May
22, 1999
This Date's Issues: 3299 •
3300 •
Johnson's Russia List
#3300
22 May 1999
davidjohnson@erols.com
[Note from David Johnson:
What does "#3300" mean? The fourth year of JRL, the 300th message
this year. Yes, that's a lot.
1. Reuters: Russian regional leaders form new party.
2. Washington Post: Robert Kaiser, Letter From Russia. In the Throes Of
an Identity Crisis.
3. Stephan De Spiegeleire: Breslauer and deterrence.
4. Marcus Warren: revisionist historians and british foreign policy.
5. Itar-Tass: Plenum Said to Look at Communist Talent, Not Impeachment.
6. Boston Globe: David Filipov, Swim against tide. From deep in Moscow
woods
entrepreneur overcoming odds to build his business.
7. Los Angeles Times: Richard Paddock, Russia's Top Tycoon Regains Lost
Influence. (Berezovsky).
8. Reuters: Russia denounces NATO on humanitarian aid.
9. Interfax: Poll Shows Primakov Would Beat Luzhkov for Presidency.
10. Moscow Times editorial: IMF Wrong To Pass Tax On to Public.
11. Moscow Times: Andrew McChesney, U.S. Fund Unveils Mortgage Program.]
********
#1
Russian regional leaders form new party
By Konstantin Trifonov
ST PETERSBURG, Russia, May 22 (Reuters) - Russia's powerful provincial
leaders formed a new party on Saturday to contest general elections later
this year as Moscow's influential mayor proposed forming an electoral
alliance with them.
The leaders told the founding congress of the ``All Russia'' movement that a
new strategy was needed to hoist Russia out of its protracted post-communist
crisis and shift decision-making away from centralised institutions in the
capital.
``A crisis in mapping out reform strategy has plunged Russia, a wealthy
country, into a state tantamount to a national catastrophe,'' Vladimir
Yakovlev, governor of St Petersburg, Russia's second city, told the meeting.
``Attempts to reform Russia from the top have not worked. It must be done
from below, from the regions,'' he said.
The new movement, one of a profusion of parties created in recent months, has
been dubbed the ``governors' party'' as it throws together powerful figures
without a single leader emerging so far.
The meeting was attended by more than 500 delegates from 82 of the 89 regions
spread across Russia, which crosses 11 time zones from the Baltic Sea to the
Pacific Ocean.
Among the figures elected to an 18-member inner council were Yakovlev and
three influential regional presidents -- Mintimer Shaimiyev of Tatarstan and
Murtaza Rakhimonov of Bashkortostan, both oil-producing regions, and Ruslan
Aushev of Ingushetia, next to separatist Chechnya in the volatile North
Caucasus.
Moscow Mayor Yuri Luzhkov, widely seen as a contender in next year's
presidential election, sent a message proposing joint efforts between the new
movement and his Fatherland party. This was particularly important, Luzhkov
said, for December elections to the State Duma lower house of parliament.
``I am certain that if we join forces we will be able to win a considerable
number of seats and create a powerful, responsible parliamentary group,'' he
said.
Officials at the congress did not comment on media speculation that the new
movement could back Yevgeny Primakov, dismissed as prime minister last week
by President Boris Yeltsin, for a seat in the Duma.
Sergei Sobyanin, head of the northern Khanti-Mansiysk region, told Interfax
news agency that Primakov was free to seek the nomination on one of the
party's regional lists.
********
#2
Washington Post
22 May 1999
[for personal use only]
Letter From Russia
In the Throes Of an Identity Crisis
By Robert G. Kaiser
MOSCOW—Early in this century, the great Russian question was, "What is to Be
Done?" (the title of a book Lenin published in 1902). The answers imparted by
Lenin and his comrades eventually created the Soviet system, whose wreckage
is now strewn across this land. Now the great Russian question is, "Who Are
We?"
A good answer has not been found. Self-definition is difficult for people who
don't like what they see around them, and in themselves.
Perhaps the most-discussed nightmare is the ubiquitous corruption, from the
constant demands of petty bureaucrats for bribes to senior government
officials doing the bidding of a few rich people. Everyone complains about
it--a student whose institute sells both admission and graduation, a
schoolgirl whose teachers give high grades to each other's children, even
Evgeny P. Velikhov, director of the renowned Kurchatov Institute of nuclear
physics.
Velikhov, who used to be interviewed on subjects like space-based weapons and
arms control, held forth one morning on the traffic police. "They are just a
moneymaking business, they don't even try to make the traffic move more
efficiently," he complained.
That one of Russia's most distinguished scientists would dwell on the traffic
police suggests the extent of anger and humiliation about corruption. Its
pervasive nature has forced Russians to ask: Is this really us?
A philologist in her early fifties thought the answer might be yes. She
recalled a 200-year-old quip by Nikolai Karamzin, a writer and historian. On
a visit to Europe, someone asked Karamzin, "What's going on in Russia?"
"They're stealing," Karamzin replied.
And they still are.
A Shared Nostalgia
One answer to "Who are we?" that resonates for many Russians over 35 is
"former citizens of the Soviet Union." Those who have suffered the most in
the new Russia romanticize the Soviet past as a time of calm and plenty.
