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Johnson's Russia List


Febuary 24, 1999    
This Date's Issues: 3067  3068  


Johnson's Russia List
24 February 1999

[Note from David Johnson:
1. Moscow Times: Igor Semenenko, Economic Figures Show Cause for 
Cautious Hope.

2. Reuters: Max Ognev, Russian army bullying brings misery, death.
3. Rossiyskaya Gazeta: Daniil Anin,"Are the 'Children of Revolution'
Devouring Their Fathers?"

4. Anne Williamson: Re JRL #3065 (Ostap Bender, etc.)
5. Washington Post: Masha Lipman, A Russian Reformation.
6. Inter Press Service: Health-Russia: Access to Medicine Still a 

7. Moscow Times: Melissa Akin, Primakov Knows What Governors Want.
8. Baltimore Sun: Scott Shane, Federal judge grants Russian banker 
political asylum. (Alexandre Konanykhine).

9. Mark Jones: Re 3064- Hazlett/CapitalistStraw Men.]


Moscow Times
February 24, 1999 
Economic Figures Show Cause for Cautious Hope 
By Igor Semenenko
Staff Writer

Russia's most recent economic performance figures, with output for January
down 7.2 percent month on month, make for grim reading at first glance, but a
closer look reveals cause for cautious optimism. 

On top of an estimated 4.6 percent contraction in gross domestic product last
year, the nation's industrial output was down 4.9 percent last month compared
to January 1998 and 7.2 percent on a month-on-month basis, according to data
released this week by the State Statistics Committee. 

While precise fourth quarter 1998 figures for GDP are not yet available, the
Economics Ministry has estimated that Russia's GDP for the last three months
of 1998 was 9 percent down on the same period last year, and that the Russian
economy will contract 8 percent in the first quarter of this year. 

However, Moscow-based economists were far from disheartened by the latest

"Contraction of GDP in January is partly seasonal and given that, January
figures are not as bad as they might seem at first glance," said Roland Nash,
chief economist with MFK Renaissance. 

With a disastrous 1998 behind it, forecasters are revising their predictions
for 1999 in Russia's favor, with most seeing a slight contraction of 2.5
percent. That's no picnic, but its better than the 5 percent to 10 percent
contraction many had been touting as a best case scenario for Russia this

"Last year, most analysts predicted that in 1999, [Russia's] economy would
decline 7 percent, while pessimistic scenarios showed a slump of 10 to 12
percent," said Denis Rodionov, economist with Brunswick Warburg. 

In that context, economists were upbeat in welcoming the relatively low 4.9
percent decline in industrial output as a good sign. When this year's figures
for July through September are set against the disastrous lows posted for that
period in 1998, Russia could even end up with a zero growth figure for 1999. 

"The economy is in fact picking up," says Yevsei Gurovich, deputy head of the
Economic Experts Group, a semi-autonomous research center with close ties to
the Finance Ministry. "It slumped 10 percent in July to September and was
growing at a monthly 3 percent decline in October to December. In January it
picked up 1.5 percent if seasonal factors are excluded." 

Brunswick Warburg estimates a decline of zero to 3 percent for the year,
provided prevailing trends continue. 

Meanwhile, other data also provided some evidence that the economy is starting
to shrug off some of the after effects of the crisis. 

"By December account balances for corporate entities were growing at a greater
rate than producer prices, which means that demand for money in the real
sector has started to increase," Gurovich said. 

The figures, which showed that real cash balances - adjusted for inflation -
had grown, signal a recovery in demand from the productive side of the

However, the consumer side of the demand equation is still slack. Official
unemployment surged to 12.4 percent of the work force in January, with 9
million people registered as looking for work, up 5 percent on a monthly
basis. The real figure for unemployment is almost certainly significantly

With all those people out of jobs, it is no surprise that retail sales slumped
18.8 percent and light industry took a dive of 26.1 percent as consumers
tightened the belts. 

And despite hailing the better than expected macroeconomic fundamentals, many
economists had their doubts about Russia's long-term fate. 

"The gover nment is carrying out a policy that can be called economic crisis
management," said Nash at MFK Renaissance. "But so far there are no signs of
coherent economic policy." 

"The money supply has started growing again and we will see mounting pressure
on the ruble," he added. 


Russian army bullying brings misery, death
By Max Ognev

MOSCOW, Feb 24 (Reuters) - Konstantin Lavrov's parents, like all Russians with
conscripted children, expected their only son to return home after two years'
military service. 

But after just two months, in a time of peace, they received a coffin with his

Lavrov was 18 and had been serving at the Timashevka-8 base in the southern
Russian region of Krasnodar. The official letter accompanying his body said he
had ``committed suicide by hanging and this action was a consequence of his

Lavrov's father Valery did not believe the letter and opened the coffin. 

``We saw a bloody injury on his head, smashed knee bones and large black
bruises covering his body. He was murdered or forced to kill himself,'' he
said in an interview. ``It was so obvious.'' 

The anguish of Lavrov's parents is deeply personal yet their plight is far
from rare in Russia, where an economic crisis, military reforms and post-
Soviet social problems have made conscription even harder than under

``Russian military service these days is extremely hazardous,'' said one
Western defence specialist. 

