April 1, 1999    
This Date's Issues: 3119 •3120  • 3121 

Johnson's Russia List
"The bible of serious Russia watchers"
#3220
1 April 1999
davidjohnson@erols.com

[Note from David Johnson: 
1. Moscow Times editorial: Put an End To Waffling In Editorials.
2. Ira Straus: Has NATO already forgotten Russia's attempts to join?
3. Moscow Times: Andrei Piontkovsky, SEASON OF DISCONTENT: Rising Above 
Dual Morality In the Balkans.
4. Renfrey Clarke: RUSSIA AND YUGOSLAVIA: LETTING NATO OFF THE HOOK.
5. David Law: TOWARDS A BEIJING-MOSCOW AXIS?
6. Peter B. Necarsulmer: Perception versus Reality: An American
Businessman's 
View of Russia Today. (Presentation at Kennan Institute)]

*******

#1
Moscow Times
April 1, 1999 
EDITORIAL: Put an End To Waffling In Editorials 

The Moscow Times has appointed a new editorial-writing team for the new
millennium. The new masters of the opinion page have resolved to
immediately put an end to windy, waffly pontificating. Instead, we will say
what we think. We hope readers will find our new voice of clarity and
decisiveness refreshing. 

1. The editorials are boring! Let no one waste their time reading them
anymore. 

2. Well, except for this particular editorial: Since we went to the
trouble of writing it, you darn well should have the courtesy to read it
through to the very end, and then to pause thoughtfully for a full 15
seconds before moving on. 

3. President Boris Yeltsin is a sick, drunken old man who must immediately
step down. 

4. President Boris Yeltsin is bad but he is the only hope to save Russia
from the threat of a communist-nationalist revanche. 

5. Russia must press ahead with tough economic reforms and bring the
budget deficit down. 

6. Russia cannot afford to forget the human cost of reforms and more funds
should be found for the needy in society. 

7. The IMF has been wrong in its policies on Russia since 1917. 

8. There is no alternative to the bitter pill of reforms proposed by the
IMF. 

9. Moscow Mayor Yury Luzhkov is a blustering oaf who wastes money on show
projects to further his presidential ambitions. 

10. We hold the mayor in the highest regard as a can-do manager, and hope
he doesn't take our editorials the wrong way. 

11. We reject the oligarchy's control over the Russian media and speak out
boldly for a press free of government control. 

12. We are proud to have Bank Menatep as a minority shareholder in our
company and honored to avail ourselves of the services of Kremlin-owned
printing presses. 

13. The West had better stop pushing Russia around. Expanding NATO and
bombing Yugoslavia were big mistakes. Russia is trying to find a new place
for itself and the West needs to understand it better. 

14. Russia is failing to take its place in the world community. It should
stop its silly intrigues with Iraq, Iran, Serbia and all those loser states. 

15. The weather is bad in Russia but that is why we love this country so
much. 

16. Boris Berezovsky is an ogre but we can't really prove it. 

17. The Russian space program needs to be supported but not if it costs
too much. 

18. We'd like to teach the world to sing in perfect harmony. Despite the
lowering clouds on the international scene and the financial crisis in
Russia, The Moscow Times wishes all its readers a good laugh for April 1. 

*******

#2
Date: Wed, 31 Mar 1999 
From: IRASTRAUS@aol.com (Ira Straus)
Subject: Has NATO already forgotten Russia's attempts to join?

While the events in Yugoslavia may mark a turning point in Russian feelings
that could wash away for a generation to come the opportunities of 1989-1992,
it would be premature to draw such a conclusion or treat it as a fixed
finished reality. The media are still free, multiple parties still exist
representing very different conceptions of the national identity, a cycle of
elections is just ahead. Meanwhile, the residue of opportunities of 1989-92
are still being drained away year by year, month by month, not only by trends
in Russian consciousness, which these days is showing signs of a war
mentality, unanimously repeating angry slogans against the West no matter how
absurd they might be, but also by a peculiar failure of consciousness at the
highest levels in the West.

This can be seen in remarks of NATO's Secretary-General, Javier Solana. Asked
just two weeks ago [March 15] whether Russia could ever join the alliance, he
was properly careful not to exclude the possibility, but he shifted the onus
to Russia. He "refused" -- as Russians got it from ITAR-TASS (and as I got it
on JRL) -- "to make guesses, as none of the Russian leaders has yet shown any
interest in accession to NATO."

Mr. Solana appears to have been badly misled. I assume his sincerity, yet it
is hard to imagine how he can really believe that no Russian leader has shown
interest in joining NATO. Russian leaders have on many occasions appealed for
accession to NATO; it is NATO that has failed to respond, leaving them to hang
out to dry. Virtually every well-known reformer and moderate in the government
and in the parliament, from Yeltsin and Fyodorov and Chernomyrdin to Yavlinsky
and Arbatov and Rybkin, has called for Russian membership in NATO. Russian
leaders have even spoken in tones of pleading for their country to be given at
least a hope of joining NATO, a fair chance like its neighbors. 

The only answer that has come from NATO is that the possibility is not
excluded. Few people on either side really believe in this reassurance. There
is no serious plan for how Russia might join; there is only a plan, adopted by
NATO in 1995, for how every small neighbor of Russia can join -- leaving
Russia on the outside looking very much like an implied enemy.

Is the Secretary General of NATO unaware of the facts of this matter? Has he
been properly briefed about recent NATO history? I wonder. 