Others remember it as a time of lies and arbitrary power. Both camps, and
many in between, share a nostalgia for a world slipping into history.
One attempt to preserve some of it is an emporium of irony called Club
Petrovich, a basement restaurant near the old center of Moscow. Petrovich is
a cartoon character who appears daily in Kommersant, one of the best
newspapers here. He is a sort of Everyman who has brought his Soviet-era
sensibility into the wilds of the new Russia.
Petrovich's creator, Andrei Bilzho, also created and designed the club, which
opened last year. It is decorated with Soviet kitsch, from old-time radio
receivers to portraits of Leonid I. Brezhnev, who ruled for nearly 20 years
until 1982, and Yuri Gagarin, the first man in space.
The menu at Petrovich comes in an old-fashioned Soviet file, two pieces of
cardboard tied together by a shoelace. The dishes all evoke the Soviet past.
"Friendship of the Peoples" salad features cheese from the former Republic of
Georgia, now an independent nation. Another salad is called "He Just Ate
Grass and Wouldn't Touch the Insects," a line from a beloved 1950s children's
book by Nikolai Nosov. A "Communal Apartment Soup" features a hodgepodge of
ingredients, a reference to the once-common (and still extant) living
quarters in which multiple families shared an apartment and its kitchen.
Club Petrovich reminds its members (whose membership cards list all of their
middle names as Petrovich, or "son of Peter") where they came from, and also
of where they have arrived. There was no restaurant like this when the items
on the walls were new--that is, no restaurant in communist Moscow with good
food and music, polite waitresses and a friendly atmosphere. The club seems
to be saying: We are who we were, but we're much more than that now.
Another version of the same message comes in performances of Peter Weiss's
"Marat/Sade," staged brilliantly at the Taganka Theater by its 82-year-old
founding director, Yuri Lyubimov, now back in Moscow after years in exile.
Lyubimov has inserted many references to the Russian present into Weiss's
play, which is set in post-revolutionary France. In one, an actor plays on
the title of Alexander Solzhenitsyn's "The Gulag Archipelago," the name he
gave to the string of Stalin's prison camps that dotted the old Soviet Union.
"Gulag" was an acronym for the camp administration.
In the play, the actor speaks of an "Archipelag Gulyak." This means, roughly,
an archipelago of idlers or goof-offs--another answer to "Who are we?"
Lenin Redefined
The image and myth of Lenin hovered over the old Soviet Union like permanent
cloud cover. One answer to "Who are we?" in the Soviet era was "Lenin's
children." Students were taught that Lenin was the kindest, finest, greatest
man who ever trod the earth. So a Moscow newspaper recently sent a reporter
to an ordinary elementary school to ask 10- and 11-year-olds who Vladimir
Ilyich Lenin was.
"He was well-regarded until recently," wrote Misha L., "but now people want
to remove him [from the mausoleum in Red Square, where a mummified Lenin lies
in a place of honor] because people have realized he was actually a bad
person."
"He was a communist. He could execute anyone who said anything bad about him,
or who wrote his name incorrectly, etc.," wrote Oleg O.
"He was bald. And sort of intelligent. He's still lying in the mausoleum. In
short, he was a total monster. But I don't know anything more about him,"
answered Dima P.
On May 9, yet another answer to "Who are we?" was evident in Moscow, most
dramatically in the mammoth new Victory Park that celebrates Russia's victory
over Germany in World War II--"the great patriotic war" in Russia.
This month brought the 54th anniversary of that victory, and scores of
thousands gathered in Moscow parks to see fireworks to mark the
occasion--"The only holiday we have about which there is no argument," said
Sergei Rogov, 21, a senior at Moscow State University. The traffic around
Victory Park was backed up for miles before and after the fireworks.
The atmosphere that night was joyous and a little drunken. Entrepreneurs with
tanks of helium sold balloons for 35 rubles ($1.40). The park was one of a
dozen locations where fireworks were set off, and one could see them all from
a hilltop there, all over the vast Moscow skyline. The fireworks lasted only
10 minutes, but the crowd was wildly appreciative of every rocket. You could
hear families in the crowd actually discussing the war. A half mile of
fountains, lit vividly in red spotlights, recalled the Russian blood that
flowed from 1941 to 1945.
Conversations with Russians of many backgrounds and ages suggest that pride
in the victory of 1945 is as strong today as it was 30 years ago, when
communist propaganda made the war almost as important as Lenin in the
pantheon of official myths.
On Victory Day, Varvara Baranskaya, 21, a ballet dancer, said emphatically
that the men running Russia today are fools, but she added equally
emphatically: "I am a patriot. I don't like the fact that everyone else is
looking down at us in Russia."
*********
#3
Date: Sat, 22 May 1999
From: Stephan De Spiegeleire <sdspieg@csi.com>
Subject: Breslauer and deterrence
I quite liked George Breslauer's attempts to 'rationalize' the Duma's
voting behavior last week, and especially his use of what smelled to me
remarkably like a rational choice explanation... (could his current
distance from Berkeley explain this???)
