May 1, 1999
This Date's Issues: 3267•
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1 May 1999
[Note from David Johnson:
1. New York Times: Yevgeny Yevtushenko, History Returns to the Scene of
2. The Russia Journal: August Crisis Still Hurts Russian Middle Class.
3. AP: Judith Ingram, In Russia, Murder Rate Soars.
4. AFP: Thousand of Russians rally for May Day, solidarity with Yugoslavia.
5. Moscow Times: Impeachment Poll.
6. Moskovskiy Komsomolets: Mikhail Rostovskiy, 'Hot May' of Cabinet Changes
7. NTV: Gustov Predicts Sacking of Most of Russian Government.
8. Manuel F. Montes: book on the Asian and Russian economic crises.
9. Boston Globe editorial: Russia as rescuer.
10. Itar-Tass: Russian Academic Questions US Motives in Balkans.
11. Moscow Times editorial: Ever More Wild Bombs Won't Work.
12. Business Week: Carol Matlack, Russia's New American Friend.
New York Times
May 1, 1999
[for personal use only]
History Returns to the Scene of Its Crime
By YEVGENY YEVTUSHENKO
Yevgeny Yevtushenko, a poet, is a professor of literature at Queens College
and a former member of the Soviet Parliament. This was translated by Albert
Not long ago I received a letter from Israel from the parents of a boy they
had named Babi Yar. Through their son's name the parents wanted people to
remember what happened at that ravine near the city of Kiev in 1941. But
today, from the photograph of their son, two dark eyes stared out at me like
the smoking coals on television from Kosovo and Belgrade. Like Raskolnikov,
history returns to the scene of its crime -- to the Balkans, where World War
I began with a shot fired at Archduke Ferdinand. Today, it seems to me that
this Israeli boy has either an Albanian or a Serbian face. Selective
solidarity -- Western or Russian -- is blind.
I can hardly believe my eyes when I see some of Russia's most demagogic
politicians express their knee-jerk one-sided solidarity. How can one trust
their sincerity when they pound their fists on behalf of Serbia, yet show no
solidarity whatsoever with Albanian refugees, nor even their own people --
war veterans with their hands out huddled in underground passageways,
teachers and doctors who haven't been paid for half a year, miners crashing
their helmets on the pavement without a response.
Still, for many Russians, beyond the two peoples' similar languages and
Orthodox religion, and beyond the many Serbian-Russian mixed marriages, true
solidarity with the people of Serbia runs deep.
During World War II, the feats of Yugoslav partisans in their struggle
against Fascism inspired not only our soldiers but also our poets -- a whole
anthology of Russian poetry about Yugoslavia could easily be compiled.
Recently, when I heard a NATO spokesman placidly and icily name the city of
Kragujevac as a target, I shuddered because this city was a symbol of the
Yugoslav nation's heroic confrontation with Hitler's occupation. Yugoslavia
was equally heroic in its opposition to Stalin's regime, but that resistance
was never transformed into hatred toward Russians.
In the late 1940's, Soviet propaganda branded Yugoslavia a traitor.
But this slur never took root with the Russian people.
In 1948, my father took me to the Moscow Circus, where a clown had an
enormous dog wearing a Yugoslav Marshal's cap, a bundle of gigantic fake
state dollars stuck in his teeth. "Hey, Tito, you mongrel, let go of them!"
the clown screamed, laughing shrilly at his vulgar joke.
But the audience kept deadly silent -- the Russian people's respect for their
Yugoslav comrades in arms in the struggle against Fascism was too great to
"How disgusting -- let's get out of here," my father said loudly as he got
up. And suddenly, from every seat, fathers and mothers got up and led their
In the 1950's, the writer Orest Maltsev received the Stalin Prize for his
novel "The Yugoslav Tragedy," which lampooned the partisan movement in
When Stalin died and Khrushchev made peace with Tito, naturally the
reprinting of "The Yugoslav Tragedy" ceased.
Maltsev became impoverished. In the store where he went from time to time for
a bottle of the cheapest vodka and canned sardines, people would point
fingers at him and say, "God punished him for Yugoslavia."
For a long time Yugoslavia was the most prosperous and independent socialist
country -- or at least that's how it appeared to us in Russia. Only later,
after Tito's death and the collapse of the Yugoslav federation, which turned
out to have been held together only by his "anti-Stalin Stalinist will," did
we begin to understand that not everything was so pure and just in the land
of our Yugoslav brothers in arms.
Have today's NATO countries, which, like Russia, fought Fascism alongside the
Yugoslavs, forgotten our common wartime struggle? If they have, they can rest
assured that Russians have not.
