July 1, 1999    
This Date's Issues: 3371 • 3372 •3373 

Johnson's Russia List
#3373
1 July 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AP: U.S. downplays Russia bomber incident.
2. AP: For Young Nikita, Cold War Rages.
3. Komsomolskaya Pravda: Yevgeniy Savostyanov: Berezovsky Has Split
Yeltsin's 
Family.
4. Kommersant: Yegor Gaidar Will Run For Moscow Mayor.
5. Itar-Tass: Stepashin Believes in Political Stability in Russia.
6. Itar-Tass: Berezovsky Forecasts Presidential Future for Stepashin.
7. Joan Urban: Re Tom Manson and the "real Russia."
8. Andrei Liakhov: RE: 3369-Legal System Information.
9. The Russia Journal: Ajay Goyal, Why isn't Warren Buffet Investing Here? 
10. Reuters: Russia tops list for off-beat business risks.
11. Nathan Stowell: Response to Manson (#3371).
12. Oleg Borissov: Re: Keith Hudson:#3364. (Re Russians living abroad).
13. Newsday: Paul Saunders, Summers Is a Bad Pick to Run Treasury.
14. Washington Post: David Hoffman, Audit Shows Russia Misled IMF on Loan.
15. AFP: Two thirds of Russian political parties to be liquidated:
Minister.]

********

#1
U.S. downplays Russia bomber incident
By Randall Mikkelsen

WASHINGTON, July 1 (Reuters) - The United States, echoing Russian comments
playing down the interception of two Russian strategic bombers by U.S.
fighter jets near Iceland, said on Thursday it was unconcerned by the
incident. 

``It was not a militarily significant event,'' White House spokesman Joe
Lockhart said. ``The U.S. routinely protects the airspace of Iceland and I
don't think there's anyone who believed that these two propeller bombers
posed a significant military threat.'' 

U.S. fighters intercepted the propeller-driven TU-95 Bear bombers near
NATO-member Iceland last Friday and escorted them around the island, U.S.
officials said. 

The bombers were in international airspace as part of a military exercise
announced in advance by the Russian government, National Security Council
spokesman P.J. Crowley said. 

U.S. officials said the United States may not have been aware in advance of
the precise routes of the bombers, and described the interception as most
likely a routine precaution. 

Crowley said he was unaware of any contacts between the U.S. and Russian
governments after the interception. 

``Russia routinely holds military exercises and we are not particularly
troubled by this,'' he said. ``I don't think that there's any need to
over-dramatise this.'' 

The Russian Air Force denied any wrongdoing. 

``Our planes did not violate any laws in that area,'' a Russian Air Force
spokesman said, declining further comment. 

Norway also scrambled jets to meet two TU-140 Blackjack bombers that had
flown down the Norwegian coastline, but the interceptors failed to reach
the bombers before they turned back, U.S. officials said. 

The Washington Post, which first reported the incident in Thursday's
editions, quoted U.S. officials as saying the incident had taken place
during Moscow's largest military exercises since the end of the Cold War. 

Crowley disputed this assessment. 

``The Russians have had exercises of this nature on multiple occasions
since the end of the Cold War,'' he said. 

The exercise and interception came amid heightened concern in Washington
about Russian President Boris Yeltsin's control over his government and
armed forces. 

About 200 Russian troops surprised NATO three weeks ago by occupying the
airport in Pristina, the capital of the Serbian province of Kosovo,
following an international peace deal with Yugoslavia and before NATO
peacekeepers could arrive. 

The ensuing standoff was resolved only after several days of negotiations
over the terms for Russian troops to take part in the NATO-led peacekeeping
force for Kosovo. 

*******

#2
For Young Nikita, Cold War Rages
July 1, 1999
By VLADIMIR ISACHENKOV

MOSCOW (AP) - The grandson and namesake of the late Soviet leader Nikita
Khrushchev says the Cold War is still raging in Russia's bureaucracy.

Once his father, Sergei Khrushchev, applied for U.S. citizenship, the young
Nikita Khrushchev found that doors that were previously open to him were
shut in his face.

``My experience during the last few days has shown that there are people in
Russia for whom the Cold War is still going on,'' Khrushchev wrote in a
column published Wednesday in the liberal weekly Moscow News.

Sergei Khrushchev has been living in Rhode Island for most of the last
decade. He has successfully passed the U.S. citizenship test and is to take
his pledge of allegiance in July.

Nikita Khrushchev has long been helping his father, a former missile
engineer turned writer, gather material for his books from Russian archives
and other institutions.

But now that Sergei Khrushchev is about to become a U.S. citizen, the son's
job has suddenly grown more complicated. Officials are shunning him because
of his father's move.

A missile design bureau turned Nikita Khrushchev down when he asked for a
picture of an old missile, saying it would not have contact with a
foreigner without permission from the Federal Security Service, the main
successor of the KGB.

His argument that he is a Russian citizen didn't help.

And when Khrushchev turned to an archive to make copies of some documents,
a custodian told him he would have to pay 40 times the previous price - and
in hard currency, not rubles - because of his father's new status.

