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Johnson's Russia List


May 21, 1999    
This Date's Issues: 3297  3298  


Johnson's Russia List
21 May 1999

[Note from David Johnson:
1. George Breslauer: Lessons of impeachment + Stepashin votes.
2. Moscow Times: Poll: Russians Disliked Primakov Ouster.
3. Expresso (Portugal): Joe Lauria, Talbott Replaces Albright as Clinton's 
Man on Kosovo.

4. Moscow Times: Jonas Bernstein, PARTY LINES: 'Cosmic' Battle Masks Crude 
Dividing of Pie.

5. RFE/RL: Floriana Fossato, Stepashin's Ability To Fix Economy

6. Reuters: Timothy Heritage, Russian media say Berezovsky may be on way

7. The Economist: A skull-cracker wins. A new prime minister talks tough. 
But can he deliver? 

8. Reuters: Janet Guttsman, IMF talking to Russia, seeks tax changes.
9. Itar-Tass: Stepashin Addresses Russian State Duma May 19.] 


Date: Thu, 20 May 1999 
From: George Breslauer <>
Subject: Lessons of impeachment + Stepashin votes

Dear David,

Having failed to predict the dissolution of the USSR, I have shied away
from offering predictions in recent years. But I have enjoyed reading the
predictions of others, and learning from both their hits and their misses.
In that spirit of learning, not gloating, we have an opportunity to look
back on events of the last week and to gain some useful insight from them.
The editorial commentary I read and saw after the dismissal of Primakov
tended to predict that this would greatly increase the Duma's disposition
to impeach Yeltsin and that the Duma would "certainly" not approve the
nomination of Stepashin as prime minister. Both predictions were falsified
within days. Instead, we saw the opposite reaction on the part of the Duma. 

One could have reached such incorrect predictions by embracing one or more
of the following factors as determinants of Duma deputies' behavior: (1)
ideological differences with Yeltsin and Stepashin; (2) personal loyalty
to, or identification with, Primakov; (3) anger over Yeltsin's arbitrary,
albeit not unconstitutional, flexing of his institutional muscles. The
assumption was that, in response to these ideational, affective, and
emotional factors, the deputies would escalate the conflict with Yeltsin.
In some editorials, this was the "all hell breaks loose" scenario.

Instead, we got the opposite. Enough Duma deputies absented themselves,
or spoiled their ballots, to kill the impeachment. And Stepashin was then
approved in a landslide. I have no inside dope on why this happened, but I
would suggest an alternative theory, one that would point to the dynamics
of deterrence rather than escalation. By firing Primakov right before the
impeachment debate was to begin, and by replacing him with a cop, Yeltsin
was sharply upping the ante. He was evoking memories of October 1993,
implying his willingness to declare a state of emergency and dissolve
parliament, perhaps even postpone the parliamentary elections scheduled for
December, if the Duma pushed him further on the impeachment process. At a
minimum, he was increasing the credibility of his implicit threat to create
the conditions (three rejections of his prime ministerial candidate) for
dissolution of the parliament. And, according to rumors from Moscow that
were published in US newspapers, Yeltsin's staff was working the telephones
to target individual Duma swing-votes with bribes, threats, or both. 

The simple explanation, then, is that enough Duma deputies were intimidated
or bought off to kill the impeachment vote. And, once this happened, the
Duma no longer had the impeachment process as constitutional protection
against dissolution. The landslide on the Stephashin vote would then be
viewed as acquiescence by almost all deputies, including most of those who
voted for impeachment, in Yeltsin's having out-maneuvered them.

What this suggests is that neither ideology nor loyalty nor emotions were
determinants of deputies' behavior in this particular case. Rather, they
were maneuvered into a position in which, from the standpoint of retaining
their jobs and perks, the material costs of defying Yeltsin suddenly
appeared to outweigh the psychic and ideological costs of acquiescing.
(Remember that, while they could have run for reelection, they would have
been doing so without the material resources of their Duma offices and
staffs.) To be sure, several hundred deputies did not make such a
calculation on the impeachment vote, which is why this cannot be invoked as
a "sure-fire" demonstration of the power of a given theory of human nature.
But enough deputies presumably changed their minds that impeachment failed
("presumably," since we don't know what the vote would have been
otherwise). And, after that, bandwagoning behavior set in, as almost all
deputies reached the same conclusion about the Stephasin vote once
impeachment was no longer on the table. 

That, in any case, is how I read it after the fact---and without making an
effort to contact people behind the scenes in Moscow. The first vote was a
close call; so we could not have been expected to predict it, even after
the firing of Primakov. But we might still have expressed less certainty
that further escalation would result from Yeltsin's actions. The deeper
lesson we might learn is that some threats lead to escalation, while others
lead to deterrence and backdown. What is striking is how many
predictions---east and west---assumed the former and never considered the
latter. Why is that? I've got my own thoughts on the matter, one of which
is implicit in what I have written here. But I'd be curious to learn what
others think.

Best wishes,
George Breslauer
Professor of Political Science
University of California at Berkeley


Moscow Times
May 21, 1999 
Poll: Russians Disliked Primakov Ouster 

Am overwhelming 81 percent of Russians disapproved of President Boris 
Yeltsin's decision to oust Prime Minister Yevgeny Primakov, according to a 
poll released Thursday. 

