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CDI Library > Johnson's Russia List

Johnson's Russia List
 

 

August 20, 1999    
This Date's Issues: 3450 • 3451 


Johnson's Russia List
#3451
20 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Marco Fantini: Too much emphasis on the recent recovery in private 
consumption.

2. New York Times: Anatol Lieven, Why Dagestan Needs the Russians.
3. Boston Globe: Marshall Goldman, Stability is vital for Russians, 
even as leaders jostle to succeed Yeltsin.

4. Reuters: Gareth Jones, Kremlin seen lacking options in Duma poll.
5. Stratfor Commentary: Berezovsky Falls Victim to Political Shift in 
Kremlin.

6. Reuters: Adam Tanner, Russian official says U.S. arms talks failed.
7. The Economist editorial: Yeltsin’s double dilemma.
8. Moscow Times: Brian Whitmore, If Stepashin Is Smart He'll Back 
Yabloko.

9. The Moscow Tribune: Dmitry Polikarpov, Problems Of ‘98 Crisis
Persist.

10. Investor's Business Daily: Gorbachev Foundation's Jones On The 
Legacy Of Communism.

11. New York Times: Timothy O'Brien and Raymond Bonner, Bank in 
Laundering Inquiry Courted Russians Zealously.] 


*******

#1
From: Marco.FANTINI@DG2.cec.be (Marco Fantini)
Date: Thu, 19 Aug 1999
Subject: Too much emphasis on the recent recovery in private consumption

I would like to intervene on the recent flurry of reports on the recent
recovery of private consumption in Russia. The significance of this rebound
is being overrated; the recovery in private consumption is largely due to
the fact that wage and pension arrears have been reduced; consumers
therefore find more money in their pockets and spend it. Nezavisimaya
gazeta wrote today that pension arrears have dropped by 19.4 billion
roubles since the beginning of the year. Current arrears to pensioners
amount to only 6.9 billion roubles now. A similar trend applies to wages
arrears. Thus, a good deal of the rebound is based on a one-time liquidity
effect. It is, of course, a good thing that arrears are being reduced, but
this should not lead us to excessive optimism on the longer-term prospects
of the Russian economy.

Marco Fantini
EU Commission 
(please note that the above is a personal view only - not necessarily the
view of organisation I belong to)

*******

#2
New York Times
August 20, 1999
[for personal use only]
Why Dagestan Needs the Russians 
By ANATOL LIEVEN (lieven@iiss.org.uk) 
Anatol Lieven, an editor at the International Institute for Strategic 
Studies, is the author of "Chechnya: Tombstone of Russian Power." 

LONDON -- T elling countries that they should never have gone into the 
business of empire is easy. Telling them how to get out of it without leaving 
an awful mess behind is much harder. This was true of the British in India 
and the French in Algeria -- and it's true of the Russians in the northern 
Caucasus. 

The unfolding crisis in Dagestan presents grave dangers not only for the 
peoples living in this Russian republic and for Russia itself but also for 
the other states of the Caucasus and for Western political and economic 
interests there. 

Western commentators have generally seen Russia as playing a negative role in 
the Caucasus in the 1990's, and not without some reason. For at least the 
past three years, United States policy has been explicitly dedicated to 
"rolling back" Russian influence there. The assumption is that the absence of 
Russian "interference" will allow the nations of the region to develop both 
strong, independent state structures and more harmonious relations with one 
another. 

This view, however, is only partially true of the independent southern 
Caucasus. For the even more divided northern Caucasus it is ludicrous. In the 
north, the steep decline in Russian military power and political authority, 
demonstrated above all by its defeat in the Chechen war, threatens to plunge 
the whole region into violent ethnic, religious and political turmoil. 

This prospect has been brought a good deal closer by the recent large-scale 
incursion of rebel forces into Dagestan, under the command of Shamil Basayev, 
the legendary Chechen guerrilla leader, and Khattab, a radical commander of 
Jordanian origin. The latest outbreak follows several years of increasing 
raids from Chechnya into southern Russia and Dagestan, involving numerous 
kidnappings and robberies as well as terrorist attacks and ambushes. 

The demoralized, badly trained Russian army will have great difficulty 
defeating these Chechen fighters. And even if the Chechens decide to 
withdraw, they will certainly return after a few weeks or months. The 
militants are tough, experienced fighters with a strong ideology and a 
burning hatred of Russia. Moreover, the Chechen war and the collapse of the 
local economy have left tens of thousands of young Chechens with no 
occupation other than to fight. Over time, such incursions could well wear 
down Russian resistance and even lead to a Russian withdrawal. 

If this happens, it will emphatically not be because a majority of Dagestanis 
support the militants in their declaration of an independent Islamic state. 
Most Dagestanis remain loyal to the traditional Sufi Islam of the region, and 
there have been serious clashes with new, foreign-inspired radicals. The 
Dagestani Government of Mahomedali Mahomedov and the great majority of 
Dagestani politicians have repeatedly declared their desire to remain within 
the Russian Federation. 

This position stems not from Dagestanis' love of Russia but from their 
dependence on Russian subsidies (though these have dropped steeply in recent 
years as a result of Russia's economic decline). Even more important is the 
realization that Russian withdrawal would inevitably trigger a disastrous 
struggle between Dagestan's 34 different nationalities, turning the republic 
into an impoverished version of Lebanon in the 1970's. 

Several of these nationalities have bitter land disputes with one another, 
and are also increasingly divided by adherence to rival organized-crime 
groups. In the later Soviet years, order was maintained in Dagestan by an 
elaborate system of ethnic power sharing -- but this has always been 
guaranteed by Moscow. It could be that radical Islam can create a new 
supranational system, but if so, only over tens of thousands of corpses. 

