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Johnson's Russia List
12 January 1999
[Note from David Johnson:
1. The Times (UK): Anna Blundy, Russians lured by promise of US
2. AP: Russia Panel OKs More Defense Funds.
3. Moscow Times: Cash Shortage Delays Nuclear Refit.
4. Janine Wedel: Washington Book Event Invitation.
5. Norwich University: Russian for scientists, sociologists, technicians,
and normal people.
6. Kathy Crane: Re 3010-Porter/Language Studies.
7. Helen Womack: Bruce Clark's Sailing Round Russia.
8. AP: Russian Impeachment Inquiry Goes On.
9. The Independent (UK): Phil Reeves, Former Soviet boss triumphs in
'grossly unfair' election.
10. Reuters: Prosecutor says Russia suspiciously used IMF funds.
11. Peter de Groot: is it safe to live in Moscow?
12. RFE/RL: Paul Goble, Is The Cold War Really Over? ( Re article
by Sergei Kortunov).
13. Newsweek: Bill Powell and Yevgenia Albats, Summer of Discontent.
Exclusive: the inside story of the crash that brought Russia to its
The Times (UK)
January 12, 1999
[for personal use only]
Russians lured by promise of US servitude
FROM ANNA BLUNDY IN MOSCOW
DISENCHANTED with the worsening economic situation in Russia, many of the
country's newly unemployed are fleeing to America to work as servants for
rich, expatriate Russians.
Lured by newspaper advertisements promising well-paid work abroad,
highly qualified people have parted with the hefty fee demanded by the illegal
agencies and have accepted jobs as housekeepers, nannies and gardeners
thousands of miles from home.
Wealthy Russians who have established themselves in America are notoriously
loath to employ the Filipino staff favoured by their US counterparts,
according to Segodnya newspaper. They are also keen for their children to be
cared for by Russian speakers. Although the agencies take a £70 joining fee
and the first four weeks' wages, the work, at around £150 a week plus bed and
board, is far more lucrative than anything available at home, where the
average wage is less than £50 a month.
"I have two children and my husband can't find work," says Olga Tarasov, who
has just signed up with an agency that she hopes will find her domestic work
not too far from New York. "My cousin is a nanny for a Russian family in New
York and the agency promised me that I wouldn't have problems getting a visa
if I was leaving my children behind."
Segodnya cited the case of woman, identified only as Irina, who earned
thousands of dollars working as a housekeeper for a Russian-American family
and returned to Russia to start her own employment agency. The newspaper
described Irina's light workload and heavy pay packet with awe. It said the
family she served always ate ready-made food which needed only to be heated up
and that they owned so many hi-tech domestic appliances that Irina barely had
to exert herself.
Russia Panel OKs More Defense Funds
January 11, 1999
By MITCHELL LANDSBERG
MOSCOW (AP) -- A key parliamentary committee voted Monday to increase Russian
defense spending this year -- despite the government's inability to fund the
military even at its existing level.
The budget subcommittee of the State Duma, the lower house of parliament,
it wanted to increase defense spending by $65.2 million over the amount
proposed by Prime Minister Yevgeny Primakov.
It said the government could raise the money by cutting its own
The Duma, dominated by Communists and nationalists, has long advocated
defense spending than the government. The debate has largely been moot,
however, since the government has been unable to live up to its obligations to
the military in any case.
At the end of October, the Defense Ministry said it had received less than
half the money it had been budgeted in 1998.
With the proposed increase, defense spending would total 93.7 billion rubles
in 1999. Although that is well above last year's defense budget of 80.4
billion rubles, it amounts to a sharp decline in real spending since the value
of the ruble has plunged since last August, when it was devalued.
At current exchange rates, 93.7 billion rubles is worth $4.07 billion. At
time last year's budget was signed, 80.4 billion rubles was worth $13.4
Duma Speaker Gennady Seleznyov said Monday that the lower house would
second of four votes on the budget Jan. 19, with final passage possible by
Until a 1999 budget is passed, the government is using the 1998 budget as a
In another economic development Monday, the Central Bank announced that
tightened its currency controls by requiring exporters to repatriate 75
percent of their hard currency revenues, up from the previous limit of 50
That means Russian companies will be allowed to keep only one-quarter of
export earnings in hard currency, with the rest converted into rubles.
The change, which had been widely expected, went into effect Sunday.
The Central Bank set its official dollar rate at 23.06 rubles Monday, up
22.40 rubles Sunday. The rate was about 6 rubles to the dollar before the
The ruble has been pressured by inflationary expectations, as the government
continues injecting fresh rubles into the economy to settle at least a portion
of its huge wage and pension arrears.
January 12, 1999
Cash Shortage Delays Nuclear Refit
By Vladimir Isachenkov
THE ASSOCIATED PRESS
A U.S.-Russian plan to phase out nuclear weapons production at a Siberian
plant is in jeopardy because of a shortage of funds, officials said Monday.
