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Johnson's Russia List


March 22, 1999    
This Date's Issues: 31023103   

Johnson's Russia List
22 March 1999

[Note from David Johnson:
1. Washington Post: Leonid Fedun, At Russia's Sickbed.
2. Newsweek: Bill Powell and Yevgenia Albats, Follow the Money.
The latest Kremlin scandal involves billions of dollars moving offshore
plus sex and videotape. 

3. The Toronto Sun: Matthew Fisher, Do It Yourself Health Care.
4. The Times (UK): Anna Blundy, 'The idea that the Russians are more 
sexually easygoing than we are is misleading - they may be, but they 
pretend not to be.'

5. Moscow Times: Edwin Dolan, IMF Forgets Deflation.
6. Moskovskiy Komsomolets: Aleksandr Khinshteyn, Stand Firm, Ilich! 
Will Skuratov Become Malyuta?

7. The Russia Journal: How Boris Yeltsin Lost Power.] 


Washington Post
March 22, 1999
[for personal use only
At Russia's Sickbed
By Leonid A. Fedun
The writer is vice president, strategic development, of Lukoil Oil Co. and a
founder of the company. 

MOSCOW—Prime Minister Yevgeny Primakov, who is scheduled to visit
Washington this week, may not be an ideal choice to lead post-communist
Russia out of its social and moral crisis. But he has been effective in
restoring a measure of confidence and stability during a period of severe
financial panic, and his government can boast a number of solid, if quiet,

Western observers have given Primakov little credit for these
accomplishments. For example, the prime minister has been accused of
doing little in the face of a major economic downturn. In reality, radical
measures would have exacerbated the situation at a time when depositors
were storming banks and people were emptying stores of consumer

The Primakov government, when it was summoned to Russia's sickbed,
resisted calls for radical surgery, bloodletting or quackery, adopting instead
the time-honored principle of medical science: First, do no harm. Today,
after the dust has settled, the patient still is gravely ill but is hanging
in there
-- contrary to universal predictions.

The presence of communists in the Primakov cabinet also has been
deplored; allegations of corruption center on leftist ministers. But taking on
Yury Maslyukov, a communist member of parliament, as deputy prime
minister in charge of the economy was the price for the government's
approval by the Duma. Keeping the bargain with the communists, the
largest party in the Duma, is necessary to ensure normal functioning of the
government until the general elections later this year and the presidential
elections in 2000.

Whatever one thinks of Russia's Communist Party, its presence in Russian
politics can't be ignored. Primakov's government is the first in
post-communist Russia that can claim to be a government of national unity.
This enabled the prime minister to work well with the Duma. The 1999
budget was adopted in just two months, and the government won approval
for a surplus in the primary budget, before debt-servicing charges.
Although the IMF still thinks that fiscal measures are inadequate, none of
the previous governments could get a grip on deficit spending.

Under Primakov's stewardship, the Duma also has put aside bitter
objections to foreign investment. It passed a production-sharing bill last
December, giving foreign investors greater access to the domestic oil

Russian companies still are taxed heavily. Promises to alleviate the burden
and to broaden the tax base have not been carried out. A handful of large,
highly visible companies continue to pay the lion's share of collected taxes.
However, the fact that companies such as Lukoil plead their case with the
government indicates that, for the first time in several years, the government
is able to make economic policy.

Finally, the Primakov government is the first genuinely independent one.
Previous cabinets in the Yeltsin adminis tration were beholden to one or
another financial-industrial group or economic faction. Some of the greatest
economic abuses of the past six years can be traced to oligarchs acting in
cahoots with the political establishment. Rebuilding of Russia's economic
system is impossible until the political system acquires a degree of
independence and can stand up to vested interests.

Not surprisingly, Primakov's approval ratings exceed anything seen by
predecessors Yegor Gaidar, Viktor Chernomyrdin or Sergei Kiriyenko. A
recent public opinion survey showed his approval ratings at more than 50
percent. By contrast, approval for Boris Yeltsin usually languishes in the
single digits.

The Yeltsin era in Russian history died last Aug. 17. Primakov was called
upon to bridge the disconnect between the old era and the unknown future.
He has been successful in making the transition as peaceful and as painless
as possible, given the circumstances. Some of his measures also have been
aimed at ensuring that financial markets could stabilize and at providing that
domestic industry get a breathing space for renewed growth.

It has been a difficult task, and it is not complete. More than a year
remains before the next presidential elections, and Yeltsin has the power to
sack Primakov without explanation. The prime minister's position could be
much bolstered, and the upcoming year made easier for Russia and
ultimately for the rest of the world, if the West lent more support to the
Primakov government.


March 29, 1999 
[for personal use only]
Follow the Money
The latest Kremlin scandal involves billions of dollars moving offshoreplus
sex and videotape. 
By Bill Powell and Yevgenia Albats 

The plot reads like source material for John le Carr. In 1990 the Soviet
Union was in its death throes. Its economy was deteriorating, the trade
deficit was deepening and it was increasingly unable to pay its foreign
debts. On Nov. 27 that year, a Paris-based arm of the Soviet State Bankthe
predecessor of Russia's current Central Bankquietly set up an offshore
company called Financial Management Co. Ltd. (FIMACO), ostensibly to help
Moscow deal with its debt problems. At the same time leaders of the
Communist Party of the Soviet Unionsensing that they were about to lose
their 70-year grip on powerwere arranging ways to channel party funds and
property to secret safe havens abroad. 

