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Johnson's Russia List


July 8, 1999    
This Date's Issues: 3382 3383 

Johnson's Russia List
8 July 1999

[Note from David Johnson:
1. Moscow Times: Andrei Piontkovsky, SEASON OF DISCONTENT: Nomenklatura 
Changes Aren't Real Reforms.

2. Moscow NTV Carries Poll on Presidential Candidates.
3. Segodnya: Boris Berezovsky Has Bought "Kommersant" 
4. Komsomolskaya Pravda: Anatoly Chubais: Economic Growth In Russia.
5. Fritz Ermarth; Re: Goodman (3381).
6. Hamburg's Die Woche: Lebed: US Warfare in Kosovo 'Stupid,' 'Untalented' 
7. Alex Elder: Rubles to Dollars/Foreword for the 1999 Dutch Edition.
8. Tom White: Entreprenuer 2.
9. RFE/RL: Floriana Fossato, Views Differ On Kremlin Push For Union With 

10. Los Angeles Times editorial: Russia's Perilous Game.
11. AP: Russia and Belarus Move To Re-Unite.
12. Jamestown Foundation Monitor: ANOTHER POSSIBILITY: YELTSIN BANS 

12. AP: Russia Starting To Pay Wages On Time.] 


Moscow Times
July 8, 1999 
SEASON OF DISCONTENT: Nomenklatura Changes Aren't Real Reforms 
By Andrei Piontkovsky 

The atmosphere at the seminars on Russia I recently attended at U.S. 
political science centers were reminiscent of meetings held by the radical 
Russian opposition. 

The Clinton administration's policy toward Russia was sharply criticized by 
both university liberals and conservative Republicans. 

The main criticisms directed at U.S. President Bill Clinton were his 
unqualified and uncritical support for Boris Yeltsin, along with the 
recommendations of U.S. advisers, which led to the formation of bandit 
capitalism and the unprecedented robbery of the population and, as a result, 
the growth of anti-Americanism. The International Monetary Fund, naturally, 
also caught it. It would have been painful to see Gerard Belanger, before 
whom more than one Russian deputy prime minister has snapped to attention, 
when former Polish finance minister Grzegorz Kolodko explained the secret of 
the Polish reforms' success. The Poles, he said, always very carefully 
listened to the IMF's recommendations, but never followed them. 

The presence of Kolodko provoked a discussion of an extremely substantive 
theme - why did the reforms succeed in Poland but not in Russia. The fact 
that the question was framed this way allowed me to interrupt the stream of 
American self-flagellation and note that they exaggerate their influence on 
events in Russia. Of course they made many stupid mistakes, but the 
historical process in Russia over the last 10 to 15 years was determined 
above all by its own internal dynamic. 

In this connection it is worth pondering over two circumstances. Colossal 
historical cataclysms, it would seem, have taken place in Russia - the 
break-up of an empire, the collapse of a totalitarian regime and an economic 
catastrophe. Under similar circumstances, the political class of the previous 
regime would have been sent en masse to the guillotine, to the Gulag or, in a 
more vegetarian time, into political oblivion. The Russian political class to 
a man is made up of the same people that comprised the Soviet political 
class. And the second question: Why did the communists so uncomplainingly 
hand over power in 1991? Why didn't they jail a couple of hundred 
intellectuals chatting at the kitchen table, why didn't they oust Gorbachev 
much earlier, and finally, why didn't they shoot the crowd at the White House 
in August 1991? 

The answer to both of these questions is one and the same. Because they did 
not give up power. They simply carried out a grandiose operation of 
converting their totalitarian collective political power into individual 
financial power for their most worthy representatives. All the foundations of 
the system of bandit capitalism were laid not in 1992-1995, but in 1988-1991 
- the Supreme Soviet law on the rights of enterprise directors, the 
Politburo's secret instruction on commercial activities by the Party, and so 
on. It was then that private owners were nominated, it was then that all of 
today's financial empires were born (many of today's oligarchs were Komsomol 
committee secretaries), it was then that control over financial flows was 
privatized. The guilt of the "reformers" and their Western advisers was that 
they went for a compromise with this system, and then developed it, naming 
the super-rich through loans-for-shares auctions. 

In Poland, a democratic revolution took place; in Russia, a nomenklatura 
Thermidor. That is the difference. 


Moscow NTV Carries Poll on Presidential Candidates 

July 4, 1999
[translation for personal use only]

