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Johnson's Russia List


August 7, 1999    
This Date's Issues: 3426 3427    

Johnson's Russia List
7 August 1999

[Note from David Johnson:
1. AFP: IMF Denies Reports Of Misappropriations Of Funds.
2. Itar-Tass: Nothing Boded Trouble, Gorbachev Says.
3. Itar-Tass: New Satirical Publication To Appear in September.
4. Itar-Tass: STEPASHIN'S Interview with Vechernyaya Kazan.
5. AFP: Price Waterhouse reports on Russia's management of IMF funds.
6. St. Petersburg Times: Fyodor Gavrilov, Are Black and White and Red 
All Over? 

7. Business Week: Margaret Coker, Gas Pains in Russia's Heartland.
With oil exports way up, gasoline is getting scarce.

8. Moscow Times: Brian Whitmore, Primakov, Everyone's Heartthrob.
9. RFE/RL: Paul Goble, Ethnic Conflicts: Explanations, Exploitations.
10. Rossiyskaya Gazeta: Experts View North Caucasus Situation.
(Kulikov, Pain, Shakhrai).] 


IMF Denies Reports Of Misappropriations Of Funds

WASHINGTON, Aug 6, 1999 -- (Agence France Presse) The IMF Thursday attacked a 
report in the French newspaper Le Monde alleging that money it loaned to 
Russia was finding its way into the hands of mafia gangs.

"We take strong exception to the Le Monde editorial and we considerate it 
irresponsible," the IMF said in a letter to the newspaper, read to AFP by 
spokesman William Murray.

"The editorial concludes wrongly that the funds from the international 
community to Russia were being diverted through FIMACO to enrich oligarchs 
and that was done with full knowledge of world leaders, including our 
managing director, (Michel Camdessus)," it continued.

Le Monde claimed that an audit by the international company PriceWaterhouse 
Coopers showed that "one of this planet's world powers and an influential 
member of the UN Security Council is diverting money like a common thief 
through offshore companies used as tax havens."

Le Monde added that though world powers may not sanction such a practice, 
most were well aware of it.

"The IMF for a long time has known about the practice of diverting public 
funds in Russia but it nonetheless decided to continue giving loans to the 
country," the article said.

But in the letter the IMF insisted that the PriceWaterhouse report "contains 
no such allegation and the Le Monde editorial relies on Moscow rumors that 
have been propagated."

"The decision to release new financing to Russia reflected the judgement of 
the IMF 182 member nations in light of the economic policies that Russia will 
be implementing," the letter said.

The IMF had been aware that some of the reserves from the Russian central 
bank were held in European subsidiaries, but conceded it had not been 
informed of FIMACO activities (an off-shore management company) until this 

"The Fund's executive board has concluded that the FIMACO episode constituted 
fundamental lack of cooperation on the part of Russian authorities and was a 
serious violation of Russia's obligations to the IMF."

And the institution had conveyed its disapproval, the letter said, according 
to Murray.

The IMF in July approved a 17-month $4.5-billion line of credit for Russia 
aimed at averting a devastating default by Moscow on its external debt. 


Nothing Boded Trouble, Gorbachev Says.

MUENSTER, August 6 (Itar-Tass) - Mikhail Gorbachev, the first Soviet 
president, said leukemia diagnosed in his wife was totally unexpected by him. 

Raisa Gorbachev, who was found to have leukemia, or blood malignancy, is in 
the Muenster University clinic in North Rhine-Westphalia state, Germany. 

Gorbachev is with her. "In May, we were still in Australia. Even after such a 
long flight, Raisa felt well, and nothing boded the present turn of events. 
We had many plans for the summer," he said in an interview with Itar-Tas on 

A tired and downcast-looking Gorbachev said he stayed at the bedside of his 
wife "since the early morning to half past ten of the evening". 

Raisa Gorbachev's condition is described as "serious". "Raisa Maksimovna was 
hospitalised last Sunday. Today is the seventh day of intensive therapy. Then 
a break will be made, more consultations conducted. I'm very upset, and I 
will stay near the wife as much time as is needed," he said. 

He said his wife's condition had improved as compared with the last weekend. 

Gorbachev said he was very grateful to all who had expressed support to him 
and wished a possibly rapid recovery to his wife. 

"Help in the treatment and hospitalisation was given by the Germany embassy 
in Moscow. The decision was made within hours," Gorbachev said, adding that 
"every day we get huge stacks of letters, faxes, telegrams with the 
expression of sympathy". 

Gorbachev's daughter Irina and granddaughters Ksenya and Nastya have come to 
Muenster to be with him in his dark days. 

"This week has turned our whole life over," Irina said. "Our family much 
trusts the doctors of the university clinic," Gorbachev added. 

He said the decision to treat Raisa Gorbachev in Muenster was made by leaders 
of Moscow's Hematology Centre jointly with American and German physicians. 
The treatment could be carried out in Russia, but medical experts say 
Germany's clinics have the best equipment. 


