August
22, 1999
This Date's Issues: 3456 • 3457 •
Johnson's Russia List
#3456
22 August 1999
davidjohnson@erols.com
[Note from David Johnson:
1. Itar-Tass: Yeltsin Pins Great Hopes on Putin, Spokesman Says.
2. The Independent (UK): Helen Womack, 'Primakov phenomenon' spells
trouble for Yeltsin.
3. Itar-Tass: Fatherland Congress Changes List of Candidates for
Duma.
4. New York Times: Timothy O'Brien and Raymond Bonner, Russian
Money-Laundering Investigation Finds Familiar Swiss Banker in the Middle.
5. The Guardian (UK): Tony Thompson and Paul Farrelly, Russian mafia
target the City. Fury in Britain as US leak blows investigation into
money-laundering link with world's most wanted man.
6. The Times (UK): Michael Binyon, Russian bear falls to beer imperialism.
7. Paul Backer: Searching for a sensible post-Clinton foreign policy in
Eastern Europe.
8. Paris' Le Monde: Michel Camdessus, director general of the International
Monetary Fund, "The IMF, Russia, and Le Monde"
9. Itar-Tass: Communists Seek to Win Orthodox Believers Over for Polls.]
*******
#1
Yeltsin Pins Great Hopes on Putin, Spokesman Says.
MOSCOW, August 21 (Itar-Tass) - President Boris Yeltsin pins great hopes on
Prime Minister Vladimir Putin, presidential spokesman Dmitry Yakushkin said.
Yakushkin told the Ekho Moskvy radio station on Saturday that the president
had an opportunity to assess Putin's performance when the latter worked as
deputy mayor of St. Petersburg and then as secretary of the Security Council
and Federal Security Service director.
The decision to appoint Putin as prime minister "was not spontaneous. It was
ripening for a long time".
Among the new prime minister's strongest qualities the president has named
"firmness and independence", the spokesman said.
"But these qualities should be tested, and people should believe Putin and
express their support at the presidential elections," he added.
He noted that now the prime minister "is not thinking about presidential
plans" since he is preoccupied with current problems -- the North Caucasus,
the petrol crisis and the payment of back pensions.
Yakushkin pointed out that the "government under Putin is more independent",
including in relations with the presidential administration.
"There is no paradox here: on the one hand, it will be a normal working
contact; on the other hand, it's firmness, independence, decisiveness and
consistency," he said.
*******
#2
The Independent (UK)
22 August 1999
[for personal use only]
'Primakov phenomenon' spells trouble for Yeltsin
By Helen Womack
VADIM LEVIN, the American-educated head of Uniex Direct, which uses junk mail
to sell health products in Moscow, plans shortly to suspend all his
commercial operations. Instead he will work full-time and without pay for
Fatherland-All Russia, the new force on the Russian political scene.
Why was he doing this? Had he reason to be grateful to Yuri Luzhkov, the
mayor of Moscow and one of the principal figures behind the bloc? No, said Mr
Levin, he was doing it from the heart, because he believed that with the new
party, Russia had "a future as a civilised country".
Formed by Mr Luzhkov and Russia's regional governors, Fatherland-All Russia
already posed a significant threat to Boris Yeltsin, but its influence
expanded hugely last week, when the country's most popular politician,
Yevgeny Primakov, agreed to come on board. Only a masterful player like the
ex-prime minister, said the commentators, could have afforded to keep such an
extended silence on the Russian political stage, a silence Mr Primakov
finally broke on Tuesday, when he announced that he was committing himself to
lead the new party. Pausing only to change metaphors, the commentators began
speaking of a transformation of the country's political landscape.
It is certainly true that, for the first time, a credible challenge to Mr
Yeltsin has appeared. He may be ailing but he holds the levers of power and
has seemed, lately, to rule Russia by whim. However, in a country so vast,
burdened and slow-moving, it is perhaps unwise to use the word transformation.
Unwelcome as was the alliance between Mr Primakov and Fatherland-All Russia,
it did not come as a surprise to Mr Yeltsin, who has shown he is concerned to
hand over power to someone he can trust. After the former premier, Sergei
Stepashin, failed to prevent the Kremlin's enemies from creating the bloc in
the first place, Mr Yeltsin launched a pre-emptive strike by naming the
former security services chief, Vladimir Putin, 46, premier and favoured
successor.
In the thin-lipped, cold-blooded young officer, whose watchword is
"discipline", the Russian media detected a physical and ideological
resemblance to the late Communist Party General Secretary, Yuri Andropov.
Journalists already fancied they saw a likeness between Mr Primakov, nearing
70 and shaggy of eyebrow, and the late and retrospectively loved Leonid
Brezhnev.
If presidential elections go ahead next year, though weary Russians are far
from certain, given Mr Yeltsin's "categorical" promises not to cancel them -
might we see a race between two General Secretary lookalikes? Is that what
they mean by transformation?
After all the shocks they have experienced in recent years, Russians would
appear to have more nostalgia for the stagnation of Brezhnev's rule than for
the austerity of that of Andropov. The fact that Mr Primakov, after pulling
Russia back from the brink last autumn, did little in his eight-month tenure
as premier seems to account for the fact that for weeks he has topped the
popularity ratings.
