August 12, 1999    
This Date's Issues: 3435 • 3436 •

Johnson's Russia List
#3435
12 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Russia Unlikely to Ratify START II.
2. International Herald Tribune: William Pfaff, Yeltsin's Maneuvers Cast 
Doubt On the Presidential Election.
3. John Danzer: Break-Up of Russia.
4. Jeffrey Barrie: Khitrost and Stepashin.
5. Ray Finch: June 2000.
6. Stanislav Nevzorov: Re: 3434-aid etc.
7. Theodore Karasik: More on Putin.
8. Komsomolskaya Pravda: Nemtsov Comments on Putin Appointment.
9. Komsomolskaya Pravda: Strategy Behind Putin Appointment Examined.
10. Financial Times: John Thornhill, Putin seeks to win over regional 
chiefs.
11. Interfax: Skuratov Sees State of Emergency as 'Hopeless Option' 
12. Moscow Times: Andrei Piontkovsky, Luzhkov Finds Fatherland Is Not
All Russia.
13. Bloomberg: Russia's Berezovsky Sees Gazprom Chief Vyakhirev Losing Job.
14. AP: Yeltsin Opponents Disorientated.
15. Newsday: Dimitri Simes, Yeltsin's Goal Is to Protect Inner Circle.
16. Andrei Liakhov: RE: 3433-Backer/Aid.]

******

#1
Russia Unlikely to Ratify START II 
August 11, 1999

MOSCOW (AP) -- Russia's parliament isn't likely to ratify the START II treaty 
any time soon, even though President Boris Yeltsin said the arms reduction 
deal should be a top priority, a senior lawmaker said Wednesday. 

Gennady Seleznyov, the Communist speaker of the State Duma, or lower house, 
said the United States is to blame for Russia's continued failure to pass 
START II. 

Russia ``cannot trust the United States, which follows a hypocritical 
policy,'' Seleznyov said. He did not elaborate, but he was likely referring 
to calls in Washington to amend a U.S.-Russian treaty that bans the 
construction of a missile defense system. 

Seleznyov's comments came after Yeltsin submitted a list Wednesday of 
high-priority bills for the Duma's fall session. The list included over 20 
bills, including START II, the presidential press service reported. 

The 1993 treaty, ratified by the U.S. Senate in 1996, would halve the U.S. 
and Russian nuclear arsenals to 3,000 to 3,500 warheads each. Its passage has 
long been delayed by Communists in the Duma, who say the treaty would hurt 
Russia's security. 

A liberal Russian lawmaker, Vladimir Lukin, also said Monday that START II 
stood little chance for passage. Lukin, though, blamed the roadblock on 
frequent changes in Yeltsin's Cabinet. 

He spoke a day after Yeltsin dismissed the entire government and named 
Vladimir Putin as the new prime minister. The old prime minister, Sergei 
Stepashin, had promised Vice President Al Gore to push START II through the 
Duma. Several lawmakers had backed the idea. 

START II's passage would clear the way for a proposed START III treaty, which 
would reduce the sides' nuclear arsenals to as few as 2,000 warheads each. 
Russia and the United States were planning discussions on START III in Moscow 
on Aug. 17-19, and Russian officials said changes in the government would not 
derail the talks. 

******

#2
International Herald Tribune
August 12, 1999
[for personal use only]
Yeltsin's Maneuvers Cast Doubt On the Presidential Election
By William Pfaff

PARIS - President Boris Yeltsin would like history to recall him as the man 
who gave roots to Russian democracy. But this laudable ambition is undermined 
by his need to control his succession in order to assure that the corruption 
of his political entourage does not destroy his reputation and ruin his 
politically influential daughter, her friends and his supporters.

Thus, he has chosen a new loyalist from the security services, Vladimir 
Putin, as prime minister, to replace Sergei Stepashin, an old loyalist from 
the same services. During three months in office, Mr. Stepashin failed to 
derail the probable presidential challenge of Mayor Yuri Luzhkov of Moscow, 
who has just established a political alliance with influential governors in 
Russia's regions and republics, acquiring a nationwide electoral base he 
previously lacked.

The practical consequences of changing prime ministers are likely to be 
slight, so far as Russia's governance is concerned. There is not much to be 
done between now and national elections for the Duma, or Parliament, on Dec. 
19.

Mr. Stepashin obtained an agreement with the International Monetary Fund at 
the end of July for a standby credit of $4.5 billion, so the country is 
spared declaring bankruptcy before December. Russia now enjoys the advantage 
of owing the international community so much that it can threaten its foreign 
creditors, rather than the contrary.

The country's economic situation has slightly improved. Inflation is down to 
between 2 and 3 percent per month, which is manageable, and industrial 
production and consumption have turned positive. Gross domestic product, a 
measure of productive wealth, is falling less rapidly than in the recent 
past. However, no one has found a way to make the oligarchs of the economy 
and the big sectorial enterprises pay taxes, or has perhaps wished to try.

While announcing his new choice for prime minister, Mr. Yeltsin also proposed 
Mr. Putin as the future president of Russia. While no one can take this 
seriously, the question of whether there actually will be a presidential 
election necessarily arises.

There now are two relatively powerful presidential candidates, Mr. Luzhkov 
and former Prime Minister Yevgeni Primakov. The latter's candidacy is 
undeclared but probable, and would find much support within the larger 
apparatus of established power.