New Satirical Publication To Appear in September 

MOSCOW, August 5 (Itar-Tass) -- A new political 
satire publication named "Prav? Da!" (after the communist PRAVDA) will 
appear in September. 

At Thursday's presentation of the new newspaper, one of its founders 
Sergei Yushenkov said that "Prav? Da!" (right? yes!) will be of an 
anti-communist nature and propagate liberal values. However, this 
"propaganda" will be expressed in such a way so that the readers 
"laughing, part with their past." 

One of the leaders of the Right Cause coalition Irina Khakamada 
complained of the humour-deficient current political life. Both Yushenkov 
and Khakamada openly said that the Right Cause has to do with the 
newspaper, but "Prav? Da!" is not its press organ. All other democratic 
movements are welcome to join us, they said. 


STEPASHIN'S Interview with Vechernyaya Kazan

MOSCOW, August 6 (Itar-Tass) - Prime Minister Sergei Stepashin in an 
interview with the newspaper Vechernyaya Kazan on Thursday has called on 
Russian voters to think what a future they want for their children. 

Stepashin on Friday started a three-day working tour of Volga regions. He 
will trip from Samara down the Volga to Tatarstan's capital Kazan with a 
stop-off in Ulyanovsk. 

Stepashin was asked by a correspondent why he did not want to run in the 
presidential elections in 2000. 

Stepashin said that the elections were not called thus far and, besides, "a 
large scope of responsibilities is placed on me, which determines my role in 
big politics in the nearest time". 

Asked who should rule the country, Stepashin said the voter is to decide. 

"Only let him take into account that he is to elect the president not for the 
unloved mother-in-law but for himself," Stepashin added. 

"Casting the ballot, each should also think what a future he wants for his 
children," he said. 

As for financial relations of the federal centre with regions, Stepashin said 
the government had come to agreement with regions, including with Tatarstan, 
on separation of tax revenues, but some problems remain unsolved. 

He said he did not find normal the situation where taxes come from regions to 
Moscow in a full volume and then "by drops return back, placing the 
federation entities on a hungry ration". 

The government should make major decisions in a close contact with regions, 
Stepashin said. 

"The effective fulfillment of decisions and documents passed at the level of 
the Russian government is largely and often fully depends on their support by 
entities of the Russian Federation," he said. 

"For this reason I am of the opinion that without close cooperation with 
regions, the government should not approve and adopt concepts and programmes 
of the socio-economic development and decisions on the most important state 
problems," he said. 

Touching on objectives of regional associations, Stepashin said they "should 
become a fulcrum in business relations between the centre and territories". 

The closer are contacts between federal and regional authorities, "the more 
rapidly we shall find answers and agreed solutions to the acutest questions 
that are now standing before Russia". 

Stepashin said "one should think not only about creating more effective 
mechanisms for cooperation of regional associations with federal bodies of 
authority, with the entities of the Russian Federation, but also between the 
associations themselves that would help solve these questions". Stepashin 
said the "import of foods from abroad suppresses our national agriculture 
that for centuries glorified our country, drives us into shackling external 
dependence and, as a consequence, undermines the economic security of 
Russia". That said, "the government should protect and support domestic 
producers and the domestic market. This is especially important in the sphere 
of food production, where the pressure in imported foods is felt most 
acutely", Stepashin said. 


Price Waterhouse reports on Russia's management of IMF funds

WASHINGTON, Aug 6 (AFP) - Russia's central bank managed a substantial part of 
its assets -- including funds lent by the IMF -- in a complex and speculative 
way described in a report by Price Waterhouse released Friday.

The technical, 19-page audit commissioned by the Central Bank of Russia (CBR) 
and made public at the request of the International Monetary Fund appears on 
the IMF's Internet website.

Without drawing conclusions or making recommendations, the report describes 
transactions between the central bank and its Paris-based subsidiary 
Eurobank, and in turn between Eurobank and a Jersey-based off-shore 
subsidiary that it controls, the Financial Management Company Limited 

The document describes how Eurobank in 1990 capitalized its debt through 
FIMACO, a common practice among French banks at the time.

Between 1994 and 1996, through Eurobank and FIMACO, the CBR had made hundreds 
of millions of dollars in short-term loans to Russian banks, guaranteed by 
the Russian government, including 70 million dollars worth that have 
defaulted and are still on Eurobank's books.

In 1995-1996, FIMACO and Eurobank moved at least 1.3 billion dollars into 
Russia's short-term government bonds, or GKOs, according to figures gathered 
by Price Waterhouse.

In 1996, the CBR began investing in short-term financial instruments 
including interbank deposits and US Treasurys, according to the report.

Regarding transactions conducted in 1992 with IMF funds, the authors of the 
Price Waterhouse report note:

"We do not know whether the IMF imposed any jurisdictional restrictions, or 
whether MinFin (Russia's Finance Ministry) made any representations to the 
IMF about how any such funds were to utilized. We note, however, that the 
investment criteria in MinFin's investment plan differ from those adopted by 

In August, 1992, the report says, the IMF disbursed 977 million dollars in 
two tranches on Russia's behalf: 832 million dollars to the Federal Reserve 
Bank of New York, and 267 million Deutsche marks to Deutsche Bank. 