Finally, a former top Soviet official whom his father had asked him to
contact lashed out at him in a telephone conversation, saying he should be
persecuted as a relative of an ``enemy of the people'' - a regular practice
under Soviet dictator Josef Stalin. Khrushchev didn't name the former
official.

``This isn't the Cold War,'' he summed up. ``But it's not normal peace,
either.'' 

*******

#3
Russia Today press summaries
Komsomolskaya Pravda
1 July 1999
Yevgeniy Savostyanov: Berezovsky Has Split Yeltsin's Family
Summary
Former head of presidential administration Savostyanov spoke about the ways 
of the Kremlin in an interview.

Soavostyanov said that the ideal successor to Yeltsin should guarantee that 
economic interests of the president's entourage -- Dyachenko, Berezovsky and 
Abramovich – are observed. "I do not know about Chubais," he said, while 
adding that the successor should not allow a leftist revanche in the country.

Speaking about the role of Berezovsky in Yeltsin's family, Savostyanov said: 
"Berezovsky has a very strong intellectual influence on Yeltsin's daughter 
Dyachenko. In certain situations I saw that others influenced her as well. 
These included Igor Malashenko (head of NTV) and Anatoly Chubais, former head 
of the presidential administration. Yet Berezovsky's influence has been much 
stronger. He put his thoughts into her head, which she then passed to her 
father. Thus, Dyachenko was used to pass information to the president. And 
this worked, because the capability of Yeltsin to analyze and apprehend 
information himself is very limited".

Savostyanov also said that he does not consider Tatyana Dyachenko’s financial 
dependence on Berezovsky to be impossible.

*******

#4
Russia Today press summaries
Kommersant
1 July 1999
Yegor Gaidar Will Run For Moscow Mayor
Summary
Moscow Mayor Yury Luzhkov has another contender at the upcoming elections. 
"The Right Cause" coalition has fronted its own candidate - former premier 
Yegor Gaidar. Gaidar will be joined by Sergey Kiriyenko who also announced 
his candidacy.

Kiriyenko is also a member of the "Right Cause" movement, which unites "young 
reformists" from previous governments. However, the movement fears that he is 
going to have an independent campaign at the parliamentary and mayoral 
elections. Thus, leadership of the movement is trying to persuade Gaidar to 
run, telling him that he is still popular in Moscow. Besides, Gaidar was the 
first politician to openly criticize Moscow Mayor Luzhkov. His economic 
findings proved that the system of management in Moscow is not efficient. One 
anti-Luzhkov paper, published last year, even resulted in a slandering 
lawsuit initiated by the Moscow mayor.

Kiriyenko started to attack the Moscow mayor only a month ago, but his attack 
has been very loud and decisive. He said that he does not care about the 
attitude of the coalition towards his actions, but hopes that the movement 
will not front its candidate at the Moscow mayoral elections.

********

#5
Stepashin Believes in Political Stability in Russia.

SALZBURG, July 1 (Itar-Tass) -- Russian Prime Minister Sergei Stepashin told 
the economic summit of the Central and East European countries in Salzburg on 
Thursday that there is evidence of the achievement of political stability in 
Russia and expressed confidence that political stability will keep Russia on 
track for further reform. 

"The recent joint efforts of the legislative and executive branches of power 
in Russia testify to the fact that political stability has been reached in 
the country," Russian Prime Minister Sergei Stepashin said in his address to 
the economic summit of the Central and East European countries which is held 
in this Austrian city. 

Sergei Stepashin noted that relations between the government and the State 
Duma, or the lower house of Russian parliament, were far from simple, but the 
same was true about Austria, as relations between the executive and 
parliament are always complex. 

Stepashin pointed to the fact that the State Duma recently voted in favour of 
passing 90 percent of the government package of legislational initiatives 
approved by the International Monetary Fund and the World Bank, which, he 
said, testified to the attainment of political stability in Russia. 

Stepashin expressed confidence that "the next State Duma which will be formed 
after the forthcoming parliamentary elections must become more constructive 
and less politicised." According to the Prime Minister, the present State 
Duma "is undoubtedly excessively politicised." 

Sergei Stepashin said "there are all prerequisites" for the constructive 
development, which "could provide a good stepping stone towards the future 
election of the President of Russia." 

"Russia will never turn back, I am absolutely confident. A splendid younger 
generation is rising, and we have strong regions," the Russian prime minister 
said. 

********

#6
Berezovsky Forecasts Presidential Future for Stepashin.

SALZBURG, July 1 (Itar-Tass) -- If Sergei Stepashin sticks to "a tough 
position of right-wing reforms, he will have a real chance" to become 
Russia's President in the future, according to Russian business tycoon Boris 
Berezovsky. 

Berezovsky who was speaking in an interview with journalists covering the 
economic summit of the Central and East European countries in Salzburg 
declared that "Stepashin is increasingly becoming a figure in Russia's 
political life." 

*******

#7
From: JBUMoscow@aol.com (Joan Urban)
Date: Thu, 1 Jul 1999 
Subject: Re Tom Manson and the "real Russia"; JRL #3371 1 July 1999

I am just back from Moscow and would like to offer my most recent impressions 
of the "real Russia." First off, I agree in general with Tom Manson's 
comments on Russian economic conditions at the grassroots. One bit of 
evidence he didn't mention is the ubiquitous presence of steel front doors to 
individual apartments, and not only in Moscow and certainly not only among 
New Russians. Why? Because of the ubiquitous presence of hidden dollars 
within....