There are several dangers for the West in all this. The most obvious is that 
instability in Dagestan could easily spill over the border into Azerbaijan, 
where the West has important oil interests. Moreover, the West should be 
worried about the establishment of another radical Islamic state, especially 
one that's full of weapons, unemployed fighters and criminal groups. Nearby 
Chechnya has effectively become a sort of rogue area and terrorist haven, 
akin in some ways to Afghanistan, and is already a base for anti-Western Arab 
Muslim militants. 

So rather than simply trying to roll back Russian influence, which is already 
weak, the United States should recognize Russia's legitimate interests and 
try to work with it. All the states of the region have an interest in 
limiting the kind of disruption spreading from Chechnya. 


A s for control over the region's great economic prize, Azerbaijan's oil, 
Russia has already lost out. Given the growing turmoil in Dagestan, no 
serious analyst thinks that the main export route for this oil could run 
through there to a Russian port. One way or another, it will go to the West. 
The conflict in Dagestan, not Russian pressure, is the real threat to oil 
development. 

Above all, the United States needs to realize that the Caucasus is one part 
of the world where the decline of Russian power will not necessarily ease 
local conflicts. In some cases, it will only make them much worse.

******

#3
Boston Globe
20 August 1999
[for personal use only]
Stability is vital for Russians, even as leaders jostle to succeed Yeltsin 
By Marshall I. Goldman (goldman3@husc.harvard.edu)
Marshall I. Goldman is the Kathryn W. Davis Professor of Russian Economics at 
Wellesley College and associate director of the Davis Center for Russian 
Studies at Harvard University.

Just as we will in the United States, the Russians will elect a new president 
next year. And while we think we have an interesting campaign with arguments 
over campaign finance, immoral behavior, experience, and behind-the-scenes 
manipulation, our election is likely to be the model of propriety compared 
with Russia's.

The chaos created by the installation of five prime ministers in slightly 
more than a year and a half reflects not only President Boris Yeltsin's 
disquiet over having to leave office but also the high stakes involved. In 
Russia, winning both the contest for the parliament, or Duma, and the 
presidency is important because the loser and his entourage may end up in 
jail and the losing political party outlawed. Already the just-fired minister 
of justice has revealed that Yeltsin's staff had pressured him to ban the 
Communist Party, now the largest party in the Duma, and also urged him to 
refuse to recognize the newly created Fatherland All Russia Party, likely to 
become the largest party in the new Duma.

Yeltsin and his entourage, referred to as ''the family,'' have reason to be 
worried. Historically Russian leaders have never been kind to their 
predecessors. Nikita Khrushchev was put under house arrest. Mikhail Gorbachev 
was humiliated, his car and bodyguards taken away, and for a time he was even 
prohibited from traveling outside Russia.

In Yeltsin's case, there have already been accusations of secret villas and 
bank accounts in Switzerland and rake-offs from the extravagant $488 million 
remodeling of the Kremlin awarded a cooperative Swiss contractor. One of 
Yeltsin's advisers, the oligarch Boris Berezovsky, is still under 
investigation for money diversion and laundering. In a real sense, Yeltsin 
has good reason to worry about his place in history.

That is not to say that the stakes were any less important in the 1996 
Russian presidential race. But then the issues were starker. There was a real 
concern that the Communist Party and its leader, Gennady Zyuganov, would win. 
Certainly until midway through the campaign, Zyuganov's poll standing was 
higher than Yeltsin's. And if the Communist Party had won, there was a 
reasonable fear not only that the state would renationalize much if not all 
of the property acquired and created by the new class of oligarchs but that a 
long list of reformers, including Yeltsin, would face imprisonment if not 
death. That realization forced otherwise enemies into a coalition that ended 
up controlling the money and the media. It then became a showdown between 
Yeltsin (the forces of good) versus the Communist Party (the forces of evil) 
with all the other candidates ignored by the media.

This time the Communist candidates do not pose as much a threat, so there is 
no need for an anti-Communist coalition. Instead it is a pure power grab 
between Yeltsin's ''family'' and other groups seeking power and property. The 
Yeltsin family is seeking a loyal prime minister who will protect Yeltsin and 
the rest of the entourage. Its latest candidate is Vladimir Putin, a former 
KGB agent in East Germany who most recently headed the agency. It has not 
been easy finding a suitable successor; that explains the turnover of prime 
ministers. Yeltsin usually picks vanilla types who will not outshine him.

However, a funny thing seems to happen to most of his prime ministers. Except 
for Viktor Chernomyrdin, who really is dull, Yeltsin's prime ministers 
developed charisma after being fired from office and are ahead of Yeltsin in 
the polls. Yeltsin has created viable contenders who didn't exist before, as 
well as enemies who resent the way they were manhandled by the ''family.'' 
Primakov is the best example.

All three of the last prime ministers may be candidates to succeed Yeltsin. 
Now that he has aligned himself with Mayor Yuri Luzhkov and his Fatherland 
movement, Evgeny Primakov appears the most likely to succeed Yeltsin. That 
has yet to be worked out with Luzhkov, who had similar aspirations until a 
few days ago. But while Primakov may appeal to some 26 percent of the Russian 
public (not high, but everyone else is considerably lower), he and his new 
coalition arouse concerns among many others. For example, Primakov is 70. 
That is 10 years over the average male life expectancy in Russia and two 
years older than Yeltsin. Besides, Primakov has had serious heart and back 
problems. 