The funds were then transferred to Eurobank, less a commission, as per normal 
procedure, according to the report. Eurobank used some of the money, 
designated "Tranche A" funds, as assets to finance FIMACO investments in 
short-term, high-yield interbank loans. 


St. Petersburg Times
August 6, 1999
Are Black and White and Red All Over? 
By Fyodor Gavrilov

IT'S good to be a political columnist! You get to say whatever you like, and 
get paid for it to boot. But sometimes even a peaceful Petersburg onlooker 
like myself can have his internal balance upset by this country's seemingly 
endless political intrigues. 

Right now I, like many people, am worried by several things: the reckless 
media war; the actions of the unappealing Kremlin chief of staff, Alexander 
Voloshin; the strange patchwork of political blocs and - last but definitely 
not least - the tragic changes in staff at Kommersant-Daily, Russia's best 

Putting immediate annoyance aside, however, one can see that the events 
currently unfolding are about much more than just election-season 
maneuverings. They paint a picture of Russia's possible political future as 

The elections of 1995-96 may have marked the last time the Russian electorate 
was forced to make the difficult choice between white and red, or more 
precisely, white and black. The Communists, it seems, have once and for all 
stepped back from the proscenium into the corps de ballet.

But regardless of which political leader eventually comes to power, he will 
have no space to maneuver. The IMF credits necessary for survival, the feeble 
but still breathing privatization process, and the lazy but stable addiction 
of our people to democratic procedures - these things won't leave leaders of 
any color a way out, short of committing political suicide, like initiating a 
world war. But with no suicide on the political horizon, it's clear that the 
social experiment started at the beginning of the 20th century has been 
completed. Our new political color is gray, with all of its innumerable 

And so, the political history of Russia in the 21st century will begin on a 
clean page. What will it be like? To my mind, our life in the beginning of 
the new century will be much the same as now (a developing market, the slow 
growth of consumption, etc.). In sum, I see our new choices in the following 
way. First, there is the option of continuing the "Yeltsinism" of the '90s, a 
relatively flexible political system with its own special kind of chaos - a 
rational chaos that provides for the preservation of what we consider 
freedom, in particular the freedom of the press. 

Such an option will mean constant scandals, countless government hirings and 
firings, thievery, strikes, new oligarchs, a dissatisfied generation and 
Russia's gradual growth into a country built on the western model. But 
there's a different option as well: Absolute order, strictly maintained. 
Public punishment of those guilty of corruption, a stable ruble and healthy 
investment climate, clean streets and ... variations on the theme of 
Tiananmen Square. 

Order in Russia always means the curtailing of freedom, proof of which can be 
seen today. Pressure inflicted on Luzhkov-friendly NTV will keep the Moscow 
mayor from winning the rightist electorate from the still-undetermined 
Kremlin candidate. The independent, influential and unprofitable Kommersant 
is in even greater danger, because its leanings are too undefined. Yeltsin's 
Kremlin doesn't want the free press to ruin its election plans, and free from 
immediate repercussions for its actions, is involuntarily illustrating for us 
both options for the future, including the Chinese variation. What will we 
choose? It's a hellishly complicated question. 


Business Week
August 16, 1999
[for personal use only]
Gas Pains in Russia's Heartland (int'l edition)
With oil exports way up, gasoline is getting scarce
By Margaret Coker in Moscow 

