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Johnson's Russia List
17 August 1999
[Note from David Johnson:
1. Christian Science Monitor: Weir, Tunnel is longer, but light still on.
Russia is on its fourth premier after a year of upheaval. But the news
isn't all bad.
2. Moscow Times: Melissa Akin, Premier Putin Squeaks Past Duma.
3. Moscow Times: Brian Whitmore, Primakov Ready to Head Up Fatherland.
4. Theodore Karasik: Putin's Economic Background.
5. George Oswald: JRL #3443 item 2 re Gazprom.
6. Stratfor Commentary: Yeltsin Not Quite Dead Yet.
7. NTV: Poll Shows 72% of Muscovites Oppose Stepashin Sacking.
8. NTV: Lebed Rejects Possibility of Government Post.
9. Rossiyskaya Gazeta: Interview with Dmitriy Vasilyev, chairman of the
Federal Commission on the Securities Market, To Whom Will We Entrust Our
10. The Times (UK) editorial: Exaggerating the Dagestan threat will
11. International Herald Tribune: David Hoffman, Fall of Ruble, It
Turns Out, Was a Boon to Russia's Industry.
12. Fitch IBCA comments on Russian recovery.
13. Bloomberg: EU's Hahn on Russian Investment Climate,
Christian Science Monitor
17 August 1999
Tunnel is longer, but light still on
Russia is on its fourth premier after a year of upheaval. But the news isn't
By Fred Weir, Special to The Christian Science Monitor
One year after the bottom dropped out of its economy and the ruble nearly
evaporated, Russia is still mired in crisis but - surprise - doing far better
than anyone predicted.
The dire fallout from the Russian government's sudden decision to default on
its domestic debts on Aug. 17, 1998, triggering the collapse of the country's
infant banking sector and 70 percent ruble devaluation, still dominates the
lives of the majority of Russia's citizens.
The popular mood remains grim. "Due to the crisis, the light at the end of
the tunnel has been switched off," runs a current joke.
But it may be that the tunnel only got a bit longer. Russians, though
battered, have survived the crash, and a few industries are rebounding
If the country can get through the next year and elect a forward-looking new
parliament and president, the outlook may even turn bright.
Many analysts say the worst thing about the crisis is not the economic
hardship, but the ongoing turmoil and uncertainty caused by President Boris
Yeltsin's repeated government shake-ups. He has fired three prime ministers
since the crisis began. The fourth, Vladimir Putin, was confirmed yesterday
by the Duma, the lower house of parliament.
"Nothing has done as much harm to Russia's ability to deal with its problems,
and its reputation in the world, as the constant disruptions at the top,"
says Mikhail Dimitriev, an analyst with the Carnegie Endowment in Moscow.
"Ultimately, I think we must await a change of power in the Kremlin before we
get a real strategy for reviving the Russian economy," he says.
Following Monday's confirmation vote, Mr. Putin pledged to stick with the
previous government's economic policies and to strengthen social policies to
aid the poor.
"We will continue reforms started by previous Cabinets," Putin said. "But the
reforms aren't a goal by themselves, they must improve peoples condition."
It's not hard to see how Russians are still struggling with the crisis.
Everyone has a story.
"I lost my savings, my job, my car, just about everything I'd gained in the
previous five years," says teacher Katya Milyukina. Her bank, one of Russia's
biggest, closed its doors after the crash, taking her $3,000 nest egg with
The private school where she taught English shut down when most of its young
professional clients stopped coming. She sold her car to make ends meet.
"I'd like to say I've gotten over it, but I can't," she says. "I can only say
Most Russians today are in that category, and some just barely.
Ruble devaluation cut deeply and immediately into living standards in
Russia's heavily import-dependent consumer economy. According to official
statistics, the number of people living below the subsistence line leapt from
22 percent of the population in July 1998 to 35 percent - 55 million people -
in June 1999.
"The government defaulted on its debts, but really it just transferred the
burden to the population in the form of lost savings, price inflation, and
unpaid wages," says Boris Grinchel, an analyst with the Institute of Social
and Economic Research in St. Petersburg.
Decimated middle class
The hardest blow fell on the new middle class - young professionals,
entrepreneurs, and skilled workers who are Russia's best hope for building a
modern society. In a matter of weeks, hundreds of thousands of them lost
their jobs, their dreams, and their faith.
"Until confidence and purchasing power return to the middle strata of our
society, there will be no speaking of recovery," says Mr. Grinchel.
Russia still has no functioning banking system, and the national savings rate
is just one-third of what it was a year ago.
Strikes by disgruntled workers are sharply on the upswing. Some regions of
the far-flung Russian Federation are visibly teetering on the verge of
anarchy - notably the southern republic of Dagestan, where Islamic militants
are waging war against the Russian Army.
But contrary to many harsh forecasts of a year ago, Russia has not
disintegrated, suffered mass starvation, or drifted into dictatorship. At
least not yet.
"It's a big accomplishment that we've held things together," says Mr.
Dimitriev. "We're not out of the woods, but we're not dead either."
And there are at least a few unexpected rays of light.
