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Johnson's Russia List


June 14, 1999    
This Date's Issues: 3340  

Johnson's Russia List
14 June 1999

[Note from David Johnson:
1. AFP: NATO leaders resigned to giving Russia share in Kosovo.
2. AFP: PEOPLE IN FOCUS: Ivashov, the hawk who promised Russia a Kosovo

3. Itar-Tass: RUSSIA'S Strategic Cooperation with China and India to

4. Brian Whitmore: Re: 3338/Petrov/Starovoytova.
5. Vlad Ivanenko: Re: JRL 3339, Russian move in Kosovo.
6. Boston Globe: David Filipov and Dmitry Shalganov, Desperate search for a 
few good men.

7. Rossiyskaya Gazeta: Russia's Unified Energy System Is 'Potential

8. Rossiya: Igor Domnikov, Primakov Sows Storm; Who Will Reap Sprouts?
Love of 

Primakov--A Personal Matter for Everyone.
9. David Kramer: The State of the Russian Economy and the U.S. Policy

10. AFP: Military return to political centre stage with Kosovo success.] 


NATO leaders resigned to giving Russia share in Kosovo

BRUSSELS, June 14 (AFP) - NATO's leadership appears resigned to giving
Russia a share in the administration of Kosovo, in a deal similar to that
which operates in neighbouring Bosnia-Hercegovina, alliance diplomats said.

They said the North Atlantic Treaty Organisation had agreed to let its
generals resolve the immediate problems posed by Russia's unexpected
presence in Kosovo, and its politicians define Moscow's eventual role in
the Serbian province.

Two hundred Russian troops took NATO by surprise when they entered Kosovo
late Friday, hours ahead of the first western elements of the KFOR
peacekeeping force, and occupied the airport of the provincial capital
Pristina, defying all efforts to budge them.

Speaking after a meeting Sunday of ambassadors to NATO from its member
countries, diplomats said the favoured strategy was to give Russia an area
of responsibility in Kosovo.

This would be either a separate area or straddling the sectors already
allotted to Britain, France, Germany, Italy and the United States.

In addition a Russian general would have a special post in the headquarters
of the KFOR commander, Britain's General Michael Jackson, the diplomats said.

If approved, this would not be very different from the situation in SFOR,
the 30,000-strong peacekeeping force in Bosnia, where Russia's 1,500 troops
have an area of responsibility in the northeast operational zone controlled
by the United States.

Under a special agreement which makes little military sense, which was
negotiated in 1995 between Washington and Moscow and subsequently approved
by NATO, Russian troops are answerable to a Russian general based at NATO
military headquarters in Mons, Belgium.

Russia also has officer representatives at SFOR headquarters in Sarajevo,
the Bosnian capital.

"NATO plans to remain within the Bosnian set-up," a diplomat said. It wants
to retain the unity of command in the peace force, avoiding any suggestion
of a partition of the province, he added.

Diplomats said talks between Russia and the United States had made progress
and the two sides were closer together, but a formal agreement was still

"We have to see the reaction of the Russian military to the closer
relations on the diplomatic front," a diplomat added.

NATO is firmly against any idea of an "independent" Russian enclave in
Kosovo as Moscow wanted, saying that Russian troops would be integrated
into KFOR. But it was not yet clear whether Moscow would send as many as
10,000 men into Kosovo, as pledged.

"With 2,000 men out of a total of 50,000, Russia will not carry much
weight," a diplomat observed.

On the question of access to Pristina airport, NATO is leaving it up to
Jackson to negotiate with the commander of the Russian force, General
Viktor Zavarzin.

Russia's RIA-Novosti news agency said the two had met Sunday for the second
time in two days. It said the talks focussed on the joint use of the airport.

The United States meanwhile played down Russia's intervention in Kosovo
Sunday, even as US President Bill Clinton and Russian President Boris
Yeltsin and military leaders from both sides were conferring to ensure the
wider NATO deployment was not derailed.

Clinton and Yeltsin spoke for an hour by telephone Sunday and were to speak
again Monday, a White House spokesman said.

The two had a "constructive conversation" discussing "steps that could be
taken to advance Russia's participation in KFOR," White House spokesman
Mike Hammer said.

"They agreed that Russian and NATO generals should sit down to resolve the
participation of the Russian advance party that is currently at Pristina,"
he added.

But US Secretary of State Madeleine Albright ruled out putting an entire
sector of Kosovo under Russian control, conceding only that they could be
designated an "area" as long as NATO's chain of command was kept intact.

"Very clearly, a zone of responsibility within a sector could be one way,"
to incorporate the Russian force, General Henry Shelton, the chairman of
the US Joint Chiefs of Staff told CNN Sunday.

"We could work out a situation similar or comparable to what takes place in
Bosnia, where they are fully integrated into the operation. They report
separately, but under the command of NATO," Cohen said. 


PEOPLE IN FOCUS: Ivashov, the hawk who promised Russia a Kosovo zone

MOSCOW, June 13 (AFP) - General Leonid Ivashov, one of the highest-ranking
officials in the Russian army, had promised that Russia would control a
zone in Kosovo, and his efforts paid off Sunday when Washington finally
yielded to Moscow's pressure.

