July 14, 1999    
This Date's Issues: 3393 •   •

Johnson's Russia List
14 July 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: A Luzhkov-Primakov tryst? Russia's political establishment is 
buzzing.
2. Itar-Tass: Ex-Premier Primakov Urges Sound Forces to Unite in 
Parliamentary Polls.
3. Jamestown Foundation Monitor: BEREZOVSKY SAYS PRIMAKOV-LUZHKOV ALLIANCE WOULD FALL APART.
4. Izvestiya: Vyacheslav Nikonov, Big Stick Democracy.
5. Itar-Tass: Political Scientist Makes Election Forecast. (Nikonov).
6. Itar-Tass: Russia Has all Preconditions to Handle Crisis-Stepashin.
7. Stephen S. Moody: Barter and Demonetization (re Thomas/#3390).
8. Lars-Erik Nelson: government secrecy.
9. David Filipov: request for info/ re: #3392.
10. Peter D. Ekman: Joint Ventures.
11. Andrei Liakhov: RE: 3392-White/Forming a Company.
12. Cato Institute: George Selgin, Time to Replace Russia's Potemkin 
Capitalism.
13. Washington Post editorial: Caught in the Middle. (Ukraine).
14. Stratfor commentary: Kuchma Capitulates to Russia.
15. Carnegie Endowment: U.S.-Russian Arms Control
16. AP: Russia Tycoon Runs for Parliament. (Berezovsky).
17. Reuters: USDA Defends Russia Food Aid, Says More Possible.
18. RFE/RL NEWSLINE: WESTERN ANALYSTS OVERLOOKING RUSSIAN ECONOMIC 
REVIVAL? 
19. St. Petersburg Times: Brian Whitmore, Sobchak Stages Flamboyant 
Return.] 

*******

#1
A Luzhkov-Primakov tryst? Russia's political establishment is buzzing

MOSCOW, July 13 (AFP) - When the Moscow mayor invites a former Russian 
premier for supper the event rarely makes it into the press.

But this is summer in Moscow, the weather is hot and journalists are bored. 
And the dinner between Mayor Yury Luzhkov and former prime minister and spy 
master Yevgeny Primakov has sparked speculation.

Luzhkov, 62, and Primakov, 69, are the two men most people here point to when 
asked who will become Russia's next president.

Elections to the presidency are due next summer after parliamentary polls in 
December and who might ally with whom is a concern.

Luzhkov has said he would like Primakov onboard and has indicated the former 
premier might want to take the helm of his Otechestvo (Fatherland) party, 
founded late last year.

There was not a single newspaper or analyst in Moscow on Tuesday who was not 
guessing about why this might be the case.

"Luzhkov's actions are perfectly logical. His standoff with the Kremlin was 
due to end in a loss," the mass-circulated Komsomolskaya Pravda pointed out. 
"A Primakov-Luzhkov alliance according to almost all political analysts is 
unbeatable."

Political analyst Sergei Markov said: "It might be linked to the fact that 
Primakov is a former spy, but that is not the most important thing."

Primakov, when prime minister, is believed to have several times resorted to 
Russia's steely security services to keep his political foes on their toes. 
Analysts suggest such connections are useful in a run for the presidency.

Luzhkov, meanwhile, has been engaged in an unpleasant weeks-long standoff 
with the Kremlin. His helicopter was recently grounded in a case that sent 
tongues wagging and the Moscow mayor threatening to sue.

The head of Moscow's flight control, apparently acting on the request of the 
Kremlin, said he banned the flight because the mayor had failed to give 
proper details about his chopper trip in time.

Some now say that Luzhkov is offering a leadership post to Primakov so that 
the media and the Kremlin will get off his case.

With all eyes focussed on Primakov, Luzhkov could then make his run for the 
presidency.

"Luzhkov understands that if he acts like party leader the Kremlin won't like 
him," said Yevgeny Volk of the Heritage Foundation office in Moscow. "Plus 
Primakov has support in the regions."

It has long been considered that the mayor of a relatively rich Moscow is 
bound to be voted down by Russians in the provinces who think that the 
capital has been stealing from them.

Primakov, meanwhile, has been unbeatable at staying silent. He was fired from 
his premier post last May and has since gone to hospital to treat a bad back. 
The former head of the Soviet spy agency has hardly been heard from since.

But now he is hinting he might come out of retirement to participate in 
elections -- although he refuses to say which ones.

How Primakov has turned into a potential king-maker is on political analyst's 
mind.

Most polls here show that Primakov is somewhere near the top when people are 
asked about their next Kremlin chief, but then most polls here are unreliable.

Primakov, meanwhile, has also been courted by the Communists.

Former liberal reforms chief Anatoly Chubais recently said that Primakov's 
alliance with the left would pose a danger to Russia that must be fought with 
"all available means."

Chubais, who also has an uneasy relationship with Luzhkov, never said what 
those means might be.

Could a scheme be underway to derail the Communists by tying Primakov to 
Luzhkov, analysts ask??.

Or perhaps nothing happened at all.

"Just the fact that Luzhkov and Primakov met ... does not mean that they have 
forged an alliance," observed the powerful Kommersant business daily. 

******

#2
Ex-Premier Urges Sound Forces to Unite in Parliamentary Polls.