After months of haggling, Russia won approval for a $4.5 billion bailout loan 
from the International Monetary Fund on July 28. But the Russian government 
is getting an even bigger bailout--one it didn't have to beg for--from global 
oil markets. Oil prices have almost doubled so far this year, giving a 
much-needed boost to the world's third-largest producer. Russia's exports are 
surging <A HREF="aol://4344:109.B3642203.824574.618361003">(chart)</A>, and 
so are its tax revenues. On Aug. 1, the cash-strapped government said that it 
had collected $1.3 billion in taxes in July, 41% from the oil sector, the 
largest monthly take this year. Instead of a budget deficit, the Russian 
government now projects a surplus of 10% of gross domestic product.
But the black-gold bonanza has triggered a domestic gasoline crisis. 
Thanks to a rush by oil companies to cash in on exports, many Russian cars 
are running on empty. Motorists from the Pacific port of Vladivostok to the 
Black Sea resort of Sochi report shortages reminiscent of the Soviet era. 
Farmers from Krasnodar in the south to Karelia in the north warn they don't 
have fuel to bring in the harvest. In Moscow, where fuel is available, prices 
rose 12% to 25 cents a liter in the last two weeks of July, and are expected 
to rise 30% in August.
Rising world prices are the main cause of the shortages. As the price of 
Russian oil sold on world markets jumped from $9 per barrel last December to 
$19 in August, oil companies have found it more lucrative to export than to 
supply the domestic market. Agricultural consumers of low-end oil products 
such as diesel fuel often don't pay for supplies, and slackened seasonal 
demand this winter from cash-paying motorists kept prices for high-octane gas 
low. No surprise, then, that Russian crude exports have risen to an average 
of 3 million barrels per day, the highest level since the mid-1980s, 
according to Moscow brokerage Brunswick Warburg.
Russian oil companies are increasing exports of fuel oil as well as crude. 
Fuel-oil prices in Europe rose to $100 a ton, from $40 per ton, during the 
first quarter, so Russian oil companies redirected refining away from 
gasoline for local consumption to fuel oil for export.
CONTROLS FLOUTED. Government policies are exacerbating the shortages. In 
April, Moscow demanded that oil companies pay all of their taxes in cash, 
rather than in credits that could be swapped for oil. That has increased tax 
revenues, but pinched Russia's 30,000 gas retailers. These businesses used to 
secure gas through barter transactions from oil producers or refineries. The 
cash received from motorists rarely went back to the gas stations. It was 
usually diverted to other businesses owned by the companies, or squandered on 
luxuries. Now, gas retailers don't have the cash to buy oil.
Many gas stations are being forced to shut their doors. Russian media 
report that up to 80% of the stations in Krasnodar have closed, while prices 
for high-octane gasoline have jumped threefold across southern Russia, to 15 
rubles per liter, or 60 cents, in the last month.
Government efforts to keep prices down have failed thus far. In June, 
Moscow asked oil companies to respect informal price controls. That plan was 
widely flouted. Moreover, as gas retailers are squeezed out, Russia's ten 
major oil producers, which now own about 10% of retail stations, will be able 
to grab market share. In the last year, Tyumen Oil Co. has doubled its retail 
outlets to 540 stations. Oil executives say it will take an additional 20% 
rise in retail prices to turn refining back toward domestic consumers.
All this puts Prime Minister Sergei V. Stepashin in the hot seat. With 
parliamentary elections scheduled for December, he wants to avoid dramatic 
price hikes. On Aug. 2, he called a meeting with the country's oil barons to 
defuse what he termed an inflationary ``time bomb.'' His proposal: require 
each company to deliver a set amount of diesel fuel and gasoline to domestic 
consumers before it is allowed to use the government-controlled export 
pipelines. Oil executives publicly have agreed to the plan, but privately say 
they won't abide by it. ``It's very easy to get a customs official to allow 
exports through,'' says one oil company president. And very hard for Russian 
consumers to get a fair shake.


Moscow Times
August 7, 1999 
Primakov, Everyone's Heartthrob 
By Brian Whitmore
Staff Writer

Just what is it about Yevgeny Primakov? 

The former spymaster f who emerged as a compromise prime minister amid the 
political turmoil of August 1998, only to be dumped eight months later by 
President Boris Yeltsin in May f has suddenly become the hottest commodity in 
Russian politics. 

And with good reason. Public opinion polls released this week not only rank 
Primakov, who turns 70 in October, as Russia's most popular and trusted 
politician, they also show that he could single-handedly alter December's 
elections to the State Duma. 

Both Gennady Zyuganov's Communist Party and Moscow Mayor Yury Luzhkov's 
Fatherland movement have courted Primakov. Both know that having Primakov on 
their ticket in the December Duma elections is like money in the bank. 

If Primakov stays on the sidelines, then a nationwide poll of 1,600 adults by 
the All-Russian Center for Public Opinion Research, or VTsIOM, indicates the 
Communist Party will dominate the Duma elections with 34 percent of the vote. 
Luzhkov's Fatherland would come in a distant second with 16 percent, 
according to the VTsIOM poll f which was conducted in late July, prior to the 
building of a coalition between Fatherland and All Russia, a bloc of regional 

The picture changes dramatically if Primakov decides to join Fatherland. Then 
Luzhkov's party leapfrogs past the Communists into first place with 28 
percent, and the Communists fall to second place with 27 percent. 

If, on the other hand, Primakov were to join the Communists, Fatherland 
sinks. The polls show it getting just 12 percent of the vote. The Communists, 
correspondingly, soar, taking a startling 40 percent of the vote. 

Moreover, with Primakov in the race in any form, other parties across the 
political spectrum f from Grigory Yavlinsky's Yabloko to Anatoly Chubais' 
Right Cause to Vladimir Zhirinovsky's Liberal Democrats f lose votes. 

Another VTsIOM poll showed that Primakov is far and away Russia's most 
trusted politician, with a 26 percent rating. Primakov's closest competitor 
for the trust of Russian voters is Luzhkov, with 17 percent. 

So who will Primakov ally with? At least for now, he is keeping his own 
counsel. Earlier this week, he said he had not decided whether he plans to 
run for the Duma. At the same time, he expressed a "very positive" view of 
the All Russia-Fatherland union and is expected by many to join Luzhkov & 

"Primakov is not some sheep who moves where the grass is greener," said 
Georgy Boos, Fatherland's campaign manager and the former tax minister in the 
Primakov Cabinet, at a press conference Friday. "He is a serious political 
figure who does his own thinking." 

