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

Johnson's Russia List
#3422
4 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Itar-Tass: Yabloko Sour about Newly Forged Electoral Bloc.
2. Alastair Wanklyn: Otvetny udar --- request for help. (New words)
3. Financial Times (UK): John Thornhill, Consumers growing patriotism. 
4. Murray FESHBACH: A Comment on Recent Demographic Issues and a 
Forbidding Forecast.
5. Ben Aris: business confidence grows.
6. Presentation by Prime Minister Sergei V. Stepashin at a dinner hosted 
by The U.S.-Russia Business Council and The American Chamber of Commerce 
in Russia.
7. Reuters: Russian economy picking up, good news abounds.
8. Reuters: Russia's G7 role ``grotesque'' - Deutsche analyst.
9. Jack Schmidt: Re: 3421 Liakhov & Investment in Russia.]

*******

#1
Yabloko Sour about Newly Forged Electoral Bloc.

MOSCOW, August 4 (Itar-Tass) - One of leaders of the parliamentary faction 
Yabloko, Sergei Ivanenko, said the merger announced on Wednesday by All 
Russia and Otechestvo movements had produced a "party of power". 

He said in a comment that Yabloko was "fairly reserved" about the decision of 
the two movements' leaders to make an electoral bloc to run its candidates 
for the State Duma, or the lower house of parliament, in December. 

"It is doubtless that this is a new party of power, and it will be backed up, 
as I believe, only by voters who are interested in the policy that is being 
followed by power today," Ivanenko said. 

Moscow Mayor Yuri Luzhkov, who is the leader of Otechestvo, or Fatherland, 
made clear at a press conference on Wednesday that his movement's alliance 
with Yabloko is unlikely. 

He cited Yabloko's decision to run for the Duma independently. "I think one 
should respect this wish of the political organisation that is not the worst 
on the country," Luzhkov said. 

*******

#2
Date: Wed, 4 Aug 1999 
From: "Alastair Wanklyn" <alastair.wanklyn@featurestory.co.uk> 
Subject: Otvetny udar --- request for help

Dear David -- a short request for help on what may be a fun project:

The Oxford English Dictionary has called for submissions of new words in the
English language. Several of Russian origin might now qualify.

Words like 'remont', 'podyezd' and 'GKO' and are in frequent use by
thousands of English-speakers. Importantly, these words have also been used
in print and in broadcast scripts.

If readers have other suggestions, and evidence of their published use, I
plan to submit references later this year. I think it's a splendid chance to
help Russian strike back at English.

Rgds, Alastair Wanklyn alastair.wanklyn@featurestory.co.uk

=====================================
Feature Story TV & Radio News, London bureau
Tel: +44 207 580 4160 Fax: +44 207 436 9138
=====================================

********

#3
Financial Times (UK)
5 August 1999
[for personal use only]
RUSSIA: Consumers growing patriotism 
By John Thornhill in Moscow

Amid an electric storm of flashbulbs and a glitter of perfect white teeth, 
Alla Pugacheva, Russia's greatest pop icon, hosted a rare press conference 
yesterday. The diva fielded the customary questions about her battles with 
her waistline, the sexual orientation of Filipp Kirkorov, her androgynous pop 
star husband, and the current woes of the Russian music industry.

But she also found time to endorse the milk and fruit juice products of Wimm 
Bill Dann, one of Russia's biggest food companies, with which she had just 
concluded a big sponsorship deal. In return for an undisclosed payment, Ms 
Pugacheva has agreed to star in television commercials to market the Russian 
company's products and host a number of special promotions.

"I just wanted to help domestic manufacturers," Ms Pugacheva purred.

It is hard to overestimate Ms Pugacheva's popularity in Russia. In Soviet 
times the old joke ran that Leonid Brezhnev, the former general secretary of 
the Communist party, would be remembered as a minor politician in the epoch 
of Alla Pugacheva. Many other Russians attribute her emotional appeal to the 
fact that they lost their virginity to the strains of her syrupy love songs.

But where Ms Pugacheva leads, millions of other Russian women follow, whether 
it is hairstyle, dress sense or morals. The fact that Ms Pugacheva now says 
that Russian-made goods are fashionable is likely to affect the spending 
habits of millions of consumers. Wimm Bill Dann certainly believes its 
marketing coup will significantly boost the popularity of its products.

There is no doubt the indomitable Ms Pugacheva reflects a changing mood in 
Moscow. A few years ago Russian consumers were infatuated with western 
imports and spurned locally made products. But a nostalgia for traditional 
Russian foods and the improving quality of domestic goods has encouraged 
Russia's shopkeepers to restock their shelves with local products.

Galina Savina, general director of the Moscow office of Friedman & Rose, the 
advertising agency, said there was a patriotic impulse among consumers. 
"There is even a trend among our western clients to purchase and develop 
Russian brands," she said.

The fashionable restaurant of the moment is Cafe Pushkin, which serves 
traditional Russian fare in a 19th century setting. It was opened in June to 
celebrate the 200th anniversary of the birth of Russia's greatest poet.

