Center for Defense Information
Research Topics
Television
CDI Library
Press
What's New
Search
CDI Library > Johnson's Russia List

Johnson's Russia List
 

 

August 4, 1999   
This Date's Issues: 3420 Ľ 3421   Ľ 3422 



Johnson's Russia List
#3420
4 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Russian Leaders Pooling Efforts.
2. Rossiyskaya Gazeta: Russian Population, Immigration Declining.
3. Itar-Tass: YELTSIN'S Decree on Parliament Elections Being Prepared.
4. Reuters: Russian rabbi says anti-Semitic acts not organised/.
5. Ben Slay: re John Semlak's piece on poverty/3418.
6. Toivo Klaar: RE: 3418-MT/Witch Hunt.
7. Obshchaya Gazeta: Yelena Dikun, The Big Kremlin Family: Anatomy 
and Physiology of the Yeltsin Family.

8. Matt Bivens: Request for comments on www.moscowtimes.ru
9. Moscow Times: Garfield Reynolds and Matt Bivens, Following the Same 
Old Map. (Re IMF and Russia).

10. Wladislaw George Krasnow: Bill Clinton's response to open letter.]

*******

#1
Russian Leaders Pooling Efforts
August 3, 1999

MOSCOW (AP) - Russia's regional leaders decided today to pool efforts with 
Moscow Mayor Yuri Luzhkov in campaigning for December's parliamentary 
elections.

The All Russia movement, set up by several influential local governors, said 
it would formally merge with Luzhkov's Fatherland political movement on 
Wednesday.

Luzhkov is considered a top prospect for the presidential race, and a strong 
showing in parliamentary elections would help advance his presidential bid.

Some organizers have asked former Prime Minister Yevgeny Primakov to lead the 
coalition, but he hasn't responded yet, Ruslan Aushev, the leader of the 
southern republic of Ingushetia, said on NTV television.

Oleg Morozov, the leader of the moderate Russia's Regions parliamentary 
faction and one of the organizers of the new bloc, said the Kremlin suggested 
that Prime Minister Sergei Stepashin lead the alliance, but Stepashin said he 
wouldn't join any bloc.

Luzhkov enjoys broad popularity in the capital for keeping it relatively 
prosperous, but his appeal in the countryside, where many people resent 
Moscow's success, has remained untested.

Pooling efforts with regional leaders would likely help Luzhkov expand his 
appeal.

Half of the Duma's 450 seats go to the winners of individual races and the 
rest are filled proportionately by party votes. Most regional leaders have 
strong local support, giving All Russia a good chance to make a good showing 
in the elections.

*******

#2
Russian Population, Immigration Declining 

Rossiyskaya Gazeta
31 July 1999
[translation for personal use only]
Interfax report: "Numbers and Us" 

The Russian population fell by 346,700 in the first 
five months of 1999, or by 0.24 percent. The population of Russia was 
146.0 million as of 1 June 1999. 

According to the statistics, the number of births in Russia in January-May 
1999 fell to 507,300 as against 531,100 in January-May 1998. The number 
of deaths increased on the first five months of 1998 from 844,400 to 
903,000. Thereby, whereas in January-May 1998 the natural decrease in the 
Russian population was 313,300, in January-May 1999 it was 395,700. 
According to the statistics, there has been a small rise in the number of 
weddings this year. Whereas in January-May 1998 there were 273,200 
weddings registered, there have been 275,600 in the first five months of 
1999. At the same time, the number of divorces has decreased -- from 
228,700 in January-May 1998 to 208,500 in the same period of this year. 

According to the statistics, in the first five months of 1998 134,000 people 
came to Russia from other countries as opposed to 202,000 in the same 
period of 1998. The number of people leaving Russia to go abroad was 
80,700 as opposed to 72,700 a year ago. Thereby, whereas in January-May 
last year immigration to Russia reached [a net figure of] 129,300, in 
January-May this year it fell by a factor of almost 2.5 -- to 53,300. 

*******

#3
YELTSIN'S Decree on Parliament Elections Being Prepared.

MOSCOW, August 3 (Itar-Tass) - A decree of President Boris Yeltsin on the 
parliament elections is being drafted, presidential spokesman Dmitry 
Yakushkin said in an interview with the ORT television company on Tuesday. 
"The parliamentary and presidential elections will take place in due time," 
he stressed. 

"We will have a new president in 2000, and no forcible acts, emergency 
measures or extension of powers are being planned. That is a directive of 
principle," Yakushkin remarked. 

"There will be plenty of polemics ahead, and we will spend much time debating 
and refuting the thesis which will be repeatedly circulated by mass media 
during preparations for the parliamentary and presidential elections," he 
said. Both elections "will take place in due time and be maximum civilized," 
Yakushkin said. 

*******

#4
Russian rabbi says anti-Semitic acts not organised

MOSCOW, Aug 3 (Reuters) - Russia's chief rabbi, speaking a day after 
President Boris Yeltsin and Israel's premier discussed anti-Semitism, said on 
Tuesday he did not believe recent attacks on Jewish targets were part of an 
organised campaign. 

``These acts of vandalism are separate incidents... Fortunately we know of no 
actions which would suggest they were organised,'' Itar-Tass news agency 
quoted Rabbi Adolf Shayevich as saying. 

He was commenting on a spate of anti-Semitic attacks which have included the 
bombing of a synagogue and the stabbing of a Jewish community leader by a 
youth with a swastika painted on his chest. 

