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Johnson's Russia List
17 May 1999
[Note from David Johnson:
1. Itar-Tass: Young Russia Head Offers Legalized Paying off to Avoid Draft.
2. Itar-Tass: New CABINET'S Priority Is Succession Stepashin.
3. Moscow Times: Michael McFaul, Time to Follow the Law.
4. Reuters: Yeltsin pays price for impeachment win.
5. The Times (UK): Anna Blundy, Ivan the Terrible.
6. Chicago Tribune: Elizabeth Williamson, ONE WAY. (Traffic in St.
7. St. Petersburg Times: Fyodor Gavrilov, Russians Still Value Stability
Above All Else.
8. Financial Times (UK) editorial: Duma's dilemma.
9. Reuters: Russia senators to assess Yeltsin's choice as PM.
10. Moscow Times: Catherine Belton, Treasury Man a Chubais Chum.
11. The Guardian (UK): Simon Pirani, $150bn capital flight ravages Russia.]
Young Russia Head Offers Legalized Paying off to Avoid Draft.
ST. PETERSBURG, May 16 (Itar-Tass) - Leader of the Young Russia movement
Boris Nemtsov suggests to replenish the Russian defense budget by 40 percent
with the legalized paying off to avoid the military service.
In his words, only 9,000 out of 150,000 eligible youngsters are annually
drafted in Moscow while 149,000 appear to have "fatal diseases." Parents of
the draftees-to-be pay 5,000-10,000 dollars for such diagnoses, Nemtsov said.
The overall sum of those bribes makes about 40 percent of the Russian defense
budget of this year, he added.
New CABINET'S Priority Is Succession Stepashin.
MOSCOW, May 16 (Itar-Tass) - A priority task of the Russian new cabinet is
succession, Acting Premier Sergei Stepashin told regional leaders on Sunday.
That was his second meeting with the leaders of regions and territories over
the past two days. "The succession means the further development based on the
achievements of the previous government," he added.
Much attention will be given to the agro-industrial sector. That sector needs
a separate program, the acting premier said.
Another priority of the cabinet is the budget policy, Stepashin remarked. It
is planned to elaborate a new flexible policy of the price formation and
imports and concentrate on the domestic production.
Stability will much depend on the Duma's adoption of several bills prepared
by the cabinet of Yevgeny Primakov and demanded by the International Monetary
Fund for resumed crediting of Russia, Stepashin said. "I will request them
(Duma deputies) to adopt the bills," he noted.
"The cabinet will have to work in a more strict manner. The power vertical
does not function and ministers are not responsible for their unsatisfactory
work," the acting premier said.
Another important task of the cabinet is the fuel and energy complex.
Stepashin promised administrative measures, up to "denying access to the
May 15, 1999
Time to Follow the Law
By Michael McFaul
Special to The Moscow Times
In firing Primakov, Yeltsin wants to do battle again. As the lore about
Yeltsin goes (of which he himself writes in his memoirs), he is a high-risk
taker who always is at his best in times of crisis. When push comes to shove,
Yeltsin has an impressive track record of success. So, it should not be
surprising that he is tempted into believing that he will win again.
Too much time in power at the top can give a leader a warped sense of
omnipotence and invincibility. It's true of people in the White House in
Washington. It's even truer of those who spend too much time in the Kremlin.
You have all those phones on your desk. You have that motorcade that whisks
you around the city and forces everyone else to stop in their tracks until
you have passed. With a growl, you can make Cabinet officials play musical
chairs. With a decree, you can remove from power the most popular government
official in Russia.
The power you feel sitting inside the Kremlin, however, does not always
correspond to the power you have to influence events outside of the Kremlin.
Ask those who plotted the coup attempt in August 1991. I did. Because I am
writing a book on the evolution of Soviet and Russian political institutions
over the last decade, I have interviewed many of those involved in
orchestrating the use of force, both in August 1991 and October 1993.
In 1991, the coup plotters had a false sense of their own power. Having spent
their whole careers working in hierarchical Soviet state organizations, they
believed in the power of the Kremlin phone call. From their perch inside the
Kremlin, they thought that they could prevail over the pesky and disorganized
democrats. They miscalculated. October 1993 was a similar situation. The
balance of power between those in the Kremlin and those in the White House
was relatively equal. This time around, the Kremlin did prevail, but only
In contrast to both 1991 and 1993, the balance of power within Russia is much
clearer today in favor of those outside of the Kremlin. Yeltsin does not have
the means to successfully execute an extraconstitutional act. Who will carry
it out? Yes, his new acting prime minister, Sergei Stepashin, comes from the
Interior Ministry and has some loyal troops under his control. But the
majority of the armed forces and the intelligence services would not support
such an act.
Nor would the majority of the Russian people. In 1993, roughly half of the
population still supported Yeltsin. Today, polls indicate that only 2 percent
of the population supports Yeltsin, and these polls have a margin of error of
plus or minus 4 percent.