MOSCOW, July 13 (Itar-Tass) - The former Russian prime minister, Yevgeny
Primakov, has said his participation in Russia's parliamentary elections
will largely depend on whether a real basis for uniting sound center forces
emerges. 

In an interview published in the Wednesday issue of the newspaper Moskovsky
Komsomolets, Primakov raised the issue of consolidating all sound center
forces in the runup to the parliamentary election. 

In his view, a broad coalition should take part in the polls, including
those who are on the left and right sides of the center. 

"I believe, one should seek rapprochement with all those who are interested
in the strengthening of the country, development of democracy and real
reforms which contribute to a better standard of living of the population,
as well as in the struggle against corruption and crime," he said. 

The more positive potential the forces participating in the election have,
the better for the society, according to Primakov. 

The former premier also suggested that Russia introduces the post of
vice-president and that some of the presidential powers are transferred to
the cabinet after the year 2000. 

*******

#3
Jamestown Foundation Monitor
13 July 1999

BEREZOVSKY SAYS PRIMAKOV-LUZHKOV ALLIANCE WOULD FALL APART. One of
Primakov's key opponents, the tycoon Boris Berezovsky, has predicted that a
Primakov-Luzhkov alliance would be short-lived, citing the irreconcilable
nature of what he described as Luzhkov's "emotional" populism and Primakov's
"cold-blooded" calculating approach to politics. In an extensive interview
published today, Berezovsky also said that the "special services" people
behind Primakov hold officials of Systema, the Moscow city government's
financial-industrial group, in contempt (Vremya MN, July 13).

Berezovsky also claimed that he had a copy of a note Primakov allegedly
wrote to the Prosecutor General's Office during his tenure as prime
minister, requesting that a criminal case be started against Berezovsky. If
the note is authentic, it would mean, as Berezovsky claimed in the
interview, that Primakov had exceeded his authority and violated the law: A
prime minister cannot ask the prosecutor general to open a criminal case.
During Primakov's tenure, companies reportedly controlled by Berezovsky,
including Aeroflot state airlines and the Sibneft oil company, were searched
in connection with allegations ranging from moneylaundering to illegal
eavesdropping. A warrant was later issued for Berezovsky's arrest, but was
rescinded after Primakov was removed as prime minister.

However, the case against Andava, a Swiss company Berezovsky helped found,
continues. Andava and several other Swiss-based companies are alleged to
have illegally handled all of Aeroflot's foreign revenues. Last week, Swiss
prosecutors carried out searches of offices at the behest of the Russian
authorities in connection with embezzlement and moneylaundering cases. While
the Swiss side did not indicate exactly which companies were being
investigated, some in the Russian press reported that the searches involved
Andava and other Berezovsky-related companies (Russian agencies, July 8-9;
Kommersant, July 9). The Swiss searches may mean that Berezovsky is still
not off the hook, despite the fact that Yuri Skuratov, the prosecutor
general who undertook the cases, has effectively been removed from his
position. In this connection, Berezovsky said in his interview that he plans
to run for a seat in the State Duma. While the tycoon said his goal was to
represent the interests of big business, it should also be noted that a seat
in the Duma would give him immunity from criminal prosecution.

********

#4
Izvestiya
July 13, 1999
Big Stick Democracy 
By Vyacheslav Nikonov 

President Boris Yeltsin is practicing Big Stick methods in internal
politics, charges IZVESTIA. Setting sail for another holiday, he has left
all observers in total bewilderment as to the Kremlin's plans. 
It looks like Yeltsin and his team have not yet decided what they would
do next but rule out no possibilities either, says the paper. It is not
clear, for example, whether or not they will abolish the elections; ban the
Communist Party; keep Stepashin till 2000 or fire him at the start of the
fall, etc. But hiding behind each scenario is a possibility of using force
(the Big Stick). 
It has become something of a habit for Yeltsin to discuss parliamentary
elections with heads of the secret services and the Defense Ministry. The
Big Stick is raised over North Caucasus and developments there are
increasingly often referred to as a possible pretext for the imposition of
a state of emergency (during which no elections are held). The stick is
threatening the Communist Party. The recent creation of the press ministry
is a stick of sorts too as is the mooted union with Byelorussia [which may
help extend Yeltsin's term in office]. 
As he left for holiday, President Yeltsin observed that the country was
calm. And he is right. There is only one political personage, the owner of
the Big Stick, who can break the calm. But one also should have enough
strength to lift it, says the paper in conclusion. 

********

#5
Political Scientist Makes Election Forecast.

MOSCOW, July 13 (Itar-Tass) - As of now, only three organizations -- the 
Russian Communist Party, the Otechestvo and Yabloko movements -- have a big 
chance of passing the five percent margin and being elected to the State 
Duma, but "the Primakov factor" is capable of influencing the pre-election 
standing a lot, President of the Politika Foundation Vyacheslav Nikonov said 
in a live program of the Echo of Moscow radio station on Tuesday. 

Judging by the public opinion polls, the Communist Party is likely to gain 
20-22 percent of votes, Otechestvo can gain 15-16 percent and Yabloko can 
have 11-12 percent. The election of candidates of the Liberal Democratic 
Party and the party of Alexander Lebed is in question. The Liberal Democrats 
may count on some 6 percent of votes. All the rest are lagging behind. 

