This Date's Issues: 3305 •
to CDI's Home Page I Return
to CDI's Library
Johnson's Russia List
26 May 1999
[Note from David Johnson:
1. Reuters: Russia's Aksyonenko backs IMF laws, bank shakeup.
2. Rossiyskaya Gazeta: Mailbag Shows 'Ambivalence' on NATO.
3. Washington Post: Michael Krepon, Invitation to Nuclear Disaster.
4. Jamestown Foundation conference on Russia in Washington, D.C.,
June 9-10, 1999.
5. Moskovskiy Komsomolets: Oligarchs' Club: New Round of
Berezovskiy-Chubays Struggle Begins.
6. Moscow Times: Yulia Latynina, Aksyonenko's Past 'Smells Of Funerals.'
7. Stratfor: Ivanov Retreats from Balance of Power Politics.
8. Asia Pulse: New Axis Emerging Between India, Russia And China.
9. Jamestown Foundation Monitor: FORMER PRIMAKOV OFFICIAL ATTACKS
CORRUPTION AND YELTSIN'S PLANS IN 2000. (Anton Surikov).
10. Pravda: Yuri Maslyukov, The Fault of the Primakov Government is That it
Russia's Aksyonenko backs IMF laws, bank shakeup
MOSCOW, May 26 (Reuters) - New Russian First Deputy Prime Minister Nikolai
Aksyonenko said on Wednesday that he backed the passage of laws aimed at
winning more funds from the International Monetary Fund, saying they were
vital for Russia.
In one of his first interviews since being elevated from the obscurity of
former railways minister, Aksyonenko also told Ekho Moskvy radio that a
restructure of the banking sector needed attention and a decison taken on
bankrupting large banks.
"They (laws to win IMF money) are not needed for the government or anyone
else, they are needed for Russia, for the people of Russia," said
Aksyonenko, who will run the economy with fellow First Deputy Prime
Minister Mikhail Zadornov.
"They (IMF requests) are totally normal conditions. Why is a lot that is
asked for by the IMF strongly opposed?"
Russia must pass a series of laws before the IMF will approve the loan of a
further $4.5 billion in aid. The laws are currently being worked on at the
State Duma lower house of parliament, before going to a first reading,
planned for June 9.
Aksyonenko cited another of the IMF demands, restructuring the banking
system, which is still hobbling after being damaged in an August 1998
Prime Minister Sergei Stepashin has said six banks are due to have their
licences withdrawn, of which two have so far been deprived of their permits.
"We must find the necessary decision on the other four," Aksyonenko said.
He also said he would be in charge of overseeing Russia's natural
monopolies, such as gas giant Gazprom <GAZP.MO> <GAZPq.L> and electricity
grid company Unified Energy System (UES) <EESR.RTS>.
Mailbag Shows 'Ambivalence' on NATO
22 May 1999
[translation for personal use only]
Report by Mikhail Mironov, chief of Russian Federation president's
Administration for Work With Citizens' Appeals, under the "From the
President's Mailbag" rubric: "Aiming for Eurasia, They Hit Serbia" --
passages within slantlines published in boldface
The activation of diplomatic negotiations in
connection with the events in Yugoslavia, the visits to Russia by leaders
of a number of NATO countries, and the consultations in China by V.S.
Chernomyrdin, the Russian president's special representative for a
settlement of the situation around the Federal Republic of Yugoslavia,
have attracted the increased attention of respondents.
Many writers agree that from the legal viewpoint the bombing of a
sovereign state, which has resulted in huge devastation, the deaths of
many hundreds of people, and a humanitarian disaster in Kosovo, is
beneath all criticism. They believe that the aims of the aggression are
to protect the NATO countries' economic interests, and the
military-industrial complex above all; to demonstrate the potential of
new types of armament under combat conditions and, as a consequence, to
increase the demand for combat hardware manufactured in NATO countries.
"The aggressors have surpassed Milosevic, whom they condemn. You get the
impression that NATO is trying its hardest to find a reason to destroy
the economies of other states on the pretext of 'defending human
rights,'" according to V. Mindalin of Belgorod.
/The bombing of the Chinese Embassy in Belgrade is viewed as a planned
action/, designed to demonstrate NATO's determination to extend its
military influence, and as a check on the ability of uncoordinated
anti-NATO forces to counter the aggression. The opinion is expressed that
attempts are being made to subjugate an entire continent -- Eurasia --
both economically and politically. "These are the initial trials for a
macropolitical game being undertaken by the United States, which suffers
from a complex about its 'exclusive rightness.' I pray God that the PRC
does not get drawn into the military conflict. That would be a victory
for the United States," D. Chuzhakin of Ulan-Ude believes.
/The participation of certain presidents of CIS countries in the NATO
jubilee/ is viewed as ignoring Russia's interests in favor of instant
economic advantage. Writers regard as inconsistent the stand taken by the
president of Georgia, who supported NATO's strong-arm solution in
Yugoslavia, whereas previously he had vigorously condemned the "party of
war" and advocated new thinking in international relations and a
strengthening of the UN role.
