September 6, 1999   
This Date's Issues: 3484 •3485  • 

Johnson's Russia List
#3484
6 September 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: Senior Kremlin Official Had Swiss Bank Account. (Borodin)
2. Reuters: Yeltsin spokesman likens scandals to ``Inquisition''
3. Newsday: Michael Slackman, Desperate Times / Russians fend for selves - 
and trust few others.
4. Baltimore Sun: Scott Shane and Will Englund, Heyday of investing in 
Russia ends in scandal for U.S. bank. Economy suffers in dealings abroad.
5. Reuters: Russian Communists Say Poll Hopes Not Hurt By Split.
7. The Russia Journal: Michael Geczi, Russia's unattractiveness for 
investment a myth. Russia has to make its story simple.
8. Obshchaya Gazeta: Interview with former Prime Minister Chernomyrdin.]

*******

#1
Senior Kremlin Official Had Swiss Bank Account

ROME, Sep 6, 1999 -- (Agence France Presse) A senior Russian official 
targeted by a probe into alleged Kremlin corruption opened a personal account 
at the Swiss bank Gothard in 1995, the Italian daily Corriere della Serra 
reported Saturday.

The newspaper published copies of documents showing that Pavel Borodin, the 
Kremlin property manager mired in kickbacks-for-contracts allegations, had 
opened an account at Lugano-based Gothard on March 28, 1995.

Borodin's autograph appears on the signature card for the "Dean" account, 
through which several million dollars passed between June and December 1995, 
the paper said.

Two co-signers on the card were Borodin's daughter, Ekatarina Silelkaya, and 
Bexhet Pacolli, a Kosovar Albanian businessman also at the center of 
allegations in the scandal.

The Milan daily also ran a copy of Borodin's passport, required by Swiss law 
to open an account.

The report appeared to substantiate a number of claims that implicate Pacolli 
and Borodin in the so-called Kremlingate scandal under investigation by Swiss 
prosecutors.

According to the allegations, Pacolli's construction company, Mabetex, bribed 
Russian President Boris Yeltsin, his two daughters and senior Kremlin 
officials -- including Borodin -- to win contracts to refurbish the Kremlin.

Borodin has vigorously denied the claims.

Separately, US and British investigators are probing whether as much as 15 
billion of dollars funneled through US bank accounts may have been laundered 
by Russia's political and business elite.

The funds may include loan money from the International Monetary Fund, US aid 
and mafia earnings, some of which may be linked to senior members of the 
Russian government and Yeltsin's inner circle.

Corriere della Sera has alleged the funds were paid into Budapest bank 
accounts by Pacolli, who secured credit cards for the family and picked up 
thousands of dollars of their expenses.

In Saturday's report, the newspaper traced a number of money transfers and 
deposits in the secret Swiss bank accounts of those involved.

On June 15, 1995, a transfer of 100,000 dollars was made from the "Dean" 
account to the "Albion Trade" account at the Bank of New York, the paper said.

Borodin was the beneficiary of the Albion account, named after an offshore 
company, the paper added.

On September 9, 1995, the Dean account received a credit of $1.5 million from 
the account of Swiss construction company Mabetex, opened nearly at the same 
time at the Gothard bank in Lugano.

Mabetex won lucrative contracts to refurbish the Kremlin and other Russian 
monuments.

As the head of economic affairs, Borodin is responsible for refurbishing the 
Kremlin.

A million-dollar transfer from Pacolli's Gothard account in the Bahamas also 
made its way through the Dean account, the paper said.

That money ended up in an account at the Central European Bank of Budapest 
belonging to either a subcontractor -- as Pacolli says -- or Russian 
President Boris Yeltsin -- as investigators told the paper.

Finally, funds in the Dean account were debited to a Eurocard account and 
deposited in accounts opened at the Geneva-based Union Bank of Switzerland, 
the Bank of New York and the Zuricher Cantonal Bank. ((c)

*******

#2
Yeltsin spokesman likens scandals to ``Inquisition''
By Brian Killen

MOSCOW, Sept 6 (Reuters) - Russian President Boris Yeltsin's spokesman said 
on Monday that corruption allegations against the Kremlin violated the rights 
of those accused and resembled a 20th-century version of the Spanish 
Inquisition. 

``A fundamental principle of law such as the presumption of innocence was 
distorted,'' Interfax news agency quoted Dmitry Yakushkin as saying of the 
allegations involving a Swiss engineering company. 

Yakushkin, reiterating comments made over the weekend to RTR television, said 
Yeltsin did not intend to respond publicly to the allegations which Russian 
officials have linked to U.S. and Russian election campaigns. 

``A man should not have to go out on the square to publicly declare that he 
is not guilty of anything,'' Yakushkin was quoted as saying. ``There is no 
need to revive the methods of the Inquisition at the end of the 20th 
century.'' 

Yakushkin declined to comment to Reuters. 

Yeltsin has made no direct public comment on the allegations swirling around 
himself, his family and his administration, although some of his political 
opponents have urged him to rebuff the charges or to sue those making them. 

Yakushkin has denied the initial report in Italy's Corriere della Sera 
newspaper that Swiss firm Mabetex paid $1.0 million into a Budapest bank for 
the president in 1994, but the scandal has refused to die down. 