The situation will drastically change if the marathon is joined by ex-Premier 
Yevgeny Primakov. "Every party and organization whose list is topped by 
Primakov will have a 100 percent chance to be elected to the State Duma," 
Nikonov said. If Moscow Mayor Yuri Luzhkov and Primakov become allies they 
can have the first place in the elections, the political scientist believes. 
If Primakov heads a bloc of governors, the bloc will have chances equal to 
Luzhkov's Otechestvo. 

In the opinion of Nikonov, the leftists will not manage to form a coalition. 
The moderate segment of the Popular Patriotic Union in the person of the 
Agrarian Party and the Spiritual Heritage, as well as the radical segment in 
the person of the Movement for the Support to the Army, the Defense Industry 
and Military Research isolate themselves from the Communist Party which wants 
to dictate its will on them. The Communist Party, the Agrarian Party and the 
Spiritual Heritage are likely to have their own lists in the elections, and 
the list of the Movement for the Support to the Army, the Defense Industry 
and Military Research is so far in question. 

The Communist Party is the only opposition organization which has a chance to 
pass the five percent margin in case the Party is not banned, Nikonov said. 
He does not think the ban would be a reasonable move. "If the Communist Party 
is banned it will be substituted by another force, and there is risk of the 
Movement for the Support to the Army, the Defense Industry and Military 
Research gaining 20 percent of votes. In that case we will get a marginal 
faction of unpredictable people instead of the bourgeois systemized faction 
of the Communist Party," the political scientist said. 

As for the rightists, they have no chances to get mandates of the State Duma 
without forming a coalition, Nikonov said. Even if they do, the chances to be 
elected are fluctuating despite the solid financial base. A rightist 
coalition is not a simple question due to the leadership ambition. 

Nikonov excludes a possible coalition of Otechestvo and Yabloko as 
inexpedient because the two will have seats in the State Duma anyway. It can 
be only a matter of coordinated candidates in single-mandate electoral 
districts. As for a possible union of Otechestvo and the All Russia bloc of 
governors, it is likely to occur in this or that form, the political 
scientist said. The main obstacle on that way is their different approach to 
the federative system of Russia. The program of All Russia has ideas of 
confederalization, which is unacceptable for Otechestvo, Nikonov noted. 

********

#6
Russia Has all Preconditions to Handle Crisis-Stepashin.

MOSCOW, July 14 (Itar-Tass) -- The Russian Argumenty i Fakty (Arguments and 
Facts)daily on Wednesday carries an interview with Russian Prime Minister 
Sergei Stepashin. "In my opinion, a strong hand means ability of a leader to 
take opportunities, to materialize the potential of government, the potential 
of state power," Stepashin said in the interview. "We have all the 
preconditions at the moment to drive the country out of the crisis," he 
stated. 

"I wish we could feel us again what we really are -- a great power," he 
emphasized. "Greatness is not only vast territories, not only 
intercontinental Topol missiles, but when people feel themselves comfortable 
and do not want to leave the country," the premier noted. 

The prime minister assessed his interrelations with the presidential 
structures as "normal." Stepashin believed that "all power branches have 
finally understood that for all the different points of view there should be 
a consolidated position." 

As regards the Russian state system, Stepashin expressed confidence in that a 
parliamentary republic was not what the country needed taking into account 
its size and traditions. Stepashin was all out for a presidential republic 
"with the authority of the government somewhat extended." 

Commenting on the upcoming parliamentary election, Stepashin said that the 
government could not stand aside. "We are working with the regions, dealing 
with the economic management, with the real sector of economy, and we have 
economic levers to use," he noted. "It is only common cause that can now 
unite the central power and the regions on a federal and economic rather than 
a political platform," he emphasized. 

********

#7
Date: 12 July 1999
From: Stephen S. Moody (stimru@aol.com)
Subject: Barter and Demonetization (re Thomas/#3390)

The perception that Russia's industrial economy is virtual and bankrupt will 
clearly hinder efforts to remonetize--that is, to create a viable commercial 
banking system. Of course, there is also the danger that, perceiving barter 
actually meets its needs, Russian industry will refuse to abandon a system 
that works--however imperfectly--for one that risks not working at all. For 
their part, however, investors already understand that the fraud and 
misallocation of funds perpetrated by certain Russian commercial banks did 
inestimably greater damage to the Russian economy than the deceptive 
("virtual") pricing practices of certain participants in the industrial 
barter system. On the other hand, investors may not understand what drove 
Russian industry into bankruptcy and barter--the processes that demonetized 
the Russian economy to begin with.

Demonetization actually began during perestroika with a series of economic 
measures (the law on cooperatives, for example) and price reforms (Ryzhkov's 
reforms of April 1991) and the black market rate for the ruble, all of which 
aggravated the disequilibrium between cash rubles (nalichnyi) and industrial 
bank deposits in transaction accounts (beznalichnyi). Yavlinskii and 
Shatalin identified the problem of multiple ruble exchange rates and DVKs in 
"Transition to Market" (1990), but the issue had not been adequately 
addressed when Gaidar's shock therapy reforms of 1992 liberalized prices. 
Price liberalization (the cornerstone of reform) led invariably, though 
inequitably, to the "unification of ruble exchange rates."