On Friday, negotiations on the terms of a Russian deployment in Kosovo were
deadlocked with the United States still rejecting the idea of a zone under
Russian control and a Russian or non-NATO commander of troops sent by Moscow.

Ivashov, 55, who led the Russian delegation at talks with US military
experts in Moscow, said on Friday: "We are not going to beg the United
States to give us a specific sector in Kosovo.

"If we do not reach an agreement (with the United States), we will work out
with Yugoslavia the sector we will control."

A few hours later, Russian paratroopers triumphantly entered Kosovo to take
over the military airport in Pristina, leaving NATO and the West stunned at
Russia's feat.

Ivashov thus showed that the army is in a position to rectify in its own
way what it regards as errors of Russian diplomacy, an exceptional event in
this country.

"The Russian military is dissatisfied with several points" of the Kosovo
accord which makes their participation in the peace force dependent on the
"goodwill or otherwise of NATO," Ivashov said at the beginning of June,
accusing Russia's special Balkans envoy Viktor Chernomyrdin of having been
too conciliatory to the West.

The army's show of force in Kosovo and the acceptance by Washington of a
Russian zone constitute a double victory for Ivashov and the military, who
are increasingly overt in their displays of anti-US and anti-NATO sentiment.

Ivashov, head of the defense ministry's international cooperation
department and a member of the armed forces chiefs of staff, had in recent
months increased his virulent statements toward the West.

Last October, when NATO brandished the threat of air strikes against
Belgrade, Ivashov said that Russia could respond by breaking the UN embargo
on arms deliveries to Yugoslavia.

"We don't need to let down brothers in a such a situation," he said.

Committed to the idea of a Slav-Orthodox solidarity between Russia and the
Serbs, he denounced earlier this month the accord thrashed out by
Chernomyrdin and the West, saying: "Let each of us judge in his soul and
conscience whether we have betrayed Yugoslavia by accepting the peace plan."

Born in 1943 to a working-class family in what is now the Central Asian
republic of Kyrgyzstan, the general is considered one of the most brilliant
figures in the Russian military, says journalist and retired colonel Robert

A poet in his free time and a representative of a new generation in the
Russian military, Ivashov is known for his determination to assert his
ideas, even at the risk of putting his career in danger, Bykov said.

His position had been endangered after the breakup of the Soviet Union,
when he denounced several generals for corruption to former defense
minister Yevgeny Shaposhnikov and incurred the hostility of part of the
army's upper echelons. 


RUSSIA'S Strategic Cooperation with China and India to Develop.

VLADIVOSTOK, June 14 (Itar-Tass) - Nikolai Mikhailov, Russia's First Deputy
Minister of Defence and State Secretary, in his remarks during talks
between Colonel-General Zhang Wannian, Deputy Chairman of the Central
Military Council of the People's Republic of China, and the Command of
Russia's Pacific Fleet, has stated that "Russia's strategic cooperation
with China and India will rise to a qualitatively new level soon". 

The Russian Defence Ministry official pointed out that "the events in
Yugoslavia prompted the adoption of necessary measures in the strengthening
of Russia's defence capability and in a quest for strategic partners in
accomplishment of this important task. China and India are such partners

Before arriving in Maritime Territory, the Chinese military delegation had
a series of important meetings in the Russian government and visited
Novosibirsk where the Chinese guests called on the Siberian branch of
Russia's Academy of Sciences, and visited a unit of Russian Strategic
Missile Forces. 

While in Vladivostok, General Zhang met with Admiral Mikhail Zakharenko,
Commander of the Pacific Fleet and visited the destroyer Bezboyaznenny. The
Chinese military delegation is due to leave for Komsomolsk on Amur on Monday. 


Date: Sun, 13 Jun 1999
From: brian whitmore <>
Organization: St. Petersburg Times
Subject: Re: 3338/Petrov/Starovoytova,

Regarding the article "Was Starovoitova Hunting for Party Gold?" by
Vladimir Petrov (Argumenty i Fakty, June 8, 1999, Johnson's Russia List
3338), I would like to point out several factual errors.

First, Mr. Petrov wrote that State Duma Speaker Gennady Seleznyov won a
lawsuit against the newspaper Severnaya Stolitsa over an article written
by Galina Starovoitova (titled "New Russian Communists: Union of Sickle
and Dollar") about Seleznyov's involvement with the National Security

This is incorrect. 

Seleznyov sued Severnaya Stolitsa (and Starovoitova posthumously) on
eight counts stemming from the article - seven of which were over points
of fact and one which was related to a glib passage about Seleznyov
himself in the article. On all seven points of fact - i.e., the meat of
the article - Seleznyov lost the lawsuit. The court essentially
recognized that what was published in Severnaya Stolitsa was true.

Second, Mr. Petrov wrote that "the investigation has included that there
were no political motives for Starovoitova's murder." 

Really? This would come as a surprise to FSB chief Vladimir Putin, Prime
Minister (and former Interior Minister) Sergei Stepashin and St.
Petersburg police chief Viktor Vlasov - all of whom are on the record
over and over as saying that the investigation sees Starovoitova's
political activities as the most likely motive for the murder. (Vlasov
said this at a press conference just last week)

Third, I found it curious that Mr. Petrov did not find it necessary to
inform his readers that Mikhail Manevich, the St. Petersburg vice
governor who gave Starovoitova the incriminating documents about Yury
Shutov, was assassinated on Aug. 18, 1997 (and that Manevich had a
meeting scheduled with Starovoitova on Aug. 19 of that year to hand over
more documents about Shutov. The meeting, for obvious reasons, did not
take place.) 