No sooner had the NATO bombs begun to fall on Yugoslavia than the skeleton of
the old war was awakened by the explosions. This was a remarkable gift to our
cheap showman-nationalist, Vladimir Zhirinovsky, and other "professional
patriots," who rushed to use the ribs of the skeleton like a war drummer's
The West should not be surprised when ideas like the science fantasy of a
union among Russia, Belarus and Serbia take hold. It seems to me that the
leaders of the NATO countries, in deciding to bomb Serbs in order to save
Albanians, have inexcusably not thought through many of the realities of the
Yugoslav situation. One such reality is that even if NATO troops succeed in
kicking out Slobodan Milosevic's Government and installing a more obedient
one in its place, the result might be an exhausting, partisan war, the
traditions of which the Yugoslavs have preserved since at least World War II.
The shame of the Balkan situation lies with some political cynics, Russian,
Western and Yugoslav, who play the Kosovo card, not on behalf of the Serbian
or Albanian people but only for their own prestige, preservation of power or
demonstration of hegemony. Take note that with rare exception many have a
pro-Serbian or pro-Albanian position. But in my opinion the only correct
position is simultaneously pro-Serbian and pro-Albanian; that is, pro-human.
We must not confuse people with extremists. During the conflict in Bosnia one
charming Serbian woman, who teaches philosophy at an American college, ceased
being intelligent in my eyes as soon as she began to speak about Bosnians:
"These dirty Bosnians are all wild animals. . . .
They must all be destroyed." Wolf fangs seemed to show from her beautiful
lips. But within a month I talked with a Bosnian graduate student at another
university and wolf fangs appeared when she began speaking about Serbs.
Do not demonize any nation because someone may begin to demonize your own. So
be more cautious with the Balkans.
The endless procession of completely innocent Albanian refugees moving across
the television screen appeals to the mercy of humanity. But the burning
houses of completely innocent Serbs appeal to it also. It is tragic that
Russia and America watch two completely different wars on television,
although it is one and the same war.
In the American television version the Serbs are simply guilty of everything,
and in the Russian version the Americans are. Years ago, when Aleksandr
Solzhenitsyn spoke out against the Soviet authorities, his every half word
was printed in the first columns of American newspapers. But now no one in
the United States is rushing to print his words about the bombing in
Yugoslavia: "A beautiful European country is being destroyed, and civilized
governments brutally applaud. But desperate people, abandoning their bomb
shelters, come out to the destruction like a living chain for the salvation
of the Danube bridges. Isn't that a classic Greek tragedy?"
But the truth is summed up not only in this, but also in a barely alive old
Albanian woman being pulled over the snow in a plastic garbage bag just to
drag her out of the Kosovo hell into Montenegro, and in the old Serbian woman
who stands at night on a bridge with a target on her sunken chest inviting
bombs from the sky, and in the three American military prisoners with their
quite little-boy faces beaten and bloody. Be more careful with the Balkans!
The Russia Journal
April 26-May 2, 1999
August Crisis Still Hurts Russian Middle Class
Since 1998, the decline in Russians' incomes has sharply outpaced the rate of
economic recession. By January, wages were down 40 percent in real terms
compared with the same period last year. At the same time, production fell by
just 4.5 percent. For the previous five years, there had been no decline in
people's earnings. In a situation like this, it is impossible to use the
import restriction/domestic production policy as a univeral panacea for all
ecomomic problems. Without a gradual income indexation, there will be no
increase in consumer demand. Moreover, the relationship between incomes and
the cost of living also inspires very little optimism.
In January, the average per capita income was 137 percent of the cost of
living. Just one month earlier it stood at 196 percent. The decline in real
term wages has been fast and furious.
This overall picture of impoverishment is overlapped with an unusual
situation in Russia, whereby the gap in earnings between different social
classes has narrowed. The income of the average Russian has moved closer to
the cost of living. At the same time, the difference between the incomes of
the top 10 percent richest and the bottom's 10 percent poorest families has
decreased by one-third. At the beginning of last year, there were 13 times as
many people in the upper bracket as there were in the lowest section of the
population. Now that figure stands at 10.3 percent. Taking into consideration
that at the end of last year the Ginni's ratio, which determines income
differential, did not significantly change, it is clear that the crisis has
affected the whole of Russia's middle class.
The situation is complicated by the gross inefficiency of Russia's social
security system. Officially, there are 1.9 million people registered as
unemployed in Russia. But in reality the figure is nearer 9 million. And this
rapid increase in the number of "new poor" and "new unemployed" cannot be
explained purely as a consequence of the August crisis. If the current trend
continues and the government persists with its passive economic policy, the
situation could very soon turn into a political disaster.
The decline in earnings is reflected in the structure of expenditure. The
share of consumer expenses has risen dramatically. According to the Bank of
Russia, in 1998 the cost of living was 78.3 percent of total income, up 10.4
percent compared with 1997. The share of savings in deposits and securities
throughout 1998 was 1.1 percent of personal income, compared with 2.2 percent
the previous year.
The consolidation of this trend may lead to a chronic long-term shortage of
investment in the country's economic future. This is normally the case when
there is a trend for consumption rather than accumulation.