Clearly, when currencies of different exchange values are unified, either a 
devaluation or a revaluation occurs. In the case of the ruble, industrial 
beznalichnyi with intrinsically higher exchange values was devalued to the 
lower nalichnyi exchange rate, with the result that the cash component of 
industrial working capital shrank dramatically (on average, about 80 
percent). The unification of ruble exchange rates did not bankrupt Russian 
industry, but it made industrial enterprises illiquid: they no longer had 
sufficient cash to retire accounts payable, buy raw material inputs at the 
new liberalized world prices or to pay taxes. Eventually, it was taxes that 
bankrupted Russian industry.

Industrial enterprises could "age" their accounts payable (creating 
neplatezhi, nonpayments) and swap finished goods for raw materials (barter), 
but they had to pay taxes in cash. Unable to pay taxes, enterprises 
accumulated tax arrears which, until May 1996, were assessed interest at 256 
percent per annum and eventually led to kartoteka--levy and seizure of 
enterprise bank accounts by tax (or nonbudgetary) authorities. No bank 
account, no bank. From 1993 on, as more and more enterprises fell into tax 
arrears and kartoteka, barter grew in volume and significance.

Barter is the result, not the cause, of illiquidity. And, as a mechanism, it 
is not the reason why illiquidity became institutionalized throughout the 
Russian industrial economy. That role falls to nonpayments (neplatezhi).

Nonpayments are industrial accounts payable. What differentiates between 
Russian payables and payables anywhere else in the world are two important 
details. First, by Russian law (1993), all industrial orders must be 
accompanied by prepayment (predoplata); therefore, all accounts payable 
automatically become overdue bills (zadolzhennosti, debts). Second, only a 
tiny fraction of Russian accounts receivable (payables' counterparts) are 
financed by Russian commercial bank loans. No account, no bank, no bank 
loans. Since Russian accounts payable are not backed by actual commercial 
bank loans, they do not show up as demand deposits (liabilities) in loan 
accounts (assets) at commercial banks and, therefore, do not get counted in 
Russian money supply. . . in spite of the fact that, in aggregate, industrial 
accounts payables historically amount to 25 to 30 percent of Russian GDP. 
Anyway, since they aren't deposits, the Russian Central Bank is under no 
obligation to fund them and therefore refrains from new emissions on their 
account. Whence demonetization of the Russian economy.

Since 1993 at least, The Russian Central Bank (RCB) has towed the line on new 
emissions. As a result, rampant inflation in the early years of reform was 
brought under control and the ruble has been, with this or that notable 
exception, relatively (some would say, deceptively) stable. The question is, 
what good is a stable currency if nobody uses it? If banks don't make loans 
and manufacturers barter and citizens stuff dollar bills in socks, how 
effective can monetary policy--tight or otherwise--be? And what good are 
taxes if there isn't enough money to pay them? 

Compared to barter, of course, central banks are relatively recent 
innovations. And they weren't created solely to fight inflation. In fact, 
if you credit the Federal Reserve Act, the Fed's primary mandate is "to 
furnish an elastic currency." By elastic currency, the Act's authors had in 
mind a money supply that expands or contracts to accommodate seasonal and 
cyclical variations in business activity. The Act doesn't address the issue 
of "virtuality" in business activity, but its underlying principle still 
obtains: business activity will go on regardless of the form of 
payment--dollars, rubles, wampum or barter. If the government wants people 
to use its currency, the central bank has to (1) make it available in 
quantities sufficient to fund all transactions in the economy, and (2) keep 
the costs of holding it (i.e., interest rates) tolerably low. Sadly, the RCB 
did neither.

*******

#8
Date: Tue, 13 Jul 1999 10
From: Lars-Erik Nelson <lnelson@edit.nydailynews.com>
Subject: government secrecy 

For an article I am writing for the New York Review of Books, I would be
interested to learn from Russia specialists who served in government
whether, on net, they gained or lost from their access to secret
information, especially non-military information. Was the intelligence
they received worth the loss of freedom to publish, freedom to mingle
and in some cases freedom to travel? Do policy makers pay as much
attention to intelligence analyses compiled at great cost and great risk
as they do to an informed Op-Ed piece or article in Foreign Affairs? I
can promise confidentiality and I will be happy to share any results on
JRL. My e-mail address is lnelson@edit.nydailynews.com.
[Many thanks. JRL has become, much to my surprise, a daily habit and I
am most grateful to you. By the way, the above query was inspired, in
part, by your publication of Fritz Ermarth's National Interest piece. It
struck me that it was a great loss to the national debate on Russia that
while he was in government service his voice was heard only inside the
government, if then.]

*******

#9
From: David Filipov (dmf@cityline.ru)
Date: Tue, 13 Jul 1999 11:07:53 -0400
Subject: request for info/ re: #3392

Andrei Zolotov Jr's piece in the Moscow Times on US politicos pondering who
lost Russia mentions seminars held recently by the Heritage Foundation and
Jamestown foundation that "featured serious questioning of U.S. Russia
policy, and in particular of the billions in 
IMF loans that were supposed to help Russia down the road to reform" (JRL
#3392).