In 1997, Russia and the United States agreed to stop production of weapons-
grade plutonium at the Zheleznogorsk nuclear weapons production and research
center, formerly known as Krasnoyarsk-26, by the year 2000.
The reactor also provides electricity and heat for the city's 100,000
residents, and the 1997 U.S.-Russian agreement envisaged U.S. financial aid to
build a replacement power facility.
However, the disbursement of funds has been stalled by the failure of
officials to work out a Western-style audit scheme to ensure that the money is
spent properly, the center director Valery Lebedev said, Itar-Tass reported.
Part of the construction costs, about $40 million, was to be financed by the
government, but it has not provided the money because of the country's
economic crisis, Lebedev said.
As a result, the reactor will have to continue work at least until the
of 2001, producing plutonium, he said.
However, Vitaly Nasonov, a spokesman for the Nuclear Power Ministry that
oversees Zheleznogorsk, called Lebedev's account of the situation
overdramatized and voiced hope that Russia be able to fulfill its commitments.
Russian officials have already worked out audit proposals that would be
discussed at a meeting with U.S. officials later this month, he said.
At the time of its signing by U.S. Vice President Al Gore and then Prime
Minister Viktor Chernomyrdin in September 1997, the agreement to fully end
plutonium production was hailed as an historic step.
U.S. President Bill Clinton's administration has been pushing for the accord
for years, part of U.S. efforts to ensure that Moscow safeguards and reduces
its vast nuclear stockpile.
Apart from the reactor in Zheleznogorsk, the agreement also envisaged
the plutonium production at two other military nuclear reactors in Seversk,
formerly known as Tomsk-7.
Nasonov, the ministry spokesman, said that works at Seversk were going on in
accordance with plan and there was no fund shortage.
Date: Mon, 11 Jan 1999
From: Janine Wedel <email@example.com>
Subject: Washington Book Event Invitation
You are invited to a book event to celebrate the publication
of COLLISION AND COLLUSION: The Strange Case of Western
Aid to Eastern Europe 1989-1998, by Janine R. Wedel,
just released by St. Martin's Press.
Place: Border's at 18th and L, downtown Washington, D.C.
Date: Wednesday, January 20, 1999
Time: 7:00 pm
Come and bring your friends!
Date: Mon, 11 Jan 1999
From: Russian School <firstname.lastname@example.org>
Subject: Russian for scientists, sociologists, technicians, and normal
In response to several recent messages about teaching Russian to
those not in the humanities, I would like to point out that our summer
language institute addresses the needs of "normal" people with its intensive
two- and three-week courses.
While the regular, seven-week session at the Russian
School of Norwich University is steeped in the humanities, our shorter
sessions try to address the needs of many different kinds of students,
including missionaries, military personnel, business people, scientists,
and heritage speakers, to name a few.
Typically, we start these shorter sessions with our regular summer
session: June 13th for beginners in 1999, and June 20th for all other
levels. However, this year, we will also design courses for any group of
five or more at any period during the summer between June 13th and August
5th. I would be pleased to discuss options with anyone interested in
high-calibre, intensive instruction in Russian language and culture.
Kathleen Osgood Dana, Associate Director
Russian School of Norwich University
Northfield, VT 05663
Date: Mon, 11 Jan 1999
From: Kathy Crane <email@example.com>
Subject: Re: 3010-Porter/Language Studies
Firstly, I would like to laud the efforts of good interpreters.
However, as a scientist, working with complex equipment, and in dangerous
field situations, the only kind of interpreter to have is someone
who is also a scientist... As Mr. Porter stated, Russian is a complex
language and one cannot expect to learn it as a passing fancy... the
same can be said of a scientific or engineering profession.
When I hire an interpreter, he or she is usually a Russian AND a scientist.
When I have a large document to translate, I usually hire a Russian
who is also a scientist... otherwise I am usually not happy with the
When sitting down at a table for discussions or decision making, however,
I do like to have working knowledge of the language. Often I can
tell when the interpreter does not know what he or she is translating...
Ultimately this prevents a lot of problems.
What I could suggest for individuals in the US, who want to become
interpreters: Why don't you take a minor in engineering or some
field of science... then you might have the qualifications, to
interpret these subjects.
Date: Mon, 11 Jan 1999
From: "moscow bureau" <firstname.lastname@example.org>
Subject: message from helen womack
Dear David, I wonder if I could post this notice on your excellent list? Best
wishes for now from Helen Womack.
Friends of the former Moscow correspondent Bruce Clark and his family, as well
as general readers of travel books, may be interested in the publication of
Sailing Round Russia . In 1992, Bruce's brother Miles, a geographer and
explorer, made an unusual voyage by yacht from the White Sea to the Black Sea,
passing through the canals of Russia. Sadly, Miles only managed to write the
first chapter of his intended book before he died. However, he left a
fascinating log, from which his father Wallace, brother Bruce and other
were able to piece together Sailing Round Russia . The book is a delight. From
the forested Valdai hills in the heart of the continent, raindrops falling
a few feet apart began journeys in opposite directions, gathering into shallow
brooks which fanned outwards into streams which emptied into rivers which led
to different seas, wrote Miles in the first chapter. Anyone in Moscow can pick
up a copy from Helen Womack (tel. 281-1427). The books cost 15 US dollars
The proceeds will go to the Mary and Martha Community that cares for children
in need, the sick and the elderly.