Now the existence of the obscure, offshore shell company has exploded into
a nasty scandal that taints nearly the entire Russian power structureand
may threaten the Western financial relief Moscow so desperately needs.
According to documents obtained by NEWSWEEK, including an internal audit of
the Central Bank, the Russian government shuttled billions of dollars of
its precious hard-currency reserves through FIMACO over a period of six
years. It's as though the U.S. Federal Reserve secretly ran money through
the Cayman Islands. The evidence further indicates that, in 1996, FIMACO
speculated illegallybut very profitablyin Moscow's fledgling domestic bond
market. And NEWSWEEK's sources suggest that some of the profits may well
have ended up helping to fund President Boris Yeltsin's 1996 re-election.
All this is the sort of under-the-table financial maneuvering that makes
the International Monetary Fund very nervous. And this week, Russian Prime
Minister Yevgeny Primakov visits Washington to seek more IMF funding.

The FIMACO story broke early last month, when Russia's chief prosecutor,
Yuri Skuratov, publicly revealed the existence of the offshore bank. Given
FIMACO's communist-era origins and its existence through four post-Soviet
govern- ments, it wasn't surprising that only one independent legislator,
Nikolai Gonchar, pursued the scandal vigorously. Lacking broad support,
Skuratov originally said he would resign, ostensibly for health reasons, a
standard excuse for Kremlin dismissals. Then, last week, the prosecutor
took back his resignation, and the usually docile upper house, the
Federation Council, backed him (a prosecutor can't resign without the
council's assent). In a ham-handed attempt to discredit him, the Kremlin
apparently allowed a clandestine videotape of Skuratov cavorting with two
prostitutes to be aired on a government-owned television station. 

The broadcast appeared to hurt the Kremlin as much as it hurt Skuratov.
Yeltsin, just out of a Moscow clinic after weeks of treatment for an ulcer,
quickly fired his chief of staff, who seemed to be taking the fall for the
videotape debacle. Now that he has made his point, Skuratov will probably
leave office soon. The FIMACO affair won't be disposed of so easily.

The concern was registered in Jersey, the British tax haven in the Channel
Islands. It was run by Paris-based Eurobank, 78 percent of which is owned
by the Russian Central Bank. A 1993 document signed by a senior deputy to
Viktor Gerashchenko, then and now the head of the Central Bank, makes it
clear that cash transfers to the offshore firm were highly sensitive. "The
balance of the investment account of the [Central Bank] in FIMACO shouldn't
be disclosed on the balance sheet of the bank," wrote the aide, A. V.

Documents obtained by NEWSWEEK show that the first Central Bank transfers
to FIMACO occurred in 1993, when slightly more than $1 billion was moved
offshore. Several former Central Bank officialsas well as Andrei Movchan,
the current president of Eurobank and a board member of FIMACOinsist that
the reserves were transferred because a Swiss company had won a legal claim
against Russian government assets. Their fear, they say, was that the
hard-currency reserves could be used to make good on the Swiss firm's

NEWSWEEK has learned that the IMF was aware at the time that the Central
Bank was managing some of its assets through European subsidiaries such as
Eurobank. An IMF spokesman insists, however, that the fund was not aware
that a Jersey shell company had been set up to handle hard-currency
reserves. "And we would have been considerably less enthusiastic about the
arrangement had we known that," he said. For good reason: typically shell
companies in tax havens like Jersey are set up specifically to avoid
scrutiny. The IMF would have been even more surprised to learn that a big
chunk of its first loan to Moscow$500 million of an $800 million
installment granted in late 1993also went straight to FIMACO for
safekeeping, according to one source with intimate knowledge of the
arrangement. The same source insists, however, that within six months,
those funds had been returned to Moscow and disbursed as intended by the

A year later, the Central Bank again found use for the offshore account,
and its timing was exquisite. Just a week before Russia's first major
devaluation, Gerash-chenko ordered a transfer of $1.4 billion in
hard-currency reserves to FIMACOone third of the bank's reserves at the
time. Why the bank chose to transfer that sum a week before devaluation is
unclear. What is clear is that the reserves were not used to help defend
the ruble. 

FIMACO's most controversial transactions came in early 1996, as Yeltsin was
gearing up to win re-election. The Central Bank channeled tens of millions
through FIMACO into Russian domestic bonds. The transfers were made before
foreign institutions like Eurobank were permitted to buy domestic bonds. In
three separate investments, the Central Bank invested more than $143
million in domestic bonds during the 1996 campaign. At the time, interest
rates on the bonds were stratospherically high; the bank made a profit of
$38 million. 