According to Starovoitova (with whom I spoke to about the matter shortly
after Manevich's assassination) Shutov was using his position as head of
the Duma sub-commission on privatization in St. Petersburg to blackmail
local entrepreneurs into handing over shares in their companies to him.
He was also reportedly threatening Manevich (according to Starovoitova,
Linkov and ex-St. Petersburg mayor Anatoly Sobchak, all of whom spoke to
Manevich shortly before his death).

Brian Whitmore
The St. Petersburg Times


Date: Sun, 13 Jun 1999 
From: Vlad Ivanenko <>
Subject: Re: JRL 3339, Russian move in Kosovo

I would like to moderate the stance of Stanislav Nevzorov on the
pre-mature stationing of Russian troops in Kosovo.

The local tragedy on Balkans has recently turned into an international
farse. That is a healthy development and a moderate price for peace.

Russia would benefit more from building a solid reputation of a reliable
partner than from being a spoiler of Clinton's show (a gift to the
Republican Caucus from Russian nationalists). It was the job for Russian
Foreign Ministry to capitalize on diplomatic victory under the
circumstances and not for the General Staff. If Russian government wanted
a better deal than it has, Eltsin would not appoint Chernomyrdin in the
first place. Unfortunately, the President is the main Russian problem now. 

The stationing is a regrettable incident even if it turns some Russians to
be swallowed with worthless pride. 

Vlad Ivanenko, Ph.D. candidate in economics,
University of Western Ontario


Boston Globe
13 June 1999
[for personal use only]
Desperate search for a few good men 
By David Filipov, Globe Staff and Dmitry Shalganov, Globe Correspondent, 

CHELYABINSK, Russia - The fast entry of 200 Russian paratroopers into Kosovo 
early yesterday put the Russian military where it wants to be - at the center 
of the peacekeeping operation in the province.

Now the Russian Army, cash-strapped and undermanned, faces a new problem: 
where to find a few good men to beef up its peacekeeping contingent.

Viktor Dmitriyev, 21, fits the bill. He wears a Mohawk hairdo and a 
skull-and-crossbones medallion engraved with the words ''master artillery 
operator.'' He bears scars from his year of combat in Chechnya as a private 
in a special forces unit. It was the only job Dmitriyev, a high school 
dropout, ever loved.

So when the military sent out the call for volunteers with combat experience 
to join a Russian peacekeeping force for Kosovo, Dmitriyev made a beeline to 
the draft board in this industrial Ural Mountains city.

He did not care where he would serve, or that Moscow and NATO have not been 
able to agree on who will command Russia's troops, or that Russia's 
Parliament has angrily denounced the peace agreement that paved the way for a 
NATO-dominated peacekeeping force to begin entering Kosovo.

''I'm just gonna do it for Russia,'' Dmitriyev said minutes after signing up 
this week. ''That's all.''

Actually, that's not all. Dmitriyev and the other members of the 600-member 
force being assembled here will earn salaries starting at $1,000 a month, 
over five times the average wage in Russia, for their service in Kosovo, 
according to Russian military officials in Chelyabinsk.

Russia has said it will provide 10,000 of the expected 50,000 troops, but 
insisted that they not be under NATO command. NATO has made it equally clear 
that it will form the ''core'' of the force, and provide its commander.

Russia does not have many troops ready to go, and that poses a problem. The 
best peacekeeping troops Russia has are the 1,300 troops stationed in Bosnia, 
source of the 200 troops sent to Kosovo.

The bulk of any force Moscow sends will probably be cobbled together from a 
number of units and regions.

Even when Russia pulls together the troops it needs, a dire cash shortage 
will make it difficult to send them to Kosovo. Once the most feared fighting 
force on the planet, Russia's 1.2 million servicemen are poorly paid and fed 
worse. Officers and noncommissioned officers, strapped for cash because of 
chronically late paychecks, moonlight as parking attendants and night 
watchmen to pay their bills. Draftees beg for money on the streets in cities 
and live off the land in rural areas.

Brutal hazing is widespread. Last week in the Russian far east, an entire 
platoon of 45 recent draftees deserted and later told police they had left to 
flee physical abuse by their superior officers.

Morale is low, especially after the stinging defeat handed the military after 
the 1994-1996 war in Chechnya. Russian Prime Minister Sergei Stepashin said 
the military is in a ''catastrophic state.''

This is where the Chelyabinsk signup, which began last week, comes in. 
Military officials bet that the cream of the 400,000 officers and soldiers 
demobilized during the cutbacks might be lured by the promise of a 
well-paying, prestigious assignment. But with a few exceptions like Viktor 
Dmitriyev, this has only been half true: Many of the volunteers interviewed 
said money was their main motivation for signing up.

''Life has forced me to go to Kosovo,'' said Alexander Timolin, 31, who 
served 13 years ago as a personnel carrier driver in the army, but has spent 
the past few years looking for work. ''It's a risk, but I've got nothing left 
to lose.''

