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Johnson's Russia List


May 27, 1999    
This Date's Issues: 3307 3308    

Johnson's Russia List
27 May 1999

[Note from David Johnson:
1. AP: Russia Plans To Abandon Mir in Aug.
2. The Russia Journal: New Schools for New Russian Children.
5. Interfax: Yavlinskiy Confident of Winning Presidency.
6. Moscow Times: Andrei Piontkovsky, SEASON OF DISCONTENT: Kremlin Keen 
On Limited Atomic War.

7. AP: Lebed Says Lenin Burial Will Wait.
8. NTV: Commentator Says Cabinet Formed by Yeltsin's Entourage. 
(Vyacheslav Nikonov). 

9. ISAR's Give & Take: Elena Topoleva, Russian Public Warms to Nonprofits.
10. American Chamber of Commerce in Russia AmCham Newsletter: Scott
Blacklin, President's Report. Engagement in the Hotseat.


12. AP: Russia Cabinet Already Splintering.
13. Reuters: When will investors dip their toes back into Russia?
14. The Guardian (UK): Russian deal takes shape.] 


Russia Plans To Abandon Mir in Aug.
May 26, 1999

MOSCOW (AP) -- The latest plan to keep Russia's Mir space station aloft
fell apart Wednesday when officials finally admitted that a British
businessman wasn't going to come up with the necessary funds. 

After the Russian government said it would abandon Mir in August unless
private investors could be found, space officials said Peter Llewellyn had
agreed to pay $100 million for a weeklong ride on the 13-year-old station. 

Llewellyn said he never planned to pay for the Mir ride, claiming instead
that his flight would be a fund-raising effort to help build a children's

He had a spotty business record and once faced swindling charges in the
United States. The accusations were dropped when Llewellyn agreed to pay
$41,000 in restitution to a bilked businessman. 

Despite Llewellyn's remarks and heavy skepticism from the media, space
officials clung to their belief that the 51-year-old British businessman
would bail out the Mir. They even brought him to the cosmonaut training
center at Russia's space headquarters, Space City, for flight training. 

But space officials announced Wednesday that they had finally given up on
their latest plan to fund the Mir. Star City chief Gen. Pyotr Klimuk said
the decision was prompted by Llewellyn's failure to pay for the flight, the
Interfax news agency reported. 

If no money is found, the current crew will be the station's last. After
the crew departs in August, the 120-ton station would fly unstaffed for
about six months until ground controllers lower it into the atmosphere,
where most of it will burn up. The rest is expected to fall harmlessly into
the ocean. 

The government is unlikely to reverse its decision to stop paying for Mir's
operation because of a desperate cash shortage and strong pressure from NASA. 

NASA wants Russia to commit whatever meager resources it has to a new
international space station. 


The Russia Journal
May 24-30, 1999
New Schools for New Russian Children
For the right amount of cash, going to school doesn't have to be like the old 

"New Russians" - a range of society's wealthy, from racketeers to small 
business owners - have become the butt of scores of jokes. Most center on 
what such stereotypical individuals conspicuously own: foreign-made cars, 
cellular phones, lap-top computers, private houses and large apartments in 
the center of Moscow, with bodyguards and requisite foreign bank accounts. 
But raspberry-colored sport jackets and thick gold chains have become a thing 
of the past. Today's "New Russians" prefer a sterner and more elegant style. 
And they take new approaches to the education of their children.

Five or six years ago, "New Russian" referred only to entrepreneurs sitting 
on rapidly growing mountains of money. The label is now applied to anyone 
considered wealthy. It has replaced the phrase "nouveaux riches," and also 
incorporates both the foreign concept of the middle class and the somewhat 
ambigous Russian word "bandit."

The richest of the wealthy--chairmen of banking and finance companies and top 
criminal bosses - prefer to send their children to schools abroad. The 
impetus is a desire to give their children what they believe will be a 
genuinely high-quality education, and as well to ensure that they don't fall 
victim to kidnappers. England, with its famous public schools and traditions, 
is the destination for the majority of "New Russian" children.

Owners of small- and medium-sized businesses and people lower in the criminal 
hierarchy are more democratic in their approach to the education of their 

These people usually send their offspring to local schools, often taking 
special care to put a hundred or so dollars in teacher's hands each month to 
encourage proper treatment of their children.

There have been cases of "bandit" fathers turning up in schools in response 
to teachers' excessive strictness, though ensuing battles usually have 
peaceful outcomes. Few teachers would insist for long that the son of a 
bandit is a lazy, disruptive good-for-nothing.

A large number of "New Russians" choose their children's school based on 
reviews, advertising and recommendations from various acquaintances. 

In addition to the usual state schools with overcrowded classes and old 
teachers slaving away for a measly 400 rubles a month, Moscow also has plenty 
of private schools and so-called "innovative schools." Tuition ranges from 
$200 to $700 a month.

But many "New Russians" find private schools appealing because they are not 
obliged to follow state regulations and have different schedules and offer 
independent curricula. 

Some schools function until five or six every evening, others provide full 
board. And in addition to traditional subjects such as algebra, geometry, 
chemistry and literature, many of these schools also teach additional 
subjects including economics or law and many foreign languages.