The retired general Alexander Lebed, the outsider, seems immured in the 
Siberian political struggles he took on when he decided to enter electoral 
politics, but his return to the national scene is easily imaginable, 
particularly if the new outbreak of secessionist violence in the Caucasus is 
not mastered.

If any of these three becomes president, Mr. Yeltsin will be unable to assure 
the protection of his own reputation or the tranquillity of his family and 
benefactors following his scheduled departure from office next year. Given 
the assumed unelectability of Mr. Putin, his own proclaimed candidate, it 
follows that the presidential election must be deferred or canceled.

Mr. Putin, in his former functions, has already demonstrated an ability to 
suppress challenges to the Yeltsin entourage, namely the efforts by 
prosecutors to bring corruption charges against Boris Berezovsky, the 
financier and unofficial counselor of the president and his daughter, Tatiana 
Dyachenko.

Moreover, a new situation has been created by the renewal of fighting in the 
Caucasus. Mr. Stepashin failed to anticipate or prevent the so-called 
Wahhabis in rebel Chechnya - Muslim puritans, wanting independence from 
Moscow - from seizing villages in the neighboring province of Dagestan. Mr. 
Stepashin even acknowledged at his final cabinet meeting that Dagestan could 
be lost to Russia.

Thus conditions exist in which a state of emergency justifying deferred 
elections becomes plausible, a ''nonconstitutional'' solution to Mr. 
Yeltsin's election problem, to employ the current euphemism. The possibility 
of such a nonconstitutional solution is discussed in Moscow circles.

The director of the Institute of Applied Politics in that city, Olga 
Kryshtanovskaya, has said that ''with the dismissal of Sergei Stepashin, one 
has the impression that the Kremlin has chosen its strategy, but no one yet 
knows which it will be.'' 

She added, ''On the one hand Boris Yeltsin has signed the electoral law and 
affirmed his attachment to the democratic process, but on the other, by 
naming the head of the Federal Intelligence Service prime minister, he has 
let it be understood that he could act outside the legal structure.''

That is the negative scenario. Before the change in prime ministers, George 
Kennan spoke in a New York Review of Books interview about the positive 
factors in Russia's situation today. It is true ''that the elected 
institutions function extremely badly,'' he said. ''But no one has seriously 
urged their abandonment.''

''The outgoing Parliament embraced many people who had one foot in the old 
regime and one foot out of it, and never knew quite how to behave,'' he said. 

''What now is impending has to be a change in generations,'' he added, which 
can be expected to provide new and positive influences.

The question this change of governments raises is whether Mr. Yeltsin, and 
those dependent upon him, will allow those influences to come into eventual 
electoral play.

******

#3
Date: Wed, 11 Aug 1999 
From: Telos4@aol.com (John Danzer)
Subject: Break-Up of Russia

At last Russia's disintegration is a subject for serious
discussion. As is usually the case, by the time the words can be
uttered without first clearing ones throat, the thing that is
dreaded has already happened. So here are the words that must be
spoken. First the Soviet Union lost control of Eastern Europe and
the Balkans. Then it lost the Baltic countries. Next it lost
Ukraine, Moldova, Belarus, Georgia etc. Isn't this somewhat of a
trend? The disintegration will continue.

The coup of 1991 was all that was needed to trigger the collapse of
the Soviet Union. The political conflict that is now sucking the
life out of a very weak center is setting the stage for the break-
up of Russia. I have consistently predicted that there will be no
presidential election in the year 2000. If there is still a
Russian Federation by next summer it's center won't be in Moscow
and it will be led by a dictator - not an elected president.

So what will this mean? It won't mean 89 new states. Most likely
there will be around a dozen regions that share common interests.
Will this be good or bad? I am not capable of a sophisticated
analysis but my intuition tells me that smaller units of government
will be in a better position to manage their assets and that this
will mean an improvement in the distribution of wealth.


The greatest danger is in the chaos that will exist immediately
after the final collapse. There will be no central military
authority as the army breaks up in search of new allegiances. The
danger isn't that hostilities will break out between the new states
fighting over borders. The danger will be to the West and the
danger could be at the instigation of the West. 

Consider this scenario. The United States fears the possibility of
the formation of new nuclear powers. The US will be tempted to
take advantage of the window opened by the chaotic breakup of
centralized military control in order to secure the nuclear weapons
in the newly independent states. Most likely they would use
special forces and act unilaterally, without European consultation. 
The result of this act could induce some missile units to launch
their weapons out of spite. 

It is very important for the United States to keep it's hands out
of the mess. Give the new states a chance to get control of their
armies and weapons. Most likely they will form some sort of
Confederacy with the purpose of establishing a common defense. That is the 
best possible way to safeguard the nuclear weapons. The weapons will still 
be there to threaten the West but at least that is a situation we have 
learned to tolerate. 

******

#4
Date: Wed, 11 Aug 1999
From: "Jeffrey Barrie" <jbarrie@bigfoot.com> 
Subject: Khitrost and Stepashin

Nineteen years of life in and around Moscow are still not long enough to
plumb the depths of that particular Russian characteristic of "khitrost."
Definitions like sly and cunning fall far short of explaining a quality that
has helped monopolize chess championships, create oligarchs and legions of
new Russians, and surprise Western political observers. I continue to be
surprised.

For instance, my more cynical friends here are laughing at what they
consider to be naive Western commentators ready to write Yeltsin's latest
shuffle of prime ministers off as a bad mistake at best, or senility at
worst. They see Stepashin's replacement by Putin as a brilliant piece of
Kremlin "khitrost" designed to distance Stepashin from all of the negative
energy surrounding Yeltsin and The Family, set him up as a martyr and allow
his candidacy to age gracefully over the next four months. They write Putin
off as a stalking horse who will step aside at the proper moment on command.
Stepashin, they say, is our next President and Yeltsin's team remains in
full, competent control of the situation.