Back in December 1991, on the very day the USSR dissolved, Yeltsin sent NATO a
letter aiming at Russia joining the alliance. It was a tremendous opportunity
for the West -- an offer from the enemy to join instead of fight. Politically
this was a big risk for Yeltsin; it needed a validating response. Yet there
was no response at all from NATO. The opposition pounded at the Yeltsin-
Kozyrev government for being so naive in its love of the West. The overture
quickly became an embarrassment; it was withdrawn by saying that the letter
had been mistranslated. 

Incidentally, General Geliy Batenin, who was military adviser to Kozyrev in
1991-2, personally told me at the time about the origins of Yeltsin's letter
to NATO. He made it evident that the point of it, despite later denials,
really was to seek Russian membership in NATO, seeing this as the only way out
of the mess that used to exist in Russia-NATO relations and that would
otherwise soon return. Since then, as we know today, that mess has indeed
returned, playing its part in spawning a renewal of adversarial mentalities:
Russian fears of being isolated and reduced to a backwater status have feeded
upon the expansion of a NATO that does not include Russia, and by NATO
planning and implementation of interventions while only "consulting" with
Russia externally rather than including Russia organically in the planning.

When I mentioned the Yeltsin letter to a major functionary in Brussels, he
dismissed it contemptuously -- "Hmpf! They gave us the letter in public! That
was no way to conduct serious business! And it was withdrawn a week later!"
One has to understand the office mentality in which everything is done by slow
paperwork, no matter that a revolution is taking place. It would be
understandable if NATO officials would rather to forget about the entire
incident. It would be disturbing, however, if they have not honestly briefed
their new Secretary General on it. 

Equally disturbing, Mr. Solana seems to be unaware that in 1997 Boris
Berezovsky made a passionate appeal for Russian membership in NATO. Berezovsky
argued, in impressively sophisticated terms, that this was the only way of
anchoring Russia's identity to the West and avoiding a new historical cycle of
Russia-West alienation. I brought this up with Berezovsky several weeks ago,
at a time when one might have thought he would have been focusing solely on
saving his skin as head of the CIS; he reaffirmed his view, calling it a "very
important" matter. 

Most disturbing of all, Mr. Solana seems unaware that virtually all the other
Russian leaders have also called for NATO membership. The sole significant
exception has been Yevgeniy Primakov, who made his mark by arguing that the
Atlanticist line of his predecessors was simply making it easier for NATO to
expand at Russia's expense. In the absence of any response from NATO to the
others, Primakov's warnings seemed vindicated. One by one the Atlanticists
collapsed politically. Step by step Primakov rose in their place.

Perhaps the West is waiting for Mr. Primakov to join the chorus of applicants
for membership? In that case, it may have to wait a long time. Primakov has
stated firmly that Russia will not apply for NATO membership because it would
be a serious blunder. And why would it be a blunder? Because, he says, NATO
will never let Russia join, but would only use the application as an excuse
for letting all of Russia's neighbors join. 

It is clear from the record which side has been remiss in expressing interest
in Russian membership in NATO. There has been an astonishing lack of interest
from the Western side in having Russia as an ally, at least when it comes down
from the plane of generalities to the pivotal point of Russia-in-NATO. This
has already had damaging consequences for the Russian identity and for vital
Western interests. Now even the bare facts of the recent past seem to be
getting filtered out from NATO's collective mind and discourse. This is
dangerous for the future prospects of the West.

NATO needs to remind itself that many leading Russians do want into NATO. For
a time they held the top positions in Russia, but most of them lost office
after it became clear that the West was providing no space for Russian
Atlanticism to be viable. If NATO wants there to be space for Atlanticism to
come back to power in Russia and to endure, it will have to develop a serious
plan for membership for Russia.

Ira Straus is U.S. Coordinator of the Committee on Eastern Europe and Russia
in NATO. He is also Senior Associate at the Program on Transitions to
Democracy at George Washington University, and was Fulbright professor 1997-98
at the Russian State University of the Humanities. 

tel 703-521-5759
e-mail irastraus@aol.com
CEERN webaddress http://www.fas.org/man/nato/ceern 

******

#3
Moscow Times
April 1, 1999 
SEASON OF DISCONTENT: Rising Above Dual Morality In the Balkans 
By Andrei Piontkovsky 

Russia, which has traditionally enjoyed the sympathy of all of
Yugoslavia's peoples, would have won big if it had taken the side of
neither the Serbs, the Croats nor the Bosnians during the nearly eight
years of Yugoslavia's tragedy. Russia should have taken one side only -
that of the victims, of the civilians who were murdered or forced from
their homes. 

The universal indignation that civilians are dying under NATO bombardment
is fair. But why is our indignation so selective? How come no one was
indignant during the three years in which civilians in Sarajevo died at the
hands of Serbian artillery in the surrounding hills? Or do artillery
shells somehow kill differently than bombs dropped from planes? How come
no one here found a word of sympathy for the Bosnians or Albanians?
Because they are Moslem, and thus, according to the worn-out semantic
formulations, "Islamists" and "extremists"? The only words Foreign
Minister Igor Ivanov could muster up for the Albanians were: "Do the
people of Europe really want a breeding ground for Islamic extremism on
their continent?" The anti-Islamic zeal of our "New Orthodox" is a
dangerous tendency in a country where 18 percent of the population
isMoslem. 