Some schools even teach etiquette.

The level of education in such schools is high, but "New Russians" are 
prepared to pay extra cash.

Many parents like to send their children to schools linked to particular 
higher education establishments. Unlike ordinary private schools, acceptance 
to these schools depends on entrance examinations and tuitions include 
additional fees. The best of these schools in Moscow are reputed to be the 
Russian State Humanities University Lycee and two private schools, the 
International Trade Institute's school and the Christian Humanities Lycee. 
Graduates of these schools often go on to study at the country's most 
prestigious universities.

Innovative schools, which encourage non-traditional teaching methods, are 
usually filled with children of artistic and show business types, and of the 
teachers themselves rather than the progeny of "New Russians."

"New Russians" with roots in the intelligentsia - former engineers and 
scientists who have gone on to run minor banks or telecommunications 
companies - also send their children to local schools often specializing in 
science training or intensive study of the English language. 

Such parents often have particular attachments to these local schools because 
they themselves attended them and have fond memories, know alumni that have 
gone on to become useful business contacts, and sometimes even know teachers 
who taught at the schools when they were students.

Some families have been sending their children to the same Moscow schools for 
four generations, even though some of today's kids are driven there in 
daddy's Mercedes.



MOSCOW, May 26 (Itar-Tass) - The Russian part of the Caspian Sea is 
much richer in oil than Azerbaijan's or Kazakhstan's LUKoil 
vice-president Leonid Fedun said at a presentation of his company's 
bonds on Wednesday. 
The Prime-Tass news agency quoted him as saying that the first 
exploratory well in the northern part of the Caspian shelf, which 
belongs to Russia, may reveal tremendous reserves of oil. 
LUKoil geologists believe that this part of the sea contains much more 
oil than the segments controlled by Azerbaijan and Kazakhstan because 
the latter are the so-called reef sediments. 
At the same time, international experience shows that the bulk of oil 
is concentrated in the deltas of rivers. 



MOSCOW, May 26 (Itar-Tass) - There are no signs of "a return to 
totalitarianism" in Russia now, Constitutional Court chairman Marat 
Baglai said. 
Speaking at a scientific conference marking the 50th anniversary of the 
Council of Europe held at the Institute of the State and Law on 
Wednesday, Baglai said Russia has already become a law-governed state. 
"A state where an independent judicial system has been created is a 
law-governed state. And I see there are no signs of a return to 
totalitarianism," he said. 
He stressed that "the democratic system in the country is going through 
a great trial," but "democratic gains have withstood this pressure" -- 
all state institutes function and all disputes are settled in 
accordance with the constitution. 
Baglai told Itar-Tass later that the Constitutional Court "does not 
feel uncomfortable" playing from time to time the role of "a second" in 
disputes between branches of government. 
He confirmed that on June 3 the Constitutional Court will consider the 
State Duma's inquiry concerning the procedure for transferring the 
powers of president in case of their early termination. 
Baglai believes that the Russian Constitution works efficiently and 
this is not the best time for reforming it. 
"We don't need this now," he said, responding to calls from the State 
Duma and the Federation Council for turning Russian from a presidential 
into a parliamentary republic. 
He stressed that there can be no such thing as a government of 
parliamentary majority in Russia. "This is impossible in our country," 
he said. 


Yavlinskiy Confident of Winning Presidency 

Russia, May 25 (Interfax-Eurasia) - Leader of 
Russia's liberal Yabloko party Grigory Yavlinsky said on Tuesday that he 
expected to win next year's presidential election. If he comes third and 
not first at the election, he will form the government, Yavlinsky said at 
a news conference in Nizhny Novgorod. Talking about the next 
parliamentary elections in December this year, he said he was sure there 
will be at least 100 Yabloko members in the next lower house and they 
will be able to exert proper influence on the Russian economy. Yabloko is 
ready to invite for cooperation any sensible parties and movements, 
except the Communists, fascists and other such organizations, Yavlinsky 
said. He ruled out any cooperation with the Right Cause group, led by 
Boris Nemtsov, Boris Fyodorov and Yegor Gaidar - key figures in former 
reformist governments. Yavlinsky said that Right Cause is a team for the 
construction of Potemkin villages. Commenting on news that Mikhail 
Zadornov, finance minister in the government of previous prime minister 
Yevgeny Primakov, has been nominated for first deputy prime minister 
[initial Interfax version read: "the finance portfolio"] in the new 
government of Prime Minister Sergei Stepashin, the Yabloko leader said, 
"If all the changes that take place in the Cabinet in the future will be 
like this, let there be such a government." The main task of the Russian 
leaders today is to avoid doing nothing, he said. He "didn't notice that 
Zadornov did anything of importance for the Russian economy when he was 
finance minister." Yavlinsky said the main goals facing all branches of 
government are lower taxes, more effective customs, an end to corruption 
and tighter control over the spending of state money by local 
administrations. Yavlinsky arrived in Nizhny Novgorod to attend the Great 
Rivers '99 conference, but he did not deny that his visit was part of the 
election campaign. "Closer to the elections I will be touring a lot of 
Russian regions in order to form a mass Yabloko movement that will be 
able to win," he said.