Stranger things have happened here....

******

#5
Date: Wed, 11 Aug 1999 
From: Ray C Finch IV <finchr4@juno.com> 
Subject: June 2000

I thought that I'd pass on this intercept for possible
publication. Its specific veracity may be doubtful, but it appears 
to capture the genuine angst of many Russian
kitchen table conversations. The translation is mine.

Memo: August 1999 (M minus 10)

From: Federalnaya Slyzhba Bezopasnaya (Komitet Imaj Makers)
To: Kremlovskaya Korporatsiya (BY/TD/AV/BAB)

1. Da, all measures are moving smoothly toward the June event. 
Our most recent actions have increased both uncertainty and public apathy
from 15-25% By keeping the surface froth in turmoil, the greater changes
will likely remain of little concern. 

2. As we discussed during our last meeting, a successful June
outcome can be assured using our tested three-prong approach: humility,
integrity and kindness. Just to insure that we are all operating off the
same sheet of music, allow me to review the highlights of each approach:

a. humility. We have planned for a near total saturation of BNY
(or our chosen successor) through all possible venues (TV, radio, movies,
internet, newspapers, magazines, billboards, flyers etc...). and
drought-like conditions for his opposition. Though dormant for the past
few years, our advertising staff has profited from the skills they have
acquired from Madison Avenue. The past year's economic conditions,
combined with the extra monies recently awarded by the IMF, will
guarantee that our advertising blitz will not fall upon full pockets. 

b. integrity. Not only do we plan to have our constituency vote
early and often, but we have already planted our "official vote counters"
within the Central Election Commission. As 1996 demonstrated, it's
amazing what you can buy with a couple of hundred thousand dollar boxes
of cash. Our research and marketing team has already garnered more than
12 suitcases of juicy kompromat, both factual and otherwise. We've
already conducted preliminary consultations with our western partners,
and they have given us strong assurances that they will not object to our
revised form of democratic elections as long as we keep control of one
particular suitcase and certain products in our inventory. 

c. kindness. If by the early Spring of 2000, it appears that a.
and b. above are insufficient to insure victory, the kindness campaign
shall be initiated. One possible option would be to remove the majority
of the opposition in a well-placed terrorist event, blaming the bombing
on the Chechens or better yet, the Communists. Time and again, history
has shown how fortunate it is to have a trotsky-like opposition. Funeral
details as well as indignant speeches are already being worked out. Of
course, we have other, more sophisticated measures at our disposal to
limit the field of probable contenders, but it's difficult to improve
upon the truncheon and steel-toe boot. We do not see these actions as a
possible cause to cancel or postpone the elections. If there is only one
candidate for office, BNY (or our successor) stands a very good chance of
winning. 

I'm sure that I don't have to remind you that there is no room
for second place. The winner takes all. You only go around once. Just
do it. 

Your humble servant,
Felix D. et alia 

******

#6
From: snevzorov@worldbank.org (Stanislav Nevzorov)
Date: Wed, 11 Aug 1999
Subject: Re: 3434-Investor's Business Daily/Russia's Phony Market Economy,
Straus/What US Should Say About Dagestan,eXile/Press Review on NYT FIMACO
Piece

I would like to make a brief comment on the last three articles of this
journal
(3434), as they are interconnected. Yes, foreign aid keeps Russian corrupted
Government afloat, but isn't it the essence of Western foreign policy - to
support Yeltsyn, who is fantastic in keeping Russia down? Both IMF loans
and US
position on war in Chechnya were aimed to keep Yeltsyn's on his place: "Let
them
pocket our money, it is still cheaper, than to have strong Russia". Here I am
almost citing serious people from intel circles. That also explains "bad
timing"
of NYT article.

I have two things to say:

1) Government and people in Russia are two separate entities, existing apart
from each other with one exception that the former severely robs the latter
on a
regular basis. Majority of Russians can report to Western tax payers that they
never saw their money, but, in fact, they have been deprived of their own
(1992,
1998). The funniest thing is that the Russian Government always pledges to
return foreign debt (not from personal accounts, of course) again taking the
money from Russian people, who should forget about their previous losses.

2) For me it is a dream to see real, mutually profitable US-Russian
cooperation,
which, I hope, may start to happen after the elections in both countries. For
now, the real sphere of cooperation can be the fight against Islamic
fundamentalism (or better international terrorism). Not just verbal
support, but
real tough fight. After all, both Americans and Russians are dying.
Nonexistence
of such cooperation makes no sense. Geopolitical and other realities have
changed since the Afghan War, when the USA put a lot of money and efforts to
shape this force to "bleed the Soviets". When it is shooting back it is
time to
come to senses, quit stereotypes, and work together.

******

#7
Date: Wed, 11 Aug 1999 
From: Theodore Karasik <tkarasik@ucla.edu>
Subject: More on Putin

I thought I would add a few more items on Putin for JRL readers.
He is the "Korzhakov" of the moment and may have the ability to cancel
elections based on how events in the south unfold (sound familiar? i.e. 1996).