Where the money went is a matter of fierce dispute. Several former
high-ranking government officials say they believe the bond profits helped
fund Yeltsin's campaign. But one source with inside knowledge insists that
the money was put into the bond market solely to drive down interest rates,
making it appear that Yeltsin's economic strategy was working. 

Movchan says Eurobank shut the Central Bank's accounts in FIMACO last
month. But several critical questions remain unanswered. One is who really
owns FIMACO, an issue that IMF officials grilled Movchan about at a lengthy
meeting last Friday in Moscow. Movchan repeated his insistence that FIMACO
is 100 percent owned by Eurobank. But no one has given the IMF or Skuratov
any documentary proof. 

Another lingering question concerns FIMACO's role in the dying days of the
Soviet Union. Sources say FIMACO was used as a safe haven for loans and
credits granted to the Soviet government by foreign banks and states. In
1990, for example, it was Primakov, then a member of the ruling Politburo,
who negotiated a billion-dollar loan from Arab states in the Persian Gulf.
Sources say the money ended up in secret offshore havens via Eurobank. In a
1991 report, former KGB Col. Leonid Veselovsky, who was assigned to manage
Communist Party commercial affairs overseas, told his masters that he had
found ways to funnel party money abroad. The stated goal: to ensure the
financial well-being of party leaders after they lost power. Among the five
senior officials Veselovsky says he briefed were Gerashchenko and Primakov.
As Primakov makes his IMF rounds this week, it will be interesting to see
if anyone asks him what happened to all that party money. 


Date: Sun, 21 Mar 1999 19:27:01 -0500
From: Matthew Fisher <>
Subject: "Do It Yourself Health Care"

The Toronto Sun, March 21
"Do It Yourself Health Care"
By Matthew Fisher

Moscow - It's pay day at Hospital No. 51.
With a sheepish grin Vladimir Kalabukhov signed for his money and
stuffed the ruble notes in his pocket.
Kalabukhov has worked as a doctor in the intensive care unit of
Hospital No. 51 for 14 years. His take home pay for February was 160
rubles. That's about $11 dollars (Cdn.).
Down the hall, in a ward for six male patients recovering from
surgery, the wife of one of the men was mopping the floor while another
woman was putting cold compresses on her husband's forehead.
"This isn't really a hospital. It's just a place where we collect
people who are sick," says Tamara, a stocky orderly with gold teeth and a
gimpy leg who has been picking up bed pans and fetching wheelchairs at
Hospital No. 51 for 30 years.
"I only get 150 rubles a month, which is less money than the
officially unemployed. The only reason I come to work is to socialize with
the people I work with."
Like every hospital in Russia except the few which care for
foreigners, gangsters and senior politicians, Hospital No. 51 gets almost
no government funding today and is short of almost everything from medicine
to diagnostic equipment to cleaning supplies.
Patients or their relatives usually sweep the wards. Nurses do
most of the rest of the chores, but doctors sometimes help out, too.
"We have so many problems it is difficult to know where to begin
to try and explain them to you," said Dr. Sergei Dorokhov, who has been at
Hospital No. 51 since the mid-80's.
"Unlike many other hospitals, we are still well enough equipped to
deal with most emergencies. But we don't have nearly enough nurses or
paramedics and almost all of our lab equipment is at least 20 years old,
which means getting parts for this equipment is very difficult.
"One of our biggest problems is a huge deficit of antibiotics.
Another is that most of our patients don't have any money. If we have a
patient with peritonitis, we should treat this stomach complaint
immediately with second generation drugs. But we don't have any so we
provide long-term treatment as an alternative. But this often causes
complications. For sure, some patients die because of this."
Canadians frequently gripe that their health care system is in a
state of deep crisis. But the situation in Russia today is so much worse
than in Canada that it beggars belief.
Politicians in Canada recently responded to public anger over
health care by increasing spending by several billion dollars a year. But
the Yeltsin government has made it clear that there is absolutely no chance
of additional state funding for medicine in Russia until at least 2004.
The 20 doctors working in Hospital No. 51's intensive care unit
were vaguely aware that westerners were constantly griping about the
quality of health care available to them. They jokingly volunteered to
trade places with any of their western colleagues or work as doctors in
Canada as doctors for, say, $20,000 a year.
"The public health care system which existed in Soviet times was
quite good, but it's been totally destroyed. There is no public system left
to speak of," said Sergei Ryzanov, who has worked as a doctor with a
western clinic in Moscow for several years.
As bad as the situation is in Moscow, hospitals outside the
capital are almost all in absolutely terrible shape. For surgery, patients
must bring their own sheets, dressing, drugs and syringes. The only things
that are actually provided are the doctors and nurses.
The last time Hospital No. 51 received any humanitarian aid from
the West was in 1991.
"Of course the West is tired of hearing how much help we need,"
Dr. Dorokhov said. "But any aid they supplied us with would be stolen,
anyway. What was delivered free last time ended up on sale after a few
To try and make ends meet many doctors in Russia have set up
private practises where they routinely charge patients as much as $50 for a
consulation, $400 to be treated for heart attacks and about $1,000 for
heart surgery. But charging patients anything is difficult as the average
Russian salary is only about $1,000 a year.
Nurses are in an even greater economic bind. They are paid less
than doctors and find it much more difficult to moonlight for a few hours
because their presence on the wards is required constantly.
"Everyone in our society is afraid of falling seriously ill not
only for the obvious reasons, but because they cannot pay to make
themselves well again," Dr. Kalabukhov said. "Some people die at home,
rather than come to the hospital. Others die in the hospital corridors
because they cannot pay for treatment."
One of the most telling statistics in Russia is that the average
lifespan of a male is now only lives 58 years.
"There has been a big increase in the number of suicides, murders
and drug overdoses," Dr. Dorokhov said. "To this can be added more young
people with heart attacks, cancer and other terminal diseases.
"One of the main reasons is that as the general conditions of
life have become harder stress levels have gone way up. Where people once
got medical problems looked at in the beginning, there is now no
preventitive medicine to speak of. People only seek treatment as a last
"Hepatitis, especially hepatitis C, is definitely at epidemic
levels already. Tuberculosis is up 40 times in the past five years and
gynecology is the best private practise to have because there has been an
explosion of sexually transmitted diseases. AIDS is not yet an epidemic,
but it is increasing rapidly."
Still, some young Russians continue to sign up for medical
Andrei Makhotin, who is two years away from becoming a fully
accredited physician, trains with Kalabukhov and Dorokhov. For this he
receives an honorarium of 150 rubles or about one thousandth as much money
as some of his classmates from secondary school who have become
"I became a doctor because I had an ideal and I had a mentor.
But the system is am joining is falling apart. I am a pessimist without
limits. I just try to do my best here. We all do. But we don't get many
As part of his medical education, Makhoitin spent one month
taking a course at a hospital in Innsbruck. As in Canada, the medical staff
and the public in Austria spoke constantly about how bad their health care
system was.
"They had to make do with some old buildings and ambulance
equipment and without some of the newest drugs," Makhoitin said. "They
truly believed that because of this they faced a crisis and from their
perspective they were right. But we can only dream of being so lucky.
"If a Canadian doctor or nurse came here and saw how we worked,
they would find it very exotic. For them it would be a lot like going to
As for the future, Dr. Kalabukhov said it was unlikely anything
would change.
"Our reality is that nobody understands how to change the
siutation. We've had a lot of revolutions. Maybe there should be another


