April 16, 1999    
This Date's Issues: 3241• 3242  • 

Johnson's Russia List
#3242
16 April 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Russia Premier Backs Market Reforms.
2. Moscow Times: IMF Not Needed: Poll.
3. Reuters: Russia economy takes small steps, but ill.
4. Moscow Times: Jonas Bernstein, PARTY LINES: It's Little More Than 
a Primal Personal War.
5. The Moscow Tribune: John Helmer, THE CAMEL'S TAIL.
6. Informatsionnoye Agentstvo Ekho Moskvy: Head of Russian Spiritual 
Heritage Opposes Impeachment. (Podberezkin).
7. Edwin Dolan: Results of Moscow Case Competition.
8. The Economist editorial: A new cold war? 
9. Business Week: Business Week, Patricia Kranz, Russia: What Happens 
When Markets Fail.
10. New York Times: Thomas Friedman, Our Buddy Boris.
11. AFP: Europe's intellectuals in disarray over Kosovo.]

*******

#1
Russia Premier Backs Market Reforms
April 16, 1999
By VLADIMIR ISACHENKOV

MOSCOW (AP) -- Prime Minister Yevgeny Primakov stressed today that the
government will continue implementing economic reforms but that it wants to
bring back greater state control over the economy.

``The government isn't going to backtrack on the course of reform, but it's
necessary to re-think some approaches and correct some steps that have been
taken,'' Primakov said at a Cabinet meeting.

Primakov said the government will follow orders from President Boris
Yeltsin to create incentives for ailing industries and make state
regulation of the economy more effective. He did not specify how the
government would do so.

Primakov has repeatedly said that the government intends to take a greater
hand in managing the economy. The prime minister has argued that earlier
reform efforts resulted in a free-for-all that contributed to the country's
economic problems.

Primakov said that the government's plans have won approval from World Bank
President James Wolfensohn, who promised Russia $2.3 billion in new loans.

Wolfensohn, who held talks with government officials in Moscow on Thursday,
said the loan would be released over two years, and would begin after the
government reaches agreement with the International Monetary Fund.

The IMF and the World Bank orchestrated a $2.6 billion bailout package to
Russia last year, but disbursements were frozen in August after the
country's financial markets collapsed.

Russia desperately needs the money to avoid a looming default on its
foreign debt. The country has suffered one of the worst depressions ever
experienced by an industrial nation, and its economy has contracted
throughout this decade.

A team of IMF experts is in Moscow preparing a report for the fund's board,
which is expected to make a final decision on new loans shortly.

First Deputy Prime Minister Yuri Maslyukov said today that the government's
austerity course has reduced the rate of inflation and reversed a decline
in industrial output.

*******

#2
Moscow Times
April 16, 1999 
IN BRIEF: IMF Not Needed: Poll 

MOSCOW -- At least half of all Russians think their Russia can do without new 
loans from the International Monetary Fund, according to a public opinion 
poll conducted by the All-Russian Public Opinion Center. 

The poll of 1,600 randomly selected Russians conducted between April 9 and 13 
found that 50 percent of respondents felt Russia, which is currently in talks 
aimed at wresting some $4.8 billion from the IMF, could survive without new 
credits, Interfax reported. 

29 percent of respondents said the Russian economy would collapse without the 
loans. 21 percent were undecided. The poll's error margin was plus or minus 4 
percent, Interfax reported. 

*******

#3
ANALYSIS-Russia economy takes small steps, but ill
By Patrick Lannin

MOSCOW, April 15 (Reuters) - Russia's economy seems to be taking some small 
steps to recovery but the patient remains seriously ill, analysts said on 
Thursday. 

Some data are showing improvements, notably output and prices, and the World 
Bank has said it is ready to restart lending once the International Monetary 
Fund gives Russia a cleaner bill of health. 

However, analysts note that huge debts, a shattered bank system and a near 
total lack of foreign investor confidence after the financial crisis last 
August remain critical burdens. 

"I would not say it is in a healthy state but it is in a much better than 
expected state," said Nancy Herring, head of research at Moscow-based Regent 
European Securities. 

World Bank President James Wolfensohn earlier said the bank was ready to lend 
Russia more than $2.0 billion this year and next and was impressed by 
government commitment to reform. 

These remarks followed the release of the latest statistic to bolster the 
government as industrial output showed a rise of 1.4 percent in March, the 
first year-on-year increase since the August crisis. It leapt 11 percent on a 
monthly basis. 

Analysts said the improvement in some economic data was due to devaluation 
boosting export revenues and the fact that domestic producers were able to 
substitute their goods for imports, which have slumped in volume and soared 
in price. 

Output growth is particularly cherished by the government, as it reflects the 
"real sector," an area Prime Minister Yevgeny Primakov and his economic chief 
Yuri Masylukov want to boost and which slumped 14.5 percent in September 
after the crisis. 

Inflation has been slowing this year on a monthly basis after rising sharply 
afer last year's devaluation and a surge of money printing by the government, 
although year-on-year figures have been running at over 100 percent. 

Inflation in March was 2.8 percent month-on-month from 4.1 percent in 
February. It surged 38.4 percent on a monthly basis in September 1998 as the 
government began to set the printing presses rolling to fund its battered 
budget. 

Some analysts expect prices to pick up in April and May as previous rises in 
money supply hit inflation, and figures for early April show a slightly 
faster rise than in March. 

