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Johnson's Russia List
21 July 1999
[Note from David Johnson:
1. Moscow Times: Cabinet Seeks to Ax Social Programs.
2. Reuters: Yeltsin Demands Restraint Before Russia Vote.
3. Itar-Tass: YELTSIN WANTS "YOUNG, ENERGETIC" LEADERS AFTER HIM.
4. Itar-Tass: RUSSIA: PREPARATIONS FOR ELECTION IN FULL SWING.
5. Reuters: Lebed Denies Presidential Bid.
6. Alexander Domrin: RE Margaret Coker (JRL, #3397).
7. Vlad Ivanenko: Re: 3398-10 Hough on trade.
8. Judith Shapiro: Reply to Jerry Hough/3398.
9. Tomas Valasek: CDI Georgia Study.
10. The Russia Journal: Russia must use its current potential.
11. Reuters: Elizabeth Piper, Burial row prevents Lenin resting in peace.
12. New York Times: Neela Banerjee, From Russia's Chaos, a New Breed of
13. AFP: US blasts Belarussian president as original term in office expires.
14. AP: Russian Captain Cleared of Espionage. (Pasko)]
July 21, 1999
Cabinet Seeks to Ax Social Programs
The government wants to suspend the social programs it can't afford next year
and give local authorities the power to decide just which social programs to
keep, a top official said Tuesday.
The Communist-dominated parliament has adopted reams of legislation to
increase social spending in recent years, often against the Cabinet's
warnings that Russia can't afford such generous funding.
Wages and pensions are routinely paid months late, so abstract promises to
raise payments - in the absence of real cash - have done little to improve
the plight of millions of poor Russians.
Now, the Cabinet wants to send to parliament a bill that would suspend many
of the previous laws on social payments in 2000, First Deputy Prime Minister
Viktor Khristenko said.
"It is a forced but necessary measure, because otherwise we would continue
cheating both ourselves and the people," Khristenko was quoted as saying by
However, in an interview with the Segodnya newspaper, Khrist enko was quoted
as saying additional federal budget revenues might amount to 57 billion
rubles ($2.3 billion) this year.
The government has decided to set clear priorities in using them. "Two or
three, no more than that," Khristenko was quoted as saying.
In the interview he said Russia had every chance of receiving loans promised
by the IMF and World Bank in full "if nothing political happens again."
In a separate development Tuesday, the State Statistics Committee announced
that the country's foreign trade in January through May dropped to $43.5
billion, down 28.6 percent from the same period in 1998, the Interfax news
The decrease is largely due to the drop of imports, which have become too
dear for many Russians, and to the lower price of Russian exports because of
the fall of the ruble's value.
Yeltsin Demands Restraint Before Russia Vote
July 20, 1999
By Timothy Heritage
MOSCOW (Reuters) - Russian President Boris Yeltsin, taking a thinly veiled
swipe at Moscow mayor Yuri Luzhkov, urged politicians Tuesday to show more
restraint and responsibility in the runup to parliamentary and presidential
Yeltsin, who interrupted his vacation for what the Kremlin called a routine
medical check, made his appeal after potential presidential challenger
Luzhkov criticised the Kremlin and said a dirty tricks campaign was being
waged against him.
``Certain Russian politicians have made declarations (in recent days) which
are in essence provocative,'' presidential press secretary Dmitry Yakushkin
quoted Yeltsin as telling him.
``They should...refrain from making statements which stir political
passions and could lead to the destabilization of the situation in the
country,'' Yakushkin told Russian news agencies.
He did not say whom Yeltsin had in mind but quoted him as saying people who
made such statements did so to attract attention to themselves.
``Each politician must have a norm following the spirit and the letter of
the law and nothing, be it political ambitions or an election campaign,
should be allowed to violate this norm,'' he quoted Yeltsin as saying.
Yeltsin did not appear in public but Yakushkin said the president, who has
suffered health problems in recent months and had heart surgery in 1996,
had a health check at Moscow's Central Clinical Hospital. He gave no
details of the results.
The 68-year-old president's comments were his strongest on Russia's
political scene since he began his annual summer holiday on July 10.
Although he did not name names, there was little doubt he was referring to
Relations between the two have deteriorated as Luzhkov's presidential
ambitions have grown and as his Fatherland party's chances of performing
well in December's parliamentary election have increased.
Luzhkov, 62, said in an interview Sunday a recent police inquiry into a
firm run by his wife was part of a plot against him and added: ``The
authorities have fully outlived themselves.''
The only other controversial statements of note in the last few days have
been made in a war of words between two television stations owned by
business rivals Vladimir Gusinsky and Boris Berezovsky, whose political
interests have also now diverged.
Luzhkov has gone into open conflict with the Kremlin after years of
sometimes awkward, sometimes smooth ties.
He has not said whether he will stand in next year's presidential election
but few doubt he will run, and opinion polls show he could be among the
Yeltsin is barred from seeking a third term but wants to ensure the next
president is a political ally who will discourage any efforts to
investigate his or his family's actions during his presidential rule,
dating back to 1991.
