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Johnson's Russia List


August 24, 1999   
This Date's Issues: 3460  3461  

Johnson's Russia List
24 August 1999

[Note from David Johnson:
1. Xinhua: Lawmaker: U.S. Blocking Start II Ratification.
2. Moscow Times: Brian Whitmore, N.Y. Bank Scandal Is Ammo for Politicians.
3. Reuters: German big cheese wants sure bet in Russia.
4. Fred Weir: Russia's crisis-hit Pacific northeast.
5. Sarah C. Lindemann: Resource for the latest information on democratic 
transition in Siberia.

6. Helen Womack: owning up to authorship.
7. Yuri Luryi: Re: 3459-Prostitution.
8. Moscow Tribune: Dmitry Polikarpov, Communists Split By Ousting Ally.
9. Reuters: IMF watching Russia probe, own cash not involved.
10. Ustina Markus: Russia Doesn't Need Dagestan (or Chechnya).
11. AP: Tarasov Criticizes Russian Sport.
12. Interfax: Muscovites Divided on Future of Lenin's Body.
13. Stratfor Commentary: Russia’s Media War: Luzhkov Strikes Back.] 


Lawmaker: U.S. Blocking Start II Ratification

MOSCOW (Aug. 23) XINHUA - The United States is not interested in Russia's 
ratifying the START II treaty although Washington publicly keeps appealing 
for its approval by Russian parliament, a ranking lawmaker said here Monday. 

Roman Popkovich, chairman of defense committee of the State Duma, the lower 
house of parliament, said the United States is actually trying to disrupt 
ratification, the Interfax news agency reported. 

He said the U.S. does not want Russia to ratify the START II, under which 
Moscow and Washington are to cut their nuclear warheads each to 3, 000 to 
3,500, for both political and military reasons. 

"They are trying to portray us as a country unwilling to divest itself of 
nuclear arms, a kind of nuclear monster that does not want to disarm, " he 

"The military aspect of the problem boils down to the fact that Russia needs 
START II more than the U.S. does," he said. 

The shelf life of Russia's strategic missiles is much shorter than that of 
the U.S.'s because Russia has refurbished and updated them. 

"The expiration date for our missiles will have been reached by 2007-2008, 
while it will be 2020-2025 in the case of America's," Popkovich said. 

"They understand very well that if we do not ratify the treaty and do not 
achieve a simultaneous reduction of the maximum number of warheads, their 
nuclear strength will be four to six times greater than ours by 2008-2010," 
he said. 

He accused Washington of "putting obstacles in the way of our ratifying the 
START II treaty by violating the Anti-Ballistic Missile treaty of 1972." 

As to the chances of START II being ratified by the Duma, Popkovich said 
Washington's intention to amend the treaty casts doubts on ratification since 
the danger of "disrupted balance" may arise. 

He said Russia should understand Washington's proposals "to the extent that 
we must have an ABM location scheme to be able to control the process of 
creating and deploying anti-missile facilities," he said. 

"The argument that the (U.S.) continental ABM system would be created to 
counter possible acts of terrorism from third-world countries that possess 
nuclear weapons does not stand up to criticism," he said. 

He warned that "if the U.S. decides to set up a continental ABM system, 
Russia should work on the creation of new striking means -- missiles with 
multiple warheads, that is, a new kind of weapon that will be a weapon of 
nuclear deterrence." 

"Appropriate changes need to be made to Russia's military doctrine, including 
considering the possibility of war, the use of armed forces, and most 
importantly, reconsidering who are our friends and adversaries, " he said. 


Moscow Times
August 24, 1999 
N.Y. Bank Scandal Is Ammo for Politicians 
By Brian Whitmore
Staff Writer

As the FBI wades through what is being called the largest money-laundering 
case in U.S. history, Moscow's politically hyperactive media already have the 
case figured out: Those news organs loyal to Boris Berezovsky link the 
"Russian mob money" to Yury Luzhkov, while those loyal to Luzhkov are tying 
it right back to Berezovsky. 

The revelation that as much as $10 billion was churned through the Bank of 
New York last year, in what U.S. investigators believe to be a major 
money-laundering operation by Russian organized crime, was broken last week 
by The New York Times. 

That report captured headlines around the world. In Moscow, however, those 
headlines have been as politicized as the media offering them. 

On Saturday, for example, the Berezovsky-owned daily Noviye Izvestia ran a 
story tying the scandal to AFK Sistema, a powerful holding company allied 
with Luzhkov. 

On Monday, Moskovsky Komsomolets - long a faithful ally of Moscow Mayor 
Luzhkov - hit back by linking the Bank of New York accounts to Berezovsky. 

Berezovsky and Luzhkov are at each other's political throats. Luzhkov and his 
main ally, former Prime Minister Yevgeny Primakov, have made clear they 
intend to take over the Kremlin when Boris Yeltsin's term in office expires 
next summer. Berezovsky has made clear he intends to prevent them from doing 

In this life-and-death struggle, the scandal at the Bank of New York has 
become just another sharp-edged weapon. 

The New York Times report linked the Bank of New York accounts to Semyon 
Yukovich Mogilevich, a shadowy Russian-born mobster U.S. law-enforcement 
officials have tied to everything from arms trafficking to extortion to 

Noviye Izvestia journalist Kirill Belyaninov picked up on talk of Mogilevich. 
In a complex scenario, Belyaninov linked Mogilevich to Luzhkov's friends at 
Sistema through a chain of companies - including Arigon Ltd., Tonalito AG and 
advertising magnate Sergei Lisovsky's SV-Holding. 