Moscow Times
May 27, 1999 
SEASON OF DISCONTENT: Kremlin Keen On Limited Atomic War 
By Andrei Piontkovsky 

Since the time that the Soviet Union and the United States established 
nuclear parity, and mutual suicide became the only possible result of nuclear 
war, enthusiasts of the use of nuclear weapons - Dr. Strangeloves on both 
sides of the ocean - have been looking for a way out of this dead end. 

In the United States, these intellectual quests found their expression in 
President Richard Nixon's May 3, 1975, message to the U.S. Congress, "United 
States Foreign Policy for the 1970s." He wrote: "The president should not be 
put in a situation in which his only possible response is an all-out nuclear 
strike on the cities of the enemy. The president must have a wide choice of 
alternative responses to various possible hostile acts. If the United States 
has the means to use its strategic forces in a limited, controlled way, then 
the probability of a nuclear response will be more reliable." 

Now, exactly 26 years later, the Russian Security Council has (if my usually 
well-informed colleague Pavel Felgenhauer is to be believed) added to its 
arsenal the concept of Dr. Viktor Mikhailov, deputy head of Russia's Nuclear 
Power Ministry. "Today the consequences of the use of nuclear weapons are 
viewed as so horrific that no one will dare use them. As a result, a real 
nuclear war has become, in essence, impossible. Nuclear pressure will again 
become an effective political instrument if the threat of nuclear strikes is 
made more real. For that, it is necessary to have the possibility to inflict 
'pinpoint,' low-yield nuclear strikes on military targets located anywhere on 
the globe. In so doing, it is assumed (!) that such 'pinpoint' strikes will 
not bring about an immediate global nuclear war." 

The textual concurrence between the Nixon-73 and the Mikhailov-99 doctrines 
is striking. The single original element in the Russian doctrine is the 
introduction of the concept of a "pinpoint nuclear strike." The apparent 
inspiration for the concept was the experience with the Russian airforce's 
pinpoint non-nuclear bombardments of Grozny, and NATO's air bombardment of 

This is not the first time that Mikhailov has foisted on the country's 
leadership his concept of a limited nuclear war, which is adventuristic from 
the viewpoint of Russia's national interests, but highly promising for his 
powerful agency from the viewpoint of redistributing the defense budget's 
limited funds. Mikhailov, apparently, managed to use the war in the Balkans 
to convince the leadership that his concept is a panacea to all security 
threats and also a way to rid itself of worries about conventional forces and 

But the lessons of the Balkans war say something completely different. Above 
all, they show the limited ability of NATO to put any kind of significant 
ground force into action, even under the threat of a humiliating political 
defeat. This circumstance practically rules out the only rational nuclear 
scenario that could be seriously discussed - the use of tactical nuclear 
weapons on the battlefield against a superior contingent of ground troops 
invading our territory. 

Russia has no basis for lapsing into nuclear hysteria. As long, of course, as 
we do not want to launch "low-yield nuclear warheads against any point on the 
globe" in the interests of the next dictator we happen to fall in love with. 


Lebed Says Lenin Burial Will Wait
May 26, 1999

MOSCOW (AP) -- It will be at least 10 more years before Russia can think 
about burying Lenin and closing his Red Square tomb, a leading politician 
said Wednesday. 

Alexander Lebed, governor of the Krasnoyarsk region and a prominent 
presidential aspirant, said the often-debated question of what to do with 
Lenin's body was still too divisive to be solved. 

``Today, the idea can produce nothing more than another big squabble,'' Lebed 
said, according to the ITAR-Tass news agency. 

He opposed plans to dismantle the tomb on Red Square, where the founder of 
the Soviet Union is preserved and still viewed by thousands of people every 

Some political and religious leaders have called for closing the tomb and 
burying Lenin, but the Communists and many elderly Russians strongly oppose 
that. Several attempts to resolve the issue in recent years have failed. 

Lebed said the question won't be solved until Russia finally gets over its 
communist past. 

``This is Russian history and there is no way for us to get away from it,'' 
he was quoted as saying. 


Commentator Says Cabinet Formed by Yeltsin's Entourage 

May 25, 1999
[translation for personal use only]