Luzhkov is a fiercely independent politician on whom Yeltsin seems to
believe he cannot depend.
Yeltsin has not said whom he would like to become the next president but
sources close to the Kremlin say his close aides favor either First Deputy
Prime Minister Nikolai Aksyonenko or possibly Prime Minister Sergei
YELTSIN WANTS "YOUNG, ENERGETIC" LEADERS AFTER HIM
MOSCOW, July 20 (Itar-Tass) - President Boris Yeltsin warned Russian
politicians against inventing scandals to attract public attention to
them and said he would like to see "young and energetic authority in
Russia" next century.
The president has paid attention to "the statements of clearly
provocative character made by some Russian politicians in recent days",
presidential spokesman Dmitry Yakushkin told Tass on Tuesday referring
to his meeting with the head of state.
He said the president was "concerned by the trend to use any
developments in Russia for loud political declarations in order to
attract the attention of the public, first and foremost, to the authors
of the statements", Yakushkin said.
He did not elaborate or name the politicians. In recent days most
attention was drawn to Yelena Baturina, the wife of Moscow mayor Yuri
Luzhkov, whose company was in the list of firms suspected of unlawful
transfer of money abroad.
Luzhkov, a clear presidential hopeful, qualified the launching of the
criminal case as a Kremlin provocation and said authorities had to be
According to Yakushkin, Yeltsin did not rule out that the declarations
in question could have been made "under the influence of emotions and
do not reflect the political position" of the politicians.
Yeltsin called "on all responsible politicians of the country to
refrain from statements which fan up political tensions and can
destabilise the situation".
"For each politician it is to be a norm to follow the letter and spirit
of the law and nothing, whether political ambitions or the election
campaign, should make him violate the norm", Yeltsin was quoted as
Yakushkin said that the president wants "just elections which would
form a new young and energetic authority in Russia in the 21st
RUSSIA: PREPARATIONS FOR ELECTION IN FULL SWING
MOSCOW, July 20 (Itar-Tass) - Russia has entered a period, when
President Boris Yeltsin may issue a decree naming the date of the next
election to the State Duma. Under the Russian Constitution, the date of
a parliamentary election should be named by the head of state. This
should be done no earlier than five months and no later than four
months before the voting.
The day of the voting is known already. This is December 19, 1999. The
law on the election of deputies to the State Duma says that the voting
should be held on the first Sunday after the expiry of the
constitutional term of office of the previous Duma. The present Duma
was elected after the voting, held on December 17, 1995. So, the first
Sunday after that date falls on December 19.
It remains to be seen, however, whether or not December 19 will become
the voting day, because, under the law, the president may not name the
date of the election altogether. In this case the date will
automatically be named by the Central Electoral Commission, but the
voting will be held within different time limits -- on the first or
second Sunday of the month following the month of the expiry of the
Duma's term of office. This falls on January 1999. Whether or not such
developments are possible remains an open question.
The State Duma does not rule out such a possibility. Most cautious
politicians maintain that the president may choose the second way --
the holding of the parliamentary election in January, if this is
prompted by the situation in the country and some other circumstances,
primarily the degree of readiness of the democratic and reform-minded
forces to take part in the election, if it is held late in 1999.
Yeltsin said on more than one occasion that it is those forces that
should dominate the new Duma.
No matter whether the parliamentary election will be held in December
or January, preparations for it are in full swing already.
Parliamentary factions and groups do not make it obvious, because
officially the electoral campaign has not yet been started. Silence in
the premises of the State Duma is deceptive. Work is going on in the
offices, which is not seen to outsiders and which will soon be poured
out into the streets and the homes of electors.
The Communist faction, the biggest in the Duma, is on a round-the-clock
duty in the Duma. The Communists have not yet resolved the key problem:
will they act alone or will they form an electoral bloc with some other
political forces. The Agrarian Party, an important ideological ally of
the Communist Party, has announced already that it will take part in
the election by itself. Other left-wing forces may follow its example.
The Yabloko faction, which has no problem with finding allies, is
concerned over the "purity" of the election, although much time is
still left before the voting. Yabloko leader Grigori Yavlinsky favours
effective public control over the voting process.
The Liberal Democratic faction, led by Vladimir Zhirinovsky, started
the electoral campaign with a feeling of confidence. They are not going
for form any alliances and are ready to vie for seats in the Duma at
The parliamentary faction of the Our Home Is Russian (NDR) movement is
now resolving the problem of key importance: should it act alone or
should it form a coalition with other right-of-centre political forces?
The parties are getting prepared to fight for votes of electors, and it
is impossible to predict the outcome.
Lebed Denies Presidential Bid
TIBLISI, Jul 20, 1999 -- (Reuters) Alexander Lebed, a retired Russian general
and regional governor often seen as a likely presidential contender,
dismissed as "idiocies" any ideas that he might run in next year's election.