[Presenter Yevgeniy Kiselev] If presidential 
elections had taken place this Sunday [4 July], there would have been no 
particular changes in the list of the most likely candidates for the 
presidency [in 2000]. The leading candidates remain Gennadiy Zyuganov 
with 18 per cent of the votes of those polled and Yevgeniy Primakov with 
16 per cent. Third is Moscow mayor Yuriy Luzhkov with 14 per cent. Nine 
per cent would vote for Yabloko leader Grigoriy Yavlinskiy. And seven per 
cent would be polled by each of Aleksandr Lebed, Sergey Stepashin and 
Vladimir Zhirinovskiy. 
The balance of forces changes somewhat if Primakov, as he has stated on 
several occasions, decides not to take part in the presidential election 
campaign. In that event, Luzhkov and Zyuganov win through confidently to 
the run-off round. Zyuganov would get 20 per cent in the first round, 
followed by Luzhkov with 16 per cent, and Yavlinskiy with 11 per cent. 
After them come Stepashin on 9 per cent, Lebed on 8 per cent and 
Zhirinovskiy on 7 per cent of the votes of those polled. 
Once a month the sociologists determine what the result of the 
presidential elections might be if this Sunday there was a second round 
and various combinations from the above list were in the run-off. Let's 
take the top five - Primakov, Zyuganov, Luzhkov, Yavlinskiy and Stepashin. 
Yavlinskiy loses to all the other four by a considerable margin, with the 
exception of Zyuganov. Zyuganov would beat Yavlinskiy by just two per 
cent, with 30 per cent against 28. This means that Yavlinskiy would have 
real chances of beating Zyuganov. 
Zyuganov in his turn only beats Yavlinskiy and loses out to all the rest
by a 
fairly large margin. Luzhkov beats both Yavlinskiy and Zyuganov, but 
loses out to Primakov and - quite unexpectedly - to Stepashin, although 
by a small margin. Thirty-one per cent would vote for Luzhkov while 33 
per cent of those polled would vote for Stepashin. 
So, here we have the first poll about a run-off where the name Stepashin 
was present, and immediately there is a minor sensation. It seems that 
Stepashin is one of the strongest potential participants in a second 
round. If a run-off for president took place this Sunday, Stepashin would 
only lose to his predecessor, Yevgeniy Primakov, and by a margin of 25 to 
46 per cent. Primakov remains the strongest candidate for president. 
[Video: graphic showing the photos of the candidates, their ratings; the 
poll was carried out among a representative sample of 1,500 respondents 
across the entire Federation].


Russia Today press summaries
July 7, 1999
Boris Berezovsky Has Bought "Kommersant"
Vladimir Yakovlev, founder and owner of the most popular Russian business
daily "Kommersant" and who now resides in the U.S., has sold his 85 percent
stake in the company to American Capital. 

Twenty-eight-year-old Iranian Kia Jurabchian, founder of American Capital
and a resident of London, has become the new proprietor of the Kommersant
publishing house. 

At a news conference on Tuesday, Jurabchian said that he bought Kommersant
for purely business reasons and that the deal was in no way connected with
the Russian political scene. Segodnya questioned this, noting that American
Capital has only existed for a year and is half American, half off-shore
company. No one in Russia or abroad had ever heard of it before. 

Segodnya suggested that American Capital has Russian roots, and that the
deal was only one step in helping media tycoon Boris Berezovsky gain
control of Kommersant. On Tuesday, Berezovsky confirmed his intention to
buy Kommersant. 


Russia Today press summaries
Komsomolskaya Pravda
July 7, 1999
Anatoly Chubais: Economic Growth In Russia
The daily interviewed Anatoly Chubais, head of the national grid controller
EES and a former first deputy prime minister and presidential chief of staff. 

Commenting on the economic situation in Russia, Chubais said that the
economy is obviously growing. Demand for Russian products on world markets
is rising. Imports have decreased as a result of the ruble devaluation, and
this has enabled Russian producers to get additional revenue from Russian

On the issue of the "Communist threat," Chubais said that after Yevgeny
Primakov's government, which consisted mainly of Communists, was dismissed
this year, it became obvious that the Communists could not turn back the
clock in the country. "They could not fulfill any of their slogans --
nationalization, a ban on dollars in the country or state price controls,"
Chubais said. 

Chubais, who also headed President Boris Yeltsin's re-election campaign,
said that on the eve of new presidential elections, Sergei Stepashin's
government should not try to solve broad economic problems. "To solve the
problems of non-payments, the total inefficiency of the tax system, the
lack of real mechanisms for property protection and corruption, the
government must have a broad political support," he said. These are tasks
for those who will rule the country after the elections. 


From: (Fritz Ermarth)
Date: Wed, 7 Jul 1999 
Subject: Re: Goodman (3381)

It's probably worth continuing a bit this debate about the qualities of the 
Bush administration versus others because some of its members and modes may 
return to government. Mel Goodman's comments elicit a number of responses. 
I have worked in government for all administrations since Nixon One. In my 
perception, the Bush administration was least inclined to pressure 
intelligence for its preferred analysis and most ready to receive the 
unwelcome, perhaps because Bush had been a DCI. Gorby sinking-Yeltsin rising 
was a case in point: Gates made the case to the President in a private memo; 
I made the case to the VP in a debate with Condi Rice at the VP's residence 
and in other fora; numerous experts made the case to the SECDEF. A four-man 
Langley team made it to the entire NSC at Camp David prior to the Malta 
Summit (a bit early in the game, the picture was emerging). Remember the 
administration's predicament, however; it made no sense to back away from 
Gorbachev while good things were being achieved in the relationship; nor to 
whisper it around that we knew Gorby was on the skids but wanted to exploit 
him fully before he went under (for this would leak and do a lot of damage). 
Statescraft is not betting on horses; it is managing high-stakes business in 
the face of great uncertainty. I repeat that the Bush administration was 
more expert, professional…and honest…than most I have dealt with.

