July 2, 1999    
This Date's Issues: 3374 • 3375 •3376 

Johnson's Russia List
#3375
2 June 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Bloomberg: Russia Hustles to Avoid Year 2000 Nuclear Disasters.
2. Reuters: Russia and IMF agree new economic reform plan.
3. Financial Times: Stefan Wagstyl, RUSSIA: PM in warning over EU.
4. RFE/RL: Floriana Fossato, Russia: Duma Elections Grow In Importance.
5. The Economist: Russia’s hot and dirty politics.
6. Itar-Tass: HIV Infection May Affect 1 Million Russians in 2 Years.
7. Robert Devane: Re: 3373-Ajay Goyal/Why isn't Buffet investing in Russia?
8. Moskovskiy Komsomolets: Aleksandr Budberg, 'Like Bullets Past the
Head...' 
Politicians Model Their Lives on Stirlitz. (Ivanov Said Mooted as Stepashin
Successor).
9. Moskovskiy Komsomolets: Leonid Krutakov, Capital. Hey, Blockhead, Let Us 
Tug: Skuratov Grabbed the Central Bank by Its Purse. (Further on Skuratov
Case, 
FIMACO, Dubinin).
10. USA Today: Steven Komarow, Numbers were best available, officials say.
(Re Kosovo allegations).
11. Stratfor: Russian Bank Closures Put Squeeze on Oligarchs.] 

*******

#1
Russia Hustles to Avoid Year 2000 Nuclear Disasters

Moscow, July 2 (Bloomberg) -- Sergey Zykov knows first hand about
catastrophes caused by poor planning. 

Thirteen years ago, Zykov was at the scene of the world's worst nuclear
disaster when a reactor at Ukraine's Chernobyl nuclear plant melted down,
spewing radioactivity across Ukraine, Russia, Belarus and Scandinavia. He
measured radioactivity levels to determine shift times for work crews
cleaning up the rubble. 

Now his job is to help prevent similar disasters in Russia on Jan. 1, 2000
when a computer flaw could shut down the country's nine nuclear plants.
Computers that use just two digits to indicate the year could confuse the
year 2000 with 1900 and shut down. 

``We'll never be 100 percent sure there will be no problems,'' Zykov said.
``Our organization can't satisfy all needs at this critical time.'' 

The Moscow-based International Science and Technology Center (ISTC), where
Zykov is principal deputy executive director, will award $1.5 million for
11 projects which aim to boost safety at Russia's nuclear plants in 2000. 

Fortunately, Russia's nuclear plants aren't as computerized as Western
plants, Zykov said. Still, a sensor which suddenly measures the temperature
or pressure at the plant at zero could cause the shutdown of one of
Russia's nuclear plants, which provide about 18 percent of the country's
electricity, creating widespread blackouts. 

Programmers Gone 

In some cases, the Soviet-era programmers who designed the computer systems
which run Russia's nuclear plants have disappeared, emigrating to seek
better-paying jobs. Those systems which can't be adapted will be replaced,
Zykov said. The grants are typically given to programs which focus on
production cycles which can't be interrupted, Zykov said. 

Anatoly Chubais, chief executive of RAO Unified Energy Systems, Russia's
biggest utility, also emphasized that the company's problems won't be as
extensive as in most Western utilities. However, he added: ``I will
definitely spend the night on New Year's Eve at my dispatching center''
because of potential blackouts. 

UES, which owns most of Russia's non-nuclear power utilities, will spend
$15 million to adapt its computer systems by the third quarter. The company
is developing a satellite and mobile communications system and simulating
emergencies at power plants to train staff. 

Finding solutions can be complicated because Russian nuclear plants lack a
parallel testing system that is usually present in Western nuclear
stations, Zykov said. 

International Effort 

ISTC, funded by the governments of Japan, the United States, and the
European Union, supports projects that employ former nuclear and military
industry workers who are often unemployed due to disarmament. 

Separately, Russia plans to spend 85 million rubles ($3.7 million) to avert
computer breakdowns in its nuclear armed forces on Jan. 1, 2000. Only its
warning, rather than launching, systems are prone to the bug, the Defense
Ministry said. 

The money is meager, however, compared with the communications commission's
estimate earlier this year that Russia, already short of revenue after its
default on domestic and some foreign debts, needs as much as $3 billion to
adapt computer systems in all its industries. 

U.S. Pentagon officials, who held talks with the Defense Ministry on the
Y2K problem in Moscow, have said an accidental launch, however, isn't
probable, because only the warning systems are affected by the bug. 

Russia broke off consultations with U.S. specialists on the year 2000
computer bug after the North Atlantic Treaty Organization began bombing
Yugoslavia in March. 

********

#2
Russia and IMF agree new economic reform plan
By Peter Henderson

MOSCOW, July 2 (Reuters) - Russia has agreed a blueprint and timetables for
economic reform in a memorandum to the International Monetary Fund,
Kommersant newspaper reported on Friday, printing what it said was the full
agreement. 

The detailed document, focusing on concrete steps to be taken over the next
year or so, is Russia's final set of promises to the IMF, whose board is
expected to meet later this month to consider a new loan of about $4.5
billion. 

Russia agreed to shut troubled banks, let the rouble trade more freely,
tighten control over its free-spending bureaucracy and force monopolies and
off-budget funds, the black holes of the economy, to publish Western-style
accounts. 