However, Maslyukov has said inflation would be no more than four percent 
month-on-month in April. 

These improvements are helping to lay to rest fears that Primakov's 
government, more inclined to state control than to market forces, could 
trigger yet more economic troubles. 

But economists remain to be convinced that Primakov and his team have a clear 
plan on how to move forward. 

They point out that the country has foreign debts of $140 billion, which the 
government hopes to restructure and which were one of the prime causes of the 
August collapse, and a bank system that is a shadow of what it was before the 
crisis. 

Foreign investors remain wary, particularly those who have seen the value of 
their holdings of Russian debt slide and been burnt in a confiscatory 
restructure of domestic debt. 

"Put in a nutshell, the apparent recovery stems from the mechanical effect of 
devaluation, a two-edged sword that boosts certain industries but at the same 
time reduces living standards," Alfa Bank said in a research note. 

"It is not yet the product of a sensible government policy," it added. 

*******

#4
Moscow Times
April 16, 1999 
PARTY LINES: It's Little More Than a Primal Personal War 
By Jonas Bernstein
Staff Writer

Kremlin-watching, hazardous even in more placid times, has become little 
better than entrails reading lately. With the behind-the-scenes battle 
between President Boris Yeltsin and Prime Minister Yevgeny Primakov raging, 
the line between fact, spin and outright disinformation is getting blurred 
beyond distinction. 

As one observer put it this week, "the Kremlin-controlled media" has 
abandoned "information" for "propaganda" as part of a PR campaign against 
Yeltsin's enemies, the likes of which have "not been seen since the last 
presidential elections." That observer, Vyacheslav Nikonov, played no small 
role in Yeltsin's 1996 campaign. 

This explains the myriad unnamed officials in the main newspapers describing 
secret meetings between Kremlin officials and unnamed oligarchs, which 
yielded contingency plans ranging from "strengthening" Primakov's Cabinet 
with Yeltsin allies to dismissing the Duma, banning the Communist Party and 
even declaring a state of emergency. 

These "reliable high-level sources" have named everyone from Anatoly Chubais 
to Viktor Chernomyrdin to Yury Luzhkov as likely Primakov replacements. 
Meanwhile, everyone from Yabloko leader Grigory Yavlinsky to former Central 
Bank chairman Sergei Dubinin have been mentioned as likely candidates to 
"strengthen" or replace Yury Maslyukov, Primakov's embattled economics tsar. 

The next step is an anonymous Kremlin insider predicting an imminent 
ministerial portfolio for pop diva Alla Pugachyova, whom Yeltsin conferred 
with an award Thursday. 

Yet even in this murky information environment it is possible to gain an 
insight or two. A recent one concerns the real reasons for the 
Yeltsin-Primakov battle. 

The two men, obviously, are locked in a power struggle. But is that all it 
is? Some might argue that the two actually represent opposing beliefs: 
"market socialism" versus "the free market"; anti-Americanism versus a 
pro-Western foreign policy; a less-than-firm commitment to democracy versus 
an imperfect but nonetheless genuine belief in it. 

Perhaps. Yet a seemingly minor pair of recent incidents, in my view, suggest 
that the dynamic in the battle is much more primal and visceral. 

Primakov apparently met not long ago with the leaders of the State Duma's 
leftist opposition, who have been leading the drive to impeach Yeltsin. The 
prime minister reportedly told them, "You understand that we don't need this 
[impeachment] now." Some observers say this incident explains Yeltsin's 
comments of last Friday. During a meeting with the heads of Russia's national 
republics, Yeltsin made a point of saying that Primakov is "useful to us" 
now, but in the future, "we'll see." 

Apparently Primakov's use of the first person plural in speaking to the Duma 
leaders - not his alleged lack of commitment to democracy or the market - is 
what Yeltsin will never forgive. 

It goes to an essential psychological characteristic of the Russian head of 
state. As the author and journalist Yevgenia Albats put it last year, 
"Yeltsin doesn't dislike the Communists because their ideology or methods are 
alien to him. He hates them - and from this comes such strong feelings - as 
people with entirely specific first and last names, as personal opponents, 
who in their time humiliated him. It's the same way you hate a friend who you 
find out has slept with your beloved woman. That woman, for Yeltsin, is 
power." 

*******

#5
Date: Thu, 15 Apr 1999 
From: helmer@glasnet.ru (John Helmer)

>From The Moscow Tribune, April 16, 1999
THE CAMEL'S TAIL
John Helmer

It was reported by Plato that when Socrates was sitting in his
jail cell, awaiting execution, he bided his time by trying to
put into verse some of Aesop's fables.

Plato didn't say what Socrates made of the fable whose title -- translating
roughly from the ancient Greek -- was The Camel Who Shat in the River. 

But this is a tale that everyone, who for Socratic reasons awaits
his execution, should read. If this is how the phlegmatic Prime Minister 
Yevgeny Primakov is feeling right now, the scholar in him should try
this out.

According to Aesop, a camel was crossing a swiftly flowing river. His
bowels opened, and almost immediately he saw his own dung floating in front
of 
his nose, carried by the current. 

"What is that there?" the camel asked himself. "That which was behind me
I now see pass in front of me."

To this Aesop attached the lesson: "This applies to a situation where
idiots hold sway instead of reasonable people."