Luzhkov's eagerness to form such a partnership may simply reflect his 
calculation that Primakov's health will prevent him from presiding over a 
full term. Nor are the reformers all that comfortable with him. While 
Primakov is regarded as honest, and he did pass some economic reform 
legislation as prime minister, he has often expressed sympathies for the old 
way of doing things. For example, he wants to appoint, rather than elect, 
regional governors, and he has also hinted that he might renationalize some 
industries and reinstitute some state economic controls.

Nor is it a certainty that he will get along with Luzhkov, who is regarded as 
anything but a model of propriety. For that matter, almost all of the leaders 
in the new Fatherland Coalition except Primakov are notorious for the way 
they have suppressed opposition in their regions while enhancing their 
personal estates.

What is so fascinating about Russia is that so far none of this seems to have 
hampered Russia's economy. After almost a decade of continuous decline, the 
Russian economy has begun to show the first signs of growth.

Beginning in March this year, industrial production showed a slight 1.4 
percent increase over March 1998. By last month, the increase was a 
remarkable 12.8 percent over July 1998. Strangely enough, the recovery is due 
almost entirely to the aftermath of Black Monday, the financial collapse of 
Aug. 17, 1998. In the wake of that meltdown, the value of the ruble fell so 
that today it is worth only a quarter of its previous value. That has all but 
precluded imports of consumer goods.

This has turned out to be a windfall for domestic producers, and that is what 
the increase in production reflects. What remains to be seen, however, is 
whether or not the Russians will take advantage of this interlude to make the 
structural changes they need to improve their competitiveness so they can 
compete in international markets. They must improve productivity, clean up 
their legislation, and improve law enforcement.

The signs are not especially promising. Inflation, especially in the oil 
sector, seems to be growing. Moreover, unlike most Asian nations after Asia's 
financial crisis, Russian exports have declined, not increased. More than 
that, foreign investors continue to be taken for suckers by the Russians in a 
series of high-profile scams. Even a sophisticated firm like BP/Amoco has had 
to write off most of its $571 million investment in a Russian oil company.

The Russian oil company proprietors simply stripped the assets that BP/Amoco 
was attracted to in the first place. Nor is this a unique experience.

If it wants to continue this somewhat unanticipated economic momentum, Russia 
must address its economic and legal challenges. Given the sharpening of 
political knives and the fragile climate in which the Russian political 
process works, there will be few Russians or foreigners willing to risk the 
long-term investment that a fundamental improvement requires. The threat of a 
return to communism may have passed, but for the time being at least the 
likely alternative seems to fall far short of what is needed. It would be a 
shame if the current economic revival once again ran afoul of what seems to 
be an inescapable mudslide.

*******

#4
ANALYSIS-Kremlin seen lacking options in Duma poll
By Gareth Jones 

MOSCOW, Aug 20 (Reuters) - The Kremlin is running out of 
options to shape the outcome of December's parliamentary election, political 
analysts said on Friday. 

President Boris Yeltsin's entourage -- whom Russian media dub The Family -- 
has been dismayed by this month's emergence of a new centre-left bloc led by 
popular ex-prime minister Yevgeny Primakov and ambitious Moscow Mayor Yuri 
Luzhkov. 

Its plans to forge a right-leaning counterweight, preferably under the 
leadership of another former prime minister, Sergei Stepashin, appear to have 
run into the sand. 

On Thursday Stepashin, the baby-faced security chief whose popularity grew 
during his three brief months as premier, signalled that he was likely to 
seek a seat in the Duma as an independent candidate beholden to nobody. 

``I am...a citizen of Russia and have the right to make my own political 
choice,'' he said after failing to clinch a political tie-up with the liberal 
opposition Yabloko party. 

Yabloko leader Grigory Yavlinsky has said his party would back Stepashin if 
he ran as an independent candidate in his native city, St Petersburg. 

The very fact Stepashin held talks with the famously prickly Yavlinsky 
underlined the former prime minister's reluctance to cooperate with the 
Kremlin's election strategy, analysts said. 

``Stepashin refused to play ball (with the Kremlin). He has decided to keep 
his options open. This was another setback for the Kremlin (after the 
formation of the Luzhkov-Primakov bloc),'' said Andrei Piontkovsky of the 
Centre for Strategic Studies. 

``The Kremlin would probably do better to keep a low profile during this 
election campaign,'' he added. 

Boris Makarenko, deputy director of the Centre for Political Technologies, 
sounded a similar note. 

``The Kremlin has nothing to gain by trying to impose itself (on the Duma 
election campaign),'' he said. 

He said a meeting on Wednesday between new Prime Minister Vladimir Putin, 
Kremlin aide Alexander Voloshin and Stepashin had been aimed at marshalling 
the forces of the centre-right. 

``This meeting was an attempt by the presidential administration to rally 
loyal forces but it failed,'' he said. 

The meeting was attended by two other former prime ministers with cordial 
ties to the Kremlin, Viktor Chernomyrdin and Sergei Kiriyenko, both of whom 
lead right-leaning political factions. 

Kremlin insider Anatoly Chubais, linked to a third right-wing group, was also 
present. 

Both Chernomyrdin and Stepashin are reluctant to become involved with the 
unpopular ``young reformers'' Chubais, Kiriyenko and former acting premier 
Yegor Gaidar, whose free market ideology has been discredited in the eyes of 
ordinary Russians by Russia's decade-long economic crisis. 

Gaidar liberalised prices in early 1992, triggering high inflation. Chubais 
is a controversial figure widely criticised for selling off Russian industry 
too cheaply and Kiriyenko was premier during Russia's financial crash last 
August. 