The article culminated with allegations that both Sistema's Novitsky and 
Mogilevich were tied to the infamous Solntsevo criminal group. 

Novitsky was unavailable for comment Monday. But Gennady Dalalayev, a 
spokesman for Sistema, said that Novitsky and the company have no connection 
whatsoever to any of the firms Noviye Izvestia mentioned. Dalalayev said 
suggestions that Novitsky was tied to the Solntsevo gang were "rubbish." 

Belyaninov, in a telephone interview Monday, said he had documentation, 
including material from Moscow's Registration Chamber, to back up his 

Retired FBI agent Jim Moody, who was cited as a source in Belyaninov's story, 
confirmed Monday that he had spoken with Noviye Izvestia. Moody said that 
Belyaninov's article was "accurate" in tying Mogilevich to the Solntsevo 
gang, but he could not confirm the allegations regarding Sistema. 

Moody served as the FBI's assistant deputy director for organized crime 
investigations from 1987 to 1996 and was one of the first FBI officials to 
draw attention to Russian organized crime's infiltration of the United 

Moody, in a telephone interview, said that he also told Belyaninov that 
"given the amount of money involved here, this case is probably related to 
the theft of Russia's natural resource wealth, most likely in the oil and gas 

"I am speculating, of course, but this doesn't appear to point to Luzhkov," 
Moody added. "Berezovsky is a more likely suspect [given that he has more 
dealings in oil]." 

That bit of speculative commentary, however, didn't get into the Noviye 
Izvestia piece. 

It would have sat well, however, in Monday's edition of the famously 
pro-Luzhkov and anti-Berezovsky Moskovsky Komsomolets - where the main 
article linked Mogilevich to controversial aluminum magnate Lev Chorny and, 
through Chorny, to Berezovsky. MK said Chorny and Berezovsky met recently and 
discussed jointly buying the Kommersant newspaper. Berezovsky has denied 

MK also claimed that Chorny had recently set up a series of shell companies 
in Switzerland following his meeting with Berezovsky. 

And the paper saw significance in the timing of the Bank of New York 
revelations, which follow reports - also denied by Berezovsky's people - that 
accounts in Switzerland controlled by Berezovsky have been frozen. The paper 
claimed, without supporting evidence, that money was transferred between the 
Swiss accounts and the Bank of New York account. 

So is the "Russian mob money" Luzhkov's, or Berezovsky's? Of course, it could 
be neither's. And not all media in town sought to make political book from 
what has shaped up as a national embarrassment. 

Izvestia, for example, saw broader significance for Western-Russian 
relations. Noting that the story probably had to have been fed to The New 
York Times by an American or British official, the paper characterized it as 
a quasi-official message to the Russian political elite. 

"Russian businessmen are being warned that neither they nor their money are 
welcome in the West," the daily wrote in a story Friday, the day after the 
scandal broke. 

"Next year, Russia may seriously change its political system and massive 
capital flight could be the result. But now, after the publication in The New 
York Times, the basic participants in these political-financial games have 
been warned that they cannot simply take their money abroad to secure a quiet 
old age." 

Luzhkov and Berezovsky are not the only Russian political giants struggling 
to spin the Bank of New York scandal. The Yukos oil company has also found 
itself figuring in The New York Times report. 

The Bank of New York has suspended two employees who handled its Eastern 
European business, Natasha Gurfinkel Kagalovsky of New York and Lucy Edwards 
of London. Kagalovsky is the wife of Konstantin Kagalovsky, who from 1992 
until 1995 was Russia's representative to the International Monetary Fund and 
was a former senior executive at Bank Menatep, which did a lot of business 
with Bank of New York. 

Today Kagalovsky is vice president of Yukos. He was unavailable Monday for 
comment, but Yukos spokesman Maxim Buchkov said it was unfair to link 
Kagalovsky to the Bank of New York. 

"Yukos has nothing to do with this scandal," Buchkov said. "The only reason 
[Kagalovsky's] name is coming up is because of his wife." 


German big cheese wants sure bet in Russia
By Peter Henderson

MOSCOW, Aug 24 (Reuters) - Ulrich Marschner, a German cheese maker, isn't 
waiting for a new Russian president before he sets up shop in Europe's 
largest single market. 

He's waiting for a lot more. 

Marschner, head of Russian operations for Germany's biggest cheese maker, is 
one of the rare breed of Russia-watchers who look beyond the composition of 
the government of the month and don't spend much time fretting over the next 
parliamentary poll. 

His employer, Hochland Reich, Summer & Co, is focused on the mundane, like 
the laws and the roads, rather than personality. 

``We are a medium-sized company by German standards, so I don't think it 
would make sense to rely on somebody high up in the government to show 
interest in what we are doing. We are just not big enough for that,'' he said 
in an interview. 

``The best thing is to not feel the need to rely on such help.'' 


Marschner is not alone. 

Germany has some 30,000 businesses like Hochland cheese, with annual revenues 
close to its 1.3 billion marks ($678 million), and many are ready and able to 
invest in Russia, says German economist Paul Fischer. 