Russian Impeachment Inquiry Goes On
January 11, 1999
MOSCOW (AP) -- A long inquiry into impeachment charges against President
Boris Yeltsin is nearing an end, its chairman said Monday -- but the effort is
not likely to lead to Yeltsin's removal.
Over the last six months, the impeachment commission of the State Duma, the
lower house of parliament, has determined that Yeltsin should be removed from
office on four of five counts. It is currently considering the fifth count --
genocide against the Russian people.
Commission Chairman Vadim Filimonov said the impeachment charges should be
completed and sent to the full Duma for a vote sometime next month, Russian
news agencies reported.
To be approved, the impeachment motion must win a two-thirds majority in the
lower house, which is considered unlikely. If it passes that hurdle, the
motion must also pass through the Constitutional and Supreme Courts and then
win passage in the upper house of Parliament -- an extremely unlikely
Perhaps because its prospects are so slim, or because few Russians are
by the charges, the impeachment inquiry has attracted very little attention in
Russia. The Russian news media have paid vastly more attention to the
congressional proceedings against President Clinton.
So far, the impeachment commission has agreed that Yeltsin should be
for instigating the 1991 collapse of the Soviet Union, using force against
hard-line lawmakers in 1993, launching the botched war in Chechnya and
neglecting the military.
The genocide charge, which accuses Yeltsin of policies that have
the Russian people and led to a sharp decline in life expectancy, is expected
to face the most opposition.
Yelena Mizulina, vice-chairwoman of the impeachment commission, said it was
clear that political decisions had led to ``the population's impoverishment
and discontent,'' the Interfax news agency reported.
However, she said, ``This has nothing to do with the criminal laws.''
The Independent (UK)
January 12, 1999
[for personal use only]
Former Soviet boss triumphs in 'grossly unfair' election
By Phil Reeves, in Moscow
UNRUFFLED by cries of foul from international institutions, Nursultan
Nazarbayev yesterday easily secured another seven years as president of the
vast mineral-rich republic of Kazakhstan in an election that was badly flawed,
even by the dismal standards of post-Soviet republics.
The wily former Soviet party boss, who has headed Kazakhstan for almost a
decade, claimed about 80 per cent of the vote in a poll which the Organisation
for Security and Cooperation in Europe (OSCE) refused to recognise, saying it
fell far beneath the standards to which its member nations are committed.
Among the chief complaints was the decision by a Kazakh court to bar from
contest the President's only realistic rival, the former prime minister,
Akezhan Kazhegeldin. Mr Kazhegeldin was so outraged by the ban, and by earlier
efforts to harass him out of the race, that he hired a top US-based publicity
firm to draw the world's attention to his plight.
The subsequent publicity may explain the OSCE's tough stance, which
with its generally softer line over other suspect elections in the former
Soviet Union. Human Rights Watch also called Kazakhstan's election "grossly
unfair", and there were unhappy rumblings from Washington.
The latter should be taken with a pinch of salt. American and other Western
oil and gas companies - including British Gas - have heavy investments in
Kazakhstan. It is privately acknowledged within the oil business that the
petrochemical giants care far more about having strong leaders in power, with
whom they have already forged a relationship, than democracy.
Mr Nazarbayev, 58, who used to be the head of the Soviet-era Kazakh
Party, certainly qualifies as strong. Although his methods are not as despotic
as some of those who rose to power in the chaotic aftermath of the Soviet
collapse - for example, Belarus's Alexander Lukashenko - he has ensured that
there is no criticism in the media and discreetly maintains tight control of
the country, aided by his security services.
There have also been some signs that he is building a dynasty, with the
appointment of family members in senior jobs. Perhaps his most disputed move,
though, was his baffling decision to move Kazakhstan's capital from Almaty to
Astana, on a mosquito-plagued windswept steppe in the north, where
temperatures reach 40C in the summer and minus 40C in winter. It cost at least
$500m which, given that three-quarters of Kazakhstan's 15.7 million population
live below the poverty line, was widely seen as money ill-spent.
The President's own comments on his victory with 80 per cent of the
vote,appeared to acknowledge the election's failings. "You remember the
[Soviet] times when turnout was 99.9 per cent and the vote in favour 99.9 per
cent?" he said. "Well, you could say that we have allowed democracy to
progress by 20 per cent."
Prosecutor says Russia suspiciously used IMF funds
January 11, 1999
MOSCOW (Reuters) - Russia's chief prosecutor said Monday that government
officials may have illegally used a $4.8 billion loan from the International
Monetary Fund the country received in July.
``There was a series of suspicious operations involving the money from the
(IMF) tranche,'' Yuri Skuratov told Russian Television.