"Regarding any such idiocies -- that I am running for president -- I have
made no announcement," he said in an interview with a television station in
the former Soviet republic of Georgia, where he was on a brief visit.
Lebed, a gravelly-voiced ex-paratroop general who polled an unexpectedly
strong third in Russia's last presidential election in 1996, usually figures
on lists of likely challengers in the next election, set for June 2000.
But since becoming governor of the vast Siberian region of Krasnoyarsk last
year, where he has clashed angrily with powerful regional businessmen, he has
seen his national popularity wane somewhat in opinion polls.
He has had to fight accusations that he sought the governorship only to
further national political ambitions, and has said that he would wait to see
how affairs turn out in Krasnoyarsk before deciding whether to run for
Date: Mon, 19 Jul 1999
From: Alexander Domrin <email@example.com>
Subject: RE Margaret Coker (JRL, #3397)
I am not sure that I understand what Margaret Coker of Business Week meant
> While the prosecution of the Moscow smuggling ring has been applauded by
>human-rights workers--those arrested included an ex- spokesman for the Duma
>International Affairs Committee--it's unclear how deep a dent the one case
>can make. (JRL, #3397, 17 July 1999).
Indeed, a person affiliated with the Duma Foreign Relations Committee was
by FSB at the end of April. But it was not a mythical "spokesman" for the
but the head of its staff (BTW, Doctor of Law), and not for participation in
a smuggling ring, but for bribery.
Business Week can probably provide its readers with more reliable information.
Date: Mon, 19 Jul 1999
From: Vlad Ivanenko <firstname.lastname@example.org>
Subject: Re: 3398-10 Hough on trade
I believed that after Judith Shapiro had delivered a basic lecture on
comparative advantage, Hough would admit that he was wrong. However,
instead of defending his ill-thought argument that economic theory is
irrelevant to reality, he has simply changed a mode of attack. Hough says
"I was right on my basic point: the limitation on steel imports IS the way
modern capitalism works" and "I think that the Russians should have high
tariffs against chicken legs ... even if that is not advantageous to
Firstly, quotas are gradually erased by WTO members and replaced by
tariffs, which are easier to negotiate. The statement that imposition of
quotas is 'the way modern capitalism works' is outdated.
Secondly, there is a widespread concern among both economists and
policy-makers that anti-dumping instruments are being misused. John Helmer
mentioned one of the cases in which Russia is involved. To dismiss the
case because no violation has been committed is incorrect.
Thirdly, Hough recommends the Russians to impose what looks like a
retaliatory tariff. Again, the principle of reciprocity, which is the
essence of his recommendation, is being replaced by the principle of
multilateral negotiations. A claim that the Russians should retaliate
revives the pre-war atmosphere of mutual mistrust.
Unfortunately, Russia is not a WTO member due to political (and not
economic) considerations. As a result, it cannot achieve the level of
'modern capitalism' regarding international trade and cannot defend
herself appealing to WTO arbitration. Hough intertwines politics with
economics, when he gets his second best 'modern' capitalism: To develop
the country in autarky under the principles of mercantilism.
Date: Tue, 20 Jul 1999
Subject: Reply to Jerry Hough/3398
The story so far, as I see it:
Jerry Hough made some remarks in support of US steel quotas which I found
flippant and unserious. I made a polemical attack on his enthusiasm for
autarchy, and what I suggested was his his view that might makes right.
Hough has replied in a serious and thoughtful manner and deserves an
His key point, as I understand it, is that advanced capitalist countries
have much excuse for violating free trade norms, but that telling less
countries to obey these norms is pious neo-liberalism. Russians, as his
concrete example, would be much better off, he believes, if there were high
import tariffs on chicken legs.
I think this means that Hough sees the basic idea of free trade as a moral
but does not understand the reason why economists argue it could lead to the
"greatest good of the greatest number", subject to definite conditions.
I don't blame Hough for this. Most economists are too arrogant nowadays to
explain their ideas carefully. When some economists get out of line and speak
plain English they sneer.
Perhaps more importantly, some arguments for specific "free trade" policies
rightly go against intuition. It is never obvious that if some of the
economists' textbook conditions are not met (for example, the EU
dumping of the butter mountain onto Russia), then it is NOT obvious that one
movement towards free trade, in an imperfect world, will be a movement
some optimum. You have to take it on a case-by-case basis. This important
("Second Best") was proved by Lipsey and Lancaster in 1958, but it is
better-kept secrets of "the profession" nowadays. Again, I do suggest that on
the basic sense of NOT neo-liberal international economics, while I can't ask
for enough indulgence to repeat the basic case, and while he is not an
is always worth reading. This is the man who warned you that the Asian
was a good deal hyped, and then was honest enough to say he was only better
the rest because he was half-right. Of course, his new guru status could
Apart from the general case for free trade in an ideal world, let's try one
case-by-case example in our actually existing world. Hough would like to see
HIGH tariffs on "chicken legs and a whole series of other consumer goods". Has
he really weighed up the merits of the benefits to would-be chicken farmers or
plastics manufacturers of this protection, compared to the Russian
will pay so much more. I'd like to see his arithmetic, and it might
But I see no sums. I would suggest he use a simple intuitive measure,
the Kaldor principle: if the winners (the farmers) could compensate the losers
(consumers) in order to get this policy, would it pay for them to do so and
still have some leftover?
