May 28, 1999    
This Date's Issues: 3309 • 3310   • 

Johnson's Russia List
#3310
28 May 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Russia's finance minister still a mystery man.
2. AFP: Novgorod factory director turns to barter for survival.
3. AFP: Skuratov Barred From Leaving Russia.
4. Novye Izvestia: A Test of the Constitution. THE SPECIAL SERVICES WANT 
TO BRING RUSSIAN INTERNET USERS UNDER THEIR CONTROL.
5. Segodnya: Military Machine for Progress. STEPASHIN INTENDS TO BOOST THE 
ECONOMY WITH THE HELP OF A RENOVATED DEFENSE INDUSTRY.
6. RFE/RL NEWSLINE: A NEW OLIGARCH EMERGES? (Roman Abramovich) and
CENSUS-TAKERS ASK FOR EXTENSION.
7. Dmitry Mikheyev: On Hough's MENATEP.
8. Russian Regional Report: WHO ARE THE DONOR REGIONS? and DUMA TO 
INVESTIGATE GOVERNORS.
9. The Times (UK): Moscow gang held over baby trade with US. Russian women 
asked to sign away babies for adoption in America, reports Anna Blundy.
10. The Globe and Mail (Canada): Geoffrey York, The resurrection of a 
modern-day 'Rasputin.' Billionaire Boris Berezovsky somehow manages to 
escape disgrace and imprisonment.
11. Business Week: Carol Matlack, Russia's Boom in Bogus Bankruptcies.
With the courts' help, phony creditors are draining businesses.
12. Komsomolskaya Pravda: Sergey Chugayev, Yeltsin Furnishes Cabinet. 
Every Little Guy Will Have a Bookkeeper.
13. Radiostantsiya Ekho Moskva: Interview With Deputy Premier Aksenenko.
14. AFP: Foreigners invest in Novgorod despite economic crisis.]

*******

#1
Russia's finance minister still a mystery man

MOSCOW, May 28 (Reuters) - The identity of Russia's new finance minister
remained a mystery on Friday. 

President Boris Yeltsin has signed a decree that the job has gone to top
debt negotiator Mikhail Kasyanov although Russian media have reported that
First Deputy Prime Minister Mikhail Zadornov wanted to keep the post, which
he occupied since 1997. 

A ministry spokeswoman said she had not been told who would head the
ministry in the new government: "Not yet." 

The question has been in the air for most of this week, rumours are rife
and the men to decide the issue were not planning to meet on Friday, a
government spokesman said. 

Prime Minister Sergei Stepashin's schedule did not include a meeting with
Zadornov and Nikolai Aksyonenko, the other first deputy prime minister with
whom Zadornov is reportedly in a tussle for control over economic policy. 

"First of all, working with the first deputies is his job. But secondly, on
the schedule there is no such special meeting," the government spokesman
said. 

To emphasise that the state of affairs was flexible and the men could meet,
he confusingly added: "There is no schedule." 

Zadornov on Thursday refused to say if he had kept the finance minister's
job, but said he, Aksyonenko and Stepashin would soon sit down and work out
responsibilities, which could include designating a finance minister. 

Yeltsin named Kasyanov as the minister on Tuesday, before and after reports
Zadornov would keep the job. 

Stepashin, opening a Thursday cabinet meeting, referred to Zadornov and
Kasyanov but did not say who was minister. 

*******

#2
Novgorod factory director turns to barter for survival

NOVGOROD, Russia, May 28 (AFP) - Yevgeny Shulman, director of the Splav
factory which specializes in equipping nuclear power stations, has also
become a king of barter to ensure his firm's survival.

Due to a lack of hard cash, today about half of Russia's trade is done by
bartering goods and services.

"In 1998, we sold 90 percent of our production thanks to barter. Only 10
percent was paid by financial transfers. Bartering is our lifeline," said
Shulman, one of the more dynamic industrialists in the Novgorod region
located about 530 kilometers (330 miles) northwest of Moscow.

Nearly 65 percent of the production at this factory, which employs 1,500
people, is destined for the nuclear sector. But Splav's main clients,
Russian and Ukrainian atomic power stations, have not been able to pay in
rubles for four to five years.

Between 40 to 50 percent of trade in Russia is conducted without financial
transactions, with businesses instead trading merchandise or services
between themselves, according to official figures.

Shulman estimated that bartering makes up 60 to 70 percent of the trade in
Russia and the Commonwealth of Independent States, a loose grouping of
former Soviet republics minus the Baltics.

"Recently, we delivered some materials to a nuclear power station, which in
exchange supplied electricity to the railways, who in turn transported
wagon loads of metal to an automobile manufacturer, who gave us some cars.

"We sold the cars to pay for the materials supplied to the power station,"
the director explained.

Such a scenario is relatively simple. But these days, to sell his
production to nuclear power stations or petrochemical factories, Shulman
can be forced to negotiate a complex web of deals involving up to 20 firms.

Even Gazprom, the world's biggest natural gas producer and one of Russia's
largest enterprises, does not have the cash to pay for its orders from
Splav. Pipes and valves are traded in exchange for vouchers for thousands
of cubic meters of gas.

Splav has only to contact enterprises which owe Gazprom money, take a
proportion of their production -- glass, bricks, iron bars or vehicles --
in exchange for the Gazprom vouchers, then find a market for those goods.