Lavrov's case is one of 2,656 such deaths registered by the Russian human
rights organisation Mothers' Rights in 1998. 

The deputy head of the main military prosecutor's office, Colonel Sergei
Ushakov, said the figure was closer to 2,000 and that 25 percent of these were

Parents remain highly sceptical. 

Days after Lavrov's funeral in February last year, three letters he had
written earlier arrived. They were late because he sent them not by military
post but with people he trusted. 

``Dear mother, I send this letter with a nice guy who brings us water,'' he
wrote. ``You can't imagine what's going on here. Officers beat up soldiers.
One guy recently hanged himself in the neighbouring unit because he could not
endure the bullying.'' 

``Almost everybody smokes hashish and they force others to smoke it,'' he
continued. ``One guy asked me to break his leg to get him out of here.
Another one swallowed cotton with iodine to create an ulcer.'' 


Another letter sent with an unknown woman said: ``It (the unit) is a mass of
drug addicts and criminals. I came and they beat me up straight away. They
broke my nose and then kept choking me.'' 

``I am going mad or I'm about to kill myself. Help me to get out of here.
Don't write to the local officers. If they find out I told you they will kill

``Mother, please try to help me. I cannot take any more.'' 

The local military prosecutor's office found no reason to investigate because
there was no evidence of a crime, the prosecutor, Colonel Alexei Stozharov,
wrote to Lavrov's parents. 

They were paid no compensation because, officially, their son had committed

Misha Dubravkin, who was 18 and from Belgorod, started serving with the
Railway Troops in Russia's second city St Petersburg. He also wound up dead. 

He was beaten up and then raped by other conscripts. One of Dubravkin's
friends, Sergei Pukhtin, said he saw him being forced to write a final letter.

Then, Pukhtin said, his friend was strangled and his corpse hung from a bunk
to look like suicide. The investigation has been closed and Pukhtin was never
asked to give evidence. 

Service in the armed forces has never been particularly prestigious in Russia
although some considered it an easy way of earning Communist Party membership
during Soviet times. That, in turn, brought privileges and helped career

Now as then, every single Russian man over 18 has to ``fulfil his sacred
duty.'' But the worse economic problems have got, the more dangerous the army
has become for conscripts and the fewer the young men who answer the draft. 

Officers, many of whom earn 900 roubles (about $40) a month, struggle to
control barracks where soldiers are often left unattended for nights on end.
Alcohol and drugs are commonplace. 

``Even though Russia is not at war, our estimates show about 3,000 young
Russians die in the armed forces every year,'' said Valeriya Pantiyukhina,
spokeswoman for Mothers' Rights. 

She said less than 10 percent die from disease or in accidents and that things
were getting worse, not better. 

``It is difficult even to begin to imagine what is going on there and how the
military heads are indifferent,'' she said. 


One lawyer offered two reasons for this. Firstly, they do not want to
``disgrace the honour of the uniform.'' Secondly, to avoid paying
compensation, said Dariya Bundina. 

An official at the main prosecutor's office said officers did their best to
cope. Full-time military personnel face their own problems as the armed forces
are being reformed, restructured and cut under severe budget constraints. 

According to the law, if death is proved to be violent, the unit has to pay 25
minimum monthly wages of 200 roubles each, or some $220. But parents find it
difficult to get even that. 

In 1998, only one court case was won and parents received their money from the
unit, Bundina said. 

Even elite units are not immune. Sergei, 19, serves in the Kremlin Guard,
which protects President Boris Yeltsin's official residence and keeps vigil at
the nearby Tomb of the Unknown Soldier. 

``There is serious bullying,'' he said. 

Elsewhere, dozens of soldiers run away to escape attack. 

``About 10 fugitives are registered by us every day, running because they are
beaten or bullied in other ways,'' said Maria Fedunova, who works at the
Moscow office of the Soldiers' Mothers Committee, the only lobby group for
soldiers' rights. 

Many parents try to buy their sons out through bribery. 

Fedunova said she had received a letter from her son in which he wrote that he
was beaten up every day. 

``I feel guilty,'' she said. ``One person I know told me he paid $1,000 to
free his son from conscription. But I did not have such money. Now I
understand I should have sold all I had.'' 

``What is going on in the army reflects the processes in society in general,''
said Vladimir Marevich, a Moscow University sociologist. ``The Soviet army was
based on strong Communist ideology and people used to know what was right and

``Now Communist ideology has gone but the modern state's leaders have not
proposed anything new.'' 

The official in the prosecutor's office put it another way. 

``The number of street kids and young people with parents who drink or with no
parents at all is growing,'' he said. ``Society doesn't care about them. That
is why criminality among young people is going up. 

``The army is forced to accept ill or weak guys who used to be considered
unacceptable before,'' he said. ``This creates the main basis for violations.
This will go on in the army as long as there is a lack of order in society as
a whole.'' 