Concerning /ecological problems/, N. Zandina of St. Petersburg believes that
urgent measures are needed to protect nuclear power stations in Bulgaria
and Yugoslavia from an accidental missile hit and to prevent a repeat of
At the same time the mailbag attests to /an ambivalence in assessments
of the NATO countries' actions in Yugoslavia/. There are even statements
to the effect that "because of the United States and NATO war will never
be unleashed" (Nikonov, Samara), "Russia must condemn Serbia's barbarous
actions and support the West's humanist action" (W. Stevens, student,
United States), and "fuel deliveries to Yugoslavia cannot be permitted,
because that will lead to military conflict" (M. Khayutina and Ye.
Savelyev, Moscow). Muscovite B. Akhmetov, leader of the public
organization "Friendly Union for the Development of Humanitarian
Science," regards "the armed peacekeeping activity of the United States
and the NATO countries in extinguishing the conflagration of civil war"
in Yugoslavia as a continuation of the struggle against fascism.
The majority of Russian and foreign writers believe that the problem can
be resolved only within the framework of a negotiating process. They
insist on /the immediate cessation of the bombing of a sovereign state/
and urge the Russian Government to continue decisive actions to resolve
the crisis. "Russia now has the authority of a peacekeeper. But time is
working against us. If a ground operation begins, it will be impossible
to halt it," Steshin of Nizhniy Novgorod Oblast believes.
Correspondents are concerned about the decline of UN authority and are at a
to why the United Nations, in violation of the requirements of its own
charter, has not proclaimed NATO the aggressor or urged the international
community to assist the victims of aggression. The writers are convinced
of the need to reinstate the role of the United Nations in resolving
international and ethnic conflicts and regard it as expedient to start
consultations on the creation of an effective security mechanism based on
the principles of equality, cooperation, and mutual assistance.
May 25, 1999
[for personal use only]
Invitation to Nuclear Disaster
By Michael Krepon
The writer is president of the Henry L. Stimson Center.
Unless concerted action is taken soon to reduce nuclear dangers, conditions
will be coming into place for a dreadful accident, incident or even a
nuclear detonation of Russian origin. The problems posed by Chinese nuclear
espionage pale in comparison with the dangers inherent in Russia's domestic
plight, its aging arsenal, stressed-out command and control and lax export
controls. Moreover, the current U.S. nuclear posture exacerbates current
dangers by requiring the deployment of 6,000 nuclear weapons, approximately
half of which are on hair-trigger alert.
Russia, whose GNP is now the size of Belgium's (and falling), cannot match
U.S. nuclear force levels. Over the next decade, deployed Russian nuclear
weapons on strategic forces may well dip below 1,000 -- six times below the
number allowed by the START II treaty, which has been held hostage by the
Russian Duma since January 1993.
At present the Kremlin retains as many of its nuclear forces on
hair-trigger alert as possible. This is done to compensate for weaknesses
in Russia's conventional forces, for gaping holes in the old Soviet early
warning network and for the vast launch readiness of U.S. nuclear forces.
Independent estimates suggest that Russia maintains in excess of 3,000
nuclear warheads in very high states of launch readiness.
This is a recipe for disaster. The CIA's unclassified assessment of the
"fail-safeness" of Russian command and control is not reassuring. Although
the CIA says nuclear safety is not a concern as long as current security
procedures and systems are in place, stresses in the Russian command and
control system are growing, and are aggravated by the high launch readiness
of U.S. nuclear forces.
In January 1995 Russian forces mistook a scientific rocket launched from
Norway for a U.S. attack, thus activating President Boris Yeltsin's nuclear
"suitcase." In September 1998 a deranged Russian sailor killed seven of his
shipmates and barricaded himself inside the torpedo bay of his nuclear
attack submarine. Security forces recaptured the boat, which may or may not
have had nuclear weapons on board. In September 1998, a guard at a facility
holding 30 tons of plutonium shot other guards and then escaped, heavily
armed. The list of incidents of this kind in Russia that we know about is
How does the U.S. maintenance of 6,000 deployed nuclear weapons, half on
hair-trigger alert, help this country deal with such dangers? With Russian
forces projected to decline dramatically over the next decade, what useful
purpose is served by maintaining bloated nuclear arsenals at such high
states of launch readiness?
While U.S. nuclear forces have been downsized with the end of the Cold War,
U.S. nuclear doctrine and targeting requirements have changed relatively
little. We still maintain massive attack options, with the potential for
many hundreds of nuclear detonations. We still place Russia's crumbling
industrial capacity "at risk," even though these factories have become
liabilities rather than assets for the Kremlin. We still maintain forces at
very high launch readiness, even though there is no longer a doctrinal
requirement to launch quickly in the event of a Russian nuclear attack.
Capitol Hill has barely addressed the dangers inherent in interlocking U.S.
and Russian nuclear postures. Extensive targeting lists and high Russian
alert rates reinforce high U.S. alert rates. This vicious circle will be
extremely dangerous as strains on Russian command and control continue to
grow. As long as the U.S. strategic posture involves keeping our nuclear
guns out of their holsters with the triggers cocked, there is no chance
whatever of persuading Russia to take its dangerous and aging nuclear
missiles off hair-trigger alert.