Domestically produced consumer goods, from household appliances to clothes to
shampoo, have become far cheaper in relative terms than the imports that
formerly dominated the local market. A Russian-made Volga automobile that
cost the equivalent of $12,000 a year ago can now be had for $5,000.
"Now is the time to build a house," says Maxim Sukharov, a lawyer. "Life is
hard these days, but we'll never again see such low materials and labor
costs." Mr. Sukharov says he is constructing a four-bedroom bungalow in a
village 50 miles from Moscow for an estimated $7,000.
Russian industrial output rose 5 percent in the second quarter of 1999,
according to the International Monetary Fund (IMF). The Russian government is
even more upbeat, saying that production in July this year was 11 percent
higher than the same month in 1998.
Exports have grown modestly, but imports have shrunk by a whopping 46
percent, giving Russia a trade surplus of $14.8 billion for the first half of
this year - 15 times greater than the same period last year.
The global price of oil, Russia's biggest hard-currency export, has surged
from less than $10 per barrel in February to above $20 today. That's a
windfall not only for Russian oil companies, but also for the cash-strapped
government, which will rake in an additional $1.5 billion in oil export
duties this year. Tax collection, a perennial problem for the government,
also appears to be improving, though it remains well below targets.
Major reforms still needed
But analysts warn the mini-recovery will run out of steam unless it is soon
coupled with major structural reforms.
"Most Russians are not paying the full cost of their housing or the energy
they use, and this remains a huge burden on the economy," says Grinchel,
pointing to the fact that more than half of all Russian regions regularly
default on their gas and electricity bills.
"Many industries are not positioned to take advantage of the ruble
devaluation because they are crippled with debt and failed over the past
several years to reorganize and retool for market conditions. There will
probably have to be a wave of bankruptcies," Grinchel says.
"It may get worse before it gets better."
August 17, 1999
Premier Putin Squeaks Past Duma
By Melissa Akin
Visibly irritated by the Kremlin's sudden swapping of prime ministers, the
State Duma barely confirmed Vladimir Putin on Monday, granting him just six
votes more than the 226 he needed.
With a rare 404 deputies registered in attendance in the 450-member house, 84
deputies voted against Putin's candidacy, 17 abstained and 71 did not bother
to vote at all.
Putin was expected to have no trouble winning approval, so the closeness of
the vote reflected the Duma's disgust with President Boris Yeltsin for his
sacking of Sergei Stepashin last week and his choice of Putin, the former
Federal Security Service chief, as his successor.
The vote for Putin, who is Russia's fifth prime minister in 17 months, was
both a technicality and a protest, said Valentin Kuptsov, the No. 2 Communist
in the lower house of parliament.
"It was a protest against the president and his methods of working with the
government - 232 votes is the minimum," Kuptsov said in an interview after
The vote also showed that the deputies decided not to provoke a confrontation
with Yeltsin and approved his candidate, rather than risk losing their seats
during the election campaign.
"Everyone understands there are only three months left to work," Kuptsov
said. The Duma begins its fall session in mid-September and comes up for
re-election Dec. 19.
Alexander Kotenkov, Yeltsin's representative to the Duma, called the vote
"its own indicator that the deputies voted not for Putin, but for holding
onto their opportunity to run for office as Duma deputies," Itar-Tass
If the Duma fails to confirm the president's candidate for prime minister
within three votes, the president must dissolve the Duma and call new
elections - locking the doors to the lower house and depriving the deputies
of their pre-election parade ground.
Nearly everyone, from leftists Duma leaders to Yeltsin, predicted Putin would
pass on the first of three possible votes.
But the Duma was unable to hide its irritation at Yeltsin's sacking of
Stepashin after only three months on the job and the appointment of Putin, a
one-time KGB spy turned colorless bureaucrat. Stepashin, who replaced Duma
favorite Yevgeny Primakov, was approved on a vote of 301 to 55.
Deputies widely believed Yeltsin was trying to lead them into dissolution by
appointing Putin in hopes they would turn him down. They immediately declared
that Putin's government would be a political sequel to Stepashin's and
labeled the confirmation vote a technicality, indicating they would confirm
him to save themselves.
But legislative leaders tried to stage a cliffhanger after meeting Putin in
the Duma on Monday morning. Leaders of all but two legislative blocs
announced each deputy would vote his conscience so no one could reliably
predict the outcome of a vote.
The Communist leadership announced it would abstain from voting altogether
and expected a large number of its deputies to vote against or abstain.
"Deputies from single-mandate districts will probably vote against [Putin]
because the first question from their constituents will be: 'Did you vote for
Putin?'" Kuptsov said before the vote.
Grigory Yavlinsky, leader of the liberal Yabloko faction, told journalists
just minutes before the hearing that half of his deputies would vote against
"A significant number of the members of the Yabloko faction will not support
the candidacy of Vladimir Vladimirovich Putin," Yavlinsky said. "This is
because they do not consider acceptable the way in which the president names
and removes prime ministers."
The other half of the deputies, Yavlinsky said, were more concerned about
fending off Islamic insurgents in Dagestan and ensuring elections, and would
vote for him.
During the hearing, Putin received only one ringing endorsement, from
flamboyant nationalist Vladimir Zhirinovsky. "Let all Russians unite with
Putin!" Zhirinovsky said.