Without the public backing of a more attractive politician like Stepashin the 
``young reformers'' are unlikely to clear the minimum five-percent barrier 
needed to win Duma seats. 

The Kremlin's plans for a centre-right bloc suffered a further blow on Friday 
when Chernomyrdin's more centrist Our Home is Russia party said its members 
opposed any electoral deal with the ``young reformers.'' 

Our Home is the second biggest party in the present Duma after the 
Communists, but is expected to fare badly in December. 

Nikolai Petrov of the Carnegie Endowment for International Peace said he 
expected the centre-left grouping of Primakov, Luzhkov and powerful regional 
leaders to win more than a quarter of the seats in the next Duma. 

This would position either Luzhkov or Primakov to make a strong bid for the 
presidency in next summer's election. 

``It is Primakov and Luzhkov who now pose the mortal threat to the Kremlin, 
not the Communists,'' said Petrov. 

But analysts said Yeltsin and The Family had only themselves to blame for 
their current lack of options. 

``The Kremlin has put the narrow interests of The Family before broader 
political considerations,'' said Makarenko. 

``They have no reasonable strategy for the Duma election now because they 
have no idea who they want to be occupying the Kremlin a year from now,'' he 
said. 

Yeltsin has named his new prime minister, former KGB spy Putin, as his 
preferred successor. But Putin lacks charisma, has no political base and, 
even with the full weight of the Kremlin behind him, faces an uphill battle 
to win the trust of Russians long grown suspicious of anything the Kremlin 
says or does. 

******

#5
Stratfor Commentary
www.stratfor.com
0214 GMT 990820 – Berezovsky Falls Victim to Political Shift in Kremlin

Swiss authorities had frozen approximately US $66.6 million of accounts 
belonging to Russian oligarch Boris Berezovsky, the Swiss weekly Facts 
reported August 19. Dominique Reymond, a spokesman for the Swiss public 
prosecutor’s office, confirmed that some accounts have been frozen at the 
request of Russian prosecutors, but refused to comment on who held the 
accounts and the amounts in them. Nikolay Volkov, senior investigator of the 
Russian Prosecutor-General’s Office who is heading the investigation in 
Russia, stated that a request to freeze the accounts was made as early as May 
of this year. However, the accounts were not touched until August 19.

This action, coming only a week after the appointment of Vladmir Putin as 
Prime Minister of Russia, is significant. While there is no direct evidence 
linking Putin to the action, we believe he is the force behind it. There are 
less than a handful of people in the Russian government for whom the Swiss 
would freeze Berezovsky’s accounts. One is Russian President Boris Yeltsin, 
but inasmuch as Berezovsky is Yeltsin’s long-time ally and financier, it 
seems highly unlikely Yeltsin ordered the freeze. Yeltsin would not bite the 
hand that feeds him. In fact, Yeltsin has undoubtedly been protecting 
Berezovsky since the investigation began in May under former Prime Minister 
Yevgeny Primakov. Primakov commenced his attack on Yeltsin’s pet oligarch as 
soon as he took office, in a campaign that eventually led to an arrest 
warrant against Berezovsky. Berezovsky was not arrested, but Primakov lost 
his job.

Prosecution of Berezovsky languished under Primakov’s successor, Sergei 
Stepashin, but now Stepashin is gone. Putin has taken charge, and whether 
chosen by Yeltsin or forced upon him, Putin has made major reversals in 
Yeltsin policy. In less than a week, Putin has rejected Stepashin’s timid 
handling of the Dagestan crisis, ordering the assembly of now over 7,000 of 
Russia’s elite paratroopers and special forces in preparation for crushing 
the guerrillas. Now, he has turned against not just any economic criminal, 
but Yeltsin’s close personal associate. We await Berezovsky’s indictment for 
"crimes against the people."

Putin is not behaving like another Yeltsin tool. He is reversing fundamental 
Yeltsin policies dating back years, and undermining Yeltsin’s closest 
supporters. This is only the beginning.

******

#6
Russian official says U.S. arms talks failed
By Adam Tanner

MOSCOW, Aug 20 (Reuters) - A top Russian military official lashed out at the 
United States on Friday over what Moscow sees as a failed preliminary round 
of talks on a new nuclear weapons reduction treaty. 

Colonel-General Leonid Ivashov, who heads the Defence Ministry's 
international cooperation division, said the United States was dooming new 
arms control talks by seeking to change the 1972 Anti-Ballistic Missile (ABM) 
treaty. 

``Perhaps the Foreign Ministry would put it more gently but there were no 
results from these talks,'' Ivashov told reporters after three days of 
discussions on a new START-3 treaty. 

Ivashov, one of Russia's most hawkish officials on defence and foreign 
policy, reiterated Moscow's view that U.S. plans to modify the ABM Treaty 
would wreck past arms control agreements. 

``The ABM treaty is the basis on which all subsequent arms controls 
agreements have been built,'' he said. 

``To destroy this basis would be to destroy the entire process of nuclear 
arms control.'' 

U.S. and Russian officials including Ivashov ended three days of Moscow talks 
on Thursday on a START-3 nuclear weapons reduction treaty and America's wish 
to change the ABM agreement. 

START-3 is aimed at adding to the cuts in nuclear arsenals due to be made 
under START-2, signed in 1993 and which foresees a reduction in stockpiles of 
each country to 3,500 warheads by 2003. 

But even that 1993 treaty is still facing troubles as it has languished for 
six years without the approval of Russia's Communist-dominated State Duma, 
the lower house of parliament. 

A member of the U.S. House of Representatives Armed Services Committee called 
Ivashov's comments obstructionist given Russia's failure to approve START-2. 