The highest level (rank and intensity) of disdain toward intelligence 
analysis I ever encountered was the attitude of George Shultz toward 
judgments that Gorbachev's perestroika was not going to work because it was 
contradictory, based on faulty economics, and too hemmed in by Politburo 
politics. We proved to be right…unless you believe Gorby's real aim was to 
wreck the USSR. Shultz had become convinced that Gorbachev sincerely 
intended to remake East-West relations with arms control and ending the 
Afghan war; in this Shultz was right and some of us analysts wrong. But he 
went on to believe in the rest of the package, and was wrong. (I once asked 
him how he would evaluate Gorbachev’s book Perestroika from the perspective 
of the economics professor he once was; he just "hurumphed" and turned away.) 
He did not try to block analysis he did not agree with, however, unlike some 

The Bush administration did start out somewhat skeptical about "Gorbomania" 
and this was reflected in some initial policy studies. I guess this is what 
Mel calls anti-Soviet. In any case, this skepticism on foreign policy issues 
gave way to the real course of events. Bush may not have fully understood 
Soviet nationality troubles; Gorbachev certainly did not. But "Chicken Kiev" 
(drafted by Ed Hewitt) was informed in good part by a not-unreasonable fear 
that the USSR could suffer what happened to Yugoslavia. That speech was 
off-key politically and analytically, but probably did no harm (unless it 
served to encourage the August putchists, of which I know no evidence), and 
the opposite line probably would not have altered events either.

Mel is right that Cheney sponsored some serious contingency planning about 
the great transformations that ended the Cold War. During the critical 
years, he hosted seminars with leading Sovietologists from academia and 
government every couple of months; Powell would often attend. What I was 
referring to in my earlier posting was instigated by Gates, chaired by Condi 
Rice, and very serious, indeed. I participated constantly in both exercises.

As to strategic intelligence and arms control in the first Nixon term, too 
complicated for this posting. Suffice it to say that I remember it 
differently. Kissinger and his NSC staffers found CIA analysis immensely 
educational for themselves on a technical level (the late Carl Duckett was 
critical here) and immensely helpful from the start in supporting their arms 
control agenda because it bought into the McNamara view that the Soviets 
sought no more than parity based on MAD. As a result, CIA strategic 
intelligence got a new place in the sun, and deservedly so. Unfortunately, 
some of its premises where wrong as the emergence of such evidence as the 
SS-18 and 19 showed; this led to the B-Team and all the controversies of the 

I agree with Mel that memoirs should be read carefully, i.e., critically and 
skeptically. E-Postings, too. Cheers, FWE


Lebed: US Warfare in Kosovo 'Stupid,' 'Untalented' 

Hamburg's Die Woche in German
2 July 1999
[translation for personal use only]
Interview with Krasnoyarsk Governor Aleksandr Lebed by Stefan Scholl 
in Krasnoyarsk; date not given: "There Are No Winners Anymore" 