That's the maximum space I can ask for a reply in JRL. I think, Jerry
would make more progress if we generally stuck to subjects about which we had
expert opinions, and did not try to be clever across a broad spectrum. I
understand the temptation, but what would you think if some Sinologists turned
to expressing their uninformed opinions on the reasons for the collapse of the
USSR, even getting some basic facts a little off? Possibly there is a place
this, but it should not be mixed with more serious expression. Perhaps we
JRL Lite too?
This somewhat argumentative ending is not meant to undermine my
Jerry Hough's approach. I know it is not so exciting to read or write in the
short run. If.. however, it leads to greater clarity all round, I predict that
this will lead to a better class of excitement.
Date: Tue, 20 Jul 1999
From: Tomas Valasek <email@example.com>
Subject: Georgia Study
The Center for Defense Information announces the release of a research
report entitled, "The Armed Forces in Georgia." Georgia, a former Soviet
Republic located between the Caspian and Black Seas and to the south of
Russia, plays an important role in efforts to export oil from the Caspian
Sea to the West.
The new study offers a detailed description and analysis of Georgia's
security situation, including the status of Abkhazia and South Ossetia, two
territories that waged a war for secession in the early 1990s.
Decision-makers, the media, and the academic and business worlds will
benefit from the study's survey of the paramilitary groups operating on the
territory of Georgia.
Copies of the study are available by calling the Center for Defense
Information at (202) 332-0600 or e-mailing Tomas Valasek. For more
information, visit us on the web at:
The Russia Journal
July 19-25, 1999
Russia must use its current potential
As the Russian countryside bakes in record-high temperatures, a cool wave of
optimism has pervaded the capital's economic and government structures. While
fortune smiles on Russia for the first time in a good long while, the
government should learn from the mistakes of the past few years and try to
capitalize on the country's real potential.
The International Monetary Fund will most likely grant Russia a $4.5
billion-dollar loan at the end of this month to bring the country back from
the brink of financial ruin. Bankruptcy seems to have been avoided, for now
Inflation, which skyrocketed after the onset of Russia's economic crisis last
August, has stabilized, and forecasts of a return to hyper-inflationary days
have proven - thankfully - to be wrong. The ruble is facing a gradual
devaluation in the coming months, and another crash is unlikely as the
Central Bank, which resisted the Communist love for printing money last fall,
now supports a fairly tight monetary policy.
Sergei Kiriyenko's reforms, it seems, are working, although it was the former
prime minister's successor, Yevgeny Primakov, and his government - who took
office in the wake of last August's financial crash - who largely took the
credit for putting Russia on the track to economic stability and improvement.
Domestic production has picked up in the wake of Kiriyenko's ruble
devaluation last year, and imports are down in a country that voraciously
consumed mostly imported consumer goods and foodstuffs in the last few years.
Meanwhile, rising oil prices have given a huge boost to the country's
economy. Russia exports half of the 6 billion barrels it produces daily, and
the price of Brent crude has reached over $18 a barrel, up from $10 at the
beginning of this year.
Economic indicators seem to have even affected the government's mentality.
Officials are talking about increased tax collection and a continued
stability for the ruble.
For better or for worse, the Russian stock market has picked up dramatically.
Spurred by higher oil prices and expectations of the IMF loan, the Russian
Trading System this week stood at more than 140 percent above its level at
the end of 1998, when it lay practically dead. Good macro-economic news and
temporary political stability might persuade some foreign investors to revive
projects that have been shelved since last August.
But the good tidings remain precarious. Analysts are saying Russia's turn
toward better economic fortune rests largely on the cost of oil, which may
change - even though experts say prices will remain stable for some time.
Moreover, political stability under the stewardship of President Boris
Yeltsin can be much like the Russian summer. Thunder clouds are never far
away on sunny days.
Most important, if an economic turnaround is taking place, it is not
affecting Russia's increasingly poor populace.
That is why the government should not fail to capitalize on its recent good
fortune. It should begin to court foreign direct investment in industries
that stand a chance of being revived and restructured.
The government should also continue to pay wage and pension arrears and make
sure it does not accrue such gigantic debts in the future lest it drive the
country's aging population to make a protest vote for Communists and
The government's key task, however, should be to begin a campaign to support
small- and medium-size businesses.
Prime Minister Sergei Stepashin should resurrect the government's committee
for small business, formerly run by refomer Irina Khakamada and done away
with by Primakov, and give it some real powers.