``When they say there were no violations at all, I cannot agree with this,
above all because the tranche money was spent before (President Boris)
Yeltsin's instruction emerged on where and how to spend the money.''
He did not provide further details.
The IMF in June agreed to offer a $22.6 billion international loan rescue
package to what was then a strongly pro-reform Russian government.
It sent the first tranche from the package in July, but then held off on
further payments after Russia devalued its currency and defaulted on some debt
The next $4.3 billion tranche of new credits has been on hold pending
implementation of agreed economic reforms by the new coalition government that
includes the highest-ranking Communist in the post-Soviet era.
Skuratov said the prosecutor's office had opened three criminal cases
central bank officials for illegal financial transactions in an investigation
launched after the August crisis.
He declined to name the officials, but said there were no criminal charges
against former central banker Sergei Dubinin.
Skuratov said the investigation was continuing.
Russian economy chief Yuri Maslyukov is to meet IMF Managing Director Michel
Camdessus in Washington Thursday. Last week an IMF spokeswoman said the IMF
had invited Maslyukov to meet Camdessus. She did not say what was on the
agenda for the talks.
Date: Mon, 11 Jan 1999
From: "Peter & Susan de Groot" <email@example.com>
Subject: Information on Moscow
My wife and I and 2 small kids are considering moving to Moscow. We are
trying to assess the risks of moving there. I shall be working for a
Multinational company and my wife is a Doctor.
Question: is it safe to live in Moscow?
Kind regards and thank you in advance
Peter de Groot
Russia: Analysis From Washington -- Is The Cold War Really Over?
By Paul Goble
Washington, 11 January 1999 (RFE/RL) -- A leading Russian foreign policy
analyst has suggested that the Cold War is not yet over, an argument that not
only challenges most assumptions about that conflict but also underscores the
difficulties its participants may have in cooperating in the future.
Writing in the current issue of the Russian foreign policy journal
"International Affairs," Sergei Kortunov argues that the Cold War has not been
about ideology or the containment of the Soviet Union, as Western writers
claim, but rather represents the West's "total rejection" of "the legitimacy
and legality of historical Russia."
Kortunov, who is the vice president of the Russian Foreign Policy
makes a number of points in support of this position: He says that Moscow won
World War II "as Great Russia not as a Red Empire." He insists that neither
the Soviet Union nor Stalin had any ambitions after 1945, that the West
rejected all of Moscow's efforts to ease conflict.
And he argues that the West not only continued but expanded upon the Nazi
approach to Russia by promoting the idea of "mythical" states to dismember the
Russian heartland. Indeed, he says, "the world anti-Russian center moved from
Berlin to Washington" following the defeat of Nazi Germany.
Consequently, no right-thinking Russian, Kortunov adds, can accept the
"rightness" of the West in the Cold War because that would mean not simply
"the renunciation of Communism" but the acceptance of "the fallacy of the
entire Russian historical idea -- of the entire Russian Orthodox idea in
And that in turn, he says, would mean accepting what he suggests is the
Western view of Russia as an evil empire or even -- and here he quotes former
U.S. National Security Advisor Zbigniew Brzezinski's words -- "a redundant
Unfortunately, Kortunov goes on, some in Russia -- "the most radical part of
domestic democrats" -- do not deny Russia's "defeat" in the Cold War or
conceal their "joy" over it or even their role in bringing it about.
And he cites with approval the observation of one Russian analyst that
much more convenient for the 'democrats' to pretend that the West has never
carried on an unrelenting struggle against our former motherland, Russia-USSR
and that it was only by our own efforts that we destroyed the 'evil empire.'"
Kortunov argues that any fair-minded assessment will show that "strictly
speaking, the Russian Federation was 'fighting' against the USSR on the side
of the West," and that only after the 1991 breakup have some Russians begun to
recognize that they have been helping the West to pursue an anti-Russian
rather than anti-Soviet strategy.
On the one hand, Kortunov's article represents nothing new. All his
have been made by Soviet ideologues in the past and by Russian nationalist
writers in more recent times. And all of his positions have been dismissed by
most serious scholars in both Russia and the West.
But on the other hand, Kortunov's argument is striking both substantively
Substantively, his suggestion that the Cold War is not over and will
unless and until the West accepts Russia's legitimacy and even moral
equivalence highlights the deep suspicion many Russians now have about the
Politically, the appearance of this article in Russia's premier foreign
journal, one addressed not only to its own diplomats but also to the West,
indicates that ever more people in the Russian political elite share
Kortunov's anti-Western positions.
And by providing ideological justification for those in Moscow who want to
adopt a tougher line against the West, Kortunov's argument may become a self-
fulfilling prophecy, exacerbating tensions between East and West to such an
extent that he and others will be justified when they claim that the Cold War
is not yet over.
January 18, 1999
[for personal use only]
Summer of Discontent
Exclusive: the inside story of the crash that brought Russia to its knees.