He calls them the backbone of the German economy and says they could be the 
same for Russia -- Hochland, for example, has already established factories 
in Poland and Romania. 

Fischer, who wrote a policy handbook on attracting foreign investment aimed 
at Russian politicians and partly financed by the German government, says 
foreign firms are the last source of funding Russia can tap. It has borrowed 
all it can. 

``We do not see any other source for Russia. They have all been used up,'' he 

He urges the government to focus on improving the business climate rather 
than a balanced budget, to woo foreigners. 


His pessimism is tough to understand at first when you look at Moscow's 
bustling shops. 

Crisis gloom that spread a year ago in August, when the government devalued 
the rouble, has been replaced by tentative hope as domestic producers' 
foreign competitors disappeared. 

Russian spaghetti and soft drinks have filled the stores and industrial 
output rose an astonishing 4.5 percent in the first seven months, compared to 
the same pre-crisis period of 1998, proof that devaluation has done the 
economy some good. 

The cheap rouble has also made investing in Russia look better, since 
foreigners can buy more while Russians, earning less, are buying fewer 
foreign goods. 

``What we have seen in import/export operations is that with purchasing power 
going down dramatically, import is not a long term solution for the Russian 
market,'' Marschner said. 

Hochland, which in 1997 sent Russia 40 percent of the European Union's 
exports of processed cheese, says sales slumped to almost zero after August 
and were down by half for 1998. They are now steady at a very low level. 

But Russian investment remains low, with growth chiefly from factories taking 
old machinery out of mothballs rather than building new plant, a third of the 
country lives in poverty and Russia's image as a place to do business is the 

A poll of nearly 4,000 business executives by the Swiss-based World Economic 
Forum put Russia last among 59 nations in terms of competitiveness. 

Russia and Ukraine, which edged Russia out of last place in 1998, were 
characterised by ``a low extent of rule of law and reliability of property 
rights, low trust in the government, fear of organised crime, low confidence 
in the police,'' it said. 

The London-based Merchant International Group, in another survey, called 
Russia the riskiest business location for British and U.S. companies for both 
the first and second quarters of this year. 

As Marschner said, after examining Russian law: ``All that we have found out 
so far is that it is very, very difficult to see through that haze,'' he 


Common wisdom in Russia is that political stability, in the form of a new 
president to be elected next summer, can settle Russia into a trend of 

``Changes can be expected only after the presidential election a year from 
now,'' liberal opposition parliamentary leader Grigory Yavlinsky said 
recently, naming needed improvements such as property rights and fiscal 

But Marschner says the solution of electing a new president is too simple. 

``Whoever will be elected the new president still can't do away with all 
these jungles of sometimes conflicting legislation, which are wide open to 
any interpretation by local authorities,'' Marschner said. 

``You can't do away in one day with a taxation code which is obviously still 
a long way from perfection.'' 

Nor will an election solve the problem of dilapidated equipment and 
infrastructure, such as roads and water supplies, which have been allowed to 
deteriorate for years. 

``There is a remarkable art of improvisation and finding makeshift solutions 
which still gives you an astonishing finished product,'' Marschner said of 
dairies he has toured. 

Hochland would begin in Russia, as it did in Poland and Romania, by making 
processed cheese, a long-lasting product that typically comes in slices and 
spreads and is made from fresh cheese supplied locally. That fresh cheese is 
hard to find. 

``We want to be sure of quality. So to find a limited pool of Russian 
suppliers of the raw ingredients is still a problem.'' 

The bottom line is that Hochland will not invest until it considers Russia a 
sure thing, and that time has not come. 

``Being medium-sized we need to be reasonably sure that if we invest, it will 
work out well. We are not, say, Coke, which would not be too much affected by 
the financial results of a possible failure. 

``Russia being potentially a huge market, we have been looking at it for 
quite some time. We found out that being huge may also mean having bigger 
problems than the other markets.'' 


From: "Fred Weir" <>
Subject: Russia's crisis-hit Pacific northeast
Date: Mon, 23 Aug 1999 