Can anyone help me get more information about those seminars? Are there
materials, or websites, where I can find such information? Thank you in
advance,

David Filipov
The Boston Globe
Moscow
dmf@cityline.ru

*******

#10
From: "Peter D. Ekman" <pdek@co.ru>
Subject: Joint Ventures
Date: Tue, 13 Jul 1999 

T.S.White in JRL 3392-#12 seems to give the advice about
forming joint ventures in Russia "Don't do it - no matter what!"
This advice is consistent with everything that I've previously heard,
and certainly is consistent with all the horror stories that abound, e.g.
Subway is St. Pete, the Arbat Irish Market, the Radisson Slavayanka,
Kosmos Cable TV, etc., etc. 
I would be interested in hearing if there is another side to the
story, i.e. joint ventures that have actually worked out.
It's probably best to send me this info directly at pdek@co.ru.

********

#11
From: "Andrei Liakhov" <liakhova@nortonrose.com>
Subject: RE: 3392-White/Forming a Company
Date: Tue, 13 Jul 1999 

ON ENTERPRENEUR 3:

There is no such legal form in Russia as a joint venture:

1. You can register A Closed Joint Stock Company (an equivalent of a Limited
Company in England), an Open Joint Stock Company (an equivalent of a PLC),
an Limited Liability Company (equivalent of a US LLC), a Limited Liability
Partnership or an Unlimited Liability Partnership. 
JVs as a separatre legal form was abolished after the new Civil Code was
passed in '95.

2. A Western (or a large Russian) Law Firm in Moscow will register a AOZT
(closed joint stock co) for around $1500. The registration charges depend on
how quickly you need a company registered.

3. There are lots of reliable corporate services agents in Moscow, which are
widely used by all businessmen - Russian and Western - all you have to do is
flip through Moscow yellow pages. 

4. Although I cannot deny that there are atavisms of "rip the foreigners"
culture of the late 80ies in Moscow, these are not as widespread as it may
seem from the article and are easily avoided.

And I can assure you that there are same proportion of crooks in Russia as
in any other country (take any tax haven for example.............). Not all
the Russians hunt for riuch naive foreigners to ripo them
off....................... Please refrain from generalisation - Europe had
Maxwells, Polipecks, and the rest of the lot too............ (I'm not even
mentioning US)............

*****

#12
Cato Institute
www.cato.org
Today's Commmentary
July 7, 1999 

Time to Replace Russia's Potemkin Capitalism 
by George A. Selgin 
George A. Selgin is an associate professor of economics at the
University of Georgia and an adjunct scholar of the Cato Institute. He is
the co-author of Replacing Potemkin Capitalism: Russia's Need for a
Free-Market Financial System, Cato Policy Analysis No. 348.

The International Monetary Fund has promised Moscow another $4.5 billion,
supposedly to promote market reforms. That's too bad, since such a promise
bolsters the views of those Russians who blame their current financial
crisis on their government's allegedly rigid laissez-faire reforms. Despite
having the illusion of reform, Russia's financial system today is in a
chaotic state that might be called "Potemkin capitalism." Superficially, the
financial system looks market based; however, closer inspection reveals that
it remains fundamentally socialist. 

Russia's unsound ruble has suffered high and variable inflation leading to
high interest rates. Unlike the dollar, the ruble cannot be legally traded
for some purposes without special permission. In particular, Russians cannot
lawfully send capital abroad. However, restrictions have not prevented a
massive illegal flight of capital, estimated by some sources to exceed $100
billion. The instability of the ruble has prompted Russians to use the
dollar despite the government's efforts to discourage it. Officially, all
payments within Russia are supposed to be in rubles -- but it is estimated
that Russians hold at least $40 billion in U.S. dollar notes. 

Another cause of the current crisis is that banks have behaved as agents of
the government. The largest banks are not mobilizing savings for productive
activities; rather, they are conduits through which the government
redistributes public funds to favored firms. 

Finally, unlike central banks in the West, which generally only influence
overall conditions in credit markets, the Central Bank of Russia directs
credits to particular favored firms through the banking system. The selected
firms' ability to obtain credit from the central bank has enabled them to
avoid the discipline of profit and loss, so they behave in the same
inefficient ways as when the state owned them. 

Russia has modified rather than dismantled the centralized control that the
Communists established. The shaky finances of the Russian government and the
spillover from the Asian currency crisis also precipitated the current
financial crisis. The government was unable to repay its accumulated debt
from current revenue because it was running substantial budget deficits.

Very high interest rates further increased the burden of refinancing its
ever-increasing debt. On August 17, 1998, the central bank gave up
supporting the ruble at the then-current rate of 6.3 per dollar. The
devaluation and default in effect bankrupted many of the largest Russian
banks. 

Although the August financial crisis seems to make Russia's prospects for
economic reform dimmer than ever, the crisis creates a fresh opportunity for
change. Fortunately, the necessary institutions already exist in Russia or
can be imported. A capitalist monetary system requires a sound currency, yet
Russia's currency crisis stems from the government's attempt to force
Russians to use only rubles. To promote a capitalist monetary system, the
government should remove in all transactions the barriers to using dollars
or other foreign currencies. Intensifying dollarization of the Russian
economy will reduce the demand for rubles. The less people use the ruble,
the less ability the Central Bank of Russia will have to finance government
spending by printing more rubles. Formerly subsidized businesses will have
to stop wasting resources or go out of business. 