A few words about my own background. As a professional I may be known to 
some JRL readers for my work on the post-Soviet communists, but I really lead 
a double life. For the past eight and a half years I have spent many weeks, 
twice each year, in Moscow and beyond, completely immersed in a Russian (need 
I add, non-communist!) environment. I see no Westerners and rarely speak 
English, except occasionally to give conversational practice to my two 
"Russian daughters" (former exchange students who lived with us when my 
daughter was studying Russian at Bethesda-Chevy Chase High School). My 
circle of close personal acquaintances has expanded with time; my 
relationship with a more limited number of families has deepened into 
trusting and loving friendship across generational lines. Let me add that 
forty years ago, in the summer of 1959, I was a student guide at the historic 
American National Exhibition in Moscow. My impressions of post-Soviet Russia 
are thus grounded in four decades of experiences at the grassroots -- some 
not very pleasant.

The purpose of my recent trip was not to study the communists (I interviewed 
none this time) but to tap the political pulse of my nearest and dearest 
Russian friends in the aftermath of the Serbia/Kosovo War. And here what I 
have to say is sobering indeed. I will try to be brief and to the point.

On the one hand, the depth of misunderstanding and the extent of 
disillusionment with the moral fiber of America is profound beyond belief. I 
will spare you the details of the quarrels, tears, and recriminations, 
followed by attempts on all sides at reasoned discussion (all to no avail). 
Let me rather synthesize the three main impressions I came away with.

First, my nearest and dearest are indeed convinced that the U.S.-instigated 
(in their view) NATO bombing of Milosevic's "Yugoslavia" was aimed at Russia.

Secondly, they abruptly brushed aside my arguments about ethnic cleansing; 
rather, they ascribed the ulterior motive for the U.S. action to "economic 
interests" (a position taken even by the Russian daughter who is getting her 
Ph.D. in economics at MGU) or to pressure from "the arms industry" (the view 
of a thoroughly Europeanized executive in his late 40s) -- in a reflexive 
throwback to old thinking.

Thirdly, my close friends and broader circle of acquintances have not become 
"anti-Western;" they have become anti-American. They remain firmly 
pro-European, and simply cannot understand why or how it could be that all 
the European members of NATO went along with U.S. "diktat."

On the other hand -- and this may provide some ground for optimism, the 
highly educated professors, graduate students, and researchers who attended a 
two-day conference at the Lenin Library on the theme, "A Winning Strategy of 
development for Russia in the 2lst Century," on l8-19 June were still 
searching for an explanation they could really accept. On the second day a 
special session was convened entitled "Scholars against NATO." I feared the 
worst, and ordered my MGU graduate student Russian daughter to accompany me 
for "protection." There were three speakers. The first was an American 
political science professor, Dr. Susan Weissman of St. Mary's College of 
California, who did a splendid job of presenting the multi-faceted views of 
ordinary Americans on the war and bombing. Her talk was received with tepid 
applause. She was followed by a Greek professor of philosophy, a 
self-proclaimed Trotskyist who spoke like an orthodox Leninist from 1917. He 
droned on for an hour, and concluded with a double punch-line: all the 
European social democrats in power are "traitors;" and what is needed is the 
creation of a "new Comintern." His talk was received with even more tepid 
applause! Finally, a Hungarian leftist briefly argued, offering no 
substantiation of any kind, that NATO's bombing of Serbia had been planned 
down to the last detail since 1993. This left the audience quite cold. 
After a few written questions from the floor, people quickly begin drifting 
away. In a nutshell, they are still searching for answers....

"What is to be done" to bridge the chasm of misunderstanding that has been 
created between Russians and Americans, that is the question!

Thanks for hearing me out. Joan Barth Urban, Catholic University of America, 
Washington, DC.

*******

#8
From: "Andrei Liakhov" <liakhova@nortonrose.com>
Subject: RE: 3369-Legal System Information
Date: Thu, 1 Jul 1999 

Re: Charlie Christophe's request:

The best place to look for legal texts (either in Russian or English) is the
so called Dom Knigi (House of the Book) on the New Arbat street (1st Floor,
turn left) or Legal Bookstore on the corner of Pushkin Square (same side of
Tverskaya as McDonalds). You can also find everything you need on the Net -
there is a very good Garant Russian Legal Database site, although I can't
direct you there - we subscribe to it and our IT has created a shortcut for
lazy lawyers!
AL 

*******

#9
Date: Wed, 30 Jun 1999
From: Sandeep Goel <sandeepgoel@yahoo.com>
Subject: Why isn't Warren Buffet Investing Here? - from Russia Journal

Why isn't Warren Buffet Investing Here? 
Ajay Goyal/ The Russia Journal (ajg@online.ru)
www.russiajournal.com

The troubles began when kids fresh out of Ivy League schools hired by Wall 
Street firms at fat salaries arrived in Moscow some four to five years ago, 
and decided to call the country: a market.

The market, it so happens in Wall Street business-speak translated into 
Russian, has nothing to do with free trade or free enterprise. It is a poker 
game played on a sophisticated computer system.