And under what principle will they act? In 1993, Yeltsin could make the case,
however lamely, that he was destroying a Soviet-era institution in the name
of constitutional and market reform. Today, only the most pathetic apologists
for Yeltsin are prepared to make these kinds of arguments. The political
system in place today in Russia is one that Yeltsin himself designed. Yeltsin
and his team wrote the Constitution, not Stalinist hacks from yesteryear. If
he breaks these rules, no one can justify it with a straight face in the name
Equally silly is the argument that the Constitution needs to be suspended for
the sake of economic reform. Yeltsin and his spin-doctors are trying to
portray this new standoff between parliament and president through the same
lens that the 1993 standoff was constructed - good-guy reformists in the
executive versus bad-guy Communists in the parliament. No one - in Moscow or
Washington - is prepared to buy this oversimplified portrayal today.
Consequently, it is hard to understand why Russian liberal economic reformers
are thinking of joining the Stepashin government.
The experience in the post-communist world is that authoritarian regimes are
the worst economic performers while parliamentary democracies have the
highest rates of economic growth.
In contrast to 1993, Yeltsin also cannot rely on regional leaders to rally to
his cause. Yeltsin had hoped that the Federation Council would serve as his
Central Committee, a kind of club of regional barons not unlike the old days.
Instead, the Federation Council has established itself as a powerful and
independent political body that will not sanction a Yeltsin abrogation of the
Constitution. Just as republican leaders resisted the coup attempt in August
1991, these regional leaders will act to check Yeltsin should he be tempted
to try to hold power through extraconstitutional means.
Finally, in comparing 1991 and 1993 with today's situation, there is also
another important difference regarding the West. In these earlier conflicts,
the West, and the Clinton administration in particular, supported Yeltsin's
side. It is absolutely clear that this support will not be forthcoming this
time around from any Western capital and most certainly not from Washington.
If Yeltsin is banking on Western blessing for an extraconstitutional act, he
is gravely miscalculating. In the U.S., there is an amazing consensus among
Russian analysts that Yeltsin should not violate the Constitution and could
not successfully complete an extraconstitutional action if he tried.
Yeltsin's passionate decision to remove Primakov may have demonstrated to
Yeltsin and his entourage that the old man still has it - that when push
comes to shove, he can still step up to the plate and deliver
However, Yeltsin will not prevail if he attempts to resolve this political
crisis by extraconstitutional means. All those who care about Russian
democracy - be they in Moscow, Washington or London - should make this clear
to Yeltsin before it's too late.
Michael McFaul is a Senior Associate at the Carnegie Endowment for
International Peace and a professor of political science at Stanford
University. He contributed this comment to The Moscow Times.
ANALYSIS-Yeltsin pays price for impeachment win
By Timothy Heritage
MOSCOW, May 16 (Reuters) - Russian President Boris Yeltsin has escaped
impeachment, but three days of debate in parliament amounted to a damning
indictment of his eight-year rule.
His Communist-led foes in the State Duma, the lower house of parliament,
failed on Saturday to secure the two-thirds majority needed on any of five
counts to start impeachment proceedings.
But they used three days of acrimonious debate to attack Yeltsin
relentlessly, painting a picture of an ailing leader dragging Russia blindly
from one crisis to another with just one aim -- to hold on to power.
Yeltsin's visit to hospital for a medical check just before Saturday's voting
reinforced his critics' doubts that he is capable of doing anything more than
just limping to the finish line of his four-year second term.
``Anyone voting in support of Yeltsin is voting for a new Chechnya (war), for
fresh destruction, for fresh disgrace, for fresh lawlessness,'' Communist
leader Gennady Zyuganov said, predicting continuing problems if Yeltsin kept
The Communists pointed out that more than half the members of the Duma had
supported impeaching Yeltsin on all five counts, even though they fell short
of the two-thirds required.
And although they voted not to impeach Yeltsin, the president's allies
offered only lukewarm support.
``Does the fact that we are confident that impeachment is untenable amount to
justification of Yeltsin and his rule?,'' said Vladimir Ryzhkov, head of the
centrist Our Home is Russia party's parliamentary group, which voted against
``Legally, yes, but politically, no,'' he said, answering his own question.
``We have our own complaints to present to Yeltsin, democratic complaints.''
Yeltsin kept out of sight and made no public statement on his victory, which
he ultimately achieved by a clear margin.
The impeachment debate was humiliating for Yeltsin and did nothing to enhance
the reputation of a president whose once huge popularity has, according to
some opinion polls, sunk to about two percent.
The man who climbed on to a tank in 1991 to help put down an attempted coup
is, at 68, widely regarded as a shadow of his former self, both mentally and
Illnesses he has faced include heart problems, pneumonia and most recently a
stomach ulcer. He has stumbled in public more than once, caused embarrassment
by confusing his words and sometimes sounded almost incoherent.
Yeltsin set out to build a new and prosperous Russia rather than go down in
history as the destroyer of the old order. But reforms have not gone smoothly
and many Russians say a corrupt few have become rich while most ordinary
Yeltsin blames this on the Communists blocking reforms and has made it his
goal to prevent them taking back power.
Now his main aims seems to be to oversee a smooth transition of power next
year, do his best to ensure the next president will protect him against any
moves to try him for alleged misrule, and simply to hold on to power as long
as he can.
``Power is his ideology, his friend, his concubine, his mistress, his
passion,'' his one-time press secretary, Vyacheslav Kostikov, said of him.
Some political analysts say it is still dangerous to underestimate Yeltsin
and that he still shows occasional sparks of his old political skills --
even, perhaps, in his puzzling dismissal of Yevgeny Primakov as prime
minister last week.