Maybe so. But what makes this bland Leonid Brezhnev-look-alike such a 
political hearthrob? 

The weekly newspaper Moskovskiye Novosti recently wrote that the ex-prime 
minister's "true strength and potential are not in programs or in his 
political manifesto," but in his image f something the paper called "the 
Primakov phenomenon." 

According to analysts, "the Primakov phenomenon" is a hodgepodge of positive 
associations. Primakov is a seen as a patriot, but not an aggressive 
nationalist; he is not associated in the public mind with the rampant 
corruption and cronyism that have plagued post-Soviet governments; and his 
modest personal style breaks sharply with the perceived arrogance of the 
"young reformers" who dominated Yeltsin's other Cabinets. 

Perhaps most important, Primakov is widely seen as the only prime minister 
who left Russia in better shape than he found it. 

Primakov became prime minister after Yeltsin fired the youthful Sergei 
Kiriyenko in response to last August's debt default and ruble devaluation. 
His selection was backed by Yavlinsky of Yabloko, among others, on the 
premise that then-Foreign Minister Primakov was a compromise candidate 
without any ambition to replace Yeltsin in 2000. 

In office, Primakov's tried to be a consensus builder. He won praise for 
steering Russia out of the financial meltdown without major catastrophe. His 
cautious style, and his support for some state regulation of the economy, 
struck a chord with Russians weary from a decade of wrenching social and 
economic change. 

"Primakov came in with a government that was boring f and this was good," 
said Boris Kagarlitsky, a researcher at the Russian Academy of Sciences' 
Institute of Comparative Political Studies. 

"After everything that has happened in this country, as soon as a government 
promises that something exciting will happen, people are certain that life 
will again become worse. From the moment he took office, Primakov gave the 
impression that he was just trying to do his job." 

According to Kagarlitsky, some of Primakov's appeal is also accounted for by 

"Many people, even some of those who have prospered, are nostalgic for Soviet 
times, without wanting to really go back to those days," said Kagarlitsky. 
"In this sense, people respond positively to Primakov because he reminds them 
of what they liked about the Soviet Union, although he is not seen as 


Caucasus/Russia: Analysis From Washington--Ethnic Conflicts: Explanations, 
By Paul Goble

Washington, 6 August 1999 (RFE/RL) -- The deteriorating situation in the 
North Caucasus reflects a "fight for interests" between the Russian 
Federation, on the one hand, and the United States and Western Europe, on the 
other, according to a senior Russian official.

Speaking at a Moscow press conference on Monday, Russian Nationalities 
Minister Vyacheslav Mikhailov said that outside powers were promoting 
interethnic conflicts there to consolidate their influence in the 
Transcaucasus and extend it northward at Russia's expense.

Without providing any evidence for his assertions, Mikhailov suggested that 
the efforts of outside powers had created an explosive situation in which 
Moscow now faced the existential question: "Will Russia stay as a single 
state and a great power?" 

Such dramatic language -- and it has been echoed by several others in Moscow 
and the North Caucasus itself this week -- has led some Russian observers to 
speculate that President Boris Yeltsin may be planning a new campaign against 
Chechnya in order to declare a state of emergency, postpone elections and 
remain in office.

But while such predictions may prove to be true, there are compelling reasons 
to think they may in fact be overblown. Polls suggest that most Russians have 
no stomach for renewed hostilities there. Russian assistance to the North 
Caucasus is rising. 

Moreover, many other senior Russian officials - including Prime Minister 
Sergei Stepashin, who was involved in Moscow's earlier campaign against 
Chechnya - have stressed that Moscow has no intention of taking that step. 
Indeed, Stepashin said on Wednesday that "one should not joke" when dealing 
with the North Caucasus.

Why then did Mikhailov make this statement now? There are at least three 
reasons. First, polls suggest that tough rhetoric against Chechnya and the 
other North Caucasian republics remains very popular among Russians, even if 
tough action is something most of them clearly oppose. 

Second, lashing out against the West in general and the United States in 
particular on this issue offers an occasion for Moscow to reassert not only 
its claims to primacy on the post-Soviet space but also its continuing 
nervousness about Western involvement there.

And third, claims that ethnic conflicts are being orchestrated by foreign 
powers not only serve to deprive these groups of the legitimacy they seek but 
also put pressure on them to settle on Moscow's terms and warn the West 
against supporting these groups.

In approximately two weeks, Russian President Boris Yeltsin is scheduled to 
meet with Chechen President Aslan Maskhadov to discuss the future of 
relations between Moscow and Grozny. 

Given their timing, Mikhailov's remarks appear intended to provide Yeltsin 
with a justification for taking a harder line against Grozny than he has in 
the past, to force Grozny to agree, and to warn the West against attempting 
to lobby for a more balanced outcome.

Such a reading of Mikhailov's comments seems particularly compelling 
precisely because other Russian officials, such as Stepashin, have adopted a 
more conciliatory line. Yeltsin will thus be in a position to offer Maskhadov 
carrots as well as sticks.