Presenter Andrey Norkin] I want to continue 
discussing this issue [composition of the government] with president of 
the Politika foundation, Vyacheslav Nikonov, who is in our studio now. 
[passage omitted: greetings] 
[Q] You have heard my recent conversation with our correspondent in 
Sochi, so you are aware of what is going on there, but it is unclear what 
is actually going on. [passage omitted: known facts] 
[A] Tough bargaining on structure and personnel composition of the new 
government - that is what is going on in Sochi. I would not envy [Prime 
Minister] Sergey Stepashin now. His predesessor, Yevgeniy Primakov, had 
carte blanche on forming the cabinet and determining its structure, but 
Stepashin's hands and legs are tied. He has been at the post of a prime 
minister for a week, but he did not manage to make a single appointment 
on his own will. He is under strict control by presidential family, 
presidential administration and even his own first deputy [Nikolay 
Aksenenko], as we have recently learned. The latter found it necessary to 
be present at the conversation between Stepashin and [President Boris] 
I think that Stepashin delayed his departure for Moscow because he 
still hopes to meet the president alone and to insist on some personnel 
[Q] You have said that Primakov had carte blanche on forming the cabinet 
and Stepashin is in a different, much less favourable situation. Why is 
it so? [passage omitted: known facts about Stepashin's confirmation by 
the State Duma] 
[A] Primakov became prime minister in a time of sharp political crisis. 
His appearance in the White House [Russian government building] was 
accepted by everybody as a deliverance from political outburst. Under 
such conditions Primakov, who obviously was a political heavy-weighter, 
could put his own terms to which Yeltsin could not but agree. Now the 
situation has changed. Political initiative is in the hands of the 
Kremlin, in the hands of the president's close entourage. They certainly 
will build all power structures, including the cabinet, so that to 
consolidate to maximum their control of law-enforcement agencies, 
financial flows and natural monopolies on the eve of elections. 
That is why Stepashin is in fact a formal prime minister. 
[Q] At the end of last week Sergey Stepashin urged the journalists 
several times and in rather sharp manner to stop, as he said, gossiping 
about the reasons for some people being appointed to the cabinet. Was he 
sincere, or did he try just to demonstrate unity between the kremlin and 
the White House? 
[A] I think it was Stepashin's sincere position, he really does not want 
a rift to emerge between him and the Kremlin now, though such rift 
certainly exists. He doesa not want to quarrel with presidential 
administration, but it is absolutely clear that he has no decisive vote 
on composition of the cabinet. 
[Q] Your article "Disappearing Democracy" was published in today's 
'Izvestia'. The article seemed to me rather tough. You have written that, 
I quote, "the Kremlin team is thinking in terms which are absolutely 
counterproductive from the point of view of the interests of social 
stability, but really important from the point of view of perpetuation of 
unlimited power of the family. Yeltsin's family circle and democracy are 
not the same thing." Will further development of the political situation 
in Russia bring positive changes? 
[A] I certainly hope it will. But in the present situation the Kremlin 
is acting without taking public interests and public opinion into 
account. In a democratic country the president would not sack the 
government supported by 80 per cent of the people. In a democratic 
country [the president's] family circle would not control cabinet 
appointments. I also think that hopes of those who expected more liberal 
economic policy from the new cabinet will be futile. It is obvious for me 
that current appointments are made not in line with the principle of 
professionalism, but in line with the principle of personal loyalty. 
All this incites sad thoughts, but at the same time I hope that 
Stepashin is experienced enough to become one of the centres of power and 
to be comparatively independent in forming the government and outlining 
its policy. 


Give & Take
Spring 1999

Russian Public Warms to Nonprofits
by Elena Topoleva
Elena Topoleva is the director of ASI. Translated by Rachel Griffiths. 
Ageny for Social Information: SIZE=+1>ul. Chayanova 15, bld.5, 5th floor,
125267 Moscow, Russia; ph: 7-095-250-6160; fax: 7-095-250-6156;
<>; <> 

"Third Sector," "nongovermental organization," "nonprofit"only three years
ago these words sounded foreign to Russian ears and were only used by a
narrow circle of professional nonprofit leaders. In Russia today, Duma
deputies include references to the Third Sector in their speeches, radio
and television stations air programs featuring nonprofit organizations and
newspapers carry discussions on nonprofit taxation. The emergence of the
nonprofit sector has affected not only the Russian language, but is
increasingly influencing and drawing the attention of government officials
and the mass media. 

A few years ago, nonprofits and the government were only beginning to
understand each other. Today, meetings between NGO activists and government
representatives have led to the adoption of some crucial NGO legislation
and created friendships between nonprofit leaders and formerly hostile
officials. However, this is just the beginning of a difficult journey and
there are still many obstacles to overcome. For two years now, NGOs have
fought for the adoption of a Law on Social Order, which would allow
nonprofit organizations to compete for government funding to implement
federal, regional and municipal programs. So far, this law has only been
adopted in a few regions. On the federal level, the passage of the law has
been blocked by the hostility of high-ranking officials, including the
Minister of Labor and Social Development, Sergei Kalashnikov. 

Minister Kalashnikov distrusts nonprofits, as he has announced many times
from different podiums and from the television screen. To support his
argument, he references several scandals connected with Russian nonprofit
organizations, such as the money laundering of the National Sports Fund.
These scandals attract a lot of media attention, and worse, taint the
reputation of the thousands of honest groups that work in the public
interest. But what about the Russian people? What attitudes do they have
towards non-profits? Russians know about the nonprofit scandals from the
press and from politicians, but this alone does not determine their
relationship with the Third Sector. In fact, it is difficult to talk about
a general public opinion towards NGOs because the Russian Third Sector has
such weak ties with the public. 