The incidents drew condemnation from Yeltsin on Monday during his talks in 
the Kremlin with Israel's Prime Minister Ehud Barak. Yeltsin vowed to punish 
anybody found guilty of fomenting racial and religious hatred in Russia. 

Shayevich said Russia's deep economic and social crisis was fuelling 
anti-Semitic feelings because people were seeking a scapegoat for their 
problems. 

``We regularly receive reports of acts of vandalism (against Jewish targets) 
from all parts of Russia,'' he said. 

``We do not demand special privileges but we want the state to protect us,'' 
Shayevich said, adding that he did not believe the latest rise in 
anti-Semitism had led to more Jews leaving Russia for Israel. Nearly one 
million Russian Jews have emigrated to Israel in the past decade to seek a 
better life. 

*******

#5
Date: Tue, 3 Aug 1999 
From: Ben Slay <bslay@planecon.com> 
Subject: John Semlak's piece on poverty

With regard to Mr. John Semlak's piece on poverty in Russia in JRL
#3418, please consider the following comment for publication.

Thanks, and regards,
Ben Slay
PlanEcon, Inc.
Washington D.C.

I would like to make the following observation about Mr. Semlak's
comment about the relationship between poverty in Russia and Russia's trade
surplus.

While Mr. Semlak is certainly correct that rising oil prices are helping
to boost the trade surplus, Goskomstat records exports through the first five
months of 1999 at $27.3 billion, some 11 percent below the $30.7 billion
recorded during January-May 1998. By contrast, imports through May 1999 were
$16.1 billion, down 47 percent on the $30.3 billion recorded during
January-May
1998. 

Exports have therefore fallen despite the oil price rise -- which didn't
start until February -- but imports have fallen even more. Moreover, our
research indicates that the largest declines in Russian imports have come in
the industrial consumer goods and foodstuff categories, rather than in
investment goods, fuels, or raw materials. In other words, it is imports most
directly needed by Russian households that have born the brunt of the sharp
decline in goods purchased abroad.

Russia's extensive informal sector has for decades (centuries?) allowed
Russians to survive the worst their economic policy makers can throw at them. 
It is perhaps prudent, therefore, to treat official poverty data with some
circumspection. Still, there can be little doubt that living standards for
many Russians have declined sharply since the August 1998 financial collapse,
and that regaining "pre-crisis" levels of household income and consumption
will
take years. The inability to afford foreign consumer goods is but one aspect
of this loss.

*******

#6
Date: Tue, 3 Aug 1999 
From: Toivo Klaar <tklaar@vpk.ee> 
Subject: RE: 3418-MT/Witch Hunt

Once again I am astonished by the apparent distinction in rhetoric
concerning Soviet resp. Nazi crimes against humanity. The Moscow Times
editorial of 3 August doesn't mention the pursuit of Nazis, to be sure, but
I would be very much astonished to see them describing the hunt for Nazi
criminals as a 'witch-hunt' where old men on crutches are more or less
unnecessarily put in prison for crimes committed long ago. The fact is,
there is no difference between Nazi and Soviet crimes and ethnic cleansing -
which was what was being committed by both regimes in occupied areas, in
this case Estonia - cannot be forgotten or forgiven. The interesting thing
about Neverovsky is that he said in his defence that he had 'only followed
orders', a statement reminiscent of the trials of Adolf Eichmann and his
ilk.

The Moscow Times makes a valid point though and that is that one should not
only go after the small fish. The only problem there is that the big fish
tend to have left for Russia which doesn't seem to have any interest - as
the paper also says - of pursuing Soviet criminals. Personally I am
interested in whether anybody will ever be brought to account for the
massacres of civilians at the end of the Soviet period - in Baku, Vilnius,
Riga and other places. In the end of course Gorbachev was in charge of the
Soviet state which committed these crimes...

Toivo Klaar
Tallinn, Estonia

*******

#7
Yeltsin Family Examined 

Obshchaya Gazeta
22-28 July 1999
[translation for personal use only]
Article by Yelena Dikun: "The Big Kremlin Family: Anatomy and 
Physiology of the Yeltsin Family" 

In Russia, few people do not know that the Yeltsin Family 
rules our country. According to popular tradition, this is the 
highest institution of power--higher than the President himself. 

Some people are convinced: The Family leads the President around 
like a dog. They lead him around not according to the law. They lead 
him around contrary to the law. The formal competence of this 
"institution" is insignificant. However, they lead him around in 
accordance with the grace of a legitimate ruler. Like any unnatural 
phenomenon, the Family was soon surrounded by myths. All the more so 
since the Family members make no effort to separate truth from 
fiction and to demystify themselves, their functions, and the limits 
and character of their political influence. 

Obschaya Gazeta has collected some knowledge which it has 
decided to share with its readers from employees of the President's 
Administration. This knowledge was obtained by private 
consultations, without the right to refer to them. But the honesty 
of the consultants is beyond suspicion. 

Children, Step Children, and Cousins 

The Family does not mean "the members of Boris Yeltsin's 
household". Among the people of the President's household, the 
following persons belong to this association without any 
reservations. They are Yeltsin's younger daughter Tatyana Dyachenko, 
who holds the post of image consultant to her father, and his wife 
Naina Iosifovna with some reservations. 

All the other persons come from different clans. Often they 
hold no office and are united only by one thing. The President 
considers their opinions to be useful. 