By Bill Powell and Yevgenia Albats
In the middle of the night on Sunday, Aug. 16, Moscow's White House was
surrounded by four-wheel-drive Jeeps—the "chase cars" of choice for bodyguards
in postcommunist Russia. They were parked not far from the spot where in 1991
Boris Yeltsin, standing atop a tank, defiantly turned back a coup and saved
Mikhail Gorbachev's skin. But on this summer night, a different kind of
history was being made. If Yeltsin's heroics signaled the dawn of the new
Russia, what happened last Aug. 16 may be viewed by future generations as the
beginning of its long twilight.
Inside the White House were the bodyguards' bosses. Nearly a dozen so-called
oligarchs, the superrich businessmen who built financial empires on political
connections to Yeltsin's Kremlin, stalked the country's key economic
policymakers. That any of the oligarchs might be in the White House at this or
any other time was not unusual. These men had elected Yeltsin in 1996 (or at
least their money had) and so had what could politely be termed a proprietary
interest in his government. They descended on the White House Aug. 16 because
they knew Russia was bankrupt, a victim of its own incompetence and of the
virulent global economic crisis that had earlier laid waste to East Asia. And
if the government was broke, several of the banks the oligarchs controlled
soon would be, too.
The oligarchs' target? Russia's economic brains—the young prime minister,
Sergei Kiriyenko; the two principal architects of Russia's transition from
communism to capitalism, Anatoly Chubais and Yegor Gaidar, and the head of the
central bank, Sergei Dubinin. These four men, with a handful of top aides,
were living through the longest weekend of their lives. Just before midnight,
they were holed up in Kiriyenko's fifth-floor office; outside were the
oligarchs, desperate to influence their decisions. The most aggressive of the
businessmen, like Vladimir Potanin of Oneximbank (himself a former high-
ranking government official), had not hesitated to barge right into the
meetings that night.
Just past midnight, the prime minister emerged. The businessmen, some in T
shirts and jeans, gathered around him. Their fates—and that of the nation—hung
on what the young prime minister was about to say. Kiriyenko calmly ticked off
the steps the government would take Monday morning. The central bank would
devalue the ruble by more than 50 percent; the government would also
effectively default on its domestic debt of $40 billion, and—in a move to
protect some of Russia's private banks—impose a 90-day moratorium on their
commercial debts. The assembled plutocrats' immediate reaction, former
central-bank chief Dubinin recalls, was "pained silence."
The fallout, for Russia and for the world, was immediate and deeply painful.
Moscow's experiment with capitalism was a shambles, its political future
uncertain. Within a week, Kiriyenko and his team of reformers would be gone,
eventually replaced by a left-leaning government headed by former KGB
spymaster Yevgeny Primakov. The decisions also rocked markets around the globe
as investors realized how badly Russia's transition to capitalism was
foundering. How Russia got to its own D-Day—the day of default and
devaluation—is the subject of the story that follows. It is based on lengthy
interviews with nearly all of the critical decision makers within Russia. The
disastrous summer of 1998 represented the collapse of what Alpha Bank chairman
Peter Aven called the "Russian miracle": the notion that 1,000 years of
history—an era mainly bereft of capitalism and democracy—could be overturned
in just six years. The lesson, Aven says, is that "there never was a Russian
miracle—and that there won't be."
When a 35-year-old, relatively anonymous official in charge of Russia's
Ministry of Fuel and Energy was named acting prime minister in March of last
year, he self-effacingly told a bemused press corps, "I'm as surprised as you
guys are." Sergei Kiriyenko had been a bright young banker in Nizhny Novgorod,
a Komsomol leader during the communist days and a friend of Boris Nemtsov—the
deputy prime minister and reformer in charge of economic policy. His task,
Kiriyenko would later say, "was to be a technocrat," to implement economic
reforms that had stalled under his predecessor, Viktor Chernomyrdin. In
hindsight, Kiriyenko concedes how naive that thought was; Russia's politics
were (and remain) bitterly divided, and Kiriyenko's boss, the ailing Boris
Yeltsin, was rarely around to back him up. There was no way Kiriyenko could
avoid playing politics, and his profound lack of clout with Russia's
legislature would come back to haunt him.
By early May, after the Duma finally confirmed him, Kiriyenko was still trying
to grasp what he was up against. World oil prices had halved in just two
years, thanks to a collapse in demand in East Asia. That in turn had
devastated Russia's trade accounts. On May 17, the men who would be
Kiriyenko's key advisers—led behind the scenes by former prime minister
Gaidar—outlined just how precarious Russia's fiscal situation was. Monthly tax
collection was about 22 billion rubles. Domestic spending commitments totaled
25 billion rubles, and the interest on maturing government debt added 30
billion more. In a memo, Gaidar advised the prime minister that Russia's only
way out was to go to the International Monetary Fund for help—seeking its
second large loan in four years. On the last weekend in May, with the
government bond market collapsing and the ruble under increasing pressure,
Chubais and Sergei Vasiliev, the then deputy chief of staff, slipped off to
Washington. In a series of meetings with Clinton administration and IMF
officials, the Russians were blunt: without quick and substantial outside
help, the specter loomed of a collapse as dramatic as that in Indonesia. On
Saturday, May 30, the Russians learned that their message had been heard loud
and clear. At an informal breakfast meeting at his home, Deputy Secretary of
State Strobe Talbott told them that President Bill Clinton firmly backed
another package of aid for Russia—never mind that the IMF was effectively
tapped out, or that Clinton had not yet persuaded a doubtful Congress to give
more money to the Fund. "We dialed 911," Chubais says, and the call was
For the next six weeks, the young government's energies went mainly into
haggling with the IMF over the bailout's terms and size. Chubais didn't
necessarily want the job of leading the negotiations. But the oligarchs,
desperate to avoid devaluation, begged him to do it. Chubais acted coy.