Enough has been said about the West's double standards. Let us not close
our eyes to our own double standards. In seeking a halt to NATO's bombing,
we must also seek the protection of the Albanian population, which is being
subjected to ever-greater repression. The NATO operation, aimed at
preventing a humanitarian catastrophe, has so far only deepened it.
Bombardment by B-52s and F-117s cannot protect every Albanian village or
prevent the flow of refugees driven from their homes by Serbian troops. And
the NATO states are categorically not ready to deploy ground troops. The
"Mogadishu criteria" hold sway, by which no democratic country can let
itself lose more than 20 men in any given military operation. Such losses
spark such a high level of public indignation that the military operation
is ended and the troops brought home. 

The Albanians, whose hopes for protection were engendered by statements
from Western politicians, will be betrayed. Something similar already
happened in 1991, at the end of the Gulf War. Over many months, U.S.
propaganda had called on the Kurds and Shiites of Iraq to "rise up against
the tyrant." When that uprising finally took place, the Americans did not
interfere and allowed Saddam's presidential guard to drown it in blood. 

An extremely serious situation has now developed in Kosovo and NATO,
apparently, has no clear exit strategy. Russian diplomacy has the
opportunity to demonstrate not only its political skill, but also, as
President Boris Yeltsin has loved saying recently, its moral superiority.
(True, it would have been better if a person responsible for the deaths of
tens of thousand of his own citizens would not preach on moral issues.) 

But to do so, Russia must refrain from one-sided support for Slobodan
Milosevic and from viewing the Albanians as simply a "hotbed of Islamic
extremism in Europe." Russian diplomacy must concentrate on a twin task -
ending the bombing and protecting the Albanian population. 

If we succeed in preventing a humanitarian catastrophe in a place where
the United States and NATO were unable to do so, it will colossally raise
the authority and role of Russia. 

*******

#4
Date: Wed, 31 Mar 1999 
From: austgreen@glasnet.ru (Renfrey Clarke) 
Subject: Russia and Yugoslavia 