Let me add:

1) Putin supports the Andropov legacy. On 15 June 1999 Putin stated that
public opinion polls showed Andropov to be one of the most respected former
Soviet/Russian leaders, and spoke positively about the former general
secretary's emphasis on discipline. Andropov, for instance, tried to
improve discipline at the work place by sending out squads which hunted down
people who were not at their posts during regular work hours. This notion
of Andropovian discipline is also being applied to the election process. On
29 June, Putin, speaking to regional security chiefs, stated that security
agents would control campaign funds and work to uncover information about
any irregularities in the regions. He stated that "the necessity for
discipline and order is ripe in society" as the elections approach. 

2) Putin understands the regions to counter Luzhkov alliance. When Putin
replaced Mitina in the Presidential Administration, he had his staff collect
information on how governors spent federal subsidies. This information can
be used now. In addition, in Moscow and St. Pete, Putin put his people in
charge of
city FSB late last year. 

3) Putin's stint with Borodin was short but important. According to Profil
5 April 1999 no 12, pp. 10-12, Putin was in charge of Russian real estate
abroad. Perhaps this was a kompromat position. May I also point out that
Putin had similar area of responsibility (Committee of Foreign Relations) in
the St. Pete government before coming to Moscow. (Note that Sobchak just
returned to St. Pete in mid-July 1999 stating he had nothing to fear.)

Ted Karasik
Consultant, RAND

******

#8
Nemtsov Comments on Putin Appointment 

Komsomolskaya Pravda
10 August 1999
[translation for personal use only]
Interview with Boris Nemtsov recorded by Nikolay Yefimovich; place 
and date not given: "B.N. Deals With Special Cynicism With Those That Are 
Devoted to Him" 

[Yefimovich] Can there be any meaningful 
explanation for what has happened? 
[Nemtsov] This is greatly damaging to the country's prestige, particularly 
considering the recent arrangements with the Paris Club and the IMF. It 
is hard to imagine greater madness on the part of the Kremlin. 
What is troubling Yeltsin today? Who his successor will be? What will 
happen to him and his family? Yeltsin, to all appearances, did not 
believe that Stepashin could become his successor. He should have. In his 
80 days as premier the level of confidence in Stepashin had approached, 
according to the polls, the level of confidence in Luzhkov and Zyuganov. 
Stepashin is a public politician, he did not make one serious mistake. 
But Yeltsin, by all accounts, does not sense the political situation in 
the country. He is simply not up to it. And it is amazing that no one 
around him can explain this to him. 
[Yefimovich] Putin has been named not only acting premier but Yeltsin's 
successor also. 
[Nemtsov] I also was once called his successor. This should be treated
with a 
certain degree of humor and irony. Were it not for one thing. By having 
named Putin his successor Yeltsin has, in fact, done him a bad turn. 
Putin will now in the eyes of society be the protege of the Kremlin, 
which will do him no good. Second, all kinds of intrigues will constantly 
be spun around him. Putin, who is not a public politician, has still to 
prove that he is capable of anything. 
[Yefimovich] But perhaps this is a clever Kremlin maneuver? 
[Nemtsov] I have known the Kremlin a long time and I do not believe in any 
multi-move maneuvers. I do not believe that there is some profound 
calculation. I know one thing--there will be no cancellation of the 
elections and any state of emergency. There are simply not the people 
with an interest in this. 
Aside from the fact that the country's reputation has suffered, there is 
one further danger. Federal power is being killed off. A threat to the 
unity of the Russian state is arising. The authority of the government is 
trifling. Everyone in the White House feels himself to be a timeserver. 
This is creating splendid soil for theft and corruption. I propose 
together with the Duma elections that a referendum be held on limitation 
of the powers of the president when it comes to the government. That 
Yeltsin can dismiss the government only in agreement with the Duma. This 
would afford an opportunity for the premier to work steadily, and for the 
government to be less vulnerable. 
[Yefimovich] Perhaps, generally, the question of early presidential
elections 
should be raised? 
[Nemtsov] Knowing Yeltsin, I can say that he will never retire voluntarily. 
[Yefimovich] And what is Aksenenko's role in all this? 
[Nemtsov] This decision is wholly on Yeltsin's conscience. He has had a
wary 
attitude toward Stepashin since the very moment he appointed him. 
Although Stepashin has not deserved this. He has always been with Yeltsin 
at critical moments. I am shocked that Yeltsin deals with special 
cynicism with the people who are devoted to him. 
[Yefimovich] And does the same thing await Putin? 
[Nemtsov] Yeltsin's favorites do not last long. 

*******

#9
Strategy Behind Putin Appointment Examined 

Komsomolskaya Pravda
10 August 1999
[translation for personal use only]
Article by Vladimir Konstantinov: "Throne Surrendered. Throne Taken 
Up?"

The telephone in the office of Stepashin's 
replacement will today even be ringing off the hook: the entire Russian 
elite will be in a hurry to offer its congratulations. 

To put it in one word, what Russia secretly always wants is certainty. 
Living is somehow easier if you know that the Volga is a great river. 
Pugacheva is the best singer. Gaydar robbed old women. Yeltsin is the 
tsar. Putin is his heir. 

Yesterday morning there was an abrupt change in the situation twice. First 
Yeltsin removed Stepashin, and everyone set up a howl: once again our 
popularly elected one is behaving oddly! Why? The former had even gone to 
America, and his eyes were fairly shining, seemingly. But immediately 
after, B.N. yet again proved his ability to remain really calm and 
collected at crisis moments and to find the sole correct solutions: he 
finally named a successor. Named him officially. This simultaneously 
changed the entire political picture in the country. 