"Relax, guys," he told them, "I have other things on my mind," referring to
his new post as head of a massive electric utility. Chubais could hardly have
forgotten how a group of these men—led by Boris Berezovsky—tried to destroy
him during the 1997 "war between the oligarchs," which erupted over several
large privatization deals. Now, as their fortunes dwindled, his erstwhile
enemies wanted to let bygones be bygones. On the evening of June 16, a group
of them invited Chubais to the Logovaz Club, a two-story 18th-century villa
Berezovsky owns. The irony was obvious. "Why the hell did we do our best for
the entire year to destroy this guy in order now to come and beg him to do
this job?" asked Badre Patrikacishvilli, Berezovsky's right-hand man.
But the rest of the group aimed to please. June 16 happened to be Chubais's
43d birthday. The group presented him with "an awfully expensive watch," he
says, and a bouquet. Then Mikhail Friedman, the president of Alpha Bank, sat
down at a baby grand piano and banged out "Happy Birthday." The other
oligarchs joined in, merrily singing away in English. The next day Kiriyenko
named Chubais his chief IMF negotiator.
The Threat to Yeltsin
Twice the talks nearly went off the rails. But in Moscow's poisonous political
atmosphere, they weren't the only issue the Kiriyenko government had to worry
about. As the IMF negotiations entered their final phase in early July, a
scheme led by Berezovsky to undermine the government exploded into the open.
Berezovsky, whose interests include a major oil company, had tangled with
Kiriyenko when he was running the Energy Ministry, and his contempt had only
increased once he became prime minister. The public got a whiff of his scheme
on July 10, when Nezevisimaya Gazeta, a Berezovsky-owned newspaper, printed an
editorial calling for the Kiriyenko team to go, in favor of a government of
"national unity." The purpose of the new government, the article said, would
be to conduct early parliamentary and presidential elections. Yeltsin would be
a member of the new government, provided he forswore a third presidential term
and agreed to serve essentially as a constitutional monarch.
Conspiracy theorists in Moscow see Berezovsky's hand in virtually everything
that happens in the upper reaches of Russia's government. In this case, they
were right. Before the newspaper editorial, Deputy Prime Minister Nemtsov,
among others, had got wind that Berezovsky was pushing his "government of
national unity" scheme on the Kremlin—and that Tatyana Dyachenko, Yeltsin's
influential daughter, was inclined to consider it seriously. Berezovsky has
long advised the Yeltsin family on its finances, and with the president's
health deteriorating, his daughter began to think the time might be right to
cut a deal: a more ceremonial role for Yeltsin in return for guarantees on the
family's physical and financial security.
Nemtsov's fear was straightforward. "[Some of] the oligarchs wanted to control
Russia," he would say later, referring specifically to Berezovsky. Alarmed—and
confident in his relationship with Yeltsin—Nemtsov confronted Dyachenko on
July 9 in the Kremlin office of Valentin Yumashev, the president's chief of
staff. "You behave like Pavlik Morozov," he said to her, referring to a famous
Soviet-era story of a teenage son who sells out his father to the secret
police. "You are ready to betray your father."
Not taking any chances, Nemtsov had also phoned Yeltsin himself on July 9 to
make sure the old man knew what was happening. "You don't have to teach the
president how to hang on to power," Yeltsin responded. "I know what to do." On
July 10, the day of the newspaper article, Yeltsin met with his "power
ministers" (Defense, Interior, the Federal Security Bureau) and declared that
"we have enough forces in order to stop any plans for taking power." The
apparent allusion to some sort of coup only exacerbated the jumpy, unsettled
atmosphere in Moscow—and did nothing to soothe financial markets desperately
hoping for an imminent IMF deal. Most people didn't have a clue what Yeltsin
was talking about. But in fact, the remark was his response to Berezovsky's
scheming against the government, and for the moment put an end to it.
The July Deal
On July 13, after six weeks of difficult negotiations, the IMF approved a
$22.6 billion package of loans to be spread over the next two years (and which
included new commitments from the World Bank and the Japanese). In return,
Russia had to deal immediately with its disastrous budgetary situation.
Greatly relieved—and believing the worst was over—the principals eventually
scattered to the places where the rich and powerful take summer holidays.