Budget surplus funds or any additional revenues from increased tax collection
or oil exports should be channeled into micro credit schemes through foreign
or small professional banks to plot and land owners and small or family
Failure to do exactly that - instead of concentrating efforts on the
country's behemoth rotting monopolies - constitutes Russian reformers'
gravest mistake this decade. New, private, competitive businesses must form
the bedrock of any successful (and essentially non-corrupt) future economy in
Burial row prevents Lenin resting in peace
By Elizabeth Piper
MOSCOW, July 20 (Reuters) - They came in the night and picked up the corpse.
Taking it out through a secret passage, they buried his mummified remains in
the ground behind the red marble mausoleum.
By morning, Soviet dictator Josef Stalin had disappeared from his mausoleum
and Vladimir Lenin's corpse lay there alone. No trace of Stalin's almost
eight-year stay was left -- they had even removed his name, which had adorned
the guarded entrance.
That was 1961, when Soviet leader Nikita Khrushchev ordered Stalin's removal
as the ultimate symbol of his fall from grace.
Now 38 years on, Russia's Communist Party fears there will be a re-run and
Lenin, the embodiment of their dying ideology, will be removed and buried, or
cremated, in secret.
Many Communists had feared that President Boris Yeltsin would move Lenin's
embalmed body on July 17, the anniversary of the day in 1918 when Bolshevik
revolutionaries executed Russia's last tsar, his wife and five children.
In the event the day passed without incident.
Many Communist deputies have remained in Moscow, reluctant to return to their
constituencies because Yeltsin is taking his summer holiday within striking
distance of the Russian capital instead of heading for one of the country's
They want to stay close to the founder of the Soviet state, fearful his body
could be removed at any time.
``Yeltsin could bury Lenin at any moment,'' said Vyacheslav Nikonov, a
political analyst who was part of Yeltsin's campaign team in 1996.
``If he buries Lenin, the Communists would need to mount the barricades and
fight, or they would not mount the barricades and lose face. Either way, it
is a bad deal for the Communists,'' he said by telephone.
``I would think that he does not have to hurry, but he could.''
BATTLING WITH THE GHOSTS OF RUSSIA'S PAST
Yeltsin says he wants to break the cord connecting Russia with its Communist
past, so that the ghosts of what he portrays as the ``bad old days'' cannot
And the burial of the Bolshevik revolutionary would purge the most prominent
relic of the cult of Lenin, a move which would also remove a powerful symbol
from the clutches of Russia's Communist Party.
``He will be buried,'' Yeltsin said in a rare interview with Russia's
Izvestia newspaper. ``But the question is when?''
Yeltsin has often called for Lenin's burial but backed down under pressure
from the Communists in their power base of the State Duma, the lower house of
But now, in what analysts call an organised campaign, Russia's Orthodox
Church has added its voice to a chorus calling for Lenin to be put to rest.
Patriarch Alexiy II has said Lenin, who was an atheist, deserves a Christian
burial -- a ceremony which the Communists fear will be conducted under a veil
of secrecy so that it cannot be stopped.
``The problem is serious. Lenin, in his mausoleum, is a historical symbol of
our past. On the other hand, I agree with the Patriarch Alexiy II that to
display in public the body of someone who died a long time ago is neither
humane nor Christian,'' Yeltsin told Izvestia.
Nikonov agreed that Yeltsin wanted to get rid of Lenin who, helped by his
ageless corpse and ever-present image, has endured for 75 years after his
death offering a beacon of hope to the Communist faithful in bleak times.
``He fears Russians cannot kill Communism in the country, because he (Lenin)
has become such a symbol,'' Nikonov said, adding however that in a recent
poll 55 percent of Russians were in favour of burying Lenin's body.
COMMUNISTS PANIC, FEAR A YELTSIN VICTORY
Lenin's burial would not rid Russia of his image. Statues of him still adorn
main squares in provincial cities and his face looks down on travellers from
the roof of Moscow's underground system. Many streets still bear his name.
But the Communists' outrage at Yeltsin's statement, and persistent rumours
that the 68-year-old leader has already drawn up a decree permitting the
ceremony, shows that they fear not only the burial but what could happen
Political analysts say Yeltsin has cornered the Communists, suggesting he
could ban the party if they protest against Lenin's burial or cause
disappointment among their supporters if they are seen to fail to attack the
Yeltsin vowed before going on holiday that he would do all he could to ensure
democratic forces emerge on top in a parliamentary election due in December
and loosen the Communists' grip on the Duma, their power base.
``I consider that the Communists themselves have already 'switched off'. They
have collapsed politically,'' he said in the Izvestia interview.
``Today their chances of winning the elections are falling. And they, of
course, now really need to make some noise. They want the president to help
them with their fight. If they hype up the hysteria, and break the law, they
will act against the decree, and they will be judged.''
LENIN'S FATE INSPIRES CONSPIRACY THEORIES
The Communists' paranoia has hit an all-time high.