Of 1,500 people polled across Russia, just 8 percent supported Yeltsin's 
sacking of the prime minister last week, according to a poll by Russia's 
Public Opinion Fund that was carried by Interfax. 

Interfax did not mention a margin of error for the poll, which was conducted 
May 15 - two days after Primakov was fired and replaced with a Yeltsin 
loyalist, Interior Minister Sergei Stepashin. 

Primakov was seen as one of Russia's least corrupt politicians and was widely 
liked among the Russian populace and in the opposition-dominated parliament. 

Stepashin won easy confirmation in the State Duma, lower house of parliament, 


From: (Joe Lauria)
Date: Thu, 20 May 1999 
Subject: Talbott Replaces Albright as Clinton's Man on Kosovo

I wrote this piece for Expresso, Portugal's leading weekly newspaper. It will 
appear this Sunday.
Joe Lauria

The sudden emergence of U.S. Deputy Secretary of State Strobe Talbott as 
President Bill Clinton's point man on Kosovo signals an eclipse of Secretary 
of State Madeleine Albright's leadership on the war and an implicit admission 
by Clinton that Washington's Albright-driven policy in Kosovo has failed so 

"Although he may be technically reporting to Albright, Talbott's role is 
important because he is now Bill Clinton's man on this issue," says Ted 
Carpenter, vice president for Defense and Foreign Policy Studies at the Cato 
Institute, a Washington think tank. "As an old friend of Bill's, (they have 
known each other since university days) he is talking directly to the 
president. Talbott's relationship with Albright is proper, but rather tense."

The deputy secretary of state's prominence in diplomatic efforts to end the 
war represents a resurgence for Talbott, who had dropped off the diplomatic 
radar screen after disagreements with Albright over NATO expansion. "He was 
relegated to the role of placating Russia on this issue," Carpenter says. "He 
wasn't visible on any other major policy issue." 

But it is precisely Talbott's role as the U.S. administration's Russia expert 
that has propelled him to the forefront of diplomatic efforts to seek a 
Kosovo solution as Washington realizes it cannot end the war without Moscow. 
Though Albright pushed the Russians into the G8 agreement on an international 
force for Russia, Talbott has now clearly replaced Albright as Washington's 
link to the Kremlin. "He is more serious about diplomatic options and about 
getting the Russians involved in a meaningful way, not just in a cosmetic 
way," Carpenter says. "The Russians prefer to deal with anyone other than 
Albright, they regard her as a narrow-minded partisan of Central and East 
European interests and very anti-Russian." 

It was Talbott, not Albright, who met this week in Helsinki with Russian 
envoy Viktor Chernomyrdin and Finnish President Martti Ahtisaari. And it is 
Talbott who followed up this meeting by flying to Moscow to meet the two men 
again on Thursday after Chernomyrdin spent seven hours with Yugolsav 
President Slobodan Milosevic the day before. In his shuttle diplomatic 
efforts, Talbott this week briefed G8 political directors in Bonn and also 
flew to Paris and Brussels. 

"He is eclipsing Albright in dealing with Russia and he may be eclipsing her 
generally in terms of influence with the president on major foreign policy 
decisions," says Carpenter. "I'll be very blunt about it: if Madeleine 
Albright were not the first female secretary of state, I think she would have 
been strongly encouraged to phase out her tenure as secretary of state rather 
quickly as a result of this debacle (in Kosovo)."

Clinton is reluctant to dismiss her after building her up as competent to run 
the State Department. As America's UN ambassador, Albright won grudging 
respect from her colleagues on the Security Council, where one European 
ambassador branded her an "intellectual lightweight." Born in 
Czechoslovakia, her only area of expertise was seen as Central and Eastern 
Europe and it is ironically her knowledge of Yugoslavia that could be her 

"Knowing Clinton, he is not at all happy about the advisors who got him into 
this mess, that's why Albright's position is not very secure at this point," 
says Carpenter.

If it was Albright that got Clinton into this war, it appears now that he is 
turning to Talbott to get him out of it. 

Joe Lauria 212-595-6371 


Moscow Times
May 21, 1999 
PARTY LINES: 'Cosmic' Battle Masks Crude Dividing of Pie 
By Jonas Bernstein 

In most modern democracies, political battles seem, at first glance, rather 
prosaic. Other than in times of war, or when a basic moral question is at 
issue (like abortion or the death penalty), they involve such things as more 
government versus less, more social welfare or less, higher taxes versus 
lower. Pretty tepid stuff compared to Russia's endless cosmic struggle, 
pitting the genocidal policies of the anti-people's regime versus the looming 
specter of a communist revanche. 

The first glance, however, is deceptive. In fact, political disputes in 
democracies are political in the real sense of the word, meaning that 
interest groups - taxpayers, pensioners, whatever -and their elected 
representatives fight over such things as how big society's pooled resources 
should be, and how they are to be allocated. 

Politics in this sense doesn't really exist in Russia. The maximalist 
invective the Kremlin and the opposition hurl at one another simply provides 
cover for an endless struggle over how to divide society's common resources 
among themselves. 