I can hear the objections: he has already named them repeatedly, 
Nemtsov was a crown prince, as was Stepashin and Aksenenko and 
Chernomyrdin.... No. First, Yeltsin did not name any of them himself, he 
even only pointed vaguely in the direction of Nemtsov, and the rest was 
completed by competitors, the press, and public opinion. Second, there's 
no time left for such test exposures, and the personnel resources are 
running out. Third, a person in whose hands are instruments that have 
always been associated in Rus with power that is real and that causes 
palpitations has now been named. It has gone by various names: KGB, for 
example. This is serious, it would seem. Any politician who intends to 
contend 
with Putin in the presidential race is now required to weigh up carefully 
with whom he is, in fact, fighting. With a candidate who is assured of 
the most powerful financial, political, ideological, and artistic support 
(dancers, reciters, and singers will move in--just carry out the boxes in 
time)? With a person on whom there is no compromising material, but who 
has sackfuls of compromising material on everyone? Who, aside from that 
of the president, is clearly assured of the support of Stepashin, 

Rushaylo, Chubays.... And within a year Putin will be in possession of a 
further clutch of levers of influence--on the governors, on party and 
movement leaders, on the oligarchs. 

Once again I can hear the objections: Putin has still for this to become 
not the acting but the actual premier. What if the Duma does not pass 
him? I venture to predict that it will. And what's there to object to 
here, in fact? How is Putin any worse than Stepashin, whom the Duma 
approved dutifully and quietly? In honor of what is there any need for 
bawling and getting on one's hind legs? In order to be broken up and 
thrown out from one's comfortable campaign headquarters onto Okhotnyy Ryad? 

Of course, Russia is a special country, anything could happen. And you 
could not call Vladimir Putin a charismatic leader either. There will be 
oh-so-many difficulties on his way to the presidency, and there is a 
danger that he will not overcome them. But, on the other hand, the 
phrase-mongers and patented adepts at conducting a dialogue with the 
people have compromised themselves considerably in these years, and we 
are simply sick and tired of them. It is no accident that everyone is so 
fond of the taciturn Primakov. Putin is not garrulous either--and 
pre-election feats like the monthly disbursement of the pension or, at 
least, a temporary reconciliation in the Caucasus will have to be 
accomplished with divine assistance, this is a sine qua non. There is no 
doubt that all the right, near-right, center-right, and other 
sober-minded persons, who believe that whoever has power is suitable, 
will be united by carrot or stick in a bloc for Putin. Such a person has 
to be tolerated, at least. And you'll get used to him--you could even get 
to like him! The normal thing in Rus, the habitual thing even.... 

Whence the uncomplicated guess that the telephone in Vladimir Putin's 
office will probably be ringing off the hook tomorrow: the acting premier 
will be receiving congratulations and assurances of the utmost respect 
from politicians of, if not of all, then, of many, stripes. And there 
will be persistent head-scratching in the campaign headquarters of the 
few seriously competitive candidates: whether to fight the short and 
balding warrior who has emerged from the shadows for the principal throne 
or to pursue a matter that is of lesser scale, but far safer--breaking 
through into the State Duma. 

We will see--it is with this profound, fateful, and primordially 
Russian proposition that I would like to conclude this political forecast. 

******

#10
Financial Times
12 August 1999
[for personal use only]
RUSSIA: Putin seeks to win over regional chiefs 
By John Thornhill in Moscow

Vladimir Putin, Russia's acting prime minister, yesterday attempted to win 
over the country's powerful regional governors, whose support will be 
critical in forthcoming parliamentary and presidential elections.

Mr Putin held a meeting with several governors in the Federation Council, the 
upper house of parliament, to discuss the outbreak of hostilities in the 
north Caucasian republic of Dagestan. He will fly to Tomsk today to meet 
regional leaders from Siberia.

The acting prime minister, former head of the FSB, the internal security 
service, appears to be attaching a far lower priority to the Duma, the lower 
house of parliament, even though it has the constitutional right to reject 
his candidacy. Mr Putin, who has been anointed as Boris Yeltsin's chosen 
successor as president, is only due to meet deputies on August 16, the day of 
the confirmation vote.

Some political observers have suggested Mr Yeltsin appointed Mr Putin to halt 
the momentum of the electoral bloc being created by Yuri Luzhkov, Moscow's 
mayor, and some influential governors. The Kremlin appears to fear that the 
Our Fatherland is All Russia bloc could sweep the parliamentary elections, 
enabling it to launch its presidential candidate into the Kremlin.

That would endanger the interests of Mr Yeltsin's closest entourage, which 
the Russian press now refers to as the Family.

Vyacheslav Nikonov, president of the Politika Institute and an informal 
adviser to Mr Luzhkov, predicted Mr Putin would soon step up the attack on 
all the centres of power not aligned to the Kremlin.

"The Kremlin has made a very risky bet on a dark horse. True, sometimes dark 
horses win. But usually they lose," Mr Nikonov said at a press conference.

"Either Yeltsin and his Family are ready to accept that big risk by betting 
on Putin, or Putin is a temporary figure, or there will be no presidential 
elections in the country."

The new electoral law for the parliamentary elections would appear to give 
the Kremlin much room for manoeuvre, if it does indeed want to derail Mr 
Luzhkov's bloc.

The central electoral commission said that any registered party would be 
disqualified if it fragmented before the parliamentary elections. Some 
governors may find themselves under pressure to break away from the new 
electoral bloc.