As in any other family, an interior hierarchy exists in this 
association. "Favorite children" and "distant relatives" exist here. 
This does not depend on kinship, and not on official position, but 
on the degree of influence on the life of the Family. Thus Naina 
Iosifovna, whom the Kremlin apparatus would call "a woman in 
mourning," is a rather distant relative. Her participation in 
politics consists in the following facts. She views all the TV 
programs and reads the newspapers, and is terribly upset if somebody 
criticizes her husband severely. In a panic, she phones her daughter 
an asks her "to do something". It is not compulsory to fulfill Naina 
Iosifovna's instructions, but every member of the Family must please 
her. 

Tatyana Borisovna has quite a different standing. In her 
father's absence, she is the undisputed master of the Kremlin 
household. Properly speaking, it is she who maintains the integrity 
and functional capability of this variegated grouping. 
During the "regency" of Korzhakov, the favorites of Boris 
Nikolayevich Yeltsin waged a continuous struggle for access to him. 
However, with the arrival of Mrs. Dyachenko, discipline has 
prevailed in the servants' room. The males agreed that it would be 
better for them if a woman ruled them. Any member of the family sees 
it as necessary to inform "Tanya" of his plans. "Why should we throw 
the lady away, when we have ourselves elected her to be our boss?" 
Theoretically, somebody could evade Mrs. Dyachenko, but his days 
would be numbered. 

The story is still fresh in their memory of the time when 
Nikolay Bordyuzha, the Presidential Administration chief, shouted 
out in a fit of temper: "A woman will never order me about like 
that!" They liberated Nikolay Nikolayevich Bordyuzha from that 
inconvenience very soon. Valentin Yumashev, a volunteer presidential 
adviser, is considered as Yeltsin's "stepson" in the Family. This is 
the second most significant "post" in the family structure. 

Only "Tanya and Valya" have direct access to the President 
round the clock. Yumashev is said to be well aware of the mood of 
the boss, and he has a tranquilizing effect on him. Yeltsin's most 
recent favorite is Aleksandr Voloshin, his present administration 
chief. According to informed people, Yeltsin distinguishes Voloshin 
as his most developed associate in terms of intellectual 
development. 

It is also important that Mrs. Dyachenko and Yumashev highly 
appreciate Voloshin. Today, "Tanya, Valya, and Sasha" form the core 
of the Family. It is on them that the position and degree of 
influence of the other members who are "relatives in the second 
generation" of this "cell of society" depend. Among them, Boris 
Berezovskiy is by rights considered an "old-timer". 

He was pushed aside from the first rank after a quarrel with 
Valeriy Okulov, the President's eldest son-in-law, because of the 
money from the Aeroflot company. During the veteran's disgrace, the 
veteran oligarch has been considerably pressed Roman Abramovich, who 
is sometimes called "Valya's buddy" and sometimes called a "protege 
of Berezovskiy". 

Roman's career is impetuous. Administration employees at first 
considered him to be a "boy for minor services". They were 
discouraged when they began to find him in Mrs. Tatyana Dyachenko's 
office sprawling like a master in her armchair and using the 
Kremlin's private telephone lines. 

The consultants of Obschaya Gazeta unanimously mention 
Vladimir Putin, secretary of the Security Council, among the newly 
acquired "relatives". He is a "stubborn, unflinching man, who is 
faithful to the team". Putin has occupied the niche of "man from the 
armed forces". This post had been vacant since Korzhakov's 
departure. 

Anatoliy Chubays also remains in the Family. He is invited to 
the family council episodically, but at the most critical moments, 
when there is nobody there to stop Yeltsin. For instance, this 
happened, when the President had firmly decided to move Aksenenko to 
the post of prime minister. Anatoliy Borisovich Chubays is one of 
the few persons who can speak to the head of state in the language 
of a simple party official who is not infected with the plague of 
wise "political science". 

Chubays can break through to the President avoiding "Tanya and 
Valya", but he does not abuse this right. Dmitriy Yakushin, the 
presidential press secretary, is considered the most distant 
relative, to whom the Family has given shelter with the right of a 
"cousin from the remote town of Zhitomir". "Dmitriy Dmitriyevich 
Yakushin adores Tanya and Valya. He supports them in everything. In 
addition, he is harmless to all the others"--this is how his 
benevolent colleagues explain his successful career. 

Despite the widespread legend that included Nikolay Aksenenko 
among the members of the Family, the Premier did not belong to this 
honored team for even one day. We quote an administration employee: 
"Boris Nikolayevich was the stimulus to this personality. He is 
impressed by the stateliness and the railway man's worker mettle. 
But that is not enough to be accepted here as a man of our 
sort." 

Pavel Borodin, for many years the President's assistant 
manager, also stands apart here. "Pavel Pavlovich Borodin is too 
dangerous for the Family. He has too much money and information. He 
obeys only the boss." 

An attempt to introduce the Premier into the Family circle 
belongs to the last staff innovations of the Family. Formerly this 
was considered impossible. The Family behaved as a parallel, 
alternative government. However, they made an exception for Sergey 
Stepashin. Recently, usually once a week, assizes are held in the 
Prime Minister's office with the participation of Voloshin, Mrs. 
Dyachenko, Chubays, and Putin. 

Division of Labor 

According to the trusted persons of Obschaya Gazeta, the 
Family is functioning in a rather confused way, without any precise 
regulations. However, a certain distribution of roles does exist. 
As already stated, Mrs. Tatyana Dyachenko fulfills the duties of 
coordinator. The administration employees highlight Mrs. Dyachenko's 
cold mind and calm nature. 