These nuclear dangers are badly compounded by congressional insistence that
the United States maintain a force level of 6,000 deployed warheads -- the
maximum allowed under START I -- until the 1993 START II accord finally
enters into force. In this way, national decisions on the proper size of
U.S. strategic forces are determined by the most retrograde delegates of
the Russian Duma, who have blocked ratification of START II.
What could the United States conceivably do with 6,000 deployed nuclear
warheads in the post-Cold War era? Why is it in the national security
interest of the United States to wait for action by Russia's unpredictable
and erratic legislature before taking new initiatives to reduce nuclear
dangers? Doesn't it make more sense to accelerate the process of deep
Sen. Bob Kerrey (D-Neb.) has a better idea than waiting for the Duma. He
would strike the legislative requirement to remain at 6,000 deployed
weapons and proceed instead with parallel, reciprocal, verifiable reductions.
Without accelerated reductions and new initiatives, such as a stand-down of
alert nuclear forces, we invite tragedies on a massive scale.
Date: Tue, 25 May 1999
From: Bill Geimer <Long@jamestown.org>
Subject: Conference on Russia, June 9-10, Washington, DC
The Jamestown Foundation is sponsoring a conference on Russia in Washington,
D.C., on June 9-10, 1999.
In this conference, we will take a look back at Russia's recent past and a
look forward into Russia's future. We will examine develpoments in Russia
and review Western policies, concluding with a look at what the United
States and the West might do to influence future events in a positive
We hope you will be able to attend.
We ask that you reply promptly, because space is limited. You may reply by
e-mail, fax, or phone. Simply indicate which sessions you plan to attend,
and we will reserve your place.
Our e-mail is: firstname.lastname@example.org
Our fax is (202) 483-8883
Our phone is (202) 483-8888
The conference has four sessions, three on June 9 and one on June 10, all at
the Park Hyatt Hotel, 24th and M Streets NW, Washington. The program
RUSSIA: WHAT WENT WRONG? WHICH WAY NOW?
JUNE 9-10, 1999
PARK HYATT HOTEL, 24TH AND M STREETS, N. W., WASHINGTON, D.C.
Wednesday, June 9, 1999
8:00 AM Breakfast and registration
8:30 AM - 10:00 AM What went wrong in Russia, and why
John Dunlop, Hoover Institution
Jan Nowak, former consultant, National Security Council
David Satter, The Jamestown Foundation
Moderator: Elizabeth Teague, British Foreign Office
10:15 AM - 11:45 AM Western policies: what went right, what went wrong,
what could have been done differently
Andrei Piontkowski, Center for Strategic Studies, Moscow
Peter Rutland , Wesleyan University
Dimitri Simes, Nixon Center
Moderator: Marin Strmecki, Smith Richardson Foundation
2:30 PM - 4:00 PM Russia's likely trajectory in the near and medium term.
Fritz Ermarth, former official, Central Intelligence Agency
Tom Graham, Carnegie Endowment for International Peace
Grzegorz Kolodko, First Deputy Premier and Minister of Finance, Poland
Moderator: Jonas Bernstein, correspondent, Moscow
Thursday, June 10, 1999
9:00 AM - 10:30 AM Policies the West should employ to influence events in
a positive direction
Marshall Goldman, Wellesley College
Richard Pipes, Harvard University
Peter Reddaway, George Washington University
Moderator: Hon. James Woolsey, former Director of Central Intelligence
I look forward to seeing you there.
William W. Geimer
Prospects of Berezovskiy's 'Triumphal' Return Eyed
24 May 1999
[translation for personal use only]
Unattributed report from "Rumors Rating" column: "Oligarchs' Club:
New Round of Berezovskiy-Chubays Struggle Begins"
The main rumor in the past week was the talk of
Berezovskiy's return to the Kremlin, and not simply a return, but a
Boris Abramovich has once again spread his dark wings over the Kremlin,
and therefore over all Russia. Rumor has it that euphoria reigns at
Berezovskiy's headquarters: They believe that in the next two months they
will not only regain control of key positions in the Russian authorities,
but will scale unprecedented new heights. The first such height was
Vladimir Rushaylo's appointment to the post of MVD [Ministry of Internal
Affairs] chief: The bunker on Zhitnaya Street [MVD building] is a very
convenient position for waging a war of compromising material on
inconvenient candidates for the presidency; the second height is the post
of vice premier responsible for the financial and economic sector: Not
only money for the elections is needed, but also money to relieve social
tension. At the moment Nikolay Aksenenko has been dispatched to this
front, but in view of Sergey Stepashin's obvious dislike for him and his
macroeconomic inadequacy he cannot survive alone, so there is an idea of
reinforcing him with Voloshin and putting under his control all Russia's
financial rivers, flows, streams, ponds, and creeks. However, that is
impossible today unless you take the main financial citadel -- the
Central Bank. It is known that BAB [Berezovskiy] will certainly test the
strength of its present boss, Gerashchenko.