The press called it the "Primakov phenomenon". Politicians of all stripes
were desperate to co-opt the former spy master and foreign minister, whose
involvement with any party was seen as a guarantee of its success at the
parliamentary elections in December. Success there is the key to the Kremlin
next year.
Mr Primakov remained as mysterious as a sphinx until his announcement that he
had accepted an invitation to run with Mr Luzhkov and the regional governors.
He would chair their bloc's co-ordinating council and take the first position
on their candidate list. At Moscow's House of Writers he said he had not been
playing for attention, but taking time to "reflect, meet people and hear
their opinions, which matter to me". If the pensioners who had tried to get
into the packed press conference had heard him, they would have melted.
This weekend in Ufa, capital of the Volga region that is home to the Bashkiri
ethnic group, Fatherland-All Russia is holding a congress to underline the
message that it embraces not only privileged Moscow but also the impoverished
provinces. As a formality, the grassroots must endorse Mr Primakov, but since
he is already blessed by Mr Luzhkov, Vladimir Yakovlev, governor of St
Petersburg, and Mintimir Shaimiyev, president of Tartarstan, that is a
foregone conclusion.
Last week the usually media-shy Mr Primakov expounded a comforting vision of
Fatherland-All Russia as a broad church uniting all people of common sense
and goodwill who were committed to seeing Russia "powerful, democratic and
flourishing". Russians did not deserve poverty and chaos, he said, arguing
that only consensus could rescue the country.
Asked if he had presidential ambitions, he said he could say, "without
twisting my soul", that he had not decided yet and it would depend on whether
he felt the people wanted him. Asked how he and the Mr Luzhkov would work out
which of them should be the bloc's presidential candidate, he said: "We will
reach an agreement." His sights were set, for the time being, on the
elections to the State Duma. Afterwards, it was important that a new
government was formed on the basis of the majority in parliament. Only in
that way was it possible to avoid "catastrophic changes of government".
He proposed changes to the 1993 constitution, which Mr Yeltsin wrote to give
himself Tsar-like powers. The head of state, Mr Primakov said, should remain
commander-in-chief of the forces and the face of Russia to the world. But
day-to-day powers should pass to the premier, and the post of vice-president,
abolished when Alexander Rutskoi rebelled against Mr Yeltsin, should be
revived.
Commentators noted that while Fatherland-All Russia, boosted by the magical
"Primakov factor", might look unstoppable, there was plenty of scope for the
politicians to fall out before the elections. Some said that Mr Primakov, a
lifelong apparatchik, had more to lose by sacrificing his superiority to the
political fray than Mr Luzhkov, a dynamic but flawed figure, who could be
planning to use his respected colleague as a shield.
Supporters of the ebullient mayor say that even if he is corrupt, then at
least he has allowed some benefits to trickle down to Muscovites. His critics
accuse him of vulgarity, riding roughshod over human rights, nationalist
tendencies and crony capitalism.
The mayor could stand for the presidency, but there is a risk he would lose.
If, on the other hand, Mr Primakov entered the Kremlin under the proposed new
constitution, Mr Luzhkov could become his vice-president or premier. He would
then be set fair to succeed.
******
#3
Fatherland Congress Changes List of Candidates for Duma.
MOSCOW, August 21 (Itar-Tass) - Delegates to the second congress of Moscow
Mayor Yuri Luzhkov's movement Fatherland held a closed session on Saturday to
discuss a tentative list of candidates from the Fatherland-All Russia bloc in
the upcoming parliamentary elections and made some changes in it.
Fatherland spokeswoman Natalia Mandrova told journalists that the list of 350
candidates leaked to mass media is preliminary and subject to change,
including by other members of the bloc.
The final version of the list will be presented only at the bloc's
consolidation congress on August 28. Only the top three candidates can be
considered definitely approved, she added.
Luzhkov expressed satisfaction with the way the discussion of the candidates
went off. "I expected more problems and tension, but consolidation and a
business-like approach prevailed," he told journalists during the break in
the congress.
He reiterated the positions of regional governors included in the bloc's
federal list. Luzhkov and St. Petersburg governor Vladimir Yakovlev will run
for re-election as mayor and governor respectively.
The mayor said his and Yakovlev's appearance in the list is "indicative" in
order to help voters to make up their mind.
As for other governors included in the list, they have yet to decide what
they are going to do, Luzhkov said, adding that he is "very pleased that they
are ready top work together with the Fatherland-All Russia bloc."
*******
#4
New York Times
August 22, 1999
[for personal use only]
Russian Money-Laundering Investigation Finds Familiar Swiss Banker in the
By TIMOTHY L. O'BRIEN with RAYMOND BONNER
At the intersection of illicit Russian money and the Bank of New York is
Bruce
Rappaport, a Swiss banker who has had brushes with governmental investigators
in the past and who has long had an important connection to the bank.
Together with the Bank of New York, Rappaport owns a bank in Switzerland that
helped provide the American bank with important business contacts in Russia,
according to Western bankers familiar with the operation.
