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Johnson's Russia List


August 10, 1999    
This Date's Issues: 3429 • 3430 3431

Johnson's Russia List
10 August 1999

[Note from David Johnson:
1. Moscow Times: Andrei Zolotov Jr., President Draws Criticism From All 
Political Camps.

2. The Straits Times (Singapore): John Helmer, KREMLIN IN DESPERATION.
3. Theodore Karasik: Re: 3428 Putin.
4. The Independent (UK) editorial: YELTSIN REARRANGES THE DECKCHAIRS 

5. Reuters: Russia's new PM Putin tries to build support.
6. Moscow Times: Catherine Belton and Natalya Shulyakovskaya, Public Sees 
Madness in the Kremlin.

7. Newsweek International: Bill Powell, A Long, Hot and Sweaty Summer for 
'The Family'. A Swiss inquiry could target Yeltsin's inner circle.

8. Le Monde editorial: The IMF and Russia.
9. Interfax: Poll: 27 Percent of Russians Support Zyuganov.
10. Financial Times editorial: Russia's uncertain future.
11. Christian Science Monitor editorial: The Dagestan War and Beyond.
12. The Guardian (UK): Jonathan Steele, Disloyalty and ambition prove fatal 
to Stepashin.

13. Moscow Times EDITORIAL: President's Games Are Dangerous.
14. Ray Smith: Boston Globe Reporters Got it Right.
15. Andrei Liakhov: RE: 3426-Price Waterhouse Report.


Moscow Times
August 10, 1999 
President Draws Criticism From All Political Camps 
By Andrei Zolotov Jr.
Staff Writer

President Boris Yeltsin took a beating across the political spectrum for his 
decision to trade in Sergei Stepashin for Vladimir Putin. 

"This is an agony, a total insanity," Communist Party leader Gennady Zyuganov 
declared in a radio interview. "Who will take a prime minister seriously if 
they change them like gloves?'' 

Few expressed much surprise, though, at the sacking of Prime Minister 
Stepashin or expected it to bring a change in Kremlin policy. 

"There is no difference between Putin and Stepashin," Zyuganov said in 
televised comments. "They are from the same team, both are from Leningrad, 
coming from law enforcement agencies, and both have had no real government 
work experience." 

The Kremlin's most feared opponents - Moscow Mayor Yury Luzhkov and former 
Prime Minister Yevgeny Primakov - remained conspicuously silent. Luzhkov's 
press service said he began a vacation Monday and saw no need to interrupt, 
Itar-Tass reported. 

Some of the most biting comments came from Boris Nemtsov, a former deputy 
prime minister and one of the leaders of the Right Cause bloc of "young 

"It's hard to explain madness," Nemtsov said on Ekho Moskvy radio. "The 
people have grown tired of watching an ill leader who is not capable of doing 
his job." 

Regional governors, who are seen by the Kremlin as key allies in the upcoming 
elections, took the news more quietly than the Moscow political elite. 

Tatar President Mintimer Shaimiyev and Samara Governor Konstantin Titov said 
Stepashin was aware that he might be sacked and discussed it with them during 
his trip along the Volga river last weekend. 

Titov, whose Union of Governors is considering an alliance with the 
right-wing parties, invited Stepashin to join their electoral bloc. 

"We think he [Stepashin] has to lead the Union of Governors," Titov said. 

Yeltsin's brash announcement that Putin is his chosen successor provoked very 
little comment from politicians. 

In part, it was explained by Duma speaker Gennady Seleznyov, who said that 
all those who had been named Yeltsin's heir apparent in the past were 
eventually fired. Yeltsin has "put a cross on Putin's career," Seleznyov 

Another reason behind politicians' reluctance to discuss Putin's electoral 
chances was that many of them are intently calculating their own chances as 
part of various alliances. 

Hence the carefully worded statements from many local governors, such as 
Eduard Rossel of the Sverdlovsk region and Vladimir Yakovlev of St. 
Petersburg, who tried to describe how well they relate to both Stepashin and 

Putin is likely to be approved by the Duma next week, Seleznyov said. 

Sergei Mitrokhin of the liberal Yabloko faction said the Duma would under no 
circumstances allow Yeltsin to dissolve the parliament, which he would have 
to do if the Duma rejected his candidate three times. 

"The Duma will make it so that Yeltsin fired and missed," Mitrokhin said. "It 
will indifferently vote for Putin, especially since Zyuganov already said 
that it's all the same whether it's Stepashin or Putin." 

Or, as one of Vladimir Zhirinovsky's Liberal Democratic Party deputies, 
Sergei Mitrofanov, put it: "One of the president's men is changed for another 
one. Nothing has changed politically." 

Melissa Akin contributed to this report. 


Date: Mon, 9 Aug 1999 
From: (John Helmer)

>From The Straits Times (Singapore), August 10

>From John Helmer in Moscow

When he fired Prime Minister Sergei Stepashin Monday morning, President 
Boris Yeltsin gave the longest uninterrupted and unspliced videotaped speech 
of the four dismissal announcements he has made in seventeen months.

It was seven minutes long, and it was intended by Yeltsin to
demonstrate his commitment to a constitutional succession, when he
reaches the end of his current term next June. It was also intended
to nominate Vladimir Putin, head of the Federal Security Service,
as Yeltsin's candidate to run for the presidency.

"I am sure about him," Yeltsin said about Putin -- without explaining
why he was preferable to Stepashin, who has headed Russia's security
services for much longer than Putin.