Last week's events made this abundantly clear. Take impeachment. The 
leadership of the Communist Party are able to do arithmetic as well as the 
Kremlin, and it's a fair bet that they knew all five counts would fail. In 
the end, Gennady Zyuganov and Company didn't really want their initiative to 
pass the State Duma, any more than they really wanted to win the 1996 
presidential election. Had impeachment passed, President Boris Yeltsin would 
have engineered a way to dismiss the Duma, and the Communists had no real 
desire to risk their comfortable lives of taxpayer funded "opposition." 

It is still possible that Yeltsin will dissolve the Duma. But it is likely 
that the Kremlin will never take the other step it is rumored to be 
contemplating - banning the Communist Party outright. Yeltsin needs them as a 
bogeyman for the voters (at least, to maintain the 2 percent that currently 
support him) and, more importantly, to scare up money from the International 
Monetary Fund. It would not even be surprising to find out that the Kremlin 
and its allies in the State Duma arranged things so that the Communists and 
their allies could "vote their consciences" without bringing about the 
dreaded result. 

The Communists, meanwhile, need Yeltsin as a rallying point, to at least slow 
down the thinning of their aging electorate's ranks, and thus hang on to the 
perks of "opposition" life a while longer. 

The current arrangement suits everyone. 

A corollary lesson of the last week is that, contrary to the conventional 
wisdom, the "leftist opposition" is not the source of instability in Russia. 
Nor are the deep social divisions in society. The real source of instability 
in Russia is the place where the preponderance of state power is concentrated 
- the Kremlin. 

Within 24 hours of Sergei Stepashin's confirmation as prime minister, he was 
already rumored to be in trouble for having pushed for Duma budget committee 
chief Alexander Zhukov's appointment as economics tsar. According to Russian 
press accounts, Stepashin has run afoul of two Kremlin clans vying for 
control of the new government - one led by privatization architect Anatoly 
Chubais, the other by tycoon Boris Berezovsky. 

So Yeltsin, as predictably as the trajectory of the stars, has again set the 
courtiers at each other's throats. He will divide and rule until his last day 
on earth. 


Russia: Stepashin's Ability To Fix Economy Questionable
By Floriana Fossato

Moscow, 20 May 1999 (RFE/RL) -- The State Duma's approval yesterday of Sergei 
Stepashin as Russia's prime minister has ended, for the moment, a government 
crisis that began last week when President Boris Yeltsin sacked Yevgeny 

Yeltsin said he fired Primakov as prime minister to re-invigorate Russia's 
faltering economy. 

However, it's not clear how effective Stepashin will be with reforming the 
economy, since the former interior minister has no formal background in 

Much will depend on the new cabinet and the economic team that Stepashin 
assembles. Stepashin says the first cabinet appointments could come as early 
as next week. 

So far, Stepashin has sent mixed signals concerning his economic priorities. 

On the one hand, he says he'll make sure a package of stiff economic measures 
requested by the International Monetary Fund prior to the release of a $4.5 
billion loan is passed by parliament. Even before the Duma approved him 
yesterday, Stepashin warned deputies he would seek a vote of confidence from 
the Duma if deputies reject the package. 

Acting Finance Minister Mikhail Zadornov says the Duma will start considering 
the measures this week. The package aims to increase Russia's tax base, 
include raising taxes on alcohol and gasoline, as well as reforming the 
banking system. Stiff opposition is expected to the alcohol tax rise. 

On the other hand, Stepashin says his new cabinet will also try to protect 
citizens from the impact of the IMF measures. 

He says the government must create "social cushions" and any measures have to 
be aimed at only those with "fat wallets." 

With only 13 percent of the population earning more than $100 a month, 
though, it's hard to see though how Stepashin will be able both to satisfy 
the IMF and protect citizens from economic hardship. 

One plan might be to limit the new tax on spirits to only the most expensive 
brands of liquor. It's unclear how the IMF would react to that idea. 

Meanwhile, in a move seen supporting the IMF proposals, Russia's central bank 
this week revoked the licenses of 12 failing banks, including Menatep. Before 
last year's financial crisis, Menatep was Russia's seventh largest bank in 
terms of assets. Central bank officials say another five banks will lose 
their licenses soon. 

In a sign of relative optimism about the economy, the OECD said in a recent 
report that the situation of Russia's economy is "perhaps a bit more 
encouraging than in late 1998." 

Higher world oil prices and a weaker ruble have helped Russian companies 
boost output. 

The health of Russia's economy depends largely on commodities, in particular 
oil. Since last December, oil prices have risen more than 40 percent. The 
prices of other commodities have also risen or are holding stable. 

Russian oil producers are reportedly reviewing their plans for the year in 
the hope a recent decline in output can be reversed. The question remains 
whether the upward trend in prices is sustainable. 