Communist parliamentarian Viktor Ilyukhin has voiced fears that Lenin has
already been removed and replaced by a wax model.
Turning full circle to the secrecy of Soviet times, conspiracy theories
abound over how the body could be removed.
One Russian weekly magazine shows a map of the mausoleum, highlighting a
secret passage connecting Lenin's resting place with the Kremlin, which
stands behind it.
On a Russian internet site, one contributor quoted sources close to the
leadership of the Communist party as saying Yeltsin signed a decree on the
burial of Lenin's body a long time ago.''
``The plan of action...would not take more than three hours,'' the
Russia's Sevodnya newspaper says a route has already been worked out, flying
Lenin's body to Russia's second city of St Petersburg to be buried in the
The body may also be cremated to stop any further ``outrage'' or adoration of
his corpse, it said, adding that the Communists are having difficulties in
dealing with all the surprises.
``This is all trying to push the Communists to a nervous breakdown.''
New York Times
July 20, 1999
[for personal use only]
>From Russia's Chaos, a New Breed of Entrepreneur
By NEELA BANERJEE
MOSCOW -- Ernest Shakarov, a former investment banker, is among the few
Russians who could easily have kept living comfortably after a crisis
shattered the securities industry here.
At 28, having worked for some of Moscow's better brokerage firms, he could
have left turbulent Russia or moved to another prestigious job.
Instead, Shakarov chose the great, arduous unknown of manufacturing in
Russia, investing $70,000 of his savings in a small venture to make
mayonnaise for the highly competitive Moscow market. "There were pessimists
who said, 'Why are you doing this when you could be getting a six-figure
salary?' " Shakarov said. "I had several offers, but there comes a time when
you want to work for yourself."
Now, with a company whose sales have been doubling every month, Shakarov is
part of a rising generation of manufacturers who found opportunity amid the
tumult. The ruble's devaluation made imports too expensive for most people,
and as imports shrank, Russian manufacturers filled the void with cheaper
products. Large, Soviet-built factories have done best, but people like
Shakarov are also fashioning a role for themselves.
Typically in their 20's and 30's, these entrepreneurs left the securities
industry or the importing business to open factories that make everything
from bar snacks to women's blouses. No one knows their exact number, and
their operations are still small.
But they bring to Russian industry a knowledge of finance, marketing and
management that most old directors of Soviet-built plants have still not
Most important perhaps, the new blood proves the resilience of entrepreneurs
here. Despite the huge blows Russia's chronic instability has dealt them,
they consistently find ways to adapt. "This is the future," Shakarov said.
"Russia will be a normal country, a normal market, when professionals with
experience in a market economy go into manufacturing."
Right now, Russia is far from what anyone would consider normal. The
Government does little to support entrepreneurs, burdening them with corrupt
bureaucrats, endless red tape and suffocating taxes. Even the lack of
reliable statistics about small business illustrates its lowly status.
Small business makes up only 10 percent of Russia's economy, while in most
Western countries it is about half.
"Russia has always had this megalomania," says Aleksei Reznikovich, a partner
in the Moscow office of McKinsey & Company, which is doing research on
barriers to economic growth in Russia.
"The people who run things are from the old system, and they think if they
develop five or six big companies, that will drive growth. What could happen
with more entrepreneurs entering manufacturing is that it would create a
middle class, which would have a huge influence on the social, political and
economic life of Russia."
The economic collapse did not reduce the number of small businesses sharply,
but it did change their mix, indicating that as some businesses closed, new
ones in different, more profitable fields opened. The official number of
small businesses in the first half of 1999 fell by only 1,000 from a year
earlier, to about 870,000. But there are many more: to avoid Russia's onerous
taxes, a lot of enterprises simply do not register.
More businesses were involved in services, manufacturing, retail and
restaurants in January than a year ago, according to the Russian agency for
developing small and midsize businesses. Although the agency lacks
information about the nature of new manufacturing, discussions with analysts
and entrepreneurs indicate that it is mainly in food processing and clothing.
"Some money survived the crisis, and money should make more money," says
Vladimir Buyev, head of a commission on entrepreneurship of the liberal
Yabloko Party. "Those people decided to get into manufacturing in Russia.
After all, even during a crisis, people have to eat and wear clothes, and
that niche is still largely open."
Much of the money that survived was in the hands of people working in
finance, who earned handsomely in the bull markets of the mid-1990's, and
those in importing, who had a few thousand dollars on hand as working
capital. Entrepreneurs seldom turn to Russian banks because they charge
exorbitant interest rates.
The average initial investment for manufacturing projects appears to be
$40,000 to $70,000, still a large sum in Russia. Some companies set up their
own production lines, while others turned to existing factories. New
manufacturers understand that working in securities or with imports made them
vulnerable to broad, uncontrollable factors like political and economic
stability. But real production for the domestic market shields them more from
the vicissitudes of President Boris N. Yeltsin's health or the fluctuations
of world markets.