Corriere della Sera said Mabetex, which won contracts worth $300 million for 
renovating buildings in Russia, including the Kremlin, also paid credit card 
bills for Yeltsin and his two daughters. 

Mabetex has denied the allegations, which coincided with separate newspaper 
reports about a U.S.-British investigation into a suspected Russian 
money-laundering scheme involving billions of dollars through the Bank of New 
York. 

A U.S. congressman, Tom Lantos, a California Democrat, is visiting Moscow to 
discuss the Bank of New York scandal, which some newspapers say may have 
involved International Monetary Fund loans to Russia. 

The House Banking Committee plans to hold hearings on the money-laundering 
probe later this month. 

Russian officials and the IMF say there is no evidence of IMF money being 
caught up in the alleged scheme. But U.S. Treasury Secretary Lawrence Summers 
said last week that future IMF loans should be delayed unless there are 
safeguards. 

An IMF technical mission is in Moscow this week, but the Fund's local office 
could give no details of its agenda. 

First Deputy Finance Minister Oleg Vyugin told Reuters Television on Friday 
the visit had been agreed before the latest scandals erupted and the aim was 
to study central bank and finance ministry handling of international 
reserves. 

``They will examine how operations are carried out with debt instruments and 
operations linked to the use of international reserves, that is with gold and 
hard currency,'' he said. 

``Indirectly, they want to see how IMF loan tranches are used, and hard 
currency resources in general...They have to make sure basically that the 
tranches have not been stolen.'' 

Vyugin linked the mission to central bank transactions in 1996 with its 
offshore unit, FIMACO. The IMF has accused the central bank of lying over the 
use of FIMACO to handle some reserves, including IMF loans. 

******

#3
Newsday
5 September 1999
[for personal use only]
Desperate Times / Russians fend for selves - and trust few others
By Michael Slackman. MOSCOW CORRESPONDENT (MSlackman@compuserve.com)

Vassilievka, Russia - The
large man's body was found face down in the dirt, his head mashed into a
thorny pile of bushes, his clothing soaked in blood. He had been dead
only a few hours.
The first investigator to arrive at the scene, Alexander Yemelin,
quickly spotted the key piece of evidence that laid out the sorry tale -
not only of one man's senseless death, but of the tragic state of life
here in Russia.
Yemelin bent down and lifted from the blood-stained dirt a burlap
bag.
Nikolai Sidorenko, 47, died stealing the contents of that bag - two
pounds of potatoes.
Fifty feet up a rocky path, Sidorenko's killer sat trembling on a
wooden chair in her bedroom. She is 68 years old, a grandmother, and, by
necessity, a gardener. Valentina Dolgopyatova and her 73-year-old
husband, Andre, live on the vegetables she grows. For that reason, the
local prosecutor declined to prosecute, ruling instead she had every
right to safeguard her livelihood.
Life is so desperate here that stealing potatoes has become a kind
of capital crime. Not just in Vassilievka, but throughout Russia. In the
Volga River town of Ulyanovsk, eight people were killed last summer
raiding vegetable gardens in what local authorities are calling "the war
against dacha [garden] thieves." With four of every 10 Russians living
in poverty, and the central government in Moscow weak and ineffective,
Russians are in a lonely struggle to survive and a feeling of
every-person-for-himself has spread like a plague.
"People feel in a jungle in this life, completely helpless where
neither a state, nor court, nor their neighbor could help him," said
Olga Zdravomyslina, director of research for the Institute of Social
Economic Problems under the Russia Academy of Sciences. "This person
sees an enemy in any other person around." It is not hard to see why
that is the case in Vassilievka.
The road to this village in southern Russia is narrow and flat,
zipping by huge fields of sunflowers, yellow and wilting after a hot,
dry summer. Farther down the pitted, collapsing road, the sunflowers
disappear and the fields, once hu ge collective farms that the Soviets
tried to cultivate, are abandoned and choked with weeds.
Vassilievka is on the outskirts of the city of Belaya Kalitva, a
town of squat stone houses where most of the 42,000 people are
unemployed. Eight of 10 coal mines in the district are shut down, the
brush factory is gone, and the aluminum factory is just barely
operating. The pipes in town are so old that only half the city has
running water at a time, while the other can go days with dry taps.
Crime, not surprisingly, has risen. People are desperate for anything to
steal, so they have taken to breaking into one another's homes to steal
aluminum pots and pans that can be sold for scrap.
"Under socialism people stole to get rich," said Leonid Targonee,
another investigator with the district prosecutor's office. "Now they
steal to make a living, to eat, to live." The countryside is barren, the
roadside littered with the abandoned and dilapidated factories, as
ghostlike as the empty mining towns in the Far East.
The landscape is littered with huge, pyramidlike piles of dirt, the
legacy of years of Soviet mining. Driving slowly over the holes,
Yemelin, the investigator, points to a house where a man was recently
murdered by two people who thought he had a stash of aluminum or copper
inside.
He pulls his car off the pavement to the rutted dirt path that leads
into Vassilievka, one of four villages in the area by the same name. The
electric poles, cement pillars that border the ramshackle village, are
all bare, their wires stolen. Valentina and her husband live in a
whitewashed stone house, one story, that rests at the bottom of a slight
hill. Corn and peppers ring the small house, potatoes grow on the hill
and seven chickens run in the dirt.
Valentina, her skin bronze and her hair gray at the sides, is
stuffed into a faded house dress, her belly pushing out the seams. On
her feet are blue flowered house slippers. She displays no emotion as
she sits in her bedroom, which is filled with crates of tiny potatoes
she has just harvested. Her husband worked in the mines, until they were
closed. She worked in the brush factory, until that closed, too. There
are 700 people in their village. There are no jobs.
Valentina walks outside to show a visitor where she had the run-in
with Sidorenko. It was a cool, breezy night, she said, when her friend
Maria warned her she caught someone trying to steal her own potatoes. So
Valentina grabbed a blanket, a loaf of bread, a knife, and a wedge of
fat to eat as she kept a watch on her potatoes. She sat at the top of
the hill slicing the fat into tiny pieces, because she said her teeth
are no good, when she heard the chink, chink, chink of a spade cutting
through the coal-flecked soil. It was about 4 a.m.
She ran over, knife in hand, not intending to use it, she said, just
forgetting to drop it. She yelled at the man, whom she had known for
years, a bear of a fellow, about 200 pounds, who neighbors said was a
well-known alcoholic. She screamed at him. He tried to whack her shins
with his spade. She reached for the bag of potatoes draped over his arm
and, she said, heard him scream.
"I didn't understand, I didn't intend to kill him," she said,
betraying no emo tion.
"I don't know why I am so unfortunate, why my fate is like this. I
didn't want any of this to happen. What was I to do?" At the end of
August, the authorities decided that no criminal charges would be filed.