Another height is the mass media. Rumor has it that Berezovskiy is expected
to respond to the offer to buy TV-6 shares, and then he will become
almost the sole (75%) owner of the channel. In that event it is highly
likely that Badri Patarkatsishvili and Sergey Dorenko will join its
management (the latter's return to ORT will look extremely objectionable).
Berezovskiy's old enemies have again sounded the alarm -- the Fatherland is
danger! They say that Anatoliy Chubays spent all last week working on the
appropriate circles in the United States to get them to put pressure on
Yeltsin on this matter, but in vain: America is hardly interested in
Russia anymore, they have classed it as a "special case" and allowed it
the right to set the rest of the world an example of "how not to live."
Incidentally, there is never any clear answer to the question of whether
Berezovskiy is really as black as he is painted. Those in the know claim
that the certified master of backstage intrigues prefers to rate the
scope of his own influence at around 90%. But the main point on which
practically everyone agrees is that today BAB has no money. And without
money -- who needs him?!
May 26, 1999
Aksyonenko's Past 'Smells Of Funerals'
By Yulia Latynina
Yulia Latynina is a staff writer for Segodnya.
The secret of Boris Berezovsky's might has long consisted in an ability to
shift from old allies to new ones - from AvtoVAZ General Director Vladimir
Kadannikov to Kremlin security chief Alexander Korzhakov, from Korzhakov
directly to the presidential family. And in this sense, Berezovsky's lobbying
charge with Nikolai Aksyonenko, the new No. 2 man in the Cabinet, is
The revenues from Sibneft or Aeroflot are nothing compared to the Railway
Ministry's financial flows. The ministry's Railway Investment Fund alone last
year turned over 14 billion rubles ($590 million). The railways are a
wonderful combination of a government ministry (which suffers financial
losses) and private companies (whose bank accounts are burgeoning with
Railways officials categorically reject proposals that the railways be
dismembered and privatized, but in fact they were already privatized long ago
- in the form of expediter companies such as TransRail, Petra, Evrosib and
The principle behind the profits of these expediters is very simple. If the
cost of shipping coal by rail from the Kuzbass to the border costs $16 a ton
according to the Railways Ministry's official tariff, the expediter
companies, thanks to discount tariffs they have wrangled, can pay $9 or $10 a
ton for the same delivery. The expediting companies do not even have to be
involved in the tedious business of shipping: They can simply resell their
In mid-1998 Railways Minister Aksyonenko announced that his ministry had
managed in just a year to lower tariffs by 5 percent. In fact, there was no
lowering of the overall ministry tariffs - just of those granted to chosen
expediters, according to Mikhail Kislyuk, who was then head of the Federal
Service for Regulating Transport Monopolies.
For a long time, the absolute leader among the expediters was the group of
Swiss companies called TransRail. However after Aksyonenko became minister,
TransRail began to be rapidly overtaken by the St. Petersburg firm Evrosib.
Sergei Aksyonenko, a nephew of the minister, is deputy general director of
Evrosib, and according to the Auditing Chamber, parliament's budgetary
watchdog, the firm receiveda 56 percent discount on tariffs for rail
shipments between Moscow and St. Petersburg.
The fights surrounding the National Sports Fund and the Afghan veterans funds
have already demonstrated that where there are special tariff privileges,
there are immense profits - and blood tends to be spilled. The transport
expediters seem to fit that sad rule. Sergei Aksyonenko's chauffeur was
murdered early last year, and his former business partner at Evrosib, Nikolai
Nikitin, was gunned down Dec. 30 in St. Petersburg. The former deputy
railways minister, Vadim Morozov, survived an assassination attempt in 1997.
Reflecting upon these events and upon the Railways Ministry's handing out of
preferential tariffs, the newspaper Obshchaya Gazeta had a wry laugh this
week at concerned talk that Berezovsky put Aksyonenko into the Cabinet. While
conceding this may well be true, Obshchaya Gazeta argued that the blood on
Russia's rails was a more damning commentary: "One can't help noting that the
[railways] business in which [Aksyonenko] has invested so much effort smells
2030 GMT, 990525 – Ivanov Retreats from Balance of Power Politics
After holding talks with Indian Foreign Minister Jaswant Singh, Russian
Foreign Minister Igor Ivanov today denied that Russia was attempting to
recruit India in to a three-way strategic axis alliance with China. "We are
against the return of the Cold War and we are against separating the world
into different blocs," said Ivanov. This is an odd statement coming from
Ivanov since he had previously and repeatedly advocated just such an alliance
for the explicit purpose of counterbalancing power of the United States.
Moreover, Ivanov had advocated the axis despite India’s repeated declarations
that it could not contemplate allying itself with its traditional adversary,
China. Now, with India hinting that it could change its position on the
matter, Ivanov has done a complete about face. Why?