In the Soviet Union most of the population had practically no reason for
personal savings. People saved money for cooperative flats, cars and TV sets,
but they did not invest their money in order to increase their future
consumer power. The main reason for this was the suppression of private
economic activity. It was seen as the responsibility of the state, not the
individual, to provide for the future. This philosophy discouraged long-term
financial planning. The compulsory pension security, medical insurance,
unemployment benefits - in fact, the entire state-sponsored system of
paternalism -discouraged individual investment.
The current situation contains a central paradox embodied in the state's
failure on two fronts: first, to eliminate the Soviet heritage (two-thirds of
the population still enjoy certain benefits); and second, to give people an
opportunity to invest their own money on their own terms.
According to the Central Bank, the specific weight of social transfers in
incomes has decreased from 14.9 percent to 13.3 percent, but the share of
wages and social payments has increased from 39.9 percent in 1997 to 42.4
percent in 1998. But to reiterate, this occurred due to poverty.
The state, which is responsible for social transfers, has become even poorer.
And the poor are less inclined to invest in the future. The result? There is
no longer any money coming from anywhere.
In Russia, Murder Rate Soars
April 30, 1999
By JUDITH INGRAM
MOSCOW (AP) -- Police Maj. Vladimir Kanunnikov patrols a working-class
neighborhood in northern Moscow, preaching the virtues of strong families and
keeping tabs on criminals and troublemakers he calls ``parasites.''
If a card game explodes in a brawl, or neighbors in a communal apartment
square off with frying pans or knives, Kanunnikov answers the alarm.
And then there are the telephone calls that start ``Someone's going to get
killed, either him or me,'' Kanunnikov said, describing the marital violence
he tries to mediate before it explodes into murder.
Russia has become a world leader in homicide, chalking up close to three
times more murders per capita each year than the United States, five times
more than France, and seven times more than Germany. Only a handful of
countries, including Colombia, outstrip Russia, although there are no exact
The soaring murder rate is part of a broader explosion of crime in Russia.
The country's economic slide is partly to blame; so are the opportunities
opened by economic reforms. There are more and better cars to steal, more and
wealthier customers for prostitutes, more and pricier properties to fight
Jobs, education and technical training -- to say nothing of salaries,
pensions and other social support -- are no longer guaranteed. Laws and
policing have weakened, drug use has soared and corruption is rampant.
``There's been a massive catastrophe of values, a loss of goals,'' said Igor
Arshinov, a psychologist at Moscow's Institute of Neuroses. ``Earlier,
society was building communism. People knew it was idiotic, but on some level
they still bought into it.''
The country's murder rate doubled between 1990, the first year official
nationwide murder figures were published, and 1994, when the level of murders
and murder attempts reached 32,286. The next year, it began a three-year dip
nationwide, but resumed its rise again last year, to reach about 29,550,
according to the Interior Ministry.
The contract hits and gangland wars that fill Russian newspaper columns and
television screens account for just a fraction of the murder toll. In 1998,
about 43 percent of murders took place in private, up from 35 percent a
decade earlier, the Interior Minister said. According to the Russian
Criminological Institute, which works with unpublished data, such murders
have always been in the majority, comprising 60 percent of the whole.
These murders are committed by neighbors, drinking buddies, husbands, wives
and children -- not gangsters.
The Interior Ministry lumps them all in the category of ``crimes committed
against the background of everyday life.'' There are no separate statistics
on domestic violence; women's rights advocates say that reflects what a low
priority it is for law enforcement agencies.
``Many people here don't accept that domestic violence is a crime. In our
society, it's considered the norm,'' said Elena Potapova, the telephone
hotline coordinator for Moscow's No to Violence women's crisis center.
A U.S.-Russian study published in 1997 showed that 1.7 times more Russians
than Americans are killed by their spouses, and that Russian women are 2 1/2
times more likely than American women to be killed by husbands.
Two factors of Russian life have consistently kept the level of everyday
murders high. The first is alcohol abuse, which Moscow police say is involved
in four-fifths of everyday murders. If alcoholism was checked somewhat in
Soviet times, now it faces practically no constraints.
``Alcoholism has always been our national habit, but now there are absolutely
no limitations on when you can get hold of liquor or how much you can
drink,'' Arshinov said.
The second factor is Russia's chronic housing shortage: People cannot afford
to move out of trouble's way, and the country's economic decline has put
unprecedented pressure on families.
``Divorced couples continue to live in the same apartment, and so do all the
generations, with old people, children, grandchildren, and new
daughters-in-law,'' said Masha Mukhova of the Sisters crisis center in Moscow.
``There's no exit. The situation itself provokes violence.''
The burden of preventing everyday violence falls on policemen like
Kanunnikov. The clean-cut 44-year-old sits at his desk ramrod-straight, like
a soldier, but slides easily into conversation like an old neighbor.
He says the job was easier in Soviet times, when there was a range of
disciplinary institutions, from mandatory alcoholism treatment centers to
so-called comrades' courts.