According to public opinion polls commissioned by USAID and conducted in
1998 by the All-Russian Center for the Study of Public Opinion (VTsIOM),
only four percent of the Russian population has ever participated in
nonprofit work. One reason for this is that the rapidly growing Third
Sector has not concentrated on involving the public in resolving important
social issues. Russian nonprofits rarely attract volunteers, do little to
solicit private donations and almost never attempt to involve the public in
the decision-making process. However, the same VTsIOM survey showed that 12
to 13 percent of citizens had used some sort of NGO service. Taking into
account that the Third Sector in Russia has only existed for ten years,
these numbers are heartening. Nevertheless, in order for the Third Sector
to expedite the formation of a strong Russian civil society, it is
essential that NGOs begin to actively work with the public and that
citizens begin to assist nonprofits by volunteering time and money, and by
offering moral support. 

Nonprofits and the Media 

Although in general Russian citizens are poorly informed about the work of
the nonprofit sector, certain positive trends are emerging. According to
the results of research conducted from 1995-97 by the Education Development
Center (EDC) in Omsk, Krasnodar and Stavropol, knowledge of NGOs is slowly
growing. In 1995, only 26 percent of those polled could name one NGO, while
in 1997, that figure had grown to 32 percent. EDC's research showed that
the main source of information about the NGO work is the Russian mass media. 

If one were to flip through newspaper files or review television and radio
programming from five years ago, it would be difficult to find reports on
charitable activity. What coverage there was tended to be negative and
concentrated on the scandals of "thieving" foundations. Unfortunately,
Russians historically take the press at its word despite the obvious
prejudices of many media outlets. Today, a different picture is emerging.
Hardly a day passes without some mention in the press of human rights
organizations, NGO-supported children's clubs or consumer rights
organizations. Russian NGOs now even have their own media fans-journalists
at major publishing houses and radio shows who specialize in the Third
Sector. Anna Politkovskaya, a famous Russian journalist working at Obshaya
Gazeta, has become a real friend of the movement, and her talented pen has
done more for the Third Sector than all the Duma debates or meetings with
cabinet officials. In addition, the Russian Third Sector now has its own
information outlet, the Agency for Social Information (ASI). 

The Agency for Social Information 

ASI developed out of the first Russian independent news agency, Postfactum.
In 1994, a few of Postfactum's journalists and editors came into contact
with several NGOs. Convinced that the future of Russia lies with nonprofit
leaders and their organizations, the staff of Postfactum decided to create
ASI in order to better inform the Russian public about the nonprofit
sector. ASI believes that the press is the straightest path to the hearts
and minds of the Russian public, and works as a bridge between nonprofits
and the journalists. 

For the past five years, ASI has published a weekly bulletin that is
distributed to over 60 Russian media outlets. The bulletin first consisted
of only six pages covering Moscow-based organizations, but now includes
over 50 pages of information from ASI partners throughout Russia. In order
to interest journalists in the Third Sector, ASI also puts out other
publications and organizes round tables and press conferences to introduce
NGOs to the media. ASI leaders hope that good press coverage of NGOs will
help to form a positive relationship between Russians and the nonprofit
sector, without which there can be no true civil society. 

Ageny for Social Information: SIZE=+1>ul. Chayanova 15, bld.5, 5th floor,
125267 Moscow, Russia; ph: 7-095-250-6160; fax: 7-095-250-6156;
<>; <> 


American Chamber of Commerce in Russia
AmCham Newsletter 
May - June 1999
President's Report 
Engagement in the Hotseat
Scott Blacklin, President 

Russian developments continue to keep us humble about what we can achieve
here. The effects of the crisis have diminished our ranks, and even the
notion of engagement has come under fire from many quarters. 

All of us have friends who have gone back to the U.S., and have begun to
reintegrate themselves into the predictable rhythms of American life. Like
many, I am always curious about each reaction to re-entering the American
environment. Like many, we have been assured by our friends that, "Yes
it’s wonderful to be back home. But you know what? Working in Russia is
just so exciting and life in the States just does not deliver the same

However, it is not too risky a proposition now to say that the business
community has enjoyed a surplus of punch. Russia was plenty interesting
and challenging before August 17. We still haven’t solved the crisis, and
many of our businesses are struggling for their very existence. To top it
all off, some are calling into question the entire Russian-American
relationship in light of the ongoing problems in the Balkans. The last
thing the business community here needs is yet another impediment,
especially one which broadly attacks the very notion that our presence here
is a positive ingredient. 

How can we confront this stunning array of issues and still move forward? 
* Remember the mission. We are here to improve the environment for
business. Yes, we are also here to make money. But that mundane objective
does not contradict the unassailable goal of moving Russia into a situation
where growth can be generated in a reasonably stable and predictable
* Confront the adversary. It is isolationism, and it is advocated by
small but vociferous groups both in Russia and America. Both groups must
be challenged. 

Being here in Russia, it is beyond the scope of this article to digress
much on the dark forces of American isolationism. An internationalist
America, with its high ideals and child-like enthusiasms can be an
irritating and sometimes goofy spectacle. It has led us into great
blunders. But even the cumulative weight of our mistakes over the years
pales in comparison to the dangers posed by an America devoid of any vision
other than the pursuit of narrow self-interest. Stripped of higher
motivations and understandings, American power would become a truly
destabilizing force against the positive trend toward global integration
and coordination. 