"I dream of a return to normal with trade based on financial exchanges. But
I am convinced that we will work in this way for a number of years," sighed
Shulman.

The barter baron's efforts have seen Splav recover its level of operations
recorded before the financial crash of August 1998, when a large part of
the Russian economy was brought to its knees.

Pessimistic about the Russian economy, Shulman concedes that bartering only
aggravates the situation. The state is unable to levy taxes on commercial
exchanges conducted by barter, all the more so since the real worth of such
deals is often difficult to evaluate.

When receiving visitors in his office, Shulman offers guests mineral water.
Is it a result of bartering?

"Of course," he replies, smiling. "We deliver some machines to a bottling
plant in the Novgorod region, thanks to which we are supplied with water
all year." 

********

#3
Skuratov Barred From Leaving Russia

MOSCOW, May 28, 1999 -- (Agence France Presse) Russia's under-fire
Prosecutor-General Yury Skuratov has been barred from leaving the country,
Interfax reported on Friday.

"I regard this as lawlessness, a crude violation of my human rights and my
basic constitutional right to travel," the news agency quoted Skuratov as
saying.

Russia's chief investigative officer had been invited to a trade conference
in Switzerland when his travel documents were revoked, Interfax said.

President Boris Yeltsin attempted to dismiss Skuratov from office in
February shortly after the prosecutor launched probes into top Russia
business leaders and government officials, including those close to the
Kremlin.

But Russia's upper house of parliament twice dealt a blow to Yeltsin by
refusing to approve Skuratov's dismissal, as is required by law. Skuratov's
current status remains undefined.

Russian police meanwhile have opened their own criminal investigation into
Skuratov that followed a sex and corruption scandal culminating in a
national television airing of the prosecutor apparently cavorting naked
with two prostitutes. 

*******

#4
Russia Today press summaries
Novye Izvestia
May 27, 1990
A Test of the Constitution
THE SPECIAL SERVICES WANT TO BRING RUSSIAN INTERNET USERS UNDER THEIR CONTROL
Summary
The Federal Security Service (FSB) is trying to introduce a system of
surveillance for Internet users in Russia, the daily reported. They are
imposing this through Internet providers, threatening to deprive them of
their licenses otherwise.

In the past, surveillance systems were installed in the Russian phone
network. By law, special services can listen in on phone conversations only
with a court order. But the daily noted that no one can guarantee that an
officer who is listening in on phone conversations will not use the
information to further his own interests -- or someone else's.

A similar system was developed for electronic communications -- Internet,
email and fax -- in 1998, which would allow the FSB to read people's email
and to register Internet business transactions and bank payments. Several
regional FSB offices have already sent letters to Internet providers about
implementing the new system on their servers.

Most Internet providers in St. Petersburg agreed to cooperate with the FSB,
fearing that their licenses would be revoked. However, they think that the
FSB system will not be able to cope with the encryption of all the traffic.
"It will be a big pain in the butt for the FSB," one St. Petersburg
Internet businessman said.

*******

#5
Russia Today press summaries
Segodnya
May 27, 1999
Military Machine for Progress
STEPASHIN INTENDS TO BOOST THE ECONOMY WITH THE HELP OF A RENOVATED DEFENSE
INDUSTRY
Summary
The daily wrote about the struggle in the government for control of the
defense industry, linking it to the need to control the flow of finances,
in view of the upcoming parliamentary and presidential elections.

The military industry suits this purpose better than, for example, the fuel
and energy industry or other natural monopolies, because arms exports are
much less transparent and less subject to control by the IMF or other
international financial organizations, the daily wrote.

While meeting with President Boris Yeltsin in Sochi this week, Prime
Minister Sergei Stepashin proposed that a special deputy premier be made
responsible for the defense industry. He also proposed a candidate for the
post - the director of the nuclear submarine plant Pashayev. Yeltsin did
not approve his candidate, but agreed to create the post. He also agreed to
the establishment of a special state commission for the defense industry,
which will supervise six bodies: the Russian Space Agency; the Nuclear
Power Ministry; shipbuilding; control systems; conventional weapons; and
ammunition industries.

According to Stepashin's plan, the new commission will focus not on the
export of ready-made products but of high technology. The agency will also
work on making defense industry enterprises more profitable and promote
work on conversion technologies.

********

#6
RFE/RL NEWSLINE Vol 3, No. 103, Part I, 27 May 1999

A NEW OLIGARCH EMERGES? In an unusual article, the 27 May
"Kommersant-Daily" depicts Russian President Boris Yeltsin as
a weak, isolated, almost marionette-like figure manipulated
by those around him. It adds that since he was "banished" to
Sochi, he has been cut off from all information not provided
by his family. The newspaper goes on to allege that the real
powers pulling Yeltsin's strings and practically determining
cabinet assignments are Sibneft head Roman Abramovich and
business magnate Boris Berezovskii, with Abramovich in the
lead position, not Berezovskii. The article concludes that
"who the real figure is leading the government--Yeltsin or
Abramovich--will become clear today." JAC

CENSUS-TAKERS ASK FOR EXTENSION. The State Statistics
Committee has asked Prime Minister Stepashin to postpone the
national census from the fall of 2001 to September-October
2002, Interfax reported on 26 May. Goskomstat officials
consider the delay necessary because they have not been able
to finalize their cost estimates for conducting the census.
Preliminary estimates suggest that 2.504 billion ($102
million) will be required from the federal budget and 811
million rubles from local budgets. Committee officials would
have to have their costs ensured by the middle of next month
in order to guarantee the census would be carried out in the
fall of 2001, according to the news agency. JAC

********

#7
Date: Thu, 27 May 1999
From: Dmitry Mikheyev <mikheyev@aha.ru> 
Subject: On Hough's MENATEP

Dear David, I am glad Jerry Hough’s posting gave me a necessary impulse
to reactivate my participation on your list. Please post my response to
his inquiry.