``Yeltsin's passionate decision to remove Primakov may have demonstrated to
Yeltsin and his entourage that the old man still has it -- that when push
comes to shove, he can still step up to the plate and deliver,'' politial
analyst Michael McFaul wrote in the English-language Moscow Times.
But few analysts disagree that Yeltsin is increasingly unpredictable and his
intentions are now hard to fathom -- beyond a clear desire to keep power and
remove any rivals, such as Primakov, whose own authority threatens his.
That could augur badly for the last year of Yeltsin's presidency. He is
unlikely now to take a soft line in any battles with opponents who dared to
try to impeach him.
His foes also have little option but to remain on the offensive because they
cannot risk alienating their supporters as a parliamentary election looms in
December, followed by a presidential poll in mid-2000.
Russian media said the Duma debate amounted to the start of the election
campaigns. If so, the stage is set for a stormy last year of Yeltsin's long
and turbulent rule.
The Times (UK)
May 17 1999
[for personal use only]
'You only have to look at Yeltsin's string of yes-men prime ministers, each
sacked at the first 'no', to see history repeating itself'
Things have not changed much in Russia this millennium, particularly as
regards those in positions of power. His early years were apparently
"constructive and progressive", but the later ones, when he was
disillusioned, paranoid and infirm were "characterised by extreme behaviour,
uncontrollable rages and a harsh personal despotism".
Guess who? Not Boris Yeltsin, who last week sacked his entire Government for
the third time in just over a year and avoided impeachment by the skin of his
teeth, but Ivan The Terrible, Tsar of Muscovy from 1533 to 1584, as described
by John Paxton's Companion to Russian History.
This is perhaps not the subtlest of comparisons, and Ivan IV is more usually
likened to Stalin, what with his destruction of the ruling classes, his
secret police and his terrifying purges, but it is nonetheless indicative of
the fact that, revolutions and democratic reforms aside, Russia's leaders are
by and large an unstable bunch.
Since Ivan's day the Tsars and their successors have never considered
themselves secure unless pretty much every possibility of opposition has been
destroyed. This is as true of Yeltsin as it is of all of Russia's rulers over
the centuries. Of course, Yeltsin does not take "destroy" quite as literally
as Ivan or Stalin, but when he feels threatened, even in the twilight of his
term in office, he keeps with tradition and lashes out as he did last week.
The profound insecurity shared by Ivan and Boris is evident in their memoirs.
Both catalogue insults and injuries in great detail, as if to prove that
their paranoia is well-founded. Admittedly, his mother's murder and the
ensuing manipulation of the young Ivan by a clique of self-interested boyars
doubtless took a harsher toll than the constant quarrels with schoolteachers
and Communist Party members that the boy Boris endured. Yet there is a shared
feeling of victimisation that both men felt the need to battle against.
"It was understandable that he [Ivan] was suspicious of those tyrants of his
childhood . . . who formed the chief element in the traditional Duma or
council of state. So he took his important decisions in an inner council of
well-chosen advisers drawn from outside the traditional ruling groups,"
writes historian John Lawrence. Yeltsin's mistrust of the Communists who
still dominate the Duma has led him, like Ivan before him, to be increasingly
reliant on his suspect circle of Kremlin advisers.
Ivan's wild rages and personal attacks on his adversaries are also echoed, in
milder form, by the enfeebled Yeltsin. In a letter to the defector Prince
Kurbsky, Ivan rails at the war hero for deserting Russia and his Tsar,
calling him "dog" and "cur" in explosive and ungrammatical sentences unusual
for someone of his standing.
"No one - just let Clinton, a little bit, accidentally, send a missile. We'll
answer immediately! We don't want . . . such impudence! To unleash a war on a
sovereign state. Without the Security Council. Without the United Nations. It
could only be possible in a time of barbarism," babbled Yeltsin at a Kremlin
ceremony a fortnight ago. Uncanny huh?
And as for Ivan's decision to allow half of Muscovy to be ruled by a council
of boyars led by one Simon, a baptised Tartar who was soon pushed aside by
the power-hungry tsar, you only have to look at Yeltsin's string of yes-men
prime ministers, each sacked at the first "no", to see history repeating
Ivan, many of whose reforms were brilliantly conceived, was unable to
surround himself with trustworthy people, partly because everyone knew that
if they were in favour now, they might not be tomorrow.
"Knowing how fast the wheel of fortune turns, they fear that they may have
only a short season in which to enrich themselves, and . . . they exact
tribute with redoubled activity," writes Lawrence. Ivan and Boris, through
different means, both found that they had accidentally unleashed corruption
on a grand scale and no longer had any power to control it.
The differences between Ivan the Terrible, an autocrat who believed in the
divine right of the tsars, and Boris Yeltsin, Russia's first democratically
elected President, are substantial. For a start Ivan was remembered fondly by
most ordinary Russians whose interests he had protected, whereas Boris is
deeply unpopular with a people who feel he has impoverished them and allowed
their country to be plundered by the robber barons.
But, staring us madly in the face every time a television camera gets into
the Kremlin, is the fact that ruling Russia is bad for your mental health.
16 May 1999
[for personal use only]
By Elizabeth Williamson
Special to the Tribune
ST. PETERSBURG, Russia -- Is Russia moving in the right direction?
It's certainly not moving in the left direction, at least not in St.