Mrs. Tatyana Borisovna Dyachenko never speaks at meetings. She 
listens to the speakers silently. If somebody asks for her advice, 
she refers the curious person to the administration chief. But if 
the curious person goes to the indicated address, Mrs. Dyachenko is 
bound to drop in to Mr. Voloshin in order to clear up what they 
discussed in her absence. 

We cannot say that the President makes all the decisions as 
submitted by his daughter. However, nobody can remember a time when 
the President made a decision that Mrs. Tatyana Borisovna Dyachenko 
had opposed. His youngest daughter reliably fulfills the role of a 
filter that stops everything that in her view could harm her father. 
Valentin Yumashev specializes in separations. He is 
indispensable in bringing useful people together causing an alliance 
that is taking shape to collapse, or building up a system of "mutual 
destruction". At the same time, Yumashev is responsible for the 
connections with the oligarchs and the heads of the TV channels. It 
is true that after introducing his friend Voloshin into the Family, 
Yumashin has recently begun to neglect his duties in the Family. He 
goes abroad for long periods of time. Therefore, it is sometimes 
difficult to find him even by satellite communication systems. 

Chubays, Voloshin, and Berezovskiy are the Family's political 
strategists and the generators of ideas. Usually, each of them 
suggests his own plan of action. The agenda for a Family discussion 
is made up by them. All three of them show a remarkable tendency 
toward adventurous scenarios. They are extraordinarily close to the 
President in this regard. However, Mrs. Dyachenko and Mr. Yumashev 
dread stressing their ailing patron too much. They skillfully mete 
out their outbursts of energy and divert it to a safe course. 
In principle, Roman Abramovich "sits at the cash register", 
serving the Family's financial interests. Incidentally, nothing 
definite is known about this. 

Family Relationships 

There was a time, eighteen months to two years ago, when a 
spirit of mutual love reigned in the Family. The "relatives" kept 
together as inseparable company. Only in the sauna were they not all 
together. Now the times have changed. They do not meet all together. 
They have separated into groups of two and three. After a number of 
conflicts, diverging interests have appeared, and some group members 
are even on antagonistic terms with one another. For instance, it is 
difficult to make Chubays sit down at the same table as Berezovskiy 
or Abramovich. 

Therefore, it has become necessary to ensure unity of action 
by means of the mediation contacts of Chubays with Voloshin, 
Voloshin with Berezovskiy, etc. The administration chief is also 
obliged to mediate in the relationships of Yumashev with 
Berezovskiy, if what is advantageous to "Valya" does not suit Boris 
Abramovich, and vice versa. Then, the present and past 
administration chiefs come to an agreement. They play the role of 
"good cop, bad cop". Voloshin is demonstratively obstinate and 
refuses to respect Berezovskiy's requests. Yumashev, however, 
showers compliments. "You know, I am always ready, but as you see 
yourself, Voloshin will not budge a bit." The next time around, the 
actors change roles. Thus they throw Boris Abramovich from one 
office to another, until they finally postpone the issue. 

Sometimes, the "separating people" have a tough time. For 
instance, this happened when the interests of Berezovskiy and 
Abramovich clashed with each other. Valentin Borisovich then played 
into Roman's hands and opposed the fusion of YUKOS and Sibneft. 
Boris Abramovich became very angry with Valentin Borisovich and did 
not speak to him for about three weeks. 

According to the opinion of our interlocutors, the only thing 
that unites the members of the Family today is fear for their lives 
and for their business after the changing of the master in the 
Kremlin. They understand that it will be more difficult for them to 
safeguard their future separately. For instance, it is allowed to 
settle some minor issues individually, such as obtaining a second- 
rate portfolio for "their man". Then the strategy of the Family's 
safety is elaborated and approved by all of them. There was no 
unanimity in the Family with regard to Chernomyrdin's resignation. 
Not all of them liked Kiriyenko. However, the Family did not 
tolerate any pluralism in regard to Primakov and Skuratov and 
obtained a complete consolidation of opinions and activities. 

Daddy Will Rule as He Can 

The question of the limits of the Family's influence is one of 
those that are most essential. Is the weakened President really a 
weak-willed toy in the hands of his close associates? Does he really 
"reign, but not rule"? For well-known reasons, the Kremlin officials 
do not like "Grandpa's kinsfolk" too much. However, nobody has any 
doubt that Boris Yeltsin continues to be the head of the Family. 
The average weighted opinion on this subject is as follows. 

"Owing to his advanced age and his illnesses, Yeltsin's immunity to 
external influence has weakened, of course. On the opposite side, 
you cannot control him." Sometimes it is difficult to distinguish 
which decision matured in the President's mind and which the Family 
brought about. However, it is impossible to make any decisions 
against Yeltsin's will. 

The Family's influence is minimal on international affairs and 
on the bloc of departments connected with the armed forces. On these 
issues, the President prefers to deliberate with specialists, and 
not with "Tanya and Valya". It is another matter that Yeltsin 
neglected part of his obligations also in better years. His close 
associates had no need to usurp these obligations. 

The President himself was glad to shove aside these 
obligations onto some trusted personality. Above all, these are 
issues of the economy, which are by tradition obscure and boring to 
him. 