Hi Jerry,
I happened to know about MENATEP quite a bit. Since I have settled in
Moscow about a year ago I put some money into MENATEP, and until August
1998 I had profited handsomely. The financial crises turned my attention
to Russian banks. I have studded tons of materials, including anything I
could find about MENATEP. The picture was very confusing and last
November I interviewed MENATEP' CEO Zurabov himself. I still have a two
hour-long interview with him in which he confessed that he planed to set
an affiliated bank transfer anything of value into it and let the parent
bank go bankrupt! So I lost my money and failed to finish the article
because I became Dean of the Classical Business-school while continued
to teach macroeconomics. But I kept following the fate of MENATEP until
its license was withdrawn a week ago. By the way, my money is in
MENATEP-St. Petersburg now, and I don’t expect to recover it, of course.
Jerry, I can scout my computer files, but I don’t remember coming across
any mentioning of Khodarkovski’s “top joint party and KGB connections.”
Moreover I don’t think it matters. Just about everybody who is anybody
in Russia had ties to top apparatchiks. So what. Why did MENATEP go
belly up? I think the reasons are well established (besides Zurabov
himself told me about some of these) – too much involvement with the
government and GKOs, too large position on futures, too much of
“prestigious” but loss-making property they had grabbed in 1993-94, as
well as the panicky Russian investors who believe neither the government
nor the banks and have only one God they trust – the dollar. I don’t
think there is a need for more sinister explanations, because a
combination of similar reasons was responsible for other big bank’s
failure. Jerry, YOU should know about Russian’s propensity for
exaggeration and conspiratorial thinking – no matter what happens they
tend to look for plots and conspirators. We shouldn’t fall for that.
Cordially, Dmitry Mikheyev, Dean of Classical Business School. By the
way, if any of you economists happen to be in Moscow I invite you to
speak to my students. See www.cbs.aha.ru

********

#8
From
EastWest Institute
Russian Regional Report
Vol. 4, No. 20, 27 May 1999

WHO ARE THE DONOR REGIONS? Discussions of Russian regions often mention that
only a dozen or so of Russia's 89 regions actually contribute more to the
federal budget than they receive in return. Usually discussions of the "donor
regions" do not define exactly which regions are involved. Now sources inside
the Finance Ministry have informed us that there are 13 donor regions: St.
Petersburg, Moscow City, Moscow Oblast, Lipetsk, Samara, Tatarstan, Perm,
Sverdlovsk, Bashkortostan, Khanty-Mansi, Yamal-Nenets, Krasnoyarsk, and
Irkutsk.

DUMA TO INVESTIGATE GOVERNORS. The State Duma has decided to investigate the
activities of several regional executives. Communist Vera Savchuk, who
initiated the proposal, decided that the Committee for Social Associations
should verify that regional executives do not violate federal laws by leading
political parties as well. The committee plans to focus primarily on
Tatarstan
President Mintimer Shaimiev (Vsya Rossiya), Saratov Governor Dmitrii Ayatskov
(Our Home is Russia), Samara Governor Konstantin Titov (Golos Rossii), and
Moscow Mayor Yurii Luzhkov (Otechestvo).
Kommersant Daily noted on 22 May that the committee is unlikely to find fault
with these leaders. Titov's bloc will not be official until a signed
appeal is
made to the Russian people, and the regional executives who formed Vsya
Rossiya
signed only an agreement on their intention to form a group. Likewise,
Luzhkov
is only considered Otechestvo's leader, but is not officially the movement's
chairman. The initiative is simply just another attempt by the Communists to
thwart their opposition before the Duma elections in December. This is
evidenced by the fact that regional executives friendly with the left, such as
Kemerovo Governor Aman Tuleev who is the co-chair of the People's Patriotic
Union, are not among those to be investigated. (Kommersant Daily, 22 May)

********

#9
The Times (UK)
May 28, 1999
[for personal use only]
Moscow gang held over baby trade with US 
Russian women asked to sign away babies for adoption in America, 
reports Anna Blundy 

A GROUP that organised the sale of 19 newborn babies has been arrested in 
Moscow. 

The gang, led by an American woman and Russian man, sold the babies for more 
than $10,000 (£6,000) each, giving $2,000 to the mothers. 

Advertisements in the Russian press invited women to give birth in America 
free of charge. The pregnant women signed a contract agreeing to leave the 
child in the United States after the birth where it would be sold to families 
wanting to adopt. 

Igor Khamaniev, of the women, children and youth committee of the State Duma, 
said that the affair was a disgrace. "Foreigners seem to think you have to 
pay to adopt Russian children. By law you do not and they ought to know that 
to pay is illegal and potentially dangerous," he said. 

