August 21, 1999    
This Date's Issues: 3454 • 3455 •

Johnson's Russia List
#3455
21 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Los Angeles Times: Maura Reynolds, In Postponing Census, Russia Reveals 
Fears About Its Future.
2. Reuters: Luzhkov jabs Yeltsin, others ponder alliances.
3. Itar-Tass: Fatherland Congress Musters Duma Candidates.
4. Bloomberg: Moscow Mall in Kremlin Shadow More a Museum Than Shop.
(Manezh Square)
5. Dmitri Glinski Vassiliev: Re New York Times on Bank of New York
scandal.
6. New York Times: Timothy O'Brien, FBI Seeks Money-Laundering Evidence at 
Bank of New York.
7. MSNBC: Jim Maceda, The Primakov factor. Why is the fired prime minister 
scaring the body politic in Moscow?
8. World Socialist Web Site: Patrick Richter, Moscow escalates
intervention in 
Dagestan.
9. CNN Fortune: A Moscow Year. ("They pinned their hopes on Russia going 
capitalist. Instead, it went bust.")
DJ: On television look for: 
CNN Perspective
Sunday, August 22
9pm
The Russia Factor
Russia at the end of the millennium is the story of the dissolution of a 
superpower, the tragic result of a great social experiment run amok. 
"The Russia Factor" examines what lies ahead for a people betrayed by 
the Czar, communism and capitalism all within the century.] 

*******

#1
Los Angeles Times
August 21, 1999 
[for personal use only]
DEMOGRAPHICS 
In Postponing Census, Russia Reveals Fears About Its Future 
By MAURA REYNOLDS, Times Staff Writer

MOSCOW--Don't go looking for trouble, a Russian saying goes. These days, the 
Kremlin appears to be applying the lesson in an unusual area: the census. 
Russia has postponed--indefinitely--a national census scheduled for this 
year. It would have been the first full census since the breakup of the 
Soviet Union and was expected to confirm demographers' worst fears: that 
Russians are dying off so fast and giving birth so infrequently that the 
population may shrink by nearly half in the next 50 years. 
Government officials say they have canceled the census for this year 
because they can't come up with the $140 million it would cost to send 
surveyors door to door to count heads. 
"A census is a luxury that Russia cannot afford today," said Irina A. 
Zbarskaya, head of the population statistics department of the State 
Statistics Committee. "It turns out that we are too poor to count our own 
people." 
But many others suspect that at least part of the motivation is a 
reluctance to face what a census is likely to show. 
"Are they afraid to find out what has happened to their population?" 
asked Murray Feshbach, a U.S. demographer specializing in Russia. "I think 
the answer is yes." 
In the last 10 years, Russia has suffered what is arguably the world's 
worst postwar demographic catastrophe. The death rate has climbed from 11 
deaths per 1,000 people in 1991 to 15 per 1,000 last year. Life expectancy 
has fallen, especially for men, plunging from 65 years in 1987 to a low of 58 
in 1995. 
Meanwhile, women are giving birth at a rate far below the population 
maintenance level: For every 15 people who die, only nine are born. (In the 
United States, the numbers are the opposite, with about 15 people born for 
every nine who die.) 
The result is that Russia's population has been dropping steadily since 
the 1991 Soviet collapse, falling from about 148 million in 1991 to about 146 
million now. That's a contraction of 250,000 people a year--nearly as many as 
live in Anaheim. 
Moreover, the full impact of this decline has been partially masked by a 
relatively high rate of immigration into Russia, primarily by ethnic Russians 
moving back from other former Soviet republics at a rate of 200,000 to 
300,000 a year. When net migration is taken into consideration, Russia's 
population appears to have been shrinking even faster, by well over half a 
million people a year. 
Scientists blame the decline on social stress and bad public health. 
They point in particular to an increase in alcohol consumption, which 
contributes to high rates of accidents and heart disease--which together 
account for 70% of men's deaths in Russia. Feshbach estimates that if current 
trends continue, Russia's population in 2050 will be only 80 million--a 45% 
drop. 
Even without a new census, the government can provide population 
estimates by using birth and death records to adjust data from the 1989 
census. But over time, there is no substitute for a household survey, which 
the United Nations recommends every 10 years. 
"Once a mistake is made somewhere, it compounds itself year by year, and 
the gap between the estimates and reality grows wider and wider," Zbarskaya 
acknowledged. "Only the census is a real count--the rest are just estimates." 
Inaccurate population data lead to bad government policies, making it 
impossible for authorities to efficiently allocate funds, plan for schools 
and hospitals, assess food and energy needs, and perhaps even keep voter 
registration rolls in order. Some political analysts have speculated that 
without reliable census data, it will be easier for local officials or 
campaign workers in Russia to falsify voter rolls in critical national 
elections scheduled for December and June. 
Indeed, census data can be very political, and this is not the first 
time that the Kremlin has balked at counting its citizens. In 1937, after 
millions in the Soviet Union died from famine and a violent peasant 
collectivization campaign, dictator Josef Stalin took umbrage at initial 
census results showing a lower-than-expected rate of population growth and 
purged the census-takers. A subsequent census, in 1939, is believed to have 
been largely falsified. 
Russian statistics officials say they hope and expect to conduct a new 
census in 2002 or 2003. Until then, the nation will have to stumble along--as 
it does so often--with only a vague idea of where it's at and where it's 
going. 