``Then it was decided that these weren't democratic institutions, so they
were abolished and everything fell on police shoulders: We're the comrade
court, the priest and the psychotherapist who have to persuade people to live
like human beings,'' Kanunnikov said.
He and the women's crisis center staff say they have increasingly few legal
tools at their disposal to punish violent offenders. As long as there's no
place for victims to take shelter, the violence will continue to take a heavy
``It's practically impossible to solve this problem in the near future,
because it requires a very serious government program in which one of the
priorities would be municipal housing for victims of domestic violence,''
Thousand of Russians rally for May Day, solidarity with Yugoslavia
MOSCOW, May 1 (AFP) - Thousands of demonstrators turned out on Saturday for
traditional May Day marches in Moscow and Saint Petersburg which were also a
show of solidarity with the people of Yugoslavia.
Organisers of a demonstration called by the Moscow Federation of Trade Unions
in Moscow said 25,000 took part, although police put the figure much lower at
Demonstrators filed to the city hall in a festive atmosphere behind banners
calling for solidarity with Yugoslavia.
Hundreds of supporters or members of the "Otechestvo" (The Fatherland) party
of Moscow mayor Yuri Luzhkov carried banners proclaiming "Yugoslavia is our
brother" and "Clinton and the Fatherland are not comrades."
The mayor called for salaries to be doubled and was applauded when he
declared: "We should carry out or own national policies and not go down on
our knees before the IMF (International Monetary Fund)."
Luzhkov, who could be a presidential contender to succeed Boris Yeltsin in
2000, also denounced "NATO's genocide against the people of Yugoslavia" and
warned of the risks of "global war."
The president of the Federation of Trade Unions, Mikhail Shmakov, called for
a 10 percent increase in salaries and declared his support for the mayor's
party for legislative elections in December.
Around 15,000 took part in a second demonstration called mainly by Communists
and led by Communist parliamentary leader Gennady Zyuganov, police said.
The mood of that march was more aggressive than the earlier demonstration.
Demonstrators were mostly older, many of them carried portraits of Stalin and
war veterans wore their campaign medals.
"If Stalin was alive, neither NATO nor America would be dictating to us how
we should live," a retired woman who gave her name as Valentina told AFP.
Some of the marchers carried banners bearing anti-semitic slogans, notably
attacking "yiddish television", and two television cameramen were barracked.
Zyuganov criticised President Yeltsin as the "main reason for the appalling
situation" of the country and said he hoped he would soon be removed from
On the NATO strikes against Yugoslavia, the Communist Party leader said that
"the United States sees a united Europe as a rival, that's why it is waging
this war in central Europe."
In Saint Petersburg, police said 12,000 people took part in a similar
demonstration called by independent trade unions, Communists and
extreme-leftists, which wound up in front of the former imperial palace.
Protestors brandished banners with slogans like "Yeltsin-NATO-fascism" and
"We are with you Yugoslavia."
"Yugoslavia is only the beginning, it is NATO's scenario against Russia,"
Yuri Belov, a Communist deputy in the Duma (lower house of parliament)
May 1, 1999
IN BRIEF: Impeachment Poll
THE ASSOCIATED PRESS
MOSCOW -- Russians are sharply divided on whether the lower house of
parliament should go ahead with impeachment proceedings against President
Boris Yeltsin, according to a poll released Friday.
A poll conducted by the Public Opinion Fund found that 47 percent of
Russians favor the idea of an impeachment debate, while 40 percent are
The poll, which involved 1,500 respondents, did not list a margin of error.
After months of hearings by a parliamentary committee, the lower house is
scheduled on May 13 to begin debating Yeltsin's possible impeachment.
Yeltsin's popularity ratings are in the single digits, but many Russians
worry that his ouster could spark needless political turmoil before
presidential elections scheduled for mid-2000. Yeltsin has been
constitutionally barred from running for a third term.
'Hot May' of Cabinet Changes Predicted
April 29, 1999
[translation for personal use only]
Article by Mikhail Rostovskiy: "Morning of the Execution of the
Premier ((play on the title of Russian artist Surikov's historical
painting 'The Morning of the Execution of the Streltsy.')) Kulik
((Russian for sandpiper)) Hunting Season Opens"
Yesterday [28 April] the White House was literally
teeming with people in Interior Ministry uniform. The reason for the
"invasion" was most innocent -- an exhibition dedicated to firefighters
was opening in the government building. But the symbolism of the timing
was much too obvious. Yevgeniy Primakov has clearly ceased to be the
omnipotent master in the building. And officials were discussing just two
questions: "Who's next?" and "When?"
Opening the morning Cabinet session, Yevgeniy Primakov did his best to
indicate that nothing out of the ordinary had actually happened.
According to the premier, it was by no means due to shortcomings in his
work that Vadim Gustov was dismissed but "in connection with his transfer
to another job." And Sergey Stepashin's appointment should, so he said,
be welcomed by every White House official: "It is an encouraging
phenomenon which raises no questions. We need to intensify the struggle
against crime and corruption, and strengthen ties with regions." It is
highly possible that many of these commendations were absolutely sincere.