More importantly, Yeltsin failed to explain why he believes Putin
is more capable than Stepashin of avoiding the forecast debacle for 
the government at parliamentary elections, scheduled for December 19.

Stepashin, Russia's prime minister for three months until today, knew what 
was coming.

On a tour of an aerospace plant in Samara on Friday, he left private
hints that he believed the President would sack him. Exactly when the
axe would fall, Stepashin did not know. Nor did most officials
in the government, or opposition leaders, who were on vacation
when the Monday firing took place.

Although there have been rumours of a government spill this month,
experienced political campaigners believed Yeltsin would wait until
the results of parliamentary poll were clear. That way he
could replace the prime minister with a fresh presidential candidate untouched
by a national vote of no-confidence.

By nominating Putin now, Yeltsin has actually weakened his candidate's 
presidential chances, politicians believe. The first comments from Russia's
powerful regional governors were unanimously critical of the sudden change.
Without winning over the governors, Putin has no chance of staving
off defeat in the parliamentary elections, and no chance of winning
the presidency, at least not by legal means.

Yeltsin's timing suggested to politicians that he is so anxious about
his own future, he could not wait. He acted "to protect the good life
for his family," remarked Deputy Victor Ilyukhin, chairman of
the Duma Security Committee and a leading Communist Party figure.

Sources close to Stepashin told The Straits Times that over the weekend
financier Boris Berezovsky -- who controls two television channels
and a daily newspaper -- attempted to persuade the ailing Yeltsin and
his daughter and chief advisor Tatiana Dyachenko, to replace
Stepashin with Igor Ivanov, Russia's foreign minister.

Ivanov is a figure with no political constituency and no loyalty, except
to his superiors. He was promoted through the ranks of the Foreign Ministry
by Yevgeny Primakov. But when Primakov fell out of favour with Yeltsin early
this year, Ivanov managed to curry favour with the Kremlin. His conduct of 
the Kosovo war negotiations with the United States and the NATO powers also 
ingratiated him with Washington and the European powers.

After Yeltsin decided against Ivanov, Berezovsky announced his opposition
to the changeover.

In the last 24 hours, Yeltsin was also urged by his former campaign chief,
Anatoly Chubais, not to fire Stepashin. This bid, sources told The Straits
Times, occurred on Sunday. The failure of both Berezovsky and Chubais
indicates that the circle around the President is now smaller
than ever before -- and also more paranoid about their future.

Stepashin, who headed several security agencies since Yeltsin came
to power in 1991, has never been accused of disloyalty to his patron.
However, in his parting speech Monday morning to the cabinet,
Stepashin said ominously "it is important to work on the constitutional
field", adding he hoped the nationwide parliamentary elections,
scheduled for December 19, "should be on time".

These remarks, uttered emotionally by the evidently disappointed
Stepashin, suggest that he suspects Yeltsin, his daughter, and their
chief of staff, Alexander Voloshin, in cahoots with Putin, of a plot to 
block the popular opposition led by Moscow Mayor Yury Luzhkov and former 
prime minister Primakov from victory at the December elections.

Voloshin, it has been reliably reported, is in favour of triggering
a confrontation with the Communist Party, to create a pretext for
banning the party before the polls. Voloshin, an unknown economist
turned businessman before he joined the Kremlin, was publicly
attacked by a colleague last week of being an extremist. "The upcoming
election requires that agreements be reached," said Sergei Zverev, who was 
fired from his Kremlin post after clashing with the chief of staff. Voloshin,
he added, "is not a man who is capable of reaching them."

The latest turmoil in the Kremlin reveals there are fewer people whom 
Yeltsin trusts than ever before; almost none who is trusted by anyone
outside the presidential circle. 

Moscow sources believe Putin himself may be unable to command the loyalty
of the security forces, if he makes an attempt to crush the opposition
led by Luzhkov, whose influence with the security forces based in
Moscow is considerable. 

The sharp declines of the rouble, Moscow stock prices, and the international
prices of Russian debt all indicate skepticism that Yeltsin's latest
move will add to the predictability of Russian politics, and of Yeltsin's 
survival, in the weeks ahead. 

A leading Russian industrialist told The Straits Times that "Stepashin
didn't know anything about economics, but he was preferable to Putin. Still,
we will be backing Putin for lack of another alternative."

This support, like Yeltsin's, will last four months. If the parliamentary
election result is a massive defeat for Yeltsin's candidate and the
government, the betting is Putin will be replaced just as Stepashin was.


Date: Mon, 9 Aug 1999 
From: Theodore Karasik <>
Subject: Re: 3428 Putin

I thought readers of JRL should quickly recall the following from IEWS (vol.
3, no. 21, 28 May 1998 concerning the new PM: From September 1996 to March
1997, at Chubais' recommendation, Putin worked as a deputy to Borodin. This
appointment occurred during Borodin's contacts with Mabetex and subsequently
subject to investigation by Skuratov concerning Kremlin and ex-Soviet
property. I think it would be worthwhile for further exploration of the
Putin-Borodin relationship.

Ted Karasik
Consultant, RAND 


The Independent (UK)
10 August 1999
[for personal use only]

IT IS hard to know whether to laugh or cry at the latest political sensation 
in Moscow. At the stroke of a presidential pen, Boris Yeltsin yesterday 
sacked Sergei Stepashin and promoted the unknown Vladimir Putin, head of the 
security services, to be Russia's fifth prime minister in 17 months. For the 
benefit of the international financial community, Mr Putin is being touted as 
a firm believer in market reform. Frankly, however, it makes not a fig's 
worth of difference, since - according to the political actuarial tables of 
the Yeltsin era, now mercifully about to end - he can expect his marching 
orders around Christmas. 