Vladimir Zhirinovsky, leader of the ultra-nationalist Liberal Democratic 
party, said it was a waste of money holding parliamentary and presidential 
elections. In the past Mr Zhirinovsky often appears to have been used by the 
Kremlin to inject seemingly outlandish views into the mainstream political 
debate.

******

#11
Skuratov Sees State of Emergency as 'Hopeless Option' 

MOSCOW. Aug 10 (Interfax) - Suspended 
Prosecutor-General Yuri Skuratov says that the decision to introduce a 
state of emergency in Russia, if taken, will put an end to the current 
regime. "If people close to the president do take such a decision, an end 
will come to the Kremlin team," he told Interfax on Tuesday. He said he 
does not think such a possibility is real as "it is an absolutely 
hopeless option." Assessing the situation in Russia, he likened it to 
August 1991, when "an attempt to resolve the crisis by using force and 
defying the constitution, led to the collapse of the ruling regime." "I'm 
convinced that law-enforcement bodies, as eight years ago, will not take 
any open illegal steps," he said. He noted, however, that "the Kremlin 
may make the most unexpected moves, given the latest dismissals." He said 
that by replacing Stepashin with Putin "the president demonstrated his 
clear choice for the power bodies," said Skuratov. Furthermore, "it is 
clear," said Skuratov, "that Stepashin was not chosen by the 'Family' 
[Yeltsin's closest entourage]. Putin on the other hand has been chosen 
exclusively for reasons of personal loyalty," he said. "One can only 
regret that the principle of service to the state is being replaced by 
considerations of personal loyalty," he added. Regarding his suspension 
from the post of prosecutor-general, he said, "I will fight to the end." 

******

#12
Moscow Times
August 12, 1999 
SEASON OF DISCONTENT: Luzhkov Finds Fatherland Is Not All Russia 
By Andrei Piontkovsky 

Radiating complacency and optimism with every cell of his corpulent figure, 
Georgy Boos, the shining boss of Mayor Yury Luzhkov's electoral headquarters, 
predicted his electoral bloc's prospects at a recent news conference. 

The bloc itself, according to Boos, will receive at least 60 percent of the 
vote and an absolute majority in the State Duma. A certain Sergei Stepashin, 
a man temporarily resembling the prime minister? Well, perhaps I will give 
him my sixth place on the party list, if he really begs for it. And his 
predecessor? Yevgeny Primakov is not a moron, he'll come to us anyway, Boos 
added. 

As for extorting Moscow's businessmen to benefit Fatherland's electoral 
campaign - we never make individuals give money, Boos said. They come 
themselves and ask us to take their money. (Well, any godfather in any big 
city will tell you the same. The mayor in Nikolai Gogol's Inspector General 
came up with the same theory. This idea perhaps popped into Mr. Boos' mind 
from the distant memory of his highschool literature course. Mr. 
Yastrzhembsky would have definitely answered in a more genteel and 
sophisticated way). 

As far as I know, the more seasoned and less presumptuous people in Luzhkov's 
entourage - those more experienced than Boos, a former lighting salesman - 
don't seem to share his euphoria about the alliance of Fatherland and All 
Russia. 

In real terms, this alliance means that Fatherland gave up on being a federal 
party. Luzhkov becomes just one of the regional barons forming a one-time 
electoral bloc with the pragmatic goal of elbowing their lobbyists into the 
Duma. By now the presidential hopeful must realize he has made a mistake by 
donning the Fatherland yoke. As a presidential candidate, he used to enjoy 
some self-sufficiency. Now he has to drag along into the Duma a bedraggled 
trail of apparatchiki and bureaucrats, who have lined up in the best of 
Soviet traditions. "No. 4 is a woman, No. 5 is a peasant, No. 6 is myself," 
reported Mr. Boos. Now, to prevent an embarrassing outcome at the polls, they 
have to forge an alliance with All Russia, which is far from representing all 
Russia. Governors with at least some ideological inclinations are leaning 
toward other blocs: The leftists with the Communists, the market reformers 
with Voice of Russia and its allies. 

All Russia includes the "centrists," whose only ideology is 
self-regeneration. Certainly, Ruslan Aushev will bring the bloc 99 percent of 
Ingushetia's vote, Mintimer Shaimiyev and Murtaza Rakhimov - 90 percent in 
Tatarstan and Bashkortostan. Vladimir Yakovlev, who displayed a strong 
command of "shady" electoral tricks during last year's St. Petersburg 
elections, will also contribute. It will be enough to overcome the 5 percent 
threshold. 

But the party list will hardly move substantially further. Where are their 
mass voters? I can imagine people ready to vote for Gennady Zyuganov or 
Grigory Yavlinsky, for Alexander Makashov or Yegor Gaidar - people who 
identify themselves with the views of these politicians. But who, other than 
obliged subordinates, can be inspired by the bright ideas of 
Luzhkism-Shaimianism? 

Of course, in their "own regions," the bloc will manage to elect a certain 
number of deputies from single mandate districts who may be able to form a 
faction in the Duma. But what will they have in common with Luzhkov's 
interests? Or with those of Fatherland? Or with those of the fatherland? 