In Russia's second-largest city, the longest and busiest thoroughfare,
Moscovsky Prospekt, offers motorists only two opportunities to turn left
along its 10-kilometer (6.2-mile) length.
Miss one, and you must pull a U-turn on a side street or drive several
kilometers to the next turn lane.
Russia's transition from a centrally planned to a free-market economy has
been difficult, at best. But Russian motorists will tell you that it's the
post-Soviet transition from a society that relies on public transit to one
that owns cars that has been much more troublesome
>From driver's education, where one pays a bribe or waits months for a
license, to traffic cops for whom "search and seizure" amounts to a job
description, to the roadways, seemingly designed to confuse invading armies,
it's easier to pilot a tugboat down St. Petersburg's Neva River--in winter,
when it's frozen solid--than to navigate the city by car.
"The one-way, dead-end streets, the rules, the police, they're all a sign of
some kind of national mental illness," says one frustrated American
expatriate. "It's a nightmare."
The nightmare is fed by huge increases in car ownership. Since the collapse
of Communism in 1991, car purchases have more than doubled. New motorists
find few places more challenging than St. Petersburg. Its narrow roads built
for czarist-era carriages are choked with gassy Ladas, smoked-window
Mercedes-Benzes and curb-leaping utility vehicles.
And, in a country where bribing authority has long been the only way to get
things done, officials thwart would-be motorists at every turn. First in line
are the gray-uniformed, jack-booted GAI, or state auto authority police. A
remnant of the old police state, they have gotten new responsibilities as
more and more Russians stopped taking the subway and bought cars. They have
the power to search, dismantle or confiscate a car and imprison its owner.
At most major intersections, they patrol with plastic batons and impunity:
their whim is law and their authority unquestioned.
Asked by a would-be motorist how large the fine would be for running a red
light, a traffic cop, flagging down cars at a busy intersection near St.
Petersburg's famous Mariinsky Theatre, muttered: "Why don't you stop in a
kiosk and buy a rule book?"
Without taking his eyes off traffic, he added, "It's article No. 121."
Asked again, he answered, "The fine averages 25 rubles." That's about
$1.25--not much even for Russians who make the average salary of $150 a month.
But the fine's not the point. After 14 such violations, a motorist loses his
or her license for good. And encountering a traffic cop, given such
wide-ranging power and thousands of often-conflicting laws, is unpredictable
and sometimes frightening. Police often stop a motorist or a pedestrian for a
"document check" for no reason other than the person looks different.
"Different," usually means darker-skinned people from Chechnya and other
southern parts of the former Soviet Union, regions widely cited for Russia's
rise in crime.
Says Akhmed, a St. Petersburger born in Abkhazia, "I am dark (skinned), so I
know every time I travel across town, I will be stopped by a Gaiyishnik every
500 meters. It's unpleasant. . . . God knows what would happen if I ever
forgot my documents."
Traffic police charge on-the-spot "fines" (read: instantly pocketed) of up to
some $200, especially for suspected drinking and driving offenses in this
zero-tolerance country. Though it may seem odd that Russia, famed for its
love of drink, has a stricter drinking-and-driving policy than the U.S.,
that's common in this part of the world, where lighter, cheaper cars and
unsafe highways mean that nearly every high-speed crash is fatal.
Because it's so easy to lose a license, motorists prefer off-the-books fines.
They carry with their licenses a record of offenses, and at the limit the
patrolman yanks the license on the spot. So police, in a largely
non-computerized country, know how close a motorist is to losing his or her
license and how willing he or she might be to pay to keep it. Those who
complain risk having their cars impounded--no matter how many family members
are on board--or being subjected to a variety of indelicate inspections.
While human-rights groups frequently complain about this unbridled power,
officials have not done anything to curb it.
Indeed, Anatoly Ponidelko, the last St. Petersburg police chief to probe
departmental misdeeds, was fired last year by the city governor. Part of this
is understandable: In a country that had virtually no crime under communism,
the post-Soviet crime wave means that there is no public support for limiting
the number of police on the roads. Measures taken in 1997 increased this
In 1991, there were 317,000 cars, or 63 per 1,000 inhabitants. In 1998, that
had grown to 831,500 or 174 per 1,000 inhabitants. By 2010, they predict
there will be 300 cars per 1,000 inhabitants.
In all of Russia's 89 regions, the state operates driving schools in which
citizens older than 18 learn the rules of the road, in classes that meet
twice a week for two months, and receive 28 hours of behind-the-wheel
Students are then tested for licenses much like they are in the U.S. Unlike
in the U.S., however, most of those tested in Russia have never sat behind
the wheel except during their instruction.
The nearly 100 written test questions are amazingly detailed. One, for
instance, asks the thickness, in millimeters, of a tire at the blowout point.
The toughest step, however, is the driving test. Examiners are traffic
police, who routinely fail applicants until they pay to pass.
"My course cost $200, but unofficially if you want to pass the first time I
paid additionally $200," says a 23-year-old language teacher who asked not to
be identified for fear of reprisals. "If you don't pay, there's no guarantee
you won't have to apply again and again. If you pay $200, you can kill a
pedestrian and they will give you the credit."
In the teacher's class, three paid the bribe; all passed. Nine others passed
despite not paying. The rest, 19, failed. For her exam, the inspector asked
her to drive a few dozen yards, turn left and stop.