A system created over the last six years or so by a small number of 
enterprising young men and women driven by the dream of a functioning stock 
market, and supported by the "young reformist" governments of the early 
1990s. In an otherwise corrupt and inefficient country, where almost nothing 
seems to function, the Russian Trading System (RTS) is a professional and 
sophisticated stock trading mechanism. Hundreds of Federal Securities 
Commission employees, economists, technicians, bankers and traders deserve 
unreserved praise for the creation of this system.

This RTS system, with three-tier stocks, mainly sees trading in the RTS-1 
tier of stocks of almost 50 Russian companies, the so-called "blue chips." 
The companies, mostly former state monopolies and utilities, owe their 
presence on the RTS to historic bungled privatization deals which saw the 
sale of billions of dollars in state assets to communist directors and their 
near and dear ones.

Public offerings by enterprises to increase their capital base and share 
growth and profits with investors-the foundation of any capitalist market-are 
absent in Russia. The development of the financial and trading system has 
outpaced the creation and consolidation of a real market economy, which 
provides a basis for mass investment.

By some estimates, of $12-13 billion invested and traded on the Russian 
capital markets until about 18 months ago, when the market fell flat and lost 
all its hot air, almost $10 billion was foreign capital. Most of this foreign 
capital, almost none of which ever really came into the mainstream Russian 
economy, was (mis) managed by a handful of hedge funds usually operating from 
exotic jurisdictions such as the Bahamas and Cayman islands.

So there we were then, in the absence of a real private sector, in the 
atmosphere of gross mismanagement of privatized state companies, with unpaid 
state wages, negative industrial growth, burgeoning debts and a crime ridden 
economy-looking at the market soaring by over 500 percent.

I frequently wondered in those days what it is these fund managers knew of 
Russia that I did not, after having spent over a decade doing business in the 
country. The Russian market I knew-as did millions of Russians-was one that 
traded real goods, real money and real assets. As the state sold itself off, 
new kids appeared on the block every day. Those who used to make runs 
(literally) between the ground and top floors of Soviet "Univermags" to take 
advantage of exchange rate differences on counters on different floors, 
started using their skill and energy to buy mass privatization vouchers and 
take control of smaller companies and properties. Many of them, thankfully, 
still thrive with their small factories or banks. 

With dreams of a future in a free capitalist economy, with no experience and 
background in trading in an efficient market, young entrepreneurs started 
founding exchanges like mushrooms around the country. But just as fast as 
they cropped up, many started dying as well for one simple reason-the "blue 
chip" Russian industrial enterprises were not market-friendly. Their 
operations were opaque, as were their ownership and finances. By 1995, many 
founders were already withdrawing from some of the exchanges they had founded.

The means and systems to trade existed, but there wasn't much to trade. Even 
then we reckoned that there could be no market without decent stocks to 
trade. The Russian economy and its privatized enterprises would have to 
function with more accountability, openness and under better management to 
form the backbone of a good stock market. The assets of inefficient, 
ill-managed enterprises were being stripped and siphoned to offshore 
locations by so-called Red directors, while barter accounted for most sales. 
The stocks of such companies could not be sold in good conscience to any 
investors, least of all foreign.

But just as many pragmatic Russian traders withdrew from trading stocks, a 
tide of foreign money started coming in-lured by a stable macro-economic 
situation and fast-talking investment managers.

While most serious foreign corporations focused on making direct investments 
and creating or fundamentally restructuring organizations, the "blue chips" 
and the state seemed to have no relationship with the stock market response 
and interest in them. Nonetheless, it became exotic to invest in Russia, 
along with other so-called emerging markets. We all know how all that 
finished.

Over the past few months, I have watched with amazement as the RTS index, in 
a repeat of its 1996 performance, leapt forward to post a 100-percent gain in 
a short span of six months. And that occurred when the country was run by a 
dismal Communist government, when Russia was-and is-teetering on the verge of 
a debt default, when the economy is in a gutter. Yet economic indicators are 
selected and cited to cajole investors with overflowing coffers to invest in 
this market.

The Russian market is on the roll again.

The trend cannot but end in a disaster for all except the few fund managers 
and brokerage houses fuelling the run. 

The fundamentals of investing into the stock of any company, irrespective of 
its location, size or production are basically common. The principles of 
investment are like laws of science. The Russian stock market cannot defy 
gravity. Would these Russian companies, as they are run and managed today, 
qualify for such euphoria, even if they were in U.S.? No smart investor would 
ever consider buying their stock. They have a long way to go before they can 
qualify for a liquid trade their stock.

There is good reason why savvy investors around the world who have built 
fortunes-at times greater than the entire GDP of Russia-on sound investment 
decisions are staying away from Russia and its soaring stock market. There 
are issues of quality of products, brand names, corporate governance, 
transparency, shareholder friendliness, besides macro-economic considerations 
that need to be addressed before these companies can qualify for large 
foreign investments.

In the years the market boomed, I went around listening to enlightened 
economists and fund managers around the world as they spoke of great Russian 
opportunities. As they spoke then of Russian "market", alien to me and to 
most Russians, I remained skeptical. The situation on the ground was 
different from what was being projected on the walls of luxury hotels and 
conference rooms in investment forums.