On the Russian side, we must be careful how we identify the Russian
variant. Many Russians, disturbed by American actions, are nevertheless
committed to productive relationships with us. These voices must be
listened to and respected, even if agreement on a given set of issues
proves elusive. The challenge comes from those quarters where sensible
plans for economic growth have never originated. 

Clueless on the economic front, these groups focus on cruder and narrower
definitions of power. Integration and cooperation with the advanced
pluralistic world run counter to their hidden agenda, which is to render
Russia isolated (and thus impoverished). This is this most fertile ground
for angry and irrational political action. As businesspeople, we need not
engage any group in a political dialogue. We must stick to business and
economic questions. What groups on the federal level, and which regions in
Russia are moving toward the theory and practice of accountability,
transparency and the rule of law – key components for any region or entity
which is seeking capital. The future flows of foreign investment and
operations, or lack thereof, will render a statement much more persuasive
than any political harangue. 

* Re-engage the Russian side of the partnership. We must always keep in
mind that those Russians committed to continued engagement are also under
considerable challenge, and that their involvement is essential for
success. This is still a country where personal relationships are
paramount. Particularly in difficult times, people tend to measure the
strength of their relationships. Now is the time to put on our
go-to-meetin’ clothes and pay visits, to our employees, our partners, and
officials on the federal and local levels. On the positive side, the
Russian federal government has taken steps to reassure the foreign business
community that we are welcome, and of its commitment to a full
transformation to a market economy. This runs in parallel with other
government efforts on the international political front to find solutions. 

* Understand the limitations of Russian organizations. The Russian
landscape has all sorts of entities strewn about. A few are fully
transformed, many are in a state of transition, and many others are
unchanged since Soviet times. We must never forget how radically different
the internal operating environment is for most Russian entities.
Techniques like brainstorming, information sharing, horizontal
coordination, and a teamwork ethic are still lacking in most entities.
This directly influences their effectiveness to address their goals. There
are some Russian organizations which have made significant transitions in
operational methodology, but they are still so few as to remain newsworthy.
Russian organizations are overburdened and harried, particularly public
entities. Everyone has to hunt for cash. Under such circumstances, it
requires almost superhuman qualities to stay focused on business processes. 

Keeping this in mind is vital to managing expectations, and expectation
management is key to a healthy relationship. I have sat in countless
well-intentioned meetings where it is clear that both sides are talking
past one another. Many times the failure of a Russian organization to
address our complex proposals can be attributed to a methodological
inability to absorb both the prerequisites and the consequences contained
in our proposals. Throw in the lack of resources and it is not hard to see
that part of our job is to think through how we can make it easier for
these Russian entities to "get to yes". 

This is a time for us keep our heads on, but not down. There are still
abundant opportunities to reinvigorate the situation. Retooling the
relationship is not unlike the exercise of reform here. It literally
occurs one person at a time. 



MOSCOW, May 26 (Itar-Tass) - Patriarch Alexy II of Moscow and All 
Russia said the "church ambo must not turned into a political podium. 
The Church was and remains outside political fighting." 
The patriarch told major media leaders in his residence on Wednesday 
that none of the clergymen will run for elected positions in 
legislative bodies of power. 
A Holy Synod decision of 1993 which recommended the clergy to refrain 
from participation in election campaigns remains in force, he added. 
The patriarch called for a cautious approach towards the interviews 
with some clerics who allegedly speak on behalf of the Church. He 
stressed that only the patriarch and the Holy Synod can do that. 
At the same time, he did not rule out that clergymen may have their own 
political sympathies. "As citizens, the clergy will cast their votes 
for certain candidates. But we are against their expressing personal 
views or turning a church into a place of propaganda, which it not 
welcomed by the Church," the patriarch explained. 
He believes that people "should make their own choice and judge the 
candidates not by their promises but by their deeds." 
He also pointed out that the interests of the Church in elected bodies 
of power will be represented by an increasingly growing number of 
secular people. 
The patriarch confirmed that "the Church is open to dialogue and 
cooperation with all political movements if their aspirations serve the 
well-being of all people." 


Russia Cabinet Already Splintering
May 26, 1999

MOSCOW (AP) -- Russia's new Cabinet has barely been formed, and already the 
latest prime minister is struggling to retain control of a government 
splintered by infighting, Russian media said today.

Newspapers buzzed with speculation about internal struggles after President 
Boris Yeltsin baffled many observers Tuesday by rejecting Prime Minister 
Sergei Stepashin's nominee for a key Cabinet appointment.

Yeltsin turned down Alexander Zhukov, a moderate lawmaker and Stepashin's 
protege, for first deputy prime minister. He picked Mikhail Zadornov, the 
former finance minister, instead.

Stepashin ``received a blow to the solar plexus,'' said the daily Moskovsky 
Komsomolets. ``When the prime minister is unable to appoint his deputies, 
that says a lot.''

Yeltsin had been widely expected to back Stepashin, who was confirmed as 
prime minister by parliament last week. The vote came after Yeltsin fired the 
previous government and defeated an attempt by the lower chamber of 
parliament to impeach him.