#RUSSIA AND YUGOSLAVIA: LETTING NATO OFF THE HOOK
#By Renfrey Clarke
#MOSCOW - With a shower of paint bombs, rocks, eggs and bottles,
thousands of demonstrators outside the US embassy in Moscow on
March 25 expressed their outrage at the NATO bombing of
Yugoslavia.
#Next morning it was the turn of the British embassy, with a
demonstration by an estimated 5000 people. The protesters
included large numbers of students, and contingents of factory
workers organised by the Moscow Federation of Trade Unions.
#As the day wore on, the US embassy again became the target of
protest. As many as 7000 people gathered outside the yellow-and-
white building on Moscow's inner ring road, chanting and flinging
missiles. Press reports noted the unusual range of people taking
part - from skinheads and teenage football fans, to office
workers and pensioners.
#From around Russia came news of further demonstrations.
``Yesterday Iraq, Today Serbia, Tomorrow Russia,'' read a placard
in St Petersburg. Nationalist organisations signed up military
veterans to defend Yugoslavia. #According to survey findings, no
fewer than 93 per cent of Russians oppose NATO's action in
bombing Yugoslavia, where the majority Serb population have
important traditional ties with Russia. Sensing the popular mood,
Russia's state leaders have tuned in to it - at least
rhetorically.
#As the first reports of the bombing came in, President Boris
Yeltsin hinted that Russia might respond with measures ``of a
military character''. In an interview on March 27, Foreign
Minister Igor Ivanov accused NATO of committing ``genocide''
against the Yugoslav people, and suggested that the alliance
answer for its actions before the UN war crimes tribunal.
#For anyone who remembers the mood of Russian leaders - and of a
good part of the population - in the early 1990s, the scenes of
the past days and weeks have been brimful of irony. Seven or
eight years ago, so far as Yeltsin and many of his followers were
concerned, the Western powers could do no wrong.
#But faith in the West has slid steadily ever since. And now, as
the bombs rain on Yugoslavia, the last shreds of belief in
Western goodwill are being replaced by cynicism.
#In today's Russian press, the rationalisations offered by
Western leaders to explain the bombing campaign are treated with
open scorn.
So the NATO powers claim to have gone to war from a commitment to
defend the rights of the Kosovar population in Yugoslavia?
``There is an unquestionable double standard...'' the Moscow
paper <I>Novye Izvestiya<D> observed on March 26. ``If one
recalls how harshly Turkey, a NATO member, deals with the
Kurds....''
#The mood of hostility to the West is especially marked in the
Russian military. ``Most Russian military personnel are
expressing direct readiness for armed solidarity with the
Serbs,'' the Moscow daily <I>Nezavisimaya Gazeta<D> reported on
March 27. ``The US and NATO are now associated exclusively with
the image of the enemy.''
#For that matter, it is not only among military officers in
Russia that suspicions of NATO have grown steadily stronger in
the past few years, and have been brought into sharp focus by the
onslaught against Yugoslavia.
#Why, Russians have often asked themselves, has the NATO alliance
even been preserved, now that the Cold War has ended? #For a
decade, liberal ideologues have tried to suppress the instinct of
many Russians to view political questions in terms of class, and
of exploitation of the poor by the rich. But as the bombs and
missiles have pounded Yugoslavia, even Russian liberals have been
allowing that NATO is essentially a military club of the rich, an
armed alliance for enforcing the interests of the ``haves'' of
North America and Europe against the ``have-nots''.
#As citizens of what is now the great ``have-not'' of Europe,
Russians have been quick to note that the bombing of Yugoslavia
also carries a powerful message for them. If Western leaders find
something to their advantage, that message runs, they will not be
deterred from pursuing it by Russian objections.
#And if the Russian state should dare to pursue its interests in
ways not to the West's liking, the message continues, the
consequences for Russia could be devastating.
#Those are quite valid reasons for the Russian masses to fling
beer bottles, including full ones, at the windows of the US
Embassy. The Russian elite have been flinging epithets. But after
years of implementing Western economic prescriptions, the Russian
government can now come up with little in the way of concrete
action to place NATO in check.
#When news of the bombing broke, Russian representatives in the
United Nations Security Council moved a resolution demanding an
immediate halt to the air strikes. The resolution, predictably,
was heavily defeated. Russian military collaboration with NATO
has now been frozen, and ratification by Russia of the START-II
nuclear arms reduction treaty has been postponed. The effect of
these moves on the NATO governments, however, has been
undetectable.
#Meanwhile, calls for the providing of military aid to Yugoslavia
have been quietly pushed aside by the Russian authorities as
impractical and dangerous.
#The failure of Russian leaders to make any impact on NATO is
not, however, simply a reflection of Russia's drastically reduced
influence in the world. The will is not really there either.
#The Russian leaders' expressions of outrage at the bombing of
Yugoslavia have been accompanied by assurances that no big
changes in Moscow's orientation to the West are desired or
contemplated. In a dramatic gesture on March 23, Russian Prime
Minister Yevgeny Primakov called off a trip to the US after being
denied guarantees that air strikes would not begin while he was
in America. Other members of his delegation, however, made their
way to Washington, and while bombs fell on Belgrade, most of the
meetings planned for Primakov's trip took place.
#A meeting between Primakov and International Monetary Fund chief
Michel Camdessus, that had been due to take place in the US, was
quickly relocated to Moscow. The Russian government was seeking
IMF credits of as much as US$4.8 billion, needed to forestall a
default on foreign debt payments. Nothing the NATO powers might
do in the Balkans, it became clear, would be allowed by the
Russians to prejudice these negotiations.
#It might be argued that in at least stating emphatic opposition
to NATO's attacks on Yugoslavia, Primakov and other members of
the Russian elite have passed an important test. But given the
popular mood in Russia, they could not have done otherwise. And
if their statements are analysed, it becomes clear that the
Russian rulers have dealt with the imperialist bomb-throwers much
more kindly than they might have done.
#A striking feature of the rhetoric issuing from Moscow - both
from official spokespeople, and from major newspapers - is its
whitewash of the Yugoslav government and its refusal to address
the real history and dynamics of the situation in Kosovo.
According to <I>Novye Izvestiya<D> on March 26, Yugoslavia has
been under attack for ``solving strictly internal problems''.
#To Russian Foreign Minister Igor Ivanov, quoted in the Moscow
press, the Kosovo Liberation Army consists simply of ``Albanian
terrorists'' and ``Muslim extremists''. Meanwhile, all but a few
dismissive references to Serbian atrocities against the Kosovars
have been expunged from the Russian media.
#The Russian elite, it follows, is quite happy to underline its
various differences with the West by permitting and even
encouraging chauvinist fervour. But promoting a serious
understanding of national rights and popular self-determination -
something which would really give NATO problems - is not its line
at all.

*******

#5
From: "david law" <dl12@post.queensu.ca>
Subject: TOWARDS A BEIJING-MOSCOW AXIS?
Date: Wed, 31 Mar 1999

David Law
Senior Fellow, Queen's Center for International Relations &
Adjunct Professor, Royal Military College, Kingston, Canada
(former head, NATO policy planning unit)

TOWARDS A BEIJING-MOSCOW AXIS?
- will the conflict in Kosova spark a geo-strategic shift?

The NATO airstrikes against President Milosevic’s Yugoslavia seem to have
breathed new life into the Sino-Russian strategic partnership, a largely low
key affair since being launched amidst much fanfare three years ago. In
reactions to the bombings, Moscow and Beijing have roundly condemned the
NATO campaign as an aggressive and illegal act, warning of the dangers it
holds for international peace and security, and promising unspecified
measures in response.

The PRC and the Russian Federation have several reasons for opposing the
NATO action. Beijing is keen to protect the principle of non-interference in
internal affairs, particularly as concerns its human rights record and claim
to Taiwan. In its view, NATO has as little justification in meddling in
Yugoslavia’s affairs as the United States has when it comes to the
relationship between Mainland China and Taiwan. Russia is nervous about
centrifugal forces in the Federation and the presence of western countries
in the CIS, particularly in the Caucasus. Significantly, China and Russia
have expressed support for one another’s claims to Taiwan and Chechnya.

Unsurprisingly, the two countries jealously guard their privileged position
as veto powers in the Security Council. As long as the Council’s authority
in international security is upheld, they can block actions that they feel
challenge their interests. Recently, China did just that when the mandate
for the UN protection force in Macedonia came up for renewal and Beijing
decided to retaliate for the Balkan Republic’s establishment of diplomatic
relations with Taiwan. For Russia, permanent UNSC membership provides a
platform that it can use to make the west stand up and notice its concerns,
whether they be strictly strategic or monetary in nature.