And millions of dollars that were channeled through the Swiss bank, known as
Bank of New York-Inter Maritime, are linked to what Federal investigators
describe as possibly one of the biggest money-laundering schemes in the
United States, according to a person close to the investigation.
The Bank of New York, which for years aggressively sought business in Russia,
is currently engulfed in a Federal money-laundering investigation that led to
the suspension last week of two senior officers who oversaw the bank's
Russian business. Federal investigators are also looking into the activities
of their husbands, both of whom are involved in businesses that have ties to
either Rappaport or his Swiss bank.
The money moving through the Bank of New York-Inter Maritime raises the
question of why the Bank of New York, a conservative institution that is one
of the nation's oldest banks, worked closely with a man who has frequently
drawn the attention of government regulators and law-enforcement officials
worldwide.
Most recently, Rappaport's bank was sued by the Justice Department in 1997,
to recover proceeds that the Government asserted were from drug sales that
had been deposited in the Bank of New York-Inter Maritime on the Caribbean
island of Antigua by a known money-launderer. A Federal judge dismissed the
case last year, though, citing lack of jurisdiction. The Government is
appealing the decision.
A Boston lawyer representing Bank of New York-Inter Maritime, William Shaw
McDermott, did not respond to requests to interview Rappaport or talk about
the Justice Department suit. Efforts to contact Rappaport were unsuccessful.
The Bank of New York, which is cooperating with the Federal money-laundering
investigation, declined to comment about Rappaport.
The interest of investigators is heightened, one official said, because
Rappaport, who is 76 years old and lives in Switzerland, was recently
appointed Antigua's Ambassador to Russia. Antigua, this official noted, has
been a major center of Russian money-laundering for many years. Rappaport has
long had close business, banking and political ties to Antigua, where the
Government once granted him a near-monopoly on the fuel-oil market.
Money-laundering is a legal catch-phrase that refers to the criminal practice
of taking ill-gotten gains and moving them through a sequence of bank
accounts so that they ultimately look like legitimate profits from legal
businesses. The money is then withdrawn and used for further criminal
activity.
Rappaport, who has never been convicted of any wrongdoing, is well known in
Russian banking circles. He helped solicit business during the boom times in
Moscow. In fact, for a brief time, Bank of New York Inter-Maritime was used
in 1994 by the Bank of New York to conduct business in Russia.
The world of international banking is often built on personal relationships.
In that world, an ability to deal easily across borders and within business,
political and financial circles is highly valuable to big banks. To gain
access to certain foreign markets, the Bank of New York has relied on people
like Rappaport.
Born in Haifa, now Israel, Rappaport has used his base in Geneva to pursue
investments and business in a wide range of places, including Oman, Liberia,
Nigeria, Haiti, Thailand, Indonesia, Belgium and the United States. Rappaport
opened Inter-Maritime in Geneva in 1966.
By the 1980's, he was one of the Bank of New York's largest individual
shareholders, controlling millions of dollars in stock amounting to a nearly
8 percent stake in the company.
Although virtually all of that stock has been sold, back in the 80's,
Rappaport's hefty stake gave him entre to the bank's senior management,
including the chief executive at that time, Carter Bacot. Bacot, whom the
Bank of New York declined to make available for comment, is said by a former
Bank of New York senior executive to have approved the bank's decision to buy
a large stake in Rappaport's bank known then as Inter Maritime.
By 1992, the Bank of New York reportedly owned about 28 percent of what
became known as Bank of New York-Inter Maritime.
In the Federal money-laundering investigation of the bank that surfaced last
week, one of the accounts authorities are looking at is Benex, which moved
funds through the Bank of New York as well as the Bank of New York-Inter
Maritime.
The sole director of Benex Worldwide, a British affiliate, according to
corporate records in London, is Peter Berlin. He is the Russian-born husband
of one of the senior officers at the Bank of New York, Lucy Edwards, who was
suspended last week by the bank. Ms. Edwards, 41, oversaw Russian accounts in
the Bank of New York's London office.
Berlin is believed by American investigators to have had authority over the
Benex account at the Bank of New York.
An initial round of Federal subpoenas issued to the Bank of New York produced
3,500 pages of transactions for one account in Benex's name, investigators
said.
Ms. Edwards reported to Natasha Gurfinkel Kagalovsky, who is based in New
York and supervised all of the bank's Eastern European business.
Ms. Kagalovsky, 44, was also suspended because of the money-laundering
investigation, and her office, like Ms. Edwards's, was searched and sealed by
law-enforcement officials last week. The Bank of New York has repeatedly
declined to make either of the women, who have not been accused of any
wrongdoing, available for comment.
Ms. Kagalovsky's husband, Konstantin Kagalovsky, is a former senior executive
at Bank Menatep, one of Russia's largest banks. And Menatep, according to
Western law-enforcement officials, has also had dealings with Rappaport.
Menatep, now virtually insolvent, is part of an industrial empire overseen by
Mikhail Khodorkovsky, one of Russia's prominent financiers, or so-called
"oligarchs." 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 that
may have been laundered through the Bank of New York came from Menatep.