Yeltsin's 'Divorce' With Democrats Eyed 

Rossiyskaya Gazeta
18 February 1999
[translation for personal use only]
Commentary by Daniil Anin: "Are the 'Children of Revolution' Devouring
Their Fathers?" -- 

It has come to pass. In its recommendations for the ruling elite the 
Council for Foreign and Defense Policy (there is such a public
organization), which 
comprises mainly dismissed presidential advisors, has called for the
organization of the 
dismissal of the head of state through "soft impeachment." 
In the eighth year of reforms Sergey Karaganov and Sergey Shakhray, who
for along time were 
Kremlin insiders and denizens of Staraya Square, have come to the
conclusion that the father 
of the Russian reforms should leave in peace both the country and reforms
that he started, and 
pave the way for a public consensus by this simple method. 
Karaganov and Kokoshin are not the first to have attacked the president.
Over six months ago the 
recently dismissed Boris Nemtsov was also skeptical about "Boris I" (this
is what the former 
deputy prime minister called the president during the period when he was in
favor with the 
Kremlin) viewing the head of state as the worst of all Russian evils. A
little later Gaydar, 
too, definitively "radicalized" his attitude toward Yeltsin, not to mention
the so-called 
first-wave democrats seriously voicing their intention to fight for seats
in the Russian 
parliament from abroad. 
What has happened? Why are people who once received power from the hands
of Boris Yeltsin and 
made use of it now swearing and cursing their former idol and benefactor
for all their worth? 
Gleb Pavlovskiy, an expert in the domestic political beau monde and Russian
theory," predicted embitterment of the elite's attitude toward its own
patriarch -- Boris 
Yeltsin -- back in June 1998. Even then the Moscow political elite was
discussing in the utmost 
earnest options for the "soft removal" of the president, if not from power
then from actual 
affairs, through changes in the Constitution (although the Communists are
certainly the 
front-runners in this issue, Russia's liberals have their own ideas in this
regard). The 
conclusion suggests itself: Starting last summer Boris Yeltsin began
getting in the radical 
reformers' way, because in their opinion his mistakes in ruling the country
were causing 
serious damage to both the liberal-market idea itself and its exponents on
the territory of 
the Russian Federation. It goes without saying that in the liberal
democratic camp nobody has 
been perplexed by the issue of collective responsibility for what happened,
because their 
only hope for political survival lies in shifting all the sins on to the
popularly elected 
Grigoriy Yavlinskiy has explained this contradiction as follows.
Yeltsin, he says, as a 
representative of the Soviet nomenklatura class, hired the generation of
Gaydars and 
Nemtsovs to carry out reforms in the country, just as the owners of large
companies hire highly 
qualified managers, which democrats themselves did not understand, taking a
"marriage of 
convenience" for a "marriage of love." Currently, in the opinion of the
Yabloko faction 
leader, who also played the role that he describes in 1990-1991, we are
observing a stormy 
reaction of the deserted bride. However, this evidently is not the point. 
The current supporters of the liberal idea in Russia, originating from
the interregional 
parliamentary group of the USSR Supreme Soviet that once comprised both
dissident Sakharov 
and party nomenklatura member Yeltsin, did not like and trust Boris
Nikolayevich back in the 
years of perestroyka. Paraphrasing the poet, however, "because there are
few really wild 
people, there are no leaders," and he turned out to lead the forces
destroying the Soviet 
system as the only one whom the people could trust and accept. You must
agree that in 1991 not a 
single democrat would have been able to become Russian president as Boris
Yeltsin did. 
The plan was simple, as one of the first "gray cardinals of the
democratic Kremlin," 
Gennadiy Burbulis, confessed later: to seize power with the help of Yeltsin
who, having 
neither his own action plan nor tools to carry it out (people), would have
to accept all this 
from the hands of democrats. Initially it was actually so. The democrats
managed not only to 
form the most reformist government in the world under the command of Yegor
Gaydar but also 
separated Yeltsin from those who connected him with his former native class
of nomenklatura. 
Democrat Sergey Filatov quite quickly replaced party functionary from
Sverdlovsk Yuriy 
Petrov as chief of Presidential Staff, and Security Council First Secretary
Yuriy Skokov 
fell in the battle with the democratic majority as well. The democrats who
made use of Yeltsin 
did not take into account just one thing. Boris Nikolayevich is not one of
those people or 
politicians who are easily manageable. Having given the democrats enough
time to implement 
their plans, he was able to appropriately assess the results of their work
and kicked out the 
least proficient of them. At that time the dismissals of Gaydar and Boris
Fedorov (who twice 
came to power) as well as Burbulis were accompanied by hysterical shouts
about a communist 
comeback and a universal threat to democracy. 
It is totally possible that those who have been shouting understand that
Yeltsin has been 
and remains the only guarantor of democracy in Russia since 1991, but
logic nudged them toward such a reaction to what was going on. Moreover,
one must give the 
president his due. The democrats were often given a chance to show
themselves and do something 
good for the country just on their honor. 
The formation of Primakov's government officially registered the
"divorce" between the 
actual guarantor of democracy in Russia and the bearers of the liberal
democratic ideology. 
This not only untied the hands of the president, who received far broader
scope to reach an 
agreement with the opposition, but also excused the liberal radicals from
any commitments 
that were anyway not over-strict. Having understood that their usual way to
return to the 
Olympus through high offices in the executive had been closed to them,
right-wing liberals 
switched to different, purely electoral tactics, trying to become yet
another opposition. 
However, this was the wrong way. In Russia there are already a left-wing
opposition (the 
Communists and the Agrarians) and a "central" opposition (the deprived of
power Russia Is Our 
Home and Luzhkov's Fatherland). Yet the worst thing is that the place of
opposition" that seemed vacant to the liberal radicals has turned out to be
occupied as well. 
For four consecutive years Yabloko has been firmly sitting there, and
excited Yavlinskiy is 
sitting there like a hen in a nest. The result of this insight is panic,
which has engulfed the 
democrats and is forcing them into eccentric actions and behavior, as well
as feverish 
attempts to obtain at least something in places where everything has
already been shared out. 
It is hard to pull over from the highway of progress and admit that all
the best things are 
already behind you. However, the difference between a real politician and a
politicker is 
that the former can withdraw elegantly at the required moment at the demand
of the public. 