Beyond that, the two countries also have to contend with messy and
potentially destabilising situations in Central Asia and the Far East.
Post-Soviet Central Asia is for the most part a collection of failed states
in waiting. In the Far East, central state control has virtually collapsed.
There have been reports about Chinese nationals moving in large numbers into
parts of Siberia that border with their country, initially to trade and
later to stay. But it would be wrong to assume that China would take
advantage of post-Soviet weakness to risk a territorial grab. The PRC’s
interests are focused on East Asia. And in any case, Beijing would not have
the wherewithal to checkmate the Russian nuclear force, even if it had the
inclination to do so. Rather everything points to the two countries needing
to take a cooperative approach towards these issues.

As for the Sino-Russian trading relationship, it has not blossomed in line
with official commitments. But for economically hard-pressed Russia, the 5.5
billion-dollar turnover in bilateral exchanges in 1998 is not unimportant.
For China, Russia is a source of relatively inexpensive and high-tech
armaments. This is an economic relationship that could grow, particularly if
western protectionism increases, and capital flows to China and Russia dry
up.

Most importantly, Russia and China share an interest in countering US
leadership. They have not been shy about expressing their opposition to
“unipolarism” and the need to check what they perceive to be the American
“diktat” in world affairs. For China, the more pressure on the US in the
Balkans and the Middle East, the less energy at America’s disposal for
opposing PRC designs in Asia. For Russia, the more pressure on the US in
these and other trouble spots, the more America needs Russian cooperation,
and may be prepared to pay for it. Additionally both countries share an
interest in opposing US plans to proceed with the development of a
deployable ABM system, which they fear would degrade their nuclear assets.
The line between continuing cooperation and simultaneous opposition is a
tricky one, particularly for cash-starved Moscow, but thus far the Russian
foreign policy elite has walked it skillfully.
NATO faces formidable challenges in the Balkans, perhaps the toughest it has
faced in its fifty-year existence. It lacks a specific UN mandate for its
actions, after previously making almost a religion of the need to have one
under all out-of-area circumstances. It is challenging the most sacrosanct
of Westphalian principles, non-interference in a state’s internal affairs.
At its members, and particularly the United States, can easily be leveled
the charge that Serbia is being punished for crimes that they have
conveniently ignored elsewhere, and sometimes in NATO’s own ranks. The
reluctance to envisage engagement on the ground, moreover, recalls the
ineffectuality of international intervention in Bosnia in the pre-IFOR
phases of the conflict.

Nevertheless, as long as the NATO campaign is perceived to be on track,
support for the position that Moscow and Beijing have taken is likely to
remain limited. A UN Security Council vote on 26 March calling for an end to
the NATO action garnered only the votes of Russia, the PRC and Namibia. CIS
members are divided in their assessments, as are the PRC’s Asian neighbours.
Here, it has tended to be big countries facing centrifugal problems of their
own or still communist states that have opposed the NATO action. Most
Central and Eastern European countries, even those that cannot expect to
become Alliance members in the near future, have declared their approval for
the NATO action. A bigger challenge to NATO’s consensus decisionmaking would
appear to come from Alliance capitals close to the conflict zone where some
nervousness has been on display about the bombing.

For all the flaws in its position, NATO probably has history on its side.
There are some 200 states in the world but probably 25 times as many
identifiable communities. When given half a chance, people will support the
notion that majorities and minorities should work out their problems
peacefully. But they also question the justice of force being used to
perpetuate a master-slave relationship or to sustain links between
communities when they have irreparably broken down. Such considerations
transcend the classical notion that the state has an absolute right to
dispose of its people and their communities as its agents see fit. The
Russian and Chinese man-on-the-street also has a stake in inter-ethnic
sanity holding sway. This is an issue of particular immediacy in the
Federation with presidential and parliamentary elections just around the
corner and a rising red-black fascism being trumpeted on behalf of an
elusively pure Russian people. The NATO action in Yugoslavia is also about
calming these demons before it really is too late. Seen from another angle,
NATO is trying to generate the kind of “neither separation nor
subordination” settlement that Russia eventually accepted for Chechnya.

Does the present government in Moscow understand these arguments? The
evidence is disturbingly mixed. Russia has pulled out of NATO’s partnership
for peace program and closed NATO liaison offices on its soil. Prime
Minister Primakov has just made a highly visible visit to Moscow - with his
Foreign and Defence ministers in tow, demonstrative embraces with Milosevic
and his entourage on display for international television and follow-on
rumours to the effect that Russian naval assets may be deployed to the
Mediterranean to protest the NATO action. But there have also been signs of
a preparedness to allow at least some business to proceed as usual with the
United States and other Alliance members. While the hoped-for IMF bailout is
the key operative factor here, we should not exclude that those who want a
political life after Yeltsin understand that to strengthen Milosevic is to
strengthen Zhuganov.

What, however, if the NATO effort slips and fails? The likely consequence
would be a strengthening of isolationist forces in the US and of revanchist
forces in Russia. This could pave the way for China and Russia becoming as
militarily and strategically interdependent as were Russia and Germany prior
to 1941. Prime Minister Primakov has downplayed the notion of a
Russian-Chinese-Indian strategic triangle since introducing it last
December. He or his successors could nonetheless seek to preside over a
far-reaching alliance of states, one whose leaderships feel threatened by
western-championed pressures for democratisation and which others, with more
limited complaints, might tactically support. The NATO action against Serbia
can spark the emergence of a “loser coalition” or deal such prospects a
decisive blow.