The dismissal of Mr Stepashin, for which no reason was given, is to be read 
wholly as a function of next year's presidential elections. Mr Yeltsin, who 
is constitutionally barred from a third term, even if he were fit enough to 
seek one, wants to choose his heir, not least to shield himself from possible 
prosecution for corruption once he leaves office. Instead he has seen 
Moscow's ambitious mayor, Yuri Luzhkov, put together an alliance of regional 
barons that might be extended to embrace Yevgeny Primakov, Russia's most 
popular politician and no friend of Mr Yeltsin. 

Thus the summons to Mr Putin, the latest crown prince of an ever feebler 
monarch. Leave aside the matter of whether the blessing of Mr Yeltsin may 
prove more hindrance than help. The episode only shows how abnormal a state 
Russia remains, utterly unschooled in the orderly democratic transfer of 
constitutional power. In the meantime, life goes on much as usual: a 
struggling economy, a state unable to provide many of the most elementary 
services, a brutal war that beckons, this time in Dagestan. And the endlessly 
suffering, endlessly patient Russian people go about their business, scornful 
and uncaring of this new farce acted out in their midst. 


Russia's new PM Putin tries to build support
By Adam Tanner

MOSCOW, Aug 10 (Reuters) - Veteran KGB spy Vladimir Putin, tapped as prime 
minister and even a likely future president in Boris Yeltsin's latest abrupt 
Kremlin upheaval, has begun canvassing support for his parliamentary 
confirmation vote. 

His chances are unclear. Opposition Communists may warm to his KGB 
background. But many in the Duma will be sceptical of a man known mostly for 
his loyalty to the president. 

Yeltsin stunned Russia on Monday by sacking the government of Prime Minister 
Sergei Stepashin and then naming his newly-appointed acting premier Putin as 
the man he wants to succeed him as president next year. 

``He will be able to unite those who will renew the great Russia in the 21st 
century,'' the 68-year-old Kremlin chief said of Putin in a televised address 
after firing Stepashin. 

Yeltsin, who was expected to meet Putin on Tuesday, said his latest candidate 
for prime minister -- the fifth man he has chosen for the job in the last 17 
months -- would guarantee the future of reforms if elected president. 

Putin, 46, who worked as a spy in Dresden, East Germany, from 1984 to 1990 
after nine years as a rank-and-file KGB internal affairs officer in Russia's 
second city St Petersburg, promptly announced that he would run for 

``If there are results -- and for the government that means in the economic 
sphere above all -- then we can count on the support of a wide segment of the 
population,'' he told NTV in a Monday night interview while assessing his 
Kremlin prospects. 

He demonstrated a completely sombre -- even chilling -- manner honed over 15 
years as a KGB operative -- a contrast to the lighter sides shown even by 
predecessors Stepashin and Yevgeny Primakov, both who held top security posts 
in the past. 

Major world markets were unperturbed by the latest political twists. Foreign 
governments and the International Monetary Fund said they would stay on track 
with Russia, which is wallowing in a deep economic crisis. 

The rouble fell immediately and Russian shares dropped before bargain hunters 
boosted prices. 

Putin said the president first told him he would dismiss the government last 
Thursday, a day after Yeltsin rival Moscow Mayor Yuri Luzhkov's Fatherland 
party announced its intention to ally with regional leaders, a development 
that has clearly irked Yeltsin. 

Fatherland expressed its ``extremely concern'' about the situation the 
country and urged political leaders to refrain from any unconstitutional 

Others also expressed concern about Yeltsin's scorched earth politics that 
have burned many past loyalists. 

``Yeltsin demonstrated that he is capable of achieving a consolidation of 
society with a stroke of the pen,'' the daily newspaper Izvestia wrote in 
Tuesday editions. ``It appears that in all of Russia not a single person 
welcomed the dismissal of the government.'' 

Even some former KGB colleagues, known as Chekists, said they were not 
impressed by Putin, who most recently led the Federal Security Service, a KGB 

``He was one among hundreds of ordinary agents,'' Igor Prelin, a former KGB 
officer with ties to its leadership, told Reuters. ``He was a zero among 

Putin met late on Monday with the speaker of the State Duma lower house of 
parliament Gennady Seleznyov as he sought to build support ahead of his 
confirmation vote next Monday. 

Yeltsin has not said so clearly before whom he would prefer to succeed him, 
although he has alluded to others in the past. 

The president is known to be keen to make sure his successor is from his camp 
and will guarantee immunity from prosecution for him and his entourage. 


Moscow Times
August 10, 1999 
Public Sees Madness in the Kremlin 
By Catherine Belton and Natalya Shulyakovskaya
Staff Writers

IRKUTSK, Eastern Siberia, and MOSCOW -- For Lyosha, a Moscow construction 
worker, there was only one explanation for President Boris Yeltsin's 
umpteenth sacking of his government on Monday. The president is insane, he 

"I have no idea what goes on in there [the Kremlin], but one thing is clear: 
It's a madhouse," said Lyosha, one of the workers repairing the chinks in the 
Kremlin wall on Monday. "I don't think the president can save himself because 
nobody really cares or is surprised by what the old fool does anymore." 