The Times (UK)
March 22 1999 
Anna Blundy 
'The idea that the Russians are more sexually easygoing than we are is
misleading - they may be, but they pretend not to be'

It seems unfair on the unsuspecting Russian television viewer that he
should be subjected to video footage such as that aired last week of the
repulsively unattractive Prosecutor-General cavorting in his underpants
with two prostitutes. It feels like only yesterday that we were forced to
look at page after page of full-colour photographs of Vladimir Zhirinovsky,
everybody's favourite ultra-nationalist, in his. 

The day after the not-so-surprising revelations about the Prosecutor, the
Russian newspapers went out of their way to back the portly Yuri Skuratov,
even taking it upon themselves to suggest that he should run for President. 

Now that he had proved himself to be a real all-drinking all-fornicating
married man of the type Russia so obviously needs, he might as well pitch
in with the best of them, was the line they took. 

There was a kind of "good on yer" attitude abounding in the press. The
country's fat old men (and there are plenty of them) were assumed to be
looking on enviously and wishing they had the power and the money to do the
same, and Russia's women apparently smiled on indulgently as if to say
"boys will be boys". It seemed that anyone who admitted to being shocked
that the man in charge of law and order in Russia would behave in such an
unseemly fashion was a prude and a bigot. 

English press reports set out to assure readers that Russians are not as
censorious as the inhabitants of the foggy Albion and that any sex scandal
here can only enhance a politician's reputation. Russians, it was
suggested, approve of sex more than we do. Certainly most foreigners
visiting Russia leave with an impression of sexual licentiousness, and
wonder at the level of personal freedom in a country so long considered by
the West to be officially averse to pleasure of all kinds. As a Russian
friend once told me: "That was all we ever did under communism. It was
legal and free." 

There was no contraception to speak of and Russian women subjected
themselves to a ghastly average of three abortions each in a lifetime. But
that is not to say that attitudes really were more liberal. Part of the
reason that contraception was so scarce is that a pretence was always
maintained that free sex was not going on. In Russia a certain degree of
sexual liberalism goes hand in hand with tight-lipped prudery, and,
contrary to Western belief, only the latter is usually allowed out in the

This faintly hypocritical morality is a relic of the Soviet days, when the
lie that everything was for the best in the best of all possible worlds was
maintained on many levels. Under communism, teenage couples kept quiet
about their sex lives and married early, often as a result of an unexpected
pregnancy. Fidelity was (and is) considered a bizarre Western notion, like
teetotalism or pacifism. But these couples retained their moral purity in
society's eyes by getting married, and only then did they go on to have
illicit affairs. The idea that Russians are more sexually easygoing than we
are is misleading - they may be, but they pretend not to be. While Russian
voters do seem to appreciate manliness that borders on machismo in a
leader, and while they are always glad to know that the boss is, or was, a
bit of a ladies' man, they do not want to be told how to live their lives
by someone like the Prosecutor-General, who openly humiliates his wife and
who uses the services of prostitutes. 