New drivers then take to a maze of roads for which no classroom could prepare
Because its roads were never designed to handle high traffic volumes, St.
Petersburg lacks a ring road to divert truck and highway traffic around the
city center and needs other basic routing measures, such as turn lanes and
multilane main arteries.
According to the Technical Assistance for the Commonwealth of Independent
States (TACIS), 116 potential projects for the region covering all forms of
transport would cost $31 billion. (TACIS is a European Union-sponsored
consulting program, which, among other projects, is helping Russia and other
Eastern European nations develop plans and obtain foreign financing for
Of the 116 projects, 27 involve roads. Biggest are a ring road, which would
cost $1.1 billion, and a north-south highway, estimated at $1.5 billion. When
Russia can't free even a few hundred million in foreign loans to save its
economy, the design stage won't be finished until at least 2005.
"Everyone's got loads of feasibility studies, but no projections because no
one really knows when (Russia's) going to get the money," says a TACIS
spokesman whose contract with the city administration forbids him from giving
"Traffic volume has taken (planners) by surprise, and some engineers want to
build more (inner city) roads rather than looking at cheaper solutions. But
that's not the method a Western (funder) would accept. . . . Russia would end
up like Los Angeles."
Los Angeles would be utopia. On Sadovaya Street one evening, motorists lined
up to turn onto Nevsky Prospekt, the city's Michigan Avenue.
In the immediate area are the city's largest department store, several
museums and theaters and a five-star hotel. Yet cars cannot turn left onto
Nevsky from Sadovaya. Complex signs explain the alternative: two lanes of
traffic must turn right, then U-turn.
Then, as if 30 cars U-turning in formation weren't difficult enough, a
traffic cop toots a whistle and begins pulling over cars that look strange to
St. Petersburg Times
May 14, 1999
NOTES OF AN IDLER
Russians Still Value Stability Above All Else
By Fyodor Gavrilov
HOW peacefully I slept Wednesday morning: The newspaper I edit had been
safely dispatched to the printing plant. But my slumber was disturbed when a
friend called to say that Yelt sin had fired Prime Minister Yev geny
Primakov. How could I sleep at such a time?
The "What now?" conversations dominated the day. While it would be wrong to
say that Russian society is panic-stricken, everyone is a bit spooked. The
general impression I got from my conversations with friends and near
strangers was that most of them see Primakov's sacking as something negative;
moreover, everyone has his own reasons for feeling this way. But there is one
fear that all share: that what will happen next is unpredictable and
It's true that many associate Primakov with the stability that ensued after
the horrors of apocalyptic August 1998. Primakov took office and the dollar
ended its upward flight - people don't forget things like that. It's a simple
reflex: Yeltsin equals unrest, Primakov equals peace. But no one cares to ask
what price has been paid for stability.
Stability is one of the Russian people's principal fetishes. As a recent
survey by the All-Russian Center for Public Opinion Research (VTsIOM) has
shown, when asked what Russia's priority in the next 5-10 years should be -
to achieve social and economic stability, or to resurrect Russia as a great
power - 73 percent of those polled opted for stability. True, only 40 percent
believe this is doable, though the number of optimists is higher among young
people, Muscovites, and Petersburgers. And the survey revealed another
curiosity: The desire among Russians for national stability is stronger than
their personal and career aspirations.
What do we Russians expect from our government? In general, somewhere deep in
our subconscious rests the conviction that you shouldn't expect anything good
from the state and its minions, great or small. In a certain sense, the
Russian ideal of government is the absence of government.
The authorities wised up to this in the '80s and '90s. Like a modern-day King
Lear, the Russian state "abdicated" ever so slightly, giving its citizens the
chance to earn money and to live more freely. Many Russians wasted no time in
exercising these new rights. But that's the problem: It was many, but not
all. The VTsIOM survey cited above shows that approximately 20 percent of
Russians have taken an active approach to solving their own problems. The
other 80 percent are still counting on help from the state, which they
despise. This, then, is the most important psychological conflict of the last
decade. The Primakov Cabinet was a product of this contradiction.
Primakov became hugely popular not because of what he did but because he
didn't do much of anything. He didn't prevent the active part of the
population from doing their thing. To the poor, he mainly dispensed
comforting promises - while covering a part of their long-overdue pensions
and wages with the rubles his Treasury was printing on the sly. Now Primakov
is gone. Someone new will take his place, another temp worker. The search for
a golden mean between stability and mobility will be the primary task facing
the future president of Russia in the next century.
Fyodor Gavrilov is the editor of Kariera-Kapital.
Financial Times (UK)
17 May 1999
[for personal use only]
RUSSIA: Duma's dilemma
The communist-dominated Russian Duma, the lower house of parliament, tried
and failed at the weekend to impeach President Boris Yeltsin. In spite of
five alternative charges, the parliamentarians failed to muster the necessary
two-thirds majority to put their head of state on trial. In the end, only 348
of the 450 members of the house actually collected ballot papers to vote. It
was a pretty feeble effort on a matter of great constitutional importance,
and an undoubted victory for Mr Yeltsin.
That said, the political stalemate in Russia has not been broken. If
anything, it is more intractable. The president has been still further
wounded. And Mr Yeltsin's decision last week to sack Yevgeny Primakov, his
popular prime minister, has infuriated most of the Duma, which is now
thoroughly disinclined to approve his nominated successor, Sergei Stepashin.