The sharp devaluation of the rouble has also helped kill off many expensive 
imports and boosted the competitiveness of Russian producers. The government 
reported yesterday that industrial production had increased 3.6 per cent in 
the first seven months of the year. July's ouput was 11 per cent higher than 
it was a year ago on the eve of Russia's financial crisis.

Russia's politicians, who are stepping up their campaigns for December's 
parliamentary elections, have been quick to exploit this stirring patriotism. 
Yuri Luzhkov, Moscow's dynamic mayor, has plastered the capital with 
billboards urging Muscovites to buy domestic products to spur the country's 
revival.

At an earlier press conference announcing that Mr Luzhkov's Fatherland 
movement would form a common electoral platform with the All Russia movement 
of regional governors, the Moscow mayor said it was essential to promote a 
healthy manufacturing base in Russia. (It was notable, though, that Ms 
Pugacheva attracted a far bigger audience than Mr Luzhkov).

Asked her views about Russia's new political alliance, Ms Pugacheva said the 
news created a "holiday in her soul". But she denied suggestions that she 
would contest the presidency, declaring that politics was a dirty business.

However, it soon became apparent that Ms Pugacheva's love of Russian products 
had its limits. Questioned why she still drove around in her US-made, white, 
stretch limousine, Ms Pugacheva artfully replied: "I only support those 
domestic goods which are well made."

*******

#4
Date: Wed, 4 Aug 1999 
From: "Murray FESHBACH" <FESHBACH@gunet.georgetown.edu> 
Subject: A Comment on Recent Demographic Issues and a Forbidding Forecast

A Comment on Recent Demographic Issues and a Forbidding Forecast
by Murray Feshbach, Georgetown University (email:
feshbach@gunet.georgetown.edu)

The Economist of July 31, 1999, has a special insert entitled "A Survey of
the New Geopolitics: The Road to 2050." So let us focus on 2050 for
Russia, its population, and the implications not only for geopolitics, but
also for its economy, society, military, and even geopolitics, but only in
passing. I leave it to others in the meantime to draw their conclusions, I
have mine.

If demography is said to be destiny, the destiny of Russia for the next 50
years or more is appalling, not only because of numbers, but also because
of the health of women in reproductive ages (let alone the aged) and the
newborn, of which, more later) and improbabilities of major improvements in
total fertility rates and mortality patterns. 

With no apology, the following is highly numerical, the policy
implications, however, are very clear.

If we look at past, present and future growth of the Russian population is
negatively affected by the trend of excess of deaths over births, with
in-migration not only declining from the near abroad, but insufficient to
make up for the natural "decrease" (and out-migration now doubling among
"Jews" who are leaving due to the economy, general stress among the
population, and anti-semitism manifesting itself more and more).

The current official report that births in the first five months of 1999
are much less than in the same period last year (507,300 versus 531,100,
respectively), deaths in the same period are much more than in the first
half of 1998 (903,000 versus 844,400 in 1999 and 1998, respectively) , and
net in-migration is much less as well (53,300 versus 129,300 in 1999 and
1998, respectively). Thus, the net population growth in 1999 for the first
5 months is 507,300- 903,000+53,300= -342,400 (not -346,700 as shown in the
Rossiyskaya gazeta item of 31 July 1999) persons..

Keeping these data in mind then, if one uses the total fertility rate (TFR)
to project the population, usually the medium scenario assumes that
mortality will not worsen nor improve–although in the case of Russia that
it will improve is to me somewhat a heroic assumption. (It should be noted
here that some Russian demographers such as Vishnevskiy and Shkolnikov, are
much more optimistic than I am about improvement in the mortality rates.
Andreyev of Goskomstat is not; I agree with him.)

Thus, using as a model the TFR projection for West Germany prepared by the
Population Reference Bureau (PRB) in Washington, in 1985, its impact, and
the analogy for Russia of various levels of the TFR in 3 assumptions of
first, a dramatic increase in the period 2007-2027, second, an improvement
to simple reproduction of 2.1 in the same projected period and third,
constant at 1.3 children per women over her reproductive years. 

Nothing sufficient to raise the Russian TFR to 2.5 in the future can be
anticipated and even with a 2.5 TFR, PRB's chart yields a figure of 62
million (equal to then current population of West Germany in 1982), only by
2102 or so, 50 years after the point of concern. Russia likely will not
even return to 2.1 the level for simple reproduction of the population; and
with reproductive health of women so poor (with 75% of women having a
serious pathology during their pregnancy) possibly not even holding at 1.3
(with other reasons for a reduced TFR--stress, choice to have no or very
few children, forced migration, poverty of a large portion of the
population wherein malnutrition of young women can affect their ability to
have children or the fetus is weak, and dramatic increases in sexually
transmitted diseases and their impacts on reproductive potential,
tuberculosis spreading throughout the population, dramatic increases in
anemia among pregnant women, fetal losses due to spontaneous abortions, and
on and on.)