By Fred Weir
MOSCOW (CP) -- A Canadian-sponsored relief effort for Russia's
crisis-hit Pacific northeast is winding down, but aid workers say hunger,
disease and despair are still on the rise.
``The decline is extreme, particularly in the Arctic regions,'' says Joe
Lowry, information delegate for the International Red Cross, which has
overseen the 4-month distribution of crucial food and medical supplies to
the remote Pacific territories of Kamchatka, Magadan and Chukotka.
``This is a humanitarian disaster''.
The Canadian government, through CIDA, donated $3-million (CDN) last
winter to underwrite the lion's share of the project, which ends this month.
Red Cross officials say they have distributed about 21,000 food parcels
to help feed up to 100,000 local Russians and indigenous peoples through
some of he toughest times they have ever known.
Each food package contains enough staples to last an individual 3
months, or a family several weeks.
``These parcels are designed to boost whatever food stocks people can
gather,'' says Eugene Sienkiewicz, a 42-year old Red Cross logistics expert
from Toronto, who has been supervising the project on the ground for the
past 4 months.
``No salaries are being paid here so everyone, native people and
Russians alike, are forced to live off the land''.
The Soviet Union moved almost 12-million people to the far north and
crammed them into grim industrial towns built on the permafrost. As long as
the USSR existed it ensured adequate stockpiles of food, energy and
supplies were delivered before winter set in.
Post-Soviet Russia has tried to maintain the northern subsidies but
failed to come up with any plan to help stranded Arctic populations relocate
or find sustainable jobs in the new market economy.
Last August the Russian government declared virtual bankruptcy, and in
the subsequent turmoil most of the Arctic life support systems were shut
In a letter faxed to Canadian Press from Kamchatka, Canadian Red Cross
worker Phyl Toronchuk described a bleak picture of crushing poverty,
constant power blackouts and a public health nightmare.
``Kids look skinny, hungry, dirty and very poor,'' wrote Toronchuk, a
nurse from Prince Rupert, British Columbia, of one Arctic community she
visited in June. ``People were cooking outdoors over open fires and
laundering their clothes in the freezing cold water of the river''.
Tuberculosis, venereal disease and alchoholism are rampant, and local
hospitals lack even the most basic medical supplies, she writes.
Visiting the intensive care unit of the main hospital in Anadyr, capital
of Chukotka, was ``an extremely disturbing experience,'' she writes.
``Conditions were terrible. The walls and ceilings were deteriorating.
Equipment was minimal. . . Walking past the kitchen, the only food I
noticed was bread.
``There were so many obvious needs that it was overwhelming''.
Canadian Innuit organizations were the first to sound the alarm over the
looming catastrophe in Russia's north late last year.
In January the Canadian government spent over $400,000 for a single
charter flight to deliver $30,000 worth of emergency food supplies to
isolated villages in Chukotka.
Red Cross officials say they have avoided that kind of extravagance by
purchasing foodstuffs in Russia, using local transport networks and
involving regional governments and public organizations in the distribution
``It's a myth that there's a shortage of food in Russia,'' says Lowry.
``The threat is to the poor, children, the elderly and people at the end of
ruptured supply lines, especially in the far north''.
Lowry says there is no funding lined up to continue the project, even
though worse conditions are anticipated this winter.
``We hope donors will come through,'' he says. ``The need is to help
these people develop the means to survive on their own over the long term.
``And that will take considerable effort''. 


Date: Mon, 23 Aug 1999
From: "Sarah C. Lindemann" <>
Subject: Resource for the latest information on democratic transition
in Siberia.

Dear David,

I would like to alert all your readers to a wonderful resource for those
interested in democratic transition in Siberia. It is the Siberian Civic
Initiatives Support Center web page ( It describes the
work of the Center and various projects targeted at NGO relations with
government and business, volunteerism etc. The Russian version has a
weekly updated graph comparing the number and sphere of work for registered
organizations (non-political/non-religious) from last year to this. A full
data base of over 2,000 organizations will be available this fall (the 4th
such edition). 

I would especially like to draw attention to the library resource in the
Russian version. Posted there are copies of the Siberian Center journal
"The Effect of Being" which has been very positively received in Russia.
The journal contains the latest information about development in the region
in articles written by those who are implementing the programs. The most
recent edition contains the following articles:

1. "Consolidated Budgets: Another Step Towards the Creation of Community
Foundations in Siberia"
2. "Preparing Evaluators for the Region"
3. "Siberian Community School Foundations: Local Alternative to the
Traditional Model of Community Foundations"
4. "Not a Strong Enough Legislative Base? Prepare a project! Announces the
Governor of Novosbirsk at the 4th Annual NGO Fair"
5. "The development of Social Initiatives in the Criminal Justice Sphere"
6. "Charitable Giving in Siberia: the Latest Statistics"
7. "Profile of the Gorno Altaisk NGO 'Club to Save the Lakes'"
8. "What Happened in Siberia (short descriptions of the most important
civil society development events this summer)"

This journal was designed to provide analysis and information. It is clear
from many of the articles I have read in JRL that much of what is taking
place is not known outside of Russia and there continues to be very little
understanding of the very positive developments that are taking place. An
English language version will be posted starting in September.

Sarah Lindemann
ECHO, Inc.


From: "Helen Womack" <>
Subject: owning up to authorship
Date: Mon, 23 Aug 1999 

Dear David, For some reason, The Independent has stopped putting bylines
on stories that appear on its website. Therefore, if it is of interest to
your subscribers, I own up to authorship of the story about the Russian
roadside prostitutes. With best wishes from Helen Womack. 


Date: Mon, 23 Aug 1999 
From: Yuri Luryi <>
Subject: Re: 3459-Prostitution

Dear David

POUNDS 2.50.

Just for the sake of more balanced perception of the above
colorful picture. Should one go, say, by taxi from Czech health resort Karlovy
Vary to the world famous Dresden Gallery, one could have an opporunity to
the same article under the heading "ROADSIDE CZECH GIRLS SELL SEX FOR
DEUTSCH MARKS". Such a description might be multiplied, if one would
research other areas of poor countries, which are visited by the gentlemen
with dollars, marks or pounds.
As you know, the prostitution is an ancient profession. It has
existed long before the country, named Russia, arose. So, why that fuss
about Russia
Yuri Luryi.


Moscow Tribune
August 23, 1999 
Communists Split By Ousting Ally 
By Dmitry Polikarpov 

The Communist Party (KPRF) on Monday lost an important ally in the upcoming
Duma elections as Alexei Podberyozkin, leader of the Spiritual Heritage
leftist movement, was ousted from the KPRF’s faction in the lower chamber.