Fourteen girls and five boys have so far been sold. The gang was reported to 
police when the mother of the twentieth baby to go on sale failed to get her 
United States visa on time and gave birth in Moscow. When she did not receive 
her promised money she went to the police and five members of the group were 
arrested this week. 

The ringleaders are in the United States but the Russian serious crime squad 
has kept its American counterparts up to date on the issue. 

The sale and attempted sale of babies is by no means rare in Russia, and 
since the beginning of the 1990s tens of criminal groups trading babies 
abroad have been uncovered throughout the former Soviet Union. Russians 
rarely adopt. 

Only 7,921 of the several hundred thousand children in care in Russia were 
adopted by Russians in 1997. Foreigners adopted 5,739 Russian children in the 
same year, despite the effective deterrent of an old Soviet bureaucracy which 
forbids any foreigner from adopting a Russian child unless a Russian family 
has failed to come forward over an obligatory six-month period. 

It is common for poorer families to give unwanted children up to Russia's 
notoriously gruesome children's homes. These orphanages house 200,000 
children countrywide, 90 per cent of whom have one or both parents living. 

An estimated one million Russian children live on the streets, preferring a 
life of brutality and abject poverty to the abuse they suffered at home or in 
a state institution. 

A series of unprecedented newspaper campaigns has been launched to persuade 
Russian families to adopt. Novaya Gazeta and Moskoskovskie Novosti now 
publish photographs of young children who are available for adoption. 

The Ministry of Education has compiled a list of 60,000 healthy orphans 
suitable for adoption, and Moskovskie Novosti has pledged to publish 
photographs of four children a week in the hope that the lives of these few 
might be changed for the better. 

The pictures of the unwanted infants are accompanied by a brief description 
of their appearance and personality. Irina Volodina, of the Ministry of 
Education, says that the newspaper campaigns are working. 

"We have 30 to 40 people contacting us every day now. Most of them say they 
thought about adopting for a long time but the photographs finally decided 
them." 

*******

#10
The Globe and Mail (Canada)
27 May 1999
The resurrection of a modern-day 'Rasputin'
POLITICAL INTRIGUE
Billionaire Boris Berezovsky somehow manages
to escape disgrace and imprisonment.
By Geoffrey York

Moscow -- It was one of the most extraordinary summit meetings in Russia's
recent political history. For more than two hours, behind closed doors, the
Russian prime minister was deep in conversation with the most notorious
criminal suspect in the country.

The prime minister was Yevgeny Primakov, who had promised a crackdown on
crime and corruption. His conversation partner on the evening of April 26
was his nemesis, the reputed billionaire Boris Berezovsky.

Only a few hours before the meeting of the two rivals, Mr. Berezovsky had
been interrogated by Russian prosecutors, who had issued a warrant for his
arrest on charges of money laundering and illegal diversion of money from
Aeroflot.

Nobody knows exactly what the two men discussed in their showdown that
night. But a few weeks later, it became clear that Mr. Berezovsky had won
the confrontation and the prime minister had lost. On the morning of May
12, the Kremlin announced that Mr. Primakov had been fired. A few hours
later, Mr. Berezovsky's allies began to accept posts in the new cabinet.

His foes in the Russian Communist Party were outraged. The Communist
chairman of the lower house of parliament, Gennady Seleznyov, said he saw
"the clear political intrigues of Boris Berezovsky" behind the sacking of
the prime minister.

Mr. Berezovsky, a tycoon and political plotter who is sometimes called the
Rasputin behind the modern Russian throne, appears to have orchestrated a
remarkable escape from the brink of disgrace and imprisonment.

Less than a month ago, he faced exile and the threat of jail on corruption
charges. He seemed to have lost his "roof" -- his Kremlin protection.

Yet today he is back to his familiar role as Russia's master manipulator,
wielding enormous influence over President Boris Yeltsin and his entourage.

Two of the most powerful members of the new Yeltsin cabinet are said to be
"Berezovsky's men." The President's daughter and chief of staff are his
close friends. The new Prime Minister, Sergei Stepashin, has done favours
for him.

"Boris Berezovsky is the coach of the team that has taken the helm," the
respected daily newspaper Kommersant said as the new cabinet emerged.

Mr. Berezovsky, a former mathematician who made his fortune in the
auto-dealing business and later branched into media and oil, was once
ranked the wealthiest man in Russia. A business magazine estimated his
wealth at $4.5-billion (U.S.).

He exercised vast and disproportionate influence over Russian politics by
installing his subordinates in key positions in Russian television,
banking, airlines, oil companies and in the Kremlin itself.

In the mid-1990s, he was the most aggressive of the so-called oligarchs --
members of a small group of financiers who controlled much of Russia's
banking and industrial sectors. They grew wealthy from their discovery that
Russia's most profitable business was the business of politics.

The oligarchs, led by Mr. Berezovsky, played a key role in the 1996
presidential election campaign. He helped to finance Mr. Yeltsin's victory
over the Communists, and then demanded his reward.

He began with a senior post in the security council, the powerful Kremlin
advisory group. A few months later, he was dismissed, but soon landed
another top post: executive secretary of the Commonwealth of Independent
States, representing the former Soviet republics.

Meanwhile, his political connections helped him build his business empire.