Menatep, and related companies in Russia, are suspected by Western investors
and Russian regulatory authorities of having looted money from the country,
assertions that Khodorkovsky and his representatives have firmly denied.
In 1994, Khodorkovsky briefly served as a director of the European Union
Bank, an Internet bank based in Antigua. Khodorkovsky has said that he served
as a director of the on-line bank for only one week and had no further
involvement with it. The bank later collapsed amid accusations from various
regulators that it was a scam.
*******
#5
The Guardian (UK)
22 August 1999
[for personal use only]
Russian mafia target the City
Fury in Britain as US leak blows investigation into money-laundering link
with world's most wanted man
By Tony Thompson and Paul Farrelly
Three days after the murders the German film crew turned up at the fortified
Budapest home of Semion Mogilevich, the man they call 'the most dangerous
mobster in the world', hoping for an interview.
The bodies of four East European prostitutes, a brothel owner and his wife
had been found in a stuccoed villa on the edge of Frankfurt's business
district. The women were naked, hands tied behind their backs, and were
forced to lie face down before being strangled. The brothel owner, who
disturbed the murderer, was garrotted.
Russian police believe Mogilevich is a senior figure in the Solntsevo,
Russia's biggest organised crime gang, run by Sergei Mikhailov. Mogilevich
runs prostitution on a massive scale through out Eastern and Western Europe,
was said to have arranged the murders to deter rival operators from moving in
on his patch.
The interview lasted approximately eight seconds - a group of large men in
suits with machine-guns ordered the crew to get out of town or be killed on
the spot.
Last week Mogilevich, who is also said to be involved in the traffic of
nuclear materials, drugs, precious gems and stolen art as well as contract
killings, was linked to an investigation by officers from the National Crime
Squad at the London office of the Bank of New York after it emerged that
between $4.2 billion and $10 billion of dirty money had been laundered
through a single account.
Two members of the bank's staff - one in London, the other in New York - have
been suspended pending completion of the investigation.
Author Jeffrey Robinson - whose latest book, The Merger, was published by
Simon and Schuster last week - says that organised criminals such as
Mogilevich are enjoying massive success using Harvard Business School
techniques.
'Mogilevich typifies the new global criminal,' says Robinson. 'These men
don't rob banks, they buy them. They take full advantage of globalisation,
ill-equipped law enforcement and lax money-laundering laws - especially in
Britain - using the City of London as their onshore gateway to the offshore
world.
'This case is the tip of the iceberg. The City is an absolute cesspool and it
will remain a cesspool because the people in charge don't care. Mogilevich is
not the only one, the Bank of New York is not the only place. London is the
best place to launder money in the world. Since the money-laundering
regulations were introduced in this country four years ago, there have been
thousands of reports but only one successful prosecution.'
Intelligence sources in Moscow believe that the British and US investigations
have uncovered a major conduit of dirty money out of Russia that involved the
connivance of Russian organised crime overseas and senior figures in the
establishment.
Konstantin Grigoryevich Kagalovsky, the husband of Natasha Kagalovsky, the
senior Bank of New York executive suspended in the US, headed Russia's debt
negotiations with the West.
A measure of Kagalovsky's importance in the power nexus is that he was
expected to head next year's presidential campaign by former Russian Prime
Minister Victor Chernomyrdin.
His mentor, Anatoly Chubais, who later became Boris Yeltsin's chief of staff
in the Kremlin, is now head of the pro-Yeltsin political bloc which, along
with Chernomyrdin's party, is expected to back new Prime Minister Vladimir
Putin's run for the presidency next year.
Mogilevich came to the attention of Britain's National Criminal Intelligence
Service through the money-laundering activities of Arbat International and an
associated Channel Islands company, Arigon. The investigation, code-named
Operation Sword, led to the arrest of three people, including two City
solicitors, in 1995.
Soon after Mogilevich made a call to the London offices of the National
Criminal Intelligence Service. The officer he wanted to speak to was not
there but he left a message asking why he was being chased by the British
police when he was a legitimate businessman. The call was not returned but
Mogilevich was banned from entering the UK.
This has done little to stop his wealth and influence growing rapidly.
According to Robinson, transnational crime of this kind no longer requires
criminals to be in any particular place. 'Mogilevich can sit in Budapest and
play the Toronto stock exchange to make himself $635 million or launder
$4.3bn through the Bank of New York in London.'
In fact, Mogilevich has rarely stepped outside his front door since the day
in May 1995 when he travelled to Prague to attend a birthday party at the
Uhaluba Club.
Just before he arrived, he was tipped off that some time during the evening
he would be murdered. He immediately turned around, went home and hired
additional security guards. He now conducts almost all his business by phone,
e-mail and fax.
During 1996, according to Russian intelligence sources, the NCIS also went to
Moscow to identify the extent of Mogilevich's activities and connections in
the Russian underworld. Subsequent co-operation with the US authorities led
to FBI raids a year ago on a US-based firm, YBM Magnex International, which
bought Arigon and was a major conduit for money-laundering. YBM, a magnets
company with activities in the UK, has since been closed down.