The decision was prompted by Podberyozkin’s fierce criticism of the KPRF
leadership’s reluctance to reconsider its election policy forming a wide
coalition with several powerful leftist movements. Podberyozkin himself
described the Communists election strategy as “dictatorship” and said that
his departure may be followed by similar moves by other smaller leftist

“They (the Communists) are trying to build a coalition on the basis of the
KPRF’s supremacy. They just try to dissolve and absorb smaller parties thus
avoiding political discussions,” Podberyozkin said after the Communists had
voted for his ousting. “I think that there are several movements not ready
to join the Communist bloc on such terms,” he added.

However, the KPRF’s leader Gennady Zyuganov was calm after Podberyozkin’s
dismissal saying that it was a “routine decision by the faction.”

“A team player should obey the corporate rules. Podberyozkin violated
internal regulations by publicly criticizing in the media the party’s
leadership and its strategy,” Zyuganov said.

Despite optimistic election forecasts, the KPRF may soon face serious
problems in its attempt to dominate the next legislature since several
long-serving allies have said they plan to run for the Duma on their own.
Also on Monday, a Communist deputy Viktor Ilyukhin, leader of the Movement
for Army Support, said that he may also carry out a separate Duma campaign
in December.

Nikolai Kharitonov, leader of the Agrarian faction said on Sunday that his
party still hasn’t decided whether to team up with the Communists for the
lower chamber campaign. The Agrarian party was also split after one of its
leaders Mikhail Lapshin said last week that he may join the Otechestvo
(Fatherland) movement formed by Moscow Mayor Yuri Luzhkov.

Zyuganov may currently count on several smaller parties like Nikolai
Ryzhkov’s People’s Power movement which will not dramatically increase
voter support for the KPRF. Podberyozkin’s departure dealt a painful blow
to Zyuganov’s plan to create a Communist dominated election block called
For Victory (Za Pobedu).

Podberyozkin, widely known as the KPRF’s “brain” since the 1996
presidential election, masterminded the party’s latest program which drew
fire from the KPRF"s orthodox wing headed by Valentin Kuptsov and Anatoly
Lukyanov, former high-ranking officials of the Communist Party of the
Soviet Union (CPSU).

“The KPRF’s decision to oust its key campaigner just four months before the
December polls may cost the party dearly. In the end the KPRF’s current
moderate ideology was drafted by Podberyozkin,” said Vyacheslav Nikonov
from the Politika foundation.

The Communist party, which was banned by President Boris Yeltsin in 1991 to
later experience political revival in the 1993 parliamentary elections, is
unlikely to maintain its role of poll leader in the pending election. The
KPRF’s election bid is challenged from the left by Luzhkov’s Otechestvo
movement which may join forces with highly popular former premier Yevgeny
Primakov. At the same time the Communists will also have to compete
seriously with a right-wing bloc headed by Our Home is Russia which is
trying to attract former premier Sergei Stepashin.

Most analysts believe that the KPRF will become only the third faction in
the new Duma after the right-wing coalition and Otechestvo, losing its role
as the leading opposition party.

The three new key political players may also challenge Zyuganov’s plans for
next year’s presidential elections in which Luzhkov, Primakov and Stepashin
are seen as potential prospective candidates together with the KPRF’s
leader. Unlike 1996, when Zyuganov was the only real candidate to compete
with Yeltsin, he may face strong competition in 2000 even to get into the
second round of the presidential elections.


IMF watching Russia probe, own cash not involved

WASHINGTON, Aug 23 (Reuters) - The International Monetary Fund said on Monday 
it was investigating claims that its cash was caught up in possible money 
laundering of Russian funds, but said its money went to Russian accounts at 
Western central banks and not to the New York bank under the spotlight. 

IMF spokesman Graham Newman, responding to a newspaper report that $200 
million of IMF cash was channeled through the Bank of New York, said all IMF 
payments to Russia had been made to Russian accounts at the New York Federal 
Reserve Bank or at the Bundesbank, Germany's central bank. 

"The allegations of money laundering in Russia are extremely serious and we 
are looking further into the matter. We note the further claim that the 
alleged money laundering involved IMF funds," Newman said. 

He added: "No payments were made by the IMF to any institution other than the 
Central Bank of Russia." 

U.S. investigators are currently examining whether Russian organized 
criminals laundered money through Bank of New York Co. Inc. <<A 
HREF="aol://4785:BK">BK.N</A>>. The Wall Street Journal said on Monday that 
the authorities were also investigating whether Bank of New York was one of a 
chain of financial institutions that were conduits for $200 million "that may 
have been diverted from (IMF) loans to Russia." 

The bank, which has suspended two employees, says it is cooperating with law 
enforcement officials, but that there are no allegations of wrong-doing at 
the bank itself. 

Newman said money from Russia's latest standby loan from the IMF was being 
paid to a Russian government account at the New York Fed and could be used 
only to repay previous IMF loans. 

"Earlier credits were paid into either the Central Bank of Russia's account 
at the New York Fed, or its account at the Bundesbank, and were used by the 
authorities to build up reserves, help finance the budget or pay 
international obligations," he said. 

The IMF traditionally pays its loan money directly to governments or central 
banks and leaves it to the government to decide precisely what to do with the 

Strings attached to the loans center on reserve levels and may be designed to 
ensure that a government does not use IMF money simply to repay private 
sector loans. 