A sound currency needs to be complemented by good banks. Foreign banks,
which have the confidence of consumers, can function as genuine gatherers of
savings and allocators of investment. To enable them to do so, the Russian
government should liberalize its restriction on foreign banks. The Russian
financial system is also plagued by an inefficient payments system, which
could be improved by the privatization of the central bank's clearinghouse
and the establishment of other clearinghouses. 

To acknowledge that Russia is not a good producer of monetary policy need
not be shameful or imply a violation of national sovereignty or pride. If
the Russian government really wants something to be proud of, let it
establish an open monetary system that allows Russians unfettered access not
only to the best currencies and the best banks in the world but also to the
prosperity that such a system will foster. Other former socialist countries,
most notably Estonia, Lithuania and Bulgaria, have already undertaken some
of the reforms suggested here and have enjoyed success. 

It is grotesque to blame laissez faire for the current financial crisis and
for Russia's wider economic problems since the Soviet Union dissolved. The
most effective step that foreign governments and international financial
institutions can take is to stop supporting both the Central Bank of Russia
and attempts to reform Russian banks from within. 

*******

#13
Washington Post
13 July 1999
Editorial
Caught in the Middle

THROUGHOUT THE 1990s, it's been widely recognized that Ukraine's success is
key to a stable, peaceful post-Soviet world. And throughout the decade,
such success has proved elusive, as Ukraine's economy has declined year by
year. Now Ukraine is heading toward a fall presidential election that will
go a long way toward determining the country's future course -- even,
possibly, whether it survives as an independent nation. The United States
has a strong interest in Ukraine's sovereignty and may even have a favorite
in the election. But U.S. officials should make clear that they have an
even stronger interest in the fairness and honesty of the election itself.

The nations that have done best in overcoming their Communist heritage are
those that opted for quick and complete economic reform. Those that managed
only partial reforms now find themselves in a dangerous way station. The
old central command economies are gone, but a rule of law has not been
established to make a real market economy work. This half-reform has given
birth to powerful, corrupt elites that in turn have an interest in blocking
completion of the reform process.

Ukraine and Russia both find themselves in this hard-to-escape netherworld.
Ukraine is caught in the middle in other ways, too: geographically, between
Russia and Central Europe; demographically, with large populations of
ethnic Russians and ethnic Ukrainians; politically, with a
Communist-leaning parliament that can stymie reforms proposed by President
Leonid Kuchma.

Several presidential candidates have emerged from that left wing. They
resent NATO, despite the World Bank and International Monetary Fund, and
might even favor some kind of reunion with Russia and Belarus. Mr. Kuchma,
running for reelection, presents himself as the candidate of reform and
integration with the West, and he has skillfully managed both friendship
with Russia and closer ties with the West. He has been a faithful partner
in arms control.

There are worrying early signs, though, that Mr. Kuchma's team may
overreach in its use of his incumbency, manipulating media, election
machinery and other institutions to promote his reelection. Such behavior
would only hurt Ukraine and its ties with the West, no matter who won the
election. U.S. officials should make clear that no individual candidate
matters more to them than seeing Ukraine stay on its democratic path.
Unlike Russia and many other post-Soviet republics, Ukraine already has
managed one peaceful transition; Mr. Kuchma is the second democratically
elected president of the independence era. His backers should not sully
that legacy. 

*******

#14
Stratfor Commentary
www.stratfor.com
2305 GMT, 990713 – Kuchma Capitulates to Russia

According to Russia’s ITAR-TASS news agency, Ukrainian President Leonid
Kuchma told members of the Ukrainian Armed Forces on July 13 that Russia is
a strategic partner of Ukraine. "There is no and there cannot be an
alternative to the development of friendly, equal and partner relations
between Ukraine and Russia," Kuchma said. Kuchma went on to call for the
settlement of economic issues and increased military cooperation.

Kuchma’s comments come in the wake of a meeting with Russian President
Boris Yeltsin on July 4, which focused on the two countries’ bilateral
relations in the wake of the Kosovo crisis. More pointedly, the meeting
dealt with Ukraine’s short lived decision on June 12 to deny its airspace
to Russian aircraft attempting to reinforce Russian troops at Slatina
airbase in Kosovo. Though Kiev swiftly reopened Ukraine’s airspace, calling
the incident a misunderstanding, Russia’s military commanders were furious.
It was bad enough that NATO convinced ostensibly neutral Romania and
Bulgaria to deny their airspace to Russian aircraft, but Ukraine was a step
too far. Ukraine had to clarify its relationship with NATO and with Russia.

On June 29, Yeltsin called Kuchma to discuss "a range of important
international problems, as well as the development of Ukrainian-Russian
relations," according to Ukraine’s DINAU news agency. During the call,
Yeltsin "invited" Kuchma to his country home outside Moscow to discuss
"several large outstanding problems" burdening Russian-Ukrainian relations,
according to Yeltsin aide Sergei Prikhodko. In addition to Ukraine’s debts
to Russia for fuel, Prikhodko said the two leaders discussed "the situation
in Europe in the aftermath of the military phase of the Kosovo crisis and
ways to give a new impetus to the Russian-Ukrainian strategic partnership
to solve problems jointly."