He is seen as far too much of a Yeltsin yes-man, whereas Mr Primakov was a
wily negotiator between the Duma and the Kremlin.
Nevertheless, president and parliament are condemned to co-operate if Russia
is to have any semblance of coherent government. In particular, the Duma has
to pass reforming legislation, including new powers of tax collection, and
reforms of the ill-regulated banking system, if Russia is to be allowed to
draw down its new $4.5bn loan from the International Monetary Fund. Without
the loan, the doors of the international financial community will remain
The chances of such legislative action look very slim in the present
circumstances. The only reason Mr Yeltsin headed off impeachment was the fear
of enough members that he would simply dissolve the Duma, thus denying them
the privileges of their office.
Self-preservation also seems to be the president's main motivating factor. It
was the reason he sacked Mr Primakov, who was becoming too popular for Mr
Yeltsin's liking. But both sides despise each other. The deputies believe
that opposing the erratic Mr Yeltsin may well win votes in the December
In the meantime, however, Russia will be ill-served by a legislative
gridlock. The Duma should recognise that it has lost the impeachment vote,
approve a new prime minister, and allow the reforms to go through. It must
hope in turn that Mr Yeltsin does not continue to ride roughshod over
Russia's democratic system, however imperfect it may be.
Russia senators to assess Yeltsin's choice as PM
By Andrei Khalip
MOSCOW, May 17 (Reuters) - Russian President Boris Yeltsin will get some
indication of support for Sergei Stepashin, his nominee for prime minister,
on Monday when powerful regional bosses pass judgment on him in parliament's
Yeltsin comfortably survived a Communist-led attempt by the State Duma lower
house to impeach him at the weekend and is ready for a battle.
But influential members of the upper house, the Federation Council, on Sunday
said Stepashin stood a good chance of approval, as did some members of the
Duma, which must vote on the matter on Wednesday.
Stepashin, acting prime minister for now, is consulting a broad range of
politicians ahead of being presented to the Duma.
The leaders of the Duma's four main political factions told NTV television on
Sunday they did not rule out Stepashin's approval at the first attempt on
Wednesday. But most believed his new government would be shortlived and
"It will be a transitional, technical cabinet. No government can carry out an
efficient economic policy in the present conditions," said Vladimir Ryzhkov,
who heads the centrist Our Home is Russia group in the Duma.
Communist leader Gennady Zyuganov said his party would take a stand on
Stepashin after party chiefs met him on Tuesday. But he, too, did not
completely rule out quick approval.
Some analysts say Yeltsin's opponents could try to hit back and turn down
Stepashin after failing to muster enough votes to start impeachment
proceedings on five charges of misrule.
Deputies are also irritated at Yeltsin's dismissal last week of Yevgeny
Primakov, the prime minister they had backed.
If Yeltsin's candidate is rejected three times, he must dissolve the Duma and
call a general election within three months. He could then rule temporarily
by decree and appoint whomever he wants as premier.
Though the Federation Council has no say in approving premiers, some Duma
leaders have indicated they are awaiting the senators' judgment on Stepashin.
Regional governors who met him on Sunday seemed happy with his proposals on a
new government and economic measures.
Stepashin promised that the mainstays of the old government would stay on.
"There will be no reshuffles in the government. Naturally, no odious figures,
as many have been saying recently, will be allowed in," he said, apparently
referring to advocates of liberal market reforms from previous government
Federation Council head Yegor Stroyev said he backed Stepashin in the same
way he would back a champion horse.
"Stepashin is a sleek new draft horse, the sixth in a row from the tsar's
stables now being put on show. I would want this draft horse to succeed," he
Stepashin, Yeltsin's longstanding ally, is the sixth premier to serve under
him and the fourth in just over a year.
May 15, 1999
New Treasury Man a Chubais Chum
By Catherine Belton
Newly appointed U.S. Treasury Secretary Lawrence Summers, an at-times
controversial proselytizer for liberal economics, has connections with
Russia's "young reformers" that extend back years.
In 1996, when Summers was deputy treasury secretary, he hailed the
appointment of Anatoly Chubais and his friends into Kremlin posts as the
arrival of "Russia's economic dream team." In 1997, the newspaper
Nezavisimiya Gazeta gleefully leaked a letter from Summers addressed to "Dear
Anatoly" and offering detailed economic marching orders.
And last July, as Russia teetered on the brink of economic havoc, Summers is
said to have received Chubais in his suburban Maryland home for breakfast -
where, over bagels and orange juice, a deal was hammered out to send billions
in emergency loans from the International Monetary Fund.
Summers and Chubais were both ascendant again this week. Summers has long
been in power as the right hand of Robert Rubin, who stepped down this week
as President Bill Clinton's treasury secretary to plaudits in American media
and business circles.
That same day, Prime Minister Yevgeny Primakov was also saying his farewells
- and Chubais was reemerging on the political scene after months of relative
Acting Prime Minister Sergei Stepashin has called for a right-wing government
of "technocrats" - which seems to indicate Stepashin would pack his Cabinet
with "young reformers." And already, Chubais is again winging his way to
On Friday, Andrei Trapeznikov, a press secretary for Chubais, said the aim of
the seven-day trip is to meet with foreign investors in Unified Energy
Systems, the national electricity monopoly Chubais now heads.