*******

#2
Luzhkov jabs Yeltsin, others ponder alliances
By Adam Tanner

MOSCOW, Aug 21 (Reuters) - Moscow Mayor Yuri Luzhkov attacked Russian 
President Boris Yeltsin on Saturday while other leading politicians pondered 
potential alliances to boost their chances ahead of December parliamentary 
elections. 

Former Prime Minister Sergei Stepashin, abruptly fired earlier this month 
after just three months in the job, ended speculation by announcing he would 
strike out on his own and run for a parliamentary seat in his native St 
Petersburg. 

Luzhkov gave a foretaste of the tough criticism he intends to use to bolster 
an alliance of his Fatherland party with regional leaders in the All-Russia 
group. 

``The country is being robbed in a way which is unprecedented in its cynicism 
and permissiveness. Russia's weak authority is the only reason behind this,'' 
he told a Fatherland congress. 

Luzhkov, a former ally, has broken with the lame-duck president this year as 
he has sought to advance his national political ambitions in December 20 
parliamentary elections. 

He said Yeltsin's team had ``turned into a regime which people cannot 
understand and which threatens the country.'' 

Kremlin spokesman Dmitry Yakushkin said Yeltsin had made mistakes in his 
presidency but that campaign rhetoric should not overshadow his 
accomplishments. 

``The president himself sharply suffers from his mistakes and says so 
publicly,'' he told Ekho Moskvy radio. ``But if there were another president 
there would be different mistakes.'' 

``One must soberly look at that reality in which we live. We should look at 
where we were 10 or five years ago,'' he said. ``Judging all of this, then 
one can more calmly handle such accusatory, aggressive calls, which are 
issued today and will be heard all the more often before December 20.'' 

Yeltsin's erratic policies have alienated many of his former allies, 
including a string of four prime ministers fired over the past year and a 
half. 

The most popular of those, former foreign minister and spymaster Yevgeny 
Primakov, has joined forces with Luzhkov, making one of the two likely 
presidential candidates in the summer 2000 election. 

Stepashin, who followed Primakov as prime minister, decided to spurn other 
parties and go his own way. ``It's impossible to unite those who are 
ununified,'' Interfax news agency quoted him as saying. ``There are too many 
personal ambitions.'' 

Two other recent prime ministers, Viktor Chernomyrdin and Sergei Kiriyenko, 
however, are thinking of joining forces. 

``We are hoping to form a good pre-election team, but I think it won't be an 
easy thing,'' Chernomyrdin, head of the Our Home is Russia party, told 
reporters. ``We are working with Kiriyenko, with his movement.'' 

The latest Russian prime minister, Vladimir Putin, met Stepashin, 
Chernomyrdin and Kiriyenko this week in an attempt to forge a pro-Kremlin 
electoral team but the effort failed. 

Yeltsin is seen as eager to influence the election outcome, partly to protect 
himself and close associates from possible corruption or political charges. 

St Petersburg Governor Vladimir Yakovlev, who on Saturday was voted leader of 
the Luzhkov-allied All Russia party, proposed offering Yeltsin an amnesty 
after leaving office. 

Yeltsin fired Stepashin and appointed loyalist Putin, a former KGB officer, 
immediately afterwards and apparently in reaction to Luzhkov's alliance with 
Yakovlev's All Russia party. 

*******

#3
Fatherland Congress Musters Duma Candidates.

MOSCOW, August 21 (Itar-Tass) - The Fartherland movement hold its congress in 
Moscow on Saturday. 

Over 800 delegates from 88 regions of Russia and 150 guests are in 
attendance. 

The congress is discussing Russia's situation and Fatherland's preparations 
for elections of the State Duma lower house of parliament due in December. 

Fatherland's leader, Moscow Mayor Yury Luzhkov addressed the congress. 

The congress is discussing its alliance with All Russia and other movements, 
and the federal list of its candidates for the Duma. 

A total of 350 candidates are on the list, on top of which are former Prime 
Minister Yevgeny Primakov, Luzhkov and Saint-Petersburg's governor Vladimir 
Yakovlev. 

Many of candidates are known politicians, businessmen and figures of culture 
and science, in particular former government members Ramazan Abdulatipov and 
Georgy Boos, Tatyana Dmitriyeva, Duma depity speaker Artur Chilingarov, Duma 
deputies Stanislav Govorukhin, Boris Gromov, Yekaterina, Lakhova, the Russian 
Navy's deputy commander Igor Kasatonov, governors of Primorye, Irkutsk, 
Moscow and Nizhny Novgorod regios, actors Alexander Kalyagin and Oleg 
Tabakov, and the coach of the national football team, Oleg Romantsev. 

The congress has passed a resolution On the Situation in the Cointry and 
Tasks of Fatherland in Preparation for State Duma Elections. 

The resolution says Russia's political and economic crisis is deepening and 
its major cause is "weakness of power that has lost trust of the people". 

The resolution denounced the "vicious practice of using power structures for 
pressuring political opponents". 

The congress has called on "constructive, sensible and political forces" to 
unite to take up responsibility for Russia's fates. 

The resolution approved acts and statements of Luzhkov and called for 
Fatherland-All Russia's running its candidates in the Duma elections "with a 
view of creating in the State Duma a parliamentary majority able to implement 
the programme goals of Fatherland, pass laws that would really improve the 
life of the Russians". 

Fatherland board member Andrei Isayev said in his address that it would be 
simpler for Fatherland to go into the elections on its own. 

"But we need not just successful performance in the election, but victory," 
he said. 

He said Fatherland-All Russia puts on its electoral list people of note, 
"whom it is not shameful to present". 

The Agrarian Party's co-chairman Viktor Semyonov called the congress an event 
of destiny. 