Russians may despise Americans for their perceived prudery (there are
hundreds of unprintable Russian jokes involving chilly American women and
passionate Russian men to attest to this), but their most popular
politicians are, as in America, happily married with children. 

Boris Yeltsin himself was involved in a bizarre scandal in the late 1980s
in which he is said to have fallen into the Moscow River. But it was the
suggestion, and only the suggestion, that a jealous husband might have been
involved that the Russian public appreciated. Had a jealous husband and an
unfaithful wife actually emerged, it is likely that Mr Yeltsin's reputation
would indeed have been damaged. (Valentin Kovalyov, the former Justice
Minister, was sent packing in a sex scandal very similar to last week's
sordid offering.) 

While Russians may have a reputation for a greater acceptance of sexual
misdemeanours, they prefer, like the rest of us, that such indiscretions
remain private. We can nod and wink about them, but to flaunt them is no
more acceptable here than it is at home. 


Moscow Times
March 20, 1999 
IMF Forgets Deflation 
By Edwin G. Dolan ( 
Edwin G. Dolan is president of the American Institute of Business and
Economics, an American MBA program in Moscow. He contributed this comment to
The Moscow Times. 

Without new IMF loans, the Russian government faces a default on its Eurobonds
and funds borrowed earlier from the IMF, a humiliation it wants dearly to
avoid. This gives the International Monetary Fund substantial leverage over
Russian economic policy. But just when its influence is strongest, the IMF may
be giving Russia bad advice. 

The first element of bad advice concerns monetary policy. The IMF sees itself,
first and foremost, as a bulwark against that great scourge of the past half-
century, inflation. Yet increasingly, observers see the world as threatened
not by inflation, but by its opposite, deflation - the kind of vicious
downward spiral of prices, money and output that has not been felt since the
Great Depression of the 1930s. 

A recent cover story on the subject in The Economist notes a sevenfold
increase in stories devoted to deflation in the world financial press.
However, most of these stories focus on Japan and the European Union. Can we
even imagine deflation in Russia, where prices have risen 10,000 times in the
past decade and have doubled again in the past six months? Astonishingly, we

No one was surprised when last August's devaluation led to a jump in the price
level, but careful observers noted that there were two different types of
inflation to worry about. One was the direct impact of the devaluation on the
prices of imported goods. Although almost impossible to avoid, this aspect of
inflation had an inherent limit at roughly a doubling of the price level. 

The other concern was the secondary inflation that would have occurred had the
new government unleashed the monetary printing presses to cushion the social
effects of the crisis. To the surprise of many, the monetary policy of Prime
Minister Yevgeny Primakov's supposedly populist team proved stalwart as could

>From July through October, the Russian money stock actually fell. Even by
December, it had risen by a paltry 7 percent from its precrisis peak. These
are nominal figures. A better measure of the monetary resources that firms and
consumers have at their disposal for everyday needs is the real money stock -
that is, the nominal money stock adjusted for the effects of inflation on the
purchasing power of each ruble. The real money stock fell by fully 40 percent
from June through December. 

Even more disquieting are changes in the composition of the money stock. The
standard measure of the money stock, called M2, includes both paper currency
and bank deposits. While consumers use the former as their everyday medium of
exchange, the transactions among business firms in a healthy market economy
depend almost exclusively on bank deposits. However, as the crisis unfolded,
composition of the Russian money stock shifted sharply from deposits to
currency. From July to November, currency's share of M2 rose from an already
high 35 percent to 44 percent. (In the United States, paper currency accounts
for just 10 percent of M2.) By December, the real value of bank deposits was
less than half its peak in February 1998. Further adjustment for frozen
deposits in failed banks would make the numbers look still worse. 

The shift from deposits to currency has an ominous precedent in American
history, from 1929 to 1932. Just as in Russia, the flight to currency was the
result of a banking crisis. Americans in the 1920s, like today's Russians, had
no deposit insurance to protect them, so when banks began to fail, anyone who
got to the teller's window in time withdrew as much currency as possible. In
his "Monetary History of the United States," for which he won a Nobel Prize,
Milton Friedman singled out the failure to cope with the banking crisis and
the resulting shift from deposits to currency as the leading monetary policy
blunder of the period. 

Meanwhile, back in Russia, the IMF's single-minded focus on inflation is
causing it to send the wrong signals in other areas, as well. Last month Jorge
Marquez-Ruarte, deputy director of the IMF's department dealing with Russia,
wrote a letter to Central Bank chairman Viktor Gerashchenko - a letter that
was quickly circulated in the State Duma - expressing concerns about
legislative proposals that would subject monetary policy to parliamentary
control. Now, Central Bank independence is fine in principle, inasmuch as
elected politicians everywhere are notorious for printing money to buy votes
whenever an election looms. But Gerashchenko appears to have taken Marquez-
Ruarte's letter - and perhaps it was meant that way - as a pledge that the IMF
would help hold critics at bay while the bank carried on business as usual. 