However the IMF encouraged an independent audit of previous loans to Russia 
earlier this year. 

The reports, from PriceWaterhouseCoopers, concluded that Russia lied to the 
IMF about its reserves, but found no evidence that money had been 

But PriceWaterhouse cautioned that its report took everything the 
authorities said at face value, that it was based on unconfirmed data and 
lacked references to a number of important documents. 


From: (Ustina Markus)
Date: Mon, 23 Aug 1999 08:37:33 -0400
Subject: Russia Doesn't Need Dagestan (or Chechnya)

On 20 August the New York Times ran a piece by Anatol Lieven arguing that
Dagestan needs Russia. The real question is actually whether Russia needs

Dagestan is poor. It is one of the poorest regions of Russia with high
unemployment, few resources, a majority non-Russian population, and located
in a volatile area so that it requires significant levels of security
forces to maintain order. Its only asset is the oil pipeline going from
Azerbaijan through it to Russia. This is the same pipeline that runs
through Chechnya and has been frequently out of commission since the
Chechen War. Overall, it cannot be argued that Russia's interests in
Dagestan are in its assets. Apart from the pipeline, the republic's long
shoreline on the Caspian allows Russia to claim coastal rights in that sea.
Nonetheless, that coast is not the area of oil deposits. Basically, it
appears Russia only gains fishing rights from the coast.

A more widely employed argument for Russia retaining control of the region
is that allowing regions to secede could have a domino effect with one
region after another going. This argument appears fallacious. In the first
place, only Chechnya and some rebels in Dagestan have so far declared
independence. Most regions rely on subsidies from Moscow and prefer to stay
in the fold. Even the handful of donor regions who are economically viable
as independents prefer to stay in the fold, agitating only for increased
economic autonomy and freedom in internal, regional affairs. Ethnicity,
while contributing to an awareness of distinctiveness, does not necessarily
contribute towards separatism. For example, while Tatarstan is about evenly
split between Russians and Tatars, the Tatars have not been agitating for
independence from Russia, but only a relationship that accommodates them.
This is largely through tax arrangements, economic autonomy, and more local
authority. Tatarstan President Mintimer Shamiev has never expressed any
desire to coin the republic's own currency, set up his own embassies, or a
republic army. At the same time, he made plain during the Kosovo crisis
that he did not want to see conscripts from Tatarstan sent to the Balkans.
In another region that is very Russian and militarized, Kaliningrad, the
local population does not want to be left behind their Baltic neighbors and
Poland who appear to be steadily progressing on the road to prosperity and
joining the West European community. While not calling for separation from
Russia, local politicians have been seeking more autonomy in their economic
relations with their neighbors, as they do not feel Moscow is responsive
enough to the region's unique interests. 

Even non-Russian regions adjoining Chechnya and Dagestan are not seeking
separation from Moscow. Ingush President Ruslan Aushev signed on to the
Otchestvo-Vsya Rossia bloc after the Dagestan conflict erupted, and his
North Ossetian counterpart, Aleksandr Dzasokhov joined forces in calling on
their constituents not to allow themselves to be dragged into conflict
through "provocation." Both areas rely on subsidies from Moscow, and would
undoubtedly prefer to stay within the Russian Federation rather than join
the messy Chechen-Dagestani Islamic Republic. Like other regional leaders
removed from Moscow, the Caucasian leaders want a degree of regional
autonomy to adopt laws to their areas' situation. Aushev's recent
declaration legalizing polygamy in Ingushetia is an example of the type of
internal autonomy he favors. Nonetheless, he clearly intends to keep
Ingushetia with the Federation.

Another point worth stressing is that most Russian regions are dominated by
ethnic Russians, and Russians are proud of being Russian. They may gripe
about politics, the economy, etc., but they take enourmous pride in Russian
history, culture, and traditions. It would take more than some unpaid back
wages for Russiansregardless of how far they are located from Moscowto want
to sever their national links with the center.

Given that the domino effect argument is not pursuasive for Russia's
continued control over Dagestan, and there are no economic benefits from
keeping the republic in the Federation, it is puzzling why Moscow has not
washed its hands of the area. Given Russia's past record as a troublemaker
in uncooperative CIS republics, arguing that its is attempting to preserve
stability in the region is simply not credible. Especially in view of the
fact that the Chairman of the Dagestani State Council, Magomedali Magomedov
had been pleading with Moscow from early 1998 to send forces to deal with
unrest in the republica plea the Russian government failed to heed. The
Kremlin's negligent attitude towards the area was demonstrated vividly by
former Prime Minister Sergei Stepashin's dismissal. Stepashin had headed
the interior ministry (MVD) during the Chechen War and was well aware of
the problems in the area. During his brief tenure as premier he traveled to
Makhachkala on several occasions in order to try and work out a solution to
the brewing problem there. His dismissal while he was in Makhachkala at the
same time as fighting erupted was a vivid illustration that Russian
President Boris Yeltsin was not at all concerned with holding the Russian
Federation together as much as with holding onto power himself.