The central bank and government set targets for raising foreign currency
reserves to buffer the rouble and a plan for servicing Russia's $150
billion foreign debt, payments on which this year total 90 percent of
planned revenues. 

In return Russia would receive Fund credits and its blessing for putting
off some payments, paving the way for rescheduling talks with other
creditors, according to the agreement. 

The accord would mark a watershed for Sergei Stepashin, Russia's second new
prime minister since the state effectively devalued the rouble and
defaulted on the its rouble debt last August, sending the economy reeling. 

Though Russia's agenda includes macroeconomic goals such as slowing
inflation, it is heavy on detailed reforms to improve the business climate
which many economists now say is the major hurdle stopping Russia from
attracting long-term investment. 

Two major areas of such microeconomic reform include making the work of
major government-controlled companies more transparent and cleaning up the
banking sector, still inefficient 10 months after the rouble collapsed. 

"The government of the Russian Federation and the central bank will carry
out wide ranging structural reforms necessary for strengthening key parts
of the market economy and liquidate bottlenecks hindering economic growth,"
the memorandum as printed by Kommersant said. 

The Fund, which showed its concern over past deals by requiring Russia to
explain how loans were used, was so detailed as to require six of the top
18 banks be shut and to name major companies required to publish
Western-style accounts next year. 

Past agreements with the Fund have fallen apart, and Russia has never shown
strong economic growth despite billions of dollars of IMF support and
nearly a decade of post-Soviet attempts to reform. 

The new plan forecasts a sobering two percent contraction in gross domestic
product this year and a slowing in annual inflation to 50 percent. Year on
year inflation in May was 116.6 percent. 

The cautious Fund has required that a number of measures, especially
legislative changes and revenue-raising steps, be put in place before
agreeing a credit, and it will not give cash. 

Russia stands to get $4.5 billion over 18 months, but the credits will
never really leave the IMF, being used to pay old debt coming due. That
will free up resources for Russia but give it no opportunity to squander or
squirrel away Fund cash. 

*******

#3
Financial Times
2 July 1999
[for personal use only]
RUSSIA: PM in warning over EU 
By Stefan Wagstyl 

Sergei Stepashin, the Russian prime minister, yesterday warned the European
Union not to marginalise Russia as it develops closer ties with the rest of
eastern Europe.

"We can't tolerate hostility [to Moscow] in the way co-operation develops
[between eastern and western Europe]," said Mr Stepashin at a conference of
political and business leaders organised by the Swiss-based World Economic
Forum in Salzburg.

Mr Stepashin's comments echo previous statements on enlargement but they
come at a particularly sensitive time as Russia and the west, including the
EU, reassess their mutual relations following the Kosovo conflict.

In particular, Russia is concerned that its interests might be harmed by
the long-term presence in the Balkans of Nato troops and the expansion of
western economic interests via reconstruction programmes.

The Russian prime minister's view drew immediate support from Klaus
Mangold, a director of Daimler-Chrysler, the German-US motor company. Mr
Mangold urged Brussels to develop more positive policies towards Moscow.
"The EU governments must develop a realistic vision for long-term
co-operation with Russia. Europe urgently needs a strategy for a common
policy towards Russia. We must include in this partnership not only the
economy, but social affairs, defence issues and security," said Mr Mangold.

Mr Stepashin emphasised his commitment to co-operation with the west.
Russia would not block eastwards EU enlargement he said. But Moscow wanted
a "single economic space in the whole of Europe."

He pledged to honour Russia's commitment to international organisations, a
reference to the recent agreement with the International Monetary Fund.

Leonid Kuchma, Ukrainian president, also at the Salzburg conference,
attacked the west yesterday, for failing to provide adequate support for
reform in his country. In an interview with Reuters Mr Kuchma said his
country had received no support from the EU. He said: "There is just talk,
nothing else. We have promises. Could you explain the strategy of the
European Union towards Ukraine? When we ask such a question, we don't
understand the answer."

*******

#4
Russia: Duma Elections Grow In Importance
By Floriana Fossato

Elections for the Russian State Duma are due in December. RFE/RL Moscow 
correspondent Floriana Fossato reports that while it is overshadowed by next 
year's presidential elections, the parliamentary poll is growing in 
importance as a key battle ground over the country's political future.

Moscow, 1 July 1999 (RFE/RL) -- Until recently, most top Russian politicians 
have focused their attention on the June 2000 presidential elections. But 
with no presidential candidate having yet appeared whom President Boris 
Yeltsin supports, the Russian political situation remains unpredictable. As a 
result, politicians and their advisors now say that the parliamentary 
elections due in five months have acquired new importance. 

This week, Prime Minister Sergei Stepashin told a meeting of Federal Security 
Service (FSB) officials that the composition of the next parliament will 
greatly effect the outcome of the presidential elections in June. Stepashin 
said that "a great deal in the future...will depend on whom we elect to 
parliament." 

The creation of new political movements that will participate in the 
parliamentary elections is now almost complete. Most of the political groups 
have held founding congresses in the past few months. 

Many moderate Russian politicians repeatedly use phrases like "consolidation 
of forces" and "creation of a constructive opposition" in the new parliament. 
The moderates are seeking a more centrist-based State Duma, the lower house, 
to replace the present house dominated by communist and nationalist groups. 