"It is a case when a person must protect himself by whatever means
is at his disposal," said Yemelin, the 33-year-old senior investigator
who seethes with anger at those he says mock authorities here for
arresting potato and chicken thieves.
"People don't understand. They criticize us," he said. "They don't
understand the importance of a potato or a chicken to these people. To
lose these potatoes will inflict great hardship." The problems here are
by no means unique to the area around this village. It is in a region of
southwestern Russia called Rostov, bordered on the west by the former
Soviet republic of Ukraine. There are 4.5 million people in a territory
the size of Virginia, and as flat as the American Midwest. The capital
of Rostov is the riverport city of Rostov-on-Don, a metropolis of 1.5
million pe ople, best known these days for the abundance of serial
killers who in recent years have plied its streets. The city, too, is
poor and run down and can't even provide hot water in the warm months.
Turn on a hot water tap and black sludge is likely to pour out.
Like many Soviet cities, Rostov and the 42 districts around the
region were company towns, with most people working for one or two huge
factories, or in the coal mines that dotted the region. Nothing has
taken their place, nothing except the Mafia, which even the governor's
office concedes effectively controls the region, going so far as to
extract payments from the women who line the roadways selling everything
from hot tea to salted fish. It costs from 10 to 15 rubles for the right
to hawk homemade goods on the side of the road.
"That's true," Leonid Kovalev, chief spokesman for the governor,
said when asked about the Mafia's grip on the region. "The roots of this
are in the psychology of the people. With the end of Soviet times, the
curtain has been pulled back and people see another life; they see you
can have good vacations, fine cars, entertainment. But they don't see
these things are the result of a long struggle, hard work. They instead
unite and take what they want and distribute it among themselves." The
result is there is little compassion for one's neighbor as everyone
scrambles to hold on to what's theirs, and people die stealing potatoes.

"We are alone," Dolgopyatova said, her face and eyes hard as stone.
"Now we have to rely all the time only on ourselves."

******

#4
Baltimore Sun
5 September 1999
[for personal use only]
Heyday of investing in Russia ends in scandal for U.S. bank
Economy suffers in dealings abroad
By Scott Shane (sshane@erols.com)
And Will Englund, Sun Staff (Baltimore@glas.apc.org)

Just three years ago, financial publications buzzed with news of the 
eye-popping returns available to intrepid investors in Russia. A Russian oil 
company's stock had jumped 40 percent in a week. Russian government bonds 
were paying as much as 200 percent interest. The value of the Moscow Times 
stock index had tripled in a year.

No U.S. company moved more aggressively into the promising but volatile 
Russian market than the Bank of New York. Despite its conservative reputation 
and 18th-century pedigree -- it was founded by none other than Alexander 
Hamilton -- the bank elbowed out competitors to seize Russian business.

It opened U.S. accounts for Russian banks, which were not permitted by U.S. 
banking regulators to open branches here. It moved swiftly to dominate the 
market inRussian stock offerings, assisting such Russian businesses as 
Inkombank, a major commercial bank, and Sibneft, a Siberian oil company. A 
bank officer boasted that the Bank of New York had been midwife at the sale 
of $10 billion worth of Russian stocks in just six months.

Since those heady days, the collapse of the ruble and the taint of corruption 
have cast a shadow over Russian business and its foreign partners. Inkombank 
was wiped out in last year's ruble devaluation amid rumors of missing 
millions. Sibneft was accused of using a detective agency to eavesdrop on 
Russian public figures, including the daughter of President Boris N. Yeltsin.

And now the Bank of New York is itself the target of a criminal investigation 
into money laundering. As much as $10 billion from Russia passed through the 
bank, and federal investigators believe that at least some of that money is 
linked to a well-known Russian crime boss.

