September 12, 1999   
This Date's Issues: 3494 • 3495   • 

Johnson's Russia List
#3494
12 September 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Itar-Tass: Peter I, Primakov Lead in Poll, Chubais, Berezovsky Down.
2. US News and World Report: Michael Stachell, Kremlin gilt- or is it
guilt? In land of corruption, a paper trail points to Yeltsin and his daughters.
3. Moscow Times letter: Bob Russell (IMF), Ditching IMF Loans Won't Ease 
Financial Pain.
4. David Lingelbach: VLADIMIR PUTIN.
5. Michael Allen: Re: JRL 3491 Pearson "Russian Adoptions"
6. AP: Gorbachevs Swamped With Sympathy.
7. Vooruzheniye, Politika, Konversiya: Sergey Glazyev, Economic Threats To 
National Security.
8. USIA Foreign Media Reaction: RUSSIA: MOSCOW'S 'MISHANDLING' OF FINANCES 
AND WESTERN 'COMPLICITY'; DAGESTAN ACT II.] 

********

#1
Peter I, Primakov Lead in Poll, Chubais, Berezovsky Down.

MOSCOW, September 11 (Itar-Tass) - A telephone poll conducted by the 
independent service Mneniye among 1,020 Muscovites on September 1-3 has found 
79 per cent of respondents to be of the opinion that Russian Tsar Peter the 
Great did more good than bad for Russia. 

Only two per cent said his activity was harmful for Russia and 19 per cent 
were undecided. 

Former Prime Minister Yevgeny Primakov rated second. He was approved by 73 
per cent of the respondents. 

The showing for all other politicians of yesteryear and of this day were 
below 50 per cent. 

Former Prime Minister Sergei Stepashin rated third, with 48.6 per cent of 
approving votes. Negative opinions about him, like Primakov, made two per 
cent. 

Former Prime Minister Viktor Chernomyrdin was rated positively by 31 per cent 
of those polled and negatively by 12 per cent. 

Respective figures for yet another former Prime Minister Sergei Kiriyenko 
were 12 per cent and five per cent. 

The founder of the Soviet state Vladimir Lenin was considered as a positive 
figure by one of every three respondents, but 29 per cent said he did more 
harm than good. 

The first chief of Soviet secret police, Felix Dzerzhinsky, rated positively 
with 38 per cent of respondents and negatively with 13 per cent. 

Thirty-nine per cent were negative about Soviet dictator Joseph Stalin, but 
28 per cent believe that he was useful for the country. 

Soviet leader Nikita Khrushchev posthumously found a fairly loyal attitude. 
His role in history was assessed positively by 43 per cent of those polled 
and negatively by 19 per cent. The showing was worst for Anatoly Chubais, 
former first deputy prime minister and prime mover of privatization, and for 
Boris Berezovsky, oil-to media tycoon. 

Seven per cent of the respondents approved of Chubais and eight per cent of 
Berezovsky. 

The negative rating of Chubais was 48 per cent and of Berezovsky 39 per cent. 

********

#2
US News and World Report
September 20, 1999
[for personal use only]
Kremlin gilt- or is it guilt? 
In land of corruption, a paper trail points to Yeltsin and his daughters 
BY MICHAEL SATCHELL 

In his eight years as Russia's post-perestroika leader, Boris Yeltsin's 
public image has become as tattered and devalued as the ruble. Since 1991 
when he ignored bullets and bravely stood atop an Army tank in downtown 
Moscow to denounce Communist coup leaders trying to oust Mikhail Gorbachev, 
Yeltsin's public behavior has gone from inspirational to erratic. Important 
meetings have been missed. Stumbles, slurred speech, and manic behavior have 
been common. Poor health has been blamed–and so has vodka–as Yeltsin's 
persona has eroded from heroic statesman to bibulous buffoon. Still, Boris 
Nikolayevich–until now–had never been tainted with serious charges of graft 
as Russia has devolved from communism's rigidly insular motherland to a 
world-class kleptocracy. 