There have never been high-profile disagreements between Stepashin and
Primakov. But with regard to there being no questions, it was a clear
exaggeration on the part of Yevgeniy Maksimovich [Primakov].
Sergey Stepashin's advent to the White House was perceived by its
inhabitants as part of the Kremlin's general strategy in combating
impeachment and as a stern warning to his enemies. A signal is being sent
to the Duma deputies that Boris Nikolayevich [Yeltsin] has no intention
of either being excessively tolerant or of loosening control over power
A no less clear signal is being sent to Primakov and his ministers.
Remember who is the true boss in the house, so to speak. And do not think
that, in the event of your collective dismissal, chaos will set in in the
Your replacement is already here -- in the next-door office.
Nor did any government officials believe that Gustov's dismissal would
be the last. The disagreement is only about "who?" and "when?" It was
earlier believed that major shocks would occur in the White House around
15 May in the event the Duma votes in favor of initiating the impeachment
procedure. As has already been hinted repeatedly in the Kremlin, if the
deputies defy the president, the presence of Maslyukov and Kulik in the
government will ultimately lose any meaning. But now it is rumored in the
White House that the reshuffle may occur even earlier. If the
Presidential Staff becomes convinced that the Communists are determined
about impeachment, waiting passively until 15 May will become
counterproductive. "The Kremlin may finally send the Communists packing
and try, with the help of radical reshuffles in the economic bloc, to win
over Yavlinskiy's faction. Because it is a well-known fact that Grisha
[Grigoriy Yavlinskiy] wouldn't mind holding the post of first vice
premier for economic issues," officials are saying behind scenes.
The premier's future behavior is also a matter of much controversy: Is
he of a mind to resign if Maslyukov is dismissed or is he prepared to
tolerate calmly the Kremlin's personnel reshuffles in the future too?
Naturally, nobody ventures to offer explicit forecasts.
But the voices of those in the White House who believe that Yevgeniy
Maksimovich can and must try to preserve the government under any
circumstances are becoming increasingly loud. One can also hear
increasingly often about disagreements between the head of the cabinet
and his ministers, for example, Vice Premier Kulik. As a well-informed
source has told Moskovskiy Komsomolets, Gennadiy Vasilyevich [Kulik] has
lately "clashed" both with Bulgak and Matviyenko and "he has long been
barely tolerated" in Primakov's inner circle.
These inferences are also suggested by the fact that yesterday, for the
second time over three weeks, Kulik's domain was subjected to the
premier's severe criticism.
Whereas the week before last it was agriculture that came under criticism,
yesterday Primakov verbally attacked the management of the fisheries
industry. Moreover, while coming down on his agrarian deputy's
"stepchildren," Yevgeniy Maksimovich did not spare sharp statements, such
as "That's enough excessive tolerance. Enough sentimentalization!" It is
also extremely odd that, according to some assertions, Kulik was the only
functioning vice premier who attended the so-called emergency meeting
between the premier and his deputies following Gustov's dismissal. The
reasons for Maslyukov's and Matviyenko's absence are clear -- they were
away from the capital. But why wasn't Bulgak invited to the happening?
Doesn't this signify that Kulik was on the verge of losing his seat as
early as two days ago?
With regard to Yuriy Maslyukov, the situation around him remains
extremely confused. So far, it is only known that, after the question of
granting the loan to Russia is finally resolved at the end of May, Yuriy
Dmitriyevich [Maslyukov] will most certainly cease being in charge of
macroeconomics and finances. But will Maslyukov remain in the government
until that happy event? The point is that the beginning of the
impeachment procedure has been scheduled for a date earlier than the end
of May. And yesterday Communists officially said that Yuriy Dmitriyevich
may be recalled from the White House ahead of time. Consequently, only
two things are clear so far. Anything can happen in the White House at
any time. And May will be a hot month in any case. There is even no need
to look at the Hydrometeorology Center's forecasts....
Gustov Predicts Sacking of Most of Russian Government
April 29, 1999
[translation for personal use only]
[Presenter Tatyana Mitkova] Former First Deputy
Prime Minster Vadim Gustov has returned to St Petersburg. In an exclusive
interview with our TV company, Gustov explained how he was sacked and
gave his forecast about the fate of the Russian government.
[Begin recording] [Gustov] It was, in any case, a completely unexpected
decision for me and my colleagues, although we are not children and we
understand that this year most of the government will be sacked.
I have come home [to St Petersburg] from stuffy, scheming Moscow, and,
to be honest, I have started seeing a lot of things differently. This is
very serious moment in my life. I have changed.
I was with [Prime Minister Yevgeniy] Primakov at 1230 [0830 gmt on
27th April] and we were discussing the Dnestr problem [breakaway region
of Moldova]. This is a very serious problem, and we were putting forward
our proposals -- rather, I was putting forward mine, because I have just
Then the phone rang -- right there in Primakov's office. Vadim
Anatolyevich, you are being called to see the president. That was at 1245
[0845 gmt]. In 30 minutes I left and asked Yevgeniy Maksimovich
[Primakov]: Do you know? He said: No, I don't know what is happening.