The appointment of Victor Chernomyrdin as President Boris Yeltsin's
second personal emissary to Belgrade and Washington may have 
struck Primakov, as the camel was struck. Yeltsin, it will be remembered,
has already despatched Yegor Gaidar, Boris Nemtsov, and
Boris Fedorov. They got barely any further than a meeting in Budapest with
U.S. diplomat, Richard Holbrooke. After Yugoslav President
Slobodan Milosevic snubbed them, and agreed to meet Primakov a few hours
later, the troika of Russia's least popular politicians gave up,
and came home. 

Now Chernomyrdin is to follow, and he's more likely to make the journey
to Washington. Primakov has every reason to suspect the real bargaining
card Chernomyrdin will offer in exchange for an end, or at least a pause, to 
the bombing of Serbia. It's Primakov's head on a plate. The Clinton
Administration, which has been almost as determined to overthrow
Primakov as Milosevic, may be tempted. The pause -- camouflaged
by its having been proposed first by Germany -- could be fatal for the Russian
prime minister.

Aesop's lesson is cold comfort for Primakov. He knows that although
it is now the almost unanimous view of the western business community
that he should stay, not a single western government, except for
Germany, has said so publicly. 

But perhaps Socrates can come to the rescue, after all. An archeological
excavation in the centre of Athens has been painstakingly exploring the
remains of a very ancient library. A pot has been found, depicting
Aesop's camel and his shit. An ancient inscription, still being worked on
by experts, could be a fragment of the missing Socrates poem. 

In this, the doomed Athenian wrote, in a lighter style than the 
English conveys: 'Tis a far, far better thing I do today than to eat shit.

Supposing Primakov were to take that advice, what might he do? He's
already told the television audience that he is prepared to
compromise with Yeltsin, supporting an end to the impeachment
process, and endorsing the removal of Procurator-General Skuratov.
(There is an Aesop parable that Skuratov might read. It ends
with the lesson -- letting another man pay for your sexual pleasure
can be more painful than letting him fuck you.)

In his television statement, though, Primakov drew the line at
dismissal of the government. If, as Yeltsin has said himself, he is
retaining Primakov for only so long as it's useful to Yeltsin,
let's see if the prime minister is up to asking the camel's
question, and applying the Socratic remedy. Let's see if he is ready
to go to the Duma, and thereby to the country, with a resignation
letter, and a request for a vote of confidence -- in place of
the impeachment vote the Kremlin claims it wants to hasten,
because it's confident it can win.

*******

#6
Head of Russian Spiritual Heritage Opposes Impeachment 

Informatsionnoye Agentstvo Ekho Moskvy 
11 April 1999
[translation for personal use only]

The impeachment procedure against Russian 
President [Boris Yeltsin] is unsuitable now, Spiritual Heritage movement 
head and one of the leaders of the People's Patriotic Union of Russia, 
Aleksey Podberezkin, told Ekho Moskvy. 

He said that the very fact of voting on this issue would damage 
Russia's prestige "in the present international and internal situation". 
"Impeachment in mid-April would launch a confrontation inside [Russia's] 
political elite reminiscent of 1993", the deputy said. He fears that such 
a development might "break this country into pieces by the end of the year". 
[passage omitted: repetition] 

Podberezkin said that this issue would probably be considered at the meeting 
of the leadership of the People's Patriotic Union of Russia on Monday [12th 
April]. 

Meanwhile, "it makes no sense to destabilize the country for holding 
elections just four months earlier", he added. 

Podberezkin said that his opinion is shared by State Duma Chairman Gennadiy 
Seleznev and some other opposition figures. 

*******

#7
Date: Tue, 13 Apr 1999 
From: "Edwin G. Dolan" <dolan@co.ru> 
Subject: Results of Moscow Case Competition

Results of American Chamber of Commerce First Annual MBA Case Competition,
held April 10 in Moscow, (as previously announced on Johnson's Russia List).
Six of Moscow's leading business schools sent teams, including Moscow State
Universtiy, The Higher School of Economics, the Institute of Business
Studies, Moscow Touro University, IBE/U. Cal. Hayward, and the American
Institute of Business and Economics. AmCham and McKinsey & Co. supplied
judges.

English language case competition:

First Place: Moscow MBA program of American Institute of Business and
Economics
Second Place: Moscow MBA program of IBE/U. California Hayward

Russian language case competition:

First Place: Moscow MBA program of American Institute of Business and
Economics
Second Place: Moscow MBA program of IBE/U. California Hayward

Congrats to the teams, thanks to the organizers, and thanks to JRL for
helping to publicize this event

*******

#8
The Economist
April 17, 1999
[for personal use only]
LEADER (editorial) 
A new cold war? 

THE bombing of Serbia has spread a deep—and perhaps long-lasting—chill over 
NATO’s relations with Russia. The West’s hoped-for, bear-hugging strategic 
partnership with a newly democratic Russia gave way pretty quickly to one of 
a pricklier sort: a readiness to agree where they could, but to disagree 
openly and at times bad-temperedly where they couldn’t. By now that air of 
intermittent iciness seems to have turned into a veritable blizzard of 
dispute: from the war in Bosnia to the handling of Iraq, from NATO’s 
inclusion of Poland, the Czech Republic and Hungary as new members, to be 
sealed ceremonially at the alliance’s summit in Washington on April 23rd, to 
the conflict over Kosovo. 