[Scholl] Aleksandr Ivanovich, who won the Kosovo 
war, in your view? [
Lebed] No one. Who could have won it? 
[Scholl] NATO, for instance. 
[Lebed] Then why did NATO Secretary General Solana resign from his office? 
Winners do not leave, winners stay in the boss's seat. 
[Scholl] After all, he will soon be "Mr. CFSP [Common Foreign and Security 
Policy]," the EU's quasi foreign minister. 
[Lebed] (grinning) In the Army we called this promotion by kick in the ass. 
[Scholl] Thus, if somebody won, it was rather the United States than
[Lebed] In strategic terms, the Americans certainly won, because Europe 
lost. Europe now has to take care of hundreds of thousands of refugees, 
the ecological disaster caused by the bomb war will be there for decades, 
the euro has plummeted. And the Americans say quite shamelessly: we took 
the ax to your forest, you must pay the damage. Tactically, however, the 
Americans lost this war. Instead of precise air strikes, they spread 
their bombs from the stratosphere, hitting refugees and journalists, 
embassies, and hospitals. They killed several thousand people and 
destroyed a flourishing country -- with stupid, untalented warfare. 
[Scholl] They imposed their will on Milosevic. 
[Lebed] NATO crushed Yugoslavia with technical superiority. But now a new 
stage begins: neither the Serbs nor the Albanians will keep the peace. 
[Scholl] NATO ended Milosevic's "ethnic cleansing." 
[Lebed] What Milosevic did in Yugoslavia is disgusting. However, one could 
have put much more pressure on him also without a war. Why was he not 
indicted as a war criminal much earlier? Why were the international 
borders not closed to him earlier and his bank accounts frozen? NATO 
wanted war. [Scholl] Milosevic is certainly not one of the winners of this 
[Lebed] I wore a uniform for 26 years, I participated in the most varied 
wars and conflicts, I got a lot of medals. And I have come to the 
conclusion: there are no winners anymore. NATO has bombed Yugoslavia to 
rubble. But in Kosovo men, women, and old people will soon shoot, stab, 
poison NATO soldiers. Have you ever dealt with people who lost everything 
in just an hour? In the morning you leave the house where your wife, your 
children, your parents live. You return and you find a smoking pit. Then 
something happens to you -- to a certain extent you stop being human, you 
do not need any glory, any money anymore, revenge becomes your only joy. 
And because you no longer cling to live, death avoids you, the bullets 
fly past. You become a wolf. 
[Scholl] Do you want to instill fear in the KFOR [Kosovo Force]
[Lebed] I know what I am talking about, I have often dealt with such
Many soldiers will return home in body bags. And this will cost may 
politicians their jobs. The leftists started this war, the rightists will 
end it. Your German social democrats and Greens, for instance, announced 
to close down all nuclear power plants and to defend the inviolability of 
every single mole-hill. And then they drop bombs on Yugoslavia, and that 
after the experiences of two world wars! This is stupid, short-sighted, 
and dangers. And German soldiers will pay for it. 
[Scholl] What will the consequences of the war be for NATO, in your view? 
[Lebed] I know that the mood in Hungary, Poland, and, above all, in the 
Czech Republic has become very pensive: what have we gotten ourselves 
into? Oh so "precise" NATO missiles hit Macedonia and Bulgaria, Italian 
fishermen fish unexploded shells out of the Adriatic. The Italians 
complained right from the beginning, Greece did not join in in the first 
[Scholl] This means, you think that NATO, which has just been enlarged, is 
alrady falling apart again? 
[Lebed] Certainly not. The Alliance is rich and has prestige. But the
has got its first crack. 
[Scholl] As a Russian officer, you were repeatedly involved in settling 
ethnic conflicts. In Transdniestr you managed to protect the Moldavian 
minority against the Russian-speaking majority. How should order and 
security be reestablished for all inhabitants in Kosovo now? 
[Lebed] The peacekeeping troops there should operate absolutely under the
flag and come exclusively from neutral countries. And one needs a 
commander with authority. 
[Scholl] Do you favor the participation of Russian soldiers in the KFOR? 
[Lebed] We could also do without it. However, this would be even more 
expensive for you. Russia is the only political force in the peace 
process that can credibly mediate between Yugoslavia and the West. 
[Scholl] Many Russians believe mediator Viktor Chernomyrdin let himself be 
bought by the Americans. 
[Lebed] Chernomyrdin has the mentality of a merchant and, as peacemaker, he 
haggled like a merchant. You cannot give a businessman such a job! 
[Scholl] The first Russian paratroopers turned up in Pristina against 
Chernomyrdin's will? 
[Lebed] We had a wonderfully absurd situation there. The contingent marched 
into Kosovo. It should have been reinforced immediately, should have 
staked out its own sector. But they arrived, took their positions, and 
started to talk about water and food. He first sergeants of each company 
must secure the food! 
[Scholl] Some Russian and western observers think that the generals 
themselves decided to put the battalion on the road because they were 
angry about the results of the negotiations. 
[Lebed] In September 1990, when I marched to Moscow with my division, a 
deputy told me I should admit that I had got drunk and drove the division 
to Moscow under the influence of alcohol. In our country they like to 
blame the generals. However, the Russian commander has not yet been born 
who crosses three European borders with his unit on his own 
responsibility. Our hawks have not yet grown such wings. 
[Scholl] Where did the order come from, in your opinion? 
[Lebed] I do not rule out that they will now take the major general to
who commanded the battalion. This is ridiculous, because he only carries 
out the orders of the chief of the Russian General Staff, who, for his 
part, is subordinate to the Defense Minister and the President. However, 
our Defense Minister is a cautious man. The order came from the 
President. Then Yeltsin quietly stepped aside, as usual, and everybody 
got all excited. 
[Scholl] Is President Yeltsin still able to make such decisions? 
[Lebed] No. This means, he easily makes initial decisions, a wave of his 
hand, a decree that is in effect for half a day. But our paratroopers 
marched, and now it would have been necessary to take determined action 
to the end. Thus, we just showed our teeth a bit without really biting. 
[Scholl] The Kosovo war was a premiere in international politics. Do you 
consider it possible that one day Russia, too, might become the target of 
a "humanitarian intervention"? 
[Lebed] No. As long as we have strategic nuclear missiles, this is 
impossible. Anyone who bombs us, gets an immediate response. The West has 
much to lose, Russia does not. And the one who has more to lose is worse off. 
[Scholl] This means, Russia need not fear anyone? 
[Lebed] Russia went through two world wars in this century and through 
Stalin's repression -- this means, it has lost 70-75 million people. 
Russia does not intend to wage war against anybody. We do not need a big 
army anymore, we need not be able to defend ourselves at any time in all 
directions. A mobile task force, which costs little, is sufficient. There 
are external conflicts, but our strategic missiles are sufficient to make 
sure that we are taken seriously at the negotiating table. 
[Scholl] Which countries do you see as Russia's reliable allies? 
[Lebed] Somebody once said that there are no eternal friends or foes, there 
are just eternal interests. As long as Russia is poor, we will not have 
any friends. As soon as we get rich, the friends will come by themselves. 


Date: Wed, 7 Jul 1999 
From: Alex Elder <>
Subject: Rubles to Dollars/Foreword for the 1999 Dutch Edition

My book RUBLES TO DOLLARS has recently been translated
into Dutch and will be published in Holland in time
for Christmas under the title BELEGGEN IN RUSLAND.

Writing a foreword to the Dutch edition prompted me to
review the events of the last year. Please read it,
and I hope you agree that this short piece deserves to
be seen by serious Russia watchers.

Will you be so kind as to add the following note
either before or after this submission:

RUBLES TO DOLLARS is available in major bookstores. 
This $28 book can also be ordered for only $20
directly from Dr Elder's firm which can be contacted

Thank you very much

Rubles to Dollars
Foreword for the 1999 Dutch Edition

When I was a boy growing up in Estonia, which was part
of the Soviet Union, I used to read about Holland, and
Dutch boys skating on frozen canals, and a different,
ordered, peaceful, serious, joyful life that seemed so
different from ours - shortages of good food, and bad
roads, and constant military maneuvers plunging the
city into blackouts, with army jets screaming
overhead. If anyone had said to me forty years ago
that I would write a book on Russia in English, and
that it would be optimistic, and that it would be
translated into Dutch and published in the land where
boys skate on frozen canals - I would have thought
that a fairy tale. We live in a changing world, and I
am glad that some of our changes are for the better.