I was with the president at 1400 [1000 gmt] and we talked for 10
minutes. I told him what tasks I think need solving in the near future.
Two hours later I was telephoned and I was sacked. On-one understood it
at all. Not a word was said to me about why, or on what basis. [end
Date: Fri, 30 Apr 1999
From: "Manuel F. Montes" <email@example.com>
Subject: book on the Asian and Russian economic crises
We thought it would be timely to tell your readers about our book on the
Asian and Russian economic crises, now that it has gone into second printing
after one month out. We had been hoping that some Moscow journal would
review it first and then you would pick up the review, but we have not had
reviews, in spite of the copies we have sent to key papers/journals. The
Russian language version of the book, whose English title is "The Asian
Crisis Turns Global," should be published by September 1999 by the "Delo
Publishers" under the title "Asian Virus or Dutch Disease? Theory and
evidence of the currency crises in Russia and elsewhere". We, Manuel F.
Montes and Vladimir V. Popov, are the authors of the book.
Aside from analyzing the Russian and East Asian crises as a problematique in
the management of exchange rates in transition and developing economies, we
discuss the various explanations for the global financial crisis. Our
interpretation of the Russian and Asian currency crises is quite different
the "conventional wisdom" and mainstream reviews and we are anxious to
present our arguments.
There are currently two prevailing (and not mutually exclusive) explanations
for the August 1998 currency crisis in Russia. One stresses the unfortunate
coincidence of events (Asian virus, a drop in oil prices, political
etc.). Yevgeny Yasin, the minister without portfolio in the former Kirienko
government and a respected academic economist, says "the crisis is not just
the result of the evil forces or incompetence, but is caused by the
of circumstances, most of which were against us". Sergey Kirienko himself
even now believes that even in June 1998 Russia had a chance to get through
the bumpy piece of the road avoiding the crisis, had only the Duma accepted
tax increases suggested by the government (Expert, January 18, 1999).
Another explanation is that the crisis was caused by the budgetary problems -
persisting deficits resulting in mounting government debt, or "the GKO
pyramid". No wonder, the former high officials of the Central Bank of Russia
(CBR) take this view. "No doubt, the current financial crisis is mostly of
budgetary and debt origin", - states Sergey Alexashenko, the then deputy
chairman of the CBR in his recent book "The (lost) battle for the ruble".
thus the government, not the CBR, to be blamed, since it was only that much
and that long that the CBR was able to stick to the restrictive monetary
without being supported by the government, which continued to pursue loose
The government in response says it knew about the problem, but was not able
to force the parliament to accept the necessary tough measures to improve tax
collection. Hence the scape goat of last resort is again the red-brown
parliament, which, as everyone is supposed to know, is so anti-reform
The Western explanations of the Russian crisis, at least those that appear
outside the area studies field, are generally even less sophisticated. It
like the majority agreed that everything is so rotten in Russia that it
strange, if the crisis did not happen. "There is no honor among thieves" -
writes Paul Krugman, suggesting that the IMF - World Bank were just
wasted, if not stolen by the short-sighted and apres-nous-le deluge-minded
All these explanations are so far from clear-cut facts that the appropriate
question to ask is why they are seriously discussed. In fact, here we
rare case of the history written by the losers, not winners, - by the
authorities and IMF, which tried hard, but failed to save the ruble from the
devaluation. The explanation that focuses on bad luck and budget deficits
ignores the key reason of the crisis - pure and simple, but disastrous
macroeconomic mismanagement by the so called "technocrats" in the CBR, in
the government and in the IMF.
Other explanations which emphasize the role of corruption and collusion for
both the East Asian and Russian provide convenient excuses for the
Washington consensus. No one, of course, should condone corruption and
collusion; but to rely on this explanation for the complex set of crises is
least analytically lazy. But there are also unfortunate consequences. This
excuse places the onus of the problem on domestic politics, absolving both
poor domestic economic policies and instabilities in international financial
markets. This excuse also endorses only those solutions that are costless
the point of view of international creditors.
We argue that the Russian currency collapse was a straightforward plain
vanilla balance of payments crisis caused by the attempts to sustain the
unsustainable overvalued exchange rate of the ruble. It was complicated, but
not generated by the budget deficits and mounting government debts and, as
we predicted more than once (including JRL - December 1997), it would have
occurred even without Asian viruses, Russian fiscal imbalances and oligarchs'
prodigality. The root of the crisis was the overappreciation of the exchange
rate: from early 1992 to late 1995 the real exchange rate of the ruble grew
over 7 times (>600%) - more than in other transition economies and more
than enough to kill the growth of exports, to cause an unsustainable rise in
imports and to undermine trade and current account surplus leading to the
depletion of reserves.