This time the chill seems both deeper and more dangerous. President Yeltsin 
has not only barked his hostility to NATO’s air and missile strikes, he is 
sending Russian intelligence-gathering ships to the Adriatic, he may have 
hinted that his nuclear missiles could be retargeted at NATO cities and has 
said that the use of NATO troops in Kosovo to end Serb attacks on the mostly 
Muslim population could even turn a potential cold war hot by drawing Russia 
into the fighting on Serbia’s side, possibly provoking a wider conflict in 
Europe or even a “third world war”. An alarming prospect. But, barring great 
stupidity on both sides, not a likely one. 

Ordinary Russians are deeply unhappy at seeing fellow Slavs being bombed by a 
military alliance that within shortish memory was the old Soviet Union’s 
implacable foe. Russia’s leaders, already scrapping amongst themselves even 
before Kosovo about how deliberately anti-western Russia’s foreign policy 
should be, felt slighted by NATO’s decision to use force over their firm 
objection. Seeing NATO soldiers on the ground in Kosovo—a province of 
Serbia—would be an even greater affront to Russian dignity. That is one 
reason, though not the only one, why NATO is hoping, perhaps vainly, that air 
power alone can persuade Serbia’s Slobodan Milosevic to end his reign of 
terror in Kosovo. For all the rhetoric, so far Russia has said it will not 
intervene, or supply weapons to the Serbs. Yet this is the most destructive 
row between Russia and the West since Soviet times. 

It also coincides with two other events that in Russian eyes only underline 
how this former superpower has fallen on hard times. One is next week’s NATO 
summit, which might have effected a bit of a public reconciliation with 
Russia, but which is now being taken in Moscow as salt to new diplomatic 
wounds. The other is a deal-in-the-making on new IMF loans for Russia: as 
much as they need the cash, many Russians hate to be seen going cap in hand 
to foreigners again. Indeed those foreigners should be cautious over any new 
loans until Russia has carried out reforms that would make the money work 
better for recovery—a point that it is to be hoped will not be overlooked in 
the face of more Russian bad temper at this delicate moment. 

It is conceivable that by the time peace in some form returns to Kosovo, 
Russia will have managed to profit from the crisis in more ways than 
economic. Seen cynically, Russia’s snarls of hostility over Kosovo are in 
part prompted, not so much by concern for their Serb cousins (Russia has said 
not a word about the plight of the unhappy Kosovars), but by a desperate need 
in these second-class-power days to hog the diplomatic spotlight. Yet by 
playing its hand in a more principled fashion, Russia’s diplomacy could do a 
lot more: including wiping away the image of Russia now forming in the 
West—that of a country that increasingly finds its friends among the world’s 
despots (Mr Milosevic and Iraq’s Saddam Hussein being two of them) not its 
democrats. 

Yeltsin’s choice 

Russia’s diplomatic leverage has been increased by the fact that NATO’s 
leaders have underestimated Mr Milosevic’s determination to keep Kosovo in 
his grip and thus overestimated their ability to herd him into a peace deal 
with threats alone: the air strikes may have to go on for painfully long yet. 
They also overlooked the Milosevic capacity for serial barbarity—though why, 
after the horrors of Bosnia, is unclear. He has driven hundreds of thousands 
of civilians from their homes, executed large numbers of Kosovo’s menfolk and 
used the plight of the refugee flood he has created as a weapon of war. But 
at some point a peace deal will have to be crafted with Serbia, perhaps even 
with Mr Milosevic in power. Russia could play a big part, offering Mr 
Milosevic face-saving ways—for example, a largish contingent of Russian 
troops in a future peacekeeping force—of claiming that it was Russia’s 
backing, not NATO’s bombing, that had brought about peace (though without the 
air strikes he would have “cleansed” Kosovo and hoped to get away with it). 

But Russia’s credibility would also be on the line. Although it has parted 
company bitterly with the West over air strikes, Russia had fully supported 
the peace deal that Mr Milosevic tore up last month. That included a 
far-reaching degree of autonomy for the Kosovars and an international 
peace-keeping force to ensure Mr Milosevic kept his word. Those same 
principles have been supported by the UN secretary-general. Russia should in 
no way try to help Mr Milosevic off these hooks now. 

Step back from the frostiness of recent weeks and the divide over Kosovo 
looks different. Ranged against Mr Milosevic for his year-long brutalities 
are not only all of the West’s strongest democracies (including France, long 
a friend of Serbia), but also much of world public opinion. By now Russia, 
North Korea and China are about the only self-confessed friends Mr Milosevic 
has. Until now Russia has wanted to be counted among the democracies, with 
all the trappings of membership in the premier western clubs. Is it really in 
Russia’s interests to gamble away its standing in the democratic world in 
support of a regime that has committed the most heinous human-rights abuses 
in modern Europe? But if that is to be the dividing line of a new cold war, 
so be it.