Chubais went off to cruise the Irish countryside in a rented car; central-bank
chief Dubinin headed for northern Italy; the IMF's first deputy managing
director, Stanley Fischer, headed to France and the Greek Islands. Oligarchs
took off, too: Berezovsky and Potanin to the south of France, Aven to
Their holidays would end badly. In Moscow, the Kiriyenko government's
relations with the Duma deteriorated as the IMF package's terms became clear.
The government was forced to pass some of the IMF-mandated anti-crisis program
by decree—which it has the authority to do in most instances. But the Duma
balked on a couple of key changes, including (unexpectedly) one that would
have directed Russia's regions to funnel more tax revenue to Moscow.
Kiriyenko, the self-described "economic manager," simply lacked the clout to
cut deals. And Duma members had little to fear from a chronically ill Yeltsin.
Kireyenko admits to being surprised when Duma faction leaders took him aside
and said, " 'Listen, old pal, we are not going to put our signatures on all
these measures a year away from elections.' They didn't want," he says, "to
take any risks. "
Markets in Free Fall
By the second week of August, the Russian markets were in free fall. The
intent of the IMF package, to provide stability, had failed, and failed
quickly. Exactly why will be debated for years. The IMF deal was supposed to
provide the confidence that would persuade investors to stay in the markets.
Instead, many fund managers took the brief uptick in prices that followed the
July deal as an excuse to leave the markets for good.
The plunge in the markets brought Russia's banks to death's door. Their
foreign creditors began calling in loans that had been secured by Russian
government bonds. The value of the bonds had plummeted, and the banks didn't
have the cash. Then, on Thursday, Aug. 13, came what many of the participants
regard as the death blow. Financier George Soros wrote an opinion piece in the
Financial Times saying Russia had no choice but to devalue. The IMF's Fischer,
still on holiday in Greece, read the article and reached a conclusion shared
by many investors around the world: the jig was up.
When markets are in a full-bore panic, as Russia's then were, they are a sort
of doomsday machine. Investors were making ruthlessly rational
decisions—decisions that were driving the Russian government and financial
system to total ruin. The only way to stop the machine was to switch it off.
And by midday Friday, says Chubais, that was the only option. "The situation
was very, very bad," he says. Chubais frantically drove four hours to reach
Shannon airport. There he chartered a plane and got to Moscow early Saturday
morning. Dubinin rushed back from his holiday in Northern Italy. John Odling
Smee, the Fund's point man on Russia, booked an IMF delegation into the plush
That the end was nigh was clear to everyone, save the one man who had had
virtually no role in dealing with the unfolding disaster: Boris Yeltsin
himself. On Friday, Aug. 14, on a trip to Novgorod ostensibly to display that
he was still fit to run the country, the president declared: "There will be no
devaluations of the ruble. I say it firmly and clearly. It is not just my
fantasy. Everything has been calculated." Kiriyenko, home alone in Moscow
planning an emergency meeting for that very evening in the White House,
couldn't believe what he had heard. "I was flabbergasted," he says. For good
reason: the prime minister hadn't had a single substantive discussion about
the national economy with his disengaged president since early July.
Yeltsin was right about one thing: everything had been calculated. Saturday
morning, Kiriyenko convened a meeting at the prime minister's dacha, in the
woods about 40 minutes outside Moscow. It is a large, austere two-story house
fronted by four giant white pillars—a Soviet vision of a cozy house in the
forest. Kiriyenko's subordinates ticked off the devastating numbers: on Monday
nearly all of Moscow's biggest banks would be insolvent; to support the
ruble's prevailing level of 6.2 to the dollar, the central bank estimated it
would have to spend $1 billion on Monday alone (the government's total unpaid
pensions at that point amounted to just over $4 billion). During the next
week, Dubinin said, the government could well shoot its entire wad—both hard
currency and gold reserves—propping up the ruble. On Wednesday, moreover, $5
billion worth of ruble bonds—GKOs (pronounced gekkos)—were coming due, and the
government was unable to pay.
No one disputed the facts, and the group, led by Kiriyenko, quickly moved on
to consideration of how best to shut down the doomsday machine. Devaluation
and "involuntary restructuring" of GKOs—in effect a default—as well as some
form of moratorium on the private banks' debt payments, were all discussed.
Only one significant voice was raised in opposition. In a two-page memo that
he delivered to Kiriyenko, Boris Fyodorov, an economist who was then the
government's chief tax collector, argued against the immediate GKO default,
saying that at a minimum the foreign institutional investors burned by the
decision needed to be brought into the negotiations. Gaidar and Chubais
disagreed; as unpalatable as these measures were, they argued, they needed to
be immediate and simultaneous. Later that afternoon, Kiriyenko agreed.
The IMF Objects
The meeting at the dacha broke up after four hours. Chubais, Gaidar and
Dubinin immediately went to the Metropole to brief Odling Smee. The Russians
knew that any plan would need the IMF's blessing. That day Odling Smee didn't
tip his hand. But by 6 o'clock on Sunday, all the key players in Moscow had
signed off on the proposal that would be presented to Yeltsin for approval.