Kuchma emerged from the talks declaring they had given a great boost to
Russian-Ukrainian relations. Ukraine would transfer to Russia the recently
completed cruiser Moskva, the fuel and financial disputes would all be
solved, as would territorial disputes. Now, Kuchma has emphasized Ukraine’s
role as Russia’s strategic partner. Apparently Yeltsin made Russia’s
displeasure palpably clear. Kuchma has buckled. The question, now that
Kuchma has abandoned the idea of siding against Russia, is how "equal"
Kuchma can keep Ukraine in the partnership.

*******

#15
Date: Tue, 13 Jul 1999 
From: Elizabeth Reisch <lreisch@ceip.org>
Organization: Carnegie Endowment
Subject: U.S.-Russian Arms Control

Dear David,

JRL readers might want to check out the following:

U.S.-Russian Arms Control: Where Do We Go From Here?, transcript of
meeting with General Alexander Piskunov, Deputy Chief of Staff to Prime
Minister Stepashin; Sergei Rogov, Director, USA and Canada Institute;
and Valery Mazing, Head of Arms Control Department, USA and Canada
Institute, at the Carnegie Endowment for International Peace, July 7,
1999.

http://www.ceip.org/programs/ruseuras/ruseuras.htm
Liz Reisch

******

#16
Russia Tycoon Runs for Parliament 
July 13, 1999

MOSCOW (AP) -- Boris Berezovsky, one of Russia's most politically powerful
business tycoons, will run for parliament this year, he said in an
interview published Tuesday. 

Berezovsky, reported to have influence in President Boris Yeltsin's
administration, told the daily Vremya newspaper that he wants to become a
deputy in the lower house, the State Duma, because he knows how to keep
Russia on the path of economic reform. 

``Those people who consider themselves entrepreneurs -- capitalists, if you
will -- must come to power at this time,'' he was quoted as saying. ``They
know exactly what laws are needed to promote the economic development of
the country.'' 

Several of Russia's leading politicians and businessmen, including
Berezovsky, have been jockeying for power in advance of next year's
presidential elections, after which Yeltsin is constitutionally required to
step down. 

The ``best investments in Russia today are investments in politics,''
Berezovsky said. 

Berezovsky recently purchased a 15 percent stake in one of Russia's most
respected newspapers, Kommersant, and also has moved to take control of the
private television station TV6. He reportedly has considerable holdings in
several other television and newspaper operations, auto manufacturing and
the powerful oil industry. 

He said he had not yet decided in which region he would seek a seat in the
elections scheduled for December. 

******

#17
USDA Defends Russia Food Aid, Says More Possible 

WASHINGTON, Jul 13, 1999 -- (Reuters) The United States on Monday defended
its $1 billion food aid package for Russia after the Washington Post ran a
story quoting experts in Moscow who said the food was unnecessary and may
harm local business. 

The Post, in a front-page story on Monday, quoted experts as saying the
package that was originally intended to help Russians through the winter
came too late and really was not needed in the first place. It also said
that the U.S. food is now undercutting the Russian commodities markets. 

But the USDA backed the package, saying the food is reaching Russia at a
perfect time after grain bins were getting low and that the country did in
fact need food after an extremely poor harvest depleted supplies and the
devaluation of the ruble made imports too expensive. 

"We did considerable work in assessing the situation last year," Mary
Chambliss, the USDA's deputy administrator for export credits, said. "We
were concerned about Russia's food supply." 

Chambliss also said the USDA does not agree with criticisms brought up in
the article that too much of the food is going to St. Petersburg and
Moscow, where Russian experts told the Post food is plentiful. The Post
quoted experts who said that not enough of the food aid is reaching
hard-hit areas. 

"Moscow and St. Petersburg are dependent on imported food, so large amounts
are going there," she said, adding, "But it's going throughout Russia." 

Chambliss also repeated comments by other USDA officials, including
Secretary Dan Glickman, that the USDA would consider more food aid for
Russia if Moscow officials ask. 

"If we do get another request we will give it the same consideration we
gave the first one," she said. 

An official at the U.S. Embassy in Moscow told Reuters on Monday that he
expected Russia will ask the United States for more food aid this year.
Drought and pests have forced Russia to cut its estimate for this year's
grain harvest. 

The USDA in its monthly crop production report on Monday cut its forecast
for Russia's wheat output to 31.5 million tonnes, down 2 million tonnes
from the June report. Last year, Russia produced 26.9 million tonnes of
wheat, the USDA said. 

At the same time, the United States is expected to have yet another huge
grain crop this year, with supply far exceeding demand.