Former Central bank Deputy Chairman Sergei Alekashenko says though that 
whatever external factors might be helping the economy or whoever Stepashin 
chooses for his cabinet, the basic tasks for the economy remain the same: 

"Anyone leading the government now, independent of the composition of the 
cabinet, will have to solve the same problems. The main one is strengthening 
the federal budget. This includes a range of connected problems. They are: to 
increase tax collection; keep on track with negotiations on foreign debt 
restructuring; keep on track with IMF negotiations; restoring the financial 
markets. I would add two more that in the short term should be considered a 
priority for the government, jointly with the Central Bank. [They are] 
working on restructuring the bank system, dealing with its re-capitalization 
and a more long-term goal that should have been addressed long ago, which is 
attracting foreign investment and solving issues linked with this, like 
strengthening the legislation to protect property and fighting for the 
protection of small investors. There are questions that were on the agenda 
one to two years ago and that, unfortunately, remain unsolved now." 

Few in Russia truly believe that Stepashin can fix the country's economic 
problems and stimulate a recovery. His appointment, for many, appears to have 
fulfilled political -- not economic -- goals. 

Communist leader Gennady Zyuganov spoke for many when he said "the new 
government has no guarantees it will be able to accomplish anything while the 
main 'destroyer' (president Boris Yeltsin) is sitting in the Kremlin." 


Russian media say Berezovsky may be on way back
By Timothy Heritage

MOSCOW, May 21 (Reuters) - The appointment of a new prime minister in
Russia may have opened the door to a comeback by businessman Boris
Berezovsky, one of the country's most controversial figures, Russian media

Until last week, the financier who rose to become a politician of reputedly
vast influence before falling from grace, looked down and out in political

But Russian newspapers say Berezovsky now has a chance to revive his
political fortunes by securing positions for his allies in Prime Minister
Sergei Stepashin's cabinet. 

Some newspapers say he may already be back in favour with President Boris
Yeltsin and that he may have helped engineer last week's dismissal of the
previous premier, Yevgeny Primakov. 

"A joke is already doing the rounds in the White House (government
headquarters) that Boris Berezovsky has opened an office for job-placement
in the government," the respected Kommersant business newspaper said on

"Everyone is talking now about the former executive secretary of the CIS
emerging as the victor after seizing influence over the government." 

Berezovsky, 53, was until recently the executive secretary of the
Commonwealth of Independent States, which groups former Soviet republics.
But his influence has long been based on his reported ties with Yeltsin's
family and a former Kremlin aide. 

He has recently been staying in France, but answered questions in Russia
this month in an investigation into his business activities. He denies any

It is hard to tell just how far Berezovsky's influence now extends. Some
analysts say it was always exaggerated and he himself scoffed at the
reports that he was once a kingmaker who had Yeltsin's ear. 

But any resurgence by Berezovsky would raise the prospect of a small group
of financiers known as oligarchs rising again after months on the ropes
during Primakov's premiership. 

This would do little to encourage foreign investors and opposition leaders
who say some businessmen enjoyed influence beyond their position under
governments that preceded Primakov, and that this hindered reforms and
allowed corruption to spread. 

Like Kommersant, the Vremya newspaper depicted the processs of forming the
new government as a battle for influence between Berezovsky and former
Finance Minister Anatoly Chubais, two old sparring partners with rival
visions of economic reform. 

But Vremya held out hope that Stepashin could play them off against each
other, building a "system of counterweights" or a balance of forces in his

Although the oligarchs united to help finance Yeltsin's re-election
campaign in 1996, their alliance collapsed long ago as they fought over the
spoils of the president's victory. 

Vremya said they remained disunited, even though Berezovsky could not be
completely isolated. 

"He (Berezovsky) is no doubt not playing alone, considering that he retains
influence in the Kremlin, but he does not have the support of his fellow
oligarchs," it said. 

Political analysts say the chances of the oligarchs staging a comeback
together are slim, especially as the businesses and financial bases of some
of them have been badly hit by the economic crisis that broke in Russia
last August. 


The Economist
May 22, 1999
[for personal use only]
Russia's new prime minister
A skull-cracker wins 
M O S C O W 
A new prime minister talks tough. But can he deliver? 

ON THE day his nomination was confirmed by a handsome (301-55) majority of 
Russia’s sulky deputies, the new prime minister thought it wise to clarify 
his real identity. “I am not General Pinochet,’’ he declared. “My name is 

Appearances notwithstanding—the Russian politician’s pink, chubby face is 
usually described as babyish rather than hawkish—this disavowal of the 
Chilean dictator will not reassure many Russians. For Sergei Stepashin’s past 
career—as a veteran of Russia’s security establishment who most recently 
headed the (fairly loyal and battle-ready) troops of the Interior 
Ministry—seems to provide good evidence of the whip-cracking potential of the 
man selected by Boris Yeltsin to head the government during the dying months 
of his presidency. Mr Stepashin was a member of the clique of security bosses 
who directed Russia’s war in Chechnya in 1994-96. Unlike the others, he 
admits it was a disaster. 