Date: Tue, 23 Feb 1999 
From: "Anne Williamson" <> )
Subject: JRL #3065, Items #1, #7 & #11

A few comments on JRL’s engrossing last issue:

Regarding Adam Tanner’s recent piece on Ostap Bender and Yeltsin’s economic
reforms, I must say I’m surprised it took so long for this rather
predictable news item/comparison to appear. I mean Mr. Tanner no slight as
I myself had entertained the thought of titling my book “The Twelfth Chair”,
thinking it quite perfect once. For a Russian audience it fits, but I soon
discarded it having decided it was too obscure for the English language
market. Later, I understood any play on Ilf’s & Petrov’s classic,
much-loved satire would be grossly misleading.

Ostap Bender was a charmer, and the one constant result of his cunning was
a universal moral/life lesson for both himself and his victims. And never
does the rogue’s tale fail to amuse, marked as it is with wry humor and
improbable, convoluted adventures. Yeltsin’s era of reform never produced
such a man. (The most revealing information in Tanner's article is that
Boris Fyodorov supported the utterly insupportable comparison!) Yeltsin’s
reformers are devoid of charm or cunning, and instead are heavy-handed,
obvious manipulators whose opportunism was as brazen as it was craven.
Worse, they are thoughtless, greedy incompetents. Ostap Bender is a
supremely competent character given to chance mishaps from which he wriggles
determinedly and imaginatively free while leaving readers giggling behind
his every inventive step.

Oddly, the only one I ever encountered who came even close to Ostap Bender
is Boris Jordan of Rennaissance Capital. This spirited, brash fellow’s
charm, however, evolves from what is most American about him ­ a rock solid
belief in progress that is the equal of the nimble-footed 19th century
boosters we so often meet in American literature. Boris Jordan is many
things, of course, some good, some not so good; but one thing he is
definitely not is a vile schemer. More’s the pity so many from his Moscow
milieu were.

Yulia Latynina’s Moscow Times report [“Mind the Flies in Your Soup, Mr.
Primakov”] is a real treasure for her insight that “’State regulation’ and
‘corruption’ are two sides of the same coin”. Her words are a nice rebuke
as well to all those Western finance writers and neo-Keynesians currently
moaning and wailing about “unrestricted capital flows”, which is just a
cheap, collective effort to keep the milling crowd’s eye on the wrong ball.
I do know that when I am able to encounter such good thinking as Ms.
Latynina’s in the Russian press, things are looking up for Moscow.
(Regarding the author’s dismay over Primakov’s allowing state cash to flow
to certain figures in his administration, it might be good for all to keep
in mind that Primakov must wrestle cash flows from the thieves ­ re: John
Helmer’s “Thieves of the State” - allowing some to his supporters while he
attempts to get control of the state and the country once again. It isn’t
pretty, but the test will come later once he’s succeeded if he’s allowed to;
Primakov has been presented with a seemingly hopeless conundrum and for the
most part, Russia's formidable Prime Minister is rising to the occasion.)


Washington Post
February 23, 1999
[for personal use only]
A Russian Reformation
By Masha Lipman
Masha Lipman is deputy editor of Itogi magazine. 

MOSCOW—Back in 1986, my friends and I were sitting around a kitchen table
talking about why we did not believe in Mikhail Gorbachev's perestroika. We
had lived through too many propaganda campaigns to think this latest coinage
was anything but empty rhetoric. Okay, one of us said, what would it take for
us to believe perestroika was real?

Our wildest dreams back then stretched to a release of political prisoners, a
Soviet pullout from Afghanistan and an end to Communist Party nomenklatura
privileges. None of these seemed even remotely possible. But that very same
year, academician Andrei Sakharov came back from his exile in Gorky, and
thereafter other political prisoners were released one by one. Soviet troops
were out of Afghanistan by early 1989. It took until 1991 for the Communist
big shots to lose their high status. 

Now Communists dominate the Duma, and a former head of the Soviet planning
agency is the number two man in the cabinet. Just recently the Duma voted to
return the statue of Felix Dzerzhinsky, mastermind of the Red Terror, to the
square in front of the KGB. Could there be a more symbolic sign of a
retroversion of history? Is the old system back? Or, as a friend called to ask
me as soon as the Dzerzhinsky vote was announced, "Are we emigrating yet?" 