In his drab office in the rundown recruitment center, Lieutenant Colonel 
Alexander Gorechuk gave Timolin the once-over and told him to come back when 
he was sure he wanted to serve his country. Gorechuk said the search for 
experienced drivers, snipers, mechanics, and mine-removal specialists has 
been harder than he expected. 

Of 83 volunteers who had applied by last Wednesday, only 21 have been deemed 
to have the right stuff. One who did not is Alexei Zamsha, 30, who was hoping 
to go to Kosovo to avoid trouble with the law. He has four recent drunken 
driving convictions and difficulties with a local crime gang that he refused 
to specify.

''I just gotta get out of this mess,'' Zamsha said.

Gorechuk said volunteers undergo checks with police and counterintelligence 
agencies, along with medical checkups and a test of their proficiency as 
military specialists.

''We rule out taking anyone with problems,'' Gorechuk said.

Gorechuk's commander, Colonel Alexei Meshcheryakov, said he was under orders 
to form a battalion of 600 specialists by June 20. He said he was surprised 
at the relatively low turnout so far. And, he said, ''We still don't know who 
will pay.''

The search for troops has gone a little better elsewhere. Yesterday military 
officials in Samara Region, on the Volga River, said they had signed up 150 

Prime Minister Stepashin has said that a peacekeeping force of 2,500 would 
cost Russia $150 million for a year, but no one knows where that money will 
come from.

''The troops cannot be forced to live off the land they way they do in 
Russia,'' said Pavel Felgenhauer, defense analyst for the newspaper Segodnya.

Felgenhauer said Russia must field a small force or must ask NATO to help 
pay. That, he said, would force Russia to give up its demand that its troops 
be independent of NATO command.

Filipov reported and wrote from Moscow; Shalganov reported from Chelyabinsk.


Russia's Unified Energy System Is 'Potential Bankrupt' 

Rossiyskaya Gazeta 
10 June 1999
[translation for personal use only]
Article by Vladimir Kucherenko under "What People Are Talking About" 
rubric: "The Thicker the Smoke..." 

All last week the rumor that omnipotent B. 
Berezovskiy was on the point of ousting A. Chubays from the post of 
chairman of the board of the Russia's Unified Energy System [YeES Rossii] 
Russian Joint-Stock Company was circulating in the highest circles and on 
newspaper pages. 

Speculating on the basis of rumors is tantamount to reading tea leaves. It is 
possible to say one thing for sure: There is certainly a reason for such 
gossip appearing on the eve of the annual meeting of shareholders of the 
YeES Rossii Russian Joint-Stock Company. It is extremely reminiscent of a 
smoke screen. 

Under its cover another important event has somehow been lost: The 
long-awaited report by the very authoritative auditing firm of 
PricewaterhouseCoopers, which has studied the YeES Rossii Russian 
Joint-Stock Company's 1997 accounting balance sheet according to 
international standards of financial accountability for the first time, 
finally appeared a few days ago. The conclusion is a sad one: Based on 
the results of the year before last, 1997, "the short-term accounts 
payable of the Group (the YeES Rossii Russian Joint-Stock Company -- 
V.K.) exceeded its working capital by 29.869 billion redenominated 
rubles. In combination with the restrictions on increasing tariffs, the 
low level of collection, and the significant economic difficulties in the 
Russian Federation, this circumstance gives rise to serious doubt about 
the Group's ability to continue its activity uninterruptedly." 

This was the position as of 31 December 1997. But the whole point is that 
since then the state of the YeES Rossii Russian Joint-Stock Company has 
only worsened. 

The percentage of payment collection from consumers of electricity and 
thermal energy during 1998 fell from 88 to 87 percent. There has again 
been an increase in both the debts of YeES Rossii's customers and its own 
debts -- to 190 and 200 billion rubles -- and so Russia's energy system 
is a potential bankrupt. At the same time the YeES Rossii Russian 
Joint-Stock Company has increased its debts to state nonbudgetary funds 
-- to the Pension Fund (41.7 percent up on 1997) and the Road Fund (an 
increase of 170 percent). Everything has fallen -- collection of 
subscriber payment from regional systems (66.2 percent against 87 percent 
in the year of Brevnov [chairman of YeES Rossii Board 30 May 1997 to 3 
April 1998]), investment indicators, and electricity generation. Only 
expenditure on maintaining the natural monopoly's central apparatus has 
grown -- by 60 percent. 

It seems that the shareholders at the 25 June meeting will ask very 
many awkward questions. For example, about the swelling numbers of YeES 
Rossii Russian Joint-Stock Company personnel while production is falling 
(an increase of almost 4,600 people) and about the mass recruitment for 
the Russian joint-stock company's central apparatus of people who have 
worked neither in the sector, nor in large financial-industrial 
structures, nor in the natural monopolies at all. Maybe they will inquire 
as to why the Russian joint-stock company still does not have a budget 
for this year. They will certainly ask about the reason why YeES Rossii 
is up to its eyes in credits which it has taken out and has now been 
forced to pay out for them approximately half the "real" money being 
gathered in by the parent company. 

Are the rumors that are being spread accidental in this connection? It 
seems to us that Russia should be more concerned about the objective 
state of the country's most important life support system, not about 
political maneuvers. Last week, incidentally, A. Chubays officially 
announced that he had become the manager of the "Right Cause" bloc's 
election campaign. Hopefully, this post will not prevent Anatoliy 
Borisovich [Chubays] from extricating Russia's electricity generation 
system from its crisis. 