"Here we have a very venerable institution that has a black eye, a very big 
black eye," said Jim E. Moody, former deputy assistant director of the FBI, 
who launched the bureau's fight against Russian organized crime. "Something 
happened, and the bank apparently didn't exercise due diligence."

The Bank of New York, which has fired two Russian-born employees and 
suspended another, says it is cooperating with the federal investigation, 
first reported Aug. 19 in the New York Times.

Banking analysts in the United States and Russia suggest that most of the 
money that churned through the Bank of New York accounts was revenue diverted 
from a broad array of businesses rather than proceeds from such crimes as 
prostitution, drug-dealing or extortion.

The tentacles of the Russian mob reach into many places, but probably can't 
extract $10 billion, some analysts say.

The bad news is this: Capital flight is probably more pervasive and more 
damaging than the Russian mob.

Russian businesses understandably want to protect their earnings by placing 
them in havens abroad. But in doing so, they are likely to violate Russian 
currency laws, cheat stockholders and employees, illegally avoid taxes, and 
deprive Russia of cash badly needed for investments.

It is only by working with foreign banks that such maneuvers are possible. 
And even in the heady days of Western optimism about investing in Russia, 
American and European banks were being used to get money out of the country.

Dominating ADRs

The Bank of New York, for example, worked with Russian businessmen to issue 
"American depository receipts," essentially a vehicle to allow foreign 
investors to buy Russian stocks. The ADRs, traded on U.S. stock markets, 
offer investors convenience and confidence that they really own shares in a 
real company in Russia. The bank quickly dominated the business.

But while their purpose was to steer money into Russia, the ADRs proved to be 
an efficient way to circulate money abroad, according to banking analysts in 
Moscow.

Someone could walk into a brokerage in Moscow, put down $500,000 in cash, and 
purchase some ADRs, which are more liquid than ordinary Russian stocks.

Later on, the ADRs could be sold abroad, with the proceeds being paid into a 
foreign account. "When you sell it, there's no way for the Russian Central 
Bank to track it," said Margot Jacobs, an analyst with United Financial Group 
in Moscow.

No evidence exists that the Bank of New York's ADR program is linked to the 
money-laundering allegations. But Russia's Federal Securities Commission 
announced last week that it was launching an investigation into companies 
that listed ADRs through the Bank of New York.

Getting money abroad

There are all sorts of ways, of course, to get money abroad. One common 
method is to divert money through subsidiaries. A publicly held Russian oil 
company, for instance, sells oil at below-market prices to a subsidiary -- 
often outside Russia -- controlled by oil company insiders, which then 
resells it on the world market. The result is that shareholders are cheated, 
and company officers enriched.

Or, a foreign company might be set up to receive payments. Aeroflot's 
overseas receipts reportedly all go to a Swiss firm controlled by tycoon 
Boris Berezovsky, with none of the money making it back to the airline.

Such schemes would violate many laws in this country, where business is 
watched over by an elaborate regulatory system that took decades to evolve. 
In Russia, regulations are few, and the government officials charged with 
enforcing them are often in on the deal.

"Overnight, Russia was supposed to transform from a Communist dictatorship to 
a capitalist market society," Moody said. "But they did not have and still do 
not have the necessary infrastructure. They just don't have rules."

So the money has just flowed out of Russia -- and into Western bank accounts.

An estimated $300 billion in this decade has fled the country -- more than 10 
times the federal budget in Russia this year. Some of the money might 
represent prudent safekeeping of incomes from legitimate businesses.

But, says Vladimir Ispravnikov, a Moscow economist, as much as half the 
economy is "in the shadows" -- not properly supervised and not accountable to 
anyone.

Much of that, he said, has to do with wrong-headed policy, mistakes and 
mismanagement on the part of the government. Nevertheless, Western banks have 
proted from funds whose origin is murky at best -- the proceeds of various 
schemes involving everything from government bonds to oil sales, often with 
the connivance of corrupt corporate or government officials.

Under Russian law, many of the schemes are perfectly legal.

"There are a lot of things that we consider illegal that are not illegal in 
Russia," Moody said.

Indeed, said Alexandre P. Konanykhine, a former Russian banker granted 
political asylum in this country earlier this year, the move from Russia to 
the United States can be eye-opening. Only after he settled here did he fully 
understand what is wrong with insider trading, nepotism and other conflicts 
of interest.

`Smart plays' 

"In Russia, many of these things are simply considered smart plays," he said. 
"If you grew up in the Soviet Union, you had no idea what other standards 
there might be."

It was in this context that the Bank of New York pursued its Russian 
business, starting in the mid-1990s.

"Folks were optimistic and excited about Russia," said David S. Berry, a 
banking analyst at Keefe, Bruyette & Woods Inc. in New York. "There were 
market reforms and undervalued assets. American corporations were opening 
offices, and there was a feeling that there was a lot of business to be done."

At the same time, however, plenty of evidence existed that corruption and 
organized crime were powerful forces across the emerging Russian business 
world. In 1996, the CIA estimated that at least half of the 25 largest 
Russian banks had ties to organized crime. Bribery flourished at every level 
of government.

Moody, then with the FBI, testified to Congress that year about mob 
penetration of Russian business and government, naming as one crime boss 
Semyon Mogilevich, the man now linked to the alleged money laundering at the 
Bank of New York.