*******

#6
Date: Tue, 30 Mar 1999
From: PBNNathan@aol.com 
Subject: Peter B. Necarsulmer at Kennan Institute

"Perception versus Reality:
An American Businessman's View of Russia Today"
By Peter B. Necarsulmer (PBNPRES@AOL.COM)
Chairman and CEO, The PBN Company

Outline of Talk Presented at the
Kennan Institute for Advanced Russian Studies
Washington, DC
March 29, 1999

INTRODUCTION

It’s been 10 years since the dawn of perestroika. One of the central
lessons to be learned about Russia is that things are not always as they seem.
And predicting the future, well that’s a very dangerous game. I don’t know
about you, but my crystal ball is pretty murky.

How many times did we and the western news media have it all figured out?

-- One month before the total collapse of the USSR, President Bush told the
Ukrainians to hang in there with Gorby. Yeltsin would go nowhere.
-- Once Gaidar left the Government in 1993 and Chernomyrdin checked in, it was
certain that reform had ended as we know it. Yeltsin, the prognosticators
said, was finished too.
-- When Zhirinovsky appeared, national socialism was inevitably to follow.
Yeltsin was dead.
-- When Zhuganov won the first round in the last presidential poll, Yeltsin
was dead again. The communists had been resurrected.
-- When Yeltsin finally won that election, Lebed had ascended and the General
was crowned the new strong man of Russia. Once again, Yeltsin was to be not
long for this world.
-- And, after the August collapse and the firing of Kiriyenko, all were sure
total economic catastrophe would ensue and that economic reform had gasped its
last breath...once again. 
-- With Primakov’s arrival, so it was said, the KGB had returned to power in
the embrace of yet another communist resurrection. Yeltsin had finally given
up the ghost. 

My objective today is not to show how many times and how many people have
been wrong about Russia, especially the news media--that would be too easy.

Rather, I hope to underline, especially in today’s growing tensions over the
Yugoslav crisis, that snap judgments and generalizations about Russia can be
very tricky. History shows we inevitably eat crow.

After all, this is a country with a millennial history, a geography spanning
11 time zones and a population of more than 150 million people.

PURPOSE

My goal is to put some insights on the table from an American businessman’s
perspective. The views of someone who works and lives in Russia 75 percent of
his time.

Thank you very much for inviting me to join you today--I know I am not your
typical guest speaker. You have so many distinguished Russia scholars,
presenters and analysts. About all I have in common with them, I’m afraid, is
that I’ve bought and even read some of their books. 

I’m kind of like the plumber or the garbage man. In that sense my
perspective does have value--after all, everyone needs a plumber. And, I have
been doing business continuously in Russia since 1990.

Also, I think I am an acute observer of the economic and political situation
because I have to be. More than half of my firm’s business is in Russia and
the former Soviet Union. If Russia goes down the tubes, the Steven Cohens and
Marshall Goldmans will still have jobs. Me, I'll be looking for work.

There is a lot of conventional wisdom out there about Russia. And, it is
fueled by the media, relentlessly. There is also studied and informed
academic interpretation. And then, there is plain street smarts and horse
sense. I hope to share some of that with you today.

So what do the headlines say versus what we on the ground hear, see, feel
and think? For my talk, I would like to focus on five items of conventional
wisdom.

-- First, Americans are in physical danger and disrepute over Yugoslavia.

-- Second, The August 1998 crisis reduced Russia to an economic wasteland.

-- Third, American and other foreign companies have left the country in droves
unable to conduct business.

-- Four, the Russian Government is non-functional.

-- And, five, corruption in Russian society is absolute. 

I’d like start with the first proposition, AMERICANS ARE IN DANGER OVER
YUGOSLAVIA.

The reality, it seems to me, is more subtle.

Apart from Embassy employees, no one feels or is physically endangered.
That might changes, but as of one hour ago the mood has not changed in our
office.

Demonstrations are limited and are more social than political. The main
participants to date are skinheads, gangs and Zhirinovskyites -- only a
handful are true Serb sympathizers. Today’s Washington Post photo of several
demonstrators barely 16 years old in front of the US Embassy tells us a lot.

While the bombing is a leading top-of-mind discussion issue in Russia just
like everywhere else, the overwhelming majority of Russians remain focused not
on international relations or national politics — not on Serbia and Kosovo —
but on daily life. Perhaps even more so than here in America.

The main political development here is the apparent consensus among the
leadership. For the first time in as long as anyone can remember, Yeltsin,
Primakov, Luzhkov, Zhuganov, Chubais and Zhirinovsky share a common opinion.

Does this signal a galvanizing of nationalistic sentiments among the elites?
I take a more cynical view. This consensus at this time is being driven by
each leader’s own assessment of what plays politically in Russia. No one
wants to be outdone on Russian nationalism and Slavic brotherhood.

Apparently Gaidar, Nemstov and Fyodorov share this concern although they have
wrapped their "negotiations mission" in a truly weird way--keeping Russia from
moving to the right. So whether Zhuganov is calling for arms and volunteers,
or the Democrats are calling for peace, we need to understand that all of them
are in the first place trying to fill a potentially dangerous political void.
And that their primary concern is domestic political and electoral
considerations.