Yeltsin has final say over Cabinet appointments, and he has always relished 
reshuffling his government, sowing rivalries among top officials to prevent 
them from gaining too much clout.

``The premier had to fight to prove his status as No. 2 in Russia,'' the 
business daily Kommersant commented.

Stepashin apparently wanted Zhukov to balance the sweeping authority of 
Nikolai Aksyonenko, the assertive former railway minister who was earlier 
given the other first deputy prime minister slot.

While snubbing Stepashin, Yeltsin also moved to limit Aksyonenko's ambitions 
by giving Zadornov an equal Cabinet rank.

Stepashin tried to put a good spin on the outcome, denying speculation of a 
widening rift between him and Aksyonenko. He dismissed the idea that 
appointments had been forced on him.

In describing the battle for power in the new Cabinet, some commentators said 
that years of rivalry and intrigue have eroded the government and exacerbated 
Russia's economic turmoil.

Stepashin's Cabinet is the country's fourth in just 14 months. ``Boris 
Yeltsin must understand that the government isn't a toy,'' Moskovsky 
Komsomolets said. ``Boris Nikolayevich must remember the fate of his 

``Czar Nicholas II had four prime ministers in one year only to find out that 
it was his turn to be a victim,'' the paper said, referring to Russia's last 
czar, who was toppled by the Bolsheviks in 1917 and executed a year later.

Yeltsin, who has been at a holiday retreat in Sochi on the Black Sea, 
interrupted his vacation and flew back to Moscow today ahead of a meeting 
Friday with South Korean President Kim Dae-jung, the ITAR-Tass news agency 

The Russian leader, whose health has deteriorated in recent years, surprised 
observers when he suddenly left last Friday for what aides said would be a 
two-week vacation.


When will investors dip their toes back into Russia?
By Elizabeth Fullerton

LONDON, May 27 (Reuters) - Investors who fled Russia in droves after it 
defaulted on its debt last August could be back within two years if the 
country gets its economic house in order, say economists. 

Investors could return in force once presidential elections due next year are 
out of the way and if Russia shows willingness to pursue stipulated IMF 
reforms, according to economists canvassed by Reuters. 

``The big flows will only come after the election. The major concerns of 
investors are political, not economic,'' said Goohoon Kwon, senior economist 
at ABN AMRO in London. 

In a straw poll five economists saw investors back in Russia within two years 
while three said it would take five years or longer. 

Green shoots of recovery have started to poke through in the cash-strapped 
country, making talk of investors tiptoeing back in seem less farfetched, 
economists said. 

``We are seeing some recovery in fundamentals,'' said Jerome Booth, head of 
research at Ashmore Investment Management. 

``Growth is positive, tax revenues are up, the oil price (rise) has meant the 
trade balance has turned around dramatically and there isn't really the 
mechanism for the scale of capital flight there was before.'' 

Booth sees growth of roughly one percent this year. On average, the 
economists forecast Russia's economy would shrink 3.0 percent this year but 
then grow 0.5 percent in 2000. 


However, it's likely to be a big uphill battle for Russia. 

``The reality is there is no consensus in Russia about where the country 
should be moving, what reform means or how to get there and the institutions 
of government are weak,'' said Charles Blitzer, chief emerging market 
economist at Donaldson, Lufkin & Jenrette. 

``I don't expect anything really fundamental to happen in Russia for another 
five years or more and I suspect foreign investor interest will be very 
limited until then,'' he added. 

There are a raft of conditions that must be fulfilled in order to win back 
investor confidence. 

As part of a $4.5 billion rescue deal, the International Monetary Fund wants 
new laws on tax collection, privatisation of the banking industry and 
sweeping structural reform, plus an explanation of what happened to previous 
IMF loan disbursements. 

IMF loans have been halted several times before because Russia has failed to 
collect enough money to meet budget plans. 

``If they can actually get the IMF to disburse I think that will be a huge 
boost to confidence,'' said Ashmore's Booth. 

Economists also said investor protection was a prerequisite to any major 
resumption of capital inflows. Investors had their fingers badly burnt when 
Russia defaulted on its domestic debt and bitterly attacked Russia's legal 
processes for compensation. 

``Investors must be able to pursue claims meaningfully in the courts,'' said 
Kasper Bartholdy, chief emerging Europe economist at Credit Suisse First 

But overall strong leadership, clear domestic policies and progress on 
reforms were the most commonly cited requirements. 

``Once the underlying conditions which contribute to capital flight are seen 
by investors to be increasingly under control, that will be the major signal 
to consider returning in force to Russia,'' said Stuart Brown, fixed income 
strategist at Paribas. 


Two weeks ago President Boris Yeltsin shocked Russian debt markets by sacking 
prime minister Yevgeny Primakov and replacing him with his protege Sergei 
Stepashin. But most economists saw the move as neutral for Russia's economy. 

They said Stepashin's comments on pursuing reforms and tackling corruption 
were encouraging. 