On a more serious note, though, I would like to partially take issue with
some of his points and maybe expand on some others. On the
Stepashin-appointment, I think 'faulty predictions' Breslauer attacks (that
Stepashin wouldn't be confirmed) was not nearly as widely accepted as he
made it out to be. Most analysts predicted that one quite correctly. Even
JRL (which does not always present a 100% reliably representative sample of
Russian media opinion) did - just reread the ones on the days before the
vote (e.g. JRL #3286). And on the impeachment vote, again most analysts
agreed that it was too close to call. I'd say that in general, many
predictions by Russian specialists about Russian politics have actually
become quite sophisticated (with the possible exception of the president's
behavior).
As to Breslauer's explanation why the Dumtsy voted the way they did, I
think he's quite right on the deterrence-bit. Yeltsin did up the ante by
using the 1993 'script' (to use the social psychological jargon). But while
that might explain why they would ultimately vote in accordance with
Yeltsin's wishes, it really does not explain why they did so already in the
first round (on Stepashin's nomination). Yeltsin couldn't really have
'retaliated' until the third vote (i.e. for another two weeks), during
which the Dumtsy could have bargained for more goodies (whether financial -
there is no doubt in my mind that Vladimir Volfovich had a good week last
week, and he even said so quite openly - or political). So the general
'rational deterrence' argument should really only have kicked in at the
third vote, and yet, as we now know, it worked already in the first round.
Yet here I would propose another twist to the general argument, which I
think is closely related to what we used to call 'intra-conflict
deterrence'. I am referring here to the threat that was publicly leaked
that Y. would in the last minute withdraw Stepashin's name and propose
Aksyonenko (alleged to be a Berezovskiy-crony - and, whether correct or
not, a couple of Duma members I talked to last week clearly believed it)
for confirmation as Prime Minister. This threat was made more credible by
two developments that looked strange at the time, but from hindsight
certainly strengthened the deterrence idea: 1) the fact that Aksyonenko was
already mentioned in the initial decree proposing Stepashin - there was
really no other demonstrable reason for that; and also 2) what seemed
initially as a 'lapsus' that Yeltsin made over the phone to Seleznyov in
the Duma when apparently he proposed Aksyonenko instead of Stepashin as his
nominee (despite the fact that Kotenkov - who's clearly out of the loop -
appeared to have written confirmation from the Kremlin about Stepashin's
name). Now that entirely changed the calculus for the Dumtsy: at least with
Stepashin, they (at least the leftist majority) felt they could live: it
would make sense for them to refuse him two times, to collect more goodies,
and then to miraculously approve him the third time. In that case they
could have their cake and eat it too. But if the choice was to be
Aksyonenko or Chernomyrdin (he was suggested as being Yelstin's third and
final candidate) or another 'unacceptable' candidate, then the cost of not
voting for an even semi-acceptable person like Stepashin became too high,
and therefore they were willing to take the goodies in the first round and
not escalate. It was actually quite visible - in the morning of the vote,
Seleznyov (hardly known for his punctuality) was really rushing the
proceedings (even cutting off speakers), in a clear illustration of how
afraid everybody was that the president would pull another 'Yeltsin' in the
last minute. Even the vote itself lasted only a couple of minutes... So in
that sense, both the general deterrence strategy _and_ the 'intra-conflict
deterrence' worked beautifully. I would just like to point out that
Yeltsin's reputation for unpredictability is actually a great asset for
such deterrence strategies. Much of this stuff is straight out of Schelling
and the rational deterrence literature. Ah, Russian politics: you've got to
love it!!! I don't know whether 'political technologies' are just more
developed in Russia than in the West, or whether they are just more visible
(arguably, because in the West they are more hidden in our partocracic
games), but this type of 'raw politics' is certainly a delight for anybody
interested in politics...
BTW and 'pour la petite histoire', to me, this suggests another big
turnaround in Yeltsin's entourage. I don't think the bland crowd that
Yeltsin had been left with over the past months could have come up with
such a masterstroke. The temptation to conclude that Boris Abramovich is
'back' is certainly getting pretty strong again... And apparently Yumashev
and Chubais are back as well.
Let us not, however, forget the bigger picture: while Yeltsin may have
scored some political points, it still seems to me that too high a price
was paid economically. It'll now take at least some time for " moya
familiya - Stepashin" to get his team together, and then some more time to
get those damn IMF-laws before the duma. At least with the
Primakov-Maslykov team, they stood a chance. But apparently, the
Presidential administration is now pushing for a number of new appointees
who might once again spoil the relationship between Okhotnyy Ryad and the
White House (e.g. apparently Stepashin told Lapshin that he could live with
Kulik, but Yeltsin made it clear before he left for Sochi that Kulik was
persona-non-grata). So behind all the political pyrotechnics, was this a
Pyrrhic victory? (I know, I know, bad pun...)
But let me once again applaud George Breslauer's (implicit) exhortation
not to jump too quickly to 'ideational, affective, and
emotional' explanations for Russian politics; and to at least try to
identify the incentive structure of the key players to see how far that
takes us. For those willing to do this, there are still many largely
unexplored treasure troves in the field of Russian politics (such as the
voting records of both Duma and Federation Council, to which many of the
methodologies we know from the field of American Politics could be
applied), a more systematic exploration of which could be of enormous value
in improving our analytical (and arguably even predictive) capabilities on
what remains one of the politically most important objects of inquiry in
international relations. Unfortunately the funding structure in this field
(increasingly even in Europe) barely allows us to start scratching the
surface...