American credibility is on the decline to be sure, but the decline began
long before the Yugoslav situation. Two other factors contributed to the
decline: one transitory, the other much more fundamental. 

On the transitory front is America’s fascination with Monica Lewinsky. The
impeachment spectacle in Washington had more impact that one might
imagine--there is almost never a conversation involving a Russian and an
American without the question arising: What is wrong with you people?
Throughout Europe and especially in the former Soviet Union, people continue
to be astounded by the diversion, divisiveness, cost and stupidity of the
entire controversy. Silly as it may seem, this truly hurt American
credibility in Russia.

More fundamental, is America’s close association with the failures of
economic reform in the eyes of Russian leaders and citizens alike. The August
crisis, the ruble’s freefall, and attending dislocation; the 17 million
defrauded investors from early privatization; raging corruption; and negative
economic growth, are clearly associated with America and American policy.
Much more than Yugoslavia, American policymakers need to understand that their
views on economic strategy for Russia do not carry much weight among Russians
today.

But in all this, we also must remember that, to the degree anti-Americanism
is taking hold, it is focused on our government, not our people and not
American businesses on the ground in Russia.

Let’s take a look at another piece of conventional wisdom--namely, "THE
AUGUST CRISIS MADE RUSSIA AN ECONOMIC WASTELAND." 

That business has been at a standstill. Russia desperately needed
humanitarian aid to survive the winter. The only business being done is being
done by barter.

Here, a major reality check is in order.

Banking continues. Trade continues. Investment continues.
Ruble emissions have been moderate.
Inflation is real, but predicted hyperinflation has not occurred and almost
certainly won’t if the IMF loans happen which today appears a virtual
certainty.
There is food in the stores. And it is worth observing that American food
aid designed to stave off the consequences of a predicted explosive and cruel
"Russian Winter" only arrived last week......on the first day of Spring.

The regions have not crumbled or collapsed.

And, there are numerous signs of the end of economic free fall and the start
of economic recovery, especially in Moscow. Restaurants, clubs, movie
houses, retail shops which were barren through January have survived the worst
and now are seeing customers return. 

Let me not be Pollyannaish. It will be a long time before the economy grows
again. There will be defaults and more banks will close. But behind the
headlines and conventional wisdom, a lot of good has come from the August
crisis.

For one thing, it achieved more structural reform at the enterprise level in
one month than 7 years of effort by western technicians, the World Bank,
Harvard Institute, Gaidar, Chubais and Nemstov. And it disclosed for
everyone the fundamental flaws of the post-soviet Russian economic model
pushed by the west and their counterparts in Russia.

In order to survive the crisis, enterprises and government for the first
time responded to economic dislocation in free market terms. They
rationalized their labor forces. They reduced overhead and began to think and
act competitively. They became self-reliant.

The August financial crisis and ruble devaluation led immediately to a
critically needed reduction of import dependency, especially for food
products. The new demand for domestic production not only serves as a
prophylactic against future inflation but has spurred investment and growth in
local productive capacity.

Also, the Berezhovskies, Potanins, Gusinkys and other oligarchs who had put
a stranglehold on the economy and the government of Russia were dealt a severe
blow by the crisis--freeing the country, at least for now, from their
excesses.

And, in collapsing the capital markets of Russia, the August crisis and the
imperative to attract investment in its wake has placed an important and
sincere focus by the government on shareholders rights, transparency, investor
protections and regulation. As a result, Russia is setting the stage for a
new beginning for a truly functioning capital market place. 

Close to the widely held view on the August Crisis is the conventional wisdom
that "FOREIGN INVESTORS HAVE LEFT RUSSIA IN DROVES AND IT IS IMPOSSIBLE FOR
AMERICAN FIRMS TO CONDUCT NORMAL BUSINESS."

The truth of the matter is quite different.

While expats and speculative, portfolio investors left in a more or less
grand exodus last fall, serious and long-term players have not.

The most recent AmCham and European Business Club surveys show that
virtually no major company has pulled out of the market and many corporations
are investing anew -- more wisely and cautiously to be sure.

Mars, Philip Morris, Coca-Cola, McDonald’s, Danone, Nestle, BMW and others
are maintaining or expanding investments.

Numerous oil and gas development and transportation projects, including the
Caspian Pipeline Consortium, are underway, especially following the enactment
of production sharing legislation and the recent rise in world crude prices.

And, activity is picking up strongly in the strategic investment funds.
Quietly but steadily, new funds are being launched and others that had been
put on hold are now headed for closings.

The Russian Government strongly supports investments in the "real economy."
They have no other choice and their actions, especially in investment law
reform, speak loudly and encouragingly.

Again, let me not exaggerate. Business is tough. Just as with Russian
firms, foreign companies also had to restructure following the crisis. An
example. At one major American company, every expat employee in Moscow
enjoyed not one but two personal cars and drivers, one for the work day and
one for the evening. These kinds of excesses have properly been trimmed.
And, high-cost expat employees have been replaced in many cases by equally
qualified Russian nationals. 

My firm, like others, had to search for new ways to do banking, transfer
funds adjust pricing and otherwise respond to the crisis. But it was not
impossible and now we, like other foreign companies, are stronger, smarter and
better prepared for the future. 

The conventional wisdom also says "THE RUSSIAN GOVERNMENT IS INCAPABLE OF
FUNCTIONING."