Russia has not suddenly abandoned its long term goals. Rather, Ivanov’s
change in posture is likely a reaction to the short term instability in
relations between Russia and the West. Russian President Boris Yeltsin
appointed special envoy Viktor Chernomyrdin to take over negotiations with
NATO and Yugoslavia when the confrontational approach of then Prime Minister
Yevgeny Primakov and Foreign Minister Ivanov was threatening to undermine all
relations – most notably financial – with the West. Chernomyrdin temporarily
succeeded in putting both the negotiations and relations with the West back
on track – and Moscow has begun to capitalize on the West’s desire that the
Kosovo crisis does not alienate Russia.
But negotiations appear to be foundering, with Moscow claiming that NATO is
undermining its negotiating efforts and warning that abandoning the talks
would be catastrophic. If negotiations are balanced as precariously as Moscow
is suggesting, then Yeltsin risks losing the gains he has made, both in terms
of international prestige for Russia and deals with international lenders.
This situation must be managed carefully to retain Russia’s short term gains,
and so Chernomyrdin is the one making threatening noises about NATO’s
intransigence, rather than Primakov protégé Ivanov. Ivanov will be turned
loose only when and if Chernomyrdin’s efforts fail and relations with the
West again deteriorate to the point that it is more politically astute in
Moscow to play the pan-Slavic nationalist card.
New Axis Emerging Between India, Russia And China
MOSCOW, May 26 Asia Pulse - A trilateral axis between India, Russia and
China appears to be emerging on the Kosovo issue with New Delhi and Moscow
underlining that the similarlity of approach of the three countries in the
wake of NATO bombings on Yugoslavia could form basis of a joint action in
This became clear after Monday's meetings Indian external affairs minister
Jaswant Singh had with Russian leaders, including Victor Chernomyrdin,
special envoy of President Boris Yeltsin on Kosovo and secretary of the
Russian Federation Security Council Viadimir Putin.
During the meetings, Singh noted that India, China and Russia have
independently come to a point of view on developments in Kosovo which
showed overlap in their approach. This, he suggested, should form the basis
of an action the three countries would take at international fora.
Chernomyrdin, after his talks with Singh, told reporters that Russia was
prepared for implementing a "coordinated policy" of the three countries on
the issue. "We are already prepared for such an activity," he said.
A spokesman of the external affairs ministry said that the three countries
are keeping in touch with each other. "Approach on a pressing matter like
Kosovo is a healthy development," he said.
Singh's visit, which formally began on Monday, is part of the close
political level contacts between the two countries.
Jamestown Foundation Monitor
25 May 1999
FORMER PRIMAKOV OFFICIAL ATTACKS HIGH-LEVEL CORRUPTION AND YELTSIN'S PLANS
IN 2000. In an interview published today, Anton Surikov, press secretary to
former First Deputy Prime Minister Yuri Maslyukov, claims that charges of
top Russian officials and other notables having Swiss bank accounts are
true. Surikov, a veteran of Russia's special services, also claims that
Yeltsin will not cede power when his term ends next year.
Surikov, who has been described as having been one of the key "ideologists"
in former Prime Minister Yevgeny Primakov's government, was asked about the
claim that top members of the Russian elite have Swiss bank accounts. The
charge was first made earlier this year by Prosecutor General Yuri Skuratov,
who claimed that he had received documents from the Swiss authorities
proving this. "Concerning the documents of Swiss prosecutor Carla Del Ponte
and bank accounts held by our state officials in foreign banks, such
accounts exist," Surikov said. "I will go further. Information concerning
bank accounts and property of our elite came not only from Switzerland, but
from Germany. Practically all [our] authorities are one way or another
involved in corruption. In the West, they have full documentation concerning
this. This is dangerous. Because now, when it will be useful to the West, it
can present kompromat [compromising materials] against any representative of
Russian government and business. These [people] can be blackmailed in order
to produce decisions beneficial to the West" (Versiya, May 25-31). Surikov's
former boss, Yuri Maslyukov, was the target of a large number of corruption
As for Yeltsin's plans next year, Surikov said: "I can predict: If
politicians and the mass media actively consider Sergei Stepashin as a
potential successor to Boris Yeltsin, if television begins to show him
having high ratings, then his dismissal is inevitable. Because our president
views only himself in the capacity of his successor. He will under no
circumstances relinquish power voluntarily. In this connection, attempts to
unite Russia and Belarus before the presidential elections in 2000 should be
watched closely. I believe that with the help of this mechanism there will
be an attempt to keep Yeltsin in the Kremlin for a third term, already in
the capacity of the president of a Russia-Belarus union" (Versiya, May 25-31).
Surikov is clearly in the camp of Yeltsin's opponents, and thus would have a
stake in such an interpretation of Yeltsin's possible plans and motivations.
On the other hand, a number of politicians--ranging from Yabloko leader
Grigory Yavlinsky to ultranationalist Vladimir Zhirinovsky--and media have
also said Yeltsin may try to retain power through a union with Belarus.