The key to his remarkable success was his membership in the Yeltsin
"family" -- the tiny circle of advisers 
and relatives who surround the ailing Russian President. Mr. Berezovsky was
the family financier, some analysts say.

He is a long-time friend and reported benefactor of Mr. Yeltsin's daughter,
Tatyana Dyachenko, who is one of the President's most trusted advisers. He
helped install Mr. Yeltsin's son-in-law, Valery Okulov, as the general
director of Aeroflot, which controls a lucrative flow of foreign-currency
earnings.

He also helped to make the financial arrangements for Mr. Yeltsin's second
book, published in 1994, which produced about $300,000 (U.S.) in officially
reported "royalty payments" to Mr. Yeltsin in 1997 alone. The book's
ghostwriter was Valentin Yumashev, an ally of Mr. Berezovsky who later
served as the President's chief of staff and is still believed to be an
influential adviser to Mr. Yeltsin.

Last summer, Russia was hit by a financial collapse that weakened the
position of Mr. Berezovsky and the oligarchs. For a few months, he seemed
vulnerable. He lost his CIS job, and Mr. Primakov began a campaign to
neutralize him. Russian police raided his business offices, finding
evidence of telephone-bugging operations that seemed to implicate him in
Kremlin espionage.

In early April, while the billionaire was in Paris, the Russian
prosecutor-general issued a warrant for his arrest on charges of corrupt
business practices.

For a brief period, it appeared that Mr. Primakov had defeated him.

But then came an extraordinary chain of events. First, the Russian interior
minister -- a man named Sergei Stepashin -- announced that the Russian
police would simply ignore the arrest warrant.

On April 18, Mr. Berezovsky flew back to Moscow and immediately checked
into an elite Kremlin-controlled hospital, the same one where Mr. Yeltsin
is often treated. He said he had a back injury.

Around the same time, the arrest warrant was mysteriously cancelled.

Next came the private meeting with Mr. Primakov on April 26. A few weeks
later, the prime minister was 
dismissed and Mr. Berezovsky quietly announced his satisfaction with the
move. A few days after that bombshell move, Mr. Stepashin, the man who gave
such crucial help to Mr. Berezovsky last month, was confirmed as Russia's
new Prime Minister.

Today, the new cabinet contains at least two of Mr. Berezovsky's allies.
One is the new interior minister and top policeman, Vladimir Rushailo, who
accompanied Mr. Berezovsky on visits to Chechnya to negotiate the release
of Russian hostages last year.

His other ally is the first deputy prime minister, Nikolai Aksyonenko, who
is emerging as the second most powerful man in the cabinet.

Mr. Aksyonenko, a former railways minister who has been dogged by
corruption allegations, is reported to have close connections to the head
of Mr. Berezovsky's oil company, Sibneft.

Earlier this month, Mr. Aksyonenko almost got the prime minister's job.
Shortly after the sacking of Mr. Primakov, the Kremlin told the Russian
parliament that Mr. Aksyonenko was being appointed to replace him. A few
minutes later, the decision was abruptly reversed and Mr. Stepashin was
named instead.

Not everything is going perfectly for Mr. Berezovsky today. He is feuding
again with another old rival, former privatization czar Anatoly Chubais,
who has access to the Kremlin and has thwarted some of Mr. Berezovsky's moves.

Mr. Stepashin is trying to distance himself from Mr. Berezovsky, and some
of the new cabinet appointments are apparently designed to counterbalance
the tycoon's influence.

But even if he fails to win every battle, Mr. Berezovsky is back where he
wants to be: close to the top of the Russian hierarchy.

*******

#11
Business Week
May 31, 1999
[for personal use only]
Russia's Boom in Bogus Bankruptcies (int'l edition)
With the courts' help, phony creditors are draining businesses
By Carol Matlack in Moscow 