And Lyosha is not alone in his beliefs. As news of Yeltsin's latest 
government shakeup, shelving Prime Minister Sergei Stepashin in favor of 
Federal Security Service chief Vladimir Putin, trickled down to the masses, 
Russians from Moscow to Siberia expressed their disgust with the president. 

But after a year and a half of Kremlin reshuffles, many were already hardened 
to Monday's news of musical chairs. They just sighed upon hearing that 
Yeltsin had sacked the entire government yet again. 

"We were just trying to remember how many governments have changed this year. 
Two or three? But nothing should surprise us. After all, we have a madman as 
our head of state," said Ivan Timoshenko, a 45-year-old retired lieutenant 
colonel who now drives a gypsy cab in Irkutsk - five time zones away from the 

Timoshenko was among the hundreds of young officers who lost their jobs when 
the entire regional division of the air force was disbanded in 1994. As a 
retirement bonus, he was paid the equivalent of 20 monthly salaries - just 
enough to buy the used Toyota he now drives to make enough money to put his 
17-year-old son through law school. 

Like many of his military buddies, Timoshenko keeps hoping for a strong 
figure to take over and restore order to the country. 

"We always hope for a [Augusto] Pinochet, but Putin is no Pinochet," 
Timoshenko said glumly. "And why change one [prime minister] for another when 
there is only one year of the presidency left?" 

For Timoshenko and his army friends, Putin may not be the Pinochet they are 
waiting for. But for many Russians, the behind-the-scenes player did not 
register muchof a reaction at all. 

"Who did you say Putin was?" asked Zhenya Molchanova, a hot dog seller in 
Alexandrovsky Sad. "I knew Stepashin, but I've never heard of Putin." 

It is not surprising that Putin - a former KGB spy in Germany - is little 
known to a broader audience. He rarely appears on television, and his skills 
at pulling political strings while staying hidden from public view have 
earned him a reputation as Russia's "grey cardinal." 

"It doesn't matter whether he was a former KGB man. Everyone in power is from 
the agency: [Yevgeny] Primakov, Stepashin and now Putin," said Alexei, a taxi 
driver, referring to Russia's past prime ministers. "Another change in prime 
ministers means little for us." 

"Yeltsin's just the same. He's afraid and trying to defend himself and his 
family from a growing number of enemies," Alexei added, as he was driving by 
the office of Moscow Mayor Yury Luzhkov, a bitter Kremlin rival. "He doesn't 
care what happens to the country, he's been in power too long." 

Many of those questioned seemed to care little about who the new prime 
minister is. As long as Yeltsin holds all the power, it doesn't seem to 
matter who heads the government, they said. 

"Yeltsin has made himself tsar, but he's a crazy tsar and nobody cares 
anymore what he does. The country is already ruined," said Yevgeny, 67, a 
die-hard Communist supporter milling around Ploshchad Revolutsii in central 
Moscow to discuss Yeltsin's latest move with like-minded supporters. 

But even this feisty locale - which normally draws crowds of protesters 
during government shake-ups - was quiet on Monday. 

"Sacking the government has become such a routine that it doesn't shock me 
any longer, and I don't believe anybody can still be surprised by it," said 
Tatyana, who works in a milk factory in St. Petersburg. "I don't think it 
will have any effect on the stability of the country. Our government exists 
separately from the people." 


Newsweek International
August 16, 1999 
[for personal use only]
A Long, Hot and Sweaty Summer for 'The Family'
A Swiss inquiry could target Yeltsin's inner circle 
By Bill Powell 

Boris Yeltsin is in what is supposed to be his last year in office, and it's 
likely that he's beginning to feel very lonely. It's August, he's at work and 
virtually everyone else in Moscow is on vacation. But the isolation Russia's 
president must feel as he pads around the Kremlin looking for things to do 
isn't only personal. It's political too. Opponents and rivals—including 
Moscow Mayor Yuri Luzhkov and former prime minister Yevgeny Primakov—are 
putting together potentially powerful alliances in advance of this December's 
parliamentary elections. And if that's not vexing enough for the ailing 
president and his tight circle of advisers—known in Moscow as "The 
Family''—there are also the Swiss to worry about. 

Yes, the Swiss. In late June Switzerland's chief prosecutor, Carla del Ponte, 
confirmed that her government was continuing an investigation into 
money-laundering charges against 24 Russians—an investigation undertaken at 
the behest of former Russian prosecutor Yuri Skuratov. Kremlin officials 
started to sweat, for reasons that had nothing to do with Moscow's 
record-breaking summer heat: the Swiss confirmed that several of the Russians 
under investigation were current or former Kremlin officials. And at a press 
conference on July 14, investigating magistrate Daniel Deveau was asked 
whether President Yeltsin's influential daughter, Tatyana Dyachenko, was one 
of the subjects. His response surely got the Family's attention: "Not yet," 
he said. 

Russia has been rife with corruption since the start of Yeltsin's reign and 
for years rumors have circulated about the Kremlin's inner circle being 
tainted. But Yeltsin's advisers thought they had snuffed out the corruption. 
Yeltsin sacked Primakov—who appeared only too happy to let Russian 
investigators pursue corruption allegations against oligarch Boris 
Berezovsky, a Yeltsin crony—and finally got rid of the troublesome 
prosecutor, Skuratov. A national television network in March helpfully 
broadcast a videotape of Skuratov in bed with two young women (neither was 
his wife). After a few weeks of controversy, Skuratov accepted a suspension 
and gave the job to his deputy, Yuri Chaika. Kremlin insiders say they 
figured the successor would have gotten the message that pushing too hard on 
corruption invited a rough response. 