In this sphere, the influence of the Family is very great and 
perhaps only commensurable with the influence of the Cabinet of 
Ministers. For Yeltsin, to rule means to appoint and dismiss 
officials. This is the only one of the presidential prerogatives 
which he can evaluate an attempt against as someone trying to 
appropriate his power. But he does not tolerate any of this. The 
Family is able only to accelerate a resignation or delay an 
appointment. 

Undoubtedly, "Tanya and Valya" could not show the suspicious 
Russian President a video recording of Viktor Chernomyrdin and 
Albert Gore's Washington press conference. Then Chernomyrdin would 
have continued in the office of prime minister. It was possible not 
to show Yeltsin the TV dialogue of Rem Vyakhirev with Aleksandr 
Livshits. This would not have brought down trouble on Livshits. It 
was not a must to tell the President about the general prosecutor's 
amusements... However, in such a case, the Family would have risked 
running up against accusations of an information blockade against 
the head of state. 

Generally speaking, knowledgeable persons find it difficult to 
evaluate the character of the "influence of the Family" on the 
President. On the one hand, it is understandable that the Family is 
an illegitimate formation, and therefore harmful owing to the very 
fact of its very existence. However, on the other hand, you must 
know Boris Nikolayevich Yeltsin. He is mentally unable to share 
power with anybody who does not stand under his control. This may 
be the parliament, the government, or the Constitutional Court. 

Therefore he is forced to entrust part of his unbearable authorities 
to personally chosen favorites. The "Family" is a relatively new 
word, but not a completely new phenomenon. Before that, it was 
called a "collective Rasputin", a "collective Yeltsin," and was 
personified by the names of Burbulis, Poltoranin, Korzhakov, 
Ilyushin, and Barsukov. 

The essence is not changed by exchanging the persons and 
names. The Family is an organic supplement to an authoritarian but 
functionally weak leader. It is a phenomenon of a disintegrating 
state system. 

Whether the role of this body is negative or positive also 
depends on the evaluation of the leader's personality. Many of our 
informants think that in some situations, the Family exerts a 
positive influence. It restrains the impetuous President and reduces 
the political risks to a minimum. "Boris Nikolayevich Yeltsin is an 
unrestrained character. If you leave him face to face with society, 
he will pile up so many things that you could not sort them out even 
in a hundred years." One of the President's collaborators of many 
years said this sincerely. If it were not for the Family, the 
following things would have happened. He would have returned the 
Kuril Islands to the Japanese long ago. He would have aimed nuclear 
warheads at the NATO countries. He would have appointed General 
Nikolayev instead of Chernomyrdin, and would have replaced Primakov 
with the railwayman Aksenenko. 

People remember as a nightmare the days in February when the 
head of state ordered "to close down" the Communist Party 
immediately. Then the Family forgot all its internal disputes, 
worked in crisis conditions, and by a miracle prevented the risky 
edict from being issued. 

Briefly speaking, the eternal suspicion about the good tsar 
and the wicked princes does not have sufficient foundation. Like 
master, like man. 

*******

#8
Date: Tue, 3 Aug 1999 
From: Matt Bivens <bivens@imedia.ru> 
Subject: www.moscowtimes.ru

David,

I would like to invite Johnson's List readers to comment about The
Moscow Times website, either to me personally via e-mail or for the
Johnson's List. I am exploring making changes to the website.

Thanks,
Matt Bivens (bivens@imedia.ru)
Editor
The Moscow Times

*******

#9
Moscow Times
July 31, 1999 
Following the Same Old Map 
By Garfield Reynolds and Matt Bivens 

Meet the new program -- same as the old program. Garfield Reynolds and Matt 
Bivens lay out the details of an economic strategy worked out between Russia 
and the IMF, and ask whether it will work. 

A year after the now-infamous July bailout package failed to bail Russia out, 
the Kremlin and the International Monetary Fund have kissed and made up. The 
IMF has swallowed hard over the outrageous FIMACO scheme f through which 
Central Bank reserves were, for reasons never adequately explained, routed 
through a shell company based in the Channel Islands, an offshore haven 
notorious for money laundering. "The central issue is, were we lied to?" 
Stanley Fischer, the No. 2 man at the IMF, said this week. "The answer to 
that, coming out of [an audit of FIMACO] is unfortunately 'yes.'" 

Fischer's harrumph aside, the IMF has coughed up another $4.5 billion f along 
with a stern warning that if corrupt Russian officials play any more 
shenanigans with IMF money, or tell any more lies, than the IMF is going to 
get really, really strict! 

In return, the Russian government and Central Bank have signed a Statement on 
Economic Policies. This document lays out the policies-for-IMF-cash trade-off 
that the government and the bank pledge to pursue. 

The new plan is: Return to the old plan. The Russian government and Central 
Bank contritely admit as much. They state that much of this new program is a 
list of tasks left over from previous IMF programs, and add, "[we] intend to 
fully implement these earlier specified measures now." 

In other words, it's the IMF triumphant again. There is no self-examination 
on display, no introspection, no alternative voices. It's the same situation 
as at the beginning of the year, when the IMF hosted a conference pegged to 
the 10th anniversary of "the transition process" f as the IMF and World Bank 
crowd refer to work moving the formerly communist world to capitalism. The 
keynote speaker at this February conference was, of all people, Yegor Gaidar 
f the former prime minister and obedient IMF pupil. (In a lovely and precious 
phrase, the IMF newsletter summarized Gaidar's performance by saying he 
"provided a tour d'horizon of the Russian experience.") 