The case looked suspicious from the start. In January, a company called 
Beta-Eko filed suit against a troubled Russian oil giant named Sidanko for 
unspecified debts. On Beta-Eko's behalf, a Moscow court started bankruptcy 
proceedings. Sidanko said it had never heard of Beta-Eko. But other 
creditors--including BP Amoco PLC, which owns 10% of Sidanko--have a vital 
stake in the outcome. They suspect that Sidanko's principal owner, the once 
powerful Uneximbank group, created Beta-Eko to get its hands on Sidanko 
assets.
Welcome to the newest dance in the great Russian asset shuffle. In a 
well-intentioned effort to streamline its bankruptcy system, Russia has 
unleashed a flood of dubious filings against corporations and banks. 
Unscrupulous business owners and managers are hijacking the process, 
installing cronies as administrators and grabbing company assets as 
compensation for nonexistent debts. The scams work because corrupt judges 
award claims to the bogus creditors. By the time genuine creditors realize 
what's happening, there's often nothing left but a worthless shell. ``One in 
three bankruptcy cases filed against a major company in Russia is phony,'' 
says Georgy Tal, who heads the Federal Bankruptcy Service.
BLACK MARKS. It's not clear whether the Sidanko bankruptcy is bogus. But BP 
and other outside creditors are owed nearly $400 million, and they are 
worried. At a tense meeting in Moscow two weeks after the case was filed, 
nearly all the creditors voted to nominate an Arthur Andersen executive as 
bankruptcy manager. Instead, the Moscow Arbitration Court judge handling the 
case picked another candidate not backed by the outside creditors. Now, the 
case is in recess until July 23. That's plenty of time, creditors fret, to 
loot the company. Sidanko and Uneximbank deny any links to Beta-Eko.
More blows to confidence in the bankruptcy system are the last thing 
Russia needs. Some 68% of its companies are insolvent. Restructuring them 
would reduce the unpaid debts that drag down the economy. A law passed last 
year makes it easier for creditors to initiate bankruptcy proceedings, but 
also for rapacious managers to exploit them. Filings have soared from 120 a 
month to nearly 600. The European Bank for Reconstruction & Development warns 
that bankruptcy scams are further blackening Russia's reputation with 
investors. The EBRD itself lost a $35 million investment in Russia's Tokobank 
when creditors seized control of bankruptcy proceedings last year.
Under the new law, creditors are supposed to vote on major decisions 
affecting bankrupt companies. But the well-connected can easily subvert the 
process. When pipe manufacturer Volzhsky Tube Co. was hauled into court last 
summer, $48 million in assets disappeared from its books within weeks. The 
Federal Bankruptcy Service later discovered that the assets were shifted to a 
company controlled by Volzhsky executives.
There are other problems. While the law is supposed to protect creditors, 
it gives bankruptcy administrators broad authority to ignore creditors' 
wishes. The court-appointed manager of the Svyavsky lumber company in the 
Nizhny Novgorod region has refused to follow creditors' instructions to sell 
the company's assets to investors led by Sweden's Ikea, which wants to put $7 
million into the plant. The bankruptcy manager, Nina Okuneva, says she 
doesn't trust foreign businesspeople and wants to work with a local company 
that has offered to invest less than $1 million.
``BIG MONEY.'' Meanwhile, the bankruptcy boom is fueling its own cottage 
industry. Training courses run by the Bankruptcy Service, which issues 
licenses to bankruptcy administrators, are booked solid. ``It is possible to 
make big money if you are a receiver or the person behind the receiver,'' 
says Gregor Muller, a Moscow lawyer who represents creditors in several 
bankruptcy cases.
There are a few heartening signs. The government is drafting amendments to 
the bankruptcy law that would tighten controls on asset disposal and make 
administrators more accountable to creditors. At Sidanko, federal prosecutors 
recently opened an investigation to determine whether Uneximbank, headed by 
the once powerful tycoon Vladimir S. Potanin, deliberately bankrupted the oil 
company. But more businesses are going on the bankruptcy block every day. If 
the government doesn't crack down soon, the grabfest could spin out of 
control.

*******

#12
Stepashin Government 'Purely Presidential' 

Komsomolskaya Pravda
26 May 1999
[translation for personal use only]
Article by Sergey Chugayev: "Yeltsin Furnishes Cabinet. Every Little 
Guy Will Have a Bookkeeper" 

It is hard to think of a precedent in our very 
recent history when the intimate process of forming the government has 
been so public. The two-day spectacle put on by the president in Sochi 
and called "Creation of a New Cabinet," which was observed with interest 
by the Russian general public, should at least demolish entirely all the 
insinuations about people coming to power in our country by means of 
complex backstairs intrigues. There is no backstairs! Everything is out 
in the open. Any Russian, even one far removed from politics, was able to 
see, for example, that the new government head, approved by a State Duma 
constitutional majority, is less autonomous and independent than, say, 
Yegor Gaydar, who was merely acting premier. 

The unexpected appearance in Boris Yeltsin's Black Sea residence of 
Nikolay Aksenenko, who participated in the formation of the Cabinet on 
equal terms with the premier, clearly demonstrated something we had known 
for a long time anyway: where the political engine room is today. 
Parliament, political parties, elite associations, oligarchs -- forget 
it. It is all decided by the president's intimates, the family.. Unlike 
Stepashin, Aksenenko is a family man. Which he confirmed by turning up in 
Sochi. Therefore his position now appears stronger than that of the new 
government head. 

The Sochi gathering would appear to have confirmed yet again the 
assumption that Stepashin's premiership will be an ephemeral one. But in 
Russia temporary too often turns out to be all but permanent. Stepashin 
is a battle-hardened politician. And he proved this again in Sochi. 
Moreover, it would be naive to suppose that the current government head 
is something of a political orphan. He has pretty influential forces 
backing him. The saga of the dismissal of Primakov's Cabinet, the nomination 
of 
Stepashin, and the formation of the new government provides grounds for 
the assumption that the split that appeared in the president's immediate 
circle at the time when Chernomyrdin quit the premiership is worsening. 

This circle can usefully be divided into two parts: "senior" -- the 
Okulov family and the president's spouse -- and "junior," led by Tatyana 
Dyachenko. In both cases the main objective is to provide for a secure 
future for themselves after Boris Yeltsin quits politics. But whereas the 
current state of affairs essentially suits the "seniors," since their 
business is perfectly legal and they are not known to have any dubious 
connections, the "juniors" have some problems in this area. So there are 
various views about how exactly the future should be secured. The 
"seniors" like stability. The "juniors" are disposed toward extravagant 
adventures. 