That Primakov is paralyzed, walking a tightrope and barely holding on.
Yeltsin’s impeachment is around the corner and the Coalition Government with
communists in key posts makes governing impossible. Nothing can happen until
Maslykov is forced out and a new President is elected.

Here again, I would like to offer some countervailing views.

Primakov’s Government, while transitional, has held together. This "Noah’s
Ark" of communists, apparatchiks and the occasional reformer has demonstrated
an incredible ability to keep government functioning and to maintain civility
among the legislative, executive and regional authorities. 

An unprecedented austere federal budget was approved. Relations with the
regions, on a fast track toward total disintegration last fall, have improved
markedly.

The State Duma and the Council of the Federation are dealing with important
legislation ranging from tax and investment law reform to intellectual
property protection, production sharing agreements and shareholders’ rights.

In its negotiations with creditors and international lending institutions,
the Government is engaged in serious multilateral negotiations to restructure
its debt and by definition, its entire monetary and central banking systems.
Of course, it’s never over until the fat lady sings. But it now appears that
an IMF deal which would prevent or forestall further major defaults by the
Government is within reach.

It also must be noted that tax collection and tax compliance has improved
substantially, and in a number of recent months even exceeded optimistic
projections.

No question, this is a transitional government whose major, indeed, historic
achievement, has been political stability—not dramatic economic progress or
leadership.

As the Duma and presidential elections approach — which will be late this
year for the Duma and in 2000 for the presidential polls — less and less
will happen in Government in terms of substantive laws, regulation and
legislation. But this inertia is reflective of political realities, not a
fundamentally incompetent or incapable Government. In other words, politics
in Russia is not always so different from politics in the United States.

The wild card is Yeltsin. Will his ego, bruised by Primakov’s
accomplishments, lead him to attempt to remove the Prime Minister? The
President has been sending pretty ominous smoke signals of late which suggest
his ego may not be kept in check. On the other hand, will the impeachment
process which has been stalled for more than two years get a new lease on life
because of the Yugoslav crisis? And, then there are the real and daily
concerns about Yeltsin’s health. Will he continue to force the early obituary
writers to eat more crow, or will he finally whither away?

The other wild card is the IMF and a bailout seems highly likely, not to
mention essential. All in all, on political stability, the budget, civil
relations among factions and institutions, federal and regional relations,
and, securing IMF support, this is a Government that has, in fact, achieved
much more than all the pundits predicted or are prepared to admit.

I would like to address one last piece of conventional wisdom. "THAT THE
RUSSIAN ECONOMY AND SOCIETY IS HOPELESSLY CORRUPT."

On this subject, reality and perception are still too well aligned, I’m
afraid. Maybe the margin of difference is only 20%. But these days, with the
European Union Commission debacle, it’s hard to argue that Russia has a
monopoly on corruption.

Nevertheless, there is a widely held and I believe incorrect view that it is
impossible to conduct business ethically in Russia. That around every corner
lurks a Mafia boss ready to offer protection. That American businesses are
faced with a Hobsian choice fearing the knock of the tax police at their
door-- either pay confiscatory taxes that will lead to bankruptcy, or skirt
their legal obligations.

This is not true. Further and immediate tax relief and reform is urgently
needed. But it is possible to pay the piper and still make a profit.

Legitimate foreign businesses, by and large, are left alone by the organized
Mafia. It’s a matter of commitment and competence on the part of management.
In the case of The PBN Company, we were told and still are told that we can’t
serve our clients unless we pay off journalists and bribe government
officials. Our 10 years of experience shows otherwise.

There are other important and encouraging facts that usually escape the
headline coverage. Facts that undermine the conventional wisdom about
corruption in Russia.

There is the strange case of Special Procurator Yuri Skuratov. His survival
and apparent return to the job, under the protection of the Federation Council
bodes well.

The Primakov Government has been unrelenting in reducing the previously
unfettered access, influence and gluttony of the oligarchs, especially
Berezhovsky.

Indeed, there is a very serious and real commitment by Primakov to address
corruption and he is the man with the resources and the information to
actually do it.

So, while all is not well on the corruption front — and at least 50% of the
Russian economy remains in the grey and black shadows — the situation is not
hopeless.

CONCLUSION

In Conclusion, There is one prediction about Russia that I can make with some
certainty: expect the unexpected and take everyone’s crystal ball with a
grain of salt.

Don’t always believe what you read, see and hear in the headline coverage--a
critical eye and critical view is necessary and useful for a balanced
perspective of reality in Russia.

Second, don’t count Yeltsin out. He’s got more lives than a cat. 

Third, Russia has been around for 1,000 years and we are less than a decade
into the post-communist era. It’s going to be many more decades before anyone
writes the final chapter. In this sense, I am prepared to have cold water
doused on my essentially positive view of Russia’s prospects over the long-
term, even the medium-term. At the same, time, I am prepared and ready to be
proven right in my basic optimism.

I do know that the fundamentals that attracted investment and led to
economic cooperation with western business have not changed--it’s still a
nation of 150 million consumers, boasting a highly educated labor force; home
to endless supplies of natural resources; and, a pioneer in scientific and
technological innovation. In today’s interdependent international economy,
the west and Russia are doomed to cooperate. I and many other want to be part
of the process.

An obvious reality is that those who stay in the game have the best chance
to win. There is one piece of conventional wisdom that you can take to the
bank. Russians will remember who stuck around during the tough times and
those who jumped ship.

Thank You.

*******