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Johnson's Russia List


July 21, 1999    
This Date's Issues: 3400 3401   

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.
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)]


Moscow Times
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 
agency reported. 

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
strongest challengers.

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



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 



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 
any time. 
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 <>
Subject: RE Margaret Coker (JRL, #3397)

I am not sure that I understand what Margaret Coker of Business Week meant
when writing
> 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 <>
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
Tysons Food". 

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
subsidises the
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
among the
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
consumers who
will pay so much more. I'd like to see his arithmetic, and it might
convince me.
But I see no sums. I would suggest he use a simple intuitive measure,
known as
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
Hough, we
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
need a
JRL Lite too?

This somewhat argumentative ending is not meant to undermine my
appreciation for
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 <>
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 
at least.

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 
the country.


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 
far-flung regions. 

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.'' 


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. 


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.'' 


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 
contributor says. 

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 
Volkovy cemetery. 

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

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 
regular clients." 

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 
red-and-yellow packaging. 

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
poverty line.

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,"
he said. 


Russian Captain Cleared of Espionage
July 20, 1999

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 
espionage charges.

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.


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