Last week, details began emerging from a Swiss investigation that has 
reportedly turned up records and signed receipts indicating financial payoffs 
to Yeltsin and his daughters, Tatyana Dyachenko and Yelena Okulova. A Swiss 
construction company called Mabetex, which won contracts for extensive 
restoration work at the Kremlin, allegedly provided them credit cards, paid 
bills amounting to tens of thousands of dollars, and put $1 million in a 
Budapest bank account at their disposal. In a telephone conversation with 
President Clinton, Yeltsin reportedly denied the charges and called them 
politically motivated. 

Fiction or not, they added to the miasma of corruption enveloping Moscow's 
business and political establishment following the disclosure that the FBI is 
investigating whether Russian mobsters laundered up to $5 billion, including 
loans from the International Monetary Fund, through the Bank of New York. 
They reinforced the growing perception that virtually the entire Russian 
hierarchy is corrupt. 

Political fallout. The New York money- laundering case and the Swiss kickback 
allegations have generated multiple investigations in the United States and 
Europe, including probes by the FBI and the IMF. The House banking committee 
plans hearings starting next week into Russia's financial machinations. Says 
committee spokesman David Runkel, "This is not Zaire or some other Third 
World country being looted by the ruling elite but a nation of concern to the 
entire world." Fallout from the growing scandal includes the likelihood of 
delayed payments later this month of additional IMF funds to Russia, tougher 
standards for future loans, and a review of some $1.6 billion in U.S. 
assistance programs, from technical training to food shipments. 

Analysts believe the allegations against Yeltsin and his government won't 
harm long-term relations with Washington, but they do offer political 
opportunities. Republican candidates–and Democratic presidential contender 
Bill Bradley–have used the developments to take potshots at Vice President Al 
Gore for his coziness with Moscow, making it tougher to sell himself as a 
savvy foreign-policy leader. 

In Moscow, they could hurt the Russian leader's anointed successor, Prime 
Minister Vladimir Putin, and give a boost to a popular ousted prime minister, 
Yevgeny Primakov, who is seemingly undamaged by Western intelligence reports 
that he received an Iraqi payoff of at least $800,000. Richard Butler, the 
former head of the United Nations weapons inspection program in Iraq, wrote 
in September's Talk magazine that he saw intelligence reports showing that 
Primakov was "on the take" from Iraq. The growing scrutiny by U.S. and 
European governments and the media touched a raw nerve in Moscow. Newspapers 
accused the West of trying to foment anti-Russian feelings and revive the 
cold war, substituting the old "Soviet threat" with the new shibboleth 
"Russian mafia." Yeltsin spokesman Dmitry Yakushkin likened the offensive to 
the Spanish Inquisition. 

Payoffs and bribery were deeply ingrained during the old Soviet system, and 
the transition to free-market democracy has fostered international money 
laundering and corruption on a grand scale. Since the collapse of the Soviet 
Union, legal chaos and punitive taxes have been additional incentives for 
many Russians–especially business owners, politicians, and crime bosses–to 
hide finances and legitimize illegal income. Lev Makarevich of the Russian 
Association of Banks believes $2 billion to $3 billion now leaves Russia each 
month, most of it illegally. And he estimates $500 billion has been spirited 
to offshore institutions–like the Bank of New York–since 1991, three times 
the total of all Western aid received by Russia. 

Tainted banks. The New York bank probe is among some 300 FBI investigations 
of Russian organized crime. But making cases won't be easy. When seeking help 
from Moscow, agents are hampered by the dearth of honest detectives and by 
corrupt prosecutors. Equally frustrating is Russia's thin framework of laws 
governing financial fraud. "Many of these crimes are probably not illegal in 
Russia," says Jim Moody, FBI assistant director and head of its 
organized-crime unit. Further, there are the tainted banks. Says Richard 
Palmer, a former CIA station chief in the Baltics: "There are literally no 
Russian banks without ties to organized crime." 