Unfortunately, the last thing Russia needs is business as usual at the Central
Bank. Right now, a much bigger threat than inflation is the runaway corruption
of government institutions that seem devoid of checks and balances. In
defending Central Bank independence at any price, the IMF appears willing to
conspire in covering up corruption allegations, of which there are new
examples almost every day - offshore GKO scams at FIMACO, huge interest-free
deposits at foreign affiliates with mysterious links to Russian oligarchs, a
license to steal issued to a Swiss affiliate of Aeroflot, and others. 

What the Central Bank needs is not independence but a calling to account. The
IMF should not sign off on the Duma's self-serving aim of subjecting day-to-
day monetary policy to political control, but should join the chorus calling
for oversight and transparency. It should use the extraordinary leverage it
has by refusing new loans until the Central Bank has accounted for the
billions of dollars it has touched since the day it was founded. If the price
of effective oversight is a loosening of monetary policy, so be it. Monetary
policy is too tight as it is. 


Skuratov Political Future Viewed
Moskovskiy Komsomolets
18 March 1999
[translation for personal use only]
Article by Aleksandr Khinshteyn: "Stand Firm, Ilich! Will Skuratov 
Become Malyuta?" 

A miracle has occurred. And I mean a miracle -- 
there is no other word for it. Yesterday the Federation Council almost 
unanimously (142 votes to six with three abstentions) rejected the 
resignation of General Prosecutor Yuriy Skuratov. The Kremlin is in a 
state of trance. 

Only yesterday morning few politicians close to the president doubted 
that Skuratov would leave his post. They all knew that on Tuesday the 
general prosecutor had met with Federation Council speaker Stroyev and 
Stroyev had persuaded him not to make a fuss. Everyone knew that Yegor 
Semenovich [Stroyev] had gone round virtually every senator and explained 
how he should vote. Finally on Tuesday a video cassette began to 
circulate in the Federation Council showing 51 minutes of the general 
prosecutor's amorous escapades. The producers' plan was that it should 
finally persuade the governors that a man with these moral standards does 
not have the right to be the custodian of the law. 

It was that which turned the flywheel the other way. There were no 
bounds to the Federation Council members' indignation: So they are spying 
on everyone, but who is without sin? The statement by BAB's 
[Berezovskiy's] stooge Shabdurasulov [BABa Shabdurasulova] [ORT director] 
who announced that the ill-starred cassette is in his possession and so 
the general prosecutor should resign without a scandal also poured oil on 
the fire. 

Of course if Skuratov had calmly tendered his resignation the deputies 
would have muttered but would have satisfied his request. But the general 
prosecutor's speech was a complete surprise to them all. 

He stated that his resignation request was written under pressure from 
dark forces. That since the fall he had been isolated from the president 
and he hoped that at least after he had tendered his resignation Yeltsin 
would meet with him. That they were driving a wedge between him and the 
president. That those against whom the General Prosecutor's Office had 
begun a vigorous struggle were interested in his departure. 

Moskovskiy Komsomolets has already described what was the cause of the 
political crisis that has flared up. In the fall of last year the General 
Prosecutor's Office together with the Swiss Federal Prosecutor's Office 
discovered millions of the people's dollars accumulated abroad in the 
accounts of high-ranking Russian officials. The investigation could have 
led to the most unpredictable consequences so, as far as we know, 
Presidential Staff Chief Nikolay Bordyuzha, blackmailing Skuratov with 
the above-mentioned video cassette, compelled the general prosecutor to 
write his letter of resignation. But the news of the background to the 
events became quite widely known. The Federation Council refused to 
dismiss Skuratov "behind his back" and demanded a report. Then the 
Kremlin leadership ordered the general prosecutor to leave Russia 
immediately to take up a post as ambassador. 

Skuratov refused -- he realized he was being "turned into" a marginal. He 
went to work and announced his desire to meet with the country's top 
people: Yeltsin, Dyachenko, or at least Yumashev. 

Not only did this not happen, the general prosecutor was told that if he 
did not come to his senses the intimate video cassette would be shown on 
central television and he himself would be arrested. It was allegedly a 
question of the illegal receipt of an apartment worth $700,000 with 
furniture and other luxury items. 

Similar threats were made to other General Prosecutor's Office leaders. 
Driven into a corner, Skuratov announced that in that case he did not 
know who had arrested whom first. The Federal Protection Service was up 
in arms. 

....Overall there is one extremely piquant element in this whole story: There
no criminal case against the Kremlin embezzlers. 

Skuratov sent all his requests abroad unofficially. He had no desire to 
compromise the president's entourage, he just wanted to return the 
millions to the treasury. 

It is no accident that even in his speech to the senators yesterday 
Skuratov did not say a word about the "Kremlin case" and tried to protect 
the president, ascribing the hoard [prikup] to dark forces and the 
oligarchs. He said that Yeltsin knew nothing, that he was kept in the 
dark. The old story of the kindly czar and his perfidious entourage. 
Skuratov did not want war -- that is clear to the naked eye -- but they 
pushed him into the attack with all their might. They forced him to take 
a stand. He asked for one thing: A meeting with the masters of his life. A 
normal wish for a sober-minded man anxious to establish the rules of the 
game. In response he was threatened. 