``I want to know why they can't ratify the START-2 agreement,'' Ellen 
Tauscher, a Democrat from California, told reporters in Moscow after a trip 
to one of Russia's closed nuclear research cities. 

Yet Ivashov said U.S. moves on a new ABM system overshadowed everything else 
in arms control by seeking to present Russia with a fait accompli about which 
it could do little. 

``All this is done in violation of the obligations of the 1972 ABM treaty,'' 
he said. 

The ABM treaty bans full systems designed to shoot down the other side's 
missiles. But the United States now plans to build a similar shield against 
missile programmes it fears are being developed by countries such as Iran and 
North Korea. 

A U.S. embassy spokesman said Defence Secretary William Cohen would meet his 
Russian counterpart Igor Sergeyev on September 13 or 14 in Moscow. 

The next round of lower level talks on a START-3 deal are to continue in 
September in Washington. 

Ivashov said tensions with NATO over Yugoslavia made it more difficult to 
reach agreement in arms control as well. 

``The United States and NATO are trying to bring about their own order (in 
Yugoslavia), at the same time shutting the governments of the region out of 
the process,'' he said. 

Russia strongly opposed NATO's March-June air strikes against its Slavic, 
Orthodox brethren in Yugoslavia. Its peacekeepers have been working with NATO 
forces on the ground in Kosovo since the end of the war but strains remain. 

******

#7
The Economist
August 21, 1999
[for personal use only]
Editorial
Yeltsin’s double dilemma 
Russia’s president faces opposition at home and war in the Caucasus 

EVEN by Russian standards, this is a dangerous set of circumstances. For the 
first time since his re-election three years ago, President Boris Yeltsin 
faces a credible opposition movement, led by tough-minded pragmatists whom he 
cannot demonise, either to the western world or to his own voters, as 
communists and fascists (see article). This week’s decision by Yevgeny 
Primakov, a former prime minister, to join a broad coalition of regional 
barons could make the movement virtually unbeatable, if—and this is, of 
course, a giant if—the forthcoming parliamentary and presidential elections 
are held as scheduled (next December and June, respectively) and conducted 
more or less fairly. 

The trouble is that something else is happening, also for the first time 
since 1996: Russian helicopters, aircraft and artillery are once again 
strafing the mountains of the northern Caucasus. This time, the war zone is 
in the hills of multi-ethnic Dagestan, where a band of Chechen warlords and 
Islamist fighters are defying Moscow’s authority. 

So what is the connection between these two developments? Perhaps none exists 
as yet, although Moscow would not be Moscow if it were not buzzing with 
elaborate theories about provocation and counter-provocation. But, regardless 
of who is to blame for triggering the latest Caucasian crisis, there can be 
little doubt of the acute risks that are created by the Kremlin’s double 
bind. Because Mr Yeltsin is in a tight corner politically, he has every 
incentive to play dirty tricks on his opponents; and war in the Caucasus, on 
past evidence, could give him—and his new prime minister, the veteran KGB 
officer Vladimir Putin—every opportunity to do so. 

To put things at their simplest, a crisis in the Caucasus could provide the 
Kremlin with a perfect opportunity to postpone December’s parliamentary 
elections—especially if the violence were to spread (in the form of bombings, 
kidnappings or hijackings) to Russia’s heartland. Even if things do not go 
that far, the experience of the Chechen war, which raged for nearly two 
ghastly years until August 1996, suggests that conflict on Russia’s southern 
border can have a poisonous effect on political life in the metropolis. The 
bloodshed in Chechnya divided and demoralised Moscow’s liberal reformers, and 
gave heart to some of the darkest elements in the odd coalition of forces 
that have kept Mr Yeltsin in office. 

Remember what happened in early 1996, when the war in Chechnya was sputtering 
away and Mr Yeltsin faced the risk of defeat at the ballot box. His advisers 
were united in their determination to keep him in office, but could not agree 
on the best way. One camp thought that the president could still win an 
electoral contest; another wanted him to extend his rule by engineering a 
political or military crisis, declaring a state of emergency and cancelling 
the poll. The latter camp coincided precisely with the “war party” which also 
saw advantage (political and, almost certainly, financial too) in the waging 
of a cruel and open-ended conflict in Chechnya. In the end, the more moderate 
members of Mr Yeltsin’s entourage won, but only by the skin of their teeth. 

Make a deal with the Chechens 

Now, as Russia faces a fierce new crisis in the Caucasus, how will the 
outside world be able to tell whether hawks or doves are prevailing? Quite 
easily. It is clear what the Russians should do if they genuinely want a calm 
Caucasus. The overriding need is for a durable peace settlement between 
Russia’s leaders and Chechnya’s elected president, Aslan Maskhadov. 
Such a deal, which would presumably fudge Chechnya’s political status, while 
opening the way for reconstruction and trade, would shore up Mr Maskhadov’s 
position against extremists and warlords, both in his own republic and in 
neighbouring Dagestan. The fact that Chechnya has been left in political and 
economic limbo since the 1996 ceasefire is one of the main reasons why it 
remains trapped in poverty and lawlessness. At the moment, not even 
humanitarian aid can get through to Chechnya’s long-suffering people because 
Russia cannot make up its mind to acknowledge the republic’s virtual 
independence. Only a settlement will enable Chechnya, and the surrounding 
region, to start developing normally. 

If Mr Yeltsin is prepared to make a deal with Mr Maskhadov, there may still 
be a shred of hope for peace in the Caucasus and democracy in Russia. But if 
Russia continues to be reluctant to throw Mr Maskhadov a lifeline, it will 
suggest that men of violence are once more in the ascendant. We should then 
prepare ourselves for more bad news from Russia, both military and political. 