"Today, a union of the sickle, the hammer and common sense is taking shape," 
he said. 

Semyonov said the decision of the Agrarian Party's leaders to merge with 
Fatherland-All Russian evoked a pressure on it. 

"A collosal pressure on us is going on from the left, aimed at breaking up 
the agrarian movement of Russia," he said. 

Govorukhin, a left-leaning Duma deputy and film-maker, said in his speech 
that he was satisfied to see the making of an organisation that "is able to 
win trust of society". 

What is being forged in the leftist camp will be "not a union of patriots but 
a filiale of the Russian Communist Party, a non-creative organisation". 

Real patriots are at Fatherland's congress, Govorukhin said. He said 
Fatherland-All Russia should brace for an information war of opponents 
against it. 

*******

#4
Moscow Mall in Kremlin Shadow More a Museum Than Shop

Moscow, Aug. 21 (Bloomberg) -- In the 
shadow of the Kremlin, three levels below ground, Valentina Davydova, 55, 
escorts her grandchildren past marble banisters, glass elevators and stores 
selling everything from Italian suits to mounted wild boar heads. 

Like most visitors to Moscow's OAO Manezh Square, they're there to look -- 
not to buy. 

``It's a museum,'' Davydova said, with three grandchildren in tow. ``We're 
here to walk around a bit -- get the kids out of the apartment before school 
starts. It's pretty, but the prices are just awful.'' 

The $350 million mall, which opened in January 1998 adjacent to Red Square in 
central Moscow, is losing money and trying to reschedule some of its $150 
million in foreign debt. 

Twenty-five shops, including U.K. retailers MotherCare Ltd. and Next Plc, 
moved out after the ruble fell more than 70 percent against the dollar in the 
second half of last year; prices at the shops that remain are out of reach 
for most Russians. 

Russian earnings average $61 a month and pensioners bring in about a third as 
much. Contrast that with the Czar Hunt's 47,000- ruble ($1,885) Brownings and 
17,000-ruble ($682) wild boar heads. 

The mall lost 1.6 billion rubles in 1998, when it offered discounts to keep 
tenants and was required to recalculate its foreign debt at the yearend ruble 
rate. Its nearest competitor, the historic GUM mall on Red Square, reported a 
profit of 117 million rubles. 

Loss Continues 

Manezh said this week its first-quarter loss totaled 81.8 million rubles, 
which analysts attribute to the ruble's fall and interest expenses. Russian 
accounting standards require companies to recalculate their foreign debt, 
including principal, at the exchange rate at the end of the accounting 
period. 

Sales in the first quarter more than doubled in ruble terms but were flat in 
dollar terms. 

``People come here ... to ride the elevators and escalators and sit in the 
cafes, but of course they are pretty expensive,'' said Vyacheslav Yegorov, of 
Tver, a city north of Moscow, as he rode Manezh's talking, glass-enclosed 
elevator and videotaped his wife on the floor below. 

The mall is a project of Moscow's city government, and reflects Moscow Mayor 
Yuri Luzhkov's efforts to give the city, wrought with potholes and decaying 
buildings, a grander facade. Luzhkov also rebuilt the mammoth Christ the 
Savior Cathedral -- which the Soviet government stripped of its icons, razed 
then replaced with a swimming pool -- with a glittering gold dome and stark 
white facade. 

Who Owns What 

The city owns 87 percent of the mall, with 6 percent held by Sobinbank, a 
local bank, and the rest by private investors. The city government, Sobinbank 
and a group of German banks helped finance the project. 

Currently the mall is about 85 percent full, with 146 tenants, including 
Benetton Group SpA, Reebok International Ltd. and Trussardi SpA, as well as 
stores selling designer baby clothes and French crystal, a game room and a 
food court. More exotic stores are also there, such as the Czar's Hunt, a gun 
and hunting apparel store with security guards dressed in imperial uniform. 

The mall's managers recognize that most of their offerings are out of the 
reach of average Muscovites and are trying to lure lower-priced stores to 
help boost sales by $5 million next year. 

``People complained that the prices in stores looked like telephone numbers 
-- seven digits,'' said Sergei Pereskokov, director of the mall's 
financial-commercial department. ``We are rethinking this policy, targeting 
stores which sell not to the highest incomes but to the medium incomes.'' 

What keeps the mall teeming with people may be tourism, both Russians and 
foreigners looking for a clean, warm and expansive escape from Moscow's harsh 
weather and pollution -- and often, a place to play. 

Grand Entrance 

The mall entrance, overlooking the Kremlin, is surrounded by fountains and 
statues of characters from Russian fairy tales, and covered by a stain 
glass-windowed cupola depicting a map of the world. 

``Grand things only happen because certain people are willing to do them and 
without that the city is boring,'' said Hans Weber, a partner at Property 
Development Partners in Prague who has worked in Moscow commercial real 
estate. ``Versailles, the Eiffel Tower -- did they make financial sense?'' 

******

#5
From: "Dmitri Glinski Vassiliev" <dmiglinvas@glasnet.ru>
Subject: Fw: 3451O-'Brien&Bonner/More on Bank of New York Scandal
Date: Sat, 21 Aug 1999 

Just a remark on The New York Times article on the money laundering via the
Bank of New York. It is really striking that the authors mentioned every
possible detail about Konstantin Kagalovsky in connection with the money
laundering allegations - except one: in 1991-92 he was a member of the
inner
circle of market reformers around Gaidar and Chubais, and was the first
Russian representative on the Board of Directors of the International
Monetary Fund.