The Clinton administration played down such reports, determined to preserve 
relations with the Yeltsin administration. Former diplomats at the U.S. 
Embassy in Moscow have said they were discouraged from reporting to 
Washington on the extent of official corruption, for fear the information 
would be leaked and undermine administration policy.

Despite the hazards of doing business in Russia, the Bank of New York moved 
boldly to open "correspondent accounts" for Russian banks. "They could have 
opened those accounts at any bank in the U.S.," said Igor Fyodorov, an emigre 
Russian businessman who worked with several Russian banks in the mid-1990s. 
"But they all used the Bank of New York."

The bank should have been more careful about its dealings, some analysts say, 
even when the letter of the law was being obeyed.

`Know your customer' 

"When employees told top management, `We have quite a bit of money coming in 
from people in Russia,' someone should have asked, "Which people?' " said 
Bill Gearin, a consultant who advises banks on how to avoid money laundering. 
"It's an age-old axiom in banking: Know your customer."

Andrew B. Collins, a banking industry analyst at ING Barings in New York, 
said the Bank of New York might be bearing more than its share of blame for 
an industrywide problem. The questionable billions mounted, he noted, partly 
because the FBI asked the bank to keep the suspect accounts open for months 
while agents tracked the money.

Moreover, by definition, money laundering involves the transfer of illicit 
funds from account to account and business to business to obscure their 
criminal origins, he said. So it is likely that a string of banks around the 
globe handled the suspect money that passed through the Bank of New York 
accounts.

"I think there are some other shoes to drop as far as international banks 
that handled this money," Collins said.

Holding the Bank of New York or other institutions accountable for any 
suspicious transfers might be difficult.

To prove the crime of money laundering under U.S. law, investigators must 
show that a "specified unlawful activity" produced the money. But it might be 
difficult to prove what activities produced the funds -- or that those 
activities were illegal in Russia.

Money to be made

Meanwhile, there's still money to be made there for those with steely nerves. 
The ADRs issued by the Bank of New York for Russian oil giant Lukoil Holding 
are up 90 percent since the beginning of this year -- but down 66 percent 
since their peak July 6.

The money-laundering scandal is likely to slow, not stop, U.S. banks from 
doing business with Russia, said John Byrne, senior counsel at the American 
Bankers Association.

"It's a warning sign, sure," Byrne said. "It's not a do-not-touch sign."

*******

#5
Russian Communists Say Poll Hopes Not Hurt By Split

MOSCOW, Sep 5, 1999 -- (Reuters) Russia's Communist Party, weakened by the 
defection of two key political allies, said on Saturday their leftist 
grouping could still secure a dominant position in parliament at upcoming 
elections.

The Communists, which dominate the State Duma along with their allies, said 
they had attracted fresh support and were not worried over the loss of allies 
from the leftist Agrarian Party and Spiritual Heritage, led by intellectual 
Alexei Podberyozkin.

"We have not been split, quite the opposite, big leaders from different 
groupings have come to us," Communist Party leader Gennady Zyuganov was 
quoted as saying by Interfax news agency at the group's congress.

Zyuganov was quoted as saying about 200 political groupings had shown their 
support for the Communist Party's bid for seats in the parliamentary election 
due on December 19.

"This grouping will reflect a broad union of patriotic forces in Russia", 
Zyuganov said, adding that the party would run under its own title after a 
move to create an electoral bloc called "For Victory" collapsed after the 
defections.

Analysts say the loss of the conservative Agrarian party would change the 
balance of forces in the leftist bloc, boosting the role of radicals in it. 
The radicalization of the Communist party could alienate many voters, they 
say.

The Agrarians voted to link up with a potentially powerful electoral bloc led 
by ambitious Moscow mayor Yuri Luzhkov and popular former Prime Minister 
Yevgeny Primakov late last month.

The decision to drop the alliance with the Communists caused more than 100 
members of the farmers' party to storm out of the meeting. Many of those have 
stayed on the Communist Party list.

Communist speaker of parliament Gennady Seleznyov, who is second on the 
party's list, said the party could not lose its powerful position in the 
parliament. The Communists have 129 seats in the 450-seat Duma.

"We should not get fewer mandates than in the current Duma," he was quoted as 
saying by Interfax.

Political analysts have said the Communists could have more than 30 percent 
of the vote in the upcoming elections.

******

#6
The Russia Journal
www.russiajournal.com
September 6-12, 1999
Russia's unattractiveness for investment a myth
Russia has to make its story simple
By MICHAEL GECZI / Special to The Russia Journal

New York City managed to improve its image from the bad old days, something
Moscow must do to attract investors. 

When your business is not doing well, communication becomes the main and
most reliable remedy.

How do outsiders see the Russian business community?

There is no such a thing as a Russian business community for Westerners. To
potential investors it lacks distinct features. For them, Russian business
is faceless.

Investors tend to think in sets of certain narrow free-market categories.
What they perceive, if they do see anything at all, are just vague
descriptions, such as oil companies, financial services companies or
telecommunications. Even worse, they read articles about the so-called
oligarchs, while the authors cannot explain who these oligarchs are. In
very rare cases, an investor comes across the names of big companies like
Gazprom, Svayzinvest or Vimpelcom. This is not enough.