******

#8
Moscow Times
August 20, 1999 
PARTY LINES: If Stepashin Is Smart He'll Back Yabloko 
By Brian Whitmore
Staff Writer

On Wednesday, the coquettish Yevgeny Primakov finally dropped his flirtatious 
pose and made it official: He will head Fatherland-All Russia. By Thursday, 
with the Primakov question answered, political Moscow was whirling around to 
focus on Russia's other "wrongfully sacked" former prime minister: Sergei 
Stepashin. 

Conventional wisdom has held that Stepashin will join a much talked about 
"center-right" bloc linking Sergei Kiriyenko's New Force, Viktor 
Chernomyrdin's Our Home Is Russia, and Yegor Gaidar's Right Cause. 

When those four met this week with newly confirmed Prime Minister Vladimir 
Putin, everyone assumed that Stepashin was pretty much spoken for. The 
expectation was that Putin would start slapping heads in the regions to get 
some governors to play ball and support this new pro-Kremlin team. 

But Chernomyrdin seems in no hurry to embrace the widely-loathed Gaidar; 
Kiriyenko is blaming "the system," which seems to include everyone but 
Kiriyenko; and then, out of nowhere, comes Stepashin's intriguing meeting 
with Yabloko leader Grigory Yavlinsky. 

Was Stepashin really considering hooking up with Yavlinsky? Or more 
interestingly - taking into account the former prime minister's closeness to 
President Boris Yeltsin and his role in the October 1993 shelling of the 
White House and the Chechen war - was Yavlinsky really considering hooking up 
with Stepashin? 

Yavlinsky said Thursday that he and Stepashin had considered joining forces. 
But, he added, Stepashin concluded that he could not join Yabloko because, as 
an "officer," he felt obliged to stay loyal to his president - whatever that 
may entail. 

One of the many rumors circulating about the reason for Stepashin's firing 
last week was that - in addition to not being "tough" enough to prevent 
Moscow Mayor Yury Luzhkov from winning Russia's regional leaders to his side 
- he was unwilling to carry out constitutionally questionable measures to 
protect Yeltsin and his "family." Stepashin fed this theory with a recent 
interview in Komsomolskaya Pravda, where he said he was fired because he 
"could not be bought." 

So what will Stepashin do now? He says he will run for the State Duma from a 
St. Petersburg district - and Yavlinsky says Stepashin will do so with an 
endorsement from Yabloko. 

We are still waiting to hear Stepashin's side of that story. But if he is 
linking up with Yabloko's Yavlinsky, that speaks highly for him. Yavlinsky is 
one of the few national politicians who are not tainted with the sleaze and 
cronyism of the Yeltsin years; and Yabloko is hands down the only real 
democratic opposition in Russia. 

However, Stepashin still has time to screw things up for himself. He has 
always struck me as somebody who - in his heart of hearts - wants to do the 
right thing, but never seems to find the strength to do it, and often ends up 
doing the wrong thing. 

He can talk all he likes about being "an officer." But there is more to an 
officer's honor than saluting at orders, no matter how flawed. Stepashin is 
no longer employed by the government; what would have been dishonorable about 
moving into opposition against a Kremlin that, by his own account, tried "to 
buy" him? 

Jonas Bernstein is on vacation. 

******

#9
The Moscow Tribune
August 20, 1999 
Problems Of ‘98 Crisis Persist 
By Dmitry Polikarpov 

Despite the fact that the Russian economy has apparently overcome the August 
1998 crisis, one year later Russia still seems to face similar problems.

Industrial output figures are up 4.5 per cent in the first seven months of 
1999 from the same period in 1998, with the most significant increase in July 
of 12.8 per cent over July 1998. Nonetheless, unstable government, a 
collapsed banking system, an ongoing petrol crisis and growing foreign and 
internal debt combine into a situation that seems to many to resemble the 
conditions following the dismissal of the then premier Sergei Kiriyenko last 
year.

Since then, failing to make a final choice between a flexible monetary 
strategy which doesn’t exclude new devaluation of the ruble, and the 
so-called “tough” variant, which will put Russia’s finance under the control 
of a currency board, the Kremlin has left the economy to recover on its own.

According to Alexei Ulyukaev, deputy director of the Institute of the Economy 
in the Transitional Period, the August crisis “finally threw the country back 
to the level of 1996 when Boris Yeltsin was elected president for the second 
time.”

“With the dismissal of Kiriyenko any hope for structural liberal reforms 
disappeared. Yeltsin’s second term was finally a loss for the economy which 
will need the same reforms in 2000 it needed in 1996,” Ulyukaev said.

As a result, the current economic system in Russia combines two completely 
different sectors. In the so-called state-related sector a company’s results 
depend on its relations with the authorities (major oil companies, natural 
monopolies). The other side is represented by the market sector which 
operates in accordance with free market laws, mostly at the level of medium 
and small enterprises.

Relative stability of the ruble seems the only important positive change 
since last August when the Russian national currency plummeted from 6 to 20 
rubles per dollar in only a few weeks. However, the ruble recently confirmed 
its high dependence on the political situation when it lost some five per 
cent of its value against the dollar after the ousting of Sergei Stepashin 
from the premier’s chair.

Although the government managed to restructure foreign debt and avoid 
immediate default, it failed to make the Russian market attractive for 
foreign investors, who cancelled most of the ambitious projects that had been 
drafted before the August crisis.