-Stephan
Stephan De Spiegeleire Western European Union
Tel. 33-1-53672200 Institute for Security Studies
Fax. 33-1-47208178 43, avenue du Président Wilson
75775 Paris CEDEX 16
weu_iss@compuserve.com France
Homepage: http://ourworld.compuserve.com/homepages/sdspieg
*******
#4
From: "Marcus Warren" <markusw@rinet.ru>
Subject: revisionist historians and british foreign policy
Date: Sat, 22 May 1999
[re 3299/Anthony D'Agostino/Notes on the Legacy of Primakov]
i have just deleted the last jrl with its assertion that british
revisionist historians are "partly" responsible for uk attitudes towards
the balkans and security policy in general. i apologise in advance if i
have taken this remark out of context and i acknowledge that this is
hardly the time and place for a debate on the topic. but i cannot let this
one pass without comment. i do not think any suggestion could be wider of
the mark. john charmley and niall fergusson are respected historians with a
nice line in journalistic polemic as well. i think even they would be
surprised to hear that they have had much influence - even indirectly - on
forming British attitudes towards current security issues, esp the
Balkans. the blair govt is profoundly ahistorical. by that i mean that
none of its leading figures have evinced any interest in the subject and
many of its supporters seem to think that history began in may 1997 when
labour was elected. the defining historical era for New Labour is their
experience of being out of power for 18 years, unelectable and for some of
that period at least advocates of unilateral nuclear disarmament. hence
labour's priorities as far as security policy is concerned: 1. ensuring
that it is electable in the future and thus refusing to confront public
opinion with anything unpalatable; 2. exorcising the ghosts of the past by
being even more militant on the Balkans than the US. (Was it Noam Chomsky
or the Exile who recently referred to the UK as "the US's European
attack-dog"?) that's it. period. historians don't get much of a look-in.
and there is no point in arguing that Charmley, Fergusson et al have
influenced the "Establishment", as opposed to the politicians. even if it
had, blair etc. are running the show and will do so for years to come. and
the "Establishment" is mainly interested in maintaining its favoured
little brother status in diplomatic, defence and intelligence matters
vis-a-vis Washington. marcus warren daily telegraph moscow
correspondent.
*******
#5
Plenum Said to Look at Communist Talent, Not Impeachment.
MOSCOW, May 22 (Itar-Tass) - A regular plenum of the central committee of the
Communist Party of Russia, or KPRF, opened in Moscow on Saturday in the
building of the Institute for Plant Breeding.
The plenum, working behind closed doors as usual, meets over the agenda of
Tasks of Party Branches in Enhancement of Responsibility of Communists
Working in Legislative, Executive Authority Bodies and Local Self-Rule.
A main report was presented by Leonid Ivanchenko, chairman of the Duma lower
house of parliament's committee for federation affairs and regional policy.
Communist Party leader Gennady Zyuganov told reporters on Friday that the
plenum was very important even though it meets on a regular basis.
"We are interested that the most gifted representatives of the party work in
local power structures, that they go through the school that is necessary for
the work in the coalition government of national patriotic forces," Zyuganov
said.
The plenum is working in a "constructive spirit," the Duma's Communist
Speaker Gennady Seleznyov told reporters during a break.
He said another matter on the agenda was pre-election strategies and
principles of forming electoral lists in the elections of a new Duma in
December.
Seleznyov said the plenum is not in position to decide how many "columns" of
national patriotic forces, or the leftwing camp, will go into the elections.
He said participants in the plenum made their assessments of the botched
impeachment proceedings in the Duma, but did not criticise KPRF leaders.
*******
#6
Boston Globe
22 May 1999
[for personal use only]
Swim against tide
>From deep in Moscow woods entrepreneur overcoming odds to build his business
By David Filipov
GORKI, Russia - At a well-guarded naval base deep in the woods north of
Moscow, Reserve Lieutenant Captain Alexander Malyugin and his staff of highly
motivated specialists are running a risk-filled race against their Western
adversaries.
In their underground compound, skilled technicians work on state-of-the-art
equipment. Designers pore over imported computers. It sounds like some
ultra-secret weapons factory, but Malyugin is making something far more
improbable for crisis-stricken Russia: swimwear.
Malyugin's company designs and manufactures women's swimsuits, fitness
clothing, and ballet leotards. His race is against the German and American
imports that dominate Russia's market for quality sports apparel. To finish
this year's line, Malyugin and his 40 employees are pulling double shifts in
their factory in the basement of the officer's club in this walled
naval-training facility, located curiously far from any body of water.
It is a most unlikely of settings. Then again, Malyugin has made a habit of
breaking stereotypes as he has built the kind of successful small business
that was supposed to power Russia's economic transformation, but instead
ended up being the rarest of exceptions.