******

#13
Russia's Berezovsky Sees Gazprom Chief Vyakhirev Losing Job

Paris, Aug. 11 (Bloomberg) -- Russian 
tycoon Boris Berezovsky said Rem Vyakhirev, chief executive of Russian gas 
monopoly OAO Gazprom, will be forced to step down soon by the government, 
Gazprom's largest shareholder, because of his support for Moscow Mayor Yuri 
Luzhkov, in an interview to be published tomorrow in French daily Le Monde. 
Berezovsky said Luzhkov, a probable presidential candidate in next year's 
election, is an ``irresponsible populist'' incapable of managing the economy. 
Berezovsky, who said he meets often with President Boris Yeltsin's daughter 
and advisor Tatiana Dyachenko, said Vladimir Putin, Yeltsin's candidate for 
prime minister and his anointed successor as president, is level-headed, the 
paper said. 

Yeltsin fired the government on Monday and nominated Putin, a former KGB spy 
in Germany, as prime minister, also saying that he supported him as the next 
president. 

******

#14
Yeltsin Opponents Disorientated
By VLADIMIR ISACHENKOV
August 11, 1999

MOSCOW (AP) - Thrown off balance by an unexpected Cabinet reshuffle, 
President Boris Yeltsin's political opponents are rethinking their election 
strategy, fearing what he might do next. 

Yeltsin hasn't explained why he replaced Prime Minister Sergei Stepashin with 
former KGB officer Vladimir Putin. But many observers believe the president 
was moving to counter an opposition alliance forged last week between Moscow 
Mayor Yuri Luzhkov - a Kremlin contender - and Russia's restive regional 
governors. 

``The precise scenario is unclear, but the appointment of a career 
intelligence officer to the premier's post gives a clue to the tasks before 
the Cabinet,'' said Vyacheslav Nikonov, a political analyst who heads the 
independent Politika think tank. 

The Russian media has speculated that Putin's appointment might signal a 
larger Kremlin plan to take emergency measures, disband parliament or 
postpone elections. 

Kremlin officials have dismissed the claims and the Communists in parliament 
have indicated they are likely to approve Putin as prime minister. 

Putin finds himself immediately on the hot seat. He held a ``tough'' meeting 
Wednesday with parliamentary leaders, who criticized the government for 
failing to crush Islamic rebels in Dagestan, a Caucasus Mountains republic in 
southern Russia. 

``The measures being taken in Dagestan are not energetic enough,'' Yegor 
Stroyev, chairman of the upper house, the Federation Council, told Putin. 

Yeltsin placed added pressure on Putin, the head of the KGB's main successor 
agency, the Federal Security Service, by saying that he would like to see 
Putin become president next year. 

The State Duma, the lower house of parliament, plans to take up Putin's 
nomination for prime minister on Monday, and most observers believe he will 
be approved. 

Duma speaker Gennady Seleznyov, a Communist, said Wednesday night the 
approval would likely come in the first round of voting. 

Putin ``understands that he was not prepared for this job,'' Seleznyov noted, 
according to the ITAR-Tass news agency. ``He understands how many problems he 
is to face. At the same time ... he is ready to study, understand and play 
his new role.'' 

Yeltsin and his camp were feeling the pressure from the alliance forged last 
week between Luzhkov's Fatherland political movement and the All Russia bloc 
of governors. 

They agreed to campaign jointly for parliamentary elections in December, an 
announcement that also was expected to broaden Luzhkov's support base in the 
provinces before the 2000 presidential election. 

Luzhkov hasn't announced his intention to run for president, but the Kremlin 
assumes he will, and has strongly opposed the mayor. 

Yeltsin's office first tried to prevent Luzhkov from striking the alliance 
with governors. When those attempts failed, it tried to push Stepashin as the 
coalition's candidate. But Stepashin said that as prime minister it wouldn't 
be proper for him to join any election bloc. 

He was fired within days. 

``Stepashin's reluctance to fight against the new bloc was the main reason 
behind his ouster,'' said Andrei Ryabov, a researcher for the Carnegie 
Endowment for Peace. 

Observers predicted the new prime minister would move vigorously to lure 
regional leaders away from Luzhkov. ``The Cabinet has a broad range of tools 
to influence governors, such as federal subsidies and export licenses,'' 
Ryabov said. 

So far, provincial leaders have taken a fence-sitting attitude toward the new 
government, awaiting the next Kremlin move. Tatarstan's leader, Mintimer 
Shaimiyev, who leads the governors, has been coy about the alliance since the 
Cabinet reshuffle and other provincial leaders have been equally 
noncommittal. 

Luzhkov went on vacation the day Stepashin was fired and has refrained from 
comment. 

Former Prime Minister Yevgeny Primakov, whom Luzhkov has courted to lead the 
bloc's election list, was expected to accept the proposal last week. But he, 
too, has remained silent. 

``The breakup of Luzhkov's coalition with the governors would be catastrophic 
for the mayor, taking away a large chunk of the electorate and showing his 
weakness,'' Ryabov said. 

Luzhkov enjoys broad popularity in Moscow, but his appeal in the hinterland, 
where many resent the capital's relative prosperity, has not been tested. 

While putting Luzhkov's alliance with the governors on hold, the reshuffle 
has also forced the Communists and other hard-liners in the parliament to 
reconsider their plans. 

*******

#15
Newsday
11 August 1999
[for personal use only]
Yeltsin's Goal Is to Protect Inner Circle
By Dimitri K. Simes (Nixon Center)

The replacement of Russian Prime Minister Sergei Stepashin with Vladimir
Putin, director of the Federal Security Service the principal successor
agency to the KGB is not terribly significant in itself. 

In fact, Stepashin and Putin are similar in many respects: they came to
politics from the security services, started their political careers in St.
Petersburg, became early allies of the reformers, have impeccable records
as Yeltsin loyalists, and are of roughly the same age. Thus, while
parliamentary leaders across the political spectrum have expressed strong
reservations about Putin, most expect that he will eventually be confirmed. 