It is probably certainly no coincidence that the smoke screen of rumors 
around it is getting thicker, the closer the annual meeting of YeES 
Rossii Russian Joint-Stock Company shareholders approaches. 


Primakov Performance Criticized 

June 4, 1999
[translation for personal use only]
Article by Igor Domnikov: "Primakov Sows Storm; Who Will Reap 
Sprouts? Love of Primakov--A Personal Matter for Everyone" 

Among the letters to the editors received recently from you, the 
readers, a group in defense of Primakov may be clearly discerned. 
However, one cannot always understand whether this is to the benefit of 
the former Prime Minister. Yet things are what they are. To tell the 
truth, you did not have to write in defense of Primakov. Nothing bad 
has happened to him personally. He fulfilled his task: To dampen the 
shock of the August crisis. And his communist assistants had time to 
tend to many of their own personal matters. 

Primakov, it seems, is an amiable and smart fellow, who has never 
once been caught stealing, and who managed to sit at the top through 
both socialism and perestroyka. He is charming and decent. But that 
which you ascribe to him in your letters--the talent of an economic 
manager--that, alas, he does not have. 

Furthermore, I will say that for some reason the Russian public 
decided that Primakov is the most sincere and honest of politicians. 
Yet that is not entirely so. In any case, in the course of his 
premiership, he has told us many strange figures and statements, which 
were in no way reflected in practice. Perhaps he was being deceived by 
his own team, or perhaps he believed that it was important to gain some 
time and to "calm the public" (when the public is viewed as fools, it is 
"calmed," that is--lied to). But what happened, happened: The natural 
very slight progress at several enterprises after the crisis, when their 
Western competitors left the Russian market, was passed off as "the 
start of industrial growth." The inhibited exchange rate of the ruble, 
which had become sharply devalued after that same crisis, was passed off 
as a big victory, etc. Yet the truth is that the Primakov government 
merely froze those conditions--which, we might add, were not bad--for 
economic reform, which Kiriyenko had left behind. Nothing more. They 
were not even able to get the necessary decisions from the Duma which, 
it would seem, was "their own," communist. And as a result, today it is 
clear as never before that only an entirely new, business-like 
President--and not one bogged down in politics up to his ears--with a 
new command, may possibly accomplish something. This, it seems, is now 
clear to all. And that means that we are doomed to sit and wait for a 
year, doing nothing but observing as the old oligarchs and the 
relatively new leaders, such as the President's family, pump what is 
left out of the country. Such waiting is bad for the health of the 

...However, there is time to look around and think. Specifically, 
to think about Primakov. And about what kind of president we need. And 
to call things by their true names. For example, to finally recognize 
the delirium which occurred in adoption of the budget (according to 
which we are living now). Naturally, the adoption of the budget is the 
division of money. That is why this holiday of cutting up the pie is 
taking place in such a noisy and heated manner, with the exhaltation of 
lobbying (just imagine that you were paid the wages at your job through 
discussion). So that the attention of the public was attracted to this 
procedure. But it is amazing that we did not notice several obvious 
things at that time. Such as the fact that the Duma leaders were so 
irresponsible and, most importantly, so incompetent (except for Yabloko, 
which did not vote for the budget). Or that the then-Prime Minister was 
either inattentive in reading his speech, or frankly viewed both the 
public and the deputies as fools. In any case, what Primakov declared 
differed phenomenally from that which he proposed. And, it seems, 
almost no one noticed this. 

We may recall how he particularly stressed the fact that this is 
an "honest budget-99." At the same time, this honest budget was based 
on the fact that the gross domestic product was 4,000 billion rubles 
(R). Yet even optimists estimated it at no more than R2,700 billion. 
(Specifically, the Accounting Chamber, which uses classical methods of 
computation which have proven themselves. Yet Primakov, we might add, 
carefully circumvented the question of what he bases his computations 

The budget assumed inflation which would not exceed 30 percent. 
Yet the IMF [International Monetary Fund] predicted 60 percent and was 
right (and the 57 percent for the end of 1998 was also not comforting. 
After all, this is a well-known trick--an old Chernomyrdin trick: To 
understate the predicted inflation and to increase the inflationary 
budget revenues, pretending that it is being fulfilled and that 
achievements are being made.) 

The "most honest" Prime Minister announced an average annual 
exchange rate of R21.5 per dollar. Without the slightest basis for 
this. He announced it to the entire country. (Later, Maslyukov, 
without delving into details, said on TV that our gold reserve allows 
this. It is good to know that we are rich. We have only to invest half 
of the budget into the gold mining industry, to mine an abundance of 
gold, to reduce the exchange rate to 1:1, and to live as they do in the 
USA). ...Then again, this is also based on an old trick: Using the 
understated exchange rate to obtain what is supposedly budget income 
through currency revenues and through foreign borrowings. 

Or, about "independence from foreign loans:" We have known for a 
long time that the ceiling of the foreign debt in the budget has been 
raised by almost 12 percent--by more than $27 billion. What kind of 
"independence" is this, when it is exactly just the opposite? 