In any event, in his presentation to the Duma, which was still licking its 
wounds after the humiliating collapse of its bid to impeach Mr Yeltsin on May 
15th, Mr Stepashin implied that any passing resemblance to the policies of 
Chile’s former dictator would be felt in Russia’s economy, not the police 

He did promise a crackdown of sorts but insisted that its main targets would 
be every kind of criminal business, from capital flight to tax-dodging by 
producers of alcohol. In an eight-point plan that reflected the influence of 
Anatoly Chubais, Mr Yeltsin’s former chief of staff and chief advocate of 
reforming the economy with western help, Mr Stepashin pledged to ram through 
as quickly as possible the laws demanded by the IMF as the price for the $4.5 
billion needed to save Russia from external default. The Fund wants higher 
taxes on alcohol and fuel, and better tax collection. 

Anticipating noisy objections from the Duma, Mr Stepashin threatened to call 
a confidence vote over the IMF-backed laws, triggering a fresh political and 
constitutional row which would lead to the parliament’s early dissolution. 
Assuming continued support from the Interior Ministry’s 180,000 or so troops, 
of whom only about a third are in good trim, the Duma’s forced closure—at an 
angry president’s behest—looks more thinkable under the new prime minister 
than under his predecessor, Yevgeny Primakov. 

Still, the programme also struck some populist and protectionist notes, meant 
to soothe the anxieties of those who preferred the cautious, consensus-based 
and reassuringly Soviet style of government practised by Mr Primakov and his 
team. Mr Stepashin promised to pay arrears to public-sector workers and 
pensioners (Russians have heard that one before), and link wages to 
inflation. And he said he would boost domestic industry and food production. 

The fact that his nominee won so hefty an endorsement from the Duma is, on 
the face of things, an impressive tactical victory for Mr Yeltsin and the odd 
coalition of forces clustered around the Kremlin. The success looks even 
odder in the light of Mr Yeltsin’s physical frailty—he was too unwell to see 
Jose Maria Aznar, Spain’s prime minister, on May 17th—and his abysmal 
standing in the eyes of the public. 

But whatever his own condition—always a great imponderable of Russian 
politics—there are people around him who are alive, well and determined that 
Mr Yeltsin’s term should not end too badly for the presidential camp. Apart 
from Mr Chubais, they include the tycoon and power-broker Boris Berezovsky, 
who seems to be enjoying sweet revenge after a narrow escape from prosecution 
at the behest of Mr Primakov. 

Apart from Mr Berezovsky’s financial power and the media he controls, the 
Kremlin has several other trump cards, all used to good effect in thwarting 
the five impeachment motions. One is its successful practice of political and 
financial trade-offs with Russia’s regional bosses, many of whom view the 
Duma as little more than a nuisance. Another is the bizarre and 
extreme-nationalist figure of Vladimir Zhirinovsky who has provided Mr 
Yeltsin with loyal support under a smokescreen of feverish rhetoric. (Arguing 
against the impeachment motion, he said it was no time to be changing 
presidents when a western attack on Russia might only be a month or so away.) 
The final source of the Kremlin’s renewed self-confidence is its belief that 
its role as a mediator in the Balkans, providing moral but not material 
support to Serbia, has become indispensable to western governments. 

The various forces now grouped under Mr Yeltsin’s banner, ranging from 
pro-western economists to Mr Zhirinovsky, have been lined up on several 
previous occasions during his presidency. In October 1993, when a similar 
coalition of reformers and skull-crackers prevailed over the rebels holed up 
in Russia’s parliament, the result was less benign than it initially seemed: 
the security chiefs who helped Mr Yeltsin shell Moscow’s White House then 
went on—catastrophically—to bash the Chechens.

This time, too, the strategy of police-backed economic reform faces risks. 
One is that Mr Yeltsin will die suddenly, before Mr Stepashin, aged 47, has 
had a chance to consolidate his power as prime minister. Another is that 
popular discontent, perhaps after a further fall of the rouble, will spiral 
out of control. A third is that a bloodier war over Kosovo will make it 
impossible for the Kremlin to face down demands from some of Russia’s 
generals to back Serbia more whole-heartedly. Even though Mr Primakov did 
little more than steady Russia after the financial crash last August, his 
reign as prime minister may soon be remembered as a period of enviable 


INTERVIEW-IMF talking to Russia, seeks tax changes
By Janet Guttsman

WASHINGTON, May 20 (Reuters) - The International Monetary Fund is staying in 
close touch with its biggest borrower, Russia, but wants Moscow to change tax 
laws or build a better budget before loan payments can start again. 

IMF First Deputy Managing Director Stanley Fischer told Reuters he had not 
yet spoken to new Russian Prime Minister Sergei Stepashin, confirmed in 
office by the lower house of parliament this week, and he had no plans to 
visit Russia. 

But the two sides would continue their discussions about a framework lending 
deal agreed last month, he said. 

"We will stay in touch. This program is very much on the front burner," he 

Under the deal, the latest in a string of IMF loans to Russia, the fund would 
contribute some $4.5 billion over 18 months to meet Russia's due debts to the 

But the IMF board will only approve the program after Russia passes new laws 
and after it examines an independent auditor's report on the fate of past IMF 
funds to Russia. 

In an unusual move, the money will not even go to Russia but will be paid 
directly into a Russian account at IMF and be used to service debts falling 
due this year. 

"We will not be able to continue disbursing if there is no improvement in tax 
reform -- at least in terms of the budget performance," Fischer said, noting 
that Russia could either improve tax collection or cut excess spending to 
create a more sustainable budget. 