But mobsters aren't the only Russians with their hands in the till. In the 
early 1990s, huge amounts of wealth controlled by the Communist Party 
mysteriously evaporated as senior apparatchiks stole whatever they 
could–unchallenged by the state security services. 

Since then, capital has continued to flow overseas while investigations of 
officials suspected of graft have largely gone nowhere in the byzantine 
intrigues of Kremlin power politics. When Primakov, for example, unleashed 
General Prosecutor Yuri Skuratov in 1998 with orders to track down the 
illegal flight of capital, one of his first targets was Yeltsin friend Boris 
Berezovsky, suspected of diverting Aeroflot profits to Switzerland. In turn, 
Yeltsin fired Primakov, who had refused to stop the investigation. 

Skuratov persisted, naming some 780 officials under investigation for illegal 
trading in lucrative treasury bills. Among them was Anatoly Chubais, 
Yeltsin's deputy prime minister and close adviser. Last April, Yeltsin 
suspended Skuratov after the Kremlin had a Moscow television station 
broadcast a videotape that appears to show the prosecutor cavorting with two 
young prostitutes. But members of the upper house of parliament, suspecting a 
Kremlin plot to block his investigation, refused to accept Skuratov's request 
to resign for "health reasons." 

With the help of Swiss authorities, Skuratov has continued to follow the 
money in Switzerland, turning up apparent evidence of kickbacks to Yeltsin, 
his daughters, and Kremlin property czar Pavel Borodin, who directed the 
Kremlin's costly refurbishing. On Thursday, Skuratov's Moscow apartment, 
country home, and his mother-in-law's apartment were searched by 
investigators in what he decried as an effort to silence him. 

Skuratov says he has evidence of Kremlin misdeeds and is aggressively 
investigating Yeltsin, although he stops short of directly accusing the 
Russian leader of corruption. Says Skuratov: "His participation, his 
complicity is either a sad coincidence or a misfortune not of his own 
making." 

With David E. Kaplan, Thomas Omestad, Kenneth T. Walsh, Kevin Whitelaw, and, 
in Moscow, Christian Caryl 

********

#3
Moscow Times
September 11, 1999 
MAILBOX: Ditching IMF Loans Won't Ease Financial Pain 

In response to the editorial of Sept. 2, "IMF Scores a Dubious PR Coup." 

Editor, 

So rarely does the IMF receive credit for a public relations "coup" that it 
seems ungracious to object to the modifier "dubious" in your editorial of 
Sept. 2. Nonetheless, we at the International Monetary Fund feel obliged to 
point out that the IMF, not its critics, first emphasized that money is 
fungible. The Moscow Times appears to take the opposite view, claiming that 
additions to Central Bank reserves or budgetary resources - if they come from 
the IMF, World Bank or bilateral foreign assistance - are sure to be wasted 
on excessive military outlays or corruption-laden projects. The cure, you 
imply, is to stop all assistance from abroad. 

Our reading of history and economies differs. Cutting off international 
support to countries in economic difficulty seldom compels them to 
redistribute domestic spending from economic "bads" to "goods" such as needed 
imports, infrastructure and social programs. Providing international 
assistance with conditionality, on the other hand, can induce better policies 
and a better allocation of resources even though money remains fungible. 

The IMF Executive Board, representing 182 countries, chose to resume 
international financial support for Russia earlier this year but with strict 
conditionality. Russia has reduced its fiscal deficit, pursued a cautious 
monetary policy, and made progress in righting the reversals in structural 
reforms that occurred after August 1998. More progress will be expected 
before additional support is disbursed. This process carries no guarantee of 
success, to be sure, but it offers a more promising path than the dead-end to 
which an abrupt and enduring rupture of financial support would lead. 

Bob Russell 
Adviser 
IMF External Relations Department 

*******

#4
Date: Sat, 11 Sep 1999
From: David Lingelbach <75013.2674@compuserve.com>
Subject: VLADIMIR PUTIN

I have been somewhat surprised at the lack of substantive discussion to
date on Mr. Putin and what his appointment as prime minister might mean for
Russia and the world. Most commentators seem to view him as 1) just one
more in a long line of short-term appointments, 2) a faceless KGB cipher,
and/or 3) a wholly-owned subsidiary of President Yeltsin and his "family".