Regards,
Dmitri Glinski Vassiliev
Moscow

******

#6
New York Times
August 21, 1999
[for personal use only]
FBI Seeks Money-Laundering Evidence at Bank of New York
By TIMOTHY L. O'BRIEN

NEW YORK -- Agents from the FBI searched the Wall Street headquarters of the 
Bank of New York Friday, removing more than two boxes of documents from the 
office of a top officer of the bank who is at the center of an investigation 
of what is believed to be a major money-laundering operation involving 
Russian organized crime. 

An individual close to the bank said that on Friday afternoon, the 
authorities searched the office of Natasha Gurfinkel Kagalovsky, a senior 
vice president of the bank, who supervised its Eastern European division. The 
agents sealed Ms. Kagalovsky's office before they left. 

It was the first time federal agents had entered the bank's headquarters, 
said the individual with knowledge of the raid. 

Ms. Kagalovsky was one of two bank employees suspended from the bank on 
Wednesday. 

The other employee was Lucy Edwards, a vice president in London. Both women 
are married to Russian businessmen, one of whom is believed by investigators 
to have controlled some of the accounts that are the subject of the 
investigation. 

The action was the third such raid this week. In London, the National Crime 
Squad searched the home and office of Ms. Edwards on Wednesday and Thursday. 
Ms. Edwards' husband, Peter Berlin, had authority over some of the accounts 
at the bank. 

The individual close to the bank in New York confirmed the search of the 
London offices. He declined to elaborate. 

Investigators say they believe that Ms. Kagalovsky and Ms. Edwards could be 
involved in one of the largest money-laundering operations ever conducted in 
the United States, with $4.2 billion passing through one account alone from 
October through March. But because some accounts have remained open to help a 
continuing investigation, the authorities estimate that as much as $10 
billion may have flowed through the bank since early last year. 

Neither Ms. Edwards nor Berlin has been accused of any wrongdoing, and 
neither has been detained or arrested, said a spokeswoman for the National 
Crime Squad. 

American officials said it was the British authorities who alerted the FBI to 
what they suspected was a money-laundering operation at the bank. 

The spokeswoman for the National Crime Squad refused to explain what 
investigators had been looking for during the search of Ms. Edwards' 
apartment, near Marylebone, an affluent London neighborhood, on Wednesday 
night. The search lasted several hours. 

Ms. Edwards, 41, may have left Britain with her husband, friends of the 
couple said. 

******

#7
MSNBC.com
The Primakov factor 
Why is the fired prime minister scaring the body politic in Moscow?
By Jim Maceda
NBC NEWS CORRESPONDENT 

MOSCOW, Aug. 20 — After the fall of the Soviet Union, tanks firing on the 
Russian Parliament and former Soviet leader Mikhail Gorbachev staring in a 
Pizza Hut commercial, I thought I had seen it all. But once again, I am — 
delightfully — proven wrong. Russian politics always seems to offer up 
something unique. 
TAKE BORIS YELTSIN’S latest prime minister, Vladimir Putin. Now, 
shuffling governments is nothing new to the Kremlin. Yeltsin’s game of 
puppets on parade — there have been five prime ministers in the past 17 
months — was a favorite game for most of the Tsars. But here’s the latest 
twist: what is the FIRST official meeting Putin has after his anti-climactic 
confirmation by the State Duma, Russia’s parliament? A meeting with Yeltsin? 
Getting down to business with his acting cabinet? 
No, it’s a conclave with three former prime ministers — his 
predecessors, all axed by Yeltsin: Victor Chernomyrdin, Sergei Kiriyenko and 
Sergei Stepashin. 
All four of them plotting against the one recently-fired former prime 
minister not at the table: Yevgeny Primakov. This, the very stuff of Russian 
theater: enter, stage right, the obedient groom, sitting with his bride’s 
three former husbands, banding together against the fourth “ex,” whose very 
aloofness makes him a threat. 
What are these four respectable, if presidentially used and abused, 
men so worried about? It’s called the Primakov Factor. Like a deadly virus, 
it’s everywhere, if you fear it to be so. The 69-year-old former spy master 
is ancient by Russian standards; he has no private army, no monuments in his 
honor. His face — pleasant but hardly attractive — adorns no billboards. 
Since his sacking, last May, he has withdrawn from public view. He has had 
back surgery and walks with a cane.

SHOCK WAVES

Primakov says he has nothing against his former boss, Boris Yeltsin. 
But, this week, Primakov re-entered the political fray, sending shock waves 
through the Kremlin and beyond. He announced, on Tuesday, that he has joined 
a new coalition, grouping Moscow’s ambitious and popular mayor, Yuri Luzhkov, 
and several strong regional governors. And that he will allow his name to 
appear on this coalition’s list of candidates in December’s parliamentary 
elections. That was it — a modest press conference, a statement. But, 
suddenly, Russia’s entire political planet is spinning. Even all the current 
and former government leaders needed to sort this out, so cataclysmic was the 
event. 
Why is Primakov the most popular and feared politician in Russia 
today? Experts’ opinions differ. Some say it’s because he represents 
everything Yeltsin is not: he is quiet, reserved, witty and still very 
“Soviet”-minded. His appeal is universal. And it increased immeasurably when 
Yeltsin fired him. 
Unlike Yeltsin, he thinks before he acts. He is no populist, but his 
ratings are three times higher than Yeltsin’s in most polls. In a world where 
prime ministers are changed, quipped Luzhkov, “more often than gloves,” where 
so many pensions remain unpaid, where devaluation and inflation eat up life 
savings and yet another war rages in the southern Caucuses — already sending 
home dozens of young Russian soldiers in bodybags — Primakov is Mr. 
Stability. 
And this “center-left” coalition could well become the next major 
force in Russian politics, displacing the Communist Party as the Duma’s main 
faction. Already, the “Fatherland-All Russia” coalition is making big gains. 
Scores of moderate Communists, and the whole of the Agrarian Party, a 
traditional Communist ally, have jumped ship, and joined forces with Primakov 
and Luzhkov. 
Yeltsin is dead worried. So much so, say insiders, that he sacked his 
last prime minister, Stepashin, a man who did everything right except one 
thing: he didn’t make the Primakov Factor go away.
Now so many current, ex- (and who knows, maybe future?) prime 
ministers are scrambling, behind the scenes, trying to create a kind of 
counter “center-right” faction — comprised mainly of committed market 
reformers — who can take on Primakov. Unfortunately, Russians, on the whole, 
hate the reformers they have come to associate with economic pain and 
corruption. That, too, adds clout to the Primakov Factor. 