At the end of the day, the Russian crisis was the most trivial balance of
payments crash resulting from the inconsistency of the macroeconomic policy
objectives and experienced more than once in many countries previously. It
was completely different, though, from the more sophisticated Asian currency
crises that became side effects of the private sector excessive debt
accumulation. The reckless lending boom carried out by the private sector
after the disorderly removal of state regulations in East Asia provided the
preconditions for the Asian crisis.
Aside from book distributors in Asia and Germany, the book is available from
the Institute of Southeast Asian Studies in Singapore (email:
firstname.lastname@example.org) or from the East-West Center in Honolulu
Manuel F. Montes, Coordinator, Economic Studies, East-West Center,
Honolulu, Hawai'i, email: email@example.com
Vladimir V. Popov, Sector Head, Academy of the National Economy,
Moscow, Russian Federation, email: firstname.lastname@example.org. See also Popov's
earlier piece in
1 May 1999
Russia as rescuer
Russia's role as a mediator between NATO and Slobodan Milosevic is no
matter of speculation. Intensive discussions in Moscow between Deputy
Secretary of State Strobe Talbott and Viktor Chernomyrdin, the former Russian
prime minister whom Boris Yeltsin has appointed a special Balkans envoy,
herald the start of a Russian peacemaking mission that suits Moscow's
interests as much as it does the interests of NATO.
There are two key questions about Russian mediation: What is Russia capable
of doing? And what should NATO be asking Russia to do?
The answer to the first question is that Milosevic knows that if he loses
Moscow's support, he will be left isolated except for his friend in Baghdad,
By some accounts, Milosevic's confidence that he could count on Russian
solidarity was a key factor encouraging him to resist the Rambouillet formula
and the threat of NATO bombing. In 1995, when Milosevic acceded to the Dayton
accords ending the war in Bosnia, the honeymoon between Russia and the West
was still purring along. NATO had not been enlarged. The ruble had not
collapsed. Russia had not defaulted on its debts, and the Russian population
had not lost faith in the free market or in NATO's good faith.
Although Milosevic may have been right to count on Russian support when the
bombs started falling on Belgrade, he may have gambled too heavily on
Moscow's constancy. His mistake was not that he took seriously the blather
from some Russian nationalists about Slav solidarity but that he
underestimated - as no erstwhile Marxist should do - the crude economic
necessity weighing upon Russian diplomacy.
Yeltsin's government has become a pitiable debtor dependent on the kindness
of German bankers to reschedule its disastrous debts and on IMF technocrats
to provide new loans.
Yeltsin and his prime minister, Yevgeny Primakov, can pretend to represent a
proud great power that is merely down on its luck for the time being, but
Western leaders have had a look at Russia's books and know that Moscow needs
them more than they need Moscow. Or so it seemed until the moment they
started bombing Serbia.
With the bombs falling and without a clear consensus on a political exit
strategy for the Kosovo conflict, NATO needs Moscow not merely as an
intermediary with Milosevic but as the party capable of frightening him with
the specter of isolation and thereby softening his terms for a negotiated
conclusion to the war.
Given Russia's desperate need for new infusions of cash, Milosevic need not
be paranoid to worry that Russian officials have been hinting they expect to
be receiving IMF loans in the next few months. Equally worrying for Milosevic
should be Yeltsin's appointment of Chernomyrdin, a favorite of the West, to
take over the Kosovo file rather than Primakov, a backer of Belgrade and a
favorite of nationalists and Communists in the Duma.
Most of all, the Clinton administration and the NATO allies need Russia to
rescue them from their own miscalculations and blunders. At Rambouillet they
made Milosevic a take-it-or-leave-it offer they thought he could not refuse.
They were wrong. It was an offer he thought he had to refuse. Then they had
to follow through on their bombing threat without being fully prepared to
wage war against Serbia. As a consequence of their blundering, 1.5 million of
the Albanian Kosovars they said they wanted to protect have been driven out
of their homes and turned into wretched refugees.
The longer the bombing campaign goes on, the greater the dangers facing the
refugees in Kosovo or across its borders, including the threat of epidemics.
In forging peace terms for Chernomyrdin to negotiate with Milosevic, NATO
should place the welfare of the refugees above the abstraction of the
alliance's credibility. If that means the protection force that returns to
Kosovo with the refugees is not exclusively a NATO force but a UN contingent
with Russian troops, so be it. For the sake of the refugees, however, the
Serb forces that have been killing and raping Kosovars must be withdrawn from
These elements of a peace deal are reportedly among the ''concrete
proposals'' Chernomyrdin is shopping in Bonn, Rome, and Belgrade. The sooner
they are molded into a war-ending accord, the better - for the Kosovars, for
NATO, for Yugoslavia, and for Russia.