I believe that this assessment could be a serious mistake. Based in Saint
Petersburg from March 1995 to July 1996 as the president of one of the
first foreign venture capital funds in Russia, I had the opportunity to
work with and observe Putin when he served as First Deputy Mayor of that
city. I have also interacted with a number of Mr. Yeltsin's other prime
ministerial appointments. Based on these contacts, I have the following
very preliminary comments on Mr. Putin:

1. Worldliness--Putin is believed to have served in the KGB in East
Germany from approximately 1975 to 1990 and is thought to have played an
important role in the removal of Erich Honecker from office. In terms of
the number of years that he has lived outside Russia/Soviet Union, this
experience makes Putin easily the most cosmopolitan person to sit in the
Prime Minister's chair during the Yeltsin era. If he were elected
President of Russia in 2000, Putin would be the first Russian head of state
in a very long time to have both a strong intuitive grasp of foreign
affairs and (unlike Andropov, for example) the youth and stamina to survive
a full term in office. Some would argue that Mr. Primakov has a similar
profile. I would argue that Putin's experience is far stronger, given that
it is a) focused on Germany, which is probably Russia's most critical
bilateral relationship for the foreseeable future, and b) far more
practical and ground-level in nature. In short, Putin seems to know how to
get things done in the real world, which was very much my direct experience
in working with him. In my view, such practical worldliness has to be good
for both Russia and most of the rest of the world.

2. Power Instinct--As the Russian federal government continues to
weaken for a host of reasons discussed by JRL contributors, the next
Russian president needs to be able to exercise power at least as ruthlessly
as Mr. Yeltsin has done. Putin has amply demonstrated in the past that he
has those skills. In Saint Petersburg, Putin was widely known by Russians
and foreigners alike as Mayor Anatoly Sobchak's "muscle". I have
personally witnessed Putin accomplishing significant changes in Russian
federal government policy and practice from his position as first deputy
mayor of Saint Petersburg with but a single phone call. Contrary to what
some Russia-watchers may think, I don't believe that any of us (with the
exception of a few Russian regional governors) have an interest in a
continued weakening of Russian federal authority. I believe that Putin can
hold the ring of power, both a prime minister and, should he be elected, as
president.

3. Corruption--The recent money laundering scandal has only served to
highlight the strong need to reduce corruption at all levels in Russian
government and society. While Putin does have ties to some of the people
that are now being mentioned as possible targets of a corruption probe, my
sense is that, if elected President, he might see the political value in
mounting a serious anti-corruption campaign. He certainly knows who in
Russia (and abroad) has skeletons in their closets on this issue. Perhaps
only Putin could both credibly protect the interests of Yeltsin and "the
family" (essential to Russia's stability, if not particularly appetizing)
and also stop and even perhaps reverse the ridiculous levels of capital
flight that continue to be the most public face of corruption in Russia
today.

4. A Man of The Regions--While Putin has spent a great deal of time
abroad, he is also knowledgable about the problems of Russia's regions. He
was born and educated in Saint Petersburg. He was the #2 in the Saint
Petersburg municipal government. He was Yeltsin's "enforcer" with the
regional governors prior to his appointment as head of the FSB. In order
to insure that federal power does not erode further, Putin will need to
work with and through the regions. In this sense, how/if he can resolve
the Dagestan situation will be an important test.

In sum, contrary to most everyone else, I see Putin's appointment as a
broadly positive one for Russia and the rest of the world. He has
successfully climbed the very slippery rope of power in post-communist
Russia, while not threatening the one person in Russian politics who
really matters--Mr. Yeltsin. He represents a new and more worldly
generation of Russian leaders, as opposed to the geriatric Mr. Primakov. 
The largest open question is whether or not he can develop enough of a
public persona over the next few months so that he can gain some broader
popular support, without alienating Yeltsin.