"If I still worked on the securities market, I'd care much more about who
would be Russia's next president," said Grigory Khutsiyev, a 32-year-old
former equities trader who now runs a women's clothing factory. "Political
risks play much more of a role there."
The three bankers behind Chapayevsky toasted bread snacks, in St. Petersburg,
began thinking of manufacturing for the Russian market during the Asian
crisis of late 1997.
"We were investing in Russian blue chips, and we realized we didn't know
anything about them," said Yuri Khomylov, a Chapayevsky partner. "We wanted
something that belonged to us, whose finances we controlled and which no
crisis in the future could affect."
>From the outset, the approach new manufacturers take to doing business
reflects how much they differ from members of the older Soviet-era generation
who still run most big businesses and are mostly concerned with how much is
produced instead of whether it sells. But younger entrepreneurs want to
manufacture goods that actually make money. And to win a place on the market
and in people's minds, they have to know how to sell.
"We decided what we were going to make had to be something edible, domestic,
cheap and tasty," recalls Sergei Rudenko, another Chapayevsky partner. "We
wanted to make something others hadn't."
Their recipe for success was stunningly simple: make something everyone loves
but no one can find. Russians snack on sukharii, similar to Melba toast, the
way Americans eat popcorn, but it is not sold in ready-to-eat packages.
Russians must instead buy dark rye bread, slice it thinly and dry it on low
heat in the oven.
Rudenko made the snacks for years for his family, but the partners had to
find a way to mass-produce them. Rudenko and Khomylov, along with Gennadi
Becker, the third partner, turned to the St. Petersburg Bread-Baking Research
Institute for advice. Through trial and error, they discovered what flavors
might be good to add (dill and garlic, yes; lobster, no) to the bread. They
found a local machine-tool builder to construct production lines, since no
machines existed to cut bread into pinkie-size strips.
The project was supposed to be secondary to their main business, investing in
Russian stocks and regional debt. But Chapayevsky turned out to be their
salvation. The three lost $500,000 in trading, but within days, they pooled
$75,000 to buy the last of the equipment for their snack venture and to rent
a room on an army base at the end of a trash-strewn St. Petersburg road.
With no staff at first, they worked 15-hour shifts and drove around town
peddling the snacks to any wholesaler and bar that would have them.
"The opinion we ran into at first was, 'Harrumph, I can make that at home,' "
Rudenko recalled. "But those who took the snacks and tried them are now our
To grow, the small manufacturers will eventually have to create a brand, not
just a product, said Benjamin Wilkening, an investment manager with the $300
million Millennium Fund.
"Most are competing solely on price now because that's the short-term
strategy for survival," he said. "If they want to be viable in the long term,
they have to have a brand name the consumer recognizes."
Clearly, Chapayevsky's snacks have been so successful because they are far
cheaper than imported nuts and potato chips. But Rudenko and his partners
wanted their product to stand out among the snacks arrayed behind a beer tap.
Because they did not have money for advertising, they invested in snappy
And in making a food every Russian eats, they chose a name every Russian
knows. The Soviets had tried to fashion a hero out of the distinctly mediocre
Bolshevik commissar Vasily Chapayev, but people ended up making him the butt
of endless jokes. On the front of the bag, the legendary Chapayev gallops on
his steed, gripping a mug of beer instead of his trusty Mauser. "Chapayev is
like Mickey Mouse," Rudenko said. "We thought of him because his name
immediately brings a smile to people's lips."
Chapayevsky makes 5,000 bags a day and will soon go to 15,000, but that may
not be enough even for the St. Petersburg market. The partners have made
franchising deals with companies in Belarus and in the Russian cities of
Nizhny Novgorod, Samara and Krasnodar.
One of Chapayevsky's biggest wholesale buyers, who declined to give his name,
said he could not keep up with demand. "What these guys are doing is great,"
he said, "but as soon as they get a bit bigger and hit their stride, someone
will crush them. It will either be foreign competitors coming back into the
market, or bureaucrats or organized crime who want a piece of the action."
Some people also say former stockbrokers and food importers, used to quick
profits, do not have the needed perseverance.
But those entering manufacturing realize the days of easy money are over.
"Everyone with any common sense knows that to survive you have to be
producing something, or you have to physically leave the country," Khutsiyev
Khutsiyev himself bought control of the Yanta clothing factory in 1996 with
brokerage earnings. The plant looked promising: it had relatively new
equipment, and it was manufacturing for export.
When the devaluation came in August, Khutsiyev thought Yanta's exports would
rocket; they did not.
When his brokerage firm work came to a standstill, Khutsiyev had time to dig
into the company's finances. He found Yanta's management was embezzling funds
and employees were stealing materials. He dismissed top management and
invested $40,000 in new projects, including a clothing line.