Operation Sword led directly to the British investigation into Mogilevich's
connections with the London branch of the Bank of New York. An undercover
investigation, said to involve agents from MI6 and the FBI, was continuing
until news of the case broke in the New York Times last week.
The National Crime Squad is furious at the leak - suspected to be from a
high-level US source - which prompted a hasty raid on the central London
apartment of Lucy Edwards, the Russian-born London employee of Bank of New
York also suspended last week, and her Russian husband Peter Berlin.
The British authorities, which have been co-operating with the FBI and the US
Attorney's office, are particularly incensed at the leaking to the New York
Times of a confidential report on the capabilities of the National Crime
Squad, which had a limited circulation.
Berlin and Edwards were present during the raid last Wednesday evening as
documents, a computer hard drive and disks were taken away in large plastic
bags. No arrests were made and the whereabouts of the two are now unknown.
They were not answering their phone this weekend.
British inquiries have looked at the use of accounts at Bank of New York by
Benex Worldwide, a UK company of which Berlin is sole director and which
investigators have linked to Mogilevich's YBM.
Benex is understood to have made applications for US visas for associates of
Mogilevich, which were turned down. Among other companies, the police are
also examining another UK firm, International Investment Finance Company, of
which Berlin is a director along with three Russians.
One senior source at the National Crime Squad expressed pessimism about
successful prosecutions. He told The Observer: 'The briefing to the New York
Times has jeopardised operations that are still ongoing on both sides of the
Atlantic. Now all the people we have been looking at will simply vanish.'
******
#6
The Times (UK)
August 21 1999
[for personal use only]
Russian bear falls to beer imperialism
FROM MICHAEL BINYON IN MOSCOW
VODKA is Russia, they say, and for centuries the elixir has inspired,
sustained and ruined Russians. But in the past two or three years the
unthinkable has happened: Russians in their thousands have deserted vodka and
turned to softer, lighter drinks, especially beer. What Lenin yearned for and
Gorbachev humiliatingly failed to carry through, the hurly-burly of the free
market is finally achieving.
Younger Russians, especially the generation growing up after communism's
collapse, have neither the time nor taste for a drink that more than any
other factor is associated with Russia's historic failings: drunkenness,
violence, sloppiness and the ruin of businesses, hopes and families. And for
the first time they have an alternative: good, cheap and plentiful lager
beer, brewed in Russia and now distributed to even remote villages. Beer
consumption has increased by 500 million litres every year since the break-up
of the Soviet Union. By last year Russians were drinking 3.2 billion litres a
year - 27 per cent more than in 1997. This still works out at only 19 litres
a head, compared with 83 litres in America and 129 in Germany. But the figure
is rising quickly and was unexpectedly boosted by the crash of the rouble.
Last August Russians were drinking huge quantities of fashionable imported
beer. Heineken, Bitburg, Carls-berg and Kronenbourg were among the big
European names on the umbrellas shading the new beer stands in Moscow's
parks. Guinness was selling in the "Irish" pubs.
However, devaluation suddenly made these foreign beers expensive.
Enterprising local breweries saw their chance. St Petersburg has swiftly
emerged as Russia's brewing centre. Baltika Brewery is now the largest of its
kind in eastern Europe and its beer is becoming a cult among Russians, proud
at last to have a beer that can compete with Western brands. Baltika now has
15 per cent of the market.
As sales soar, beer companies are rapidly being consolidated. Together with
Baltika, Efes, a Turkish-owned brewery in Moscow, and Ochakova, a
Russian-owned company, produce four fifths of the annual output. Beer's
trendy image is promoted by festivals, Western-style pubs and pavement cafés,
and advertising association with the West. A raucous Great Russian Beer
Festival filled the Olympic stadium in Moscow for a week last month.
The post-communist switch to drinks with a lower alcohol content is exactly
what communist bureaucrats have been proposing ever since the Revolution.
Vodka was officially banned between 1917 and 1936 in an effort to stamp out
the drunkenness of tsarist times. Lenin railed against vodka but could not
fight a tradition that began in the 15th century and had a stranglehold on
the peasantry in the last century. It was reintroduced only in the Second
World War to fortify the troops.
In the Brezhnev era, officials had grand plans to invite Western breweries to
set up factories in the Soviet Union. Nothing came of it. Gorbachev's curb on
vodka sales brought him lasting and widespread unpopularity. The State earned
so much money from vodka taxes that all proposals to cut production were
ineffective. They only stimulated the clandestine rural production of
moonshine - samogon - which regularly kills and disables huge numbers each
year.
Russian beers in the past were never a serious substitute for vodka -
unpasteurised, uninspiring and largely unavailable. Beer was swilled down in
rough beer halls or on street corners. Most people made do with kvas, an old,
bread-based fermentation, sold from tankers outdoors.
Politics and the market have helped the beer boom by ruining the competition.
Russia has lost most of the southern wine-producing former Soviet republics
and virtually all wines now arriving in Moscow from Georgia and Moldova are
fake concoctions marketed by gangsters. Vodka has also suffered from
widespread falsification, with crude alcohol mixes passed off as famous
brands.