When covering Russian business, Western media use a rigid set of
stereotypes, such as "secret," "opaque," "corrupt" or "potentially
hostile." There are positive stereotypes as well, such as "rich in assets,"
"thirsty for success," "highly educated labor force," "huge growth
potential." But all these are labels that have nothing in common with the
reality in Russia and its real businesses.

In the West they cannot imagine the complexity of relations between Russian
businesses and the federal, regional or local authorities. As a result,
what an investor gets is not real knowledge about the potential of this or
that company or industry, but vague reports from the battlefield where
unknown people fight their little wars.

What is most important, however, is the fact that the West is still
fascinated and charmed by Russia, by its potential, its history and its
future. Russian business has many advantages to attract investment. It has
an audience that: 

l Knows very little about the subject, but which is interested in getting
reliable information;

l Is eager to hear good, positive news;

l Wants to be persuaded and wants its opinions to be changed.

Russia is now facing a completely new opportunity. Its negatives should be
turned into positives.

Continental Airlines not so long ago was considered by many Americans as
one of the nation's worst carriers. Now Continental is one of the most
successful and respectable in the U.S. Over several years, New York managed
to change its image from that of a bankrupt city with high crime and murder
rates into one of an urban center with an annual budget exceeding that of
Russia's, with decreasing crime rates, which, in turn, led to a tourist boom.

Western investors are waiting for good news from Moscow. To help them get
it, what Russian businessmen need to do is simplify their story for the
Western mass media. Currently, the description of what is going on in the
country sounds too complicated to a foreigner. There is too much politics
in the story, too much macroeconomics and such terms as "splendid
perspectives" and "the growing market," which mean nothing.

You do not need to tell investors for the thousandth time about the
systemic crisis, the oligarchs, the international situation, the UN and
NATO. No one in the West will be able to build his or her own informed
opinion about the potential investment attractiveness of the country by
having information of that kind. Positive changes in our economy and
businesses since last August have to be emphasized, put in the front lines
and leveraged. There has been an increase in foreign trade, growth of
international oil prices, a decrease in inflation rates, improvements in
tax collection and growth of the GDP. Who writes about that in the West?

No one in Western Europe or in America sees any difference between the
investment perspectives in Russia as a whole and those of Moscow. The
capital has a more positive track record, with opportunities to attract the
West's attention by itself, as well as with the help of its best companies.

What Moscow needs most is a campaign designed for Western markets that
would send positive messages based on research and with a focus on the
future. It is of paramount importance to communicate with the West about
the unity between Moscow business and Moscow authorities. It is important
to let them know about the openness of financial information, which
emphasizes strong and sound balance sheets. It is important for them to
know concrete information about companies' plans for the future and how
they will reward investors and top managers.

But, alas, to date Russia has not learned the lessons of its failure to
attract investments. It still ignores the basic laws of communications:

l If you do not offer your own story, your competitors will tell it for
you. Western media tell their audiences of the Russian crisis.

l The crisis in Russia has not yet been described in the Western media by
Russians themselves;

l Bad news has to be explained. The worse the news, the more explanation it
needs. We have not received any explanations from Russian business leaders;

l Do not defend your past mistakes and do not apologize. Look to the
future. No one in Russia has yet explained to Western investors that Russia
remains attractive.

We hope the International Investment Forum Moscow-Invest '99, held last
week, will help start a change for the better.

******

#7
Excerpt
Chernomyrdin Interviewed 

Obshchaya Gazeta
26 August-1 September 1999
[translation for personal use only]
Interview, under the rubric "I and the Values of My Life," 
with Viktor Stepanovich Chernomyrdin, leader of Our Home Is Russia, 
conducted on 26 August 1999 by Dmitriy Dokuchayev: "Thursday Morning 
With Viktor Chernomyrdin: My Heart Had Not Yet Hardened"; place not 
given 

Introducing Viktor Stepanovich Chernomyrdin is 
absolutely absurd: every citizen of Russia knows him as it is. 
Chernomyrdin was at the center of public attention for many years as the 
second-ranking man in the state hierarchy. And after ceasing to be 
premier, he by no means remained on the fringes of political life: as the 
leader of Our Home Is Russia [NDR], as a potential candidate for any 
significant vacancy in the power structures, and as an international 
peacekeeper. 

No one made any special preparations for this, but it proved to be 
quite symbolic: when Viktor Chernomyrdin's meeting with the Obshchaya 
Gazeta editors began, his assistants came with a message that Viktor 
Stepanovich had been awarded the extremely prestigious international 1999 
Telamon for Peace prize. In various years this prize has been conferred 
upon Willi Brandt, Vaclav Havel, Yitzhak Rabin, and Mikhail Gorbachev.... 