Leonid Raketsky is the governor of the oil-rich Tyumen region and one of the 
most influential representatives of the centrist movement Voice of Russia, 
which is led by Samara governor Konstantin Titov. In a recent interview with 
RFE/RL's Russian service, Raketsky gave his views of the various political 
groups vying for power in the December parliamentary elections: 

"There are several movements looking very similar, like sister organizations: 
[Moscow mayor Yuri Luzhkov's] 'Fatherland', 'Our Home Is Russia', 'Voice of 
Russia' and 'All Russia'. I think all the leaders of these organizations 
should overcome their own ambitions, stop promoting themselves and understand 
clearly that we should create a 'golden' centrist group attractive to the 
electorate. [We should] not choose political leaders, but candidates for the 
Duma.... Only after that should leaders be chosen, to compete among 
themselves before next year's presidential vote." 

One of the leaders of the 'Our Home is Russia' group, Saratov governor Dmitry 
Ayatskov, foresees the possible creation of a coalition of centrist and 
center-right movements. Ayatskov recently told the Interfax news agency that 
in his opinion only three or four political blocs are likely to attain the 
five percent of the vote necessary for parliamentary representation under the 
electoral law. 

Ayatskov does not include Luzhkov's Fatherland group among the movements his 
party is consulting with on the formation of a united centrist bloc. He said 
that consultations with several groups are under way, but added that "it is 
too early to talk about the results." One of the leaders of the center-right 
'Right Cause' bloc, economist Yegor Gaidar, made a similar statement last 
week. 

In recent days, some Russian media have been speculating about the 
possibility that the Kremlin is trying to create its own coalition. They say 
it would be a kind of new "party of power" that would be called "Rossia" and 
could be led by Stepashin. According to media reports, most moderate blocs 
would be invited to take part in the new party, with the exception of 
Luzhkov's Fatherland movement, which the Kremlin is said to actively oppose. 

Last week, Yeltsin told Stepashin to "consider the place and the role of the 
government in the next parliamentary election." Stepashin answered that the 
government "cannot be cut off" from the preparation of the parliamentary 
campaign. Two days ago, he told FSB officials that Russia's security forces 
must not allow the Duma elections to be dominated by criminals seeking to 
influence Russian politics. 

The daily "Vremya MN" wrote recently that "the recipe for success [in 
creating a new party] is well-known: [the backing of regional] governors, 
industrial captains and military men, some small parties and a few 
intellectuals, plus a lot of money and a huge amount of [television] 
broadcasting time." But, the paper added, Russian politicians have a poor 
record of agreeing on anything. Also, it said, Russia's bankrupt central 
government has little to offer to regional bosses. 

More important, "Vremya MN" noted, in order to create a real "party of 
power," something else is necessary: "an idea that could unite all [moderate 
forces]." The paper said that three years ago the unifying idea was the 
perceived danger of a communist come-back. But, now it concludes, "this will 
not work, and for the moment there are no other ideas" that could unite all 
the possible members of a moderate alliance. 

Some politicians say that the fragmentation of Russia's centrist and 
center-right political spectrum could benefit the communists and their allies 
in the present Duma. But others doubt that. According to Ayatskov of 'Our 
Home is Russia', substantial differences in view are already noticeable among 
leaders of pro-communist groups. In fact, Ayatskov -- and some other 
politicians -- believe, in Ayatskov's words, that the communist party "is 
rapidly losing its political weight, especially after the failed impeachment 
attempt against Yeltsin." 

******

#5
The Economist
July 3-9, 1999
[for personal use only]
Russia’s hot and dirty politics 
M O S C O W 

POLITICAL entrail-watchers in Moscow are finding it harder than ever to 
explain—with conviction—the latest manoeuvres of Russia’s would-be presidents 
and their various supporters, a year before the country’s next head of state 
is due to be chosen. The leading figures involved—directly or indirectly—are 
Moscow’s mayor, Yuri Luzhkov, a leading contender for the top job; the prime 
minister, Sergei Stepashin, an outside possibility; his predecessor, Yevgeny 
Primakov, who still has as good a chance as anybody, but has shrewdly kept 
out of the latest bout of dirt-throwing; and Mr Primakov’s own short-lived 
predecessor, Sergei Kiriyenko, who is at the heart of it, though he has never 
been seriously suggested as a presidential contender himself. 

Mr Kiriyenko has engaged on a campaign to undermine Mr Luzhkov as part of a 
declared bid to replace him—merely as Moscow’s mayor. Mr Kiriyenko’s real 
aim, however, is probably to make Mr Luzhkov look less than spotless as a 
contender for the presidency. One of Mr Kiriyenko’s opening gambits has been 
to set up a telephone hotline (Moscow 201 8603) for disgruntled Muscovites 
who want to dish dirt on Mr Luzhkov’s notoriously murky administration. 
Several thousand people have called in, with complaints ranging from mere 
inefficiency to racketeering. 

Their effect, however, is likely to be minimal. Mr Luzhkov’s tight grip on 
most of the Moscow media means that complaints against him are not readily 
aired in public. Second, anyone with real dirt on him would be unwise to call 
in on an open telephone line: the information wing of Sistema, a powerful 
Moscow company close to Mr Luzhkov, is run by a former head of the KGB. 
Third, ordinary voters seem uninterested. According to a recent opinion poll, 
most Muscovites believe there is corruption in the city government, but they 
would still prefer Mr Luzhkov to Mr Kiriyenko as mayor. 