David Lingelbach
President, Threshold Capital Management LLC
New York

*******

#5
From: "Michael Allen" <michaelallen@csi.com>
Subject: Re: JRL 3491 Pearson "Russian Adoptions"
Date: Sat, 11 Sep 1999 

In re: Carol Pearson's plea that "...the government take an interest in
these throw-away children and actively try to get them in good homes by
cutting the red tape..." The following news item suggests this initiative
must come from the government itself, as the Supreme Court has shown it will
deal harshly with any judges that attempt on their own to simplify the
process of adoption by foreigners. (This is all the more ironic in
Khabarovsk, where foreign investor's legal rights are regularly trounced by
a local judiciary under the thumb of the Governor, and reversing decisions
by Moscow appellate courts are ignored.)

Rgds,
Michael Allen
Director, American Business Center Yuzhno-Sakhalinsk
===================================================

Translation of article from Yuzhno-Sakhalinsk "Soviet Sakhalin" newspaper of
7 Sep 99.

"Judge Broke the Law"

The Collegia of Criminal-Law Judges of the Supreme Court of the Russian
Federation have come down with a verdict in the case of a former judge of
Industrial District in the city of Khabarovsk, G. Antushevich. She was
declared guilty and sentenced formally to two years in penitentiary. Based
on the recent State Duma decree on amnesty, her sentence was commuted.

Legal experts consider this case to be unprecedented in Russia: this is the
first time in history a judge has been sentenced under Article 301, Part 1
of the Criminal Code of the Russian Federation. It was proven during the two
weeks of the trial that Antushevich knowingly violated the law. She handed
down decisions granting adoption of 36 minors, residing in orphanages in
Khabarovsk Kray, to American citizens. The investigation showed that 20
transcripts of court proceedings had been fictitious, that in fact she had
not heard the cases, she did not invite the actual parents of the children
to the hearing, nor the representatives of government structures responsible
for guardianship. The court noted other serious violations of procedures for
foreigners adopting Russian children. Testimonials arriving from the US that
the children were healthy and happy were considered mitigating
circumstances, but in no way exonerating the judge for her illegal actions.

******

#6
Gorbachevs Swamped With Sympathy
By ANNA DOLGOV
September 10, 1999

MOSCOW (AP) - Once among the most reviled couples in Russia, Mikhail and 
Raisa Gorbachev have been inundated with sympathy and admiration from 
thousands of ordinary Russians as the wife of the former Soviet leader 
battles acute leukemia. 

Deeply admired in the West, the Gorbachevs were equally despised by most 
Russians, who blamed him for the country's problems and ridiculed his wife as 
a showoff. 

The sudden, unexpected wave of support has made Mrs. Gorbachev cry, aides 
said. 

``It must be in the Russian character - to run somebody into the mud, and 
them laud them to high heavens after a tragedy strikes,'' said Vladimir 
Polyakov, a spokesman for Gorbachev in Moscow. 

Mrs. Gorbachev, 67, was admitted to the Muenster University Clinic in Germany 
on July 25. Her husband has been at her bedside nearly around the clock. 

News of the illness brought a huge and unexpected flood of support and 
sympathy back home. Tens of thousands of letters and telegrams lie in piles 
at the Gorbachev Foundation office in the Russian capital. 

Anxious people have written to share their experiences with the disease or to 
suggest special diets and folk remedies. Others telephone to say they are 
praying for Mrs. Gorbachev's recovery. Herbal medicines have arrived from 
Siberia. The rich and the poor have offered to help with money and blood and 
bone marrow transplants. 

Many letters are from the same elderly people who had long resented Gorbachev 
for his role in the events leading to the 1991 Soviet collapse and the 
subsequent economic and political turmoil that seized Russia. 

A Soviet general's widow called to offer $25,000 she had left after selling 
her apartment. Another woman offered to go to Germany to cook for Gorbachev, 
saying he must be tired of German cuisine. 