The rest of the faction leaders refused to support him actively. Most simply
announced they would not impose party discipline and went on to list their
political concerns, using the Duma podium as a campaign tribune as state
television broadcast the hearing live across the country.
"We are not discussing the candidacy of Putin. We are discussing the
situation in the country in relation to a candidate," Oleg Morozov, leader of
the Russia's Regions group, said during the debate.
In his first policy speech, Putin touched on Russia's gasoline crisis and
this year's troubled harvest, both hot topics among Duma deputies.
He said the "majority" of Stepashin's Cabinet would remain in place.
Deputies themselves expect few political changes.
Yavlinsky even mistakenly referred to Putin as "Vladimir Vladimirovich
Stepashin" during the hearing.
"I think my mistake is fully understandable," Yavlinsky said when laughter
That gave Putin an opportunity to show that he, contrary to his image, has a
sense of humor.
When the vote had been counted, Putin thanked all the deputies, including
"Gennady Andreyevich Yavlinsky." Gennady Andreyevich Zyuganov, the Communist
Party leader, is a nemesis of Yavlinsky.
Putin also tried to allay deputies' fears that he might be willing to
interfere with elections on orders from the Kremlin. Rumors have flown that
the presidential administration would like to cancel Duma and presidential
elections in order to keep Yeltsin's foes from power.
Deputies said that in private meetings, Putin promised them he would do
"everything possible" to insure fair, timely elections.
They said, however, that Putin's confirmation did not guarantee the Kremlin
would not try to meddle in a vote.
"I personally will never believe it. These will be the dirtiest, foulest
elections possible," Kuptsov said, predicting Kremlin interference in the
campaign and ballot falsifications.
Yavlinsky also expressed skepticism.
"He said he would do everything possible in order to prevent falsification,"
Yavlinsky said in response to an American reporter's question. "That is never
enough, even in the country where you live, let alone ours."
August 17, 1999
Primakov Ready to Head Up Fatherland
By Brian Whitmore
Former Prime Minister Yevgeny Primakov will announce on Tuesday that he is
joining Moscow Mayor Yury Luzhkov's Fatherland-All Russia political movement
and will head its candidate list in December's election to the State Duma, a
source close to Primakov said Monday.
The Primakov-Luzhkov team would unite two of Russia's most formidable
politicians in an alliance that could dominate the elections to the Duma, or
lower house of parliament - and launch one of its leaders toward the
presidency in 2000.
Analysts and politicians said Luzhkov stands to benefit most, while Primakov,
68, risks losing some of his broad-based popularity once he signs on with the
ambitious Moscow mayor - especially with voters on the left.
Luzhkov, 62, has actively courted Primakov for weeks. But the former prime
minister, who polls show to be Russia's most popular and trusted politician,
has maintained a Sphinx-like public silence, keeping the nation in suspense.
Primakov has scheduled a news conference for 5 p.m. Tuesday, when he is
expected to announce his plans following a meeting of Fatherland-All Russia's
leaders. But an associate said Primakov had decided to say yes.
"Yevgeny Maximovich [Primakov] has made his decision to join the
Fatherland-All Russia bloc," said the associate, who worked closely with
Primakov in government and maintains close contact with the ex-prime
minister. Interfax also reported Primakov would join with Luzhkov.
Earlier this month, Luzhkov's Fatherland and the All Russia movement of
regional leaders, headed by Tatar Governor Mintimer Shaimiyev, announced they
were uniting to form a single electoral front.
Analysts say the new bloc, uniting Luzhkov's Moscow machine with those of
Russia's provincial governors, will be a major force in Duma elections
scheduled for December.
Luzhkov immediately said he would be willing to offer Primakov the top spot
on the movement's party list. It's not clear which of the two would be the
alliance's presidential candidate. Primakov, who leads presidential polls,
says he doesn't plan to run for president. Nevertheless, Luzhkov, who has
barely concealed presidential ambitions, has said he would consider
supporting Primakov for Russia's top job.
All Primakov has said publicly was that he was "favorably disposed" toward
the alliance. Members of Fatherland-All Russia have nevertheless kept up a
drumbeat of predictions that Primakov was their man. Primakov's name would
appear at the top of the party's list on December ballots, effectively
guaranteeing him a leadership position in the party and the Duma, should he
choose to accept a seat.
All Russia's co-chairman, St. Petersburg Governor Vladimir Yakovlev, said
last week that Primakov would join Fatherland-All Russia as soon as he
received an official invitation.
Oleg Morozov, head of the Russia's Regions faction in the Duma and a
prominent member of All Russia, also said Monday that Primakov would announce
his decision to head the bloc at Tuesday's news conference.
It is easy to understand why Fatherland-All Russia wants Primakov. Recent
public opinion polls show him to be Russia's most popular and trusted
politician. They also show that Primakov could dramatically alter the results
in December's election.
Without Primakov, Fatherland-All Russia would come in a distant second place
behind Gennady Zyuganov's Communists. With Primakov on its list, however,
Luzhkov's party would rival the Communists for first place.