Thus, using the PRB illustration for West Germany made in 1985, and
assuming mortality stays at a constant level (already a problem for Russia,
as it is again increasing after a dip of several years), and increases in 2
scenarios to 2.1 or to 2.5 during entire period, 25 years, 2002- 2027, the
chart shows the population future. It should be noted that the TFR in the
Russian Federation never exceeded 2.194 (in 1987) since 1960. But if it
declines to 1.3 and holds steady at that point, then the implication is
that in 2052, the population of West Germany would be about 55 percent of
its then current level of 1982, or a drop of 45 percent in that period.
Thus, using this proportion, the analogy for Russia where the TFR has been
dropping steadily to 1.23 in 1997, already below 1.3, and not likely to be
any higher (not only for demographic reasons, but also for health reasons
assuming for the moment that economic stresses are not exacerbated), then
the population of Russia will drop to 80 million persons
(146.0)x(.55)=(80.3) by mid-century!

Has anyone thought about the implications for how much labor productivity
must increase to keep GDP at its current let alone a higher level, for
availability of a balance in male/female ratios for family stability given
higher shares of deaths among males, for the numbers and quality of new
cohorts for the military?

Much more can and will be added about the quality of the health of the
population, about child health, about recent trends underlying the
foregoing, but it is too much for an item for this JRL.

( For comparison, the US population is currently estimated as 272,330,000
persons, the Crude Birth Rate in 1998 was 14.6 births per 1000 population,
the Crude Death Rate in 1998 was 8.6 deaths per 1000 persons, and the Total
Fertility Rate was 2.066 (increasing each year since 1995). The medium
population projection for 2050 is 393,931,000, an increase of 44.7 percent
and not a decrease of 45 percent as projected here for Russia.) 

******

#5
Date: Wed, 4 Aug 1999 
From: "Ben Aris" <ben@glasnet.ru> 
Subject: business confidence grows

Following posting the Goldman Sach¹s 10 reasons to invest into Russia, (JRL
#3403) I had a few off-list replies that were mostly very skeptical. This is
the seems to be the consensus of Russia-watchers looking in from the
outside. The macro-economic numbers are certainly look terrible. But at the
micro- level things seem to be much rosier. As Ben Slay points out in his
comments on poverty (JRL #3420) living standards have of course been badly
hit by the economic crisis of last August, but Russians have alternative
sources of income and the information collected by Goskomstat is at best
vague. However, the point for me is not if Russia is in a mess (it always
has been) but, as the Goldman Sachs note suggests, that Russia has hit
bottom and is now growing quickly and in a much healthier manner insomuch as
it is the more competent companies that survived.

The Russia business community remains much more optimistic. For them
stability is their main requirement. Things have always been difficult for
business in Russia and those that are still running are resilient. I attach
some of the results from a monthly business confidence survey run by the
German market research company GfK that the readers of the list may find
interesting.

Best Regards
Ben Aris

SUMMARY
By May 1999, managers assessed the economic situation in Russia much less
negatively than in all preceding months. In March over half of the
interviewed managers (53%) considered economy still going worse, and in May
only a third of them (32%) shared this viewpoint.

Only a quarter of the respondents (27%) now expect that economic situation
in Russia will go further down. Two months ago half of them were
pessimistically minded (48%).

Economic recovery is coming: 30% of the respondents are confident that the
economic situation will stabilise earlier than in two years, while in March
only 18% had such belief.

Banking system stabilises. In May, only 14% of the companies have faced
problems in relations with banks. In September 1998, in the very beginning
of the financial crisis in Russia, three out of four companies (72%)
suffered from such problems. According to GfK Russia¹s forecast, by August
1999, a year after the collapse of the financial system, only one out of ten
companies may face problems in relations with banks.

In May 25% of the companies have reduced office expenditures, 17% partly
dismissed the personnel, 20% reduced employees¹ salaries or gave them unpaid
leave. All these measures have been taken less frequently than in March.

MANAGERS¹ FORECASTS BECOME MORE REALISTIC
Managers of 28% of the companies are still reporting a decrease in turnover
and, unlike other problems, this one has not become less widespread in the
past two months. Nevertheless, to compare with last autumn, improvement is
obvious: in September two out of three companies (67%) suffered turnover
decrease (see Chart 2). A lack of positive changes in the past two months
may not be necessarily viewed as a rule. Turnover decrease is most likely to
further slow down, and by August sales will continue falling only in 20% of
the companies

******

#6
Date: Wed, 4 Aug 1999
From: Alex Greenstein <AGreenstein@usrbc.org> 
Subject: Stepashin Transcript 

Mr. Johnson, 
Blake Marshall told me to get in touch with you in his absence
concerning the transcript of Stepashin's speech. Please find the
enclosed copy of that transcript. 
Alex Greenstein


Presentation by Prime Minister Sergei V. Stepashin
Monday, July 26, 1999
at a dinner hosted by 
The U.S.-Russia Business Council and 
The American Chamber of Commerce in Russia
[Rough Transcript from Translation]