If Boris Yeltsin and his courtiers, widely believed to be egging Mr Kiriyenko 
on, followed up with heavy legal and financial support, Mr Luzhkov might not 
be able to sustain his current mood of dismissive calm. But he would, 
probably, hit back. Reports of the sleaze and back-scratching in Moscow’s 
city hall are matched only by those surrounding the president’s own people in 
the Kremlin. Indeed, Mr Primakov’s efforts to nail corrupt businessmen close 
to the presidency were one of the reasons he was sacked, and Mr Yeltsin 
clearly wants to cut Mr Luzhkov down to size. After all, if the mayor became 
president, Mr Yeltsin and his friends could face severe retribution, which 
might be exacted in court, among other places. 

But not all the current rumours and theories fit neatly into a 
Yeltsinites-v-Luzhkovites pattern. Mr Stepashin, it has been suggested, might 
run for president himself. And perhaps, come the autumn, Mr Yeltsin will sack 
Mr Stepashin and replace him with the man—as yet unidentified—he really wants 
to succeed him as president. Yet another theory, boosted by this week’s 
announcement of military co-operation, is that Mr Yeltsin may proclaim a 
full-blooded union of Belarus and Russia and use the new constitutional order 
as a pretext to put off a presidential election altogether. 

The mystery of Mr Yeltsin’s intentions is equalled only by that of Mr 
Primakov, now enjoying the healthy air of Switzerland after a back operation. 
Opinion polls suggest he would still beat any other candidate for the 
presidency. In the past, he used to say he had “no interest’’ in running. 
Now, if asked, he “rules nothing out”. 

*******

#6
HIV Infection May Affect 1 Million Russians in 2 Years.

MOSCOW, July 1 (Itar-Tass) - Russia may have more than one million
HIV-infected in two years. Over the first six months of 1999, the number of
new HIV cases reached 4,867, a 260-percent increase from the same period
last year, a health official said on Thursday. 

But the official figures only make up one third of the real number of the
infected, head of the republican Anti-AIDS center Vadim Pokrovsky told a
news conference. 

According to official reports, Russia has almost 16,000 HIV cases at
present, including 526 children. A majority of them are in Moscow and
Moscow region, 2,247 and 1,838, respectively. 

This year, Russia's capital and Moscow region accounted for 55 percent of
the new HIV cases. Compared with the previous year, the HIV incidence in
this region has increased by 12 times. 

The Kaliningrad region has 2,450 HIV-infected persons, Krasnodar territory
- 1,906, Rostov region -- 1,364 and Tver region -- 1,263. Most of the
affected are young people aged between 20 and 30. 

At the Thursday news conference, Russian scientists presented the new
domestic anti-AIDS medicine 'phosphazide.' Developed more than a decade ago
by academician Alexander Krayevsky, the medication has been much improved
since. 

Experts say it is much more effective than Azitodimine, the older domestic
anti-AIDS drug, and has fewer side effects. As of now, Russia has produced
about 100 kilograms of the new medicine. 

*******

#7
From: "Robert Devane" <robertdevane@glasnet.ru>
Subject: Re: 3373-Ajay Goyal/Why isn't Buffet investing in Russia?
Date: Fri, 2 Jul 1999

Bang, zoom, to the moon Alice!

The article by Ajay Goyal that was apparently submitted by Sandeep Goel is
a fine example of yellow journalism, from an author whose bizzare
assumptions and claims betray a complete lack of the subject on which he
purports to report. If one were to rebut every point on which the author
was "way off", one would have to write a book. At this pont I will only
focuse on his first and last points.

FIRST POINT: 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.

PLEASE, please, please name two! Who were these "kids fresh out of Ivy
League schools"? What Wall Street firms hired them at fat salaries? As far
as I am aware, and I am aware, this is utter nonesense. In 1994-1995, the
period that the author refers to, the market was full of adventurists. But
these were genrally exerienced people, to a greater or lesser extent. I
personally know of only one Ivy League graduate who made a career in the
Russian market from scratch(i.e. with no previous working exprience in the
field). But even that career was launched at a russian brokerage house
paying a modest salary.

LAST POINT: 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.

RESPONSE: I wear a Swiss-made watch, wear Italian suits, eat a lot of
German foods, drink Brazilian coffee, etc. I do not speak the languages
spoken in those countries, and haven't visited most of them, to say nothing
of the manufacturers of the products I consume. So what? The important
thing is that I have INFORMATION, which allows me to make rational
decisions. Most of the people who've invested in Russia did so on the basis
of information, that was provided by companies, brokers, and third parties.
For sure, that information in general was not up to par with Western
standards, although by early 1998 a lot of companies had become fairly
investor friendly and were sporting IAS or GAAP accounts. But the relative
lack of information was reflected in the prices. In short, the author's
oint is pointless. I bet 98% of all investors haven't visited the companies
whose stocks they buy. I'm positive that ost shareholders of Microsoft, or
IBM, or Ford, or any other major compay haven't come around to kick the
poverbial tires, or for that matter haven't read the prospectuses of the
stocks they've purchased.