The Russian media are already talking about the "Primakov factor" and the
So it is clear that Luzhkov needs Primakov. But does Primakov need Luzhkov?
Several observers said the former prime minister has much to lose.
"Since he left the government, Primakov has become a mythological figure,"
said Alexei Levinson, who conducts focus groups at the All-Russia Center for
Public Opinion Research.
"He is not clearly identified with any ideological orientation, so therefore
he offends very few people and this is one of the main sources of his
popularity. Primakov is more popular for what he is not than what he is."
Andrei Ryabov, a political analyst at the Moscow Carnegie Center, agreed.
"There is a big risk that Primakov could lose his status as a unifying figure
if he joins one bloc, no matter how big and influential that bloc is," Ryabov
"Joining Luzhkov could seriously harm Primakov's personal popularity. Now he
is seen as a unifying figure with support from liberals, centrists and
communists. If he joins Luzhkov, he will lose many of the liberals and
Boris Kagarlitsky of the Russian Academy of Sciences Institute of Comparative
Politics said Monday that Primakov runs the danger of being seen by voters as
"a Luzhkov man" if he joins Fatherland-All Russia.
The left, which supported Primakov during his eight-month tenure as prime
minister, is clearly nervous about Primakov. Leading Communists, for example,
have been issuing statements that could easily be interpreted as threats.
Speaking Sunday night on the popular NTV news show Itogi, Nikolai Ryzhkov,
leader of the Popular Rule faction in the Duma, said that the left's support
for Primakov could evaporate should he join Luzhkov.
Likewise, influential Communist lawmaker Viktor Ilyukhin said Monday that for
Primakov, joining forces with Luzhkov would be "a hasty step" that could
cause him "to quarrel with the [Communist] opposition. ... If Primakov sees a
presidential role for himself, he should not join any bloc."
Communist leader Gennady Zyuganov chimed in on Monday, saying that if
Primakov remains independent, he could become "Russia's Deng Xiaoping," a
reference to the late Chinese leader. But if he joins Luzhkov and company,
Zyuganov said "the laws of political struggle would come into effect."
Date: Mon, 16 Aug 1999
From: Theodore Karasik <firstname.lastname@example.org>
Subject: Putin's Economic Background
JRLers may want to note the following:
When Putin was head of the Committee for Foreign Relations in St.
Petersburg, he concentrated on promoting trade ties i.e. inward investors,
etc. But City Council Chair Marina Salye investigated Putin for the issuing
of licenses for the exportation overseas of raw material and nonferrous
metals. Salye and other legislators accused Putin of inefficient use of the
powers entrusted to him. There is a report that Salye and others asked
Putin to resign. He did not resign and Sobchak subsequently appointed him
first deputy mayor in March 1994. Following this episode, the St. Pete Bank
for Reconstruction and Development (as a partner of the World Bank and
European Bank for Reconstruction and Development) formed in April 1994. The
bank, with the support of Gerashchenko, had Putin as a member of the bank
supervisors' council. The bank was formed as a joint-stock society and
founded by the Committee for the Administration of City Property, the
Population Employment Fund, and other insurance funds and state enterprises.
Thus, it appears Putin may have some international and domestic economic
Date: Mon, 16 Aug 1999
From: "George Oswald" <email@example.com>
Subject: JRL #3443 item 2
Regarding JRL #3443 item 2, "Further Evidence Emerges Suggesting Gazprom
Nationalization", it is interesting to note that President Yeltsin issued a
decree on August 9 announcing the government's intention to gain control of
35% of Gazprom shares. The text of the decree in Russian can be found on the
Russian Government server under the following address:
0045 GMT 990817 – Yeltsin Not Quite Dead Yet
"My heart is now working like a clock," Russian President Boris Yeltsin told
the ITAR-TASS news agency on August 16. "My blood pressure is 120 over 80,
whether you measure me at stress or wake me up in the middle of the night,
and my pulse, 64 beats per minute." Yeltsin also said that, following
treatment last week at the Burdenko Institute in Moscow, the heart pain that
has troubled him for the last three years, caused by nerve inflammation, has
"almost fully disappeared." Over the last year, Yeltsin had been frequently
hospitalized, suffering from bronchitis, an acute bleeding ulcer, and nervous
exhaustion. In 1996, Yeltsin underwent a quadruple-bypass heart surgery, and
in 1991, after a plane accident in Spain, had an operation on a misplaced
disk in his back.
Last week, reports quoting confidential sources appeared in the Russian
newspaper Nezavisymaya Gazeta that said Yeltsin would be hospitalized in the
upcoming two weeks. Allegedly, Yeltsin was supposed to undergo extensive
medical examinations. Yeltsin’s spokesman, Dmitri Yekushkin, denied the
reports, and now Yeltsin has seen fit to counter the allegations himself.
Yeltsin’s frequent hospitalizations during his second presidential term have
undermined his political power, providing his political foes with additional
ammunition to support their argument that he was unfit for office. In a
country where leaders’ terms are traditionally terminated only with their
deaths, the rumors also consistently suggest Yeltsin’s own term limitation.