Papers presented at the conference included a defense of privatizations 
around the former Soviet bloc that f as described on the IMF web site f 
conceded that some had been "hasty" and favored "the agile and 
well-connected," but concluded, "there is no reasonable alternative to 
continuing privatization." 

Russia's Statement on Economic Policies is even more blas╬. "Potential 
benefits from ■ privatizations ■ have been diminished owing to the absence of 
transparency in the process and a failure to ensure that economic gains were 
broadly distributed among the population." 

That is an awfully charitable account of Russian privatizations, which have 
seen the nation's oil and gas fields, her precious metals and even her 
television airwaves parceled out to a few insiders for next to nothing f a 
corruption-fueled fire sale, similar to those seen in Mexico, Brazil and 
other Third World lands, that has cost the Russian people billions of 
dollars. 

Arguably privatization, which created the so-called oligarchy of powerful 
vested interests with no real legitimacy, has done more to set back the 
creation of both democracy and a market economy than any other government 
policy. This is now so broadly recognized that even the World Bank's new 
chief economist, Joseph Stiglitz, could note in a recent paper on Russia that 
privatization has been a "dubious achievement." 

"After all, it is easy to simply give away state assets, especially to one's 
friends and cronies; and the incentives for doing so are especially strong if 
the politicians conducting the privatization exercise can get a kickback, 
either directly or indirectly as campaign contributions," Stiglitz says. 

"Consider the incentives facing the so-called oligarchs in Russia. They might 
well have reasoned: democratic elections will eventually conclude that their 
wealth was ill-begotten, and there will thus be attempts to recapture it. 
They might have been induced to follow a two-fold strategy: on the one hand, 
to use their financial power to gain sufficient political influence to reduce 
the likelihood of such an event; but, assuming that that strategy is 
inherently risky, to use the other hand to take at least a significant part 
of their wealth out of the country to a safe haven." 

Stiglitz wonders why Russia just gave away, say, Norilsk Nickel f which in 
1995 was earning on average $2 billion a year from exports, but was sold to 
Uneximbank for $170 million. (The government deputized Uneximbank to organize 
the Norilsk Nickel auction; Unexim evaluated all bids and pronounced itself 
the winner). Instead, he suggests, why not leave such properties state-owned 
fbut give management generous incentive contracts to run it like a real 
business? 

Forget that, says Russia and the IMF. Their eyes are squarely focused on the 
short term, and there are bills to be paid f not least to the IMF itself. 

Russia needs dollars, fast. Eurobonds and World Bank loans are also coming 
due, and Boris Yeltsin's Kremlin has big and expensive plans for 
parliamentary and presidential elections over the next 10 months. The Russian 
government has built another round of fire-sale oil company privatizations 
into the 1999 budget revenues, which it hopes will raise a paltry $750 
million, and the IMF has nodded approvingly. 

So aside from this cautious two-step on privatization, what else is in the 
cards? The Statement on Economic Policies is a complex document, but it can 
best be summed up thus: Cut as much government spending as possible f but 
keep taxes high. 

It would be hard to find an entrepreneur in Russia who believes keeping taxes 
high f instead of dramatically drawing them down f is going to encourage 
investment or growth. But, that's the plan: Pay more taxes, get less service 
for them, and take comfort in the fact that Russia is paying the IMF on time. 

The Tax Code is to be amended to increase "the powers of the tax authorities 
by eliminating the need for the Tax Ministry to use the already overburdened 
court system." Does this mean there will be no appeal whatsoever, should the 
tax men in black ski masks come a-calling? Is any short-term gain in revenues 
worth the long-term costs in frightened-off investment? 

The Statement targets the oil and gas sector, and this seems fair enough f 
particularly given the sordid privatization history, but also given soaring 
world oil prices and the ruble devaluation, which has lowered their tax 
burden in dollar terms (and oil companies think in export dollars). 

But soaking the poor f or the regions, who are also targeted by the Statement 
to have more revenue squeezed out of them f is apparently easier than soaking 
the oligarchs. So far this year the government has managed to impose an 
export tax of 5 euros per ton on crude oil. It recently retreated from 
raising it to 7.5 euros per ton, even though the price for crude oil has more 
than doubled this year. Gazprom, meantime, has continued to receive generous 
treatment. The government has suspended an export tax on gas and has lowered 
domestic excises, all told costing the budget more than $500 million (or 
about 2 percent of budget revenues). 

Revealingly, the same Statement that hungrily adds new taxes f on luxury 
cars, on sick workers f and jealously warns against lowering existing taxes 
such as VAT f apologetically pledges a retreat on only one kind of tax: 
export taxes, like those on oil and gas. "We intend to review and abolish 
these measures as soon as Russia's financial conditions permit," the 
government writes. 

Why? Because these taxes f which raise the cost of oil, gas and other goods 
for Western consumers f are ideologically offensive to the IMF. They impinge 
upon "free trade." Indeed, the government Statement discusses these taxes 
separately, under trade policies. 

So much for bringing in more revenue. Let's move on to spending less. The 
Statement says, "the number of positions in the federal executive authorities 
was reduced during 1998 by about 79,000, or 19 percent, and additional 
reductions in employment have also been seen in transport, education and 
health care. We will continue progress in these areas in 1999." 

Amazingly, of all the people Russia could be firing, the IMF and the 
government have agreed concretely only on the firing of teachers and doctors. 
However, there have been a few new hires, to whit: "A new federal commission 
has been established to examine options for further streamlining the civil 
service." The government also commits itself to conduct a "public expenditure 
review" this year, one that will cover "at least the health and education 
sectors." 