******

#18
RFE/RL NEWSLINE Vol. 3, No. 134, Part I, 13 July 1999

WESTERN ANALYSTS OVERLOOKING RUSSIAN ECONOMIC REVIVAL? In an
interview in the July issue of "Vek," Anton Danilov-Danilyan,
director of the presidential administration's economic
directorate, said that New York Stock Exchange analysts'
prediction that Russia will exhaust its hard currency
reserves by August is off base. "Western analysts have been
frequently making such mistakes these days," he added, noting
that a lot of predictions were made that the Central Bank's
gold and hard currency reserves would fall to $8 billion by
the end of the first half of 1999, when in fact they exceeded
$12 billion. According to Danilov-Danilyan, Russia overcame
the depression caused by the mid-August 1998 economic crisis
"rather quickly" and "demand has shifted to domestic goods,
from which local manufacturers are profiting more than they
had hoped for." He also said that a revival in real incomes
began as early as February. First Deputy Prime Minister
Viktor Khristenko estimated on 10 July that industrial output
grew by 2 percent in the first half of 1999. JAC

*******

#19
St. Petersburg Times
13 July 1999
Sobchak Stages Flamboyant Return 
By Brian Whitmore
STAFF WRITER

After 20 months in self-imposed exile in Paris, ex-mayor Anatoly Sobchak
returned home to St. Petersburg on Monday, saying he plans to launch a
political comeback and seek a seat in the State Duma.

Over 100 journalists were on hand at Pulkovo Airport to meet Sobchak's
flight. Police and airport security had their hands full trying
unsuccessfully to convince reporters to wait for Sobchak in the parking
lot. Despite these efforts, as soon as the ex-mayor cleared customs, he was
literally mobbed by a sea of cameras and microphones.

"I haven't seen this many journalists since the last election," said
Sobchak, in reference to the 1996 gubernatorial election, which he lost to
Gov. Vladimir Yakovlev by 27,000 votes. 

"You don't need to rush because I have returned forever. I have arrived in
my city and I am happy to be home," he said.

Sobchak said he plans to run for a Duma seat from one of St. Petersburg's
eight electoral districts, although he would not specify which one.

"I am a lawyer and a parliamentarian and my goal is to be a member of
parliament," he said, displaying the exuberance and cockiness that is his
trademark.

"I seek to create a parliament that is capable of working. I have priceless
experience as a legislator and if I had been in the current Duma it would
have worked much better."

Since 1995, Sobchak - one of Russia's first-generation democrats, who
served as mayor from 1991 until 1996 and was among the principal authors of
the Russian Constitution - has for four years been dogged by a corruption
probe that he says was launched by his political enemies.

The prosecutor's case alleges that in 1995, while mayor, Sobchak received
bribes from the Renaissance real estate firm, related to the renovation and
privatization of an elite apartment building located at 3 Ulitsa Ryleyeva
near the Tavrichesky Gardens.

Sobchak alleges that it was in fact Yakovlev, who served as his public
works deputy, who prepared the documents for the deal. Anonymous law
enforcement sources have confirmed this allegation. Sob chak has said that
the criminal case against him was prepared by ex-Kremlin security chief
Alexander Korzhakov, who reportedly helped finance Yakov lev's successful
1996 gubernatorial campaign. Korzhakov denies the allegations.

Sobchak, now 61, fell ill during questioning in October 1997 by federal
prosecutors, suffering from an apparent heart attack. He was hospitalized
in St. Petersburg for three weeks, and then, on November 7, quietly slipped
out and chartered a plane to Paris, where he remained until Monday. Last
September, the Prosecutor General's Office opened a criminal case against
Sobchak for bribe-taking and abuse of power, although he has not yet been
formally indicted.

"If there are any complaints against me, I am ready to testify openly in
court about the whole affair," Sobchak said. "I have nothing to answer for
and nothing to fear. I hope that this dark chapter in my life is behind me."

Sobchak denied rumors that powerful friends like Prime Minister Sergei
Stepashin or Federal Security Service director Vladimir Putin - who served
as Sobchak's deputy mayor - were now protecting him from prosecution.

Sergei Ivanov, the head of the St. Petersburg Anti-Organized Crime Task
Force, said in remarks carried by Itar-Tass that he has not received any
orders to arrest Sobchak.

Accompanied by his wife - State Duma Deputy Lyudmila Narusova - and his
daughter Kseniya, Sobchak left the airport and, trailed by reporters,
headed for his home on the Moika Embankment. On the way, he stopped near
the Hermitage Museum and, as the cameras rolled, splashed water from the
Neva River on his face.

In the evening, Sobchak went to the Nikolskoye Cemetery at the Alexander
Nevsky Monastery and placed flowers on the grave of federal lawmaker Galina
Starovoitova, who was killed last Nov. 20. 

Speaking softly to Ruslan Linkov, Starovoitova's aide who was injured but
survived the attack that killed her, a visibly emotional Sobchak, a friend
and political ally of the slain lawmaker, said, "This is still difficult
for me to imagine. Only here did I fully understand that she is no longer
with us."

Sobchak later visited the grave of Vice Governor Mikhail Manevich, who was
assassinated in August 1997. He told reporters that he was certain that,
eventually, both murders would be solved.

"If today those working in our law enforcement bodies are unable or
unwilling to solve these murders, sooner or later there will be people
there who will," said Sobchak in remarks to reporters.

Sobchak called his 20 months abroad "a very healthy experience," saying he
has fully recovered from his heart condition and has written three books -
one of these, titled "From Leningrad to St. Petersburg: A Journey through
Time and Space," was released last month.

"I have also had a lot of time to think about the mistakes I have made,"
said Sobchak. "Unfortunately some of these mistakes are impossible to
correct." 

*******