Rumors are rumors, and in Russia they are ubiquitous. Yeltsin is also quite
clearly not a well man. The life of a Russian is hard, and the life of a
Russian leader is arguably harder. Yeltsin, by announcing his good physical
condition, may only have wanted to respond to the usual rumors about his ill
health and take the wind out of the opposition’s sails. However, Yeltsin
appeared particularly spooked by the latest reports. Amid a wealth of
pre-election rumors of his own alleged extra-constitutional strategies to
retain power, Yeltsin may fear that the originators of rumors about his
declining health intend to make good on those reports. Yeltsin has no desire
to contract Pol Pot Disease – the sudden, unexpected, and all too convenient
death of an unfortunate personality. As such, he may be putting out the word
that he does not expect a tragic heart attack any time soon, thank you. If
this is the case, the political struggle in Moscow may be getting much more
serious than is apparent on the surface.
Poll Shows 72% of Muscovites Oppose Stepashin Sacking
15 August 1999
[translation for personal use only]
>From "Itogi" news program presented by Yevgeniy Kiselev
["Itogi" presenter Yevgeniy Kiselev] An opinion
poll carried out by the Public Opinion Fund shows how ordinary people
reacted to the dismissal of [former Prime Minister Sergey] Stepashin and
the appointment of Vladimir Putin [as acting prime minister]. The poll
was commissioned by the "Itogi" programme and carried out in Moscow
immediately after the event.
The overwhelming majority of Muscovites who took part in the poll - 72
per cent - did not like Boris Yeltsin's decision to sack Sergey Stepashin
and a mere 3 per cent welcomed it. A total of 19 per cent failed to say
whether they liked or disliked the decision. At the same time, 75 per
cent of those polled think that there were no serious grounds for
dismissing Stepashin and only 10 per cent believe otherwise.
The majority of those polled praised Stepashin's work for three months
as prime minister. Thirty nine per cent assessed his work as good, 37 per
cent as satisfactory and only 4 per cent assessed his performance as bad.
A total of 42 per cent of those polled failed to say whether they
liked or disliked the appointment of Vladimir Putin to the post of
[acting] chairman of the government. Thirty per cent said they did not
like the appointment and 5 per cent said they welcomed the Kremlin's
latest personnel decision.
As for Putin's chances of becoming the next president - may I remind
you that in his television address on Monday [9th August] Boris Yeltsin
effectively named Putin as his successor - those polled assessed his
chances as negligible. Forty per cent said that he had no chances of
becoming president whatsoever, while 31 per cent were confident that he
might become president but his chances were not very good. Only 5 per
cent believed that Putin may well become president. Twenty-five per cent
did not answer the question. [Caption shows that the poll was carried out
in Moscow on 11th August and that 1,000 people took part in it -- video
shows graph of figures]
Lebed Rejects Possibility of Government Post
August 13, 1999
[translation for personal use only]
[Presenter Andrey Norkin] Now we have a
report from Tomsk about the visit of acting Prime Minister [Vladimir
Putin] to Siberia.
[Correspondent Anastasiya Zhuravleva] The maximum possible number of
acting ministers, deputy ministers and the prime minister himself
gathered today in Tomsk for the meeting of the coordination council of
the Siberian Agreement interregional association. Participants in the
meeting for convenience agreed to drop the word 'acting'. Still they were
concerned with the changes in the future government. Before the meeting
started, [Krasnoyarsk Territory governor] Aleksandr Lebed was forced to
comment on the rumours about his possible appointment as deputy prime
minister supervising law-enforcement agencies.
[Begin recording] [Lebed captioned as the Krasnoyarsk Territory governor]
Do I look like an idiot?
[Unidentified voice] Aleksandr Ivanovich, does that mean that under no
circumstances will you join the government?
[Lebed] Under no circumstances.
[Correspondent] Were there any proposals?
[Unidentified voice] No, there were none.
[Lebed] And in general, I shall never again take any positions, to which I
was appointed by somebody. [end recording]
[Video showed participants around conference table, Putin among them, Lebed
outside having a smoke in the fresh air while addressed by the journalists].
Securities Market Official on Private Investment
11 August 1999
[translation for personal use only]
Interview with Dmitriy Vasilyev, chairman of the Federal Commission
on the Securities Market conducted by Rossiyskaya Gazeta correspondent
Ivan Klimenko: "To Whom Will We Entrust Our Money?"
In countries with a developed market economy, one of the main
personages on the market is the individual--the private investor. In
the USA, for example, there are several tens of millions of such
investors. Their input into the economy is estimated at trillions of
dollars. Our population also has huge monetary savings at its
>From time to time, politicians remember the need for involving
[this money] in the economy--primarily when it is necessary to plug
another hole in the budget. However, things have not yet gone so far as
any real significant steps. That is why the people are in no hurry to
take their savings out of the "cookie jars." What must the executive
branch undertake to accomplish this? What depends on the legislative
branch? What do the parties and movements who aspire to power in the
country have to say to voters in regard to this problem?
It is to these and many other questions that we--together with
you, our respected readers--will try to find the answers. With this
purpose in mind, the editors have organized a unique informational
bridge between the readers, that is the people, and the authorities.
What will be the result of this discussion? It would be good it if were
a packet of normative documents necessary to solve the problem. It
would be even better if it were specific investment projects...