Amid today's doom and gloom, it is useful to look again at those touchstones
that more than a decade ago persuaded us that the absolutely impossible was
happening -- that the oppressive police state, the inhuman Communist system
built to last forever, was crumbling before our eyes. The signs are not all

Political prisoners? Inconceivable in today's Russia. When we see neo-fascists
holding meetings and selling newspapers just like any other political
activists, some of us aren't so sure that's an entirely good thing. But when
three dissidents were convicted in China late last year, it sounded almost
medieval to us in Russia. Their crime was to try to form an alternative party;
in our parliamentary elections this year, several dozen parties are expected
to compete. Liberal reformers may have largely lost their influence and
popularity in Russia, but they have free access to the political scene.

No less diverse than that scene is our press, varying from liberal to
Communist to fascist, with all the major newspapers being still on the
democratic side. Mockery of the government, once confined to the kitchen
tables of trusted friends, abounds in the papers and on television. And for
those who think politics is too boring or too dirty, or both, there is
uncensored choice of books and movies and modern art of the wildest variety. A
Communist leader of yesteryear would have dropped dead of anger at such brazen
lack of restraint. 

Afghanistan? Forget about it. Russia's undernourished, poorly armed and poorly
trained army disgraced itself even inside Russia, with its defeat in Chechnya.
Military expansion is out of the question. 

As for privileges for the elite, it's true that the old Communist nomenklatura
has every reason to be jealous of today's Russian bureaucrats. But at least
one thing is different: The Communist bosses enjoyed their privileges while
depriving us of the opportunity. They could travel abroad, but we were locked
up at home. They could read books that were off-limits to us. Today's bosses
may grab what does not belong to them, but they could not care less what we
read or listen to, or write or talk about, or whether we travel abroad, if our
skills can earn us the money to do so. 

Those of us who remember Soviet constraint and oppression can still marvel at
the freedoms we enjoy today. Even if none of the contenders for president in
the post-Yeltsin era seems very attractive, we still appreciate the
opportunity to make a choice -- the notion that we will elect our own
president and witness the first-ever democratic transfer of supreme power in
Russia's history. As long as the government does not interfere with what is
written or said, there is hope that Russia will not lose all it has gained
over the years of liberal reform. 

Unquestionably, our freedoms are fragile. A serious threat could come from the
next government; none of the main presidential candidates comes across as an
ardent advocate of liberal values. A real setback is as hard to imagine now as
real liberalization was in 1986. But once again we are monitoring our freedoms
as a touchstone. My hope is that our kitchen table will not be the only venue
of the discussion. For now, despite the Duma vote, Dzerzhinsky remains in the
park of abandoned monuments where he was dumped following his 1991 dethroning.


Health-Russia: Access to Medicine Still a Problem
Inter Press Service

MOSCOW, (Feb. 22) IPS - The good news is that pharmaceutical drugs are
becoming more readily available in Russia as the worst effects of last
year's financial crisis begin to recede. 

The bad news is that few people have the money to buy them. 

The larger pharmacies in Moscow can now supply most drugs, including
foreign brands, at a reasonable price, but for working people whose pay
arrives only sporadically, and for pensioners minding their rubles,
traditional remedies are still preferred. 

Elena Mikhailova, who lives in a crowded community flat in a Moscow suburb,
has a selection of different teas she can brew for colds, coughs, aches and
pains. Her neighbor, Olga, grows aloe vera plants on the window sill. The
liquid extracted from the succulent leaves can be used to make soothing
drinks or as a liniment for cuts and bruises. 

Russian medical supplies faced problems even before last August's cash
crunch. Parliamentary deputy Nikolai Gerasimenko, the head of the Duma's
Health and Pharmacological Committee, labeled the situation "disastrous." 

The crisis abruptly reduced the list of imported medicines to a third and
doubled prices. It revealed the extent of Russia's dependence on imported
medicines, with foreign-made preparations accounting for 60 percent of the
stocks on pharmacy shelves. 

Local pharmaceutical companies remain concerned that, although the peak of
the economic and financial crisis seems to be over, difficulties in
distribution continue. 

The problem is not the overall supply of pharmaceuticals, but the fact that
suppliers face problems in receiving payments for deliveries because of the
failure of the banking system and overall lack of funds. 

When the crisis first erupted, ruble instability led suppliers to insist on
up-front payment from local dealers, preferably in cash. However, most
local pharmacies could not comply and many Western companies suspended
distribution of their products. 

This in turn caused the price for imported drugs to increase three to five
times and the range of available drugs to be reduced from 3,500 to 1,000

Local manufacturers also raised prices to the point where some of their
products were no longer competitive and, because most Russian-made drugs
depend on imported ingredients, the collapse of the banking system meant
companies were unable to pay for vital raw materials. 

As a result, supply problems are expected to continue for some time. 

When it formed part of the Soviet Union, Russia never fully developed its
pharmaceutical industry, although there were a number of large concerns
making basic medicines and drug components for export to the rest of the
Soviet bloc. 

The collapse of communism in the late 1980s and fragmentation of the Soviet
Union in 1991 cut off Russia's drug manufacturers from their customers and
deprived the health services of their main drug suppliers. 

Since then, most of Russia's pharmaceutical industry has been privatized.
Between 1992 and 1994, responsibility for the weak and inexperienced
privatized companies passed from one government ministry to another and
they were unable to compete with foreign manufacturers. 

Six years ago, some 70 percent of drugs were produced locally and one-third
imported. Today, imports have swollen to two-thirds of the total market
with East European companies accounting for about one-third. 