PRIMAL SHIFT?

Some sources insist Russia is witnessing a primal shift in political 
forces, the first since the 1993 constitution and the election of a 
Communist-dominated Duma: two strong centrist blocks, they say, will emerge: 
one leaning, with Primakov, towards a social democracy; the other leaning, 
with a yet-unknown leader (perhaps Putin, Yeltsin’s very own choice?), 
towards a Western-style capitalist laisse-faire government.
This new configuration, if it plays out as many predict, could bring 
with it the first real semblance of political peace, stability and even 
social progress this decade.
If so, then why is Yetlsin so afraid, so jealous, of Primakov? When 
asked about a presidential run, Primakov replied, “I haven’t made up my mind 
yet. Much will depend on whether I feel the people’s trust, which is very 
dear to me.” 
That’s the Primakov factor, in action, getting under the skin. Yeltsin 
is smart enough to know it’s the “people’s trust” that he has lost
So, forget about economic reforms, the budget, the war in Dagestan. 
Vladimir Putin and his new team, if it indeed survives until next July’s 
presidential elections, will be dedicated only to two causes: saving Boris 
Yeltsin’s legacy and finding an answer, no matter how theatrical, to the 
Primakov Factor.

******

#8
World Socialist Web Site
www.wsws.com
Moscow escalates intervention in Dagestan
By Patrick Richter
21 August 1999

For two weeks, an undeclared war has raged in Dagestan between Russian troops 
from the Ministry of the Interior and Islamic rebels under the leadership of 
the former Chechen field commander Shamil Basayev and the Jordanian Khattab.

On August 7, the rebels marched into Dagestan in small groups from adjoining 
Chechnya. After occupying seven villages in the mountainous regions of 
Botlikh and Tsumada, they proclaimed the foundation of the "Islamic Republic 
of Dagestan" and threatened Moscow with jihad (holy war), until all 
"non-Muslims”, i.e., Russians, left the country.

The occasion for these events was the alleged incursion of Russian troops 
into the Republic of Chechnya, which has been effectively independent since 
1996 as a result of the Chechen war, but officially still forms part of 
Russia. In the past months, bloody clashes have repeatedly occurred along the 
Russian-Chechen border.

The government in Moscow, whose policies have further impoverished the 
population of Dagestan and Chechnya, reacted to the occupation with bombings. 
According to Russian statements, already over 600 of the 1,200 separatist 
guerrillas have been killed. Chechen sources, however, speak of just two 
dozen dead. The UN puts the refugee flood the fighting has unleashed at 
almost 10,000, the greatest part of which can now be found in the republic's 
capital of Makhachkla.

While Russian government spokesmen and the Russian media express optimism 
about the course of events, the facts speak to the contrary. Originally, it 
was maintained that the clashes with the rebels would be concluded within a 
few days. Now the Russian government has been forced to dispatch some 20,000 
soldiers into the region who will have to prepare for "many months of 
fighting". Treasury Minister Mikhail Kasyanov agreed to an increase of wages 
for soldiers sent to the crisis region to US$1,000 per month, in order to 
strengthen the morale of the troops.

Despite initial appearances, the conflict is not likely to take the form of a 
new Chechnya. At that time, the separatists were able to place themselves 
under Dzhokhar Dudayev at the head of an independence movement that enjoyed 
widespread popular support. During the subsequent two years of bloody 
war—from 1994 to 1996—Moscow carried out a brutal attack on the civilian 
population. Some 50,000 were killed on both sides.

What has happened since then? In spite of the sparse information flowing out 
of the country, it is obvious that the problems of the Chechen population 
have not been solved, even partially. The country is in chaos, while a thin 
upper layer from the mafia clans pocket the profits from the Azerbaijan oil 
that flows through the pipeline in Chechnya, and earns a bit on the side 
through smuggling drugs and weapons, as well as people.

The balance sheet of all the "independence and liberation movements" has led 
to disillusionment among the masses, and a turning point has been reached in 
the period since the end of the Soviet Union. The social driving forces 
behind the breakdown of the Soviet Union and the Chechen war have become 
clearer for all to see: over the last years an enormous social 
differentiation has taken place in all the former Soviet republics, under the 
banner of “national independence” or “religious independence”. The 
impoverished mass of the population sees itself robbed of any perspective for 
the present and future, in contrast to a thin layer of the very rich, who are 
thoroughly corrupt and ruthless.