Only time will tell. But today, under a new column entitled "Our
Money," we are publishing the first material on this topic. Our
interviewee is the chairman of the Federal Commission on the Securities
Market, Dmitriy Vasilyev.
COST OF THE QUESTION--$80 BILLION
[Correspondent] Dmitriy Valeryevich, the first question,
naturally, is about the cost of the problem. How much money does the
population actually have?
[Vasilyev] The population really has serious savings. There are
no exact estimates, because no one can calculate them precisely. The
estimates vary from $40 to $80 billion. These are billions which are
held by our citizens, and which could be placed into circulation. So
that the population has money, and a lot of it. Unfortunately, this
money is not working for the economy. First of all, it is not working
for the real sector, not giving economic growth, not creating jobs. And
secondly, this money is also not working for its owners and not giving
them any interest income. At the present time, these dollars serve the
people only as a protection of their savings for a "rainy day."
However, savings in cash form carries a serious threat to the security
of the owner, his family, and finally to his savings.
[Correspondent] And is there any information on the structure of
personal savings? How are they distributed?
[Vasilyev] Our analysis and surveys show that a significant
portion of what has been accumulated consists of small sums. That is,
millions of people have from $200 to $500 each. It is a great mass of
small savings. This, we might add, is something specific to Russia.
Yet small savings are very difficult to utilize. Naturally, the
question arises: What must be done so that this money would begin to
work for the people and for the economy? The main condition of any
financial investment is the trust of the owners. If there is no trust,
there is no investment. They simply will not give you the money.
Everything else is unimportant.
Today, frankly speaking, the people do not trust either the state,
or the banks, or any other institutions. This is the main problem.
Everything else revolves around it today. In recent years, trust was
repeatedly undermined. And especially by the events of August of last
year. And before that--by the unfair exchanges of monetary symbols, the
financial pyramids, certain check funds, etc. Therefore, in order to
attract public funds, it is first of all necessary to understand: Whom
do the people trust and what do they believe it today? And then--what
must be done so that tomorrow the people would expand the circle of
structures to which they would be ready to entrust their savings?
Today, the population trusts the dollar. American currency has
become the classic form of savings in Russia. Aside from that, people
are ready to invest in real estate property. And of the financial
structures, first place in the confidence rating is held by foreign
banks. These were the results of our surveys and studies.
If we want to attract the money of the population today, right
away, that means we must move in the designated direction. But
evidently, this does not suit the state, because from the standpoint of
the economy this is not enough. The owners of the "cookie jars" must be
offered a broader range of financial services. These have long been
developed throughout in the world, and are rather effectively utilized.
We must assimilate and offer them.
[Correspondent] But they must also begin to believe in
[Vasilyev] World experience suggests that faith is established
when maximal financial transparency of the structures operating with
public monies is established. If the investors do not know what is
being done with their money, if there is no precise declaration about
the utilization of their funds, if there is no clear understanding how
they are operating with it, no reportability, then there will be no
trust. We have created centers for collective investments in a number
of cities, but this is not enough. The question of openness of
information, of ensuring reportability, is very acute today. We must
show the people through reports of specific firms: Here is your money,
such-and-such an amount has been attracted, it was used in such-and-such
a way, and such-and-such amount of interest was received. Only through
openness and honesty is it possible to return investor
[Correspondent] But far from everyone will understand the
financial report. And who will guarantee that this report is
[Vasilyev] That is an important question. Alas, financially
experienced people do not constitute the majority. That means, in order
for a financial mechanism to operate effectively and without
interruptions, someone must oversee this mechanism. The people will
begin to trust us when, along with openness, we will also ensure a
strict, perhaps maybe even super-strict (after all these collapses)
system of oversight. Why do you think there is such a well-developed
financial market in America, which makes it possible for the average
American--some little old lady in Kentucky, for example--to invest the
$100 she has saved into shares of stock on the New York Stock Exchange?
Among other reasons, because in America there is a very strict system of
[Correspondent] At the same time, there is also the appropriate
[Vasilyev] I agree. After financial transparency and effective
oversight, I would place the creation of a branched communications
network, so that even our "babushka" [old lady grandmother] who lives
somewhere in Altay Kray, for example, could trade at least on the Moscow
The Times (UK)
August 17 1999
Exaggerating the Dagestan threat will exacerbate it
Russia has become highly sensitive about Islamist assertiveness since its
failure to defeat Chechen separatists in the 1994-96 war. Muslim guerrillas
who have crossed into nighbouring Dagestan from lawless postwar Chechnya,
triggered an alarm system that was already on high alert.