Before last year's crisis, Russian companies, led by a core of 50 strong
domestic manufacturers, began to fight back. They managed to increase sales
and profits by 20 percent and 46 percent, respectively, by the end of 1996
and boosted output by another 15 percent in 1997, outperforming most other
Russian industries. 

Although a range of pharmaceuticals is now available, on average only just
over half the population's requirements are being met - - far less in many
outlying regions.

This is not just due to low incomes. A report by the Russian investment
bank Alfa Capital shows that in 1996, per capita pharmaceutical consumption
was only one-third that of Germany and a fifth that of the United States. 

The government is now trying to reassert control over the pharmaceutical
industry, firstly by controlling prices. A decree signed late last year
limiting the profit margins of distributors goes into effect in May and
limits mark-ups on pharmaceutical products to 25 percent in Moscow. 

Health Ministry official Ramil Khabriyev explained that manufacturers will
have to register the price on the medicine and every Russian region will
establish the maximum mark-up on it. The prices will be made public and
will change in line with inflation. 

This may ease the situation for people like Elena and Olga, but for the
moment they are reserving judgement. "The old remedies are the best," said
Olga. "Especially when they are free and always at hand." 


Moscow Times
February 24, 1999 
Primakov Knows What Governors Want 
By Melissa Akin
Staff Writer

Prime Minister Yevgeny Primakov told regional leaders over the weekend that
the connection between them and the Kremlin should be "like a solid line, not
a dotted line." 

Just show most of them where to sign. 

Primakov's plan - amendments to the Constitution ending direct election of
regional governors in favor of a system by which presidential appointees to
governorships would be confirmed by regional parliaments - looks like a blow
to the independence of the oft-rebellious clan of regional chieftains. 

But the system could turn out to be their salvation. As their doubts about
their chances for re-election grow deeper, the proposal is likely to garner
the governors' tacit but enthusiastic support, analysts said Tuesday. 

"The elite - federal, regional and local - is close to closing a deal at the
expense of the electorate to abandon direct elections at all levels," said
Nikolai Petrov, an expert on regional politics at the Carnegie Moscow Center. 

The head of the Russia's Regions faction in the lower house of parliament,
Oleg Morozov, was the first to sign up, backing the idea at a hastily called
press conference at the State Duma on Monday evening. 

In a surprising statement of support for an amendment that would subject the
governors to Moscow's political caprices, Morozov said, "If some elected
official, such as a governor, violates the Constitution, this mechanism for
federal interference should be turned on." 

"Otherwise the federal center wouldn't have the possibility of effectively
influencing the regional leaders, as now frequently occurs," he added, Itar-
Tass reported. 

In return for placing themselves at the mercy of the Kremlin, they are likely
to get increased control over appointments in their regions, which are already
known popularly as "fiefdoms" for the way they are run. 

Under the system Primakov is proposing to "re-establish a rigid vertical power
structure" - which would require constitutional amendments the prime minister
said will not be passed this year - the governors would be virtually appointed
by the president. But in turn, the governors would appoint the mayors, using
the same system on a regional scale. 

"The biggest headache for regional leaders right now is their subordinates,"
Petrov said. 

But the analysts say the headache that is threatening their grip on power is
the economy. 

With living standards sinking in their regions, they are looking for a
guarantee that they won't be swept out of office on protest votes. And with
potential campaign funds drying up in conditions of national economic crisis,
they want to find a way out of a campaign altogether. 

The deal Primakov is offering would require their obedience, but in return
would increase their chances of staying in power. 

By supporting the proposal, the governors would be casting their lot with
Primakov, a likely presidential candidate who is currently running second only
to Communist leader Gennady Zyuganov in opinion polls. The governors - who
still hold some electoral clout in the regions - also would be securing
protection against presidential candidates they consider dangerous by helping
put Primakov in the Kremlin. 

Zyuganov and another top contender for the Kremlin in 2000, Moscow Mayor Yury
Luzhkov, would pose a threat to the governors' authority, said Sergei Markov
of the Institute of Political Studies. He said they fear being "slaves" to
Luzhkov, who keeps a tight grip on his Moscow subordinates, and they fear
losing power to Soviet-style ***"obkoms,"*** or regional party committees,
under Zyuganov. 

Luzhkov didn't comment publicly on Primakov's proposal, made Sunday during a
trip to St. Petersburg. On one hand, if he were to become president, such an
amendment would allow him to clean house in the regions and install his own
people. But as mayor of Moscow, a federal subject, the amendment would make
him a hostage to the Kremlin, whose policy he has come to vociferously oppose.

Primakov hasn't spelled out what this would mean for Moscow, but it could put
an end to mayoral elections in the capital. Moscow, like St. Petersburg, is
technically a region of its own. 

As political forces line up for December Duma elections, many of the governors
are throwing their weight behind potential presidential candidates. 

The governors involved in this round of horse-trading are not the most
powerful of the regional rulers, but have plenty to lose in election battles
and are seeking refuge in early alliances. 

Some of the more powerful governors, such as Aman Tuleyev of the Kemerovo
region, have longstanding political alliances with the National-Patriotic
Union, a coalition led by Zyuganov. And the most visible of the governors,
Alexander Lebed in Krasnoyarsk, is a probable presidential candidate in his
own right. 