But even if this strategy does not yield the results that Moscow hopes for 
and even if there is no evidence of outside involvement in the North 
Caucasus, Mikhailov's words have the effect of calling attention to an 
important aspect of ethnic conflicts.

Repeated references to "ancient ethnic animosities" notwithstanding, ethnic 
conflicts, like all other struggles, have a beginning, a middle and an end.

Indeed, as the late American ethnosociologist Myron Wiener pointed out, few 
of them last longer than a single generation. And as he demonstrated, most of 
those that last longer share a common feature: both sides enjoy outside 

Implicitly understanding that fact, Moscow clearly hopes to win in the North 
Caucasus by frightening off any outsider who might support the North 
Caucasians and to do so by suggesting that North Caucasians already enjoy 
precisely that kind of backing. 


Experts View North Caucasus Situation 

Rossiyskaya Gazeta
3 August 1999
[translation for personal use only]
Commentary by Anatoliy Kulikov, ex-Vice-Premier of the Government of 
Russia and Minister of Internal Affairs; Emil Pain, director of the 
Center for Ethnopolitical and Regional Studies and professor of MGU 
[Moscow State Unitersity], and Sergey Shakhray, juris 

No modern-day state, even the most stable, is ensured against 
regional crises, including those which take place under national and 
religious banners. 

It would seem that, learning by the mistakes of others, we could 
if not entirely avoid our own, then at least not step repeatedly on the 
same rake. Alas, Chechnya and Kosovo are sad testimony to the extremely 
low learning curve of the world community from textbooks, many of whose 
pages have been written in blood. 

What could and could not have been prevented in the Chechen 
conflict? What is happening today in the North Caucasus? How to untie 
this knot? What must be done today? 

These questions are answered by people whose names are widely 
known and closely associated with the Chechen conflict: Anatoliy 
Kulikov--in the recent past a Vice-Premier of Government of Russia and 
Minister of Internal Affairs; Emil Pain--director of the Center for 
Ethnopolitical and Regional Studies and professor at MGU, and Sergey 
Shakhray--jurist and politician. 