One key reason for this is that most parliamentary factions, including the
Communists, are reluctant to risk the dissolution of the State Duma
prescribed in the Russian constitution if Putin's candidacy is rejected
three times. With new Duma elections just four months away, it is clearly
advantageous for members of the parliament to campaign as incumbents, with
the considerable resources and prestige of their offices. 

Yet, while Putin's appointment is unremarkable on the surface, it raises
troubling questions about Yeltsin's decision to make Putin his fifth prime
minister in just 18 months. Why was Stepashin dismissed? What is Putin
expected to do that Stepashin failed to deliver? And what are the
consequences for Russian politics and U.S. interests? 

Stepashin was fired for two reasons. First, he did not establish himself as
a political leader apable of succeeding Yeltsin democratically and
protecting the interests of the president and his inner circle. Just last
week, the Kremlin attempted to persuade the new center-left electoral bloc
created by Moscow Mayor Yuri Luzhkov and a number of regional governors
that Stepashin should lead its party lists. The bloc's leaders responded
that the top spot was reserved for Primakov, that the places below were for
Luzhkov and his key allies, and that Stepashin could be number eight at
best. This was unacceptable to Yeltsin and ''the Family' it would have
meant that Stepashin was supporting Luzhkov, whom the Kremlin fears, rather
than taking over the new coalition. 

At the same time, Stepashin proved to be nicer and more honorable than the
Yeltsin entourage hoped or the opposition feared. He proclaimed that
assuring honest elections was one of his principal tasks. But minimally
honest elections could not result in the election of a Duma friendly to
Yeltsin in December or a president who could be reliably expected to
protect the interests of the extended Yeltsin family next July. 

In contrast, it is widely assumed that Putin would be prepared to do
whatever it takes to assure that the Yeltsin family remains a commanding
presence in Russian politics. 

The Kremlin doesn't seem to have a specific plan of action. Yeltsin, who is
concerned with his legacy and unsure of the support of the military and
security services, would probably prefer to avoid canceling the elections.
So, the new prime minister is first expected to try to pressure provincial
governors into following the Kremlin line by threatening to deny essential
federal budgetary support. Putin is also assumed to be more willing than
Stepashin to be ruthless about putting major companies, such as the natural
gas monopoly, under direct government control to commandeer their finances.
Similar pressure is expected on media outlets that support the opposition. 

If these maneuvers prove insufficient, Yeltsin has already hinted that he
may ban the Communist Party or, using some legal technicality, deny
Luzhkov's faction the opportunity to participate in the Duma elections. As
a last resort, he could impose emergency rule as a result of either the
renewed fighting in the northern Caucasus or some other violence, perhaps
intentionally provoked through the removal of Lenin's preserved remains
from Red Square, which the Communists adamantly oppose. 

That these measures would be undemocratic is not their only problem. While
the increasingly broad opposition to Yeltsin is prepared to go a long way
to accommodate him to ensure that elections take place and Yeltsin steps
down quietly, attempts to subvert or cancel the vote may backfire. Even
more ominous is the possibility that political infighting in Moscow could
shift the real power to regional governors, many of whom are even less
democratic and more self-serving than Yeltsin himself. The fragmentation of
a country with thousands of nuclear weapons could have terrible
repercussions far beyond Russia's borders. 

For some time the Clinton administration has confused America's strategic
interest in Russia's democratic transition with the tactical advantage of
helping the relatively obedient Boris Yeltsin stay in power. Now that the
Yeltsin era is clearly coming to an end, it is essential that the United
States stop playing favorites in Russian domestic politics and use its
considerable leverage to encourage Yeltsin to remain within the
constitution. 

******

#16
Date: Wed, 11 Aug 1999 
From: "Andrei Liakhov" <liakhova@nortonrose.com> 
Subject: RE: 3433-Backer/Aid

Comments on Paul Backer.

Advising on investment into Russia was never a easy task. However the very
clear distinction must be drawn between how the attitudes of various
multinational lenders. Firstly, I'd like to point out that the EBRD from the
outset had a task of locating small and medium sized private projects in
Russia and support them alongside Western private capital. Although it is
true that the EBRD lent some money to the Russian state it would not be fair
to put it on the same level as the WB/IMF. EBRD is always rather cautious
where it invests (though this is the source of a lot of criticism of the
Bank)and even when it does portfolio investment through regional venture
funds the targets are selected by a fund manager with local presence, who is
then responsible for the performance of the investment and is paid
performance related fee at the end of the investment, the maximum period of
which cannot be more than 10 years. 
WB/IMF practices are completely different as they lent primarily to the
state, and took a lot of statements at their face value with no incentive to
supervise - hence the result.
Secondly - I would argue for the 1st option as stated by Paul - it would be
very difficult to argue that IMF/WB were not aware where he money went when
in some cases the companies in question (like FIMACO last July, or
SovFintrade for UNSAID financing in '93) were nominated payees! I would tend
to think that the WB took the explanations of the then leadership of the CBR
at face value and did not supervise application of proceeds properly. Now
they are trying to hide their own stark incompetence behind the mask of
innocent victim. It is inconceivable to believe that they were unaware of a
looming crisis in November '97, when even us, being London based lawyers,
insisted on inclusion into various public offer documents of companies with
Russian interests a reference to the possibility of a financial crisis in
the coming year. I would not believe it that we knew something the WB did
not! 

******