The rebels want to turn these two regions into an Islamic state. Anatoly
Kvashnin, the general who ran the Chechen war, again confronts insurgents led
by Shamil Basayev, his old Chechen opponent. Moscow is inclined to see this
as the Chechnya war revisited. But, before Moscow goes takes plans for a
fullscale onslaught any further, it should pause to consider whether it is
It makes perfect sense to stop the gunmen in Dagestan. But may be alarmist to
depict this small-scale unrest as a Chechnya-type threat. Chechnya's
rebellion was backed by a population hostile to the advancing Russians and
ready to fight. Dagestan is different, a hotch-potch of ethnicities run by
pro-Moscow politicians with a preference for a quiet life. The last thing
they want is for any group to start clamouring for self-rule; they also want
to avoid the fate of Chechnya, which suffered 80,000 casualties. Dagestani
police, who have no time for the extremists, are even helping the Russians to
The militants number only 1,000 men; Russian forces, rather implausibly,
claimed yesterday to have killed 600. The insurgents hold a mere half dozen
villages, which are being bombed by Russian planes, in a landscape of remote
mountains rising out of upland pastures that lie across more mountains. Few
people live in these picturesque villages; few travel there. Roads are so
avalanche-prone that rebels would find it hard to advance even as far as the
tiny region's coastal cities. The group is backed by Wahhabis, an extremist
sect recently introduced to the region; it is a tiny minority of which most
locals disapprove, preferring their traditional, folksy, mystical Sufi Islam.
Almost the only way to make Dagestanis rise up against Russia, in fact, would
be an inappropriately severe Russian crackdown - a path that Moscow is
already beginning to take.
Russia's response has been a mix of massive firepower and highly public panic
about the threat to national unity. The new Prime Minister, Vladimir Putin,
was approved yesterday by the hard-line Duma, mainly because of his tough
views on Dagestan. MPs declared the troubles there a threat to Russia and
insisted the invaders be "wiped out"; President Yeltsin promised a tough
response and said Mr Putin, a Soviet KGB veteran, was just the man to handle
This officially-endorsed panic is being read by some liberal sceptics as
political sharp practice whose rewards will be reaped in Moscow, not the
south. The aim, they suspect, is to scare Russians into giving more power to
the security police - inheritors of the KGB. The KGB, dismembered during the
Soviet collapse in 1991, was partly revived during the Chechen war in
response to the threat that Chechens posed to Russia. An undesirable
by-product of today's panic would be if Russia's secret police, who now have
their man running the government, again extended their powers, drawing
justification from the perception that Russians again need saving from a dire
International Herald Tribune
August 17, 1999
[for personal use only]
Fall of Ruble, It Turns Out, Was a Boon to Russia's Industry
David Hoffman Washington Post Service
MOSCOW - The symbol of Ochakovo Beer is a full-bearded, prosperous-looking
Russian country man hoisting a stein of golden lager with an anticipatory
smile. At the Ochakovo brewery here, the symbol reflects reality.
The brewery is working round the clock, and has plans this year to nearly
double last year's production to 118 million gallons (446.6 million liters)
of seven types of brew. ''It's become profitable to produce in Russia,'' said
the brewery vice president, Inna Kochetova. ''And beer is becoming more
fashionable - young people don't drink vodka anymore.''
The surge in beer sales is a small glimpse of how the devaluation of the
ruble a year ago Tuesday has rearranged the landscape of the troubled Russian
economy. The ruble's collapse and the subsequent economic crisis was like a
forest fire that blackened everything. But now, new shoots of industrial
activity are springing up out of the ashes.
For beer drinkers, the ruble crash made imports prohibitively expensive, and
demand has soared for Russian-made beer. Imported beers, once half the
market, are now less than 10 percent. In other sectors, from sausage to cars,
domestic production is roaring along to fill the gap left by the
disappearance of imports.
After years of industrial decline and a post-Soviet economic plunge
equivalent to the Great Depression that struck much of the world in 1929, the
sight of factories beginning to stir again is a glimmer of hope. A rise in
world oil prices is also bolstering Russia's economic fortunes.
''The balance of pluses and minuses are now in Russia's favor,'' said a
former economics minister, Yevgeni Yasin.
Unfortunately, the factory revival is not the whole story. A host of other
deeply ingrained problems, from a crippled financial sector to chronic
corruption to a shortage of capital, continue to plague Russia's bid to
become a market economy, and some of the difficulties have grown only worse
in the last year.
One of the most serious is continuing political instability as symbolized by
President Boris Yeltsin's dismissal of his prime minister last week.
The Russian people were big losers in devaluation. Russia's emerging middle
class had come to trust commercial banks and lost millions of dollars in
deposits. Most wages and pensions were not indexed against the sudden plunge
of the currency.
The ruble devaluation of Aug. 17, 1998, was, at the time, a thunderbolt that
seemed to unravel one of President Yeltsin's few accomplishments - a stable
currency and the quelling of hyperinflation of the early 1990s. But many
experts now say the devaluation was inevitable and marked an important
turning point in Russia's short, turbulent history of trying to become a
On that day, the ruble was devalued from about 6 per dollar to a rate that, a
year later, is about 25 per dollar. (That day, Russia also defaulted on about
$40 billion in short-term high-interest domestic bonds known as GKOs.)
Looking back, some economists now say that Russia could not have sustained
the stronger ruble. The Asian economic crisis and world oil price drop were
double blows to Russia, and the government was living in a financial bubble -
borrowing more than it could afford. Now, they say, the weaker ruble has
created conditions for growth in industry, and contrary to expectations,
Russia has not returned to hyperinflation.
''The crash in the ruble was the best thing that ever happened to this
country,'' said Eric Kraus, a Moscow-based banker. ''An overvalued currency
is a recipe for disaster.