As ever, patriotism and drinking go together in this country. Beer, Russians
now insist, is really their oldest drink - indeed the word for it, pivo,
comes from the Russian word for "to drink".
******
#7
From: "Paul Backer, Esq." <pmcllc@email.msn.com>
Subject: Searching for a sensible post-Clinton foreign policy in Eastern
Europe.
Date: Sat, 21 Aug 1999
Searching for a sensible post-Clinton foreign policy in Eastern Europe.
August 20, 1999
Paul Backer (pbacker@glasnet.ru)
The author is a Russian speaking, American attorney with a practice
involving Russia and Eastern Europe, including service on several Rule of
Law projects.
(private use only, republication by permission only)
The anniversary of Russia’s economic collapse brings long needed public
attention to the debate on the impact of the Clinton administration’s multi
billion dollar foreign aid and lending policies in Eastern Europe. Critics
see the Clinton administration’s aid and development foreign lending,
transfer and credit policy as wasteful, ineffective and at times, harmful.
They point to rampant corruption, theft of funds and mission leak besetting
these programs. Russia, the showcase of Clintonite policy and receipient of
billions of dollars of transferred funds is seen as a prominent example
where existing policy failed to effectively promote economic development,
political stability or Rule of Law.
In fact the Russia’s situation is desperate and appears to be getting worse.
Political stability is as distant as ever, Russia’s fifth prime minister in
seventeen months is widely expected to be replaced within the next six
months. By all objective measures Russian economy is in dire straits.
Foreign investment is falling and at the current level of 3 billion dollars
a year, less than a sixth of investment into Hungary. Per capita income in
hard currency is falling toward historic post-World War II lows and
continues to decline. Russia’s society is approaching economic feudalism,
with many citizens effectively tied to their workplace due to the extremely
low salaries paid or frequently not paid or paid in scrip, goods or food.
Capital flight is exploding, estimated at 200 to 500 billion dollars during
the post Communist period. Annual capital flight from Russia is estimated
to exceed Russia’s rather modest federal budget of 20 billion dollars.
Russia’s democratically elected government, the primary beneficiary of
Clinton’s policies and friendship enjoy public support in the single digits.
Clintonite foreign policy is seen as poorly targeted, lacking objective
targets and performance criteria, responding more to the needs on the
Beltway than on the main streets of Eastern Europe. In effect, the dumping
of billions of dollars in U.S. and international financial organization
funds into Russia absent any effective safeguards played an important role
in criminalizing Russian society and preventing the development of effective
finance, securities and corporate law enforcement structures needed to
prevent capital flight. Recent news coverage stunningly illustrates that
Clinton policy problems are systemic, going well beyond Russia. This week,
the NYT reported that $1 billion in public assistance funds were missing,
misapporpriated or simply stolen in Bosnia during the effort to rebuild
after the war. While it is striking as an example of Serbian, Croatian and
Bosnian leadership effectively working together, it is hardly what the State
Department could have intended. The response of the international aid
community, hushing up incidents not to “discourage giving” is equally
disheartening.
Attempts to promote a rational analysis of the current policies and improve
their performance are greatly complicated by the response they receive. The
response from the authors of the existing policies borders on either
hysteria or the unintentionally, hysterical. President Clinton referring to
the Republican Congress’ efforts to cut aid spending stated at an August
16th meeting of the Veterans of Foreign Wars that, “We are cutting the very
programs designed to keep our soldiers out of war in the first place.” And
that “The costliest peace is far cheaper than the cheapest war.” Apparently
the key goal of Clintonite foreign policy is the prevention of war.
Examining the Clinton administration’s historical record puts lie to these
odd statements. America used sizable military force during President
Clinton’s term including Serbia, Bosnia, Iraq, Somalia, etc. It is
difficult to identify what foreign aid program could have kept Saddam
Hussein from invading Kuwait or continuing to provoke U.S. bombing or the
centuries of ethnic tensions from exploding in the former Yugoslavia. In
these cases, it appears that the Clinton administration repeatedly opted for
the war. Alternatively, it appears impossible to identify even one instance
where Clinton’s foreign policy prevented a war. The primary appeal of the
“aid prevents wars” argument is that by the very nature of being prevented,
such wars are not quantifiable. As an argument for the efficacy of a multi
billion dollar, almost decade long foreign policy it is at best double speak
and at worst, complete nonsense.
Proponents of current policy argue that by its very nature foreign aid,
whether loans or credits or technical assistance is humanitarian aid to the
most needy and therefore not quantifiable. They argue that the goals
pursued are worthy and that tremendous effort and expense are expended in
their pursuit and that fault is not so much in the “how” and “what” of
foreign aid, but rather in the “not enough”. What makes these arguments
striking is that they very neatly mirror the welfare reform debate in the
U.S. in the past few years.
The arguments were the same, that we must show our humanity and help those
least able to help themselves. The truth of this assertion is self evident,
we as a wealthy nation with a moral mission must help the less fortunate,
particularly as it will create markets for our products and services.