Tax evasion is virtually a national sport in Russia and the IMF has halted 
payments from previous loans on many occasions because Russia cannot collect 
enough money to meet its budget plans. 

But Fischer said Russia's tax performance had been quite good in the first 
two months of this year. "The total tax take in Russia is quite large, as a 
share of gross domestic product," he said. "It's just the share that gets to 
the central government is a good deal smaller than it should be." 

Stepashin has promised to work to resolve remaining difficulties with the 
IMF, although he also wants to ensure that people are not hurt by tough 
economic conditions surrounding any IMF deal. 

He has urged parliament to approve new laws quickly and said Russia would be 
unable to ease its crushing debt burden if this legislation was not approved. 

Fischer said there had been no sign that Russia would default on its IMF 
debts, although Moscow is trying to restructure other credits and says it 
cannot afford to pay Soviet-era debts. 

"What I see is a country that has been willing to go to extraordinary lengths 
to try to keep its debt servicing on a regular basis...and to stay in the 
international community rather than be an outcast," he said. 

Asked what would happen if Russia failed to pass the laws underpinning the 
latest IMF program, he said: 

"There's no point in crossing bridges before they come to them. If they do 
not make an effort to meet the conditions we cannot have a program. if they 
make a serious effort to meet the conditions, then we will see what happens." 

Russian officials said on Wednesday that IMF Managing Director Michel 
Camdessus would address a conference in Russia's second city, St Petersburg, 
next month. It was not clear if he would also meet government officials in 


Stepashin Addresses Russian State Duma 

ITAR-TASS World Service 
Speech by Russian Acting Prime Minister Sergey Stepashin in the 
State Duma 19 May -- live 

Esteemed Gennadiy Nikolayevich [Speaker Seleznev], 
esteemed State Duma deputies! 

Speaking from this rostrum today, I feel and am aware of the huge 
responsibility which will rest on my shoulders if you deem me worthy to 
head the government of the Russian Federation. I am well aware that the 
main requirement of me and my future team is not simply to maintain the 
level of stability which has been achieved. Our mission is to create a 
fundamentally new economic context and to make the only correct decisions 
which can secure the best living conditions for the people and restore 
the greatness of a country as mighty as Russia. 

It is no secret that we are in the midst of a protracted economic 
crisis. So much has been said about the causes of this that there is 
clearly no point in reiterating them in detail in this enlightened 
company. You know as well as I how deep we have got in the situation over 
Russia's domestic and foreign debt, how hard it is to restore our 
finances and banking after the August crisis, how difficult to pay 
current wages and pensions. More than one government team has already 
tried to deal with these. Various economists have vied over ways of 
getting out of crisis, sometimes costing us time, which is so precious in 
our situation, costing us the patience of the nation and costing us trust 
in the authorities as a whole. Pressure in society is now at its limit. I 
am sure that in the present circumstances there can be no debate over 
programmes and we must not get bogged down in ideology. I will be 
demanding of those who take up the economic jobs in the government a 
professional approach to the job and exact implementation of all the 
decisions which are made. 

Please understand me correctly. Once we agree on the fundamental principles 
of the cabinet's programme of action, it has to become mandatory for all 
involved in the process. 

The previous, Primakov, government stopped the country falling into the 
abyss, but we have not yet been able to change the situation 
fundamentally either in the economy or in the social sphere. It is of 
course exceptionally important to retain the positive experience which we 
have managed to build up over the eight months of the previous cabinet 
and to preserve its skeleton. However, we do now need a new, more 
decisive and energetic approach. Now, when the country is facing the task 
of regeneration and moving with dignity into the new millennium, the 
predominance of a policy of political and economic stabilization alone is 
not enough. 

The time has come for changes in the tactics for following this course. 
There is no longer any place for half-measures and compromises. The times 
require us to take bold yet simultaneously carefully considered steps. We 
will not only develop the market, we will defend property and initiative. 
We are prepared to employ the most decisive measures of state influence 
and tough financial regulation to defend these principles. 

I am no supporter of whipping up passions, but we do have to look 
truth in the eye. A considerable proportion of the people of our country 
lives below the poverty line. Indicators of the standard of living, which 
fell sharply following last year's crisis, remain extremely low. People 
are tired of waiting and endlessly hoping for better things. 

This cannot fail to be of concern to us on the eve of the forthcoming 
elections to the State Duma and for the president of Russia. History 
shows that poverty and economic recession create favourable conditions 
for the stooges of criminal structures to come to power. This scenario 
would be ruinous for Russia. All the political forces in the country are 
aware of the exceptional danger of this, and at the same time of its 
great likelihood, unless decisive measures are taken. It is our patriotic 
and civic duty to leave behind people with other interests than those of 
the state. We have no right to advance personal, corporate or party 
values against the most important interests, those of Russia and its 
people. It is not by chance that when people ask me if there should be a 
coalition government I reply that it is important to have not a coalition 
of politicians but a coalition of professionals. Hence my firm conviction 
that the government must consist of the best specialists, regardless of 
the party to which they belong. 