We cannot even write this off to the fact that Primakov said this 
in hopes of developing industry. Because 88 percent of our development 
budget is comprised of so-called bonded foreign credits and credits of 
the International Bank for Reconstruction and Development [IBRD]. These 
are machines and technology which the West supplies, and we pay for this 
in real money (with interest), at the same time supporting jobs and the 
economy in the West. But we are also fulfilling strict administrative 
demands. For example, the IBRD's crediting of restructuring the coal 
industry was accompanied by a packet of demands, in which the main one 
was to suppress social unrest among the miners and to close certain 
mines shafts and open-pit mines. (If the volume and tone of these 
demands remains just as aggressive, there is a chance that we will soon 
be buying coal abroad). 

Or Primakov's statement about "turning toward the army." Here is 
one example. The new tax on amortization deductions leads directly to 
immediate obsolescence of fixed capital of enterprises (especially 
expensive equipment) and reduction of the remaining net profits. This 
spells doom for large enterprises with a long term of recovery: That is, 
primarily for high technology enterprises. (And here is another 
absurdity: They have introduced a tax on the sum of debt! State defense 
contracts are not being paid by the contractor--the state, and now these 
sums are being declared property, and subjected to a tax). In short, if 
we take the term, "army" to mean the country's defense capability, and 
not the feeding of several elite Moscow area divisions, then the 
government is finishing off the last of what remains. It is not enough 
that they "apportioned" $6 billion for defense (in the USA it is R270 
million), but there is also a stifling tax! 

Then, there is also the "rebirth of industry." State investments 
are declining by three times, and there is not a single ruble in "live" 
money. Industrial enterprises do not have their own investment 
resources. Their working capital has been liquidated by Gaydar's 
formulas and does not exceed 2 percent of what is needed. The prognosis 
of the IMF about a 10 percent industrial decline is already coming 

Or, let us take the "regulatory role of the state." The relative 
share of the consolidated state budget in the GDP [gross domestic 
product] is declining: Today it is even lower than in the super-liberal 
economy of the USA. Expenditures on everything have declined, and the 
most serious blow has been dealt specifically to the highly praised 
"real sector:" The article entitled, "Industry, energetics, and 
construction" has been cut by 70 percent; "Agriculture and fishing"--by 
37 percent, and "Transport and road management"--by 42 percent. What 
kind of regulation is this? However, expenditures for state 
administration and for maintenance of the executive branch have been 
increased by 3 percent. And if the most honest former Prime Minister 
spoke about the fact that there would be a growth of funds by 18 
percent, what he forgot to add was that the crisis reduced the main 
indicators by three times; that there has been a planned 40 percent 
increase in the cost of many goods; that rates of tax on income received 
from the place of secondary employment have been increased; that tax 
benefits have been repealed for students of VUZes [higher educational 
institutions], organizations for disabled persons, all types of 
recreational institutions, and on the sale of goods from personal 
subsidiary farms; that the sum of deductions to social extra-budgetary 
funds have been reduced for organizations, etc. 

We might add also that the most honest Primakov never said that 
the budget was based on that very same fateful announcement of the 
Kiriyenko government and the Central Bank, "On Measures for 
Stabilization..." dated 20 July, after which the crisis occurred, and we 
"began to live more humbly"--which, specifically is the primary demand 
of the IMF. Or that this budget was written by that very same Zadornov 
in accordance with those same IMF directives, and submitted to the Duma- 
-except now through Primakov. Except that there is one difference from 
the Kiriyenko budget: 53.5 percent of the budget is comprised of 
expenditures for repayment of debts. Even the young Prime Minister did 
not dare opt for such a level. Just as he could not opt for the 
unprecedented primacy of obligations to the West, attributing secondary 
importance to the country's domestic expenditures (roughly speaking, the 
meaning of life of every Russian from here on out is to pay back part of 
the debt to the West, in hopes of borrowing more). Neither Kiriyenko, 
nor Chernomyrdin dared opt for a budget deficit level below 4.7 percent 
(it is specifically this indicator which determines the strictness of 
the monetary policy). Yet Primakov decided on 2.54 percent. The 
deficit will be repaid by emission of state securities (the rate of 
yield is not fixed: This means that there is again hope of playing, as 
with the GKOs [state short-term bonds]). This means that once again 
everything is being built on credits, except that--and this is new--the 
state will credit its budget from foreign firms and banks, paying off 
the debts with interest. This means that the degree of monetary 
strictness in the budget is increasing. 

I would only like to say that this budget was principally 
dishonest. And Primakov knew this. And I have a serious question on 
the eve of all of our Duma and presidential elections: Why did society 
stubbornly consider Primakov to be honest? Because it did not want to 
dig around in its own budget? Or because, in Russia, it is considered a 
matter of course to deceive the rather simple deputies, like children, 
and at the same time also to deceive the people. So as to later conduct 
one's own undeclaimed secret policy, quite opposite to the one which was 
announced? Or is this the charm of the individual?... Oh, I am afraid 
the elections will come to a bad end, and we will once again vote with 
our hearts. And not with our heads, or at least with our 

...I might add, we can confidently predict: No growth of any kind 
may be foreseen anywhere, have no doubt about that. Sequestration of 
the budget closer to Fall is an undoubted fact. The living standard 
will not rise. And, sadly, there is nothing which can be called a 
"basis for growth." There has been stabilization of the crisis, and of 
that which was done during the time of the first President of Russia. 
And the phrase, "Russia needs a push," has taken on a double, not very 
proper, meaning. 