Despite the fact that local production became much more profitable after the 
crisis due to the devaluation of the ruble, few foreign companies have shown 
an interest in making long-term investment in Russia so far. On the contrary, 
giants like General Motors and Fiat have put their production plans in Russia 
on hold until at least the year 2003, when the Russian economy is expected to 
have fully recovered from the crisis, according to foreign forecasts.

Despite media reports, analysts said that the financial crisis had not 
seriously changed living conditions for almost two thirds of Russians.

“Some 60 per cent of the population has lived below the poverty level since 
1992, when liberal reforms started. This figure has increased by only 14 per 
cent as a result of the latest crisis,” said Vladimir Petukhov, director of 
the Center for Sociopolitical Analysis.

According to Petukhov Russia’s growing middle class became the main victim of 
the financial collapse, losing almost 20 per cent.

The unemployment rate increased from 11.5 per cent of the active population 
in July 1998 to 14.2 per cent in the second quarter of 1999, according to a 
recent study by the State Statistics Committee. The official statistics said 
that some 10.4 million people currently seek employment in Russia. However, 
analysts from recruitment agencies believe that the real figure is at least 
50 per cent higher.

At the same time the situation on the employment market has improved in the 
last few months according to the Labor Ministry employment service. The 
number of vacancies has increased since March from 357,000 to 610,000 while 
the number of applicants has decreased from 1,950,000 to 1,595,000.

******

#10
Investor's Business Daily
August 16, 1999
[for personal use only]
Gorbachev Foundation's Jones On The Legacy Of Communism
By Jim Christie
Is communism dead? Hardly, says T. Anthony Jones, who represents the 
Gorbachev Foundation in North America. 

IBD: Is communism still a threat to the U.S.?

Jones: We're behaving as if we're in a post-communist age, but we're 
not. We still have influential communist countries left, like China. Vietnam, 
North Korea and Cuba also still make their influence felt.
Communism also is still with us because its legacy will be with us for a 
generation or two.

IBD: What is communism's legacy?

Jones: The U.S. now finds itself exposed to criticism and the subject of 
unrealistic expectations from the rest of the world. Whenever anything 
happens, it tends to blame the U.S., for either doing nothing or doing 
something.
We're behaving as if everyone should love us for the good things we do. 
We don't realize that that's seen abroad as bravado, bullying.

IBD: What has communism left former communist states?

Jones: The longer a country was communist, the more likely the 
population is passive toward politics, and (more likely) to see the role of 
government as providing for every need. Those attitudes will be with us for 
another generation or two.
Also, because they were isolated for so long, they haven't learned what 
the rest of the world has learned. We've adjusted to a global economy and to 
the problems and benefits of capitalism. They were just thrown into it.
Third, people in communist countries never learned how to organize 
independent of the state. So when the Soviet state collapsed and the 
Communist Party disappeared, a vacuum appeared, into which negative forces, 
like the mafia, rushed in. This is leading to long-term political instability.

IBD: Going forward, what can we expect from communism as a political 
force? 

Jones: One mistake we could make is to assume it is totally 
discredited. It's only weakened. Communism is not based on a rational 
calculation, but rather on a sort of religious belief.
I can't see communism being recreated as it once was. More likely, it'll 
come back in various disguises.
In Central Europe, former communists have renamed themselves Social 
Democrats. Like Western European counterparts, they've taken up issues like 
social safety nets and how to distribute wealth, rather than create it.

IBD: Who and where are communism's leading figures now?

Jones: There really aren't any big-picture thinkers anymore. The last 
was Gorbachev. He thought he could rescue communism by giving it a human 
face. It didn't work. There aren't communists out there with new blueprints 
for society. They're really opportunists searching for power, but with no 
idea of what to do with it.

IBD: Why does communism still carry so much cache, especially in our 
centers of higher learning? 

Jones: It does, but it has no practical 
implications. Those who are interested in it talk to themselves, essentially.
But what is lacking among U.S. educators is teaching why communism 
occurs, and its economic and political dangers.
The story of what it will produce sounds so seductive. But the reality 
is quite different. Everywhere it's been tried, it's led to dictatorships.
In a larger sense, we have to do a much better job of teaching young 
people how economies work and are organized, and how they fit into them.

IBD: In Western Europe - France and Italy, especially - communist 
parties still have clout. Why?

Jones: Communism appeals to resentment. Even in Italy and France and 
other Western countries there are people, for one reason or another, who 
still feel resentful. But their communist parties will never come to power. 
They can only change agendas.
Clearly, they can have an effect. In Germany, for instance, the Greens 
are close to communists on economic policies.

IBD: Are China's leaders really communists?

Jones: No communist party has taken dogma seriously for the past 30 
years, except perhaps in North Korea. China's elites are interested in 
holding onto power. They're willing to tolerate all kinds of change so long 
as there is no opposition. They're very much opportunists. They very much 
want to stay in power.

IBD: Can communism make a comeback in Russia?

Jones: Polls and studies show there's a very clear break between young 
people and their parents. If you're 25 and under, you're very much like young 
people elsewhere: pragmatic, nonideological, no nostalgia for the past. On 
the other hand, they're still a recruiting ground for communism because 
they're hurting. 

******

#11
New York Times
20 August 1999
[for personal use only]
August 20, 1999
Bank in Laundering Inquiry Courted Russians Zealously
By TIMOTHY L. O'BRIEN with RAYMOND BONNER

The Bank of New York, in an effort to expand a lucrative business in Eastern 
Europe over the last several years, aggressively pursued relationships with 
Russia's largest banks, a strategy that might have led to the embarrassing 
questions about money laundering now being posed by Federal investigators. 