Russian Academic Questions US Motives in Balkans
MOSCOW, April 28 (Itar-Tass) - "The new age of
information technologies is apparently disadvantageous for several
western nations. It prevents them from dictating their will on the world,
from foisting their rules on it," Chairman of the Presidium of the
Council for External and Defence Policies, Deputy Director of the Europe
Institute of the Russian Academy of Sciences Sergei Karaganov told a
press conference here on Wednesday [28 April]. He dwelt on the reasons
behind the current critical situation in the Balkans.
"It seemed that the United States should have stood to gain more than
any other country from this new age. Yes, precisely the U.S.A., because
it is the technological, informational, and economic leader of the world.
It turned out, however, that in the new situation, when there is no
confrontation with Russia, when everything is shifting towards economy,
information, ecology, and finances, it is very difficult to exploit one's
new powers and political influence, to dictate one's will. It turned out
that this power is becoming increasingly ephemerical. What we are now
seeing in Yugoslavia, in the new NATO concept, is actually an attempt to
revert the world to the previous century, to hurl it back into the
sixties-seventies, to the time when there was confrontation and military
force was very important," Karaganov stressed.
"NATO hopes that in the present-day conditions of artificially whipped up
tension and of military strength the United States and a group of other
nations, associated with it, will find it easier to transform their
economic and other potentials into purely political influence. We regard
this as regress, as reactionary romanticism, which will eventually fall
through. However, Russia will be compelled to work in these new
conditions. Hence, it will have to prepare itself not for the difficult,
but very promising age, towards which we had advanced over several past
years, but for a previous-type age," the scholar noted.
May 1, 1999
EDITORIAL: Ever More Wild Bombs Won't Work
NATO may have started its aerial bombing campaign against Yugoslavia with
the highest of motives, but war has predictably dragged it down into its
While the great evil remains ethnic cleansing of Kosovo by Serbs, moral
doubts are growing over increasing civilian casualties caused by NATO's
These doubts were raised Friday by UN Human Rights Commissioner Mary
Robinson. Although she placed the main guilt with the Serbs, she cited
NATO's failure to consider the "principle of proportionality" and "weigh
the consequences" of its bombing campaign on Yugoslav civilians.
Initially, NATO's bombing campaign hit purely military targets, with the
exception of a couple of tragic accidents. But as the war has dragged on
and Yugoslavia has remained defiant, NATO has swung increasingly wildly
with its punches.
Robinson is right to point out that NATO's attacks are now not motivated
by any military logic. They are simply designed to inspire generalized
But this underlines NATO's fundamental misjudgment of Serb nationalist
sentiment. It was wrong to believe that a strategic bombing campaign would
solve the Kosovo problem on its own. It is that much more wrong to believe
that the solution is simply to ratchet up the air war and start World War
II-style area bombing.
But assuming NATO cannot just give up and leave, then what else should it
First, NATO must immediately raise the stakes by starting the clock
ticking on a ground war. Troops must be deployed on Serbia's borders. The
consequences of a ground war would be horrible. But raising the threat of a
ground war will bring real pressure to bear on Yugoslav President Slobodan
Milosevic. If it works, it will be a much more humane form of persuasion
than the current air campaign.
NATO should also drop its fairy tales about the shape of a post-war
Kosovo. There will never be a multi-ethnic state in Kosovo after what has
happened. If NATO wins, the Albanians will be allowed back in but the Serbs
will have to leave. Kosovo will be mono-ethnic or partitioned.
This has implications for policy now. NATO has been reluctant to arm the
militant and pro-independence Kosovo Liberation Army. Yet this would be
another real way to pressure Belgrade. NATO should accept the KLA, warts
and all, as its only available ally on the ground. The future Kosovo state
will be a mess, no matter what. Just end the war.
NATO's war goals are growing ever hazier as its rhetoric and bombing steps
The air war is not working. Try something else.
May 10, 1999
[for personal use only]
Up Front: Struggling Comrades
Russia's New American Friend
RUSSIA HAS ENLISTED A U.S. company in a new offensive against counterfeiting.
Holographic Dimensions, which makes holograms--those 3-D images used to foil
counterfeiting of credit cards, CDs, and other products--will help Russia
battle phony liquor-tax stamps. The government says that bootlegging costs it
$5 billion annually.
So through a Russian firm, the government has awarded the Miami-based
company its first tax-stamp contract, worth $130 million over the next year.
CEO Kevin Brown hopes the new stamps' debut on July 1 is just the start.
Holograms are likely to appear on most consumer products in Russia, where tax
evasion is rampant. Holographic Dimensions has promised to open a Russian
factory by next year.
This being Russia, though, there could be some glitches. Business groups
argue that the holograms will drive up retail prices without stopping
bootleggers, since inspectors are ill-equipped to detect phony stamps. Then
there's the question of Holographic Dimensions' pay. Russia has defaulted on
billions in debts, and the economy is awash in barter and IOUs. Brown has a
bank guarantee, but the institution, Neftkhimbank, is struggling to stay
afloat. Collecting on the contract could prove as elusive as grabbing a
By Carol Matlack
EDITED BY ROBERT McNATT