[Rossiya: New paper founded by and controlled by Moscow Mayor 


Hearing of the House Committee on Banking and Financial Services
"The State of the Russian Economy and the U.S. Policy Response"
June 10, 1999
Testimony of David J. Kramer <> 
Associate Director, Russian And Eurasian Program
Carnegie Endowment for International Peace


Soviet-style thinking led Russia's so-called reformers in the early 1990s
to rely on Yeltsin's authority and power to bulldoze reform measures through
the parliament rather than build a wide social and political base in support
of reform. When Yeltsin was engaged, that approach had moderate success.
However, more often than not, Yeltsin failed to provide the support that the
reformers needed-and which they could not find elsewhere. Unfortunately,
Yeltsin has demonstrated over the years that he cannot be relied upon to
provide sustained support for any policy; instead, he chooses the
politically expedient route to keep himself in power-often at the expense of
reform. Moreover, Russian reformers' dependence on Yeltsin created a
situation where the West, the United States in particular, blindly supported
the Russian leader. This reliance on one man-Boris Yeltsin-has come back to
haunt both Russian reformers and U.S. policy.

This is the other important issue to keep in mind about Russia. Until
Yeltsin leaves office, there is no chance that the situation in Russia will
improve. He is Russia's biggest obstacle to a brighter future. Since
winning reelection in July 1996, Yeltsin has squandered opportunities to
lead Russia on the right course. His ill health has sidelined him
repeatedly and accounted for erratic behavior. He has become practically
irrelevant politically, yet until he is replaced, Russian politics will
remain in a state of suspended animation as everyone awaits his successor.
Until then, the United States has little choice but to continue to deal with
Yeltsin. After all, he remains Russia's duly elected president. But we
should recognize that the agreements he signs or promises he makes are often
worth very little (one can recall his March 1997 pledge in Helsinki to move
the START II treaty through the Duma). Even his recent decision to weigh in
on Kosovo might prove to be ephemeral, for not too long ago he was warning
that NATO's actions could precipitate World War III. There is talk in
Moscow that the "Yeltsin Family"-- as the extended circle of influential
advisers around the Russian leader, including his daughter Tatyana, is
called - is figuring out a way to postpone next summer's presidential
election to keep Yeltsin in power. If these rumors get more serious, the
U.S. should do all it can to persuade the Russian president that this would
be disastrous for his country and for Russia's relationship with the West.

Despite the weakness of the current president, the Russian presidency
remains a powerful position, as evidenced by the three times in the past 14
months that Yeltsin has exercised his constitutional authority to dismiss
his prime minister. The Chernomyrdin firing in March 1998, in particular,
created a sense of instability and unpredictability in Russia that badly
shook investors-both foreign and domestic. Chernomyrdin was certainly not
the staunchest reformer in Russia, yet he was someone with whom many
investors felt comfortable. His abrupt dismissal, while certainly not the
trigger of Russia's crisis, was a major contributing factor.

The firing last August of Sergei Kirienko was no surprise - Yeltsin needed
a scapegoat for Russia's economic plight. Yet his decision last month to
sack Primakov underscored the whimsical nature of Russian politics and the
influence wielded behind the scenes by people like business magnate Boris
Berezovsky. The fallout from that move has shown that power politics and
competition among various interest groups drown out any prospect for
responsible leadership in Russia.

Some analysts in Russia and the West demonized Primakov and rejoiced at his
firing. He was too close to the Communists, argued Chubais on a recent trip
to Washington; he was too anti-American, critics in this country charged.
Yet Primakov, the ultimate pragmatist who had emerged as Russia's most
popular politician and succeeded in stopping the economic hemorrhaging
inherited from his predecessors, represented, to the extent one can,
consensus thinking among Russia's policy elite. His intervention on behalf
of Saddam Hussein in 1991 and Slobodan Milosevic this year were irksome, to
say the least, but they were not free-lance operations. His successor,
Sergei Stepashin, who played a major role in the fateful decision to send
Russian troops into Chechnya in 1994-95, has been touted by Chubais and
others as "representative of the new generation of Russians." The new
generation, in my opinion, can do better than this.

There are those who argue that Russia should be allowed to deteriorate to a
point where the current regime fails and the "reformers" are brought back to
power. Their return is highly unlikely, however, and would not be supported
by the Duma in any event. Moreover, viewing them as "saviors" is
inconsistent with the fact that Russia's crisis occurred under the
reformers' watch.

Notwithstanding the political shenanigans in Moscow, Russia has survived
another winter despite dire predictions of starvation in some remote
regions. Indeed, life has been tough for many people since the crisis last
August. Yet for most, life has been difficult for many years, both during
and since the Soviet period. Russians have an uncanny knack for "getting
by" and have demonstrated once again a high level of tolerance for erratic
and often inept government behavior. Fears of starvation, voiced in the
early 1990s, were never realized. Without underestimating the seriousness
of the current problem, the picture that has been painted over the past few
months is equally overblown.