In one of those conferences, addressed by a well known fund manager with 
almost $5 billion in his portfolio, the respect, awe and silent deference 
given to him was broken by an elderly silver-haired man sitting in a back 
row. He had the age and air of a Warren Buffet, though not exactly the looks.

"I have only two questions," he said.

We want to know your opinion! 

"One: how many of the Russian factories you have invested in have you 
actually visited? And two: do you speak Russian?"

The answer was an evasive "none" and "no". The old man, in a reflexive 
gesture, put his hand on his poket, as though making sure his money was safe. 
He, I'm sure, is not investing here.

*******

#10
Russia tops list for off-beat business risks

LONDON, June 30 (Reuters) - Russia, Pakistan and Algeria confront Western 
firms with the biggest off-beat risks outside the normal run of business 
criteria, an international risk consultancy said on Wednesday. 

Weighing factors often seen as peripheral, from corruption and violent crime 
to red tape and basic cultural differences, London-based Merchant 
International Group (MIG) said Russia remained the riskiest business location 
for British and U.S. companies for the second quarter running. 

Pakistan overtook Algeria for second place, MIG's latest quarterly survey 
showed. Indonesia, rated as third-riskiest in the first quarter, improved its 
ranking to fifth place with Belarus fourth. 

Indonesia's first democratic elections for 44 years passed off peacefully 
early this month, despite fears of violence. 

MIG said the knock-on effects of the Balkan crisis, including increased 
xenophobia in Eastern Europe, would continue to affect Western companies into 
2000. 

Heightened religious tension in the run-up to the millennium and increasing 
friction between China and Taiwan over World Trade Organisation membership 
would also take their toll. 

MIG, which has estimated that non-conventional risks cost companies investing 
or operating in emerging market countries more than $15 billion a year, said 
the risks in any one place also varied according to the origin of the foreign 
company. 

For British companies, the best-rated countries by region were Estonia, 
Jordan, Singapore and Chile, it said. 

*******

#11
From: "Nathan Stowell" <nys@aha.ru>
Subject: Response to Mansen (#3371)
Date: Thu, 1 Jul 1999 

I would like to respond to a piece posted yesterday by Tom Mansen. Like Mr.
Mansen, I find the list extremely useful, particularly as a window to
non-mainstream press and opinions. Your efforts and labor are appreciated.

Also like Mr. Mansen, I am married to a Russian woman, and spend a fair
amount of time outside of the city center in podmoskoviye (Monino, to be
exact). Which is exactly why I have such a hard time believing that anyone
could maintain such a rosy opinion of the economic conditions here
post-crisis. Some of Mansen's claims border on ludicrous, such as the
statement that the crisis hasn't further impoverished the population. When
was the Golden Age? he asks.

For my friend Natasha, the Golden Age was when she didn't have her ruble
salary reduced to a quarter of what it used to be because they didn't index
it against the exchange rate. She was fired a month later when the firm
closed down. She would probably have a bone to pick about housing being
better than in the 1960's too. She lives in a communal apartment with two
other families, and yes, a grandmother, baby, and a cat to boot. She's not
overly concerned about increased domestic production and what the real GDP
is. She's not an isolated case.

For my father in law, who was a Major General in the Airforce, the Golden
Age was when they didn't stop paying him for 6 to 8 months at a time (from
94 on). He remembers when his salary was closer in size to a salary then a
waitress' tip (and that was before the ruble crashed). What's the benefit
in having the shelves full if you don't have enough to buy what's on them?
That's definitely not progress, not even slow progress.

My Mother in Law and 50% of my four-person office would have trouble with
Mansen's statement on the retail banking sector being small in August. All
of them were drawn back to trusting banks, like many others, because of high
interest rates in small periods of time. They were excited about the
prospects that it could offer-visa debit cards, direct deposit, etc.

I'm all for looking at the bright side of the picture, as long as the darker
side isn't ignored. Sure this country has hope, as Mansen states. But its
not balanced by pessimism. It's realism.

*****

#12
Date: 1 Jul 99 
From: Oleg Borissov <retsam@usa.net>
Subject: Re: Keith Hudson:#3364 , 

Concerning Keith's consideration on the Russians, that live abroad, I would
like to dwell upon our compatriots living in Western Europe and to add some
consideration on the relations of Russians with Western countries from a some
what different point of view of a Russian living abroad.

I came in France in 1995, and have been living here since. Now I manage an
association of Russians (Former Soviet Union citizens living in Western
Europe). We are a group of young people, who have followed their student
courses in EU and settled down here. Since 1995, we have been working with
numerous private and business people and major enterprises, organising their
representation and settlement in France and Germany. During this time to our
profound astonishment we have found out there are a great many successful
companies here in Western Europe, especially in Germany, owned by our
compatriots. There is a great number of « Russian stores », with products made
according to Russian technologies here in EU, there are people (we shall call
them « successful Russians » not to confine with infamous « new Russian »),
who play an important role in the economic and political life of whole
regions, there is a strong Russian lobby in German policy.