It is striking that the Kremlin ruling clique has still not abandoned 
its hopes of putting Skuratov behind bars. Emotions are stronger than reason. 
You may be sure that the cassette for private viewing will come out into 
the open. 

Incidentally, about the cassette. The rumor of the existence of this
material was first heard in the summer of last year. Various stories are 
told about its provenance: Skuratov was allegedly invited by a man whom 
he trusted immeasurably to a "bachelor pad" but the bedroom in this 
apartment contained hidden recording equipment. 

Who organized the operation? Various names are cited including leading 
workers in the General Prosecutor's Office and the Federal Security 
Service but I would refrain from passing on these unsubstantiated rumors. 
On the other hand something else is known for sure: As a result the 
cassette itself (or a copy) was bought by Boris Berezovskiy. And it was 
Berezovskiy who supplied it to the Kremlin. (Shabdurasulov's 
participation in the Skuratov's persecution is indirect confirmation of that).

It is no accident also that among the forces seeking his resignation 
the prosecutor cited the oligarchs who have an interest in the criminal 
cases against Aeroflot, AvtoVAZ, and "Atoll." Of course, we are talking 
of Berezovskiy. 

We must pay Yuriy Ilich his due -- he knows how to take blows. When he 
was asked the relevant question in the Federation Council Skuratov in 
fact admitted the existence of this cassette, stipulating that this 
should be given an "assessment in criminal law." There is no doubt that 
if anyone broadcasts it a lawsuit will be filed immediately. 

The bath house belonging to the Solntsevo group of criminals where 
Kovalev disported himself is one thing. A private apartment is another. 
In the end this is exclusively a family problem for Skuratov. Actually, 
according to my information, the general prosecutor has already sorted it 
out with his wife and children. Peace has come to the family. 

What next? Will the general prosecutor start a war against the president 
and his entourage? I think not. Skuratov is peace-loving enough not to. 
But some high-profile criminal cases and above all against Berezovskiy's 
structures will undoubtedly be developed. The general prosecutor realizes 
where the blow can be expected to come from. And he does not intend to 
forget the wrong done to him. 

The "great confrontation" has ended. But that is only the case at first 
glance. Yes, it is true no one has exposed anyone, no one has arrested 
anyone. Has not arrested anyone yet. Everyone knows that Yeltsin is slow 
to forgive.... 

Skuratov can no longer be dislodged now. The support of the Federation 
Council and the State Duma give him virtually unlimited rights. Yuriy 
Ilich could turn into Malyuta [reference to Malyuta Skuratov, Ivan the 
Terrible's henchman during period of terror]. 

His political future looks no less fine. An honest prosecutor who almost 
fell victim to the embezzlers of state funds. None of the presidential 
candidates can even dream of such a reputation. 

....The more I learn of the Kremlin's games the more surprised I am. These 
people contrive to create problems for themselves where none exist. 
And all that was needed was to invite the man to the Central Clinical 
Hospital and shower him with kisses.... 


From: "The Russia Journal" <>
Subject: How Boris Yeltsin Lost Power
Date: Sun, 21 Mar 1999

The Russia Journal
How Boris Yeltsin Lost Power

One year ago this week, President Boris Yeltsin dismissed Prime Minister
Viktor Chernomyrdin's government. To be precise, he dismissed Chernomyrdin,
for the majority of Cabinet members had satisfied Yeltsin.

Two basic motives stood behind the president's decision on March 23. The
first was rooted in the political and economic situation of the time. The
president felt it necessary to revive the country's political stage in the
face of its stagnating economy. The situation called for a strong
liberal-minded reformer who would put an end to the rule of Russia's
so-called economic "oligarchs," overcome a financial crisis which was
already taking shape in the spring of 1998 (meetings in the Kremlin raised
the possibility of organising a controlled devaluation of the ruble), and
ensure the succession to the presidency in the year 2000.

Viktor Chernomyrdin was not fit for the role. Besides, opinion in the
corridors of power had it that the he was too obsessed with presidential
ambitions and flirted with forces that failed to show enough respect to
Yeltsin and his team.

The president's second motive was personal. Yeltsin fired Chernomyrdin on
the advice of his daughter and image advisor Tatiana Diachenko and then-head
of the presidential administration Valentin Yumashev.

Analysts say that March is traditionally a time of excitement for Yeltsin.
It is a time during which he usually works on a state of the nation address,
when he is annually forced to try to ensure that the country is marching
forward toward some goal.

March is also usually a time when the domestic political situation becomes
agitated, electrifying Yeltsin, who makes heads roll.

However closely the Kremlin resembles a Byzantine court, one still should
not overestimate the influence of its intrigue-makers. The fact that Sergei
Kirienko was chosen as Chernomyrdin's replacement only confirms that notion.
According to inside information, Yumashev and Diachenko proposed the
following for prime minister: Egor Stroev, Boris Nemtsov, Dmitrii Ayatskov,
Yuri Luzhkov, Ivan Rybkin, and Vladimir Bulgak. Sergei Kirienko's name was
not on the list, appearing only later, after Yeltsin had rejected the
initial list.