Luzhkov has his own small circle of support among governors, a few of whom
showed up at the founding conference of his Otechestvo movement. 

He has already signaled that he will oppose a new electoral bloc of 30
governors called Voice of Russia, founded by increasingly authoritative Samara
Governor Konstantin Titov. Voice of Russia has been tagged as a stalking horse
for Primakov should he run in 2000. 

Primakov, who with Yeltsin often incapacitated by illness is the de facto head
of state, appears to be engineering a foundation for a presidential campaign. 

His ruminations on a "rigid vertical power structure" were viewed as a first
step to consolidating power in his hands as president. 


Baltimore Sun
February 23, 1999
[for personal use only]
Federal judge grants Russian banker political asylum
Court rules man targeted for exposing corruption 
By Scott Shane 
Sun Staff

In a ruling that spotlights the corruption of the Russian legal system, a
U.S. immigration judge has granted political asylum to a Russian banker
accused by Moscow prosecutors of stealing millions from a bank he helped

Judge John M. Bryant wrote in his decision that he was convinced by
testimony from several experts -- including a former KGB agent and a former
Soviet Communist Party official working for the CIA -- that banker
Alexandre P. Konanykhine was targeted for prosecution for political reasons.

"Emotionally, we are very happy," said Konanykhine, 32, referring to
himself and his wife, Elena Gratcheva, who also was granted asylum.

"It shows a shift of opinion in this country from seeing Russia as a
newborn democracy to a more sober view."

Cora Tekach, a lawyer for Konanykhine, said that while Russian Jews fleeing
anti-semitism have been granted asylum since the collapse of the Soviet
Union in 1991, Konanykhine apparently is the first Russian to be granted
refuge from political persecution by the post-Communist government of Russia.

"He's probably the first Russian to get asylum from persecution based on
his capitalist and democratic views," Tekach said.

Konanykhine started a Moscow construction company in the late 1980s as
Soviet leader Mikhail S. Gorbachev eased controls on private business.

In the economic free-for-all as Soviet economic institutions crumbled, he
built a business empire that included a commodities exchange, a real estate
firm, a security agency and other companies.

In 1991, he opened the Russian Exchange Bank, which became one of the first
to receive a currency-trading license from the government of Boris N.
Yeltsin, whose rise to power Konanykhine had helped finance.

At 25, Konanykhine became a multimillionaire, living in a heavily guarded
mansion and being chauffeured in a limousine from Gorbachev's former fleet.

But in late 1992, by Konanykhine's account, former KGB agents he had hired
as managers muscled his businesses away from him.

He says he was kidnapped in Budapest, Hungary, in late 1992 but managed to
escape with his wife and fly to the United States.

Konanykhine immediately began writing to Russian officials, from Yeltsin
down, demanding an investigation.

He got one -- but Russian prosecutors targeted him, accusing him of
stealing $8 million from his bank.

He fought back, exposing what he called the Russian "Mafiocracy" in letters
and on a Web site.

In 1996, in cooperation with Russian prosecutors, U.S. immigration agents
arrested Konanykhine at his Watergate apartment in Washington.

The same year, Bryant ruled against Konanykhine, denying him asylum.

But his luck turned when a federal judge, acting on evidence of misconduct
by Immigration and Naturalization Service attorneys, ordered him freed
after 13 months in a Virginia jail.

An internal Justice Department probe of the INS lawyers' conduct is

Because of the misconduct allegations, the INS agreed to return the case to

For a week in December, Bryant heard from experts on Russian politics,
crime and justice, including the former Soviet officials and a former top
FBI expert on Russian organized crime.

The new testimony persuaded Bryant to reverse his earlier ruling.

He wrote in a 25-page opinion filed Friday that Russian prosecutors
"engineered the case against" Konanykhine "in order to punish him for
exposing corruption amongst Russian government and business officials."

Russ Bergeron, a spokesman for the INS, declined to comment on the ruling
except to say that INS lawyers are reviewing the decision and deciding
whether to file an appeal.


Date: Mon, 22 Feb 1999
From: Mark Jones <>
Subject: Re: 3064- Hazlett/CapitalistStraw Men

I'm getting allergic to the products of outfits which have 'intellectual' and
'reason' in their title. Take Thomas W. Hazlett, Contributing Editor to 
www.reasonmag, resident scholar at the American Enterprise Institute etc. 
Hazlett thinks (JRL 3064) we should not have:

> ignored the successes of places such as
> Estonia and the Czech Republic, where rapid and sweeping privatization
> programs--along with relatively secure property rights --created momentum
> for the legal, political, and cultural changes necessary to make the
> transition from a command economy to a market-based one.
Oh, right, the Czechs have never had it so good. According to the OECD however
Czech GDP fell by half a billion dollars between 1990-1998. It's still better 
than the E European average (the incidence of poverty in Eastern Europe - as 
defined by a daily income of $4 or less, measured in 1990 PPP$ - increased
sevenfold between 1988 and 1994, from 14 million persons to more than 119
million persons (UNDP figures).). But probably they've done better than
Hungary (25% fall in industrial production since 1989) Estonia (4.5% average
annual DECREASE in GNP, 1983-93) or Poland (European 'tiger' economy Poland
achieved a staggering 0.1% increase in PPP GDP, 1983-93, all World Bank
figures), or have they? Correct me if I'm wrong, but even the Czechs, who 
ought to have benefited from being a small, subsidizable satellite of German 
capitalism, have not done so. Instead they've got the following problems 
among others:

A cumulative external trade deficit 1990-97 of $9bn; increases in rents and
the price of electricity, gas and heating, announced on July 1st 1998, which
put two-thirds of the Czech population (2m households)on the
poverty line. Unemployment has now climbed from zero to 7% (350,000), and
is set
to worsen further. Interest rates forced through by the Czech Republic's IMF
'managers' may cause indebtdeness and/or failure of 40-60% of
Czech enterprises this year. Median wages and pensions are lower than in
1990 -
when economic transformation started - and the average tax burden is higher.
Average wage is $300 a month, but 62% of workers get wages lower than the
and only 5% get wages higher than $600 per month. As in Russia, privatisation
scams fostered by the West created a new category of super-rich. Meanwhile the
Czech republic remains the most polluted in central Europe. The IMF/Government
has cancelled subsidies for household heating, electricity and gas. Decreases
in wages and structural adjustment programmes mean that tens of thousands of 
public sector workers stand to lose their jobs; hospitals, schools and
are being closed down; unemployment is mushrooming. A recent poll showed a 
majority agreed with the proposition that 'things were better under
As for voucher privatisation, as World Bank chariman Joe Stiglitz put it, ' 
there are strong incentives not only for private rent seeking on the part of 
management, but for taking actions which increase the scope for such rent 
seeking. In the Czech Republic, the bold experiment with voucher
seems to have foundered
on precisely these issues.' Meaning in English, the greedy sods were told
it was OK to rip off the state and use pivatisation as a screen, so that's
what they did, leaving WB and IMF types to sob crocodile tears but not to
actually do anything to stop the rot until their own fingers got burnt, as 
eg Soros''s did in the August 1998 GKO melt down. And the Czechs were just
as unholy as the Russians, as even Stiglitz acknowledges.

If anyone believes the hype that joining Nato and the EU is gonna change
they might care to see how well the ex-GDR has fared, but in any case it's
clear that no corners are going to be turned. The Czech republic's annual
trade deficits will condition all its future options. The integration of
the 'Near
European East' - that is to say, the Czech Republic, Poland, Slovakia,
Hungary and
Slovenia, will be a painful process. For a long time to come, the balance
of trade and the balance on current account will be negative, a powerful force
in the motivation of economic and political nationalism against the West. The 
USSR fell because it ran out of oil. Believe it or not, the same fundamental
equations still
apply to Central European states. The 'extractive economy' is a term used to
describe a situation, when exorbitant energy consumption is used to produce a
shrinking or stagnating, or at least not very rapidly growing amount of
Czecho, Hungary, Poland and even the ex-GDR play precisely such an 'extractive
role' in the emerging cycle of the world economy. East Europe, unable to
reap the
benefits of technical progress and being forced to export what there is, is
back to the old patterns of the extractive economy. No major advances in the
energy/income balance are in sight. We witness a heavy or even increased
of the export sector on the extractive branches of the economy, and the
to change the price mechanism, partially because losses in the terms of
trade and
the 'scissors' of lagging (legal) exports and rising imports dictate that the
urban and rural poor cannot pay higher energy bills. The disequilibria
here are mind-boggling. In 1961 it took the US economy 180kg of
to produce $100 of GNP. By 1991 the energy requirement for $100 GNP had
to only 36kg oil-equivalent. In Japan the figues are 145 kg (1961) and 13
kg (1991). In the core EU the energy-input per $100/GNP fell from 165 to 19
in the same
period. But in 1991 Poland still required 155kg of oil-equivalent to
produce $100 of
GNP. Since 1991 energy consumption and industrial production have fallen
So have living standards. The disparity in living standards between the
ex-communist states of central Europe and the core-EU is if anything growing
larger. Hazlett's pseudo-optimism (he can't really believe what he is
saying) is
not just anti-Russian, it is a hoax. The nature of the hoax is this:
Hazlett and
his ilk pretend that the systemic inefficiency of the communist-mismanaged,
high-energy-using east, will be replaced by western efficiency. But the truth
is that when the rustbelt is closed out, NOTHING will take its place. The
word which describes the process is deflation, the most savage in the history
of capitalism. The Czechs like the Balts are victims as are the Russians.
No-one is
telling the truth, of course. F'rinstance, the CIA factbook acknowledges
the chronic
trade deficits of Central Europe, which will cripple those economies -- but
says for
example of Poland that altho: "trade and current account balances
officially are 
in deficit ... in fact both have comfortable surpluses because of large,
sales to cross-border visitors.'

Yeah, sure, cross-border visitors. Unrecorded sales. According to some
the Italian Mafia launders $100000 *per hour* in Poland (Polityka, 16,
1998). Of
course, these states weren't communist in anything but name; by 1989 they
were already
integrated as dependent formations within the world economy. But tearing away
the 'thin and squalid veil' of 'real socialism' away has not added to
the sum total of happiness.

Or has it? Surely there must be an upside to the Velvet Revolution? They
have good night 
clubs in Prague don't they, heaving with charming American sophomores?



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