As far as « The New Russians » are concerned the majority of these people
can hardly represent any perspective neither from the point of view of their
economical potential, not form the point of view of their intellectual value
(as the way they acquired their « fortunes » proves that there is neither any
intelligent reasoning not even speaking about any economic awareness behind
it ). We see a lot of them here abroad and the tragedy of these people is that
they have created the environment in their country, which makes it impossible
for them to live there, but their own resources make it impossible to settle
down abroad, living them « people without place » . Thus all the « flight
capital » they have disappears rather quickly consuming foreign products in
the foreign country, foreign as far as his understanding of it as well as his
adaptation capabilities are concerned.

In contrast to « new Russian » that will hardly come back unless there is a 
« flight capital amnesty », which might be a good thing, « successful
Russians »and there are millions of them in Western Europe, USA, Canada and
other countries are still ready and happy to come back.

Many of these people used to have or just started some business activity in
the Former Soviet Union countries and most commonly it was a frustration. So
discussing another project failed in FSU we often evoke a tragic paradox.
There are so many Russians having made this here abroad in a completely
different environment from what they are used to, and they can not be
successful at home. 

I myself used to have a business in Russia, which I had to leave later on my
associates, and which is dying slowly under tas and administration abuses
burden, in spite of the efforts of my colleagues to keep it running. There are
a lot of Russians having the same experience.

All of "former Russians" are people with a mature and progressive business
thinking, seeking growth and new markets. In Germany there is a number of
Russian language newspapers, there are Russian Schools, where kids can study
and practise their mother-tong, there are a lot of communities and
non-government organisations as ours. We consider ourselves Russians and do
not renounce our Russian citizenship. There is definitely a motivation, a will
and resources to invest in our Motherland, and we still do try inspite of all
the problems. I do not like to speak about the causes , but one thing is
obvious - all of us we still wait to return and we surely will, it is just the
question of time.

As far as Western official attitude towards Russian people is concerned,
there is a great number of Western democratic principles to question. And one
even more global question to put - is the western world (speaking about
Western world I mean rather EU countries and USA) ready to accept Russians as
« free people ». May questioning these two assertions I might be a little
biased by my personal adventures with the French emigration authorities, but
as the president of the Russian association I can come to conclusion, that
there is obviously the same situation in France (to some more extend) as well
as in Germany and other EU countries. To our opinion is that such a scale of
constitutional, human rights and procedure abuses as you see in France towards
Russians (FSU residents) you could hardly experience in « Brezhnev days » in
USSR. At the same time these administration abuses have nothing to do with
general friendly people's attitude towards us, many of whom genuinely believe
in their countries proclaimed values do not even suspect this terrible
realities.

As an import-export professional I can add that after the exhalation of the
Russian market openness, when foreign business discovered the possibilities
of the Russian market, Western authorities did not precipitate to open Western
markets for Russian competitive producers imposing quotes and other trade
barriers, which resulted together with some other internal Russian factors and
responsive measures on behalf of Russian authorities in an alienation of
Russian economy from the world market.

As for recent events in Kosovo, a lot have been said on this list, I would
like just to add that that is another prove that we (Westerners and Russians)
have not yet made the last big step towards one another.

"JEPAC Int."
7,Quai Bruckhof 
67089 Strasbourg 
Tel. : (33)615 82 17 93 / 33 388 84 13 12
Fax: 33 478 97 28 58 / 33 388 34 57 19 
Faxmail: 1-831-688-2834 Ext.:200572# retsam@usa.net 
http://jepacfrance.hypermart.net 

********

#13
Newsday
1 July 1999
[for personal use only]
Summers Is a Bad Pick to Run Treasury
By Paul J. Saunders. Paul J. Saunders is director of The Nixon
Center in Washington.