But Trapeznikov added that Chubais and Summers would likely meet.
Chubais dropped hints earlier this week that he might have participated in
orchestrating the Primakov ouster. He told Reuters he'd been involved in
Kremlin meetings and said Primakov's decision was carefully thought-out over
a long period.
In that light, his Washington trip, which Trapeznikov says was pre-planned,
could be yet another opportunity for power-brokering.
No one on either continent would say this week whether Chubais in Washington
would whistle up new IMF money for Russia - and perhaps a seat in the Cabinet
for himself in the process. But nor was anyone denying that Summers and
Chubais are close friends and political allies.
"Summers has the highest regard for Chubais. He thinks he stands above the
rest on the Russian political scene," said Anders Áslund, an economist with
the Washington-based Carnegie Endowment for International Peace. Áslund once
advised former prime minister Yegor Gaidar and is himself an outspoken fan of
First as the chief economist of the World Bank and then at the U.S. Treasury
department, Summers has long played an active role in global economic
It has not been an uncontroversial role. In February, Summers, Rubin and U.S.
Federal Reserve Chairman Alan Greenspan made the cover of Time Magazine,
which described them as "The Committee to Save the World."
But this committee's IMF bailouts for Russia, Indonesia and Brazil have
gotten mixed reviews. European finance ministers have challenged their
hostility toward any regulation of exchange rates. And Summers is still
remembered for the World Bank memo he wrote in 1991 suggesting polluting
Africa made more economic sense because the economic value of the average
African was so negligible - an argument that had even headlines in the
Financial Times screaming "Save the World from Economists."
Summers' latest promotion now means a Russophile is at the helm of U.S.
economic foreign policy, observers predict little immediate change in
American policies toward Moscow - in part because Summers under Rubin was
already largely dictating such policies.
But Summers is likely to warmly greet the return of the Chubais clan to power
- if it happens.
"[With Primakov's ouster] we are now likely to see major reformers come back
into government. If Chubais can tell him [Summers] so, this would clearly
improve the chances of the IMF releasing credit to Russia," Áslund said.
Áslund echoed speculation in Russian media that either former liberal Prime
Minister Sergei Kiriyenko or former tax chief and one-time finance minister
Boris Fyodorov could be appointed to handle the Stepashin government's
"I spoke with the reform team Tuesday. It seems Fyodorov is the more likely
candidate. He is liked more by Washington, and can speak English [unlike
Kiriyenko]," Áslund said.
One Washington insider, an American economist with contacts in the U.S.
Treasury who askednot to be named, offered Washington's view on the ouster of
Primakov even more bluntly.
"Washington is very relieved to be rid of Primakov. He was perceived as a
person who stood against the U.S. at every step," the economist said.
IMF officials were unavailable to comment Friday. But American economists
frankly admitted that the United States wields enormous influence over
determining IMF policy. They agreed with a New York Times report last year
that Chubais' July 1998 meeting with Summers was vital in securing the
release of IMF funds.
"The U.S. is first among equals in deciding IMF policy," said Ben Slate of
PlanEcon, an American economic think tank.
"Of course, the West would prefer to see reformers in power rather than
former Communists like Yury Maslyukov. They see the IMF as an instrument to
promote a political agenda: to push through economic reform, secure
pro-Western governments and promote domestic stability."
"But on the other hand, the U.S. has been following a policy of throwing
money at Russia regardless of who is in power," Slate added. "Loans were
agreed when Primakov and Maslyukov were running economic policy."
Earlier this year, amid difficult IMF talks, Maslyukov's spokesman Anton
Surikov lashed out at the West in an angry show of open exasperation. He
accused the United States of putting forward Middle Eastern foreign policy
demands in return for IMF money.
Maslyukov even went so far as to call Chubais and his team of reformers
"pigs," and accused them of using their connections with Washington to
sabotage the IMF talks - as a way of weakening Primakov.
Surikov is now more subdued. In a telephone interview Friday, he stuck by his
allegations that the United States is attempting to influence Russian policy,
but refused to elaborate further, saying it was no longer "his place" to do
The Guardian (UK)
16 May 1999
[for personal use only]
$150bn capital flight ravages Russia
A new crisis, a new premier but firms enriched by the end of communism go on
salting cash away abroad, says Simon Pirani
Russian prime ministers come and go - Sergei Stepashin is the fourth in 14
months - but the flight of capital is constant. It flows through semi-legal
and illegal channels into assets denominated in foreign currencies, and is
reckoned to total more than $150 billion during the Yeltsin era so far. This
is far greater than the flow of loans into Russia, about which much more is
Economist Leonid Abalkin, who advised Prime Minister Yevgeny Primakov until
the latter was sacked last Wednesday, blames the excesses of 'shock therapy'
in 1992-93, and says the problem can be dealt with 'only by a radical shift
in both foreign economic policy and domestic policy'.
Since 1994, the flight has totalled $17bn a year, according to a joint study
by the Institute of Economics of the Russian Academy of Sciences (of which
Abalkin is director) and the University of Western Ontario in Canada. It also
found that Russian residents accumulated about $68bn abroad between January
1994 and September 1997.
But the greatest capital flight happened as the reforms began in 1992-93.
Abalkin's researchers believe between $56bn and $70bn left in those years.