Thank you very much. [In her introduction, Mrs. Harkin] talked about all
of the tasks facing the Prime Minister. I also laid out these tasks in
Salzburg (World Economic Forum Speech, June 30, 1999). I have two options,
one is to thank her and sit down to eat right away, the other option is say
a few words. I think I prefer the second option. First of all, I would
like to convey the warmest greetings to Washington, D.C. from Seattle,
Washington, where I spent yesterday and a beautiful evening with Boeing and
the local business community. I was warned in Seattle, and I was
graciously warned by my old friend Amb. Collins, whom I have known for over
ten years, that Seattle is a different city from Washington, D.C. -
different people, different sentiment, more hospitable, more soft, more
passive so to say. Washington is a much tougher city; Washington is
teaming with political sharks, so you have to keep on your toes. So I
prepared very hard for today’s speech and would like to read my text to be
on the safe side and to convey the position of my government with utmost
clarity, which coincides with the position of my president, Mr. Yeltsin.
Although the recent upheavals in Russian-American relations are not the
subject of my speech, they demonstrate that in spite of all the very tough
problems of military and political cooperation and even through the most
difficult period in the relationship of our two nations, the economic ties
never snapped. Over the past decade we have achieved serious progress and
achieved great successes, which leads me to a very unambiguous conclusion.
That is, no political or military upheavals will throw us back to the Cold
War. In this sense it’s very important that both partners, Russia and the
United States, deepen their economic cooperation. 

Before I tackle the economic policies of my government, I would like to
express my sincere gratitude to the U.S.-Russia Business Council for the
opportunity to speak to the most distinguished representatives of U.S.
business and for their wonderful organization of this event. When you stood
and welcomed me with your applause, I think that you were not only
welcoming me as a young Prime Minister of a different country, but as a
sign of respect to a great country, and I thank you very much for that. 

In my short presentation, it is important to cover all the issues that are
of interest to you. Therefore, I would like to start with the most
important of them, something that we think of as the tactics and strategies
of Russia in the new millenium. For the past few stages of economic
stabilization in Russia, we were able to stabilize the ruble, control
inflation, and increase the volume of industrial output. Before coming to
Washington, D.C., I actually circled the globe, spending some time in the
Urals and several regions in Siberia and the Far East, (before traveling to
Seattle and then to Washington), so I could see what is going on across
Russia firsthand. I met with regular workers and with the heads of major
companies and I can confirm to you that if we compare the situation today
with the year before the August crisis, we can see steady growth of
industrial output. The process of the banking system has also been
accelerated. Overall, our economic situation has reasonably improved, and
in comparison with the situation in August of last year, it has improved
considerably. I must say, our recovery from this very serious economic
crisis that we experienced in August was much faster than many of the World
Bank and other experts had predicted. 

The Primakov cabinet initiated economic stabilization. Our new government
will carry on the process of stabilization by dealing with the
destabilizing factors, such as internal and external debt and significant
budget deficit. Therefore, we can talk about a smooth transition from
Primakov’s cabinet to mine. The attention that we pay to trying to build up
on those results of economic stabilization doesn’t really mean going back
from our original strategy. Today our economic strategy is according to
agreements with the International Monetary Fund and the World Bank, and I
can tell you frankly that it took a long time and it was difficult to
hammer out this accord with Mr. Zadornov as principal negotiator with the
IMF. For the first time we were able to fulfill our obligations before the
IMF, which was confirmed by the IMF and the World Bank. And maybe for the
first time, we will fully implement the complete package of reforms. More
and more people today recognize this, including the deputies of the State
Duma who supported me practically in all of my legislative initiatives. We
all understand that without the fulfillment of these obligations we can
only talk about further improvement and progress for years ahead of us.
Some of my colleagues and my friends during the process of my nomination as
the Prime Minister were predicting that I would not be approved before the
next presidential elections. I don’t know about that time frame but the
goals that we set before us are long-term goals, and these goals are part
of the program that was adopted by the government. Within the agreement,
Russia, the IMF and the World Bank envision a time period of 5 to 10 years
in which to accomplish these goals. I think that any politician, if he’s in
office by the grace of God or by destiny or, in my case, by the will of
President Yeltsin and becomes a Prime Minister, shouldn’t think about how
long he will remain afloat, or think about how much time he has left. I
think that he should just look ahead and I think that that’s the main goal
of the government that I head - to maintain a healthy pragmatic attitude. 

Strategically, our main goal is a program of further dynamic reforms with a
mission to promote further progress of Russian society. There are some
people that think this program will emerge only after the presidential
elections. But why should we look at the election as an emergency? First,
we have permanent elections. Second, we have elections on the regional and
the local levels, as well as on the parliamentary and presidential levels,
so the people in Russia take a very calm approach to elections. Today I was
riding in the car with Strobe Talbott who is a friend and travels often to
Russia. He was concerned about what was going to happen with the elections
in Russia. I told him not to worry with the elections in Russia; worry
about the problems with the economy. 

Throughout these years of reform in Russia, we do not have a perfect, but
instead a firm foundation for a market economy. I already told you that we
were able in a very short time to begin to reverse the effects of the
crisis of August of last year. Ms. Harkin remembered all of my previous
positions. I also was a Minister of Justice for one year, but I can tell
you one major secret as a former Chief of Counterintelligence for my
country: Communists in Russia will never win and will never go back,
because nobody will let it happen. 