The unusual process of creating a new government is largely a result of 
these contradictions. As indeed is its composition. Nikolay Aksenenko 
(who, contrary to received opinion, seem to be more Tatyana Dyachenko's 
man than Boris Berezovskiy's) was unable to retain a monopoly on the 
first vice premiership as a result of the "senior" group's influence. 
But, at the same time, Stepashin was not allowed to make Zhukov his first 
deputy. Zadornov, who has completely lost his political bearings, was 
appointed instead. 

We may suppose that Boris Yeltsin had a very definite aim in mind when 
he put on the personnel show by the Black Sea. The aim is, in fact, to 
demonstrate to the entire Russian political elite the new government's 
status. Stepashin's government is purely presidential, It is merely the 
instrument which Boris Yeltsin intends to use to control the situation in 
the country until the State Duma elections. So it is not that important 
who becomes the second first vice premier. He is now purely a stand-in. 
The same applies to the remaining ministerial posts, actually. Ahead of 
the elections all the main financial flows will be controlled by Boris 
Yeltsin, not by Mikhail Zadornov. 

Whether the president can physically cope with this task he has set himself 
is another matter. He has no close colleagues left whom he can trust. 
There is antagonism in the family. This could be Sergey Stepashin's big 
moment. 

*******

#13
Interview With Deputy Premier Aksenenko 

Radiostantsiya Ekho Moskvy 
26 May 1999
[translation for personal use only]
Studio interview with Russian First Deputy Prime Minister Nikolay 
Adsenenko by unidentified correspondent -- live 

[Unidentified interviewer] Our guest is Russian 
First Deputy Prime Minister Nikolay Yemelyanovich Aksenenko. Hello, 
Nikolay Yemelyanovich. 
[Aksenenko] Hello. 
[Q] Nikolay Yemelyanovich, I will perhaps not start with the formation 
of the government. You met Boris Nikolayevich Yeltsin yesterday or the 
day before. There were reports that you had gone to Sochi because he was 
seriously ill. How is President Yeltsin's health, in your view? How did 
you find him? 
[A] I found that the president was energetic and the time which he 
devoted to the meeting with the prime minister, the head of 
administration and me, to agreeing, to taking part in considering all 
these things, he devoted quite a long time to it, this again confirms 
that Boris Nikolayevich is sufficiently energetic and is very active in 
his work. 
[Q] When you and [Prime Minister] Sergey Vadimovich [Stepashin] flew out 
there, did you already have a general list, a general idea about the 
structure of the government and of the main, the key, candidates? Could 
it be said that these were your joint proposals? 
[A] The prime minister had a preliminary document on the structure of 
the government which had been agreed jointly with the presidential 
administration. Of course, there were also candidates for the posts of 
minister and deputy prime minister and as has already been said, more 
than one candidate for each post. And questions were elaborated at the 
meeting and the prime minister and head of the presidential 
administration presented the main characteristics of the candidates and 
the president had the opportunity, the time, to think attentively about 
each candidate presented and to chose, after consultation, those 
candidates who would, in his view, work most effectively in government. 
[Passage omitted: Aksenenko expresses gratitude at being allowed to take
part 
in the process; says they spent a long time gathering information and 
considering it. Aksenenko says a few government posts still need to be 
filled and speculates that this may happen by the end of the week; gives 
his personal view of the competence of Duma Committee Chairman Mikhail 
Zhukov who was expected to get a government post and didn't. Aksenenko 
says that a single structure is needed to manage the economy but he 
doesn't envisage there being any problems in the way responsibilities are 
divided between himself and the other first deputy prime minister, 
Mikhail Zadornov] 
[Q] It is 1435 Moscow time [1035 gmt]. Nikolay Yemelyanovich Aksenenko, 
first deputy prime minister of the Russian government, is in our studio. 
Here is another question, before we pass over to the formation of the 
government. My colleagues have often written that the formation of a 
government is a sort of compromise between various political forces. The 
formation of Primakov's government was a compromise between the State 
Duma and the president's administration. They say that the formation of 
Stepashin's government is a compromise between the clans of [media tycoon 
Boris] Berezovskiy and [Russian national grid chief Anatoliy] Chubays. 
Have you noticed that there is a struggle for government posts? Have you 
been affected personally? 
[A] I think that everyone wants to present himself as a very influential 
and powerful person. But in fact the government has been formed on the 
basis of how well people are prepared for the workload which will be 
offered to them. The cabinet is being formed on the basis of 
professionalism, absolutely and exclusively on the basis of 
professionalism. 
[Q] People have been openly saying that [First Deputy Prime Minister 
Mikhail] Zadornov is Chubays's man, but Aksenenko is Berezovskiy's man. 
[A, chuckles] This is a very interesting interpretation. I still think 
that Aksenenko is the state's man. As for Berezovskiy, I am glad you 
asked this question and maybe things will become clear after all. I have 
met Berezovskiy once. We spoke about international affairs. This was when 
he was Security Council secretary and I was at the head of the CIS 
council of railway transport. I think such interpretations and deliberate 
spreading of hints or doubts should not be allowed. This is bad for the 
cause. The cabinet-to-be can really look like a single solid team capable 
of resolving the tasks facing the country. 
[Q] Nikolay Yemelyanovich, how will the government - and you, who will 
be in charge of the economy - communicate with those whom public opinion 
calls oligarchs, or major bankers? It is known that the banking system is 
crumbling, this is the beginning of the process of - [change of thought] 
What is your attitude towards these different people, from [Vladimir] 
Potanin and [Vladimir] Vinogradov to Berezovskiy and [Vladimir] 
Gusinskiy? 
[A] Each of these people has his own story to tell. They tried to do 
what they liked to do in this economic system. They achieved certain 
successful results. Everyone noticed this. Then they made mistakes. Life 
punished them, but they did not learn their lessons in full. At the 
moment they are trying to get back and this must be welcomed by everyone, 
because all those who are trying to do something must be supported. This 
is my attitude towards them. Meeting them... [pauses] I do not think that 
people who achieved success, made mistakes and were brought down are not 
worthy of attention. These people are very intelligent, they have a deep 
understanding of our economic system. But they have miscalculated 
somewhere along the line. I do not want to pass judgement on these 
miscalculations, lest someone is offended, and this would not be ethical 
on my part. I think that we all must draw the right conclusions from the 
events of 1998. This would be the most important thing to do. 
[Q] So, you do not think that the state should wage war on these people? 
That they are an impediment, as, it should be noted, the previous 
government thought? 
[A] You know, I think that the state should support everyone who lives 
in this society, everyone. We cannot develop some kind of, well, by 
everyone I do not mean people who do not ascribe to normal concepts of 
what a humane society is. I mean everyone who engages in practical 
activities which aim to be constructive. We will not get very far, we 
will not achieve anything if we develop relationships of any other kind. 
[Passage omitted: Aksenenko says he doesn't know enough to comment on the 
Central Bank or on bank chief Viktor Gerashchenko's abilities] 
[Q] Perhaps we should move on to the main news today since you are going 
to be in charge of the economy: talks with international financial 
institutes. You have heard that Finance Minister [Mikhail] Kasyanov has 
flown back to Moscow and before this he suggested to the London Club - or 
to be more precise, he told the London Club - that Russia would not be in 
a position to pay back 550m dollars of its former debt on 2nd June. What 
can be done, Mikhail Yemelyanovich? Do you know how you will act in this 
situation, where we are about to default? 
[A] I do not think that we have any choice other than to attempt to 
reach agreement, attempt to reach agreement, to come to a common 
decision. We know the conditions of the IMF, the conditions connected 
with the allocation of funds, the banking system. They need to be 
implemented. [Passage omitted: Aksenenko says two banks should have their 
licences withdrawn. Aksenenko says decisions need to be taken on several 
issues concerning the banking system; the Duma needs to adopt various 
laws for the IMF's conditions to be met but it is unlikely to take any 
unpopular decisions during an election year] 