WHILE WALL STREET has reacted favorably to the nomination of Larry
Summers to succeed Robert Rubin as secretary of the Treasury-and Summers
seems almost certain to win confirmation in the Senate-his handling of
policy toward Russia, Indonesia and other nations in crisis raises
serious questions about the future of America's international economic
policy and its foreign policy more generally.
Summers' active intervention in the Russian economy and apparent
political insensitivity encouraged unsustainable policies for which the
United States has received substantial blame.
Now the Russian economy is in a shambles and-notwithstanding the
bonhomie of the recent G-7 summit in Cologne of world industrial
powers-the U.S.-Russian relationship is in jeopardy.
This is not to say that Summers is responsible for Russia's economic
troubles; the lion's share of the blame rests with Russia's government
officials. It is they, especially Russian President Boris Yeltsin and
his radical advisers, who implemented poor policies and failed to take
key steps, especially in developing a sufficient legal basis for
significant foreign investment.
Nevertheless, to the extent that America had leverage over Russia's
economic choices, it was exercised in a manner that encouraged
irresponsible decisions-and Summers (together with Deputy Secretary of
State Strobe Talbott) was a principal instrument and symbol of that
leverage.
Two policy areas in which the adoption of U.S.-recommended
approaches under pressure from Washington had major negative
consequences for Russia, and ultimately for American interests there,
are inflation and privatization.
In grappling with Russia's hyperinflation in the early 1990s (itself
partly a result of western policy advice), the Clinton
administration-and therefore Under-Secretary Summers, who had a key role
in defining and implementing U.S.
economic policy vis-a-vis Russia-and the International Monetary Fund
insisted on limiting both the Russian central bank's emission of rubles
and Russia's ability to borrow from abroad. Moscow was also forced to
accept stringent limits on its budget deficit.
Russia's inflation was indeed brought under control; the annual rate
was down from 2,500 percent in December, 1992, to 215 percent at the end
of 1994 and 131 percent by December, 1995. But the victory over
inflation was achieved at the cost of a tremendous wage and pension
arrears crisis: The Russian government cut its expenditures by deciding
not to pay retirees and workers at state enterprises and by cutting
subsidies to other enterprises, which then decided not to pay their own
employees. As a result, millions of Russians went unpaid for months.
Occurring as it did in advance of the December, 1995, parliamentary
elections, the wage arrears crisis contributed significantly to the
electoral successes of Communist-nationalist opposition parties and
thereby further compromised the cause of reform.
Summers' insensitivity to Russian politics was highlighted again in
1997, when he described radical reformers Anatoly Chubais and Boris
Nemt- sov as an economic "dream team." Chubais was then among the most
unpopular public figures in Russia, despised for his role in creating
the wage arrears crisis and discredited in the so-called
"loans-for-shares" scandal in 1995, in which major Russian banks
acquired state enterprises at bargain rates after providing loans to the
treasury.
Ironically, the loans-for-shares scheme was also in part a result of
the Clinton administration's consistent pressure on Moscow to privatize
more and faster. Moscow's goal was to generate statistics as encouraging
as possible to Summers and the IMF, rather than reversing Russia's
economic decline and contributing to the gradual emergence of a market
economy by building a new class of entrepreneurs. The result is by now
well known: crony capitalism and the virtual de-industrialization of the
Russian economy through asset stripping.
Russia might have arrived at the same outcome with or without
American advice, but the fact is that in the eyes of most Russians their
country is what it is today because its government repeatedly gave in to
U.S. pressure to implement destructive policies.
The Clinton administration's foreign policy-especially in the light
of developments in Yugoslavia-has led many (not only in Russia) to
believe that Washington thinks it knows how best to resolve virtually
any problem in the world and, in some cases, will use military force or
dire economic threat to impose its preferred solution.
The fact that few nations are in a position to resist American
advice (or the advice of the IMF, which many see as a U.S. proxy) alone
creates pressure on those tired of receiving it-Russia and China are at
the top of the list -to band together. That pressure is especially
powerful in Russia, where the United States continued to push its
policies well after they were proved wrong by events.
Previously renowned for his arrogance in dealing with colleagues and
members of Congress, Summers embodies the conduct that encourages
anti-American feelings.
Having benefited from association with a very popular predecessor
and a tremendously successful economy, he is very likely to be confirmed
as Treasury secretary anyway.
But we shouldn't be surprised if the cheering is limited to
Washington and New York. And we should be prepared for serious
challenges to U.S. interests.

*******

#14
Washington Post
1 July 1999
[for personal use only]
Audit Shows Russia Misled IMF on Loan
By David Hoffman

MOSCOW, June 30—A secret audit of the Russian Central Bank's dealings with an 
obscure offshore investment company has concluded that Russia misreported its 
foreign currency reserves to the International Monetary Fund by $1 billion in 
1996, well-informed sources said today.

The audit, carried out by the international accounting firm 
PricewaterhouseCoopers, was ordered in part to satisfy IMF demands during the 
fund's recent negotiations with Russia on whether it would resume lending to 
the debt-laden nation.

The issue of Russia's trustworthiness regarding its financial condition is 
important to the IMF because it provided the Central Bank with billions of 
dollars in hard-currency reserves in recent years as part of a program 
designed to bolster economic reform here. Evidence that the IMF money was 
misplaced or mishandled could further complicate Russian efforts to attract 
new lending.

Analysts said the IMF is unlikely to deny loans to Russia because it is more 
interested in changing Russia's ways than in penalizing it. But the audit may 
demonstrate a clear breach of Russian promises to the fund and could fuel 
criticism of IMF support in Congress and elsewhere.

While the results of the audit have been presented to the IMF and the Central 
Bank, Central Bank Chairman Viktor Gerashchenko has vigorously resisted 
making the document public, according to the sources. Gerashchenko has also 
kept secret previous audits on the same subject.

An IMF delegation met with Russian officials in Moscow this week on whether 
to lend a fresh $4.5 billion to Russia, enough for Moscow to repay what it 
owes the IMF this year on previous loans. A decision is expected within weeks.

The specific case in which Russia misled the IMF involved a $1 billion 
internal loan that the Central Bank had made to the Russian government in 
mid-1996, sources said. In return for the loan, the Central Bank was given a 
promissory note; the note was then quietly dispatched to an offshore firm, 
apparently without the IMF's knowledge. This skewed the reports that Russia 
is required to make to the IMF about the size of its hard-currency reserves.

It was reported earlier that the Central Bank in recent years funneled 
billions of dollars in hard-currency reserves through a little-known offshore 
firm, Financial Management Co., known as Fimaco, which is based in Jersey, 
Channel Islands. Documents made available to The Washington Post showed that 
some of the money was then pumped back into Russia's high-flying government 
bond market in 1996, in the months before President Boris Yeltsin's 
reelection.