Rubles to Dollars was first published in New York in
October 1998, and this Dutch edition is coming out a
year later. What has changed in Russia during that
year? In reviewing my book today I see that 98% of
what I wrote last year is fundamentally valid. The
key concept is valid - Russia has irreversibly changed
its course. It has emerged from two centuries of
Mongol occupation, three centuries of brutal monarchy,
and almost a century of vicious communism into a young
democracy. Today, Russians from all walks of society
share a consensus that there is no going back, that
the government has to serve the people rather than the
other way around. This may sound like a normal idea
to a Dutchman, but to a Russian this is a fantastic
fundamental change. Russians have a long history of
living under a brutal big man with a heavy stick - a
Mongol, a Tsar, or a Stalin. Only in the past nine
years people have tasted freedom, and this is creating
a psychological revolution in a huge country. A mass
psychological change in a country with vast natural
resources and an educated population promises a boom,
the likes of which the world has not seen since the
days of the 'Asian miracle' in the 60s, 70s, and 80s.

In 1998 Russia went through its worst economic and
financial crisis since the fall of communism in 1991. 
The Russian ruble, whose stability had been one of the
proud economic achievements of the current
administration, collapsed overnight, from 6 to a
dollar to 24 to a dollar. The government had in
effect defaulted on its paper, suspending debt
payments and throwing the banking system into chaos. 
Faced with a choice between two evils - to abandon the
ruble or the banking system, this administration, in
its ham-handed way, chose both!

This financial crisis has caused great pain to all
Russians, especially the emerging middle class. The
average daily volume on the RTS - Russian Trading
System, the country's main marketplace for shares -
collapsed from US$100 million a day to $4 million a
day. Thousands of people who used to work in the
financial sector lost their jobs. This crisis,
painful as it was, had a silver lining.

Professionals who lost jobs in the financial sector
were among the most educated and westernized people in
the country. Now they are taking jobs in the 'real
economy' - construction firms, food distributors,
manufacturing companies, and even state offices. They
are taking cuts in pay, but they are bringing the
western culture of the workplace into the broad
Russian economy. The devaluation of the ruble has
made domestic goods more competitive, reducing imports
and creating a huge stimulus for domestic industries. 
Several oligarchs, hyper-rich men in control of
important sectors of the economy, have lost their
empires. There is now a mood of greater self-reliance
in the country, and other oligarchs are being hemmed
in by the tide of public opinion.

I am grateful to readers of the first edition of
Rubles to Dollars for sending me their suggestions and
comments. Andrey Liakhov who practices corporate law
in London, reminded me recently to "…mention the
aerospace industry which is really a pearl in the dirt
and has a great future. Russia launched more than 45%
of all commercial satellites in 1997. Although Russian
aerospace companies are slow in coming to the
international capital markets, they are really the
next big thing in Russia. What about the Russian gold
industry? Star has a successful operation in Siberia,
Barrick is going there." A few days after receiving
his e-mail, I saw an article in The New York Times
about Ilyushin, a Russian aerospace giant. It just
received an international airworthiness certificate
for its wide-body cargo jet, with a passenger jet
going through the process. Once that certificate is
granted, Boeing and Airbus will have a third

The Russian stock market has almost doubled since last
fall. The Templeton Russia Fund, managed by Mark
Mobius, who commented so warmly on Rubles to Dollars,
is now coming up on my computer screen as the greatest
gainer on the New York Stock Exchange for the past six

"Russia is now living through a very difficult
period," said a man last month with a very close view
of what's happening - President of Estonia Lennart
Meri. "However, the twenty-first century will be the
age of a splendid and reformed Russia. I am absolutely
sure of this." A forward-looking observer who sees
that Russia has a great future has a wonderful
opportunity to profit from its changes.

In conclusion, I want to thank Harry Panjer for
translating this book (as well as my previous book,
Trading for a Living) into Dutch. Harry has become a
good friend whose advice I value and trust. He is a
busy, hard-working man, and I am grateful that he
undertook this project, casting his vote of confidence
in my work on Russia.

Dr. Alexander Elder
New York
July 1999


Date: Wed, 07 Jul 1999
From: "Tom White" <>
Subject: Entreprenuer 2

The aspiring entreprenuer in Russia has to first come to grips with the
need to overcome the the language obstacle. If the entreprenuer is
successful in designing a system of interpreters to work with, while
avoiding the problems discussed in the previous article, then the next
step is feasibility of the idea. The intitiation of the feasibility
study presupposes that the businessman has identified and verified the
existance of an unsatisfied level of demand which would support the

Any entreprenuer approaching a business venture in Russia should begin
with a feasibility study. In terms of western business the idea of a
feasibility study is not new. However, when western ideas are applied
to the Russian business system there are outcomes that will be
surprising. The Russian business system is a legendary myriad of
bureaucracy, graft, conspiracy, apathy, and patriotic egotism. The
first thing the businessman in Russia must realise is that everything is
regulated by some form of government organization. It is very easy to
discover that the simplest of products, in the west, is impossible to
market in Russia without going through a two year, or more, period for
licensing. The entreprenuer must identify and isolate the associated
costs, including time expended, of each level of approval. 