Evidently he didn't. Last week, in an exclusive interview with NEWSWEEK, 
Bernard Bertossa, the chief prosecutor for the Geneva region, said that as 
recently as June 7 his office had received a formal request for information 
from his Russian counterparts. "We are pulling on a thread," said Bertossa. 
"These [banking] operations are very complicated. Once you start looking into 
them you never know how it is going to end.'' 

It's precisely that uncertainty which unnerves Yeltsin and his closest 
advisers. The focus of the investigation is Pavel Borodin, who controls one 
of the Kremlin's most powerful fiefdoms: he is the head of its 
property-management department, which oversees vast amounts of valuable 
buildings and office space in Moscow. In July Borodin categorically denied 
that he had a Swiss bank account and denounced the investigation as 
"politically motivated." But last week Moscow-based law-enforcement 
authorities flatly contradicted him. Borodin does indeed have a Swiss 
account, they insist. 

Nor is that the only Swiss problem for the Family. Prosecutors are also 
looking into money-laundering allegations at two Swiss-based companies that 
they say are linked to Berezovsky—and have already sent a "truckload of 
documents," as one investigator put it, to the Moscow prosecutor's office for 
review. Berezovsky has denied any links to the two companies and the other 
allegations against him. 

The near-term threat for the Kremlin is political, not legal. In Russia, 
where the rule of law is not exactly firmly entrenched, it is impossible to 
imagine legal proceedings against Yeltsin and his intimate circle while he is 
in office. But if the Swiss manage to find and amass a pile of credible 
evidence against Kremlin officials as well as Berezovsky in the midst of 
Russia's political year—presidential elections are scheduled for next 
June—the result could be explosive. According to former Kremlin aides, 
Yeltsin these days worries most about two things: his historical legacy and 
the security (both financial and physical) for him and those closest to him. 

The corruption investigations threaten that security for both Yeltsin and his 
intimates. For months when Primakov was prime minister, he tried on Yeltsin's 
behalf to cut a deal with communists who control the Duma to promise Yeltsin 
and his team a semblance of protection against any corruption allegations or 
"political crimes" once he leaves office. But one of the reasons Yeltsin 
soured on Primakov was that he thought the prime minister had accepted a deal 
that failed to give the president the protections he sought. No deal has 
since been made, and now the political mood may well be turning against the 

Last week Moscow's ambitious Mayor Luzhkov—a man Yeltsin neither likes nor 
trusts—announced a political alliance with a powerful group of regional 
governors in advance of this December's parliamentary elections. The Kremlin 
had wanted to block this alliance in hopes of putting together its own bloc 
of centrist candidates. Worse, Luzhkov is talking openly about luring 
Primakov into his camp. To Yeltsin's irritation, Primakov remains the most 
popular politician in Russia and has good relations with the president's 
sworn enemies: the Communist Party. The Luzhkov group is likely to do well in 
the elections. If Primakov formally signs up, it could do spectacularly well. 

That means one of those two men is now the favorite to be the next president 
and will have enormous clout in the Duma. And while former Kremlin aides 
believe neither would be inclined to go after Yeltsin once he's left the 
Kremlin, Berezovsky, daughter Dyachenko and others in the inner circle could 
be vulnerable. Last week few in Moscow were particularly surprised when a 
just-fired Kremlin aide, Sergei Zveryev, said publicly that there had been 
plans discussed among Yeltsin's closest advisers to find a way to cancel next 
year's presidential elections. Would Yeltsin actually do such a thing? It may 
depend on the answer to a single question: does BorisYeltsin care more about 
his legacy, or the fate of those closest to him? 

With Christopher Dickey in Geneva 


Le Monde Views Russian Criminal Misuse Of IMF Funds 

Paris Le Monde
6 August 1999
[translation for personal use only]
The IMF and Russia

We thought we knew all about Russia, about the IMF, 
and about relations between this big power and this international 
financial institution. The audit report on the utilization of IMF funds 
loaned to Moscow, compiled by the PriceWaterhouse-Coopers international 
consultant group and published in the Russian Press a few days ago, 
confirms that, doubtless, we knew far less than we thought or feared we 
did. Accessible now to all, this document, if one can decipher it, is 
quite astounding. It is damning for Russia and equally so for the IMF. 

We discover that -- in the style of garden-variety swindlers, through 
companies installed in distant tax havens -- one of the planet's big 
powers, one of the influential members of the UN Security Council, 
misappropriates the international community's money, to facilitate the 
enrichment of a few oligarchs. Worse yet, we learn from it that this 
misappropriation of funds is taking place, if not with the agreement of, 
at least with full knowledge of the facts on the part of the bigs of this 
world: the top officials of the IMF, beginning with its general director, 
Michel Camdessus, but also, together with him, our finance ministers, the 
Larry Summerses (United States), Gordon Browns (Great Britain), and other 
Dominique Strauss-Kahns, all of whom are administrators of the IMF. 

The culture of misappropriation of public funds is, of course, a 
tradition in Russia to which 70 years of state socialism have helped to 
impart a firm rooting. It cannot possibly be expected to disappear from 
one day to the next. Indeed, if anything, it is tending to bud. Despite 
the hailed transition, generally speaking, the same men are at the 
controls in Moscow. Mr. Guerachtchenko was, yesterday, heading the 
Central Bank of the Soviet Union. After a brief stint in purgatory he is, 
today, presiding over the destinies of the Russian Central Bank [BCR]. 
The former Soviet networks are continuing to use their erstwhile methods 
uninhibitedly. The audit reveals that Fimaco, the agency registered on 
the Isle of Jersey that handles the BCR's reserves, was created in 
November 1990, hence during the USSR era. 