By making clothes for Russia that are 30 percent cheaper than Western
clothes, Khutsiyev said he can win 10 percent of the local market in 18
months. He predicted that sales would rise to about $750,000 this year, from
$500,000 in 1998, growth that has already attracted an offer to buy the
"This English company was offering a pretty sizable sum, but it's more
interesting for me now to work here," Khutsiyev says. "If things work the way
I want them to, I can make even more money. I'll need to get a big sum to
leave this company. After all, it's part of my life now."
US blasts Belarussian president as original term in office expires
WASHINGTON, July 20 (AFP) - The United States blasted President Alexander
Lukashenko of Belarus, questioning his legitimacy as the Slavic leader
dismissed the original end of his term in office which ended Tuesday.
"President Lukashenko's legitimacy as an elected representative of the
Belarusian people can only be restored by free and fair democratic
elections in which all political parties can participate," State Department
spokesman James Rubin said.
In a statement, Rubin noted that when elected president in 1994 the
authoritarian Lukashenko had a mandate only through July, 20 1999 -- a
mandate that was extended to 2001 in a controversial 1996 referendum.
"That referendum was widely condemned by the international community,"
Rubin said, specifically pointing to the changes it made, such as the
extension of Lukashenko's term, and calling them "unconstitutional."
"These changes ... and his suppression of the voices that rose in protest
have further undermined Lukashenko's democratic legitimacy and betrayed the
democratic framework in which he has been elected," he said.
On Tuesday, the charismatic former collective-farm boss chose to mark the
deadline with anniversary-style fanfare, courting singer Julio Iglesias on
tour in Minsk and boasting of five years of success in a string of public
appearances in the provinces.
The authoritarian leader, whose term has been marked by widespread
repressive measures provoking cries of foul play from human rights
activists, dismissed his detractors Tuesday and announced he was holding
firm to the presidential spot.
"We are going to remain legitimate for a long time," Lukashenko said
Tuesday at the opening of the Slavic Bazaar festival in the town of Vitebsk
near the Russian border, according to Itar-Tass.
Meanwhile, back in Minsk, anti-Lukashenko picketers were threatened with
"the most rigorous and adequate but legal measures" and police in the
capital were put on a state of alert, Interfax said.
In May, opposition figures staged an unofficial protest against the
extension of Lukashenko's mandate but hundreds of voters were detained by
police, according to organizers.
Earlier this month, human rights groups condemned the president for
allegedly waging a Soviet-style campaign against university intellectuals
in a bid to stamp out political foes.
But opinion polls show that Lukashenko still enjoys overwhelming popular
support from the small Slavic republic's mostly aging population, who say
they receive their pensions more often than in Russia.
Since coming to power in 1994, Lukashenko has adopted a strongly
anti-western stance in his former Soviet republic and instituted economic
controls that have left a quarter of the population living below the
In Washington, Rubin called on the Belarus government to begin a dialogue
with opposition figures as well as observe and respect internationally
recognized human rights.
"Only through dialogue and respect for human rights can Belarus return to
the path of democracy and resume its place in the international community,"
Russian Captain Cleared of Espionage
July 20, 1999
By ANATOLY MEDETSKY
VLADIVOSTOK, Russia (AP) - A Russian Navy captain who blew the whistle on
nuclear-waste dumping by the Pacific Fleet was cleared today of treason and
The Pacific Fleet military court found Capt. Grigory Pasko innocent of the
charges, saying the information that he had passed on to the Japanese
television stations NHK was not secret.
Pasko was still found guilty of abuse of service duty for personal gain and
violating the interests of society and the state. He was sentenced to three
years in prison, but immediately set free under an amnesty bill signed into
law last month by President Boris Yeltsin.
Prosecutors accused Pasko, who was arrested in November 1997, of passing on
state secrets to NHK and divulging information about the combat readiness of
Russia's Pacific Fleet.
Pasko said the Federal Security Service - one of the successors of the
Soviet-era KGB - had made the case to punish him for reports he filed to NHK
on the fleet's nuclear-waste dumping practices. Some of the footage showed
Russian sailors allegedly tossing radioactive waste into the Sea of Japan.
Pasko said his material documented environmental hazards at several fleet
facilities, but did not involve classified information.
The military court in the far eastern city of Vladivostok agreed. It also
found that much of the evidence against Pasko was collected in violation of
the law, and that two documents put forward by the prosecution had been
Pasko said he had expected a more severe sentence, but still criticized the
verdict, saying he shouldn't have been convicted of any crime.
``Here in Russia, if the KGB takes up a case there is never an acquittal,''
he said. ``I came out today but tomorrow someone else will go to jail. First
of all, we need a precedent of an acquittal.''
Pasko's lawyer, Anatoly Pyshkin, said the defense still hadn't decided
whether to appeal the verdict. It has seven days to do so.
His lawyer said prosecutors ``think that having spent 20 months in jail,
Grigory will be happy and will not appeal this sentence. But in this case
there should only have been an acquittal.''
Pasko qualified for the amnesty because he had already served more than a
third of his full 3-year sentence and was a first-time offender.