``For Mikhail Sergeyevich (Gorbachev), after all the mud that had been poured 
on him, it was very unexpected,'' Polyakov said. 

``And Raisa Maximovna even cried,'' he said. 

Mrs. Gorbachev is admired in the West, where her intellect, style and 
outspoken manner - together with the glasnost and perestroika reforms of her 
husband - helped demolish the image of the Soviet Union as an evil empire. 

But her poise, and the love and support she so clearly showed for her 
husband, created resentment at home. 

Mrs. Gorbachev's sophisticated designer clothes and jewelry were derided as 
ostentatious displays of wealth and elite status in a country where much of 
the population lived in poverty. 

It went largely unnoticed that Mrs. Gorbachev donated much of her personal 
income and helped raise more than $8 million over the past few years for 
children's leukemia hospitals in Russia, according to foundation figures. 

Soviet women ``resented her simply because she is different,'' the daily 
Izvestia wrote recently, after Mrs. Gorbachev was hospitalized. 

``She is not like the others: Fragile, graceful, with a sophisticated taste 
for beautiful clothes, she became a symbol of a country struggling to shake 
off its drabness.'' 

``People didn't understand her. Maybe they didn't want to understand,'' the 
newspaper said. 

But most of all she was resented for even daring to appear in public with her 
husband. 

``Who does she think she is, a member of the Politburo?'' people would ask, 
according to Gorbachev's memoirs. 

Previous Soviet leaders were assumed to have wives - but they were rarely 
seen or mentioned. A Communist leader's wife making repeated public 
appearances was too much of a shock for most Russians. 

``Maybe the very notion of the family, it was distorted here,'' Polyakov, the 
Gorbachev spokesman, said. ``It turns out (the Gorbachevs) were ahead of 
their time.'' 

Many letters received by the foundation now praise the Gorbachevs for things 
they were once derided for, especially their love and unashamed devotion to 
each other. 

``We know that you are a loving and brave couple ... If the Lord is with you, 
nothing and nobody can come against you,'' said a letter signed by the 
Boldyrev family from Moscow. 

Leading Russian newspapers have run stories titled ``First Family,'' and ``He 
and She,'' along with pictures of Gorbachev with his arms around his wife or 
kissing her hair. 

``Someday, a great saga will be written about Raisa and Mikhail - a saga of 
love,'' the daily Izvestia wrote. 

*******

#7
Glazyev: "Economic Threats To National Security" 

Vooruzheniye, Politika, Konversiya 
April 1999, No. 2
[translation for personal use only]
Article by Sergey .Yu. Glazyev: "Economic Threats To National Security" 

Short Bio 
Sergey Yurevich Glazyev graduated from the Lomonosov Moscow State 
University with a specialty in economics-cybernetics. He worked in the 
Central Economics-Mathematics Institute of the Russian Academy of 
Sciences, and in 1991-1993 he was first deputy chairman (minister), and 
then RF minister of foreign economic relations. In 1993 he was elected as 
a deputy of the State Duma, and in 1994-1996 he headed the State Duma's 
Committee on Economic Policy. In August 1996 he was appointed chief of RF 
Security Council's Directorate of Economic Security, in December 1996 he 
transferred to work in the Council Federation apparatus, where he is 
chief of the Information-Analytical Directorate. Sergey Yuryevich is a 
doctor of economic sciences and an author of a large number of works on 
economics. 

Our country is in serious condition. The reasons are deeply rooted in 
the economic depression, which we are living through for the seventh 
year. Over these years industrial production has been cut by more than 
half, and budget revenue by practically on the same order. It is 
completely obvious that while the economic depressions continues, real 
possibilities for improving the state of national security will not 
arise. Unfortunately, the mechanisms which would ensure overcoming the 
depression and proceeding on a trajectory of economic growth are for now 
not to be found in the proposals of the new government. 

Besides the budget, there are two other factors which have a strong 
influence on the country's national security. The first factor is growing 
lag in the level of technical-economic development. For the last several 
years, Russia has fallen back to a level of the 1970s. The second is the 
accelerating degradation of human capital. It is well known that it is 
intellectual potential that will determine economic growth in the next 
century. 