Date: Tue, 25 May 1999
From: Rachel Dubin <email@example.com>
Subject: Maslyukov article
Pravda, 19 May 1999
Rubric: The First Large Article After the Firing of Primakov’s Cabinet
Yuri Maslyukov [former First Deputy Prime Minister],
special to “Pravda Internet”: “The Fault of the Primakov
Government is That it Saved Russia”
[translated by Rachel Dubin]
[words between double slantlines appeared in bold in the original]
When judging the results of the activity of Yevgeny Maksimovich Primakov’s
government, it is essential, first of all, to have in mind that things “had
come to ruin” in the literal sense of the word, since he had received “as a
legacy” a catastrophic situation. The negative figures that were aroused by
our predecessors’ economic policy and by the world financial crisis increased
for all of 1998 and were frequently strengthened by the panicky actions of 17
Let us recall: //GDP// volume, which was stable back in the beginning of 1998,
began to decline. In July its reduction accounted for 4.5%, which had become
the largest since the end of 1994; in August it topped 8%, and in
reached 10%. In July, //industrial production// fell 9.4%. In September, it
//Inflation// in September exceeded 38%, including 15% in the first week. The
country stood on the brink of hyperinflation.
//The paralysis of the banking system// brought about the fact that in the
first half of September, practically no payments were carried out. As a
result, some railroads stopped transporting cargoes this threatened to destroy
the entire national economy.
The //population’s// //real// income in the first half of 1998 was almost 9%
lower than 1997 levels. Arrears exceeded 25% in September, and real income
thrust back to the catastrophic level of January 1992. This created a threat
of social upheaval and bloody chaos, especially on account of the deep
The Primakov government and the Central Bank, in the space of a short time,
stabilized the situation. That has now been forgotten already, but the
appointment of Primakov himself put an end to the destructive political
crisis. As a consequence of this, it has become possible to cope with the
financial crisis, too: towards the end of September, the //payment system was
restored//. Monetary policy was rigid: the relationship of M2 to GDP was
lowered to 11.8%, in comparison with almost 17% back in February 1998.
Subsequently, the monetarization of the economy was cautiously raised, to
14.8% in February 1999.
In spite of the disorganization there are, on the basis of the restoration of
the payment system, not only economic connections, but also a system of
government. The government created reserves of agricultural production and
foodstuffs, ensured steady deliveries of critically necessary volumes of
dietary, fuel and medical products.
Because of the fact that the “young reformers” in general did not pay any sort
of attention to preparing for winter, the cold weather plunged a series of
regions into a critical situation. However, the energetic actions of the
government and its effective cooperation with regional governments and big
corporations allowed technological catastrophes to be escaped, as well as a
mass evacuation of the population from Siberia.
Besides, there is a normalization of calculations and the restoration of a
threshold of banking system liquidity. The government and the Central Bank
qualitatively strengthened the currency-export and financial control as a
whole, so that an expansion of large-scale capital flight was allowed to
Refusal of extraordinary, strengthening measures with regard to taxpayers
transition to strict, but constructive collaboration with them saved us from a
The destruction of selling products lower than prime cost freed the market
mechanisms; the situation of businesses was qualitatively eased and slowed
the growth of nonpayers.
The government declined to force the strong measures that were outlined before
the crisis and had not taken into account its reality (for example, mass
declines of payers for services of natural monopolies, the payment for NDS on
dispatch, living and communal reforms, and so forth). Following them blindly
would have worsened extraordinarily the population’s condition.
The government undertook a whole complex of measures to normalize the
situation of businesses; as a matter of fact, it started for the first time in
Russia, but not in terms of developing leasing.
Within the limits of stabilizing the population’s living standard, tariff
were raised, a partial indexation of pensions was carried out, and state
regulation of prices on medicine and employers’ criminal liability for
wages and other payments to the population for upwards of two months were
introduced. In the Duma, the government introduced a bill for a new Labor
A package of 19 tax and then 59 urgent bills were presented to the Duma.
Yevgeny Maksimovich Primakov and I received from Duma leaders and leading
parliamentary factions assertions that all of them would be passed in
condensed periods, and only an injection of political tension would prevent
timely acceptance of these documents, which are vitally important for the
country. But in spite of the obstacle, the government succeeded in passing
of 19 “tax” bills, including one on widening the sphere of application of one
tax on imputed income and one on the delivery of perks to legal personalities.
The Federation Council approved legislation introduced by the government on
repealing privileges that are not carried in an investment, innovation and
social direction, and on the establishment of a maximum rate of taxation of
property of physical persons at a level of 0.5% of the registered value of the
property with the introduction of an untaxed minimum.
Export customs duties are levied on a series of commodity groups in accordance
with the improvement of the international situation. A government decree on
the introduction of a single registry of taxpayers was passed.
The decriminalization of major companies became an integral element of
normalizing the economy and of structural reforms. Having started with VAZ,
this process quickly gained strength. In Novorossiisk, for example, it turned
out to be sufficient to arrest less than 30 people in order to destroy a
of banditry and to clear a place for receiving World Bank credit to
restructure the port.
Everything the government has had to accomplish has created favorable
conditions for the revival of the economy. The negative forecasts and
expectations in terms of Russia have not come true.
Preserving control of the monetary-credit sphere and having excluded the
possibility of an uncontrolled emission, the government has ensured a certain
lowering of inflation and support of on a level acceptable for the economy.