I'll close by saying that there are a lot of very smart people that have
invested in Russia in the past and continue to do so. It is annoying when
an amateur start throwing genralizations around, especially when those
generalizations are mostly a figment of a poorly informed and educated
imagination.

Regards.

Robert Devane
Managing Director
Renegade Capital
Investment Research and Management
Moscow


*******

#8
Ivanov Said Mooted as Stepashin Successor 

Moskovskiy Komsomolets 
30 June 1999
[translation for personal use only]
Article by Aleksandr Budberg: "'Like Bullets Past the Head...' 
Politicians Model Their Lives on Stirlitz" 

"Don't think about seconds condescendingly, there 
will come a time and you yourself will certainly understand..." It is now 
summer, and there is seemingly no political news. At the same time all 
the main protagonists in the local political troupe are probably 
constantly humming the song from the movie about SS Colonel Stirlitz. 
Schemes and processes that will be crucial during the year of the 
parliamentary and presidential elections can be said to be now 
crystallizing behind the scenes. 

The main issue that currently concerns the president's entourage is whom 
to put forward as the candidate from the party of power. Prime Minister 
Stepashin, who in theory ought to automatically fill this position, 
automatically will not get anything. The point is that the denizens of 
the Kremlin (apart from President Yeltsin) are preoccupied with a 
childishly simple but infeasible task -- how to not merely survive in 
post-Yeltsin Russia, but survive as one of the leading political forces. 

And although any sensible person knows that the difference between the 
president and other citizens is that at any rate he can fail to keep his 
promises with impunity, the [Presidential] Staff is constantly 
reshuffling the cards. For instance, Foreign Minister Ivanov is now quite 
seriously considered as a possible replacement for Stepashin, who, once 
he has gained in strength, will certainly become overly independent. 

Ivanov as premier and then president -- this gambit may seem nonsense to 
the whole country, but the Staff may well gamble on it. The decision will 
have to be made before 15 September. Because after September it will be 
too late to launch new faces, even in the post of premier. In other 
words, before August they must finally calculate everything and 
coordinate it with the various clans of oligarchs and media magnates. 
And, once they have arrived at a decision, set to work on President 
Yeltsin -- an as yet gentle flow of poisoned information about Stepashin 
is already being poured into his ears. 

Sergey Vadimovich [Stepashin] himself knows that he has to "hold out 
through the day and hang on through the night." He must survive until 
October -- and win. Any opportunity will do for this. It is perfectly 
possible that, on top of the fact that Sergey Vadimovich may head the 
most exotic election blocs, he may establish contact with ex-Premier 
Primakov, for instance. According to Moskovskiy Komsomolets' information, 
the Kremlin, the government, and Moscow City Hall are all now attempting 
to probe topics for negotiation with Yevgeniy Maksimovich [Primakov]. 

Primakov is not rejecting any contacts, but he has already clearly stated 
his position that he has no interest in being merely speaker of the Duma 
since he has already been chairman of the USSR Supreme Soviet Soviet of 
the Union. 

Your Moskovskiy Komsomolets correspondent was told that by a Fatherland 
leader who has talked with Yevgeniy Maksimovich. Stepashin may be 
convenient for Primakov in that it will be easier to get around him at 
the last moment than around others and to make a break for the number one 
position. Primakov, as an apparatus politician, will not want and will 
not be able to contest the elections himself. 

Another option for Stepashin could be a number of special operations in 
Chechnya. The situation around it is at fever pitch. And it is no 
accident that all military districts are holding "counterterrorism" 
exercises. It is easiest for Stepashin to intervene in the Caucasus 
situation and raise his profile in the country. 

But all this intense activity is revolving around the only person who 
apparently has very different ideas as to what should be done in the 
final year. Boris Yeltsin is clearly thinking about how to go down in 
history. Yesterday [29 June] he handed his standard over to the state 
Ermitazh so it can be kept there forever. Also yesterday he clearly 
demanded that Justice Minister Krasheninnikov carry out an audit of CPRF 
[Communist Party of the Russian Federation] activities. This was not 
exactly surprising. Something else was far more surprising: The Kremlin 
press service made a rather harsh statement about this for journalists. 
Minister Krasheninnikov admitted the "critical tenor of the conversation" 
with the president concerning his department's activities. And since the 
CPRF has been responsible for thousands of "exploits" of ever kind, it 
will be easy for the Justice Ministry to find violations of the law in 
the Communist Party's activities after its reprimand from the president. 

And then the case will land on the president's desk. And it is entirely 
likely that he will decide to go down in history as the president who 
finally defeated the "Red hydra." 

In short, sweating at the responsibility in the terrible June heat, all 
our leaders are calculating and recalculating scenarios that may 
influence our lives in September. But that will certainly have 
diametrically opposite results. Such is the tradition among our politicians.

******

#9
Further on Skuratov Case, FIMACO, Dubinin 

Moskovskiy Komsomolets
25 June 1999
[translation for personal use only]
Article by Leonid Krutakov: "Capital. Hey, Blockhead, Let Us Tug: 
Skuratov Grabbed the Central Bank by Its Purse" 

There are several assumptions about the reasons for 
Yuriy Skuratov's dismissal. The simplest: the pornographic cassette with 
a man named Yur-r-ra in the main role. The most complex: the 
preparation for an anticonstitutional coup on the part of the 
President's closest entourage. All these assumptions are correct in 
one way or another. However, the most obvious version, that is, the 
General Procuracy's "raid" on the Central Bank of Russia and Sergey 
Dubinin, has remained outside public attention. 