Now that fighting has erupted, Russia is faced with a potentially prolonged
low intensity conflict sapping its already meager resources. Although the
rebels do not reportedly have widespread support within Dagestan, this is
not necessary to maintain a guerrilla war. When looking at insurgent
movements in Arabia, Sir T. E. Lawarence noted that guerrillas did not need
popular support to wage, or even win, a guerrilla war. He estimated that
with the support of as little as two percent of the population, a
low-intensity-conflict could succeed. In Cambodia, the Khmer Rouge were
successful in their insurgency even though by all counts they did not have
popular support, and were actually disliked by most Cambodians. What
revolutionaries such as Mao Tse Tung and Che Guevera stressed as necessary
for guerrilla success was a small intellectual leadership articulating the
movements political agenda. At this stage, it is difficult to say whether
the Chechen commanders can provide this for the rebels in Dagestan. Their
call for Islamic states to rise up is not appealing to many in the region,
where people had been raised in a secular state and find Wahhabi
fundamentalism oppressive and alien. Even the Chechen commander Shamil
Basaev does not appear committed to Wahhabism or any hard-line Islamic regime.

It should be noted that while the rebels are not reportedly widely
supported, nor is Magomedov. He personally amended the Dagestani
Constitution to allow himself to serve two consecutive terms in
officesomething that had been explicitly proscribed in the original version
to prevent any single ethnic group from dominating the republic's
government. And that article was specifically inserted as a safeguard
against having the largest ethnic group, the Avars, dominate Dagestani
institutions. Magomedov is an Avar, and is perceived as an Avar chauvanist
by some groups. There were protests and calls for his resignation after his
constitutional changes were adopted, and opposition groups in Dagestan
question the legitimacy of his regime. Again, Moscow didn't deal with the

Apart from the issue of support, there are other reasons why the Dagestani
guerrillas can fight on. They have that great rocky Dagestani terrain to
hide in. That haven in Chechnya that is off-limits to Russia. And after
having inflicted so many casualties on the Russian troops, the rebels have
now made themselves culpable for punishment. The authorities would have to
absolve them of all blame before they surrendered now. The prospect of
punishment by the authorities is a great incentive to keep fighting.

Furthermore, guerrilla warfare is cheap. Essentially, rebels can easily
employ hit and run tacticsbombing government facilities, raiding ammunition
depots, executing individuals aiding the central authorities thereby
imposing a regime of terror. And then running away and hiding in terrain
where Russian politicians are reluctant to send ground troops before
elections. This could go on for a long time.

For a successful counterinsurgency effort it is generally estimated that an
authority must deploy at least ten soldiers per insurgent, spend countless
hours hunting down each guerrilla unit and eradicating it, while
simultaneously guarding all facilities that could be targeted, either for
their economic, strategic, or political significance, in order to
demonstrate to the population that they are in control of the situation.
Given that the Russian military is underfunded and demoralized and were not
up to the task in Chechnya, there is little reason to believe they would be
galvanized for such an organized and sustained effort in Dagestan. In
addition, given Yeltsin's priorities, Russia's scant resources are more
likely to be directed towards the upcoming elections rather than towards
the Federation. 

A successful counterinsurgency effort would also likely evoke resentment
from the Russian population. Almost all analysts of counterinsurgency agree
that for the authority to be successful in eradicating the separatism or
rebel tendency, it must demonstrate to the insurgent area that it is in the
area's interest to remain with the center. This means employing a program
of positive inducements alongside the military plan. Such inducements would
include building schools and hospitals in areas that require them, creating
jobs and opportunities for the disaffected, and generally, through wise and
benevolent management, clearly demonstrating that it is in control and that
it is a good government. So far Russia has not done this. Stepashin
understood these points and had been calling on the center to invest in
Dagestan and improve the situation there to stabilize the region. He was
fired. In any case, if Moscow had started to pour in the necessary
resources to bring Dagestan into the fold, Russians in other neglected
regions or sectors would have been resentful. After all, state paid wages,
military pay, and pensions are all notoriously in arrears. Most regions
receive a fraction of the subsidies allotted to them. Building up Dagestan
into a functional, prosperous republic would have led to demands by other
areas for the same treatment. Moscow simply can't afford this.

At this stage, right before parliamentary and presidential elections, it is
unlikely that Russia is prepared to send in the necessary numbers of ground
forces to eradicate the rebels. It has stuck to a strategy of bombing and
sealing off the area. The bombing is unlikely to be effective for two
reasons. First, such strategies rarely work. The NATO bombing appears to
have less to do with Serb President Slobodan Milosovic's decision to come
to the negotiating table than the realization that Serbia had no allies
except Belarus. The US bombs Iraq very regularly (every other day), yet
somehow Saddam Hussein has not yet handed in his resignation. Not the best
strategy. Secondly, there are really very few strategic targets in Dagestan
to bomb. It's a relatively backward place. The only asset that comes to
mind is the pipeline, but that actually belongs to the state or some oil
consortium. More of a rebel target than one for the Russian air force. 

Russia can most likely maintain the strategy of containment and bombing
until the next presidential elections unless the independent media messes
that up for Yeltsin. The media certainly was instrumental in turning
popular opinion against the Russian engagements in Afghanistan and
Chechnya. The Russian government is aware of this, and has called on the
media not to broadcast rebel views or show footage of the rebels. This has
made it difficult to assess just what is going on in Dagestan.