What is the situation in Dagestan? About 2 million people live in this 
republic, belonging to 35 different ethnic groupings, the majority of which 
follow the Muslim faith and culture. The social situation is catastrophic, 
like that in all the Caucasus republics, which count among the poorest 
regions of Russia. Officially, unemployment amounts to 20 percent, while 
unofficial figures put it as high as 80 percent. Official youth unemployment 
is counted at 56 percent.

After the breakdown of the Soviet Union, the once productive agricultural 
sector almost collapsed, along with the food industry. Fishing in the Caspian 
Sea and the vineyards are all that has survived. Dagestan is so poor that 87 
percent of its state budget comes from Moscow. It is so underdeveloped that 
some towns do not even have a municipal water supply.

Society is controlled on the one hand by different clans, whose political 
influence stems from the former party nomenclatura. On the other side, as in 
Chechnya, religious fundamentalist mafia-like structures have been formed. 
The distribution of wealth follows this pattern. The 200 richest families, 
representing less than 2 percent of the population, control 85 percent of the 
region's wealth, while the majority lives beneath the poverty line. The 
situation in this republic is an obvious example of the heritage of 
Stalinism, which resolved none of the traditional problems of the north 
Caucasus. These problems re-emerge today with even greater intensity.

Shamil Basayev, leader of the rebels and the preacher of an extreme form of 
Wahhabism (Saudi Arabian-type Islam), studied agricultural management in 
Leningrad. In August 1991 he stood before the White House in Moscow as an 
enthusiastic defender of Boris Yeltsin. After the Chechen war, where 10 of 
his relatives died, he became one of the best-known fighters against the 
regime in Moscow. Six months after the war, in 1997, he lost the Chechen 
presidential elections to Aslan Maskhadov, who has sought to tie the fate of 
his own group more closely to Moscow. Basayev's second-in-command , the 
Jordanian mercenary Khattab, is known for his career as a dealer in drugs and 
people.

Since the end of July, preparations have been under way for a meeting between 
Maskhadov and Yeltsin. The secret service had warned that, as a reaction to 
any understanding they might reach, the hostile groups would launch attacks 
into Dagestan in order to secure their income from the drugs and weapons 
trade, and the profitable business of hostage-taking. This is how they 
finance their independent “principalities”.

In Dagestan these groups want to expand their spheres of influence by means 
of an Islamic liberation ideology and through the "liberation of the occupied 
zone". This has not met with the enthusiasm they expected in the general 
population. The majority have fled, while some of the Russian army joined 
them voluntarily.

The source of Basayev's weapons and financial support remains unclear. The 
Russian government accuses Turkey, Saudi Arabia, Pakistan and Kuwait, but 
these governments remain silent, although their material interests in the 
region are considerable. Dagestan lies on the banks of the Caspian Sea, 
forming almost two-thirds of its Russian coastline. The oil pipeline from the 
Azerbaijan capital Baku to the Russian Black Sea harbour of Novorossiysk runs 
directly through the country. If these countries succeeded in expanding their 
influence in the region, they could prevent the world market being flooded 
with Caspian oil, which would drastically push down world oil prices.

Azerbaijan and America, whose interests in the region connect ever closer in 
another direction, condemned the separatists' incursions immediately, because 
"the Islamic rebel forces employ violence against innocent civilians". By 
chance, US Energy Minister Bill Richardson recently visited Turkey, following 
visits to Azerbaijan and Turkmenistan, in order to force the construction of 
a gas pipeline into Turkey through Azerbaijan and Turkmenistan's sector of 
the Caspian Sea.

Europe is concerned that the conflict might jeopardise Russia's integrity, 
but is unclear how to use the hostilities to push through its own interests.

Since the financial crisis of last year and the military humiliation NATO 
inflicted on Russia during the Kosovo war, Moscow is very aware of its own 
weaknesses. The integration of the different regions of the country into the 
international economy further undermines the authority of Moscow. Regardless 
of the apparently deeply divided parliamentary factions and power groupings, 
they are united behind demands for a stronger state and a resolute solution 
of the conflict in Dagestan.

The appointment of Vladimir Putin as the new prime minister should be seen 
against this background. Yeltsin reacted to the increasing pressure at home 
and abroad with a pragmatic manoeuvre favouring the military and 
strengthening its apparatus, by making use of a dependable secret service and 
military man. The previous prime minister, Stepashin, one of those 
responsible for the debacle in the Chechen war, was no longer a viable 
option. He had to give way to someone who, in following essentially the same 
policy, could implement a harder line. Putin, well known for his 
cold-bloodedness, entered office with the words: "I am a military man and 
carry out orders."

Regardless how conscious Schamil Basayev is of the significance of his 
attacks, they show very clearly that the unity of Russia rests on feet of 
clay, and can be disrupted by the slightest push. The same powerful 
centrifugal forces that brought about the end of the Soviet Union now place 
the integrity of the Russian Federation in question.

*******

#9
CNN Fortune
A Moscow Year
Aired August 18, 1999 - 8:00 p.m. ET 
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE 
UPDATED. 

ANNOUNCER: They pinned their hopes on Russia going capitalist. Instead, it 
went bust. 

(BEGIN VIDEO CLIP) 

BERNIE SUCHER (ph), BUSINESSMAN: An awful lot of people left. They left very 
fast. 

(END VIDEO CLIP) 

ANNOUNCER: Tonight, the Westerners who took a chance on Russia, those who 
stayed... 

(BEGIN VIDEO CLIP) 

ALVIN GILICH (ph), BUSINESSMAN: I've seen dead bodies out on the street 
before, but not in my courtyard. 

(END VIDEO CLIP) 

ANNOUNCER: ... and those who left. 