The situation, of course, in this area is very predictable and my
government will do everything possible to promote those reforms with the
core of our policy being the improvement of living standards for Russians.
One of the elements of the strategy is the formation of a strong middle
class that will provide for political and social stability in our country.
What is the middle class? First of all, it is the class that owns property,
land and other means of production - people who know how to work without
having to point fingers and unload their burden on others. 

What are the elements of the common wealth? First, there is capital
investment. Economic recovery in Russia is impossible without a favorable
investment climate. We understand this climate in a broad sense as a good
climate for investment and accumulation of capital regardless of its
volume. We are preparing a package of measures that will improve the
investment climate in our country. Just recently, President Yeltsin signed
a law on the protection of rights of foreign investors. According to this
law, foreign investors have the same rights as domestic investors, and the
government is working now on the regulations that will implement this law.
We will take all measures, even tough measures, to implement this law, and
I am talking now as a former Minister of Internal Affairs. We will take
into account a broad spectrum of ideas, including law enforcement, to make
sure that all of the rights of foreign investors specified in that law will
be protected. 

With respect to the problems of criminalization of the Russian economy, I
have analyzed thoroughly some articles in Western publications including
the New York Times and The Washington Post. We all know the problems that
exist within the economy of Russia, including the problems of
criminalization of the economy and political corruption. But, I wouldn’t
like you to have an exaggerated view of these problems because, in many
cases, the information that gets into the pages of your mass media comes
from the pages of our mass media. Please take it with a grain of salt. 

One of the main tasks that the Primakov government and, in turn, my
government set for ourselves is the creation of an understandable and
transparent economy that will be free of any criminal elements; then we
hope that honest investors will come to our market without any fear of
being racketeered. I am the head of a special council called the Foreign
Investment Advisory Council. I am going to suggest to you that when you
launch your serious business plans and initiatives, I would like to ask you
to bring any problems through the FIAC. The thinking is that we know
potential partners who can tell you about their backgrounds. We have been
able to provide support and protection of major investment projects free
from the influence of criminal elements. I also understand that when I ask
you to come over to Russia for serious cooperation, of course we should
eliminate risks that come from political motives. 

Russia is not turning back. When I met Bill Clinton in Cologne during the
G-8 (or as they call it, G-7 plus 1) Summit, we talked about the situation
in Russia. I told him that we were afraid there would be no new foreign
investments until after the presidential elections. But Mr. Clinton replied
that that was incorrect, for which I am grateful. I hope you share the
position of the president. 

I think that the creation of a favorable investment climate should begin
with the support of small business and small entrepreneurs. Competition is
the basis of a market economy whether in Russia or in the United States, as
the law is the same. The wealth of Russia is not measured through the
fortunes of several ambitious people. It is made up of the aggregate
wealth of the population. The owners of small and medium-sized businesses
are capable of bringing employment to so many people who don’t have work
now and have no source of income. Small business is based first on
initiative, and second on an infrastructure for financing small business
and entrepreneurial endeavors. Let me say that the world community helps
Russia a lot in this area. The process of financing small business is
driven by the European Bank of Reconstruction and Development, among
others. I know there is a major program for crediting small business, the
so called micro-credits program, run by The U.S.-Russia Investment Fund,
which was set up with the direct involvement of the U.S. government.
Tomorrow, within the framework of the Gore-Stepashin Commission, we are
going to discuss this subject extensively with your Vice President. We are
planning to put a premium on support for the financing of Russian small
business because we believe it is an issue of strategic importance. 

A very important component of this program will be the reform of land
ownership. Here we are planning to adopt a land code called the mortgage
laws. A mortgage credits program will not only solve the housing problem
but also will create a permanent system for financing individual, private
construction, development of individual companies and agribusinesses.

With respect to the sectors of the economy which drive the economy in
general, and whether Russia is prepared to accept and absorb major
investments in these sectors, let me tell you frankly that we have a lot of
work to do. We know we need to create a serious legal framework in order to
support the sources of economic growth and bring major investments. For
many years we have lagged behind the world in this respect, but recently we
have made some progress in developing a legal framework for production
sharing and the protection of investors. These are just the first steps:
the investors claim that this law does not have implementing rules and
regulation, and they are right. We have a lot to improve and we are
planning further steps in the near future. We are also preparing the
regulations on production sharing for small and medium-sized mining
industries and others. We are preparing legislation to protect the
investor, based on the law and clear definitions. To do this, we have to
privatize the state ownership that remains in the economy. Clearly, we
need a new stage of privatization in the country and we have already
prepared to sell some major Russian companies. Our intentions are not just
to sell off state enterprises, but to attract foreign investment in order
to modernize and restructure these Russian enterprises to make them
competitive in the real world. However, bearing in mind the experiences of
the past we have to change our attitude toward that process dramatically.
The large-scale privatization deals in the past caused major disappointment
for the investors. The conclusion is that privatization has to be
carefully planned, with attainable goals. The intermediate link in the
chain of privatization is concessions and work on the law on concessions is
in progress. We hope in Russia that the concessional agreements will also
be a major tool in attracting foreign capital to Russia. 