As long as troops are not deployed and Russian casualties remain light, a
strategy of bombing and containment is sustainable until the presidential
elections. At that point, much would depend on the new president's attitude
towards the conflict. While there is general support internationally for
maintaining countries' territorial integrity, this would cost Russia dearly
in Dagestan. The billions it would take to put down the rebellion and
successfully integrate the area into the rest of Russia would be much more
than it would cost to write off the pipeline from Azerbaijan, build port
facilities at the mouth of the Volga, and just ship the oil. And say good
riddance to Chechnya and Dagestan, may you be happy in your Islamic
marriage. And then Moscow can concentrate on putting the rest of Russia in
order, and live happily ever after.


Tarasov Criticizes Russian Sports
August 23, 1999

SEVILLE, Spain (AP) - Maxim Tarasov, the second-best pole vaulter in history 
and a favorite at the World Championships, is lamenting the current state of 
Russian sports. 

He says it's understandable that some promising athletes are leaving his 

``Things in sports are getting worse and worse in Russia. That is my 
feeling,'' Tarasov said Monday, on the eve of pole vault qualifying. 

Tarasov has been living in Budapest for most of the past seven years, and 
does not rule out seeking Hungarian citizenship. 

``In fact, I could well become, let's say, Hungarian,'' he said, but stressed 
he has no such plans at the moment. 

Tarasov, 28, said he would hang on to his nationality ``unless there is 
something really terrible in Russia.'' 

Sports infrastructure has gone dramatically downhill from the Soviet days, a 
prime victim of the country's troubled economy. 

``In my home city there are simply no facilities for pole vaulting, so when I 
became a national-level vaulter I had to spend half a year away, where there 
is a pit and a runway,'' he said. ``And now it has become even worse.'' 

What also worries Tarasov is a growing disinterest in sports. 

``The media, they don't care about sport,'' he said. ``When I jump 6.05 
meters (19.85 feet), which was quite a big national record, they didn't 
mention it on television. 

Only one athlete - Ukraine's Sergei Bubka - who holds the world mark of 20.14 
feet, has gone higher than Tarasov. 

``They only care about politics, the president, and how bad the economy is, 
nothing else,'' Tarasov said. 

Tarasov is not the first top Russian pole vaulter to leave the country. 
Viktor Chistiakov, a promising vaulter who is now 24, went to Australia in 

``I feel like probably he has done the right thing to become an Australian,'' 
Tarasov said. 


Muscovites Divided on Future of Lenin's Body 

MOSCOW. Aug 22 (Interfax) - The number of Russians 
who support and oppose the idea of burying the body of Vladimir Lenin has 
changed in the past year. Whereas in July 1998 the idea was welcomed by 
55% of Russian citizens, and opposed by 34%, in August 1999 41% backed 
the idea and 41% opposed it. However, the supporters' and opponents' 
arguments remain the same. Most of the supporters of a burial (62%, 
according to the latest opinion poll held by the Public Opinion 
Foundation) believe that the Christian tradition must be observed. Most 
of the opponents (38%) argue that Lenin's body in the Mausoleum is a 
symbol of the Soviet period and a historical monument. The polls were 
held on July 18, 1998 and August 8, 1999 among 1,500 urban and rural 


Stratfor Commentary

2253 GMT, 990823 – Russia’s Media War: Luzhkov Strikes Back

Two major Russian newspapers linked to Russian media mogul Boris Berezovsky 
have both run afoul of the Moscow authorities. More than mere bureaucratic 
problems, both incidents on August 23 indicate that Moscow Mayor Yuri Luzhkov 
is striking out at a key ally of President Boris Yeltsin.

Kommersant, a leading Russian business daily, had its offices shut down 
indefinitely on August 23 by the Moscow fire department. Officials said they 
closed the paper’s offices because it lacked the required fire safeguards. 
Kommersant said it would be unable to publish its Tuesday edition. On the 
same day, the Moscow Power and Heating Company told Novye Izvestiya, another 
leading newspaper linked to Berezovsky, that it would no longer provide 
services to the paper’s offices. The managing director of Novye Izvestiya 
received a message that power to the building would be disconnected due to 
"dilapidated mains." The newspaper was also told that it would have to repair 
the heating mains itself. Both Novye Izvestiya and Kommersant are popular 
news sources in Russia, each with a circulation of more than 110,000.

These moves appear to be retaliatory measures by Luzhkov, who represent 
competing factions in the upcoming Duma elections in December. In July, 
Berezovsky’s broadcast and newspaper properties dueled with the media 
holdings of Vladimir Gusinsky, a prime backer of Luzhkov. Allied with Yevgeny 
Primakov, Luzhkov represents a significant threat. Primakov is the most 
popular politician in Russia today; while Luzhkov is the fourth most popular. 
Together they have a good chance of winning the Duma elections.

Yeltsin struck first but now his opponents are hitting back in the ongoing 
media war [Russian Media War a Veneer over Moscow Power Struggle]. A more 
secure Luzhkov is not afraid to take pot shots at Yeltsin’s main banker. 
Luzhkov is also flexing his political muscles with the apparent help of Prime 
Minister Vladimir Putin. Last week, Swiss officials, acting on a request from 
a high-level Russian official, froze Berezovsky’s bank accounts [Berezovsky 
Falls Victim to Political Shift in Kremlin]. 

Given the recent actions against Berezovsky, it is unlikely he will survive 
politically. This will, in turn, undermine Yeltsin’s political power.



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