*******

#9
Business Week
April 26, 1999
[for personal use only]
International -- European Cover Story
Russia: What Happens When Markets Fail (int'l edition)
By Patricia Kranz 
With Carol Matlack in Perm and Rose Brady in New York 

Easter has replaced Revolution Day as the most widely celebrated holiday in 
Russia. This Easter, my last in Russia, I spent with my friend Marina 
Nikolaevna Chudakova. At 73, she was too tired to attend Easter services, 
which started Saturday at midnight and continued almost till dawn. But she 
invited me to share her Easter meal. Her 78-year-old husband, Alexander 
Yevgenevich Chudakov, was in the hospital with heart problems. Their combined 
monthly pensions total $100. When Alexander feels strong enough to work at 
his physics lab, he brings in an additional $70 a month.
But the Chudakovs are hardly starving. The Easter table was loaded with 
caviar, dyed eggs, and cakes. As a physicist in the Soviet era, Alexander 
Chudakov was given a spacious five-room apartment in the center of Moscow 
during the 1950s. He also inherited two country houses from his father, who 
had been a prominent engineer. These dachas provide the Chudakovs with a 
tremendous cushion. They spend the summer months in one of the dachas and 
rent it out to me and a group of my friends for $1,200 a month in the winter. 
For their other dacha, the Chudakovs also receive $1,500 a month. By Russian 
standards, they live well and can afford not just food but also other 
consumer goods, medicine, and even trips to the U.S.
Other pensioners aren't so lucky. Galina Filatova, 62, retired seven years 
ago from her job at an apparel factory. But her pension is only $15 a month, 
and sometimes it is paid several weeks late. She lives with her son, 
daughter, and son-in-law--all unemployed--in a decrepit two-room apartment in 
Kuzminko, a grimy neighborhood on Moscow's southeastern outskirts. To 
survive, she works nights as a security guard at the factory. That gives her 
$25 a month and an occasional bonus of clothing, which she sells at a nearby 
metro station. Galina spends nearly all of her income on food for herself and 
her children--and, she confesses, on vodka for her 36-year-old son, an 
alcoholic. ``He will die without vodka,'' she says matter-of-factly.

NEVER-NEVER LAND. That's life in post-crash Russia. The Chudakovs and 
Filatovs reflect the realities facing Russians since the country defaulted on 
its debt and devalued the ruble last August. A few years ago, many in Russia 
and the West thought the country was on the road to creating a more advanced 
capitalist economy, where Russians could rely on their skills to generate 
wealth--rather than live off communist-era privileges or simply scrape by. 
But the financial crisis has highlighted just what happens when markets fail. 
In the months before the crash, it was already apparent that Russia was 
developing its own brand of capitalism. Now the country is operating in a 
kind of economic never-never land that seems to grow stranger by the day.
This is an economy that defies Western logic. You have to live here and 
talk to people to understand how they can keep going when they don't get 
paid. Most companies are essentially bankrupt but keep cranking out goods. 
You have to travel outside Moscow to get a feeling for how an economy can 
function when there is no effective banking system and never enough cash. 
Only in Russia could companies get away without paying their electricity or 
heating bills yet rarely face power cutoffs. To keep the electricity company 
from turning off the lights, the government makes up for its missing payments 
with a tax credit.

MAKESHIFT ECONOMY. It's a bizarre and oddly flexible economic model. Some 
economists call it the ``virtual economy,'' because real money, real goods, 
and real output play such a small role. It is, in fact, a three-tier economy. 
The Russian currency, the ruble, is used mainly to buy necessities such as 
food. IOUs, barter, and ``surrogate currencies'' are used in most dealings 
involving companies. Instead of paying cash wages, the giant Magnitogorsk 
Metal Works issues its employees cards that can be used in company-owned 
shops and the city department store. Russians, meanwhile, keep their savings 
in dollars. Nearly as many dollars as rubles--the equivalent of $35 
billion--are believed to be circulating in Russia's economy.
Even President Boris Yeltsin calls Russia's economy ``freakish'' these 
days. ``We have become stuck halfway in our transition from the planned and 
command economy to a normal market economy,'' he told the Russian people in 
his recent State of the Nation address.
Freakish or not, Russia's exploding barter economy has more in common with 
its Soviet and Czarist predecessors than with a Western market economy. Yet 
the makeshift setup has sheltered most Russians from the worst effects of 
August's meltdown. When the government defaulted on $40 billion in short-term 
debt and devalued the ruble, most Russians had little or no money in 
commercial banks. Most owned no stocks or government bonds. Workers who were 
paid in goods cared little about the value of the ruble. And just a minority 
of enterprises held loans from banks. So ordinary Russians stayed calm.
Now, it's clear that Russia's economic transition could last well into the 
next century. Prime Minister Yevgeny M. Primakov isn't pushing reforms such 
as industrial restructuring, which would put people out of work just before 
parliamentary elections in December and presidential elections in June, 2000. 
So every day, Russia's virtual economy grows deeper roots. In the six months 
since he was appointed Prime Minister, Primakov has done little to curb the 
proliferation of IOUs.
To get a sense of how this jury-rigged system works, take a look at the 
local economy of Perm, a city of 1 million ringed by smoke-belching 
refineries and sprawling defense plants in the Ural Mountains. Because the 
surrounding region produces oil and gas, Perm is wealthy by Russian standards 
and has a ready source of hard currency. Yet the government is so short of 
cash that the city's 83,000 public employees aren't paid on time and services 
such as the water utility are on the verge of collapse. Why isn't there more 
money?
One answer lies with companies such as Lukoil, Russia's biggest oil 
company and a major employer in the Perm region. The local government lets 
Lukoil and its affiliates pay only half their taxes in cash. They pay the 
other half with IOUs, known as veksels, which the company pledges to redeem 
later for oil.
But the local government doesn't need oil: It needs money to pay for 
public services. Lacking cash, it gives veksels to suppliers as payment for 
goods and services, and passes them along to public institutions such as 
schools, in lieu of operating funds. Noncash forms of payment now make up 45% 
of the city's $80 million annual budget.

