
(Meanwhile, of course, the Duma has made sure that ample funds are available
to maintain Lenin's tomb.)
Monetary policy is feeding inflation, and Viktor Gerashenko is back at his old
job -- and up to his old tricks -- as governor of Russia's Central Bank.
Mr. Gerashenko is paying off government arrears and supporting state-owned
companies with injections of new rubles. The money supply is up 60% since
July, and that is about the current rate of inflation.
The Russian economy is in free fall. Gross domestic product, the value of
goods and services produced in a year, will shrink by 8% or so this year. And
although the official forecasts are for a further 3% decline in GDP next year,
that prediction is based on heroic-sized assumptions.
The ruble is also tumbling. Now trading around 20 to the U.S. dollar, the
ruble has already reached the levels projected for next year.
The charts show there have been some efforts to stabilize the ruble at 16 and
18 to the dollar, but the flight from the ruble is pervasive and the Russian
economy is more dollarized than ever.
In the energy sector, there is only bad news. International oil prices are
down and not likely to recover soon, hurting Russia's ability to earn foreign
The Duma passed legislation to attract foreign investment into energy
production, but it included so many restrictions that few foreign companies
are likely to bite.
Even domestically, distribution has broken down. Many citizens of
Vladivostock, a port city far from Moscow on the Sea of Japan, have no heat as
the winter closes in.
The domestic banking system is imploding. About half of the country's 1,500
banks are near collapse.
At least Tatyana Paramonova has been brought back to the Central Bank as first
deputy director, so this part of the process will be handled with some
(Mr. Yeltsin appointed Ms. Paramonova governor in 1994 after Mr. Gerashenko's
last fiasco, and she did a good job. But her tight monetary policy offended
the oligarchs in the banking system, who blocked her confirmation in the
Meanwhile, the irrepressible Mr. Gerashenko is talking about establishing a
network of state-owned banks across the country -- which is the last thing
Russia's international credit standing is zero.
Russian officials are negotiating in Paris and London and elsewhere to
restructure and scale down the country's debt burden. But these officials have
few resources to work with -- dollars, in plain language -- and even less
credibility after the collapse of the market for GKOs (government treasury
bills) and the ruble.
Foreign bankers and institutional investors who have lost billions of dollars
-- those bankers and investors who still have their jobs -- are in no mood to
Even if Russia regains the International Monetary Fund's good graces, the fund
has proved ineffective in getting the nation to adopt sound policies. Foreign
direct investors have two choices: hang on for dear life or leave.
Banks and others with financial assets in Russia are already fully engaged in
the struggle to salvage something from the current negotiations, but won't
willingly put up new money.
Portfolio investors have retreated to the sidelines and will surely find
better places to put their money for the foreseeable future.
Russia is a country of great human and natural resources, but it has yet to
create a political consensus that assures sustainable economic growth.
December 15, 1998
Bill Forbids Red Square Alterations
By Chloe Arnold
The tense debate over how Russia should view its Soviet past was brought back
to life again when the State Duma passed a bill that effectively forbids the
demolition of Lenin's mausoleum on Red Square.
Although there is no mention of the red granite and marble tomb in which the
embalmed leader has lain since 1930, six years after his death, the bill
insists that Red Square is "a symbol of the united peoples of the Russian
Federation" and bans all reconstruction work that could destroy the
"historical facade" of the square.
The Communist-dominated Duma, Russia's lower house of parliament, approved the
measure Friday, easily passing the required 226-vote mark with 280 deputies
voting in favor. Only one voted against it and one abstained.
Those in favor included the Communist Party, its allies in the Agrarian and
People's Power factions, and the ultranationalist Liberal Democratic Party.
If the bill is approved by the Federation Council, the upper house, it goes to
President Boris Yeltsin to be signed into law. But Alexander Kotenkov, the
president's representative to the Duma, said Yeltsin was likely to veto the
bill, which he said may not comply with guidelines set by the UN Educational,
Scientific and Cultural Organization.
"There are certain questions regarding the coordination of this document with
UNESCO's position on places and buildings of historical or cultural worth,"
Itar-Tass quoted Kotenkov as saying.
He added that it was unclear how it would be possible to ascertain whether the
historical appearance of Red Square had been altered.
"Who will lay down the rules relating to this kind of violation?" he said
The measure sparked controversy last time it came up for debate in June 1997.
Although the Duma voted to endorse the legislation then, the Federation
Council rejected it, demanding that a working committee be set up to clarify
notions in the bill it called too vague.
Now the amended bill will go back to the Federation Council, but even with the
changes the upper house is unlikely to pass it, liberal Deputy Konstantin
Borovoi said Monday.
"It is quite obvious the law has political implications," Borovoi said. "I
hope that the Federation Council will recognize that and dismiss the law
From: Mr. X <*.ru>
Subject: Re: 2517-Foster/Money Abroad
Date: Tue, 15 Dec 1998
(David -- I don't know if you will choose to print this. If you do, please
do NOT print my name or e-mail address, for obvious reasons. Oh, would that
I were as clever -- or as ballsy! -- as Matt Taibbi or Mark Ames!)