The IMF knows all of this, and has known it. Several audits had already 
"revealed" it. Barely a year after the crash of the ruble, or rather "the 
scandal of the ruble" -- the collapse of the Russian currency in 
mid-August 1998 had enabled the amassing of a few private fortunes -- the 
IMF nevertheless decided to take over the BCR's debts. The terms and 
conditions it imposed are by no means constrictive. The oligarchs 
prospering in the shadow of the Kremlin will be able to continue their 
thieving. Lending to Russia has become, for the IMF, a second nature, hence a 
dangerous habit. It could one day provoke the anger of the Western 
taxpayers. In the United States, they are already finding it hard to 
accept the fact that a share of their taxes is being used to aid the 
poorest countries. Soon, they may be incensed to learn that, in reality, 
this share is going into the amassing of a few big mafiosi fortunes, 
notably in Moscow. 


Poll: 27 Percent of Russians Support Zyuganov 

MOSCOW. Aug 6 (Interfax) - Communist Party of 
Russia leader Gennady Zyuganov's popularity rate remained stable over the 
past year, at 27% last month from 26% in July 1999, according to an 
opinion poll of 1,500 Russians conducted by the Public Opinion Fund. 
Zyuganov was not trusted by 56% of Russians polled in July 1999, a 
percentage up from 52% the year before, however. Just 15% (1999) and 16% 
(1998) of the respondents said they would name Zyuganov as a presidential 
candidate. Between 18% and 19% of Russians would vote in favor of 
Zyuganov in the presidential elections, if the former Russian prime 
minister Yevgeny Primakov is also in the race. Primakov abstaining from 
the election contest would add between 2% to 5% to Zyuganov's support. 
Zyuganov would lose the second round of presidential elections if he ran 
against Primakov, current Prime Minister Sergei Stepashin or Moscow Mayor 
Yuri Luzhkov, the pollsters reported according to the survey results.

Yabloko party leader Grigory Yavlinsky and Zyuganov could garner an equal 
number of votes if they opposed each other. Asked to name a person whose 
presidency they would object to, 20% (1999) and 21% (1998) of the 
Russians polled named Zyuganov, while between 18% to 25% of Russians 
would not mind if he is elected the next president. At least 30% (1999) 
and 31% (1998) of those polled said they would never vote for Zyuganov. 
Between 28% and 33% of Russians are strongly opposed to a Zyuganov 
presidency. Zyuganov enjoys support among 27% of people lacking higher 
education, among 23% of those over 50 years of age, and 22% of those 
living in rural areas, according to the July 24 poll. 


Financial Times
August 10 1999 
Russia's uncertain future 

President Yeltsin's habit of sacking his prime ministers is making Russian 
politics look farcical. But the effect of chronic political instability on 
the prospects for the country's future prosperity is no joke.

A year ago, when crisis struck, Russia appeared to be facing an economic and 
political abyss. But while the political situation has remained chaotic, the 
Russian economy has fared much better than had been expected.

The 70 per cent devaluation of the rouble has made Russian producers more 
competitive. Exports are rising, and import penetration is falling. 
Businesses are better able to pay their taxes. The country has avoided 
hyperinflation by maintaining a tight monetary policy, resisting the 
temptation to print money to pay off wage arrears.

Russia has also had a fair bit of luck. It has been helped enormously by the 
recent rise in the oil price, and by the International Monetary Fund's 
politically motivated agreement to grant new loans.

Most private-sector economists now expect Russia to experience positive 
output growth this year. Investors are starting to view the country as an 
attractive proposition again.

But the good news will not last long if structural reforms fail to take 
place. Russia's public finances are still in a mess. Tax revenues have to be 
improved, particularly because increasing poverty will soon start to create 
pressure for higher government spending. Much of the banking system is 
bankrupt. Wage and payment arrears are falling, but are still huge. And the 
rules governing private enterprise need to be modernised, which means 
updating the legal system, property rights and bankruptcy arrangements.

Although reformist legislation has been passed, much of this has been 
half-hearted, and implementation has been slow. Fear of upsetting Russia's 
powerful oligarchs has prevented radical change.

With elections to the Duma set for December, and presidential elections due 
next summer, there is little doubt that political manoeuvring will now take 
priority over economic reform: the appointment of a new prime minister is 
just the start. The best that can be hoped for is a continuation of the 
economic stability that has been achieved over the past 12 months. 
Pre-election recklessness, though, cannot be ruled out.

A stable government could have taken advantage of the country's recent 
economic good fortune to implement reforms and place growth on a sustainable 
footing. But whatever the abilities of Vladimir Putin, Russia's constant 
political upheavals make this course of action virtually impossible. The 
result is likely to be a prolonged period of economic stagnation.


Christian Science Monitor
10 August 1999
The Dagestan War and Beyond

Under President Boris Yeltsin, premiers come and go like circus bears on 
bicycles. But not so for the parts of Russia itself. 

That's why a new war by Muslim fighters to break off the impoverished land of 
Dagestan near the Caspian Sea has the attention of Russia's military 
commanders more than yesterday's changing of the Kremlin guard. 