It is not unusual for a Central Bank to park reserves abroad in safe 
currencies of other countries, but it was highly unusual for the Russian 
Central Bank to entrust these reserves to Fimaco, a firm that had an initial 
capitalization of $1,000. Earlier this year, the transfer was disclosed in a 
letter to parliament by Russia's embattled federal prosecutor. Documents made 
public since then show that, starting in 1993, the country's foreign currency 
reserves were channeled through a clandestine network -- sometimes by a 
Central Bank official using code words -- that included Fimaco and affiliated 
banks in Paris and Moscow.

Nicholai Gonchar, a Russian legislator, has raised questions about what 
happened to the profits from the surreptitious transactions. Others wonder 
who received the commissions and fees for handling billions of dollars in 
Russian reserves and why such an unorthodox and potentially risky channel was 
employed.

Under Article 7 of the IMF's Articles of Agreement -- which Russia pledged to 
follow when it became a member in 1992 -- the "minimum necessary" information 
it should provide the fund is its "official holdings at home and abroad" of 
gold and foreign exchange. Members are supposed to provide the IMF 
information "in as detailed and accurate manner as is practicable and, so far 
as possible, to avoid mere estimates."

In addition to the Fimaco audit, sources said a separate investigation is 
also underway into a $4.8 billion IMF loan made to Russia last summer, just 
before the government devalued the ruble and defaulted on its domestic debt 
on Aug. 17, triggering a crisis that shook world markets. The thrust of this 
investigation is not known, but some U.S. and Russian officials have 
questioned why the infusion of funds failed to avert the crisis, and what 
happened to the money.

Asked today about the findings of the Fimaco audit, the Central Bank asked 
that written questions be faxed but then failed to respond. 
PricewaterhouseCoopers had no comment.

In Washington, an IMF spokeswoman said: "We have seen the draft report, not 
the final report. We would like to see the report published, and we expect 
that they will [do so] in due course." U.S. officials are also pressing for 
publication.

A controversy over the audit could be a problem for Gerashchenko, who was 
appointed to his second term as Russia's central banker after last August's 
ruble crash. Gerashchenko, who was head of the Central Bank in 1993 when the 
first offshore dealings with Fimaco began, has repeatedly asserted that there 
were no "financial infringements" in the bank's dealings with Fimaco and that 
the money was returned to Russia. Gerashchenko is considered close to the 
Communist Party, which dominates the lower house of parliament, and Kremlin 
officials have signaled recently that they are considering replacing him.

The Fimaco audit, according to the sources, reveals that Russia's reports to 
the IMF on its hard currency reserves in mid-1996 were distorted by the 
dealings with Fimaco. One source with first-hand information said the $1 
billion discrepancy "was not an accounting error." The source said that 
overall the audit found no criminal activity but that "there are some 
transactions there that one should question whether a Central Bank should be 
doing."

Russia had about $12 billion in hard-currency reserves, excluding gold, in 
mid-1996 -- holdings the IMF watches closely as a sign of how a country is 
managing its economy. But what Russia failed to tell the IMF was that $1 
billion of that amount was not actually part of the reserves, but a 
promissory note issued by the Russian Finance Ministry for the loan from the 
Central Bank, the sources said. The Central Bank apparently hid the fact that 
it had sent the note to Fimaco, and it is not clear what became of the note. 
IMF officials have said previously that while they were aware the Central 
Bank had some overseas financial dealings, they did not know specifically 
about Fimaco.

According to the sources, the Finance Ministry needed large loan from the 
Central Bank in the weeks between the first round of the 1996 Russian 
presidential election, June 16, and the second round, in early July. The 
ministry had overspent to fulfill Yeltsin's election promises and help get 
him elected, but state revenues had fallen off. Without a loan, the Russian 
government might have been thrust into an embarrassing budget crisis right 
before the election. Within limits, the Russian government is allowed to 
borrow from the Central Bank.

In the months before the election, the Central Bank had been sending money 
offshore to Fimaco, which then reinvested it in short-term Russian government 
bonds known as GKOs -- which at the time were paying up to 200 percent 
interest. The Fimaco investments were secret and were carried out through a 
Moscow-based commercial bank, Eurofinance, which specialized in the GKO 
market. According to documents earlier disclosed by The Post, $855 million 
was transferred to Fimaco from the Central Bank for investing in these bonds 
between Feb. 29 and May 28, 1996. 

*******

#15
Two thirds of Russian political parties to be liquidated: Minister

MOSCOW, July 1 (AFP) - Two-thirds of Russia's 70,000 political movements were 
expected to cease to exist Thursday when they fail to meet the deadline to 
register for official status, Russian television reported.
Russian law requires all political organizations to file with the nation's 
Justice Ministry by midnight on Thursday for the right to put up candidates 
in elections.

Out of some 70,000 parties and movements said to exist throughout Russia, 
less than one third had registered at the ministry by early Thursday morning, 
Justice Minister Pavel Krasheninikov told NTV television.

Many of the organizations likely to be liquidated exist "only on paper," he 
said.

The registration drive does not apply to upcoming December elections to the 
State Duma, or lower house of parliament, for which parties had to apply a 
year ahead of time. 

*******