After lower inflation in October/November (4.5 and 5.7%, respectively), the
seasonal burst of inflation in December reached only 11.6%; yet, in February,
the price growth fell to 4.1%, and in March and April, to 2.8 and 3.0%. In
1999, we expect inflation at a level of 50%–that is, 3.4% per month.
//Hyperinflationary fears are past.//
The dollar exchange rate was stabilized, but was confidently beginning to fall
in April . Meanwhile, the Central Bank’s gold currency reserves grew
at 0.4 million dollars for April; for the first week of May, it was back at
million dollars, having gained 11.6 billion dollars. As a result, the volume
of gold reserves exceeded the monthly import by four times; at that time, a
twofold overrun is a threshold indicator of financial and currency security.
//GDP// decline was limited to 5% for 1998. In this way, the decline was
at the 1995-96 level. In 1999, we expect a growth rate of 1%. A steady
slowing of //industrial// decline was ensured. If it was 14.5% in September
(in comparison with an analogous period from last year), then in October it
11%, in November, 9% (that is less than the “pre-crisis” July decline), and in
December, 6.6%. For 1998 as a whole, the decline [in GDP–trns.] was held at
In January it was curtailed at 4.9; in February, at 3.7, and in March, a
of 1.4% was observed. And this is not a single achievement, but the beginning
of a new trend: according to Goskomstat preliminary data, industrial
in April exceeded last April’s level by 0.5-1%. The government has actually
ensured a //transition to steady industrial growth// //in 1999//.
Macroeconomic data is confirmed by the directors’ opinion. So, according to
the data from a survey of executives of 1240 large-scale and medium industrial
enterprises of all kinds, 87% of executives, including 38% who expect its
growth, do not predict a lowering of production volumes in the next 3-4
A negative balance of //foreign trade// (imports had to exceed exports by not
less than 2 billion dollars) was expected, according to the January-July
results. However, the positive balance in 1998 was 14.4 billion dollars, in
comparison with 14.8 billion in 1997. The positive balance of foreign
January-February was 3.8 billion dollars, in comparison with 0.1 billion
dollars in January-February 1998. In 1999 it is expected to be at the
level of 17.5 billion dollars.
The attraction of //foreign investments// has remained a government
late. In December 1998 they were attracted to Gazprom stock of 2.5% (660
million dollars on the basis of privatization) and AO VimpelCom stock of 25%
(160 million dollars). In 1998, their volume was 11.8 billion, having
by only 4.2%. However, direct investments declined by a third–from 5.4 to 3.4
billion dollars. In 1999, the government would provide for the
preservation of their supply at this level.
The government has planned to ensure the passage of a law by which the total
number of deposits that are developed on the basis of the division of
production will grow from eight to 18 deposits. After securing success upon
consideration of this in the Federal Council, a list of 30 more deposits would
A draft of a law on concessionary treaties, which regulate the procedure for
relinquishment of property to a state concession, is being prepared for a
second reading in the State Duma.
Enactment of a new law on foreign investments provides them with a national
regime and a guarantee in case of nationalization, including a “grandfather
clause” obligation not to worsen the government-defined “rules of the game”
until the investor recoups his investment.
In spite of the declarations by our ill-wishers, which are spreading,
Primakov’s government has obtained considerable success in the area of
financial policy. In particular, the extent of monetization of accounting
sharply. In February 1999, the production quota of the largest taxpayers,
which were paid for with monetary resources, was 48.9%, in comparison with
43.4% in December 1998 and 40.3% in the middle of the second half of 1998.
Thanks to this, In many places the quota of unprofitable businesses was
to 38.3% in January and 38.9% in February 1999 from 46.8% in January and 51.5%
in September 1998.
The restoration of an accounting system side by side with the reinforcement of
the tax administration //filled// the budget and eased the budget crisis. So,
taxable monetary income in August and September, having comprised around 15.5
billion rubles, towards December grew to 24.7 billion rubles (a 1.5 times
growth in revenues from alcohol production played a large role in this). As a
result, despite a protracted reduction in federal budget revenue (from
GDP in May to 10.0% in November), budget revenue for the year as a whole was
11.3% of GDP (in monetary form, 10.2% of GDP).
In January 1999, for the first time reform did not, for the entire time,
a seasonal collapse with tax revenues in the budget: they were kept at a
December level and comprised 24.1 billion rubles, and in February, they were
24.3 billion rubles. The total volume of the federal budget’s monetary
revenues in 1999 is increasing: in January and February, about 26.8 billion
rubles were received (as a result of this the deficit was, for the first time,
reduced to zero), and in March the revenue was increased to an unprecedented
level of 33.8 billion rubles. As a result, budget revenue exceeded 11% of GDP
in the first quarter of 1999.
Thanks to that, they managed to reduce the Central Bank’s support for the
budget to a minimum. So, in December it was only 3 billion rubles; in January
and February it did not exist at all.