Kiriyenko, Chubais and Kremlin chief of staff Yumashev then helicoptered to
the presidential residence Rus, in Tverskaya Oblast—a hunting compound beloved
by communist leaders in the old days. They outlined the plan to Yeltsin, and
offered two devaluation options. The ruble could either float freely—the
option most advisers favored—or they could try to keep the currency within a
strict "corridor," with the outer limit set at 9.5 to the dollar. Yeltsin
replied that there should be a corridor—apparently unwilling to put his name
behind an uncontrolled devaluation two days after declaring such a thing would
Then Michel Camdessus, the IMF's managing director—keeping abreast of the
talks while on holiday in France—balked. "We were absolutely sure by Sunday
evening that the IMF was going to back us," Dubinin says. But the IMF itself
was at odds over what Moscow was about to do. Specifically, Camdessus wanted
the Russians to delay the GKO restructuring and—fearing an inside deal that
would benefit the oligarchs at foreign investors' expense—he wanted
representatives of Russia's Western creditors in the discussions. On the phone
with Chubais Sunday night, Camdessus at one point threatened to expel Russia
from the IMF if the plan went forward. "It was a very tough discussion," says
one Western source with knowledge of the exchange.
Gaidar and Chubais knew well the choices they were making would have
devastating consequences—"It was a catastrophe," Gaidar says. But they
believed they had no options. The restructuring of the ruble debt would give
the government some budgetary breathing room and enable it to meet other
commitments—like the massive wage arrears to what Kiriyenko called "rank and
file" workers. And devaluation would eventually build up hard-currency
reserves as imports plunged and exporters benefited from a weaker currency.
But it was a disaster for the banks, which had become addicted to the easy
money that they had been making in the GKO market. From 1996 to 1998, when
inflation was coming down and the ruble was stable, the high interest rates
offered on GKOs were a primary source of income for the banks. "The whole
[banking] system was geared toward moneymaking [on GKOs]," Alpha bank's Aven
says. "They were a source of life."
That's why the moratorium on the banks' debts was so critical—and
controversial. Without it, Russia's largest banks were finished. But precisely
when the moratorium became part of the plan is still a mystery—which has
fueled speculation that it was an expedient to salvage the oligarchs. A senior
Ministry of Finance official told NEWSWEEK that as of 7 p.m. on Sunday—one
hour after Kiriyenko Co. had departed to see Yeltsin—the moratorium was not in
the plan. Sergei Vasiliev says there is "no doubt" that the oligarchs, who
gathered at the White House that night, pushed hard to get it in. But both
Kiriyenko and Chubais deny there was ever any controversy. The alternative,
they argue, was simple: "the total collapse" of the Russian banking system, as
Chubais puts it—something no country could accept, whatever anyone might think
of the bankers themselves.
At midnight, Kiriyenko made his announcement outside his office. "We promised
them that the program on restructuring the GKOs would be announced very
quickly," Dubinin says, "and that the devaluation would not exceed 12.5 rubles
to the dollar." Neither forecast would turn out to be accurate (the
negotiations over the terms of GKO restructuring—which the IMF insisted had to
treat foreign investors fairly—are still going on, and the ruble is now at 21
to the dollar). Chubais and Gaidar continued to haggle with the IMF. At about
4 a.m., according to Chubais, Odling Smee signed off on a written document
approving each point of the Russian program—after the Russians had agreed to
bring in two foreign investment banks to advise on the GKO restructuring.
The conventional wisdom has it that Kiriyenko and his team were fired a week
later because of the devaluation and default. But the story behind his
dismissal, NEWSWEEK has learned, is not quite so straightforward. Yeltsin's
health had deteriorated steadily throughout the summer. By mid-August, sources
say, his inner circle was getting more concerned that if the worst occurred—if
Yeltsin died—Kiriyenko would become acting president for three months, at the
end of which new elections would be held. They considered Kiriyenko too weak
and inexperienced to handle all that. The decisions of Aug. 17 added greatly
to the pressure for Kiriyenko's dismissal. But asked flatly why Kiriyenko was
dismissed, a senior Russian government official replied: "the president's
Early on Aug. 23, Kiriyenko was told to appear at Gorki 9, a presidential
residence about a half hour from the Kremlin. This was the end. He spoke for
an hour with Yeltsin, and left as the former prime minister. The next morning,
the man Kiriyenko replaced, Viktor Chernomyrdin, was back in as acting prime
minister; he was escorted into his office by none other than Boris Berezovsky.
In his final conversation with the man who had made him prime minister,
Kiriyenko told Yeltsin "that if somebody—anybody—thinks Russia's crisis ended
on Aug. 17, then that somebody is wrong." Five months later, trying—just like
his predecessor—to deal with Russia's disastrous budget, keep the oligarchs
off his back and get the IMF to help Russia yet again, Prime Minister Yevgeny
Primakov learns that every day of his life. He, too, now knows that in modern
Russia, there are no miracles.
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