The President and I Got a Little Sick of One Another 

[Dokuchayev] You were prime minister for five years. In the year since your 
departure, three chairmen of the government have already been replaced. 
How do you explain that, and what do you think about the activities of 
your successors? 
[Dokuchayev] How did you become premier and how did you manage to find a
common 
language with the members of Gaydar's team, people of a different age and 
mentality? 
[Dokuchayev] Why weren't you returned to power after Kiriyenko's resignation? 
Could you have managed to keep the country from devaluation of the ruble 
and the default? 
[Chernomyrdin] According to today's measures, I indeed worked as prime
minister 
longer than anyone. And in 1998 in Davos, I suddenly found out that after 
Helmut Kohl, I was second in terms of time spent as leader of a 
government in Europe. I am categorically against such frequent changes in 
the cabinet as we have now, of course. It means too great a cost for the 
state, for society, and for the economy. 
The chairman of the government is certainly not an honorary post. You 
must perform essentially all the dirty work and make decisions every day 
and every hour. And the constant breakdown of this most complicated 
management mechanism creates obvious tension in society, in the regions, 
and in the state overall. 
Of course, the president has a right to replace the chairman of the 
government: he is endowed with those powers by the Constitution. It seems 
to me that the president is seeking a worthy figure, a worthy candidate 
with whom the country can enter the 21st century. In any case, he 
believes that, and sincerely, I think. It would certainly be easiest to 
get the future president through the post of chairman of the government. 
But that is in a normal situation. In our country it is proving to be a 
real game of musical chairs replacing premiers. 
Each of those who came after Chernomyrdin is an individual, of course. 
Nothing bad should be said of Kiriyenko, certainly. Nothing good either, 
it is true, but we will believe that everything is before him. Primakov 
is a well known and experienced man. Stepashin too. I very much hope that 
they stop at Putin. He is thoughtful and serious. But look, not a single 
one of them had any experience with economic management, while I spent my 
whole life in management work and made concrete decisions. 
There is a gasoline crisis going on today and no one understands what to 
do about it, including the government. The chairman of the government 
says: we will use market methods. But to judge formally, by the market, 
prices will rise even more, since oil is becoming more expensive 
throughout the world. And you know, our country still faces the harvest 
and designated deliveries for the North. 
No, the state must control these processes. You know, when I was in the 
government, there were crisis situations on the gasoline market too. But 
did anyone notice? It was simpler for me--that is my specialty, you can't 
outsmart me, put anything over on me. But I had just returned from 
Orenburg Oblast. It was the peak of the harvest campaign there, the best 
crop in five years had ripened, and they did not have any fuel. Or 
rather, there was fuel, but no money. I asked the general director of the 
oil company Khramov: "Why don't you give them the fuel? After all, the 
harvest will essentially last only three weeks." He answered: "I lose 1.5 
billion." I explained to him: "You aren't losing, you are redistributing. 
Give it to them now and in three months you'll get your 1.5 billion back. 
And considering the rise in prices, with a little extra for you too." And 
he agreed with me. One director or a governor there can understand that, 
and another won't. That is exactly what the government should be working 
on. But where is it supposed to work when the premier doesn't understand 
anything yet and hasn't been filled in, when he has not gotten used to 
the cabinet, and it is already being changed? 
You know, when I became premier, it was, one might say, unexpected. I 
went to work in the morning and did not know anything about it. There was 
a congress of the Supreme Soviet then, you remember, and Yeltsin was 
officially ratifying the premier there. Before that he himself was head 
of the government, and Yegor Gaydar was the acting head. We of course 
believed in advance that Yegor should be supported. But it became clear 
at the congress that Gaydar would not get approved, and he decided to 
step down. Skokov and I were among the top three after the ratings vote. 
And then the president called me in and proposed that I become premier. I 
agreed--but only for a time. This "time" dragged on for a little over 
five years. 
And my relations with the young guys from Gaydar's team were normal. 
After all, how did I join their government and become vice premier then? 
Initially the minister of fuel and power engineering was Lopukhin, a 
young fellow who before that had worked as an advisor in some Gosplan 
[State Planning Committee] administration. So he gathered us together for 
the first time at the conference. The still-Union ministers were sitting 
there discussing, as usual, the situation with fuel: what to provide, how 
to procure it, and where to store it. Lopukhin was sitting there, and I 
could tell by his eyes he did not understand anything. After the 
conference I asked to remain, and I said to him: "Listen, I want to ask 
you frankly, how did you get here? How could you take on this job?" 
Then the president understood this too and remembered me. For some reason 
I went to a session of the government and the elevator operator stopped 
me (he knew me back from Soviet times) and said: "Viktor Stepanovich, the 
president is looking for you." And when I came away from talking to the 
president, I was already vice premier. 
I respected and do respect many of Gaydar's team, and I learned a 
great deal from them: from Gaydar, from Shokhin, from Nechayev. They knew 
a lot about how market mechanisms work and about American, German, and 
Japanese experience. But their shortcoming was that it was not enough to 
know everything theoretically, you had to understand how to use this 
know-how in practice. And their second tragedy was that they had no idea 
of how our regions live and breathe. 
My job as the government chairman was to gather together all the 
experience and all the knowledge and build the framework of market 
relations in the country. And these guys played an enormous role here. 
Yegor Gaydar himself. I believe that he is a serious economist. And right 
after the congress, I proposed that he remain in the government. He 
refused at that time, but later we worked together. 
Or Chubays: he proved to be the most purposeful of them all, with a 
tough approach. When we discussed something, either he tried to change my 
mind or I tried to change his. But he always put what he and I had 
decided into precise effect. He is a highly disciplined man and there 
were no problems with him. 