The easing of the budget crisis created a satisfactory basis for carrying out
the strictest reform of the //1999 federal// budget in many years. In
the realization of all the reserves, its revenue will rise only two percent
points, in comparison with 1998, from 9.8 to 11.8% of GDP. A maximum
in expenditure will allow them to lower it strictly from 15.1 to 14.4% of
GDP. For the first time, there will be a profit of 2% of GDP.
For example, the government itself has displayed “living within its means.”
The reduction of state institutions’ final consumption accelerated sharply--
from 21.6% of GDP in 1997 and 19.2% in 1998 to 16.0% of GDP in 1999--at the
expense of reducing government, Federation Council, and presidential
The abatement of the budget crisis and the normalization of settlements has
to the fact that the growth of the deficit of federal and regional //wage
budgets// was reduced to nil in November, having reached 12.5% in September.
In December the deficit was reduced by almost10%; by 1.3% in January, when it
usually grows (by the way, the federal budget deficit was completely
by1.9% in February; and by10.6% in March. Wage arrears for December-March
were reduced by 23%, from 22.1 to 17 billion rubles.
The creation of conditions for the rejuvenation of economic activity promoted
the reduction of wage arrears at the expense of business facilities. Having
grown more than 7% in August and to 2.6% in September, it was lowered by 3.6%
in October, by 2.9% in November, by 8.9% in December, by 0.5% in January, by
5.3% in February, and by 9.5% in March. For example, the wage arrears for
October-February were reduced by 25%, from 67.2 to 50.7 billion rubles at the
expense of business facilities.
In spite of the extremely low level (28% lower than that of last year’s in the
first four months of 1999), the //real// income of the //population// for
February-April grew 10.6%.
Losses of work time due to the strikes in February were reduced by a third, in
comparison with October–from 800 to 532 thousand man-hours; in March, it fell
to 82.5 thousand man-hours. With this, the number of strikes, of which there
had been 5.3 thousand in January, was reduced to 972 in February, and to 95 in
March. Their amount of participants fell from, respectively, 134, to 31 and
then to 4.5 thousand people.
In the conditions of extremely unfavorable international situations and an
uninterrupted “international war” on the mass media’s part, the government of
the Russian Federation has not allowed citizens’ rights and freedoms to be
infringed upon or any such limitation of democracy.
A gradual, but deep //rationalization of the government system//, which is one
of the most important factors in the marketability of the economy, has been
This is an extremely delicate question that does not support abrupt steps, but
the government has gotten noticeable achievements. First of all, internal
discipline is strengthened. For the first time during the reforms ministers
have stopped lobbying in the Duma for the interests of their department, which
as a whole contradict the government’s positions. They knew that similar
actions would mean their immediate dismissal.
The government, having unified scattered and nonexistent specialists and the
influence of anti-monopoly regulatory agencies in one anti-monopoly ministry,
created the necessary organizational conditions for conducting a single state
policy with respect to monopolies. The inclusion in this ministry’s structure
of a Committee on Small Business created an opportunity to operatively
fundamental barrier to the development of the business abuse of monopoly.
Having brought under control the sharpest of the August 1998 financial crisis’
strengthening, the government of the Russian Federation has continued to
the socioeconomic sphere under new conditions. Leaning on the President of
Russian Federation’s message to the Federation Council, the government has
worked out a medium-term economic program for 1999-2002, which came from the
necessity of fulfilling the traditional mechanisms of ensuring financial
stability with a deep structural reconstruction of the economy; this would
for undertaking a remonetarization of the national economy and a way out [of
the crisis–trns.] on steady rates of economic growth not lower than 4% by
The increase in the marketability of natural monopolies at the expense of
restructuring and improvement of accounting, the intensification of the
development of the private sector, the simplification of foreign direct
investment regulation and foreign trade, the reinforcement of management and
the reform of the financial sector by the budget, were determined by the
fundamental directions of structural reform.
The rejuvenation of the economy, the easing of the budget crisis, the
restructuring of government domestic debt and a convincing medium-term program
have allowed Russia to achieve agreements with international financial
Actually, it was equivalent to an acknowledgment by the global community of
only a new Russian government, but most importantly, of its path. IMF, World
Bank and US Treasury Department representatives have recognized that their
protracted, skeptical attitude was incorrect and that Russia will move on the
The world community knew that the activity of the Primakov government allowed
Russia to escape socioeconomic catastrophe and bloody political chaos, on the
verge of which it was put in August 1998. Even the Russian government’s
ideological opponents abroad estimated that, carrying out the “politics of
economic consensus,” the government had retained firm political accord and had
quickly led the country on the knife edge between chaos and dictatorship,
restoring economic activity and stabilizing the socioeconomic sphere. The
visible 1999 transformation from square one for socially oriented and
steady economic growth has raised confidence in Russia to a level that has led
to stabilization of the dollar and active growth in the stock market.
All these achievements are now questioned. The fruits of the obedient and
selfless seven months’ long work of not only the government, but also of 146
million Russians, have been wiped out with a stroke of a pen. However,
Primakov’s government has not simply fulfilled its duty, but has also achieved
success in economic reforms, unprecedented in all these years. It is possible
that he will not be forgiven just for this.