(BEGIN VIDEO CLIP) 

FRED BERLINER (ph), BUSINESSMAN: It's really not a real country, but there's 
a real economy. 

(END VIDEO CLIP) 

ANNOUNCER: A year after Russia's economic meltdown, we go looking for signs 
of hope. 

(BEGIN VIDEO CLIP) 

SUCHER: We have -- leading stocks are up 200-plus percent since the bottom. 

(END VIDEO CLIP) 

ANNOUNCER: Jack Hamann, on "A Moscow Year."... 

CNN & FORTUNE, with Willow Bay and Stephen Frazier. 

STEPHEN FRAZIER, HOST: Welcome to CNN & FORTUNE. Willow isn't with us 
tonight. I'm at Joe Muggs Newsstand in Atlanta. 

We begin with a new look at a risky investment. During the mid- 90s, Russia's 
new capitalistic economy was a source of easy money. One particular fund 
doubled in just three months and kept on doubling, becoming the best 
performing mutual fund in the world. But all those profits and all the hope 
for Russia's economic future evaporated on August 17, 1998, when the economy 
collapsed. 

Twelve months later, what has happened to the people who staked their future 
on capitalism in Russia. 

Here's Jack Hamann with a Moscow year. 

(BEGIN VIDEOTAPE) 

GAVIN RANKIN, CHIEF INVESTMENT OFFICER, LEXINGTON TROIKA DIALOGUE ASSET 
MANAGEMENT FUND: So would you have breakfast? No? Do you want some of this? 
You don't want it at all? 

UNIDENTIFIED CHILD: No. 

RANKIN: Do you want some toast instead? OK. 

JACK HAMANN, CNN CORRESPONDENT (voice-over): Gavin Rankin is a father, a 
husband and has worked the wild Russian markets for most of the 1990s. We 
first met him in October of 1998, two months after Russia's economy had 
bottomed out. 

Gavin was widely respected throughout Moscow's financial community for his 
genuine interest in the people of Moscow. Each morning, he hitchhiked to 
work, looking for a post-crisis insights from average Russians. 

RANKIN: This is my daily routine. Not quite sure how I will get to the 
office. He's an optimist. He's seen crisis before, and certainly what he's 
seeing today is certainly no worse than anything he's been through before. 

HAMANN: It couldn't have been worse for Gavin. The fund he managed, the 
Lexington Troika Dialogue Russia Fund was the worst performing mutual fund in 
1998. 

But even amid the economic carnage, Gavin remained optimistic, He continued 
to invest in Russian businesses. 

One of his favorites, The Red October Chocolate Factory. 

GAVIN: I often go to factories where they produce metal, metal rods, metal 
boxes, and I have no idea if there is a marketplace. I have no real means to 
judge it. Here is a classic case where you can actually go and check the 
tires. 

What we see is tremendous potential increase in overall consumers spending on 
chocolate and confection purchases. 

HAMANN: To hear Gavin say it, what was true for Red October was true for 
Russia. 

GAVIN: There's going to be tremendous upside potential, and there remains 
tremendous upside potential. We certainly -- you know, the fact that I 
haven't packed by bags and gone home, and that my family are here and my 
daughter. I just put my daughter into school here. So there's really a belief 
that Russia will be here tomorrow, will survive. 

HAMANN: Five months after our interview, both Gavin and his exuberance for a 
Russian rebound were gone. We caught up with him in London. 

GAVIN: The aftermath of a hurricane has an extremely long tail, and the 
purpose of recovering in Russia is -- has been delayed quite considerably 
following the events of August. 

HAMANN: Instability runs deep in Russia, something expatriates may have 
failed to fully appreciate. One crisis can simply serve as a trigger to 
another. 

GAVIN: One of the interesting sort of situations now, which is -- which was 
different from what we had, I would say in the last part of -- late part of 
1998, is that we're currently in a period of fiscal uncertainty. I can't put 
my hand on my chest and say, you know, this is the bottom. I mean, Russia 
remains a place of tremendous uncertainty. 

HAMANN: If there was one demographic that dominated the Moscow expatriates' 
set, he was the young and unattached professional. With the billions of 
dollars that poured into Russia, came a lifestyle of excess almost unmatched 
in the West. But when Russia's government defaulted on its debt and the 
entire economy imploded, the party shut down and people were sent packing. 

That's how we met Alvin Gilich (ph), as he helped a friend pack up for home. 

ALVIN GILICH: This feels like the Wild West. 

UNIDENTIFIED MALE: Take the Wild West and your college experience and put 
them together. 

HAMANN: The memories of Russia's crisis only two months earlier were fresh in 
his mind. 

GILICH: The only thing I saw that I distinctly remembered is what our country 
must have looked like back in the Great Depression. It was amazing. Just 
walking through witnessing, you know, basically everything unraveled, that we 
collectively have all worked to build up. 

HAMANN: For most, the economy's collapse demanded a decision. 

GILICH: We've all stayed here a lot longer than we've ever expected to. So 
when this happens, it's kind of like, OK, decision to be made, where do we 
go? What do we do next? 

HAMANN: While most of his friends left, Alvin decided to stay on with 
advertising giant BBDO. 

Upon our visit, we found him sharing a tiny apartment with a Russian family 
of four, who was collecting his rent as their main source of income. 

GILICH: This is definitely my adopted Russian babushka. "Babushka," of 
course, is the word for grandmother. 

Usually when I get home, the family has already had their main meal for the 
day, which is, you know, a traditional Russian dinner, and I'll either have 
kind of what's left or just going to do a potluck. My father was quite 
comfortable with the fact that this familiar lived across the street from the 
U.S. embassy, which of course lately has not become not such a nice 
neighborhood. 