The U.S. Department of Agriculture, eager to help domestic farmers, has
been the major force behind food aid. But the aid that was supposed to have
helped Russians survive a tough winter only started arriving in St.
Petersburg in mid-March. As in the early 1990s, the risk again is that U.S.
food aid will not help those in need, but instead line the pockets of
corrupt government officials. Stepashin just last week ordered an
investigation into how food aid to Russia is distributed because 30% of
humanitarian aid was "routinely stolen" in the past, he said.

That we are back once again to providing emergency aid nearly five years
after the West moved from sending humanitarian assistance to Russia to more
sophisticated technical assistance programs is disappointing. In
particular, Russia could face a serious shortage of pharmaceuticals. But as
with food aid, there is an enormous problem in properly distributing
emergency drug shipments.

What else can we do? Frankly, not much beyond supporting the IMF package.
Student and professional exchange programs, a staple of U.S. assistance
since the Freedom Support Act in 1993, remain the most effective way of
helping Russians help themselves. We also need to place greater emphasis on
the regions and bring governors (who are also members of the Federation
Council) and others from Russia's regions outside of Moscow to the United
States. "Nunn-Lugar" defense conversion assistance is important to maintain
as well.

The United States is faced with a true dilemma: while recognizing the
little influence and serious limits of what it can achieve in Russia, the
U.S. also has too big a stake in Russia to avoid action entirely. It is
almost truistic to point out Russia's importance as a major nuclear power,
its geostrategic location, and its economic potential. Moreover, Russia's
role toward the end of the Kosovo crisis shows it can at times play a
positive role in world affairs. At the same time, until Yeltsin makes his
departure from the scene in one way or another, little will change in
Russia, with or without our help.

Nevertheless, staying engaged during the remainder of Yeltsin's tenure is
vital for our future relationship with Moscow, and the IMF deal, if handled
properly, will demonstrate that the West still cares about Russia. Neglect
and disengagement now would only lead to a much higher price to pay in the

As Secretary of State Madeleine Albright said during a speech in Chicago
last fall, "We cannot say that Russia has lost its way when in fact it has
just begun its journey. Nor can we say that Russia is ours to lose. We can
help Russia make tough choices, but in the end Russia must choose what kind
of country it is going to be." Indeed, Russia is not ours to "lose," just
as Russia is not ours to "win." All the support and aid in the world will
not make a difference if Russia and her leaders do not get serious about
reform and overcoming the Soviet, communist legacy. Where we can make a
difference, we do so at the margins at best.

Mr. Chairman, just as many observers were premature in declaring victory
for democratic, market forces in Russia, we now need to avoid prematurely
sounding the deathknell for that country and the U.S.-Russian relationship.
Realistic expectations and honest assessments of "where we are" are long
overdue on both sides of the ocean.


Military return to political centre stage with Kosovo success

MOSCOW, June 13 (AFP) - The military have returned to centre stage in
Russia following their spectacular wrong-footing of NATO in Kosovo, with
President Boris Yeltsin also keen to share in the political rewards of the
unexpected success, analysts said Sunday.

By stealing a march on NATO with the bold unilateral deployment of Russian
forces in Kosovo, Moscow extracted a major concession from the United
States -- the right to run an area of the southern Yugoslav province.

The success followed weeks of humiliation at the hands of its western
partners who had turned a deaf ear to Moscow's daily appeals for a halt to
NATO's air strikes against its historic ally Belgrade.

But Russia's military top brass also sprang a surprise on the political
establishment, going over the head of cabinet chief Sergei Stepashin to
seek the sanction of President Boris Yeltsin directly.

Foreign Minister Igor Ivanov's initial reaction to the operation had been
to regret an "unfortunate" mistake, telling CNN that Russian troops had
been told to withdraw immediately, an order which never materialised.

"The Kremlin alone was informed," said Alexei Venediktov, head of news at
the usually well-informed radio Echo Moscow.

"The president gave the order to enter (Kosovo) after being presented with
the proposal by the military. Ivanov and (premier Sergei) Stepashin knew
neither the timing nor place of the operation," he added.

"President Yeltsin loves theatrical gestures and the elections are drawing
close," he said of legislative polls due in December and a presidential
ballot in mid-2000.

"It is clear that this step was taken by President Yeltsin or at least it's
impossible to imagine he didn't know," said Nikolai Petrov of the Carnegie
Endowment think-tank in Moscow. The confusion surrounding who actually took
the decision was part of the "Byzantine games" so loved by the president.

Whatever the truth, Yeltsin moved swiftly to give the operation his seal of
approval, promoting the commander of the Russian contingent General Viktor

Russia's show of military bravado has proven hugely popular with domestic
public opinion and the vast majority of political leaders, including the
Communist opposition which has slammed the Kremlin for "betraying" the
national interests of Russia and Yugoslavia over Kosovo.

And with just six months to go to parliamentary elections the army,
demoralised by its humiliating defeat in Chechnya, will use the Kosovo
exploit as an argument for greater funding.

The defense ministry's six-billion-dollar budget for 1999 compares with the
defense spending of Israel.

"It is obvious that the military are trying to use this in order to show
that the country and the state needs to spend more money on them," said

"Different politicians are trying to use them and to involve them in their
political games," he said.

"It is clear that politicians are going to watch what the generals do much
more closely," added Venediktov.

"The military have replaced the oligarchs," he said, referring to the once
all-powerful clique of business barons whose influence in Russia has waned
following August's financial crisis. 


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