A day before his first dismissal, Yuriy Skuratov released the 
data on the audit of the Central Bank by the General Procuracy. 
According to the General Procuracy's data, in five years, beginning 
in 1993, the Central Bank transferred $37.3 billion, 9.98 billion 
German marks, 79.9 billion Japanese yen, 11.98 billion French 
francs, and 862.6 million English pounds sterling from the country's 
currency reserves to the offshore Financial Management Company 
Limited (FIMACO) for management. 

The data turned out to be so sensational that during spring 
negotiations with Yuriy Maslyukov, IMF managing director Michel 
Camdessus put forward the demand for a full audit of FIMACO as a 
separate condition for the granting of the next credit. 
This condition was on a par with the demand for quarterly 
reports of RAO Gazprom, RAO YeES Rossii, MPS [Ministry of Railways], 
and Transneft. The offshore company with an authorized capital of $1,000 was 
equated with Russian monopolists with an annual turnover of tens of 
billions of dollars each. 

It is clear that Skuratov struck the Kremlin's most sensitive 
chords. Moreover, immediately after his dismissal, Skuratov named 
the initiators of the persecutions of the General Procuracy: two 
former vice-premiers, one former minister, and one oligarch. After 
the searches in Sibneft and Aeroflot, there is no need to amplify 
which oligarch. It is easy to guess the names of the vice-premiers. 

Most probably, Sergey Dubinin hid behind the pseudonym "former 
minister." In any event, later in an interview with Kommersant, 
Skuratov would openly name the former head of the Central Bank among 
the organizers of the blackmail against him. 

In order to understand what jungle the general procurator got 
into, having exposed FIMACO, it is necessary at least to briefly 
trace its history. FIMACO was founded on 27 November 1990 on the 
island of Jersey (Channel Islands). Initially, it was designed to 
hide state funds on the eve of the coup in August 1991. Of course, 
the world financial community does not welcome such actions. On the 
other hand, however, additional insurance never hurts, especially on 
the threshold of the country's breakup. 

Politics is politics, but state funds are sacred. 

Despite the public disapproval of the creation of such 
companies, all countries have financial reserve airports in case of 
political cataclysms. Later FIMACO was even used in the role of 
such an airport on the eve of the 1993 events. 

Literally a few days before Yeltsin's edict on the dissolution 
of the parliament, substantial sums from the country's currency 
reserves were transferred from the Central Bank to Jersey. A war of 
executive and legislative power was beginning in Russia. The 
outcome of this war was unknown, Therefore, it was better to keep 
money outside the homeland. 

Next time the offshore played a positive role in luring 
foreign investors to the GKO market. Foreigners were afraid to 
invest in Russia's securities, and then the Central Bank through 
FIMACO invested about $500 million in GKOs. Later the Central Bank 
withdrew the money, but foreigners already had trust, and the market 
of Russian securities began to operate. 

All this occurred under Viktor Gerashchenko. Later, however, 
when Sergey Dubinin headed the Central Bank, FIMACO began to be used 
for the "laundering" of money: at first for the 1996 presidential 
elections and then for personal needs. As follows from the General 
Procuracy's data, for representation expenses alone the head of the 
Central Bank received $15,000 per month, his deputies, $10,000 each, 
assistants, $7,500, and department heads, $5,000. 

We will not even talk about trifles, such as the installation 
of bullet-proof glass in Dubinin's apartment and the granting of 
preferential ruble credits to high-ranking Central Bank officials for 20 
years. 

At that moment the chief thing was to save democracy from 
Zyuganov's encroachments. 

At the beginning of February 1996 at the economic forum in 
Davos, it was decided to support Yeltsin's regime with all available 
means, but, obviously, there was a shortage of funds. About $500 
million was needed to settle state indebtedness on pensions and 
wages of workers in the budget sphere (if you remember, this was 
Yeltsin's main preelection trump card--editor). The same amount was 
needed for the organization of a public festival under the name 
"Vote or You Will Lose!" 

Where to get the money? Our oligarchs were never noted for 
special generosity. Therefore, it was decided to take pensions from 
the budget, that is, from the pensioners themselves; to be more 
precise, from the GKO market through FIMACO, since a successful 
experiment with GKOs was carried out in 1993. Gerashchenko flatly 
refused to implement this scheme and was replaced by Dubinin, who is 
less punctilious in financial matters. 

Soon after Dubinin's appointment to the Central Bank, 
directive No. 40 by Sergey Aleksashchenko, first deputy chairman of 
the Central Bank, was issued, releasing FIMACO "from obligations to 
place the sums transferred by the Central Bank in first-class assets 
alone." In other words, FIMACO was relieved of the obligation to 
place the country's currency reserves in securities of states with a 
stable economy. The path to the GKO market was free. After this, 
Dubinin himself signed directive No. 44. According to this 
directive, in only two months, from March to April 1996, the Central 
Bank additionally transferred $855 million to FIMACO. 