Consider what else the government could be cutting. The Central Bank, for 
example, employs 100,000 people, and salaries there are immense by Russian 
standards. Chairman Viktor Gerashchenko and his predecessor, Sergei Dubinin, 
have earned twice what U.S. Federal Reserve Chairman Alan Greenspan is 
pulling down. If you are looking for cuts, why not look hard here? 

But no, the IMF is firm that the Central Bank must remain "independent" f 
which, given the FIMACO deal, seems to mean "answerable to no one." Instead, 
the government will seek cuts in "at least the health and education sectors." 

At the same time, the government will seek to hike the "social contributions" 
businesses factor into their payroll taxes. If the government gets its way, 
sick benefits for the first three days of an employee's illness will be paid 
by the employer, not written off as a deduction. 

The Statement does express concern about pensioners, and it mandates a 60 
ruble ($2.45) raise in the minimum monthly pension f one that the government 
expects will be partly funded with proceeds from the sale of American and 
European food aid. 

What about other costs? The Defense Ministry is in the middle of a $150 
million-a-year vanity peacekeeping force in Kosovo. The Finance Ministry is 
still running a strange and arcane oil barter deal to maintain a Soviet-era 
listening post on Cuba. Russia f which claims, probably quite rightly, that 
it can't afford to pay its debts to the world f has offered $150 million in 
aid to Yugoslavia. The Kremlin has indulged in some IMF-loan-sized price tags 
just to fix up a few of its palaces. And the state-owned Gazprom gas monopoly 
is accepting payments from Belarus in the form of food and possibly from 
Ukraine in demobilized Tu-160 Backfire bombers f the latter perhaps useful 
for buzzing Iceland the next time an IMF tranche is slow to arrive, but not 
very helpful otherwise. 

The Statement insists barter deals like Gazprom's are on the way out. But the 
Statement is not proactive when it comes to, say, pushing through START II f 
something that even the much-maligned government of Yevgeny Primakov was 
ready to do, out of recognition that START II saves Russia money (because 
both Russia and the United States have to build and maintain fewer nuclear 
missiles). Nor does the Sergei Stepashin government or this Statement show 
much interest in fighting pervasive corruption f even though corruption costs 
the state far more than does, say, health care and education. 

It is perhaps the IMF's fatal flaw that it believes mandating cuts in social 
spending to be an economic matter, one it's competent to push f but mandating 
cuts in military or foreign policy spending to be a political matter beyond 
its purview. 

Another major goal is to run a budget surplus for 1999, and an even bigger 
one in the 2000 national budget. No deficit spending. 

Japan rebuilt its economy after World War II largely on deficit spending. The 
United States revived its economy after the Great Depression largely on 
deficit spending. Ordinary people in the West live their lives on what 
amounts to personal deficit spending, in the form of housing mortgages. 

Russia is 10 years into an economic collapse. But the IMF surveys the 
wreckage and, Herbert Hoover-like, insists the market is on its way. (The 
only difference now is that instead of "a turn in the business cycle," the 
hopeful talk is of "globalization.") Instead of trying to encourage Russia to 
run a healthy deficit f one that involves real investment in the economy and 
not just capital flight f the IMF forbids state-led deficit investment across 
the board. 

Given that corruption is such a huge problem in Russia, it's hard to argue in 
favor of printing money. But what's striking is the absolute, almost 
dogmatic, refusal to even talk about it. Russia is in the middle of an 
economic downturn; the IMF insists it run a contractionary, anti-growth 
fiscal policy; and if anyone asks why, they're met with shock. In Russia, 
about the only people who ever discuss a Rooseveltian New Deal approach to 
economics are the Communists and, to a lesser extent, the Yabloko party of 
Grigory Yavlinsky. 

Instead, the private sector is to provide the investment, the IMF says. This 
will happen when bankruptcy laws and other tools are in place for "industry 
restructuring." 

But that isn't happening. Yet another paper presented at the IMF's "10 years 
of transition" conference reported that, while the Baltics and Central and 
Eastern Europe are growing, Russia remains "a net exporter of capital." In 
other words, more is being whisked out of the nation than invested in it. 
Interestingly, the study by IMF scholars found that neither inflation nor 
openness to the global economy f those two IMF preoccupations f seemed to 
influence which country got how much investment. Instead, this depended more 
on "legal and political climates." 

For example, investment is wary of places where the tax authorities wear ski 
masks, where the hijacking of an entire oil company is met with a hand slap 
for "hastiness" and where IMF loans wander cheerfully across the Channel 
Islands. 

Moving hurriedly along, the IMF and the Russian government have a different 
answer: bankruptcy laws. Bankrupt everyone who owes someone else money. 
Pretty soon barter will disappear, wage and pension arrears will wither away 
and the economy will be booming. 

A new bankruptcy law f which the government, with wild optimism, promises 
will be approved by parliament by Oct. 31 f is the Holy Grail. 

Now certainly it would be a welcome change if insolvent monsters such as the 
Baltic Shipping Co. f which has been a drag on the St. Petersburg area's 
economy for most of this decade f could be either liquidated or 
recapitalized. 