``They'd reached a point where they effectively had a lame duck government as 
well as presidency up to the elections. Yeltsin's preemptive strike paid 
off,'' said Booth. ``I'd expect to see new life in terms of an economic 
reform programme.'' 

On Tuesday Yeltsin named the new cabinet -- consisting mainly of old 
liberal-leaning players in new seats, with former finance minister Mikhail 
Zadornov appointed economic supremo. 


A key issue that will determine investors' readiness to return to Russia will 
be its ability to pay its debts. 

Russia owes billions of dollars of debts inherited from the Soviet era which 
it views as subordinate to post-Soviet debt such as Eurobonds and IMF loans. 

A default on Soviet-era debt is almost unavoidable. 

However, economists thought it was unlikely Russia would default on its top 
ranking Eurobond debt, at least this year, giving the chance of this at just 
10 percent on average, increasing thereafter on the basis of greater 

``They have enough to pay interest on Eurobonds without any principal coming 
due in 1999-2000,'' said Peter Botoucharov, head of East European research at 
Bank Boston. 

He estimated interest payments would amount to some three percent of export 
revenues, which he projected around $70 billion. ``The real question comes in 
2001 when the first Eurobond comes due, then there may be doubts,'' he added. 

Russia owes some $17.5 billion on foreign debt this year against less than 
$20 billion in projected federal revenues. 


Spreads -- the premium over U.S. Treasuries -- on Russian Eurobonds still 
imply a high degree of default risk. These are currently trading at a 2,359 
basis points premium to U.S. Treasuries, compared with 834 points for 
recovering Brazil. 

But Ashmore's Booth said spreads should narrow as demand picked up and noted 
that longer dated Eurobonds had risen 50 percent over the past two months. 
Others highlighted the cheap value of asset prices. 

Few people expect to see a surge in investor interest on a pre-crisis scale, 
which many said was unusually strong. 

``Capital inflows in 1997-98 approached 10 percent of gross domestic product. 
There's no way that's going to happen in a minimum of five years, if ever,'' 
said Arnab Das, strategist for emerging Europe, Africa and the Middle East at 
JP Morgan. 

However, the potential upside in Russia was enormous, he said, provided the 
government got its act together. 

``If there are signals the government is starting to move in the right 
direction, then investors would be ill advised, if not irrational, not to 
respond by dipping their toes back in.'' 


The Guardian (UK)
May 27, 1999
[for personal use only]
Russian deal takes shape 
Moscow talks bring key concessions on both sides 
Martin Walker in Brussels and Tom Whitehouse in Moscow

The Russian envoy Viktor Chernomyrdin will today take the outlines of a 
diplomatic settlement to President Slobodan Milosevic in Belgrade, based on a 
key US concession that some Yugoslav troops may be allowed to remain in 
Kosovo alongside the international peacekeeping force. 

Belgrade also dropped its objection to the presence of Nato peacekeepers, 
telling Mr Chernomyrdin it would accept troops from Nato countries such as 
Greece and Portugal which had not taken part in the air campaign. 

According to US sources, Mr Chernomyrdin has accepted Nato troops will play a 
"central role" in any peacekeeping force, since they field the only units 
ready to move in. 

Key Nato leaders are also moving closer to the Russian position, with the 
Dutch prime minister, Wim Kok, yesterday saying he could accept a pause in 
the bombing if the diplomatic conditions were right. 

The agreement represents the greatest diplomatic advance since the bombing 
began. To buttress it, the European representative at the Moscow talks, the 
Finnish president Martti Ahtisaari, is expected to join Mr Chernomyrdin in 
Belgrade tomorrow. 

Mr Ahtisaari will bring the latest European Union offer, unveiled by the 
commission in Brussels yesterday, for a democratic postwar Yugoslavia to join 
a new stabilisation and association agreement with the EU, entailing trade 
preferences and financial aid. 

But wide differences remain between Nato and Russia over the composition of 
the peacekeeping force, the timing of its insertion and whether they should 
be peacekeepers or peace enforcers. 

Mr Chernomyrdin warned that the recent escalation of Nato bombing could 
scupper a settlement. But hopes were rising in Belgrade, where the former 
vice-president Vuk Draskovic said: "It will all be over, including the 
bombing, within a week." 

In Moscow yesterday the US deputy secretary of state, Strobe Talbott, 
signalled the US readiness to accept a Serbian presence in Kosovo. 

"Once there have been complete withdrawals the international community might 
consider permitting the return of some official Yugoslav personnel to perform 
very carefully and supervised functions within Kosovo," he said. 

According to US sources, this could be a token presence guarding Orthodox 
monasteries and historic shrines that might save Serbian face. 

Nato's spokesman, Jamie Shea, yesterday stressed that the alliance stuck by 
its five conditions. 

But Nato subtly changed its formula for a peacekeeping force. Having 
initially insisted on a Nato-led force, Mr Shea talked yesterday of "a Kosovo 
peacekeeping force in which this alliance will have a central role". 

Nato has launched its biggest air raid of the campaign in the past 24 hours, 
with a record 650 sorties. Yugoslav army facilities were targeted in southern 
Serbia, scene of anti-war demonstrations, apparently to hearten the 



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