(CHANTING) 

HAMANN: The unpredictability that characterizes Moscow, veered its head again 
in March. Following NATO's action in Kosovo, Alvin's quiet neighborhood 
quickly became the proving ground for angry Muscovites. 

(on camera): Has there been any change in the attitude towards Americans? 

GILICH: Pre-Kosovo, I would say no. There hasn't been a change. 

What people here tend to do is kind of resent the fact that they are very 
dependent on, let's say, the West. I wouldn't say I'm overly optimistic, but 
I'm not as pessimistic as others. I mean, some people, you know, rant and 
rave that the worst hasn't happened yet, you know, the situation is 
deteriorating. I don't see that. 

HAMANN (voice-over): How much worse can it get? As we stood in Alvin's 
courtyard, we got a foreboding sense of how even Russian regulars like Alvin 
are surprised by the realities of the new Russia. 

GILICH: I've never -- I've seen dead bodies out in the street before, but not 
in my courtyard. Those definitely weren't paramedics. They're the city 
morgue. The person is not newly dead. Did you see, they just threw it in 
there? It's not on the stretcher anymore. It's lying in the -- with whoever 
else is in there. Stuff like that is never hidden for decency's sake. I mean, 
it's no respect for human life and it's no respect for the dead. It's just -- 
I mean, that's kind of the way they treat everything here. 

All I know is, you know, from my Russian friends and my Russian family here, 
this stuff never happened before. 

Did you see the body that was lying on the street? 

UNIDENTIFIED MALE: No. 

GILICH: And the -- you saw it. 

UNIDENTIFIED MALE: No. 

GILICH: There was a dead person laying on the street there. 

HAMANN: A few weeks after we left Alvin, we received an e-mail saying that 
the Russian crisis had finally gotten the best of him. He was returning to 
the United States to go to business school. 

If there is one place to check the pulse of Russia's economic health, it's 
the Frenetic Brokerage Office of Troika Dialog, where Russian stocks are 
traded daily. 

UNIDENTIFIED MALE: There is some Zoom around. If you can't buy Goom, take 
some Zoom. 

HAMANN: Back in October, this is where we met Fred Berliner (ph) and Bernie 
Sucher (ph). Anxieties were high. 

UNIDENTIFIED MALE: What do you think New York does, just nothing? 

UNIDENTIFIED MALE: I haven't seen the futures. 

UNIDENTIFIED MALE: The futures are down a little. 

UNIDENTIFIED MALE: Everybody expects the market to go down. 

HAMANN: Fred had been in Russia for five years and was widely credited for 
bringing Nasdaq-type trading to the Russian stock market; a concept the 
high-flying market quickly embraced. Eight months after the crash, the 
brokerage office was quieter. 

BERLINER: You've given it away. Russia's reeling economy was still crying for 
help. 

I don't think anything has changed since the crisis has happened. It's more 
of the same. There's still no credibility. There really isn't a fiscal 
policy. One wonders if they're really collecting that much tax revenue. 
There's just a long way to go. 

HAMANN: The trading system Fred had helped build had lost its luster. He, 
too, is going back home to the United States. 

BERLINER: Long term, I imagine they will muddle through. How successful they 
are of pulling themselves out of the mud again; it could be a long, long 
struggle. 

HAMANN: But Bernie, a senior trader at Troika Dialog (ph) and owner of 
several businesses around Moscow, is one expat who is still sticking around. 

SUCHER: I think to really put this in context, you have to understand that 
Russia can only handle -- can only meet so much of the expectations that the 
rest of the world has. 

HAMANN (on camera): Are there real banks, by the normal definition, operating 
here now? 

SUCHER: There never were. So nothing's changed. I don't think that's going to 
happen very, very quickly, but no one's very confused about what's missing 
here. I think that's probably some of the good news that comes out of August 
'98, is that it educated everybody about what's real and what's not real 
here. HAMANN (voice-over): What is clear is the somewhat surprising reality 
that investors are still interested in Russia. During the hour we spent with 
Bernie, world oil prices spiked and suddenly Bernie was busy. 

(on camera): You're hearing from people that are what now? 

SUCHER: They want to buy Russian stocks again. Look, you know, we have -- 
leading stocks are up 200 plus percent since the bottom last year. Those kind 
of returns generate interest, and when you start seeing returns, numbering in 
the hundreds of percent, and people start writing about markets again, the 
phones start ringing. 

HAMANN (voice-over): One year ago, the house of cards that was Russia's new 
market economy collapsed. The expat exodus has left its scar. But as we saw 
in a farewell poker game for Fred, there remains a silver lining in the 
country and a sense of humor for those who remain. 

BERLINER: So, things aren't all so bad. There's a real economy here. It's 
really not a real country, but is a real economy. 

UNIDENTIFIED MALE: Yes, but these aren't real cards. 

HAMANN (on camera): So, the best scenario for the last game with Fred would 
be? 

UNIDENTIFIED MALE: Take all his money. 

(END VIDEOTAPE) 

FRAZIER: The Lexington Troika Dialog Russia Fund hit its lowest point last 
October. If you had bought in back then, you'd have more than doubled your 
money by now. 

Sunday on our sister program, "CNN PERSPECTIVES," Jack Hamann will bring us a 
much closer look at the chaos in Russia. After the failure of both communism 
and capitalism, what's left to believe in? "The Russia Factor," Sunday at 
9:00 Eastern. 

*******