A civilized market economy, as witnessed in the U.S., is an economy of
discipline and order in the implementation of the laws. We have insisted
on the strict implementation of the laws and will continue to do so.
Unfortunately, however, the Russian economy is very often called a virtual
economy. We understand that investors have every reason to be wary and the
most important risk for the investor is lack of information. Until the
Russian economy becomes transparent, until we develop the legislative basis
for the wide sharing of production information, Russia will fail in its
attempts to attract major investment. We understand this and we are
committed to a dramatic change in our attitude. The transparency of the
economy is an element of the economic culture of society and it is
something that works, that provides a full interaction with the investors
and with the outside world. It would be naive to think that a manager of a
company who is used to hiding his profits will become honest overnight.
Honesty should be based on economic interest and on the profit motive. I
once said that we believe that foreign investors are partners of our
government, the government that I have the honor of heading today, and we
together must create conditions when the Russian entrepreneurs will
understand that hiding the information is unprofitable primarily to
themselves. 

A major strategic issue for us is the relationship between the Russian
government and its creditors. Russia carries a huge debt to the world, the
major part of which we inherited from the Soviet Union. This debt is a
burden on our economy and is what prevents us from moving faster on the
path of progress. No matter how hard it is, we are intent on paying off
our debt and solving the issue of our indebtedness. We have built a good
record of it this year and we will continue to pursue this policy. We
believe that we have to work together to develop out a long-term plan of
action with the Paris Club. This plan of action should include the current
payment of debts, the restructuring of Soviet debts and the permanent
involvement of Russia in the international capital market. We see Russia,
or at least we want to see Russia, as an integral part of the world economy
on equal footing with other countries. Integration of Russia into
international economic relations is based on the presence of the market
infrastructure that is emerging in Russia. When we are speaking about
investment, we are speaking about the importance of Russian participation
in international capital markets; hence, we should take steps to develop an
effective financial market in Russia. Russia has no future without this
instrument of redistribution of investment, so it’s time to develop the
financial market as one of our long-term priorities. 

In order to implement this task we have to solve another important issue,
the issue of application of our domestic financial resources. In Russia,
this area is covered by foreign investors and one financial institution,
while in highly developed countries, the savings of the middle class is the
major source of the capital. We have to develop an effective system of
involving the savings of the Russian population in economic activities. It
is an extremely acute problem for Russia because developing this financial
market in Russia means not just restoring it to the pre-crisis level, but
to develop it in an entirely new fashion that would help us to capitalize
on the savings of the middle class. 

In conclusion, I would like to stress once again, the previous government
tried to overcome the financial crisis and to develop and provide for
stability in a situation that was very bad. Today, the situation is
different and our keywords are stability and investment. We understand that
Russia’s dependence on foreign investment is now great, but in the
long-term, the future of Russia will depend on its own capital, on the
development of its domestic industry and on the good will of its local
entrepreneurs, who will be good partners both for foreign investment groups
and individual investors. In order for that union to be fruitful and
mutually beneficial, the Russian government has to be a strict arbiter that
defends the interest not just of the select few that you read about in the
newspapers, but one that will protect the rule of law. Only in this way
will we be able to successfully utilize our wealth, be able to cooperate
with our neighbors on an equal basis, and achieve for Russia a status of
which it can be proud.

I visited the United States for the first time in September 1991 with a
large group of parliamentarians, as I was in charge of the Defense
Committee of the Supreme Soviet. We were invited to the United States very
soon after the failed coup, and we were accorded a warm welcome. We spent
a week in the United States and were welcomed as heroes because the
Americans saw in us those people who were blazing the trail for democracy.
The Soviet Union was still in existence but everyone understood that the
Soviet Union was failing, everybody knew the road that Russia was about to
take. In September of 1991, it seemed to us that it would take a year or
two at the most to develop new economic relationships in Russia, and that
Russia would become the equal of the major countries of the world and
nothing would stand in its way. But as you know, miracles occur only in
fairytales. Russia went through enormous economic difficulties and the
difficulties are still there. Russia has overcome enormous difficulties in
the development of its new mentality. We have been looking at each other,
and sometimes we misunderstand each other. I hope and think that the time
has arrived for our relationship to be built, not on the basis of emotion,
but on the understanding that we are equal partners, that we can respect
each while one partner is stronger the other partner is temporarily weaker.
The most important criterion of the stability of our partnership, and in
particular the human relations (and I always place great emphasis on the
human side), should be honesty, transparency, openness and decency in our
mutual relationship. I and the government that I head, are further
convinced that we need to develop such a relationship and I hope that you
will help us. Thank you very much.


Questions and Answers:

1. hat two or three leading initiatives will you and your team focus on to
spur the flow of foreign investment into the Russian economy?

In order for investors not to leave and to stimulate the spur of
investment, the first of these priorities is the new law on foreign
investment. We also need to work out long- term investment and cooperation
programs. First of all, certain specific steps were made to resolve this
issue and yesterdays meeting with the leaders of Boeing Corporation was one
of the testaments of these steps. We have no problems in our relations with
the corporations and with the framework of our work and with the
Gore-Stepashin Commission.

Now, I have a question for you: what are the major problems with
Russian-American relations? What impedes and who impedes the development of
Russian and American relations. If you have any information on that I would
be happy to hear you out. 