However, the other arguments are unconvincing. The argument against
introducing objective criteria as being dehumanizing, impossible, cruel,
arbitrary and doomed to failure. The roughly 50% reduction of welfare
payrolls put lie to this argument in public spending.
The “trump” argument that we could not seek a change, that those receiving
our aid were so dependent, so unable to fend for themselves that any change
in policy would effectively throw people unable to care for themselves to
the wolves. That argument severely underestimated the decency, humanity,
desire and ability to work of those who require our help and guidance. Many
American states took a long hard look at their policies on welfare, medical
and other assistance programs and found them wasteful, ineffective and
inhumane. The states sought a responsible way to change failing policies
and found that way. Welfare rolls are down dramatically, jobs are up and
arguably with them, self respect and human dignity are up too.
The way found is targeted, self sustaining programs able to show local
demand, rather than vague policy goals mandated from outside and reliant on
outside experts largely unfamiliar with the environment. These policies are
proving a significant success. At the same time, another revolution is
sweeping America, roughly known as venture capital philanthropy. It is an
approach to giving by entrepreneurs who hold aid projects responsible for
achieving tangible ogals and quantifiable improvements. These approaches
reject the approach that aid, whether as loans, grants or other transfers
can not be quantified or measured or administered in accordance with the
private sector’s performance standards. These approaches have had great
success.
Yet, in the foreign policy arena, we persist in policies rejecting these
successful approaches. Bllions of IMF, World Bank and national governments’
transfers to Russia not only failed to achieve their policy goals they are
quite simply, missing. The Clintonite foreign policy succeeded where
decades of Soviet propaganda failed, undermining the very legitimacy of
democracy and market economics in the eyes of many Russians. While states
such as Hungary, Czech, Poland and others’ largely “weaned” off the West’s
foreign aid transfers are on the road to economic recovery, Russia
flounders. The states of Central and Eastern Europe developed enforced
corporate, securities and finance laws attracting substantial foreign
investment and discouraging capital flight. Russia’s capital flight exceeds
its annual federal budget and its society’s criminalization is worsened by
the impact of billions of dollars of unaccountable for funds transferred in
by the West. The U.S. and other governments continue technical aid projects
(outside the purely humanitarian area) that are not self sustainable, can
never be self sustainable and don’t appear to make any quantifiable process.
Considering, the huge amounts and tremendous responsibility involved, it’s
about time that we decided three things. First, what has worked and what
hasn’t and undergo the painful, but vitally important process of disclosing
past failures and misdeeds. Second, what accountability, management and
performance standards should be demanded from future projects, such as their
ability to illustrate local demand. Finally, we need to apply management,
performance and accountability standards not only to the administration of
future projects, but to its recipients and originators even at high
governmental level. The dialogue to identify, lobby for and implement
responsible projects and policies must continue beyond the “anniversary”
week.
******
#8
IMF Head Refutes Le Monde Charge of Laxity
Paris Le Monde
19 August 1999
[translation for personal use only]
Article by Michel Camdessus, director general of the International
Monetary Fund: "The IMF, Russia, and Le Monde"
Allow me to express my indignation at the untruths,
allegations, and insinuations published in the Le Monde articles and
editorials of 6 August and dated 8-9 August concerning the contents of
the Price Waterhouse Cooper's (PWC) report of audit of the operations of
the Central Bank of Russia and its subsidiary Fimaco.
In a first page reportage titled "How Russia Misappropriated IMF Funds"
it is charged that this subsidiary "speculated in this way to the profit
of the oligarchs in power." An editorial adds that "in the style of
garden-variety swindlers, Russia misappropriates the international
community's money to facilitate the enrichment of a few oligarchs." Worse
yet, we learned there that this misappropriation of funds is taking
place, if not with the agreement of, at least "with full knowledge of the
facts on the part of the bigs of this world: the top officials of the
IMF, beginning with its general director, Michel Camdessus."
Le Monde's readers will be surprised to learn that the cited report of
audit, which the IMF had requested and whose publication it had demanded,
says nothing of the kind. The report does not state a finding of
misappropriation of funds and it does not call into question "the conduct
of the IMF in the face of the mass of shady operations." This document
was certainly not posted on the IMF's Internet site only after the
publication of Le Monde's 6 August editorial and article. The decision to
publish it had been posted more than a week before. Contrary to what you
imply in your article of 8 August, it therefore does not stem from your
"revelations." In fact, on 16 June, and even before knowing its content,
I personally requested the Russian authorities to publish that report.
I also note that your presentation of the data that was known to the
IMF and of the action it took is likely to mislead your readers. We knew
for a fact that a fraction of the Central Bank of Russia's reserves was
deposited in foreign branches, which is not an illegal practice. On the
other hand, prior to this year, we were not aware of Fimaco's activities,
because the 1993 and 1994 audit reports had not been transmitted to us by
the Central Bank of Russia.
When we were informed of the possible extent of Fimaco's activities, we
indicated to the Russian authorities that the IMF would not resume its
loans until it received a report on Fimaco and an agreement were reached
on the corrective measures that might be needed. The version of the PWC
report transmitted to the IMF on 9 July was delivered to our Board of
Directors on 20 July, accompanied by attached documents, for purposes of
the Board's review, on 28 July, of the new loan application submitted by
the Russian authorities. There as well, contrary to what you suggest, it
was never a matter of putting off an IMF reaction to, or of delaying a
public comment on, Fimaco's activities.