What's at stake for Russia - and for Central Asia - is a potential for 
Islamic guerrillas to lead separatist movements or revolutions. Thus the war 
being waged for an independent and Islamic Dagestan - like the 1994-96 war to 
create a free Chechnya - has a tip-of-the-iceberg quality to it. 

To put it simply, eight years after the collapse of the Soviet Union, the 
center of the Eurasian continent is not stable. The end of communist control 
has left an opening for Islamists and nearby powers such as Turkey, China, 
and Pakistan to meddle in the "stans" - from Dagestan to Kazakhstan. 
Afghanistan has already largely fallen to the radical Taliban. 

Islamic militants can easily feed off land disputes and ethnic fragmentation 
left over from Soviet days. Of peculiar interest is the import into the 
region of a movement from Saudi Arabia called Wahhabism. At the least, its 
well-funded and secretive missionaries have heightened existing ethnic and 
clan tensions by appealing to young, often jobless men. 

The Wahhabis' doctrine comes from an 18th-century Sunni leader who taught 
adherence to the Koran and rejection of popular innovations. 

Refugees from the Dagestan war say rebel leaders want to create an Islamic 
state out of the 2 million people living there. One commander is reportedly 
either Jordanian or Saudi. 

The Wahhabi threat is often overplayed by Central Asia's secular leaders. 
Still, the West should do more to stabilize the region. NATO already has 
"partnerships" with most of the region's states. And Western aid is tackling 
economic and environmental problems. But the West's primary interest seems to 
be tapping oil wealth. 

The Dagestan war points to a need for more preemptive diplomacy. 


The Guardian (UK)
10 August 1999
[for personal use only]
Disloyalty and ambition prove fatal to Stepashin 
Fourth PM falls victim to Yeltsin as election campaign heats up
By Jonathan Steele in Moscow

Sergei Stepashin, the chubby-cheeked former security chief who yesterday
became the fourth Russian prime minister to be sacked in 17 months, is a
man of foresight - at least partially. He did not predict his own departure
when he gave a surprisingly candid interview to the newspaper Izvestia on
Friday, but he clearly saw that the election season which has just opened
was going to be a scorcher. 

"The fight for power has heated up so much that it may turn the political
arena into a heap of ashes," he said, before unwittingly giving a clue why
he would himself turn up as a piece of blackened cinder only three days

"I will not support any of the political groupings in the elections. My job
does not allow that," Mr Stepashin said. 

"Some of my predecessors initially said they would not take sides with any
parties, let alone with the financial and industrial conglomerates. I am
sure they were sincere, but gradually people felt they were beginning to
conform to one or other of the groups behind the scenes." 

Well, that was it as far as the arch-manoeuvrer, President Boris Yeltsin,
was concerned. Mr Stepashin's crime was what Russians call "naming things
by their names". He had admitted that Mr Yeltsin's nine years of power have
left Russia in the hands of an oligarchy where the business of government
is business. Secondly, he had signalled that he was not going to play by
the rules. Mr Yeltsin wants a decisive victory for pro-Kremlin candidates
in the parliamentary elections on December 19, and Mr Stepashin's pledges
of impartiality were out of line with that. Even before the Izvestia
interview, Mr Stepashin had angered the president. As prime minister, he
failed to prevent a whole slew of regional governors from putting their
weight behind Yuri Luzhkov, the mayor of Moscow who is widely seen as one
of the most serious challengers for national power. The governors' group,
All Russia, announced a week ago that it was forming an alliance with Mr
Luzhkov's Fatherland movement. 

One need not, of course, take Mr Stepashin's pledge of impartiality too
seriously. He is a man of the new capitalist apparat as much as any other
member of Mr Yeltsin's once and future entourage. His facade of
impartiality is probably designed to further his own presidential
ambitions. By not taking sides in advance of the December parliamentary
poll, he was hedging his bets on who would be most likely to help him when
he stood in next summer's presidential election. He was also hoping to get
popular support by looking more honest than his potential rivals. 

But this is not the strategy Mr Yeltsin wants. In his book there is nothing
worse than a man with presidential ambitions who looks as though he may run
on an anti-Yeltsin platform. The list of them is already long, from Viktor
Chernomyrdin (sacked as prime minister in March 1998) to Yevgeny Primakov
(sacked in May 1999), and even the so-called boy prime minister, Sergei
Kiriyenko (sacked at the age of thirty-six in August last year). Running as
"the man Yeltsin sacked" is becoming a popular pastime these days, and it
carries weight. 

The danger for Mr Yeltsin is not just that his image takes a knock in these
circumstances, but that he loses control over his successor. Worse, the new
president may open criminal proceedings against the Yeltsin family for
financial chicanery. 

This is why Mr Yeltsin has decided to go for a new strategy to guarantee
his liberty when he steps down from power. He is nominating Vladimir Putin,
not just to be the new prime minister but to be his chosen successor as

Suddenly, all the stakes are being put on one man. Mr Putin must ensure
that the right people win the December elections, so that for the first
time in post-communist Russia the Kremlin's supporters have a majority in
parliament. He must then ensure that he wins the presidency. 

In democratic societies, none of this would seem amiss. Ask Bill Clinton,
ask Jacques Chirac. Presidents lead political parties. They take sides in
parliamentary or congressional elections, and they hope they can govern as
chief executives with a loyal parliamentary majority. 

But Russia is not yet a democracy. The rules keep changing and they are
usually bent. The 10-year agony of dividing the spoils of communism, under
which the country's huge natural resources were owned by everyone and no
one, is not yet over. The elite is fighting over which of the few will get
most, and how to ensure that their gains are permanent. 