There are at least two possible explanations for Kirienko's appearance. The
first belongs to Boris Nemtsov who claims he personally recommended his
fellow Nizhnii Novgorodite to the president. The second assumes Kirienko's
name was introduced to the new list by officials who were not so keen on the
candidate. Yumashev himself lobbied for Rybkin and Bulgak (the two
candidates are known to be close to influential billionaire tycoon Boris
Berezovskii, who was considered the main motivator of the Kremlin team until

Irritated by his entourage's endless attempts to persuade him, the president
decided to have it his own way and chose someone he had liked for a long
time, ever since Kirienko was minister for the fuel and power industry.
Besides, Kirienko appeared to be someone untainted and unrelated to any of
the parties in the general confrontation between the state and the
oligarchs. And, last but certainly not least for a man like Yeltsin,
Kirienko was young and relatively inexperienced, someone who would most
likely not question the president's authority. Yeltsin's confidants tried to
talk him out of this decision, but their efforts proved hopeless. As for
oligarchs such as Berezovskii, they had hoped they would be able to
influence Kirienko through the usual Kremlin intrigues and manipulations.
They were wrong. And so was the Kremlin.

Kirienko was definitely one of Yeltsin's most loyal prime ministers. But he
was not that loyal to the Kremlin "family" and its chief ideologist

The leftist Duma, lower house of parliament, detested Kirienko, and his
youth hardly helped him gain prestige with the army, the police ministry or
the special services.

Left with his own Cabinet and the president's good will, Kirienko was
supposed to do nothing and follow in the steps of Chernomyrdin in propping
up the national economy, or give himself entirely to the hands of a specific
group of oligarchs.

But an economic crisis was banging at Russia's door. And Prime Minister
Kirienko had no choice but to do what he ultimately did: announce Russia
bankrupt. The news was supposed to be followed by unavoidable "shock
therapy," fraught with all the unavoidable unpleasant consequences for the
oligarchs as well as for the populace.

It may be argued whether Chernomyrdin's course could have continued much
longer, or how the announcement of bankruptcy and the rouble devaluation
should have been have been carried out. But it is indisputable that both
would have happened sooner or later.

As for the fact that Kirienko was too late with his announcement: that
should be blamed on the Kremlin. It was Yeltsin's entourage that had tried
to delay the national currency's collapse for several months. There was
deliberation on how the devaluation should be carried out throughout June
and July. And Yeltsin's team that kept persuading the president to state in
front of television cameras that devaluation was as distant (and next to
impossible) as Doomsday.

By August, any safe option for passing through the worsening situation was
already out of the question. And Kirienko was history. Yeltsin's circle
acted as though the short-lived prime minister had been appointed to do all
the dirty work, and that upon the August 17 effective rouble devaluation and
Treasury Bond default, it was his time to clear the stage.

It was only then that the worst thing possible happened to the Kremlin and
Yeltsin: they lost their authority. The Kremlin still thinks now, as it
always did in the past, that it remains the centre of power. But such an
assumption is no longer true.

Power keeps seeping out of the Kremlin every second.

There was only one way for Yeltsin to preserve himself last August. He
should have insisted that Kirienko remain prime minister despite the
frenzied parliament's uproar. The president should have let Kirienko
negotiate Russia's debt and future credit with the West.

If the prime minister was to be replaced, the president faced two options.
The Kremlin could have risked empowering a strong politician who would
undermine Yeltsin's authority but at the same time ensure a certain
continuity of his regime. Or it could have appointed a compromise prime
minister, a move inevitably fraught with unpredictable effects for Yeltsin
and the country's entire political and economic policy.

The president's circle was not so much concerned about the country's
political instability as it was scared of having to limit the president's
power by promoting a strong personality such as Yuri Luzhkov to be prime
minister. So the Kremlin chose option two, probably hoping to retrieve its
high position after events calmed down. Yeltsin appointed Evgenii Primakov
prime minister.

One year has passed since Kirienko first assumed the premiership. Just like
a year ago, the president is now working hard on his annual address to the

Meanwhile, the president's entourage is seething with resentment toward the
current prime minister. Several scripts for his dismissal have been composed
behind Kremlin walls.

The president is also writing his address to the parliament as well, stating
he will not permit a Communist comeback.

At the same time, the leftists are elaborating a plan for the president's

Primakov is endeavouring to persuade the leftists to abstain from
aggravating the political situation.

At the same time, leftists are demanding that the prime minister take
control of the country's television by replacing ORT and RTR management.
If Primakov is dismissed from his post, it is unclear what he would do. Most
of his entourage believes he is unlikely to head any kind of a conspiracy
against the president in such a case.

And Yeltsin's plans (apart from his resolution to prevent a Communist
comeback) are also unclear. Nevertheless, the general mood in the Kremlin
speaks in favour of the fact that the president is more likely to
precipitate another round of heightened political tension and even crisis
that to try to avoid it.



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