Malyugin has navigated the perils of Russia's post-Communist economy - a
stifling and arbitrary bureaucracy, confiscatory taxes, vicious extortion
rackets and a debilitating financial crisis - that have forced many other
local entrepreneurs out of business.
Most surviving Russian small businesses are still reeling from the economic
meltdown that ensued when the government unexpectedly defaulted on its debt
and devalued the ruble last August, a move that wiped out banks and their
depositors in a matter of days. Malyugin has not only managed to right his
business - sales, nonexistent at the peak of the crisis last fall, are back
to their 1997 level of about $30,000 a month - this year his company,
Malyugin Mills, is expanding.
Malyugin has succeeded as a manufacturer at a time when ''Made in Russia'' is
almost an oxymoron. Russia's economy has been contracting all decade, and the
decline has been particularly acute in light industry output, which is
expected to plunge another 21 percent this year, according to Russia's
Economics Ministry. And whatever modicum of stability might have been
emerging was dashed by President Boris Yeltsin's decision to fire his prime
minister, Yevgeny Primakov, last week.
Ask Malyugin how he has managed to survive, and thrive, and the trim
35-year-old flashes his easy smile.
''If everyone in Russia worked as hard as I do, we'd live in a flourishing
society,'' Malyugin says. ''I'm my own marketing manager, distributor, and
advertiser. I work day and night and night and day. I don't even think about
getting discouraged.''
Economic change in other former Communist countries in Europe was powered by
small businesses that took the place of huge, ineffective state enterprises.
But in Russia, despite a decade of economic reforms, small business
constitutes just 7 percent of gross domestic product, according to Russia's
State Statistics Committee. In Western countries it accounts for more than 40
percent.
Irina Khakamada, former head of Russia's disbanded Committee on Support to
Small Businesses, recently cited numerous administrative barriers to small
businesses, including the long wait to be registered, the high cost of
licenses, and meddlesome inspectors from such agencies as the local fire
safety office, the sanitary and health department, and tax collecters.
Of these, the taxman does the most harm to small business. Desperate for
revenue, the government taxes Russian entrepreneurs heavily. Taxes are
calculated on the money he spends, not the money he makes, so that a
company's tax burden can amount to more than 100 percent of earnings. That
is, if anyone paid everything they owe. No business can, which means just
about every business operates illegally, which in turn provides an opening
for racketeers, who know their ''clients'' cannot turn to the authorities.
Tax authorities, meanwhile, have been known to take advantage of this
situation. In 1997, Malyugin avoided paying a $7,000 ''fine'' after a court
ruled that inspectors had wrongly assessed the charge.
As for organized crime, Malyugin says he has avoided it by keeping a low
profile, something of a blessing in disguise of his business's unique
location at a closed military base two hours of bad roads from Moscow.
Back in 1991, Malyugin got tired of living off an officer's paycheck about
the same time he sensed a demand for decent women's bathing suits - always
hard to find, especially ones that fit.
He proved an intuitive businessman and a quick learner. Working out of his
modest apartment at the Gorki base - the basement factory came later -
Malyugin started by making inexpensive suits from whatever fabrics he could
find in old state-run stores. The suits, designed by his wife, Olga, and
stitched on a home sewing machine, were not much better than what Soviet
industry made, but they sold well. Malyugin borrowed $4,800 from the Navy to
purchase imported stretchable fabrics and better sewing equipment. Olga
studied up on designs.
Another unexpected benefit of the remote location was that Malyugin was
forced to drive his wares to stores in the city, where he got his own
firsthand lessons in marketing. At first, he had to pay disbelieving store
administrators to let him sell his merchandise. This, he says, forced him to
develop practices that laid the groundwork for his future success, such as
tough quality control and the development of his own brand name, Solo.
He installed a bar-code system that allowed him to keep track of inventory
and shipments - a common practice in the West, but almost unheard of in
Russia. And he started requiring payment on delivery to retailers. This
policy has allowed him to avoid the perils of an economy where most
businesses cannot pay for goods and service because they are owed by their
clients. This nationwide web of mutual debts has forced most businessmen to
accept barter for services and goods. Most companies pay workers' salaries
late, or in kind; Malyugin pays in cash and on time.
By producing a quality brand name that sells for less than similar imports,
Malyugin Mills has managed to carve out a 15 percent share of the Russian
swimsuit market, according to a report on the company done by MBA students at
Wharton Business School's Lauder Institute. He has done this, the report
said, despite lacking a clear marketing strategy, or even a sense of whether
Russian buyers associate swimwear ''Made in Russia'' with quality.
Malyugin's share stands to grow. Malyugin's main domestic competitors, were
dealt a knockout blow by last year's crisis. Several formerly state-run,
Soviet-era textile factories still formally exist, but they are essentially
bankrupt shells, producing and selling nothing. One of the goals of reform
was that large state factories would gradually give way to small businesses
like Malyugin's. But his four smaller competitors have ceased operations
altogether.
Unlike his competitors, Malyugin did not let the crisis halt his plans. He
opened a Moscow office, started a marketing campaign, and increased output.
It was a risky move that forced him to use up earnings he had saved up from
previous years.