BIKES FOR MEAT. All this has given rise to a new business in Perm and other 
cities: traders who buy veksels for rubles and resell them to customers who 
actually need oil or other commodities. The traders usually pay only 50% of 
the veksels' face value, leaving public agencies chronically starved for 
cash. Perm's school administrators are now experts in barter and other 
improvised solutions. One school principal recently persuaded city 
authorities to grant a tax credit to the local power company to prevent it 
from shutting off her school's lights and heat. ``I'm capable of fixing up 
these deals, but you can imagine how much time it takes,'' the exasperated 
principal says.
Why does the government agree to take these IOUs? Local authorities say 
they have little choice because even wealthy companies such as Lukoil don't 
have enough money to pay their taxes. Lukoil gets hard currency for exports, 
but the government requires it to sell a large percentage of its oil in 
Russia to customers who often don't pay. So even with middlemen taking a big 
cut, the authorities reason, IOUs pump at least some money into government 
coffers.
By contrast, the poorest companies must rely totally on barter. One is 
Velta Co., a crumbling factory on Perm's outskirts. Once it was one of the 
Soviet Union's biggest bicycle makers, supplying the military with bicycles 
and exporting to Eastern Europe. Now privatized, it has almost no cash coming 
in, and production has slumped from 1 million bikes a year to 200,000. 
Exports have dried up, and the Defense Ministry can't pay for its orders. In 
most countries, such a company would go bankrupt. Yet in Russia, Velta 
stumbles along.
Sitting in his office in Velta's dingy administration building, Executive 
Director Vladimir Mironov, 49, acknowledges that the factory is so 
inefficient that the bikes it makes aren't worth enough to cover the cost of 
production. Yet Mironov is determined to keep it running. ``After all, 
bicycles are needed by many people,'' he says, hopefully. So Velta keeps 
making bikes, swapping them for raw materials and electric power to keep the 
factory running. The company doesn't pay taxes, but local authorities look 
the other way because Velta supplies free heat to nearby apartment buildings.
The biggest losers at Velta are its 4,000 employees, who for more than a 
year have been receiving one bicycle a month instead of a paycheck. These 
days, the factory parking lot is an impromptu bazaar where workers and their 
relatives hawk bicycles. ``We are luckier than those people over at the 
chemical plant. At least our factory gives us something we can sell,'' says 
Rosa Mikhailovna, one of more than two dozen people trying to sell bikes in 
the blowing snow one morning. Mikhailovna, whose husband works at the plant, 
admits she probably won't find a buyer for her ten-speed bike, though she is 
asking only $25. Yet with luck, she may trade it for meat to supplement her 
family's diet of potatoes and pickled vegetables from their garden. ``By 
doing this, we can live O.K.,'' she says.

INSIDER DEALS. Odd as it may seem, even basket-case factories such as Velta 
provide a good living for the middlemen. While Mikhailovna stands patiently 
in the snow, Yuri Polushkin, 38, and his associates sit down to lunch a few 
kilometers away in the lavish headquarters of FSG Sintez, a company that 
negotiates barter deals between factories. As waiters serve grilled salmon 
and pour glasses of Spanish wine, Polushkin outlines how his business works. 
``Let's say there's a company that has some metal and needs to raise cash to 
pay its electric bill,'' he says. ``We could help them swap some of their 
metal to a farm. Then we take food from the farm and sell it to stores or 
restaurants for cash.''
Such barter chains often involve more than a dozen companies, Polushkin 
says. Even as factories such as Velta slide deeper into debt, Sintez has 
prospered, posting $46 million in revenues last year and building its own 
casino, health club, and the restaurant where Polushkin and his colleagues 
dine.
Middlemen such as Sintez aren't the only ones who profit from the barter 
chain. Because companies agree among themselves on the value of goods being 
traded, there's plenty of room for insider dealing by top managers. 
Government authorities get in on the act, too, because regional governments 
often hold a stake in privatized industries. The losers are unpaid workers 
and citizens who can't get basic services from their broke government 
(table). ``When you don't get paid in cash, it's unclear how to value the 
goods,'' says Alexander Blavatnik, vice-president of Access Industries, a New 
York-based investment firm with industrial holdings in Russia. ``There's 
great opportunity for midlevel managers and traders to manipulate the price 
and siphon money from the company to their own pockets.''
This crazy setup developed because the government never took the tough 
steps necessary to transform Russian industry. After privatizing most state 
enterprises in 1993 and 1994, the government never forced unproductive 
enterprises to go out of business. Such a move would have put representatives 
of the socialist managerial elite and their workers out on the street.
The barter economy has also grown as a direct result of the Kremlin's 
weakness. The government has failed at one of its primary 
responsibilities--collecting taxes. The situation has grown even worse since 
August's financial crash. With little cash coming in, the federal government 
has no money to send to regional governments for social services, the 
military, or state-sector wages. It has trouble running the judicial system 
and enforcing federal laws.
So regional governors, power companies, and factory directories all across 
Russia have resorted to barter, veksels, and debt swaps to keep their 
economies running and their political power intact. In the process, they have 
become quiet supporters of the bizarre system. Managers, governors, and 
bureaucrats all have grown rich from the price inefficiencies, which 
camouflage insider dealing, bribes, and money laundering. ``These practices 
have become so implanted that it's difficult to uproot them,'' says Alexander 
Bekker, an economic analyst for the daily Segodnya.
These days, regional governors and other local leaders are taking 
advantage of the breakdown to grab even more power and property. Ironically, 
many are using a new Russian bankruptcy law as their weapon. The law allows 
creditors to go after debtors in court, but local politicians and factory 
managers are using it to seize control of enterprises in their regions.