I should like to remind everyone from this platform that the 
government is not a puppet body. In keeping with the constitution, it is 
the government that exercises executive power in Russia. And no pressure 
on it from various influential groups and, even more so, from semi-mafia 
structures is permissible. I am determined to pursue that policy without 
the slightest deviation and without hesitation. 

Now, esteemed colleagues, permit me to formulate the two principles that, 
in my view, must underlie the activities of any government. 

First - stability in the economy means stability in society. 

Second - the state exists for people, and not people for the state. 
I do not intend to resort to any extreme measures. Some people have 
already managed to create such an aura around my appointment. The general 
has come to power, they say, the firm hand, Russia on the verge of 
dictatorship, and they even compare me with Pinochet. No, I am not 
General Pinochet. My name is Stepashin. I am certain that the path of 
decisions based on force rather than on the economy is unacceptable for 
the country. Russia is a great power, possessing immense natural 
resources, a production base and vast intellectual potential. I consider 
it my duty not only to make sound use of what we have, but also to create 
the necessary conditions for the revival of our economic might. 
Russia will not be a raw materials appendage of the developed industrial 
countries. But to guarantee this, we have to restore the trust of Russian 
and foreign investors, ensure that the exchequer is full, keep a tight 
rein on expenditure, and channel money and resources into the national 
economy. To this end, I am counting, primarily, on the support and 
assistance of the president, the deputies and the members of the 
Federation Council. Together we determine the priorities, and together we 
move towards attaining them. Nothing can be done without the smooth 
functioning of the executive and the legislature, without constant 
businesslike cooperation between the Centre and the regions. Nor can 
anything be achieved without rigorous monitoring to see that the 
decisions taken are carried out. I regard the main principle behind our 
work as being mutual responsibility to one another and to all citizens. 
We must always remember that every one of our actions or failures to act 
has a direct effect on our citizens. 

Esteemed deputies, the day before yesterday [17th May] in the Federation 
Council I said that the activities of the government must take into 
account the interests and needs of all the Russian regions, this is 
absolutely the case. In the last few days alone I have received hundreds 
of specific proposals for the government programme. All of them, and of 
course including those I received yesterday during my meeting with 
members of the parliamentary factions, will definitely be taken into 
consideration. Currently they are being studied and analysed. This, by 
the way, must be an unshakable principle of the work of our government. 

But now I would like to note the basic strategic areas which the 
government must work on. 

The first, the most important area is social policy. The previous 
government tried to pay off some of the money it owed for wages, 
pensions, benefits and financial allowances. We are taking all these 
obligations upon ourselves. I want to stress this again - all the 
obligations of our predecessors to pay off these debts, but our task is 
to ensure they do not recur. Moreover, as regards the implementation of a 
package of economic measures, I consider it necessary to ensure growth in 
people's real incomes, which all the deputy groups have talked about. I 
am in complete agreement with them. Including indexing payments to public 
sector workers and pensioners and, moreover, in the very near future. The 
state does not have the right to gaze with indifference on the problems 
of those who have not been able to adapt themselves to the new living 
conditions, those who have not gained from the reforms, but only suffered 
from them. 

I myself am a supporter of reforms, but all these reforms are 
necessary not for the sake of reforms, they are necessary for the sake of 
the people. The package of bills recently presented to the Duma by the 
previous government is aimed, as a first step, at achieving this goal. 
Unless these laws are adopted as quickly as possible it will be 
impossible to relieve the burden of Russia's external debt. 

The second area is reviving domestic industry. There has been some 
improvement in the industrial sector of late. But we cannot make do with 
this. Let's speak frankly: we now need a real upturn, and not the upturn 
you get following a sharp fall in the level of industrial output after 
default. To do this, we must finally resolve the problem of the debts 
enterprises owe to each other and to the state, reduce the tax burden, 
review fines and penalties and secure fair prices, I want to stress once 
again, fair energy prices. The government will give priority to the key 
sectors of industry, first and foremost to the science-intensive 
industries and high technology. These are the foundation of the 
military-industrial complex. It would appear to be worthwhile - and I 
would like to consult with you here about this - setting up a special 
state committee for the problems of the military-industrial complex, 
which is where the key factors of management of the industry will be 
concentrated. Incidentally, what is happening at the moment in 
Yugoslavia, let's be blunt, is after all not only a strike against 
Yugoslavia, perhaps not so much against Yugoslavia, but a strike against 
Russia. We need to draw conclusions from this. 

Thirdly, the government is committed and will defend and support domestic 
producers and the home market. This is particularly important in the 
production of foodstuffs, where we are most acutely feeling the pressure 
of imported produce. Bringing in food products from abroad is crushing, 
if it has not already crushed, our domestic agriculture, for which our 
country was famed for centuries, it is driving us into enslavement to 
people abroad and, as a consequence, undermining Russia's security. 

Together with you, esteemed deputies, we have already discussed possible ways 
to solve this problem. I share many, perhaps even the majority of the 
views that you have expressed. The government will necessarily heed the 
voices of those who has first-hand knowledge of the problems of the 
countryside. A specially appointed deputy prime minister of the new 
government will be fully in charge of this work, as many of you have 
suggested. And when appointing him or her, we will necessarily seek your 
advice and will consult you. Naturally we would like - and here I address 
first of all our Agrarian faction and, as a matter of fact, all and 
everyone - we would like him or her to be a person who knows land, loves 
it and can work on it. 