''But if I hadn't done this, we would be crying now like everyone else,''
Malyugin says. ''I see that times are hard, but this is a chance for things
to get better for us, to get a larger part of the market, to turn this into a
plus. This is what gives us hope.''
*******
#7
Los Angeles Times
May 22, 1999
[for personal use only]
Russia's Top Tycoon Regains Lost Influence
By RICHARD C. PADDOCK, Times Staff Writer
MOSCOW--Last month, Russian tycoon Boris A. Berezovsky was facing corruption
charges, an arrest warrant and the prospect of exile on the French Riviera.
Today, Berezovsky is back in good graces at the Kremlin, helping to map
out President Boris N. Yeltsin's political strategy. And the man who wanted
to rid the country of oligarchs such as Berezovsky--Prime Minister Yevgeny M.
Primakov--is out of a job.
The sudden reversal of Berezovsky's fortunes demonstrates again the
resilience of Russia's leading oligarch--a modern-day Rasputin who holds
extraordinary influence over the presidential family. With Primakov out and
Yeltsin exercising formidable powers, the tycoons often blamed for the
country's economic ruin appear to be regaining a significant role in
government.
"The sacking of Primakov was masterminded by Berezovsky, and I think his
influence over the Kremlin is still enormous," Duma Deputy Vladimir N.
Lysenko said. "Berezovsky and his influence will remain one of Russia's
biggest problems until the end of the president's term."
The oligarchs, who made their fortunes by dividing up the spoils of the
Communist system, are now battling for influence in the government, political
leaders said. Wednesday's confirmation of Prime Minister Sergei V. Stepashin
by the Duma, parliament's lower house, has touched off a back-room scramble
among rival oligarchs seeking to place their supporters in Stepashin's new
Cabinet.
"The government is being formed in the lobbies and behind the scenes by
means of intrigue at the Kremlin," said pro-market Yabloko faction leader
Grigory A. Yavlinsky. "It is a confrontation between old and new
oligarchs--some people who consider themselves politicians just because they
can buy someone."
Nikolai Kharitonov, head of the pro-Communist Agrarian Party, agrees.
"Even though I am at the State Duma, I can hear the crunching of vertebrae
from across the Kremlin wall. A fight for influence over the Cabinet of
ministers is in full swing. And it seems to me, despite everything,
Berezovsky is gaining the upper hand at this initial stage."
Berezovsky said in an interview Friday that his role in influencing
recent events is overstated by his critics and that the Cabinet is being
formed by Yeltsin in accordance with the constitution.
"Today, Russia's oligarchs are interested in stability and in the
economic recovery of the country more than anyone else," the tycoon told The
Times. "The value of the property they own in Russia is measured not only in
natural deposits, factories and plants, but also in the current political
situation. If there is political instability, all this property is not worth
anything."
The clearest sign of Berezovsky's leverage was Yeltsin's appointment
Friday of former Railway Minister Nikolai Y. Aksenenko to first deputy prime
minister, where he will wield great power over the economy. Aksenenko is
widely perceived as an ally of Berezovsky; the respected Kommersant Daily
newspaper called him Berezovsky's protege and said the tycoon had introduced
him to the president's family circle.
Yeltsin named to the interior minister post Vladimir Rushailo, a former
deputy to Stepashin who also is widely believed to have ties to Berezovsky,
although the Kremlin played down any connection Rushailo might have to the
tycoon.
In another sign of the oligarch's returning influence, Yeltsin
reportedly was considering appointing banker Petr O. Aven to the post of
special envoy to the International Monetary Fund and other foreign lending
institutions.
Aven, president of Alfa Bank, is one of the original seven oligarchs led
by Berezovsky who helped finance Yeltsin's 1996 reelection campaign.
Afterward, two members of the group were given key government posts and
the oligarchs profited handsomely from the privatization of state-owned
holdings.
Berezovsky, a mathematician who made his initial fortune by taking over
a profitable chain of car dealerships, often operates through allies and
subordinates. His financial interests are not always apparent, but he is said
to have a stake in a number of prominent Russian enterprises, including
Aeroflot airlines.
Last month, Russian prosecutors charged him with money laundering and
illegal business practices. Russia issued an arrest warrant while the tycoon
was in France. Berezovsky voluntarily returned to Moscow to answer
prosecutors' questions. Officials agreed to drop the warrant.
Meanwhile, Prosecutor General Yuri Skuratov, who initiated the case, was
suspended by Yeltsin after state television broadcast a video showing a man
who looked like Skuratov having sex with two prostitutes.
Prosecutors also recently dropped an arrest warrant filed against banker
Alexander P. Smolensky, another of the original seven oligarchs, after he
returned from Vienna to answer questions on money laundering charges.
"Berezovsky may celebrate quite a victory," said Duma Deputy Valery V.
Greshnevikov. "The criminal investigations started against him and other
oligarchs are in limbo. People who tried to oppose them in the government and
the prosecutor's office are all replaced or suspended from their duties. The
oligarchs now have received a chance to escape all responsibility for what
they have done with the country."
Some attribute Primakov's downfall to his taking on the oligarchs all at
once to try to extract some of their wealth to help finance the struggling
government. Some analysts said he would have had more success focusing on one
at a time.