In response to Ludmilla Foster's comment JRL #2517 #4, "I don't even want to
think of all the real estate that many of those individuals have accumulated
aboad. If all that money would be invested in the Russian economy, Russia
would not need to beg from the West anymore." -- If Russia had anything
resembling the most elementary conditions in which it were possible to make
a reasonable return at an acceptable level of risk on money invested in the
Russian economy, no one in the world would be able to stop the deluge as
it all came pouring back, with plenty more on top of it.
Until Russia cleans up its own act -- and stops looking to blame the IMF,
the World Bank, Harvard University, western investors (so-called "golden-boy
yuppies" and all) or anyone else "ot tuda" who once thought it made sense to
their money or their careers in what anyone who's been here more than a week
in winter would have to agree is an exceptionally difficult environment --
it's a complete mystery to me why anyone would be crazy enough to trust
their money in this economy. Any Russian who can get his hands on it is
better off with his western real estate -- that's why he puts it there.
Frankly put, now that the Great Russian Myth has sunk with the ruble, there
simply IS nowhere in Russia anymore that is at all safe for him to put his
money, save perhaps under the mattress, which is why so many enterprising
Russians have done just this.
Unless, of course, he wants to put his money in Inkombank. Or invest in the
Radisson Slavyanskaya Hotel. Or the Garden Ring supermarket. Or the
Aerostar Hotel. Or Cosmos Cable. Or Primorsk Shipping. Or Novolipetsk Metal.
Or Moscow Catering. Or Krasnoyarskenergo. Or Patriarshy Dom Tours. Or
Segezhabumprom. Or Lomonosovsky Pottery Plant. Or Subway sandwiches. Or
Purneftegaz. Or Moscow City Telephone. Or UES. Or Sidanco. How about
hundred ruble notes? Sberbank accounts?? Better yet, buy T-Bills -- aren't
they a risk-free investment, backed by the full faith and credit of the
Russian government? Or even better -- give it away! Soup kitchens for the
homeless? Food aid for the hungry? AIDS hotlines? Peace Corps volunteers in
the RFE? Or maybe this -- a hundred orphans in Komsomolsk would just love a
new toy for Christmas. All you need to do is get them through customs, truck
them past a few hundred GAI stops and find a way to distribute them. Oh,
and a visa to Komsomolsk...
Invest money in Russia?!? You can barely manage to give it away to a sad
bunch of hungry orphans without someone trying to screw you for your good
efforts. My advice to those Russians Ms. Foster is complaining about? Keep
your real estate. If anyone complains, tell 'em it was Harvard's idea.
December 15, 1998
EDITORIAL: Legal Route Way to Beat Russia's Mob
It is unpleasant indeed to be in agreement with Sergei Mikhailov, also known
as Mikhas, a man who consorts freely with some of the most despicable
characters in Russia and the rest of the criminal world.
But Mikhailov was right to claim that his acquittal by a Swiss court was based
on the principle that not all Russians are criminals. A Geneva court Friday
dismissed charges of involvement in an organized crime gang against Mikhailov,
leaving only the lesser charge of failing to observe Swiss rules limiting
foreigners' right to purchase land.
The fight against Russian organized crime is a desperate one, both here and
abroad. Russia's mob carries out contract killings, runs drugs and commits all
sorts of other mischief.
But the hunt against the Russian mafia must be subordinate to the due process
of the law and basic human rights. It is simply not enough to rely on
prejudices and circumstantial evidence.
The prosecution to which police forces from three continents contributed
alleged Mikhailov was involved in the Moscow-based Solntsevo mafia band that
carried out professional killings and racketeering.
The evidence presented by star Western witnesses established that Mikhailov
had some unsavory people as business associates. He met, for example, with
Vyacheslav Ivankov, also known as Yaponchik, imprisoned in the United States
for extortion and fraud.
But all the evidence presented against Mikhailov was circumstantial. There was
nothing to implicate him in any specific criminal activity. Simply consorting
with criminals is not and should not be a crime in itself. One former U.S.
attorney general, no friend to the Russian mafia, testified that much of the
evidence was hearsay.
Mikhailov has tried to paint himself as a man smeared by the general prejudice
against Russia. But no one will be crying too many tears for Mikhailov's
His acquittal is a sign of how hard it is to mount a case against organized
crime. One of the key witnesses was murdered during the course of the trial
and others had to be given police protection.
But it is possible to bring the mafia to justice going by the book. Yaponchik
was sentenced on the basis of proof of his involvement in specific counts of
extortion and a fraudulent marriage for immigration purposes.
Russian courts could learn a lesson. Almost no major organized crime figure
has ever been put in jail here. The problem here is not the niceties of proof
beyond reasonable doubt or due process. Courts are just too scared and judges
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