''When I arrived, Moscow was more expensive than Osaka, or Zurich. Russia is
a poor country, and it should not be that expensive. The overvalued ruble
meant that it was just much cheaper to import. There was no use restructuring
industry when you could import the same goods for a quarter of the price. The
ruble was vastly overvalued.''
Anders Aslund, a senior associate at the Carnegie Endowment for International
Peace, said he believed that Russia was going through a ''radical
turnaround,'' propelled by devaluation and higher oil prices.
The industries that are now thriving in Russia, he pointed out, are not raw
materials but rather intermediary goods such as chemicals, pulp and paper and
construction materials, as well as manufactured goods like cars,
pharmaceuticals, machinery, textiles and shoes. The amount of barter, which
had gripped the whole economy in recent years, is falling, he said, while tax
payments in cash are rising.
The more promising outlook is reflected in the prospects of the giant
Ochakovo brewery, located in a Moscow industrial zone. Once a Soviet-era beer
and bottling factory, the company installed new brewing capacity in recent
years and is now in position to step up production to meet the sudden demand
for Russian beer.
Fitch IBCA comments on Russian recovery
NEW YORK, Aug 16 - In a comment published today on the Russian recovery,
Fitch IBCA questions whether it heralds a "new dawn" for Russia following the
forced devaluation of the rouble and the government's debt default one year
In a comparison of Russia's experience and that of other countries that have
suffered severe financial crisis, Fitch IBCA found that only Indonesia has
experienced a similarly severe import compression and real exchange rate
In other "crisis countries", quick and sustained recovery was associated with
export growth as well as import substitution.
The Russian recovery so far has been led by import substitution, while
exports were down 12 per cent in the first half of 1999 on the same period
Despite the recent rebound in industrial production, there is little evidence
that investment and export growth will emerge to sustain the current recovery
once the scope for import substitution has been exhausted.
Fitch IBCA also warned that the uncertain and volatile political environment
that will characterise the run up to the presidential elections expected in
July 2000 will depress investment, encourage capital flight, and place the
public finances under even greater strain.
Moreover, the wide-ranging structural and institutional weaknesses that
undermine the international competitiveness of the Russian economy have not
been resolved by the devaluation of the rouble.
Russia continues to leak capital at an alarming rate: Fitch IBCA estimates
suggest that between 1993 and 1998 Russia exported as much as USD136bln of
capital, equivalent to 50 per cent of gdp.
It also remains the case that the federal government is heavily indebted
given its limited capacity to generate revenue and will likely require debt
service relief from creditors for the foreseeable future.
Nevertheless, the rouble - with the benefit of hindsight - clearly had become
over-valued under the exchange rate based stabilisation pursed from mid-1995
and the economy will benefit from a much more competitive exchange rate.
But there is virtually no prospect that the Russian authorities will
implement major market reforms this side of presidential elections.
Without radical restructuring of the enterprise sector and substantial
investment - including foreign direct investment - the economy is likely to
reach the limit of its productive capacity quite quickly.
Consequently, investors would be well advised not to trust that the recent
pickup in industrial production heralds a sustained period of robust economic
growth that would underpin a dramatic improvement in Russia's economic and
Fitch IBCA's current rating of Russian Federation eurobonds is 'CCC' while
London Club Soviet-era debt - so-called "PRINs" and "IANs" - have a default
rating of 'DD' implying that creditors are expected to incur a capital loss.
EU's Hahn on Russian Investment Climate, Gazprom: Comment
Berlin, Aug. 16 (Bloomberg) -- Following
are comments by European Union envoy to Russia Ottokar Hahn. Hahn spoke about
the investment climate in Russia and about speculation that the government
take over OAO Gazprom, Russia's natural gas monopoly. Hahn spoke on German
radio station DeutschlandRadio Berlin:
Hahn said the current investment climate in some Russian regions is
``positive,'' though he warned constant political upheaval will make it more
difficult for international investors to adjust to conditions in the country.
``On the other hand, one must admit that a certain elite has developed, and
one can find plenty of suitable partners to discuss the future with,'' Hahn
Despite many signs of chaos in Russia, there is also a great deal of
stability, Hahn said.
``We can scarcely expect that we'll see a return to communism or that extreme
nationalistic tendencies will develop,'' Hahn said.
Hahn said that many steps were taken to improve Russia's investment climate
under former Prime Minister Sergei Stepashin, who was fired last week by
Russian President Boris Yeltsin.
``Together with the sanctioning of the International Monetary Fund loan, the
impression is there that a liberalization of Russia's legislation should be
achieved,'' Hahn said.
Towns such as Novgorod on the Volga River and in the southern cities of
Saratov and Rostov, there are ``positive micro-climates'' which are
attracting foreign investment.
Hahn said he can't imagine the government will re-nationalize Gazprom.
``It's more a question of personnel changes within Gazprom,'' Hahn said.
The current chief of the company, he said, has shown sympathy for groups
considered as opposition by Yeltsin.
``In this regard, a loyal president should let the head (of Gazprom) go,''
Hahn said. ``Though I have my doubts whether that will change much at