There are requirements for testing that must be adhered to for consumer
products. Do not let the testing requirement seem reminiscent of
Underwriter Laboratories. The Russians have their own set of standards
for every product imaginable. These hurdles are complicated by the
difference in the philosophical base from which the stantards are
drawn. They also have a different testing office for each form of
product. Just discovering which office should do the testing for a new
product will be a guantlet of bureaucratic shuffling for the novice
businessman in Russia.

There is no substitute for doing your home work. If there appears to be
an opening in the Russian market there is a reason that it exists. 
Sometimes the reason is the bureaucracy is too deep to wade through. At
other times the Russians may not perceive a need for the product. Still
it is possible that a product does not exist on the Russian market
simply because Russians do not understand the market for it. It is also
possible that Russians understand there is a demand for a product but
refuse to produce it because it is not "Russian style". The
entreprenuer must spent time in Russia sorting out the reasons the
proposed product does not exist. I would recommend enough time in
Russia to come to a verifiable conclusion. Certainly the novice
businessman should reach these conclusions based on previous business
experience and not the advice of Russian consultants. Russian
consultants live by the same set of standards as interpreters when
dealing with westerners. Relying on Russian consultants to do a
feasibility study is like walking into a dark alley, with money hanging
out of your pockets, somewhere in Harlem. The results of such a naive
action are extremely predictible.

Should the businessman decide that a viable market exists for a new
product, in Russia, the next task is to construct a "manufacture or
import" decision. This investigation is just another step in the
feasibility study. Manufacturing in Russia is vastly different than in
the West. In many areas that are computerized and mechanized in the
West their Russian conterparts are still cottage industries. The raw
materials distribution system is also different. If the businessman
wishes to produce in Russia the costs of combining the resources and
achieving the completion of a product must be weighed against the
western cost and the tax imposed on importing. The businessman must be
careful in this analysis to discover the "Hidden" costs that will
arise. The hidden costs being those that insure the job is accepted and
completed at the differing levels of production. This will certainly
mean candy for the secretaries, dinner for the executives, and several
cases of vodka. Depending on the people that you chose for production
it may mean even more costly sorts of gratuities. However the cost of
these things may pale by comparison to a 52% cost to bring the product
across the border from the west.

Another critical factor in the feasibility study is the determination of
whether a distribution system exists for the product. The way products
reach the market in Russia is as different as the way they get created. 
The final market for a consumer product may be in a kiosk, a government
operated department store, or any number of alternatives in between. The
new product in the market may not fit well, or at all, into the regular
distribution channels in Russia. The establishment of a new
distribution channel will defeat most new product ideas. Acceptance of
the product in the established channels will be a key to reaching the
market. Again in the distribution channel there will be "Hidden"
costs. They will likely be as important to eventual success as they
were in the production stage. 

If it the conclusion of the businessman that the feasibility study
confirms the new idea then work has just begun. At the conclusion of
the feasibility study not one item has been produced or imported nor
does the entreprenuer have the right to do so in Russia. A foreign
individual does not have the right to do business in Russia. It is at
this stage that the entreprenuer must form a company to operate in
Russia. The formation of a company is a subject unto itself and will be
discussed in the next essay. If the entreprenuer has come this far the
road ahead will not level off.


Russia: Views Differ On Kremlin Push For Union With Belarus
By Floriana Fossato

The Russian government is expressing renewed interest in a political union
with Belarus. RFE/RL correpondent Floriana Fossato reports that some in
Moscow are speculating the move may be tied to an effort by Russian
President Boris Yeltsin to remain in power.

Moscow, 6 July 1999 (RFE/RL) -- Russian Prime Minister Sergei Stepashin
said this week he has been directed by President Boris Yeltsin to draw up a
"serious, concrete" proposal on a political union with Belarus. And,
Stepashin says, he has been told to do so within a month. 

His comments come after Belarusian President Alyaksandr Lukashenka last
week said he would move closer to the European Union if Moscow failed to
move fast on a union with his country. In a speech at a meeting of
Belarusian and Russian parliamentarians in Minsk on Friday, Lukashenka
criticized Moscow for moving slowly on a union. He said that if Russia does
not reconsider its approach to the issue, "Belarus will change the vector
of its priorities in foreign policy." 

But some commentators in Moscow say renewed Kremlin interest in a union
with Belarus has more to do with the expiration of Yeltsin's term of office
in 2000 than with Belarus-Russia ties. 

These commentators include former Soviet President Mikhail Gorbachev. In an
interview with the daily "Segodnya" published today, Gorbachev says he
knows from what he calls "trustworthy sources" that the Kremlin is
considering postponing the June 2000 presidential election. He says the
postponement would be linked to "creation of the new unified state." 

Gorbachev says that in linking postponement of the election to a union with
Belarus, Yeltsin could appear to be acting in the interest of the state
rather than in his own political interest. 

Meanwhile, another daily, "Izvestya," published an interview today with
Yeltsin in which he says he is ready to step down when his term expires
next year. Under the Russian Constitution, Yeltsin is barred from running

Today's two interviews look strangely like an extension of past public
disputes between Yeltsin and Gorbachev, two long-time opponents. 