Talking about the cadres - yesterday and the day before certain names of 
candidates for ministerial and deputy ministerial posts were named. I 
will repeat what I said yesterday, that I can't give the names of all 
those whom I would like to invite to work in the government. 

The fourth area is the decriminalization of the economy. The shadow 
economy is almost more efficient and dynamic than the legal one. Millions 
of people are engaged in its operations. In the absence of sufficiently 
effective actions by the law-enforcement bodies and their coordination, 
corruption and crime are spreading and destroying the state from within. 

My experience of service in the law-enforcement bodies allows me to claim 
with full awareness that it is there, I stress, it is precisely there 
that the main knot of problems lies which in fact paralyse all the 
spheres of Russia's life today. 

With your permission, I will quote three examples. First, Krasnoyarsk. 
Last autumn the Interior Ministry sent there a full-strength 
investigating group headed by my first deputy, Vladimir Kolesnikov, which 
included representatives of all the law-enforcement bodies, the Finance 
Ministry, the Central Bank and the Tax Inspectorate. Incidentally, the 
operation in Krasnoyarsk is continuing today. More than 50 criminal cases 
have been instituted, some of them have already been submitted to courts. 

Some people are far beyond the boundaries of Krasnoyarsk Territory. We 
have managed to prevent the embezzlement and theft of property belonging 
to Krasnoyarsk Territory. And here is the result: whereas in April last 
year R [rubles]60 million were paid into the budget of Krasnoyarsk 
Territory from domestic industry, in April this year the figure was R501 
million. Aren't these internal sources and internal reserves for you? 

Second, Novorossiysk. After a substantial amount of work, which is 
continuing there right now, the Krasnoyarsk Territory budget received an 
additional sum of R100m in January this year alone because we cleared the 
port of Novorossiysk of criminals. Both the governor of Krasnoyarsk 
Territory and the authorities in Krasnoyarsk Territory have managed to 
settle up in full with the budget officials. A certain amount has already 
been done - and I want to say that we have not eased up on that work - to 
put the alcohol market in order. You know what has happened in our 
country over the past few years. In Soviet times, the country used to 
receive something like 57-80 per cent of budget funding from excise duty, 
whereas last year the figure reached only 3.4 per cent. This year, the 
figure for this month climbed to 17 per cent. Before the end of the year, 
we have set the target at 25. The collection of excise duty has virtually 
trebled in comparison with the same period last year. That is a further 
reserve for topping up our exchequer and the regional budgets. 

One further, very important task facing our government today is to 
repatriate the billions of dollars that have been illegally taken abroad 
by various businessmen in recent years. A mechanism for the return of 
capital does exist, although, to be honest, it is still not working 
properly. In the first place, it is a question of creating stable 
economic and political conditions, appropriate mechanisms for protecting 
investors' rights, including those of foreign investors. The 
law-enforcement bodies are also ready to take the matter in hand 
seriously, but they are in dire need of your legislative backing. 
We have to remember that every day of delay means further hundreds of 
thousands of dollars draining away abroad and working for the Western, 
rather than the Russian, economy. 

The sixth area is continuing the negotiating process with the 
international financial institutions and our creditors. It is also 
essential to remedy a situation in which funding that is attracted with 
such effort is expended inefficiently and is often blatantly stolen. That 
is why, on the first day of my work as acting prime minister, I set the 
task of carrying out an extensive analysis of the problem of the use made 
of outside loans. An interdepartmental commission, headed by the prime 
minister, will be set up at the end of the week. 

Seven - revival of the banking system. This remains in a dismal state. 
Many major banks are essentially bankrupt. Their future needs to be 
determined in such a way that they carry out their main function, namely 
providing accounts and loans for the public and the real sector of the 

And finally, the last thing - unconditional executive discipline. Most 
of the correct decisions that have been adopted recently have remained on 
paper alone. They have been swamped in rhetoric, entangled in red tape 
and brought to a grinding halt. We need tough, and I would like to stress 
this again dear colleagues, tough administrative will, and we will have 

Dear deputies, the range of areas of work which I have listed does not, 
of course, exhaust all the tasks that we have to tackle. You and I have 
already managed to discuss many of them during our very constructive 
consultations. I am grateful to all the factions for their interesting 
proposals on the organization and priorities of the work of the future 
cabinet. However, in addition to urgent steps, we also have a long-term 
task. Russia is on the threshold of the 21st century. Russia's prosperity 
and wellbeing will be achieved only through fully uniting all the 
nation's forces and through movement towards the revival of Russia. 

In conclusion I would like to say once again that I do not forget for a 
moment that Russia's citizens expect specific and positive results from 
the government and they expect an improvement in their lives as soon as 
possible. I am convinced that with the support of the Federal Assembly 
the government is capable of meeting these expectations. After all, there 
is nothing more important for those entrusted with power than concern for 
the interests of citizens and concern for Russia. I believe that for 
every one of us this simple truth is a rule of life. 

Thank you for your attention. 



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