The bank specialized in setting up cash and securities accounts for Russian 
banks in the United States, a highly competitive market that it dominated, 
according to American bankers and financial analysts. 

The accounts, which were managed by one senior officer who has now been 
suspended, allowed Russian institutions to transfer money outside of Russia 
easily. 

At first, working with Russian banks seemed like a fruitful new business. But 
now several of those banks have collapsed, and billions of dollars that 
passed through the Bank of New York are being examined by Federal 
investigators who suspect a money laundering operation by Russian organized 
crime, law enforcement officials say. 

Investigators believe that it could be one of the largest money laundering 
operations ever uncovered in the United States, with $4.2 billion passing 
through one account alone from last October through March. 

The bank said Wednesday that it had been cooperating with the investigation, 
and that there were no allegations of wrongdoing by the company. It declined 
to comment further. 

The bank entrusted responsibility for much of the fast-growing business in 
Eastern Europe to Natasha Gurfinkel Kagalovsky, a senior vice president whom 
the bank suspended on Wednesday. Federal investigators are closely examining 
her role. 

One of her best customers was Inkombank, a fast-growing Russian bank that 
handled more than 250 payments a day through the Bank of New York. Inkombank 
brought its business to the Bank of New York from the Republic New York 
Corporation in 1992 because Ms. Kagalovsky promised to be less vigilant than 
Republic about the way Inkombank's accounts were handled, according to 
Emanuel E. Zeltser, once a lawyer for Inkombank, who is in a dispute about 
fees with his former client. 

Ms. Kagalovsky assured Inkombank representatives that "Bank of New York would 
be much more understanding about how to manage correspondent accounts than 
Republic," Mr. Zeltser said. Republic officials declined to comment, as did 
lawyers for Inkombank in New York. 

When Republic and the Bank of New York handled similar transactions with 
Russian clients some time ago, one investigator said, Republic filed a 
suspicious activity report with bank regulators but the Bank of New York did 
not. The nature of the transactions could not be learned. 

"Bank of New York was very happy with the money Natasha and Galitzine were 
making and routinely let them run their own show," Mr. Zeltser said, 
referring to Ms. Kagalovsky and Vladimir Galitzine, another Bank of New York 
officer. The Bank of New York said Mr. Galitzine was unavailable for comment. 

An individual familiar with the investigation of the bank said that Mr. 
Galitzine has not been suspended. But a vice president for the bank in 
London, Lucy Edwards, was suspended. She worked with Ms. Kagalovsky in the 
Eastern European division of the bank. 

Neither Ms. Kagalovsky nor Ms. Edwards has been accused of any crime. It 
remains unclear whether there was wrongdoing by them or other individuals, 
and how closely the bank supervised their activities and their Russian 
customers. 

It could not be determined who supervised Ms. Kagalovsky. She was unavailable 
for comment, and the bank declined to comment. 

Investigators have linked some of the accounts under scrutiny at the Bank of 
New York to a man who, Western law enforcement officials say, is a major 
figure in Russian organized crime, Semyon Yukovich Mogilevich. Mr. Mogilevich 
is involved in a wide range of activities from arms trafficking and extortion 
to prostitution, American and European law enforcement and intelligence 
agencies say. Mr. Mogilevich could not be reached for comment. 

One thing is certain: Ms. Kagalovsky, the wife of Konstantin Kagalovsky, a 
prominent Russian banker and oil executive, was a vociferous cheerleader in 
pushing the Bank of New York to expand its presence in Russia in the early 
and mid-1990's. In a 1995 memo to Thomas Renyi, who was then the president of 
the bank and is now the chief executive, Ms. Kagalovsky and another executive 
made note of how important Inkombank was to the Bank of New York. 

"Inkombank is our largest generator of fee income, and they are now the 
largest clearing bank in Russia for domestic transactions," the memo noted. 


The memo, which the Bank of New York declined to comment on, was given to The 
New York Times by Mr. Zeltser, who said he acquired it as part of a lawsuit 
he has filed against Inkombank over unpaid fees. Lawyers for Inkombank 
declined to comment about the bank's involvement with the Bank of New York or 
Mr. Zeltser's lawsuit. 

Inkombank, like many of it counterparts in Russia, is now insolvent. 

Another Russian bank that had accounts with the Bank of New York was Menatep, 
part of an industrial empire overseen by Mikhail Khodorkovsky, one of 
Russia's prominent financiers, called "oligarchs." The Bank of New York had 
an active relationship with Menatep and helped the bank list its stock for 
trading in the United States. 

Federal investigators are trying to determine whether some of the money 
channeled through the Bank of New York came from Menatep. Western investors 
and Russian regulatory authorities suspect Menatep and related companies of 
having looted money from the country, allegations that Mr. Khodorkovsky and 
his representatives have denied. 

Through Ms. Kagalovsky, the Bank of New York had a personal connection to 
Menatep. Ms. Kagalovsky's husband, Konstantin, is a former senior executive 
at Menatep and is now the vice chairman of Yukos, an oil company that is the 
flagship of of Mr. Khodorkovsky's troubled business empire. Mr. Kagalovsky 
did not respond to an interview request. 

Mr. Zeltser, the former Inkombank lawyer, said that the Kagalovskys were 
married in the mid-1990's, when the Bank of New York began doing business 
with Menatep. An American official close to the money laundering 
investigation of the Bank of New York described the Kagalovskys' business 
connection as "extraordinarily provocative." 

The Kagalovskys own a condominium on East 47th Street in Manhattan that Ms. 
Kagalovsky bought in January 1997, for $796,000, according to real estate 
records. It appears that Ms. Kagalovsky paid cash. The property records show 
no loan. 

******


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