But Gorbachev is not the only one speculating on how a union between
Belarus and Russia could affect Russian politics. Last month, two political
analysts, Vyacheslav Nikonov and Sergei Markov, said they also believe
Yeltsin will likely hold on to power as head of the new state emerging
after the union of Russia and Belarus. 

Other analysts also suggest the Kremlin may be interested in keeping alive
a "Belarus union option" that would allow Yeltsin to stay in power. But
some of them see the option as a "last resort", likely to become reality
only if December parliamentary elections fail to reassure the Kremlin over
who would likely win the presidential race next June. 

Still other Moscow observers believe that, as Yeltsin told Izvestya, "the
main task" of Kremlin strategists now is to prepare parliamentary and
presidential elections in a way that will allow the president to step down
with, as Yeltsin put it, "a light heart." 

Yeltsin told Izvestya he knows whom he wants his successor to be. But he
refused to provide a name. Yeltsin said that if he did, his preferred
candidate "will not be able to live in peace." 


Los Angeles Times
July 7, 1999 
Russia's Perilous Game 

NATO and Russia have struck a deal to put up to 3,600 Russian troops into
parts of Kosovo, but the accord leaves disputes over issues of command
unsettled and concerns over Moscow's political intentions unresolved.
Rather than removing barriers to cooperation in trying to keep the peace in
Kosovo, the deal holds the prospect of new frictions, if not actual

It has been clear ever since the Russians caught NATO embarrassingly off
guard by seizing the airport at Pristina last month that Moscow intends to
play its own game in Kosovo, using its own rules. Nominally its forces will
be there to support peacekeeping operations under U.N. auspices and NATO's
command. But Moscow's greater commitment is to serve as the advocate for
Yugoslavia and the Serbs, with whom Russia has long historic and religious

For example, the deal with NATO allows Russian forces to refuse to carry
out orders from the NATO commanders in the German-, American- and
French-administered zones where they will be stationed. Moscow has already
indicated that it won't enforce the mandate of the war crimes tribunal at
The Hague to arrest persons accused of murder and other crimes against
humanity in Kosovo. NATO has reserved the right to send its own forces into
Russian areas of operation if Russian forces reject NATO's orders, but the
Western alliance made amply clear during its air war against Yugoslavia
that it is institutionally averse to risk. There is a real question whether
it would be prepared to send its ground forces into Russian-controlled
areas in the face of possible armed resistance. 

Russia's seizure of the Pristina airport was seen by some as an effort to
display military prowess after Moscow's humiliation over its inability to
prevent NATO's bombing of Serbia. But mounting evidence suggests that
Russia seeks more than just respect for its military. It also wants to
show--most of all to the Russian people--that it remains a political force.
That could well mean asserting, when it can, its differences with NATO and
its independence of action--to the possible detriment of peacekeeping


Russia and Belarus Move To Re-Unite
July 7, 1999

MOSCOW (AP) - Slavic allies Russia and Belarus could agree next month to 
join as a single state, a top official said Wednesday.

A draft treaty would be ready in a month, and once signed, would have to be 
approved by referendums in both countries, Russian Prime Minister Sergei 
Stepashin said, according to Interfax news agency.

``Russia and Belarus are strategic partners, and we won't depart from this 
(position),'' Stepashin was quoted as telling a meeting of officials from the 
countries. ``We are getting increasingly close to becoming a union state.''

The ex-Soviet states have close cultural, linguistic and religious ties. Many 
Russians and Belarusians believe their countries never should have split in 

Work on the merger gained momentum during NATO's bombing of Yugoslavia, a 
ally to both Russia and Belarus. Yugoslav President Slobodan Milosevic 
formally requested Russia and Belarus to join Yugoslavia in a Slavic union, 
which many Russian leaders saw as a potential counterweight to NATO and U.S. 
global dominance.

But the proposal of an alliance with Yugoslavia failed with war-wary Russians.

Belarusian President Alexander Lukashenko has pushed for uniting his nation 
of 10 million people with Russia's 150 million. He and Russian President 
Boris Yeltsin have signed a union deal that brings their countries closer 

But plans to reunite the two stalled, partly because of fears in Moscow that 
Belarus' moribund, Soviet-style economy would further burden Russia's own 
depleted treasury.

Lukashenko and Yeltsin also preach different politics. Lukashenko, an admirer 
of the Soviet Union, advocates a centrally controlled economy, while Yeltsin 
says he is for a free market.

Lukashenko has also cracked down on media opposition, while Yeltsin continues 
to assure Russia of its right to free speech.

The two leaders may share one desire, though, to continue to be president.

Russian media have said that Yeltsin has recently grown more supportive of 
the union, and that his supporters see it as a way to extend his presidency.

Yeltsin is constitutionally barred from running when his current, second term 
expires in 2000. But integration with Belarus could offer another shot at the 
presidency for Yeltsin.

Lukashenko also suggested last week that if the union state is formed, he 
would run for president. Some Russian liberals worry that Lukashenko's 
nostalgia-laden brand of nationalism could win votes among an increasingly 
impoverished nation.

But critics say that neither Yeltsin, with his frail health and low approval 
ratings, nor Lukashenko, who would face plenty of competition for the Russian 
hard-line vote, would be a likely winner.

Meanwhile, the heads of the two countries' central banks recommended that the 
Russian ruble be used as the union's single currency, deputy chief of the 
Russian Central Bank, Oleg Mozhaiskov, said Wednesday in the press.