"The oligarchs hate Berezovsky so much they would have drowned him with
tremendous joy," observed the Moskovsky Komsomolets daily.
"But by having attacked everyone at the same time, Primakov in fact
doomed himself to failure, while Berezovsky again managed to come out
unscathed."
Alexei V. Kuznetsov and Sergei L. Loiko of The Times' Moscow Bureau
contributed to this report.
******
#8
Russia denounces NATO on humanitarian aid
MOSCOW, May 22 (Reuters) - Russia's Foreign Ministry on Saturday blamed NATO
for the Kosovo refugee tragedy and denounced what it said were attempts by
the Western alliance to control the flow of humanitarian aid.
Diplomatic sources, meanwhile, said U.S. Deputy Secretary of State Strobe
Talbott would return next Tuesday to Moscow for what could be a resumption of
talks on the Yugoslav crisis involving three or more parties.
``The main reason for the biggest post-war humanitarian catastrophe in Europe
is NATO's action, undertaken in violation of the U.N. Charter and
international law,'' the Foreign Ministry said in a statement.
It said NATO had been distributing ``recommendations'' asking the U.N. High
Commission for Refugees and other humanitarian groups to inform it of any aid
convoys destined for Yugoslavia.
It said the NATO instructions amounted to an attempt to evade responsibility
for the ``ever increasing numbers of 'mistakes' in hitting schools, hospitals
and convoys of refugees.''
``NATO cynically cites reducing risks to humanitarian workers as the reason
for such concerns about people risking their lives... while at the same time
it never tires of stressing that there will be no pause or break in the
bombings,'' the Foreign Ministry said.
Alliance officials have expressed concern that aid sent to Yugoslavia be
channeled to civilians and not Serb forces.
Diplomatic envoys arrived in Moscow in waves throughout the week, with the
focal point a meeting between the Kremlin's Balkan envoy Viktor Chernomyrdin,
Talbott and Finnish President Martti Ahtisaari, a European Union mediator.
Talbott said the talks had been sufficiently constructive to return to
Moscow. But Russian politicians expressed frustruation at slow progress and
said major differences remained with NATO, particularly on the make-up of a
force to enable refugees driven from their homes to return to Kosovo.
Russia has repeatedly demanded a halt to NATO's bombing campaign against its
fellow Slav and Orthodox Serb allies.
It is unhappy about NATO's insistence that Belgrade withdraw all its forces
from Kosovo and also wants any future international force operating firmly
under United Nations auspices. NATO says alliance members must play the key
role.
The West has encouraged Russia to intensify its efforts in resolving the
Kosovo crisis. Chernomyrdin appeared to make little progress in lengthy talks
with President Slobodan Milosevic in Belgrade this week but is widely
expected to undertake another trip, his fourth since NATO began its bombing
campaign two months ago.
******
#9
Poll Shows Primakov Would Beat Luzhkov for Presidency
MOSCOW, May 20 (Interfax-Moscow) - Moscow Mayor
Yuri Luzhkov would win a presidential election in a run-off with
Communist leader Gennady Zyuganov, Krasnoyarsk Territory Governor
Alexander Lebed or Yabloko leader Grigory Yavlinsky, according to the
poll of 1,500 respondents conducted by the Public Opinion Fund on May 1
and May 8. The poll shows that in the run-off with Zyuganov, Lebed or
Yavlinsky, Luzhkov would get 25%-38% of the votes. Luzhkov would lose
only to former Russian prime minister Yevgeny Primakov, who would be
supported by 46% of voters. Asked whether they prefer that Luzhkov
remains the mayor of Moscow or becomes the president of Russia, the
majority of those polled - 61% - favored his current position, and 19%
wanted him to become president.
*******
#10
Moscow Times
May 22, 1999
EDITORIAL: IMF Wrong To Pass Tax On to Public
Does anyone other than the International Monetary Fund believe that what the
Russian economy really needs to get it going is ... a new tax on gasoline at
the pump? Or a vodka tax?
These are among a handful of demands the IMF has put forward as conditions on
it agreeing to roll over some of Russia's crushing debts.
The IMF also wants restructuring of the financial system, including the
shutting down of de facto dead banks. And it is demanding an explanation
about the infamous FIMACO, the offshore shell company that has been used to
opaquely manage billions of dollars of Russia's national reserves.
Bank reform and answers on FIMACO are long overdue, and the fund deserves
credit for pushing for them.
But because these are enormous tasks, they are also vague tasks - and so it
will be easy for both the Russian government and the IMF to claim victory.
Consider bank reform. The Central Bank has pulled the license of Bank Menatep
and is aiming at other former giants. This is fine, as far as it goes. But
Viktor Gerashchenko has been content to sit on his hands for months as
commercial banks have stripped assets and stiffed creditors. Where is the
triumph in pulling a bank's license now, when all of its assets are safely
stripped off and handed over to a "new" bank?
The same goes for FIMACO. Gerashchenko has promised to publish a
PricewaterhouseCoopers audit next week. "The auditors will come to the
conclusion that no violations were committed," the Central Bank chairman has
said.
Even if that turns out to be true in a technically narrow sense, this is
lawyerly doublespeak. We already have answers enough to make the obvious
judgment about FIMACO.