[A. Kulikov] The philosopher Ivan Ilyin said: "A smart politician 
knows how to stop a war, but a wise politician knows how not to allow 
it." And so, it is specifically wisdom which the federal leadership 
lacked in the Chechen crisis. Beginning with 1991, the miscalculations 
by the leaders led to other miscalculations. Let us take even the Law 
on Rehabilitation of Repressed Peoples, which made it possible to rather 
loosely interpret the concept of territories. Or the famous statement 
of Boris Nikolayevich Yeltsin: "Take as much sovereignty as you can 
swallow." I purposely cited specifically these examples, in order to 
show that it is both the legislative and the executive branches of power 
which are responsible for the Chechen tragedy. It is unfair to place 
the blame solely on the President. 
In 1994, he appealed to the State Duma with the question: Whether 
or not to agree to negotiations with Dudayev? As far as I know, this 
intention by the head of state did not receive the support of the 
parliament. This historic fact is hushed up, and no one disclosed it in 
the course of the impeachment effort--and that is a shame. 
[S. Shakhray] I participated in the North Caucasus events from 
November of '92, when I was appointed head of the interim administration 
in the zone of the Osetino-Ingush conflict, through May of '94, when 
Yegorov became Minister on Affairs of Nationalities. I can say with 
full responsibility: If I had remained head of Minnats [Ministry on 
Affairs of Nationalities], there would have been no Chechen war. I knew 
at that time, and I am convinced even now, that the conflict situation 
in the Caucasus could be resolved only through a peace agreement. 
On 11 November 1992, I arrived in the zone of armed conflict. 
Ruslan Aushev and I were dispersing the troops and looking for Russians, 
Osetins and Ingush who were missing. We confiscated piles of weapons 
from the unlawful formations (without a single loss to our side!)... 
And all the while, we were conducting negotiations. In the course of 
these endless negotiations, the idea of a treaty with the Chechen 
authorities on delineation of powers and authorities was 
On 14 January 1993, Ramazan Abdulatipov and I signed a protocol in 
Grozny on preparation of such a treaty. But the political process was 
disrupted. Thank God the idea did not perish, and a year later it was 
realized in the treaty with Tatarstan. 
Who disrupted the negotiation process, and how? No one will give 
a definite answer to this question. For example, I would like to know 
precisely what former Minister of Defense Grachev and Dudayev talked 
about prior to the introduction of federal troops... 
[A. Kulikov] Yes, they met face to face prior to the start of the 
combat actions. People close to Dudayev affirm to this day that the 
latter gave his consent to Grachev for the "Tatar variant." Whether 
this is true or not--we do not know. If this was so, then why did 
Grachev not tell either the President or any of the members of the 
Security Council about it? That too we do not know. In the course of 
the combat actions by the federal troops, there were at least two times 
when the situation was favorable for negotiations, but these 
opportunities were not utilized by the Russian authorities. 
[S. Shakhray] The reason for the non-resolution of the Chechen 
conflict in fact lies in Moscow. If we put emotions aside, we 
immediately see the absence of a clear and coordinated appraisal of the 
situation at all stages of the conflict. And the inevitable consequence 
of this is the ineffective methods of its resolution. In essence, the 
patient was constantly being treated for the wrong illness, and with the 
wrong medications. They tried to resolve by political methods that 
which could be resolved only by administrative methods; To use force on 
that which should have been regulated by purely economic effect. They 
tried to use public opinion to create that which should be established 
by laws. 
[A. Kulikov] I have no doubt that Sergey Mikhaylovich could have 
achieved much if he had had sufficient powers and authorities. Perhaps 
he could even have convinced Dudayev and stopped the tragic development 
of events. But does this mean that the criminal fire which had engulfed 
all of Chechnya by that time would have been extinguished? We must 
recall: In a republic with population of less than a million people, 
there were over 2,000 murders in 1993 alone! We had at our disposal 
operative data about terrible crimes in Chechnya. MVD [Ministry of 
Internal Affairs] associates made a 9-hour tape recording of interviews 
with refugees from Chechnya, which would make your hair stand on end... 
But nevertheless, the war should have been prevented. And it could have 
[E. Pain] But not at that moment. Yes, there was a period when 
one prosecutor and several militiamen could have solved the problem. 
When Dudayev's group had just emerged, and was supported by a handful of 
people. When the parliament had not yet been taken over. But this 
period was missed. Why--that is another question. 
[S. Shakhray] Let us turn to the essence of the conflict. What 
lies at its basis? A vital component of the events in the Chechen 
Republic, which is often overlooked, is the tragic fate of the Chechens. 
In the last century there was the fierce half-century Caucasus War, with 
huge human losses and the subsequent exodus to Turkey and the Near East. 
In this century, there was the mass deportation to Northern Kazakhstan 
in 1944. All this could not help but leave painful scars on the 
historical memory of the people. It could not help but give rise to 
deep-seated mistrust of the central authorities. The opportunity to 
heal the wounds was presented by the return of the Chechens to their 
homeland in 1957, but the half-measure decisions of the central 
authorities left the legacy of a bomb with time-delay fuse. 
And it exploded. It exploded when the Union authorities, in the 
struggle against the new Russian leadership, began playing the card of 
autonomy, and tried to equate its status with that of the Union 
republics. The first democrat, as Ruslan Khasbulatov called himself, 
tried to seize the initiative. He personally went to Chechnya and 
achieved removal of the "partocrat" Zavgayev. And who won? Not the 
Union and not the Russian leadership, not the democrats and not the 
partocrats, and certainly not the people. The winner was the 
entrepreneurial structure of "Dudayev and company," which under the 
slogan of national self-determination and independence built a criminal 
economic mechanism on the territory of Chechnya, which turned the wealth 
of the republic, the savings of its citizens, the federal property and 
the monies of the federal budget into the personal income of the 
"concessionaires." This was a strong financial pump, with the aid of 
which a transit of contraband, arms and drugs flowed into Russia and 
throughout the entire world. A strata of people was formed which 
serviced this mechanism, which received its share from its operation, 
and which was therefore ready to take up arms to defend its criminal 
enterprise. In essence, the criminal leaders played on such qualities 
of the Chechens as love of freedom, honor and trueness to traditions, 
and used the people in their own cynical game. That is, the nature of 
this conflict is not ethnic, but criminal-economic. 
[E. Pain] I am in absolute agreement with this definition, and it 
is specifically for this reason that I say: The negotiations with the 
Dudayev followers were doomed to zero result. I am generally opposed to 
mythologizing negotiations. I have serious doubts about the fact that 