``OUT OF CONTROL.'' In the Volga region, for example, Samara Governor 
Konstantin Titov is demanding that local branches of oil giant Yukos, now 
controlled by Moscow tycoon Mikhail B. Khodorkovsky, be transferred to his 
government to cover back taxes. Vladimir Potanin, head of the once-powerful 
Interros financial group, is under siege from creditors and competitors in 
Siberia and the Urals who want to grab his near-bankrupt Sidanko oil company, 
the country's fourth-largest. ``The situation is out of control. The local 
creditors do whatever they like with the company,'' Potanin complains. He and 
Russia's other tycoons have lost both money and political clout since last 
August. Boris A. Berezkovsky, once a close ally of Yeltsin, is under 
investigation for alleged money-laundering and fraud.
It all adds up to a bleak picture for Russia. Although many companies and 
individuals can keep going on barter and veksels for now, the economy is 
likely to shrink a further 6% this year, after plunging 5% in 1998. The past 
seven years have shown just how difficult it is to transform a huge, 
complicated country like Russia. The Yeltsin government has wasted many 
opportunities and lost the trust of the people. It will take a new leader 
after next year's elections--and a great deal of time--for the Russians to 
trust their government, their banking system, and their currency.
Most important, the next Russian leader will finally have to find a way to 
boost industrial productivity by closing down worthless companies. In the 
meantime, the government faces a desperate battle collecting taxes to pay for 
social services. No one wants to support a corrupt system that cheats them 
out of their savings every few years through devaluation or default.

SURVIVAL INSTINCT. For the Russian people, their saving grace is their 
ability to press on despite economic hardship. In many ways, Russians are 
entrepreneurs of survival, and Russia's multitiered economy is just another 
example of their ingenuity. Imagine what Russians might be able to do if 
their entrepreneurial natures were put into productive work rather than 
negotiating barter deals or devising hustles to avoid taxes. Russian leaders 
might be surprised at the result if they would only tackle the country's 
dilapidated industry and free businesspeople from corruption so they could 
set up new companies.
Such a prospect looks dim. Still, as I prepare to leave Russia after six 
years working here, I hope that somehow Russians get to live in a more 
stable, prosperous democracy. They deserve a chance.

*******

#10
New York Times
April 16, 1999
[for personal use only]
Our Buddy Boris
By THOMAS L. FRIEDMAN

Last week the West got a lesson in why we can't live with Boris Yeltsin and
why we dare not live without him. 

Can't live without him, you ask? Why? Well, it is often remarked that the
fate of Western world economies depends on the health of two men, Robert
Rubin and Alan Greenspan. That is a wild overstatement. But as long as
we're overstating, I would add another name: Boris Yeltsin. 

Oh sure, the headlines last week were that Yeltsin was retargeting Russian
missiles at the West, because of NATO's bombardment of Serbia; the Duma
passed a resolution calling for arms to be shipped to Serbia; and there was
even talk of World War III. But when you looked closer at what Yeltsin was
actually doing, you could see that he was putting out all sorts of smoke --
to satisfy the anti-U.S. hotheads in the Russian Duma -- precisely so he
wouldn't have to use any fire. 

Whatever aid the Russians were sending to Kosovo seemed to be going via the
Arctic Circle. Prime Minister Yevgeny Primakov also used his Bolshevik
credentials to keep Russia's nationalists and Communists in line, and
prevent the relationship with Washington from spinning totally out of
control. Trust me, the Dow would not be at 10,000 for long if the Russians
were opposing NATO in Yugoslavia with more than just hot air. War in Kosovo
is one thing, war in Europe is another. 

This is why even a half-dead, stone-cold-drunk Boris Yeltsin is still an
enormous asset for the U.S. No other Russian leader today is as big a bear
and as clever a fox as old Boris. We are going to miss this guy. Indeed, we
will one day look back and ask, how did the U.S. use the Yeltsin years? Not
very wisely. The Clintonites used the Yeltsin years to cram NATO expansion
down Russia's throat, rather than to really bring Russia into Europe. These
will be remembered as the years the locusts ate. 

Alas, though, Yeltsin will also have to shoulder blame. He has so
mismanaged economic reform in Russia -- with plenty of help from the Duma
-- that Russia is now busted, corrupted and utterly irrelevant to the world
economy. All this talk that the Russians are supporting the Serbs against
the U.S. out of pan-Slavic loyalty is nonsense. The Russians, particularly
the elites, are supporting the Serbs out of frustration at how weak Russia
is today, and out of frustration that NATO has decided that it will
determine the future of Europe -- without Russia. (It is not surprising
that the Russians chafe at the fact that Iceland, a NATO member, has a
bigger say in Europe's future than they do.) 