Nevertheless, the IMF and Russia will wave around the FIMACO audit and the
annulled Menatep license and a few other props, and there will be talk of
"limited successes."
If that's what everyone needs to save face and avoid a default, so be it.
But leave the vodka and gasoline taxes out of it. Why should the Russian
government be urged to squeeze more cash out of ordinary people with such
regressive taxation? This won't - this can't - be good for the economy.
It may be good for the IMF, of course, because the fund wants Russia to pay
it back. Soaking the poor is one way to get that money together. A better way
might have been to say something a few years ago, when, for example, the oil
companies were being hijacked and billions were being wasted on destroying
Chechnya.
*******'
#11
Moscow Times
May 22, 1999
U.S. Fund Unveils Mortgage Program
By Andrew McChesney
Staff Writer
Thousands could soon own their own homes under a groundbreaking
multimillion-dollar mortgage program backed by U.S. tax dollars that plans to
extend its first loans in June, officials said Friday.
The program, set up by The U.S. Russia Investment Fund, or TUSRIF, and
stretching from St. Petersburg to the Far East island of Sakhalin, is the
first large-scale residential mortgage lending scheme in Russia that aims to
put loans into the hands of people with average incomes, said James Cook,
senior vice president at the fund.
"Anyone off the street is eligible for these loans," Cook said, adding that
about 50 people in Moscow and 200 in St. Petersburg have already applied.
Russians and expatriates alike are eligible to receive the five-year loans of
up to $100,000, which will be disbursed through Russian banks and bear 15
percent annual interest. Borrowers also are required to make a down payment
of 30 percent toward the cost of the home.
The $400 million U.S. Russia Investment Fund, a private organization set up
with U.S. government money in 1994 to promote investment in Russia's economy,
plans to sink at least $50 million in the mortgage program this year but
could invest tens of millions more if demand is strong, Cook said.
The mortgage program comes as the Kremlin itself slowly starts to study the
issue. President Boris Yeltsin last month ordered the formation of a
commission to create a nationwide mortgage system, the realization of which
is not expected for at least a year. The order was made after a previous $500
million mortgage deal with Western investors and the U.S. government failed
to materialize.
Mezhprombank in Moscow and Itorup Bank on Sakhalin island signed up for
TUSRIF's program in late April, and negotiations are being held with 10 other
banks, Cook said. Six banks in St. Petersburg and a second bank on Sakhalin
are expected to join within the next two weeks, while talks are in the final
stages with three more banks in Moscow.
Mezhprombank, with a $1 million loan from the U.S. Russia Investment Fund,
plans to start handing out loans in mid-June. The bank said in a statement
that it is plans to offer well over $1 million this year in mortgage loans,
the funds for which will be received in individual tranches from TUSRIF.
Bank officials were unavailable to comment Friday.
Meanwhile, Itorup is underwriting six loan applications.
Real estate experts welcomed the mortgage program, calling it a vital move
toward setting up a working mortgage system for Russia.
"It's a great step in the right direction," said Jack Kelleher, director at
Noble Gibbons.
"It's very important for the development of democracy, for the development of
an open market," he said, crediting the U.S. mortgage system as part of the
backbone of the booming U.S. economy.
John Lee, project manager at the Hines real estate agency, agreed, adding
that the mortgage program could bring much needed liquidity into the market.
But he cautioned that defaults could be a big issue. "Russians still need to
deal with the issue of borrowing money and paying it back," he said.
Program officials said, however, that they were not worried because they are
hedging their bets. "The key is how you underwrite borrowers and to pick good
borrowers," Cook said.
Under fund guidelines adopted by partner banks, borrowers must have a stable
income and each loan must carry property, title and mortgage life insurance.
TUSRIF's mortgage program, based on the traditional U.S. model, works like
this: The fund extends loans to partner banks at a rate determined by their
cost of funds and the current market rate. The banks add a spread for
servicing that is determined by the market in each city. To join the program,
banks must take training courses and be approved by TUSRIF.
The size of each loan is expected to total about 35 percent of the borrower's
income and the property will be used as collateral.
Until recently, the right to evict the nonpayer of a mortgage was
questionable.
"The civil code, which guaranteed each citizen housing, was widely
interpreted and had not yet caught up with the economic changes taking place
in Russia," said Cook, who also holds a degree in mortgage banking. "While
lenders had the right to foreclose on a property, it remained unclear whether
they also had the right to evict a tenant."
However, legislators passed the Law on Mortgage last July that gave lenders
greater rights for eviction if a loan was used for the purchase of housing.
But the law has never been tested in court, and it is not clear how
determined the government would be to evict nonpayers.
St. Petersburg is going an extra mile in backing the mortgage program by
putting up $30 million to guarantee the loans made through city banks, Cook
said. And, just in case of defaults, the city is setting aside 1,000
apartments to provide temporary housing to borrowers.
TUSRIF, which also provides credits to small businesses and makes direct
investments in industry, held a pilot mortgage program last year in which $1
million was disbursed through SBS-Agro. The fund said that despite the
financial crisis last August, the program has maintained a 100 percent
repayment rate.
*******
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