the negotiations could have prevented the war. Why? Why because 
Dudayev needed a foreign enemy to consolidate society around himself, 
and there was no positive basis for this. And it is specifically for 
this reason, and not for any other, that all the attempts to solve the 
problem by means of negotiation were disrupted by the Chechen side. It 
is obvious that if, under the conditions of conflict, one of the parties 
expected to get more without the negotiations than with the aid of the 
negotiations, then it would not go to the negotiations. And then the 
conflict cannot be resolved without a compulsory armistice. 
[A. Kulikov] Today we have in fact returned to the same situation 
which we had prior to the introduction of the troops. There is still a 
huge number of weapons on the territory of Chechnya, uncontrollable 
armed formations, the existence of regulated drug transit routes and 
approbated schemes for financial machinations (of the "Chechen aviso" 
type), a real threat of the spread of terrorism far beyond the 
boundaries of the republic, as well as the dangerous development of the 
sanitary-epidemiological situation. All this dictates the need for 
application of decisive measures in regard to the "Chechen 
It is already clear: Aslan Maskhadov controls the lesser part of 
Chechnya, and he cannot bring about order through his own fforts. When 
I, as Minister of Internal Affairs and Vice-Premier of the Government of 
the RF, offered to help him with investigative and operative workers, I 
warned him: "Aslan Aliyevich, after the withdrawal of federal troops, 
you will have a fight amongst yourselves." He replied: "I am very 
hopeful that this will not happen." It happened. As soon as the 
"foreign enemy" left, they began dividing up the pie. I was 
categorically opposed to withdrawal of the entire contingent. We should 
have left at least two military units. After all, the Americans are in 
Cuba, our forces are in Central Asia and the Transcaucasus... 
[S. Shakhray] After the withdrawal of federal troops, Dudayev's 
"economic order" was practically fully restored on the territory of 
Ichkeriya, characterized by the absence of state mechanisms of 
financial, customs and tax control, the presence of open borders with 
other subjects of the RF and with foreign states (the border with 
Georgia is 70 kilometers long), and the absence of truly operational law 
enforcement agencies. 
Since it is juridically believed that there is the same economic 
order on the territory of the Chechen Republic as there is in Ryazan or 
Yaroslav Oblasts, any individuals and legal entities of the RF have the 
opportunity to freely enter into economic relations with any economic 
subjects of the Chechen Republic, and vice versa: They may conclude 
agreements, obtain credits, and supply products--including of a military 
nature. Often the products which have been brought here and the 
financial means which have ended up on the territory of the republic are 
sent outside the boundaries of Russia, by-passing tax, customs or any 
control whatsoever. The unlawful "economic order" which in fact 
operates on the territory of Chechnya inflicts huge losses upon the 
federal budget, brings no benefit to the economy of the republic itself, 
and directly violates the lawful interests of all citizens of the 
Russian Federation. 
[A. Kulikov] Juridically, everything is characterized precisely, 
but this description does not contain anything that the federal 
authorities and all those agencies and personalities on which the 
adoption of immediate measures depends do not know: The discussion here 
is about registration of entry onto the territory of the republic and 
exit from Chechnya by all individuals; Regulation of import and export 
of all types of cargo; Introduction of a mechanism of strict control 
over banking and financial activity in the republic (all operations 
performed only through the special institution of the Bank of Russia). 
Of course, such measures of control and regulation must have a 
legislative basis: After all, they significantly limit the rights of 
citizens and economic subjects. 
[S. Shakhray] The main thing is the utilization of exclusively 
administrative methods for regulating the excesses which in fact largely 
have an economic nature, and are most often politically expensive, 
economically ineffective, and practically unfulfillable in full volume. 
As a result, unilateral administrative measures, even those which on the 
whole are correct and approved by the majority of the population, will 
not achieve the desired goal. 
Another approach is possible and necessary: When measures of 
administrative control are not a goal in themselves, but merely 
supplemental and temporary attributes of a specific economic regimen for 
the Chechen Republic. Its primary element should be a free economic 
[E. Pain] A sort of "sanitary economic cordon?" 
[S. Shakhray] Just the opposite! The "shadow economic order" 
which has operated on the territory of the republic since 1991, when 
placed within strict limits, will lose its criminal nature in a short 
time. Economic operations will be placed under federal tax and customs 
control. Favorable economic conditions will be ensured for restoring 
the republic's destroyed economy. In the absence of "surplus" funds in 
the federal budget, the latter circumstance is the determining 
The status of a special economic zone for the Chechen Republic, 
introduced by federal law and based on Russian legislation, means the 
full retention (or more precisely, restoration) of the jurisdiction of 
the Russian Federation, and suppresses the intentions of a number of 
foreign states to announce their recognition of the Chechen Republic as 
an independent state. 
Creation of an administrative free economic zone would ensure 
increased effectiveness of work on normalizing the situation in Chechnya 
and control over effective and purposeful application of the financial 
means. And most importantly--it would make it possible to solve the 
republic's pressing economic problems, regardless of the rates of 
formation of a truly viable Chechen coalition government. 
[A. Kulikov] However, along with these prudent measures of 
economic and financial control, in my opinion, there must invariably 
also be administrative measures, operating along two contours: Federal 
law--along the administrative borders of the Chechen Republic, and 
statutes of the executive authorities of Stavropol Kray, Astrakhan 
Oblast, North Osetiya-Alaniya and Kabardino-Balkariya--along their 
administrative boundaries with the Ingush Republic, the Republic of 
Dagestan and the Chechen Republic... 
[S. Shakhray] Thus, the discussion centers around restoration of 
the unified economic space of Russia. In this case, the federal 
authorities demonstrate the latitude and flexibility of policy. 
Granting the republic the broadest possible economic independence, the 
federal center has the right to expect adequate reciprocal steps in 
political regulation of the crisis. 
[A. Kulikov] Not all is lost. The matter, as they say, lacks 
only one small thing: What is needed is political will. And this is the 
product which is in shortest supply in the federal center. If we turn 
to lessons, I would place the following one in first place. It is the 
duty of politicians and military men who make decisions to do everything 
possible so as not to allow war. But if the decision to use force has 
been adopted, then it is necessary to plan most thoroughly, to prepare 
the entire operation, foreseeing and appraising its possible 


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