Because Yeltsin has not provided the leadership that Russia needs on the
domestic side to rebuild the country's economic base and instill some
self-confidence, Russians are now looking for dignity in all the wrong
places. Russian elites are courageously maintaining a liberal democracy at
home and running a Soviet-like foreign policy abroad. What is the meaning
of Russian democracy when in foreign policy Russia is supporting two of the
most evil characters on the world stage -- Saddam Hussein and Slobodan
Milosevic? 

"What the Russians don't understand," said Thomas Graham, a former U.S.
diplomat in Moscow, now at the Carnegie Endowment, "is that both Saddam
Hussein and Slobodan Milosevic are actually using them. They are being
manipulated by two two-bit dictators." Both Saddam and Slobodan, notes
Graham, play on Russia's resentment of its weakness in order to maneuver
Russia against America in the gulf and in Europe. 

This is a losing strategy for Russia. Sure, even a thriving democratic
Russia will have different geopolitical interests than America. Look at
France. But as much as the French like to assert their independence and
tweak the U.S., in the crunch they understand that if they are part of the
democratic West they must stand against Saddam and Slobodan. 

The Russians need to understand that their influence on the world stage can
only come from their acting as real mediators -- not as the lawyers and
advocates for thugs. 

Russia will not have the self-confidence to do that, though, until it
tackles its domestic problems. Until then, we will thank our lucky stars
that Yeltsin is there to sit on the worst instincts in Russia, and keep the
lid from coming off. But we will curse our bad luck that he is not a
stronger visionary -- able to produce a Russia that feels confident enough
to have both a democratic domestic policy and democratic foreign policy. 

*******

#11
Europe's intellectuals in disarray over Kosovo

PARIS, April 15 (AFP) - The NATO bombing campaign against Yugoslavia has
set European intellectuals and politicians off against each other, cutting
across traditional lines of right and left, as no other conflict has before.

In both Britain and France, the traditionally antiwar left is divided while
the right is muted in its support of NATO, if not outrightly hostile.

The situation has created some strikingly unusual bedfellows with, for
example, French far-right leader Jean-Marie Le Pen lined up alongside
Socialist Interior Minister Jean-Pierre Chevenement and the communists in
opposition, British left-wing actress Vanessa Redgrave linking arms with
former Tory premier John Major in favour.

In Germany, intellectuals have evoked the Nazi past and the Reich's wartime
involvement in the Balkans to urge caution, stressing the complexity of the
issues involved, though most figures on the centre-left have expressed
support for western engagement in Kosovo.

A common thread among left-wing opponents of the NATO airstrikes has been
anti-Americanism. Thus, playwright Harold Pinter wrote to the Guardian
newspaper to describe the allied action as "misjudged, miscalculated,
disastrous", its humanitarian justification "clearly a very bad joke". The
operation resulted, he said, from a US policy best expressed as: "Kiss my
arse or I'll kick your head in."

His view is shared by the writer, publisher and former 1960's activist
Tariq Ali but opposed by Ali's erstwhile left-wing ally, Labour MP Ken
Livingstone. Left-wing campaigner Paul Foot diverges radically from his
father, former Labour leader Michael Foot who favours the NATO raids, and
finds himself allied with Alan Clark, the former Thatcherite minister who
sees no British interests involved in the Balkans.

Veteran feminist Germaine Greer considers the NATO raids "unbelievably
stupid" and a "godsend" to the Yugoslav strongman Slobodan Milosevic,
siding in effect with right-wing historian Norman Stone who compares the
situation in Kosovo with Northern Ireland.

German writers traditionally critical of US military operations have been
guardedly in favour. Guenter Grass regretted only that the NATO involvement
had come so late, while Hans Magnus Enzensberger argued for arming Albanian
guerrillas inside Kosovo rather than sending in western ground forces.
Christa Wolf deplored the bombing but admitted she could see little
alternative.

The most heated debate has been in France, where angry words have been
exchanged in the press by philosophical stalwarts Regis Debray (against the
raids) and Alain Finkelkraut (in favour), or within the family between
journalist Olivier Todd (pro-war) and his son the writer Emmanuel (contra).

Debray, formerly known as a follower of Ernesto "Che" Guevara", was
denounced in the daily Le Monde as a prime exponent of knee-jerk
anti-Americanism, notably for his description of the treatment of the North
American Indians as "ethnic cleansing".

Former 1968 firebrand Daniel Cohn-Bendit, now Green party leader, is in
tune with the Gaullist party chairman Philippe Seguin in backing NATO
action, while the distinguished human rights activist Pierre Vidal-Naquet
finds himself involuntarily allied with the French Communist Party and the
National Front.

But the most bizarre case, virtually unique in Europe, has been that of
Peter Handke, the Austrian writer who since the eruption of the Yugoslav
wars in 1991 has adopted an outright pro-Serb stance, at one point
comparing the Serbs to the Jews in World War II.

Handke, whose mother is Slovenian, travelled to Belgrade to express his
solidarity for the Serb people and "sniff the air" during the bombardments.
He renounced the prestigious Buechner prize that he won in 1973 and said he
was leaving the Catholic Church because of what he saw as its refusal to
denounce the NATO intervention. 

Credited with at least spicing up the debate, Handke is regarded by his
fellow German-speaking writers with some perplexity, if not mocking
indulgence. He was rewarded by Belgrade earlier this month with a Serbian
"kinghthood". 

*******