2. If Russia were to join the WTO it would reflect a lot of the interests
and concerns of which you have spoken in your remarks this evening. I was
wondering if you could comment on the status of those negotiations and the
position of the Russian government and their potential membership in the WTO?

I think another round of negotiations on accession into the WTO will
include a framework of accession and we will participate in these
negotiations. But in short, I’d like to answer that one of the strategic
goals of Russia is accession to the WTO. There is no acceleration and no
forced acceleration of this process. I think that this process should
signal the readiness of the Russian economy and of Russian producers. We
don’t want to be members of WTO just because we want to be members. I
don’t think that has any merit. Therefore, we have to have a very cautious
approach, especially on the timeline and based on our strategic direction
and in the near future Russia will become a member of the WTO. The
principal position of Russia and the principal position of our President on
this was discussed in Cologne at the G-8 Summit.

3. Where do you see the restructuring of the banking system and its
progress at the moment. Also, how about the depositors, and the insurance
for depositors. How much will both of these steps cost and where will the
money come from?

We started at the beginning of this year to restructure our banking system.
We already have a specific legislative basis for it. We have an
organization called ARKO, an association of restructuring of the banking
system. We have had to make tough decisions and revoke licenses from
several banks, and banks that were run by oligarchs, who were engaged in a
wide range of activities, including the purchase of property and
speculation in securities, but not investing in the sectors of the economy
that they were responsible for supporting. As you know the World Bank
already determined that about 170 banks would go through scrutiny. We will
be working with them very seriously within the framework of the association
that I mentioned. Also, this position of our government coincides with the
position of the Central Bank and we also look at the role of the Central
Bank in this process. As you know the Central Bank of Russia plays a very
important role in the investment policy of our country, and unfortunately
we had a bitter experience in August of last year which enables us to look
with hope into the future. I would like to also mention that that crisis in
August of last year left many of our original banks afloat and they are
small banks but they appear to be very stable with stable clientele that
were also protected.

4. My name is Michael Hunter and I am the President of Dart Management
Inc., a major private sector investor in Russia. I want to ask a question
that is of major importance to Russia, and especially foreign investors in
Russia, which I think will impact greatly on the speed and the extent to
which the Russian stock market recovers and Russian companies regain
critical access to international capital markets and that is the case of
the oil company Yukos. The Russian Federal Securities Commission announced
on the 21st of July that it has asked the Interior Ministry, the Tax Police
and the Federal Security Bureau to pursue evidence suggesting that Yukos
may have violated Russian criminal law, in connection with massive share
dilutions, asset stripping, tax evasion, and failure to comply with court
decisions. 

It obviously would not be proper for me to suggest that you will pre-judge
the outcome of this investigation let alone influence the investigation in
any way. However, I would like to know if you are going tonight to make an
unambiguous and public statement of support for the Russian Federal
Securities Commission in its efforts to pursue the truth via the
investigations, as well as a public commitment to require the Interior
Ministry, the Tax Police and the FSB to pursue their investigations
vigorously and fairly. 

That is a very strange suggestion for me. How can I not support it? Of
course I will support it, and not just in the Yukos case. Believe me, it is
much easier for me because I am a very independent chairman of the
government. I am independent of those financial magnates and tycoons. I
hope they won’t take offense. Thank you.

5. Mr. Prime Minister, my name is David Jones. I am the foreign editor for
the Washington Times. The United States is concerned with the number of
intelligence agents that Russia has in the United States and its attitude
toward reducing those numbers. Could you please comment?

I am trying to figure out how to answer in order not to offend you. I want
to answer but tell me that you won’t be offended. When a journalist asks
such a question, at the same time I have a question for him. What kind of
intelligence service do you work for? Everything will be ok. We will figure
out everything. With intelligence your place will not be vacant.

*******

#7
Russian economy picking up, good news abounds
By Svetlana Kovalyova

MOSCOW, Aug 4 (Reuters) - Russia's economy is showing signs of recovery 
almost a year after it plunged into crisis but foreign debt is still a major 
headache, First Deputy Prime Minister Viktor Khristenko said on Wednesday. 

``The main problem in 2000 is debt. We should do everything to stop living at 
someone else's expense,'' Khristenko said at a news conference where he 
painted a rosy picture of rising industrial output, better budget revenues 
and stable inflation. 

There was good news from abroad as well, with Finance Minister Mikhail 
Kasyanov saying an agreement had been reached to thrash out a comprehensive 
debt restructuring deal with the London Club of commercial creditors by 
Christmas. 

A London Club source said talks in Frankfurt went well and may pave the way 
for a quick deal, although no firm offer was on the table yet. 

Standard & Poors, heartened by last week's $4.5 billion loan agreement with 
the International Monetary Fund and a subsequent debt restructuring deal with 
the Paris Club of sovereign creditors, raised the credit rating for Russia's 
Eurobonds. 

Khristenko made clear the government was relieved to have reduced its 
crushing foreign debt servicing burden, which, without restructuring, would 
total $17.5 billion this year alone. 

He cited figures showing Russian enterprises are still benefiting from last 
August's devaluation of the rouble. 