Jamestown Foundation Monitor
7 July 1999

scenario is not the only one being talked up (see the Monitor, July 6).
According to another, the Kremlin may want to move up the presidential
contest rather than postpone it. Postponing it would not get rid of those
candidates the Kremlin and its "oligarchic" allies see as the major threats
to their interests--Moscow Mayor Yuri Luzhkov and former Prime Minister
Yevgeny Primakov, who continues to enjoy the highest rating of any Russian
politician. Thus the best tactic would be to hold the presidential vote as
soon as possible, before either Luzhkov or Primakov have had time to prepare
their campaigns. Over the weekend, a newspaper cited leaks from the
presidential administration that a scenario which former Prime Minister
Sergei Kirienko has been advocating, in which Yeltsin steps down and the
presidential and parliamentary elections are held concurrently in December
of this year--may come to pass. This would force Luzhkov to decide whether
to run for the presidency unprepared, or to opt for a sure thing by running
again for Moscow mayor (that contest is also scheduled for December).
Luzhkov, presumably, would choose the latter.

The other part of this scenario is removing Soviet founder Vladimir Ilych
Lenin's mummified remains from the mausoleum on Red Square, followed by a
ban on the Communist Party (KPRF). The ban could be applied in such a way as
to prevent leaders of all the KPRF factions--from KPRF leader Gennady
Zyuganov to Duma Speaker Gennady Seleznev to radical Duma deputy Viktor
Ilukhin--from either running for president or leading their own electoral
blocs in the parliamentary contest (Novye izvestia, July 3).

The ultimate goal of such maneuvering, presumably, would be to make Prime
Minister Sergei Stepashin Yeltsin's successor. A presidential preference
poll by the Public Opinion Foundation released yesterday showed Stepashin
with a 6 percent approval rating--well behind Zyuganov (17 percent),
Primakov (16 percent), Luzhkov (14 percent) and Grigory Yavlinsky (9
percent)--and tied with Krasnoyarsk Governor Aleksandr Lebed. But the poll
also showed Stepashin would defeat everyone except Primakov in a run-off
(NTV, July 4).

However, according to still another scenario, Kremlin insiders want Yeltsin
to step down to allow early elections, but not before replacing Prime
Minister Sergei Stepashin with First Deputy Prime Minister Nikolai
Aksenenko, effectively making the latter Yeltsin's successor (Moskovsky
komsomolets, July 6). One unnamed Kremlin official who is apparently pushing
for Aksenenko to become the heir apparent was quoted as saying: "We
understand that Stepashin is an electable figure, and that Aksenenko is,
let's say, much less electable. But understand: on the other hand, we can
trust Aksenenko" (Vlast, July 6).

It is likely that all the scenarios in the air are Kremlin contingency
plans, and that no consensus has been reached within the Kremlin inner
circle on how to proceed. While it may be surprising, some observers claim
there are those in the Kremlin who actually want a legitimate transfer of
power from the Yeltsin administration to a new one through genuinely
democratic elections (Vlast, July 6).


Russia Starting To Pay Wages On Time
July 7, 1999

MOSCOW (AP) - Russia's pensioners and state workers are finally being paid on 
time but they have yet to receive millions of dollars in payments or see an 
end to poverty, Prime Minister Sergei Stepashin said Wednesday.

``A system of social security ... has not been created, the pension system 
does not measure up to modern standards, and our labor code is obsolete,'' 
Stepashin said at a government-sponsored economic conference.

``The low effectiveness of the social policy is the result of the fact that 
labor continues to be one of the cheapest commodities, which is impermissible 
in a market-based system,'' Russian news reports quoted Stepashin as saying.

Russia's average salary, paid out in a currency that has lost more than 70 
percent of its value since last August, is about $50 a month, according to 
state statistics.

More than one-third of the population lives below the poverty level, set in 
February at $30 a month.

The government has made some progress in phasing out the practice of paying 
pensions and state workers' wages months late, and recently delays are no 
longer than a few days, Finance Minister Mikhail Kasyanov said at the 

But as of July 1, the government still owed retirees $492 million in back 
pensions, Stepashin said. He didn't specify the wage debt.

In recent days, the government has flaunted its success in increasing tax 
collection, reducing inflation and boosting foreign currency reserves.

The economic improvements, however, have yet to trickle down to the millions 
of Russians who continue to struggle to pay for food and housing.

The government spent about $2 billion on social programs this year, including 
pensions and disability payments, Kasyanov said.

In the first half of this year, he said, Russia's social programs were almost 
fully financed and received 99.7 percent of the funds allocated to them in 
the budget.

The coal sector is one of the worst hit by the wage debts and poverty, with 
most miners working months or even years without pay.

Russia spent $205 million on subsidies to the coal industry in the first half 
of the year, Stepashin said

Foreign financial organizations have urged Moscow to stop pouring scarce 
resources into unprofitable mines. But the miners have been staged protests 
and threatened social unrest, and have effectively scared the government into 
stalling plans to cut funding.

Fuel and Energy Minister Viktor Kalyuzhny said that the first $50 million 
installment of a $400 million World Bank loan to overhaul Russia's coal 
industry may be released this month. The loan is to be spent on closing 
unprofitable mines and providing social support and training to miners who 
would be laid off.



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