And regarding why Boris Nikolayevich made the decision that I should 
retire, don't torment me. To me it is absolutely inconsequential who said 
or whispered what to the president at that time. Now everyone is saying 
that the president is surrounded by a "Family" or even a "Big Family." I 
do not know what that means. 
I had complicated relations with the president but quite direct ones. 
And he never permitted himself to treat me the way he has treated the 
current premiers. He and I talked about that at the outset. Well, perhaps 
it was simpler for me: the president and I are closer in age and in 
experience. Then, we certainly had known each other earlier, when I was 
working in Western Siberia. Sverdlovsk Oblast was in my main 
administration and he and I often met when he was first secretary of the 
oblast committee. And after that time, we had working relations. I knew 
that I could argue with him and try to persuade him. Of course, people 
tried to pester him even before, to provoke something. But at that time 
he was strong and he was healthy, and it was practically impossible to 
provoke him. And he trusted me and valued what I was doing. And I always 
reported to him when it was a complex question. I understood that the 
president should be well informed. We had worked out a system of 
interrelations. And as for what happened with this resignation, well, 
most likely we simply got a little sick of one another during those five 
years. Look, back then in the spring of 1998, everything was going 
smoothly for our country: we had concluded an agreement with the IMF, 
loan installments had started, and for the first time since Soviet days, 
growth in production in the first quarter came to a solid 4 percent. We 
only had to do our jobs and creative work and move forward. But then the 
president called me in and said: "For some reason things have slowed down 
in our country," and sent me into retirement. 
But later he apologized to me for that. That was after the events of 17 
August. He called me into his office: "Look, Viktor Stepanovich, I sent 
Kiriyenko into retirement today. I want you to agree to become premier 
again. And I will appear before all the people on television and 
apologize to you and say that your resignation was my mistake." But I was 
against the president publicly apologizing and humiliating himself. And I 
told Boris Nikolayevich that I didn't need that and the country didn't 
need that. So you apologized to me, and that is enough. Then it was 
important to rectify the situation. After all, what we had spent five 
years building was destroyed in five months at that point. 
I believe that the events of 17 August of last year were the 
government's most flagrant mistake. Decisions at that time were made 
without thought or calculation. You know, Kiriyenko called me the morning 
of the 17th. I was actually on vacation and was flying home from 
Orenburg. And so he said to me: we have declared a moratorium on 
repayment of debt and we are expanding the currency corridor. At first I 
decided that it was a joke. Because nothing cruder could be conceived. 
Can you really set the ceiling at 9 rubles [R] right off! Of course, the 
exchange rate would go to R9 straightaway, without stopping. But 
Kiriyenko said to me: "No, Viktor Stepanovich, we will gradually approach 
R7, no sooner than the end of the year." Not a chance! Really, how are 
you going to explain that to some poor old lady in the market? After all, 
things do not go smoothly in our country! 
Or take the moratorium on debts. You know, 70 percent of the creditors 
in our country are Germans. But then this German wakes up on the morning 
of the 17th and people say to him: "I'm sorry, there will be no payment 
and you will not get anything!" Can that really be possible? And I had 
situations where the president put the pressure on: come on, he would 
say, let's give out the money for pensions and not pay on the debts. But 
we certainly did not behave like savages here. We invited people in to 
talk and tried to reach an understanding. And then these agreements were 
strictly observed. And we were most disciplined with international 
accounts, and so our reputation was a good one. Because that, if you 
will, is our country's image. 
I will tell you more--we had worked out a medium-term program and we 
had figured out how the exchange rate of the ruble should change for the 
next three years. It was supposed to rise smoothly. Because we understood 
that without a stable ruble and a stable financial system, everything 
else would be insignificant.. You cannot plan the state budget, a 
company's budget, or your own personal budget. And only a stable 
financial system would make it possible to revive investment processes 
and obtain credits. And that is what happened back in 1997. For the first 
time, direct investments in our country totaled almost $6 billion, and 
together with portfolio investments--$12 billion. And we could have 
reached $20 billion by 2001. 
So I can tell you that there would have been no default if I had been 
in power and the ruble would not have fallen under any circumstances. And 
when I flew in on 17 August, I immediately understood that something had 
to be done. Not for myself but for the country. And the next day I went 
directly to the Duma to negotiate with everyone. By then the ruble had 
already started to collapse and banks had begun to suffocate, and it 
became clear that the government would be swept away altogether. The 
president himself would not stand for that. I began to visit the factions 
in the Duma and try to convince them: let us join together and propose 
some solution to the president. I met with Zyuganov, Ryzhkov senior, and 
other leaders of factions. They told me themselves: Viktor Stepanovich, 
step in, only you can save the situation. At that time we prepared two 
documents. The first was a general plan for getting out of the economic 
crisis, and the second was a general political agreement where one of the 
points was redistribution of governmental powers. 
I talked with the president on this theme and explained that the 
previous Chernomyrdin no longer existed. I need my hands freed, I said, 
to take radical, vigorous measures. And then everything started spinning, 
work got rolling, and the document was initialed by all the faction 
leaders and was to be adopted at the plenary session. And as for what 
happened later--I would call it nothing less than a political intrigue. 
Certain influential governors did not want Chernomyrdin to return, and 
they quickly made an arrangement with Zyuganov himself and other 
deputies. So my return did not take place. Remembering it hurts and 
offends me. Not because Chernomyrdin was better than everyone else. It 
was simply that the others needed to study and try to master the 
situation. But I was, as it is called, "in the know." My heart had not 
yet hardened back then. I knew what had to be done and how to act and 
what the first steps should be. But back then they wanted experiments. In 
fact we are experimenting to this day.... 

*******