Separate research by Moscow-based financial services company Troika Dialog
puts capital flight at between $15bn and $20bn a year since 1994. Its
estimate for 1999 is 'around $15bn - only a few million less than Russia's
It says capital flight amounts to $200 per year for each economically active
Russian - or nearly four times the average annual pay of $58 (a state
statistics office figure that excludes second and unofficial incomes -
essential for survival).
By averaging out their own estimates with those of other economists,
Abalkin's researchers give a grand total for 1992-97 of $133bn - more than
twice as much as post-Soviet Russia's sovereign debt to international banks
and institutions (about $60bn).
Russia is very high in the all-time capital flight league, overshadowing the
figures for Latin America in the Eighties. The $133bn total is more than
double the flight from Mexico in 1979-87 and surpasses the amounts for
Brazil, Venezuela, Mexico and Peru put together.
Abalkin's researchers define capital flight as the transfer of
ruble-denominated assets into those denominated in a foreign currency,
whether they are at home or abroad. It is, as a rule, 'accompanied by a
collapse of industry and investment', he says.
The term capital flight has previously been used to describe the immediate
consequences of financial collapse. But in Russia, the team says, the
continuous crises since 1991 have turned it into an 'ongoing process'.
Capital flight on such a scale has been possible largely because capitalism
mushroomed far quicker than legal and regulatory systems. 'I liked to quote
the example of Britain,' Abalkin says. 'It took 11 years, and much effort,
for your country to privatise a few major corporations. And in our great
country, with its huge geographical expanse and weight of tradition, these
people wanted to privatise everything in 500 days.'
Disappearing capital often takes the form of export revenues that fail to
return to Russia. Abalkin gives the example of sales of seafood to Japan. In
1994, Japan registered $510.9 million of seafood imports, but only $90.4m
worth show up in Russian statistics, leaving more than $400m on the ocean
waves - or, more probably - in Swiss banks.
Other gaping holes in the regulatory fabric through which capital flies
include payments for 'imports' never received, and the difference between
offered and raised sums for export trade credits and import advances. Troika
agrees that most capital flees in the form of non-repatriated export proceeds
and prepayment on fake import contracts, 'rather than men in black smuggling
large suitcases stuffed with dollars'.
It pinpoints four main routes:
• Manipulation of insurance and transport costs incurred on the export of oil
and other high-earning commodities;
• The violation of capital controls by banks that are a) frequently
controlled by the big exporters and b) in the process of being bankrupted;
• The creation of trading partners in other CIS countries and the export to
them of ruble-denominated Russian goods that are subsequently re-exported for
• Bad debt, which Troika says is 'the easiest mechanism for hiding both
export and import revenues'.
Abalkin argues that ordinary Russians' preference for keeping savings in cash
- preferably dollars - rather than banks, is another form of capital flight:
'If money is lying under somebody's mattress in dollars, it's not capital. It
is not able to serve any useful purpose.
'We have made a provisional estimate that a minimum of $30bn went out of the
Russian economy in this way last year. Particularly during and after the
August banking crisis, people changed what money they had into dollars. It is
shameful, but people have lost confidence in their country, the banking
system and the ruble.'
Another $10bn was circulating among the chelnoki, Russians who live by
travelling, often to Turkey, to buy cheap consumer goods and returning home
to sell them. But this trade, too, has fallen off drastically since the
banking meltdown, and these dollars are also reckoned to be stored in cash.
Abalkin sees this 'capital flight within the borders' as related to another
key economic malaise: demonetarisation or 'dollarisation' - a shortage of
rubles in the economy. Deals without rubles are not limited to street trade.
Medium and even large companies often do most domestic trade by promissory
notes and other money surrogates.
A development plan drawn up by Abalkin and others at Primakov's request
posited a state-led investment strategy as the way to reverse the
catastrophic decline in production (by half) and industrial investment (by 16
times) since 1992 - and to tackle capital flight and demonetisation.
'The first step is to accumulate resources for economic growth,' says
Abalkin. In his view profits must be ploughed back into modernisation, credit
made available for the construction industry, leasing and consumer credit
schemes launched, and a system of local banks and credit unions created. He
says the financial market must be restructured to encourage foreign direct
investment, as opposed to speculative capital flows. His proposals for
reviving Russian banking include a key role for foreign banks: only they can
help bring people's savings into the financial system.
'We need to turn to the most solid and authoritative western banks and allow
them to restore confidence.'
Abalkin had Primakov's ear for these proposals, but will not have
Stepashin's. A moderate reformer who rose to prominence under former Soviet
president Mikhail Gorbachev, Abalkin bitterly opposed monetarist dogma in the
early Yeltsin years. Abalkin is the same age as Primakov, 69, and is seen as
out of date by the young reformers.
He served as deputy prime minister for the economy for 18 months in 1989-91,
but lost influence as Moscow politics polarised between the most conservative
wing of the Soviet establishment and Yeltsin's free-market radicals.
Political analyst Denis Rodionov at Brunswick Warburg in Moscow, says:
'Stepashin may not bring the radical reformers into government, but they are
the ones he will listen to. The question is whether Yeltsin will be strong
enough to back them up.'
For the time being, the establishment will be paralysed by the battle between
Yeltsin and parliament. Banking reform and financial regulation are unlikely
to get a look in. Foreign money will stay away and Russian money will feel no
incentive to hang around - even more fertile territory for capital flight.