I add that the objections raised by the IMF to Fimaco's operations go
well beyond the deceptive presentation of the state of Russia's
international reserves in the middle of 1996. They also include several
other transactions by its intermediary that had the effect of
misrepresenting the situation of Russia's reserves as well as its
monetary and exchange policies. The loans being made to the Russian
commercial banks, and for investments in the Russian Treasury paper
market (GKO), are cases in point.
Contrary, once again, to what you assert in order, it would seem, to support
the idea that other operations of this type could well have taken place
again since then, the audit of Fimaco's activities was not limited to
those of a brief period in 1996. The PWC report covers the entire period
from the creation of Fimaco to the beginning of 1999, the date of the
start of the audit.
The IMF moreover, in drawing its conclusions, did not depend solely on
this report and on the meetings it held with PWC's consultants. Officials
of our departments met with members of the staff of Russia's Attorney
General Skuratov, and with representatives of the Duma's General
Accounting Office, to determine whether the audit should or should not be
extended to other areas.
The articles to which I refer contain several other errors of fact, to
say nothing of the ill-founded allegations against me. I cannot enumerate
them all. Two of them sufficiently distort any rational interpretation of
the events that took place in Russia, and of the IMF's cooperation in the
audit of Fimaco, as to warrant their correction.
First of all, it is totally absurd to state that Fimaco's holding of a
large volume of Russian Treasury paper greatly delayed the 1998
devaluation of the ruble. The fact is that Fimaco held none of those
assets after 1996.
And second, you assert that, according to the PWC report, PWC's
consultants had no knowledge of agreements with the IMF stipulating the
terms and conditions of investment of the reserves. You thus imply that
information may have been withheld during the audit and that our
institution failed to exercise due diligence in the performance of its
responsibilities in the particular case of Russia. Such agreements have
never existed.
When the IMF provides aid to the balance of payments of a member country,
it does so without imposing a specific allocation of these funds. The
funds loaned by the IMF in this respect may be allocated to the financing
of that country's budget or to the bolstering of its international
reserves, depending on the program adopted by that country's authorities.
In this particular case, the Russian program called for allocating a
portion of the funds to the financing of its budget and another portion
to the boosting of its international reserves. It set forth also a number
of points of agreement concerning budgetary policy, but--again in
accordance with established practice--without imposing criteria relative
to investment of the country's reserves, since this would be in
contradiction with the need to preserve the liquidity of its assets.
This flexibility with respect to the allocation of the funds we lend,
however, does not at all signify that we are indifferent to the borrowing
country's allocation of its budgetary resources. An essential part of the
negotiation of the program that has just been approved by the Board of
Directors consists, for the IMF, of persuading the Russian authorities to
increase their budgetary resources--particularly by increasing the
taxation on the big monopolies such as Gazprom--so as to be able to
adjust wages, social welfare benefits, and pensions, the face value of
which the government had decided to upgrade in view of the projected
inflation rate of 50 percent for the year 1999.
This point bears out the extent of the erroneousness of the information
you headlined on 2 July 1999, according to which "Russia is cutting back
on family benefits in order to satisfy the IMF."
This brings me to your judgment that the terms and conditions of our
loans to Russia are "by no means restrictive," lending to Russia having
"become second nature for the IMF." Here as well, you could perhaps have
wondered how, if this is the case, our Board of 24 directors,
representing 182 countries, can have approved the loans by unanimous
vote.
The fact is that the IMF is only pursuing a policy in Russia that
consists of seeking to facilitate pursuit of--obviously too slow--a
reforms policy. I think, nevertheless, that were you to summarize for
your readers the content of the reforms on which the granting of loans
has been conditioned, that have been published, and many of which are now
in place, they would share the opinion of the Board of Directors that
such a strategy--by no means optimal, admittedly--is worth the try, and
is preferable to the bankruptcy of Russia, and to the economic isolation
of that country, with all the consequences this could entail.
******
#9
Communists Seek to Win Orthodox Believers Over for Polls.
SUZDAL, Vladimir region, August 21 (Itar-Tass) - The People's Patriotic Union
of Russia will encourage Orthodox believers to side with its members in the
upcoming elections to the State Duma in December 1999, Communist Party leader
Gennady Zyuganov said.
Zyuganov told Itar-Tass on Saturday that the People's Patriotic Union of
Russia (NPSR) believes that "Orthodoxy has to play a critical role in
Russia's revival" and "believers and politicians who think nationally should
unite".
"Orthodox laymen cannot participate in elections in bloc. They are not strong
enough for that. This is why the NPSR will support them in every way," he
said.
Zyuganov seems not to be discouraged by the deep gap in the views of Orthodox
believers and the followers of Vladimir Lenin, the founder of the first
Soviet state.
He believes that unlike their predecessors, modern Communists have changed
their attitude towards the Church. "I have managed to convince my party
colleagues to change their opinion," he said.
******
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