********

#14
Foreigners invest in Novgorod despite economic crisis

NOVGOROD, Russia, May 27 (AFP) - Foreign companies are still flocking to set 
up shop in Russia's northwest region of Novgorod despite the financial 
meltdown which plunged the country's economy into chaos last August.

The region's success -- foreign investment was more than two billion dollars 
in 1998 -- is even more remarkable considering the backdrop of falling 
foreign investment nationwide after the country's ruble devaluation and debt 
default.

The Danish confectionary giant Dirol-Stimorol, which already has a packaging 
plant in Novgorod, is about to open a production factory in the Novgorod 
region this June.

Dirol-Stimorol's investment of more than 100 million dollars is a boon for 
Novgorod's reformist governor Mikhail Prusak, 39.

The western company's confidence in the region should favorably influence US 
and Finnish entrepreneurs who are studying building a bottling plant and 
cellulose factory in Novgorod.

World Bank experts consider this region of 750,000 people located 530 
kilometers (330 miles) northwest of Moscow as one of the most favorable for 
foreign investors because of the local authorities' policies.

Prusak has taken several fiscal measures to attract investment, including 
allowing enterprises set up in the region to be 100 percent foreign-owned.

"Close to 48 percent of the industrial production of the Novgorod region 
comes from firms with foreign capital," Prusak told AFP. In 1997, these same 
factories provided half the taxes paid to the region.

Prusak said he intends to pursue his overtures towards foreign investors, but 
he worries about the tack taken for several years by the Russian government: 
"There is no intelligent economic policy in Moscow. We are going to have a 
disaster if we don't change quickly."

This young liberal governor denounces "the omnipresence of banking, finance 
and oil and gas industry representatives in government who ignore the true 
economic problems of the country."

He regrets seeing in the ministries "too many Muscovites and not enough 
leaders coming from the regions."

The Novgorod region still depends on financial aid from Moscow, but only for 
10 percent of its budget.

"This will no longer be the case in four or five years," Prusak said, 
counting on rapid improvement in the region which showed one of the highest 
growth indexes in Russia before the crash of the banking system last August.

"Those who planned to set up here before the crisis confirmed their proposals 
as early as February. We lost several months, but the shock of last August 
has begun to fade" he said.

Investment in the region grew to a total of 700 million dollars over seven 
years with some 200 foreign or joint-venture enterprises which play a major 
economic role.

The main investor of the region was until now Britain's Cadbury, a leading 
world confectionary and soft drinks manufacturer, which operates a 150 
million dollar factory near Novgorod that produces 50,000 tonnes of 
chocolates per year.

The injection of foreign capital into local economy is vital since the 
factories which in Soviet times made the reputation of Novgorod were closely 
connected to the military industry, now moribund. 

*******