Industrial output rose 11 percent in July from a year earlier, and 3.9 
percent in the first seven months compared with January-July 1998, he said, 
adding that this positive trend would continue to the year end. 

Consumer price inflation rose to 2.8 percent in July month-on-month from 1.9 
percent in June, mainly because prices of petrol and some seasonal goods 
rose, Khristenko said. 

Price rises were not expected to exceed three percent in August despite a 
continuing rise in petrol prices, he said. 

Russian oil exporters, who have cashed in on higher international prices by 
exporting more this year, were ordered to cut sales abroad in August to boost 
tight domestic supplies, a fuel and energy ministry spokesman said. 

Khristenko and Tax Minister Alexander Pochinok enthused about improved 
revenue collection, long a sore point with the IMF. Federal budget revenues 
in July were 52.5 billion roubles ($2.17 billion), seven billion roubles 
above the target. 

``Taxpayers paid a record amount of money for Russia in July,'' Pochinok told 
Ekho Moskvy radio, adding that there had been a steady improvement since 
April. 

``After this month we have only overfulfilled, overfulfilled and 
overfulfilled,'' he said. ``Now I can guarantee that at the end of the year 
there will be a minimum of 35-40 billion roubles more than called for in the 
budget.'' 

July tax revenues were 29.52 billion roubles compared with a target of 22.8 
billion roubles. The August target is 22.80 billion roubles, and the 
officials seemed sure it would be met. 

Khristenko said the primary budget surplus, which excludes debt servicing, 
was expected to be three percent of gross domestic product next year compared 
to 2.8 percent planned earlier and a target for this year of two percent. 
Khristenko said the government would discuss the draft budget for 2000 on 
August 12. The outlook for GDP growth remains 1.5 percent, average inflation 
18-20 percent and the average rouble exchange rate 32 roubles per dollar, he 
added. 

``So far, there is no reason for negative changes.'' 
($-24.22) 

******

#8
Russia's G7 role ``grotesque'' - Deutsche analyst

FRANKFURT, Aug 4 (Reuters) - The chief economist of Deutsche Bank AG said in 
a radio interview on Wednesday it was ``grotesque'' that a heavily indebted 
country like Russia sits at the same table with Group of Seven leading 
industrial nations. 

``This gesture -- and I regard it as a gesture -- is intended to signal to 
the Russians that we want to strengthen their self-confidence,'' Norbert 
Walter told DeutschlandRadio according to a statement released by the radio 
station. 

Walter said Russia must give ``justified hope'' of an improvement in its 
economic structure before creditors can agree to a restructuring of its debt. 

He was speaking after Russian finance officials and representatives of the 
London Club of commercial creditors meeting in Frankfurt on Tuesday adjourned 
their debt talks until September. 

Russian Finance Minister Mikhail Kasyanov said on Wednesday that both sides 
had agreed to seek a debt deal by Christmas to restructure about $32 billion 
Russia owes creditor banks. 

Deutsche Bank chairs the London Club's bank advisory committee and hosted 
Tuesday's meeting. 

Walter urged Western countries to focus more on setting up institutions in 
Russia that promoted a performance-oriented economy. 

He said Russia was not a poor country. ``People who can shoot a space station 
into orbit, who can build the biggest war machinery the world has ever seen, 
these people have talents that can be used for other things,'' Walter said. 

``If we had a democratic and a market economic order there instead of Mafia, 
then a debt of $150 billion could be serviced and in the end repaid.'' 

******

#9
Date: Wed, 4 Aug 1999 
From: Jack Schmidt <razgulai@yahoo.com>
Subject: Re: 3421 Liakhov & Investment in Russia

Andrei Liakhov advises foreign investors: "do not be
expecting to be treated any differently than a local
person". Really? Just because Russians have tolerated
for so long their pathetic, unjust and appalling
conditions of life is no reason for foreigners to. 

Mr. Liakhov seems to have trouble understanding that
investors, as the provider of capital and bearer of
risk, demand respect and profits. Everywhere. If
Russia cannot provide these, then investors will go
elsewhere (as they have). This mentality that
much-desired and courted foreign investors should
stand in line with the suffering natives would be
humorous if it didn't provide a stark example of how
little progress has been made in changing the Soviet
mindset when a highly-educated Russian professional
makes such a statement.

It is the standard international practice of countries
seeking foreign investment to provide preferential
treatment (tax holidays, import/export exemptions,
special currency regimes). 

Russia's problem is not that it provides preferential
treatment to foreigners, but that it cannot even
provide the most basic and elemetary conditions for
investment at all. 

And while Mr. Liakhov plays that old broken record
("great potential, educated workforce, etc....") the
fact is that Russia had its 15 minutes of fame and
blew it. Cinderella was invited to the ball where she
got roaring drunk, danced and cursed lewdly, and woke
up half-naked on the lawn. Perhaps a success by
Russian standards but not a recipe for getting invited
again. 

The West now know how Russia plays the game. While
there will always be carpetbaggers, speculators and
very high-priced financing available to Russia,
reasonable Western capital will (and should) sit on
the sidelines for a number of years. A pity, really.

******