But there is more to industry restructuring than mere bankruptcy f 
particularly when the entire economy, and not just one factory, is dying. As 
the World Bank's Stiglitz has written, "When a single firm is restructured in 
an economy operating at full employment, firing underemployed workers has 
beneficial effects, partly because those workers get quickly redeployed to 
more productive uses. When, however, there is already massive unemployment, 
firing workers moves them from a situation of underemployment to no 
employment f not necessarily a transfer that leads to an overall increase in 
the productivity of the economy. ■ 

"By the same token, when there is systemic bankruptcy, selling off assets may 
make little sense: who is there to buy them?" 

No, even an aggressive pursuit of bankruptcy law is unlikely to bring new 
investment. For that, as some IMF scholars have noted, Russia needs a better 
legal and political climate. 

When the IMF tries to improve "the legal and political climate," it talks 
about "transparency." The Central Bank, the government, commercial banks f 
all are encouraged to be "more transparent," to provide more information 
about their business dealings. 

There is a problem with this logic: It assumes that such business dealings 
stand up to scrutiny. Consider again the Statement's discussion of 
privatizations f it seems they were so widely condemned "owing to the absence 
of transparency in the process." But, of course, it's the exact opposite: 
They were condemned because they were, in their own arrogant way, utterly 
clear. The auctions were rigged, the nation's treasures in effect stolen. 

Consider another potential absurdity: the IMF's discussion of establishing a 
Treasury system. 

As it is now, and has been for years, Russian government agencies run their 
transactions and park their budgets in commercial banks. Tax payments are 
made via banks; funds to rebuild Chechnya were shipped through banks; the 
State Customs Committee accounts, the road fund and other state pools of 
money are parked in commercial banks. For years, Russian government officials 
have complained about this system, arguing that commercial banks skim off 
hefty chunks and play risky and profitable games with the rest. For years 
there has been talk of establishing a Treasury. 

Now the idea once again is gaining momentum. Move all money over to a 
Treasury system and it will be safe. 

But, this is the same Yeltsin team that has let corruption run wild, and most 
observers agree that the Kremlin is lining up resources for the elections f 
from the coffers of Gazprom and the Unified Energy Systems national power 
company to the television stations. Who is to say that the Treasury won't 
just be another Kremlin scheme along these lines? Who is to say, in the 
post-FIMACO era, that the Treasury won't park the nation's money in the 
Bahamas? 

After all it has been through in Russia, the IMF seems unable to even 
entertain such possibilities. 

Then there is Russia's debt burden. "Total external debt of the federal 
government now stands at about $150 billion, or 90 percent of GDP," the 
Statement reads. "The government's scheduled external debt service is 
projected to amount to 90 percent of federal budget revenues." 

Ninety percent of the budget f just to pay debts! Of course, Russia is not 
going to pay all of those debts. It is already squirming to escape Soviet-era 
debts. But even if it succeeds, the 2000 national budget draft now under 
consideration would devote 40 percent of revenues to debt servicing. 

How could this happen? These debts were taken out with the approval, even the 
encouragement, of the IMF. And this is just national government debt, not 
Moscow or Nizhny Novgorod municipal debts or corporate debts. 

What was the IMF thinking? Why didn't it counsel caution? Why didn't it 
insist at least some of this money be spent productively f instead of 
nihilistically, in Chechnya and in corruption? 

The next decade will see the painful, drawn-out renegotiations of all these 
debts. The IMF will be collecting its share, even as it tsk-tsks at Russia's 
foolishness for getting into such a mess. But arguably the IMF and Russia 
share at least equal culpability for the economic collapse here; why doesn't 
the IMF share at least some of the cost, and write off some of the $16 
billion Russia owes? 

In the end, of course, the Statement of Economic Policies is a massive 
fiction, one that is already unraveling. Does anyone on either side of the 
Atlantic Ocean really believe the State Duma will pass the laws Stepashin and 
Gerashchenko have signed it up to pass? (See box). 

But despite some bold poetic license here and there, this is the accepted and 
eternal blueprint. These are the policies Russia must follow to be rewarded 
by the IMF f and, in turn, by the other Western financial institutions, from 
the London and Paris clubs to the World Bank to international financial 
houses. And it seems on even a cursory examination to be a flawed and 
dogmatic blueprint. Russia needs change f but so do its Western allies and 
advisers. 

*******

#10
Date: Tue, 3 Aug 1999 
From: "Wladislaw George Krasnow, PhD" <wgkrasnow@rcn.com> 
Subject: [Fwd: Bill Clinton]

As over a hundred of JRL subscribers and readers endorsed the Open
Letter I wrote to President Bill Clinton and other US government
officials on March 24, I am glad to report that I finally got a reply
letter from President himself. Here it is:

"Dear George:

Thank you very much for writing me. It is important to me to hear
the views and concerns of people around the country, and I appreciate
your taking time to write. I will certainly keep your thoughts in mind
as my Administration continues working to address the challenges our
nation faces as we approach the 21st century.

I hope you will remain involved.

Sincerely,
[Signed: Bill Clinton and dated July 13, 1999]


I invite all JRL readers to comment on the official response. Besides
Clinton's letter above, I also received the letters from Secretary
Madeleine Albright and Carlos Pascual, the office of National Security
Adviser "Sandy" Berger, published in JRL 3294 #7 on May 19.

In particular, what do you think about the efficacy of writing such Open
Letters? What other steps could RAGA take to influence U.S.-Russia
relations?

W. George Krasnow
President
Russia & America Goodwill Association
1332 Vermont Ave., NW
Washington, DC 20005
www.raga.org

******




Return to CDI's Home Page  I  Return to CDI's Library