Naturally, this money turned out to be on the GKO market. 
At the same time, permission was given to all foreign banks to 
invest in GKOs directly, not through Russian middlemen. 

The gap of $500 million pumped out for the presidential 
elections could be covered only with a new influx of speculators. 
It was covered, but only for a while. The foundation of the pyramid 
was seriously undermined. In 1998 this would become one of the 
basic reasons for the default, which resulted in the collapse of the 
Russian banking system. 

And so, oligarchs, nevertheless, paid for the 1996 elections; 
true, indirectly. But, at the same time, millions of simple 
depositors were robbed. 

Having tested the "laundering machine" once, Sergey Dubinin, 
judging by Skuratov's statements, did not stop at that. Not long 
ago the general procurator announced that the procuracy had data on 
the personal participation of high-ranking Central Bank officials in 
speculative games on the GKO market. There is also the strange fate 
of the IMF stabilization credit of $4.8 billion granted to the 
Central Bank in July 1998 directly on the eve of the default. As 
Viktor Ilyukhin, the mouthpiece of the General Procuracy, stated 
recently, this entire credit was sent, with Dubinin's help, to the 
personal accounts of "family" members. 

Incidentally, among the above-mentioned conditions for the 
granting of the next IMF credit, there is a very interesting point: 
"The general procurator shall provide the IMF executive director 
with a letter containing the legal qualification of the role of the 
FIMACO company in performing operations with the funds of the July 
(1998) tranche and with the monies previously allocated by the 
Fund." And so, for Sergey Dubinin it is a matter of life and death 
who will sign the general procurator's letter addressed to Michel Camdessus. 
P.S. The audit of FIMACO should be completed on 30 June. We 
will advise readers of its results. 

*******

#10
USA Today
1 July 1999
Numbers were best available, officials say
By Steven Komarow, USA TODAY 

Many of the figures used by the Clinton administration and NATO to describe
the wartime plight of Albanians in Kosovo now appear greatly exaggerated as
allied forces take control of the province. 

"Yes, there were atrocities. But no, they don't measure up to the advance
billing," says House intelligence chairman Porter Goss, R-Fla. 

Instead of 100,000 ethnic Albanian men feared murdered by rampaging Serbs,
officials now estimate that about 10,000 were killed. 

600,000 ethnic Albanians were not "trapped within Kosovo itself lacking
shelter, short of food, afraid to go home or buried in mass graves dug by
their executioners" as President Clinton told a veterans group in May.
Though thousands hid in Kosovo, they are healthy. 

Kosovo's livestock, wheat and other crops are growing, not slaughtered
wholesale or torched as widely reported. 

Kenneth Bacon, spokesman for Defense Secretary William Cohen, says the best
estimates available were used. 

He says Cohen was right to compare Serb leader Slobodan Milosevic to a
World War II Nazi. His forces burned houses and made 800,000 Albanians flee
for their lives, he says. 

And if other war crimes turn out less than expected, "I don't think you can
say killing 100,000 is 10 times more morally repugnant than killing
10,000," Bacon says. 

Then why exaggerate? "In order to justify this thing, they needed to tap
that memory of the Holocaust," says Andrew Bacevich, professor of
International Relations at Boston University. 

Meanwhile, food and medical aid programs in Kosovo are taking a back seat
while the United Nations rushes to assemble a police force. 

The "missing men" -- young Albanians who were believed killed -- are home
with no jobs. NATO forces are struggling to keep them from seeking
retribution. 

The changing numbers in the province raises questions. Goss, who opposed
the bombing campaign, says the administration deliberately emphasized the
most dire reports. "There is a credibility question with President Clinton
and his administration on these matters," he says. 

Mike Hammer, spokesman for the National Security Council, says there was no
effort to mislead. The administration found that "as you go through a
campaign like this, there is a great deal of uncertainty." 

Even lower numbers justify action, he says. "We needed to move because of
the campaign of ethnic cleansing that could not be allowed to stand." 

Paul Risley of the U.N. tribunal that indicted Milosevic says the portrayal
of Kosovo as a wasteland shows the lack of good information during the war.
"This was a trip-up of the Western media and the Western governments."

********

#11
Date: Thu, 1 Jul 1999 
From: "alert@stratfor.com" <alert@stratfor.com>
Subject: Russia

STRATFOR.COM
Global Intelligence Update
July 2, 1999

Russian Bank Closures Put Squeeze on Oligarchs

Summary:

Russia's Central Bank on June 29 pulled the licenses of four of 
the country's major banks -- Uneximbank, Mosbiznesbank, 
Promstroibank, and Mezhkombank. While seen as primarily a 
gesture aimed at winning the favor of the IMF, the bank closures 
may reflect a deeper struggle against and among Russia's 
oligarchs and the death throes of Russia's experiment with the 
West.

Analysis:

Russia's Central Bank chief, Viktor Gerashchenko, withdrew the 
operating licenses from four leading banks -- Uneximbank, 
Mosbiznesbank, Promstroibank, and Mezhkombank -- late on June 29. 
Coming immediately under fire from Russia's banking community, 
Gerashchenko argued that he made the decision under pressure from 
foreign lenders, particularly the IMF, and it was in accordance 
with Russia's new bankruptcy laws. 