Behind yesterday's latest round in the elite musical chairs lies a new
danger. The struggle to win over the regional governors, which Mr
Stepashin's failure to counter Mr Luzhkov has highlighted, means that the
balance of power between the centre and the periphery could be shaken. 

As different candidates for the Kremlin increasingly woo the governors,
they will have to give them something in return. Inevitably, the links
between Moscow and the provinces will become weaker. Whether they will
break altogether, will not become apparent until next year. 

Mr Yeltsin claimed yesterday in his countrywide television broadcast that
his aim was to "consolidate" Russia. 

His latest move may have gone in the opposite direction. 


Moscow Times
August 10, 1999 
EDITORIAL: President's Games Are Dangerous 

There was a time when Boris Yeltsin's main concern was the state of Russia, 
particularly of the economy. His choices then for prime minister reflected 
that preoccupation. Ivan Silayev, Yegor Gaidar, Viktor Chernomyrdin, Sergei 
Kiriyenko - these were men chosen, for better or worse, because of a belief 
that they could help manage the nation's affairs. 

The last three prime ministers - Yevgeny Primakov, Sergei Stepashin and 
Vladimir Putin - have been chosen on completely different criteria. Yeltsin 
has chosen these men, in rapid succession, with one idea: Keeping hold of 
political power. 

All three have headed KGB successor agencies. Each was more a KGBshnik than 
his predecessor. Each was appointed with Yeltsin's 
ever-more-disingenuous-looking insistences that elections won't be 

In the wake of the August ruble meltdown, Primakov was picked largely because 
he supposedly had no presidential hopes. When it turned out that he might be 
more ambitious than he looked, Yeltsin fired him. 

Enter Stepashin. Yeltsin introduced Stepashin to the nation with some patter 
about how this police officer would bring in bold new economic reforms. 
Revealingly, he also described Stepashin's main task as somehow overseeing 
parliamentary elections. 

Enter Putin. The first words out of Yeltsin's mouth were: "Today I have 
signed a decree on elections to the State Duma." Not "today I have fired 
Stepashin," not "the Caucasus are breaking away in what promises to be the 
Balkanization of Russia" - but the unsolicited reassurance that yes, we will 
have elections. 

Yeltsin also promised presidential elections in 2000, and named Putin his 
successor. If Yeltsin thinks that Putin's election is even a remotely 
possible outcome of a democratic contest, he is dangerously out of touch. 

It's likely Yeltsin is not telling the truth. We remember other Yeltsin 
successors - Boris Nemtsov, Alexander Lebed, Chernomyrdin. As to the 
presidential elections, Yeltsin doth protest too much. His pledges call to 
mind other zingers - like the promise that Primakov (or, for that matter, 
Chubais) would be in office through 2000. 

Yeltsin's problem seems to be that he wants to be remembered as having 
overseen the first democratic transfer of political power in Russia - but at 
the same time, doesn't want to give up power. This is the intractable 
contradiction Yeltsin keeps bumping up against. 

It's anyone's guess what Yeltsin will decide. He probably does not know 
himself. But the anointment of Putin - a KGB hack who has never held an 
elected office - sends the strongest signal to date that his regime is 
contemplating a dangerous adventure. 


Date: Mon, 09 Aug 1999 
Subject: Boston Globe Reporters Got it Right
From: (Ray Smith)


In JRL 3427, you ran a Boston Globe article of August 7 by Filipov and
Whitmore in which their sources correctly indicated that Putin would replace
Stepashin. You may want to keep an eye out for more pieces by these guys. 
They seem to have some sources who know what is going on.



From: "Andrei Liakhov" <>
To: "'David Johnson'" <>
Subject: RE: 3426-Price Waterhouse Report
Date: Sat, 7 Aug 1999

A comment

According to the evidence given by the CIA Director to the Congress in
Spring 1996(Sic!) approximately 40% of all money lent to Russia, otherwise
invested into Russia or donated as aid ended up under the control of the
Russian organised crime groups. This was a very public statement and the WB
and the IMF should probably criticise the CIA too. According to Russian data
reliability of which is unverifiable approximately 60% of money "provided by
multinational lenders" between 1992-1997 was misappropriated.
In absence of proper investigation and political will of either Russia or
the WB/USA to establish the true role of FIMACO, SovFintrade, Urasco,
East-West United Bank (Luxemburg), Luidor Ltd (Barbados) and some others in
distribution of funds received by the Central Bank of Russia and the
Ministry of Finance, it seems unlikely that the truth will ever be
established. However if the WB will risk to take Le Monde to court for
defamation, I have little doubt that the French newspaper will be able to
establish that the jist of the article is true.


From: "Gina Campbell" <>
Subject: PLEASE POST - on your Johnson's List...RUSSIAN AMERICAN Party
Date: Mon, 09 Aug 1999 


THURSDAY, August 12th
7:30 p.m. - 12:00 p.m.

1800 Conn. Ave., NW (DuPont Circle)
Washington DC

Join our group of professionals interested in Russian-American 
relations and who get together to celebrate, and enjoy each 
other's company, and feel free to forward this invitation to your 
friends...there will be an abbreviated menu of Russian food.

Entrance/Donation $7 men, $5 women
WIN a $50 Gift Certificate to the Russia House Restaurant

?’s call 202-966-8651 or
visit our new website at,
for downloadable reports


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