Russia's banks, many of them at the heart of the financial, 
industrial, and media empires of Russia's oligarchs -- the 
handful of men who control some 80 percent of the Russian 
economy, were crippled by the Russian financial collapse of 
August 1998. Halfhearted efforts to restructure the banks have 
proceeded slowly since then, with the oligarchs scheming for 
bailouts and scrambling to protect their personal fortunes. This 
alone would justify revoking the licenses of far more than just 
these four banks and the previously shuttered Inkombank, Menatep, 
Tokobank, and Unikombank. However, considering the personalities 
behind several of these banks, there may be more to the closures 
than economic pragmatism or posturing for the IMF.

Uneximbank was the flagship of business tycoon Vladimir Potanin. 
Potanin built his fortune in part through his friendship with 
former Prime Minister Yegor Gaidar and in part through the 1995 
"loans for shares" scheme, which he is believed to have 
originated. That scheme, under which Russia's bankers loaned the 
government money they never expected back in return for 
undervalued shares in key privatized industries, as well as the 
support they gave President Boris Yeltsin in his 1996 reelection 
campaign, gave Potanin and his fellow oligarchs effective control 
of Russia's economy and tremendous influence over Russian 
politics. Potanin was made Deputy Prime Minister for a time, and 
fellow oligarch Boris Berezovsky was first made secretary of 
Yeltsin's Security Council and then made head of the Commonwealth 
of Independent States (CIS). Berezovsky, closest to Yeltsin, was 
reputedly responsible for the sacking of Russia's last three 
prime ministers.

The oligarchs' brazen political and financial maneuvering won 
them enemies among reformers, nationalists, and communists alike. 
Still, operating in concert and secure in their control of 
Yeltsin and Viktor Chernomyrdin, himself counted among the 
oligarchs, Russia's oligarchs were largely untouchable. That 
status eroded first in 1997 when the oligarchs turned against 
each other in competition for Svyazinvest telecom, which Potanin 
eventually won, and collapsed almost entirely along with the 
Russian economy. When Yeltsin failed to win support for 
Chernomyrdin's second tour as prime minister, his new appointee 
Yevgeny Primakov turned against the oligarchs, particularly 
Berezovsky. Berezovsky was ousted from his CIS post and faced an 
arrest warrant for alleged financial improprieties at the Russian 
airline Aeroflot. An arrest warrant was also issued for oligarch 
Alexander Smolensky, perhaps the most battered by the economic 
collapse, and Smolensky's SBS-Agro bank was effectively taken 
over by the Central Bank. Since then, Menatep bank, controlled 
by oligarch Mikhail Khodorkovsky, and Vladimir Vinogradov's 
Inkombank had their licenses pulled.

The closure of at least two of these four banks -- Uneximbank 
and Promstroibank, which is controlled by Gazprom mogul and 
Chernomyrdin ally Rhem Viakhirev -- could be yet another shot 
fired against Russia's faltering oligarchs by their foes. 
Gerashchenko was, after all, put in place by Primakov. However, 
it is interesting that Berezovsky's banking interests were left 
unmolested. This raises another possibility -- that the bank 
closures reflect infighting among the oligarchs. This would not 
be so much a power struggle as a scramble for survival. It is 
clear to everyone involved that Russia's Westernizing experiment 
is in its last days. Those who profited the most from it know 
they are the first against the wall when the revolution comes, 
unless they can position themselves for what comes next. If that 
means feeding each other to the communists, nationalists, and 
even to the last miserable apostles of the West, so be it.

Along those lines, it is interesting to note the apparent target 
of the Mosbiznesbank closure -- Moscow Mayor Yuri Luzhkov. 
Mosbiznisbank is controlled by the Moscow government, which may 
be held responsible for the bank's some $300 million debt. 
Luzhkov, one of the leading candidates for Russia's upcoming 
presidential elections, is a bitter foe of Berezovsky. Luzhkov's 
presidential bid would no doubt be crippled by the untimely 
bankruptcy of the Moscow government.

In the end, the move could be largely meaningless -- less a 
reflection of economic and political strategy than a show put on 
for the IMF. The oligarchs could even have given the move a 
silent nod, hoping to dodge some bad debt while appearing to be 
the targets of fiscal reform. Much of Mosbiznesbank had 
allegedly already been absorbed by the Bank of Moscow, and 
Uneximbank was likewise allegedly little more than an empty 
facade, its operations having been absorbed by the Potanin-
controlled Rosbank. Moreover, Promstroibank had reached an 
agreement with the Russian bank restructuring agency ARKO for a 
3.1 billion ruble bailout in return for 75 percent plus one share 
of Promstroibank only hours before having its license pulled. 

Finally, the decision to suspend Mexhkombank's license is odd, 
and appears unrelated to the politics of the other three banks, 
as it was not part of an oligarch's empire and had even reached a 
relatively fair and open restructuring deal with foreign 
creditors and shareholders only a week earlier. In fact, the 
Central Bank's decision to sacrifice Mezhkombank and its foreign 
investors and creditors for the IMF tranche may have been an 
intentionally ironic jab at the international financial 
community.

Reactionaries against oligarchs, oligarchs against each other, or 
merely a charade, Russia's banking sector purge is a reflection 
of the end of Moscow's dalliance with the West. Russian airborne 
troops racing into Pristina and Bear bombers heading for Iceland 
is a taste of Moscow's emerging relationship with the West.

******