We will return to the real possibilities for proceeding on a trajectory 
of economic growth which up to now has not been reflected in the measures 
of the government and Central Bank for stabilizing the socio-economic 
situation in the country. 

Russia is a rich country which has colossal reserves for rapid and stable 
economic development. However, presently we are using only one third of 
our production potential; 20 million qualified specialists cannot find 
adequate application for their labor; the KPD [mechanical efficiency] for 
the use of our nation's intellectual potential is less than one percent. 

The main task of an anti-crisis policy lies in putting these reserves 
into operation. But this is impossible until several key problems are 
solved. The first problem is the substantial disproportions in the system 
of economic valuations. In order to successfully compete with European 
enterprises, Russians need to work five times more efficiently. Domestic 
producers pay more for everything than do foreign ones--for credit, to 
energy carriers, even for construction materials. 

The second problem, which any anti-crisis program should aim at solving, 
is the huge gap between interest rates in the sphere of financial 
operations and income norms in the production sphere. As a result of the 
lack of correspondence, funds equivalent to 15 percent of the GDP (this 
is almost the nation's entire accumulation fund) annually flow out of the 
production sphere into the sphere of financial speculation. A significant 
part of these funds ultimately end up abroad. 

The reasons for the situation which has developed are well known and 
studied; they have been discussed in "round tables" and in parliamentary 
hearings many times. We will mention only two of them. The first has a 
political-ideological character and lies in the fact that the government 
has refused to regulate the economy, to accept responsibility for its 
condition, to ensure price proportions and a rational monetary-credit 
policy. Politically, this was justified in the well-known doctrine 
"Washington consensus," which was developed for the purpose of "clearing" 
the economies of developing nations for the free play of international 
capital. It was made the basis of planning for the radical reforms in 
Russia and ended with the destruction of Russia's scientific-production 
potential and the collapse of the country's financial-budgetary system on 
17 August. 

The second reason lies in the real priorities of the economic policy. 
Over the last several years, the Russian financial market has not been 
simply super-profitable, but uniquely profitable by all world standards. 
It was possible to receive a 100 percent annual yield expressed in real 
dollars in the Russian financial market, and in some cases even 1,000 
percent, moreover without risking anything. 

Such strange priorities in an economic policy could not but lead to the 
ruin of the country's financial and economic system and to the 
consequences which we see today. The main priority of the budget and 
macroeconomic policy which was conducted was, beginning with 1993, to 
ensure super profits for financial speculation in the valuable papers 
market. In the beginning, private "financial pyramids" were built, then 
the GKO-OFS pyramid was built in the government. Budget expenditures on 
servicing the state debt, that is payments to financial speculator for 
unjustifiably increased rates, grew annually, amounting to one third of 
the budget's expenditures in 1998. 

This "soap bubble" economy could not help but collapse. It was impossible 
to endlessly ensure super profits for financial speculators in the 
valuable papers market through the outflow of capital from the production 
sphere. The process came to its logical end, which resulted in Russia's 
"hanging" with a debt totaling 600 billion rubles. This was the payment 
for the experiment of creating a "financial pyramid." 

Unfortunately, the monetary-credit policy still remains unchanged, and 
efforts to 
restore the mechanism for constructing "financial pyramids" continue. The 
Central Bank has begun to emit various GKO's [government credit bonds] 
with 50 percent yields, the so-called non-coupon bonds of the Bank of 
Russia. This means that in financial markets the minimum rate of return 
will be kept at the 50 percent level at a time when the production sphere 
cannot extend credit with a rate higher than 5 percent annually. Thus, 
the barrier between the financial and production sectors has been 
preserved. Naturally, with such a barrier, there will be no flow of 
capital to the production sphere. Correspondingly, there we be no growth 
in tax revenue to the budget, and consequently, no money to support 
national security. The issuing of government valuable papers diverts 
funds which with a correct economic policy should go to the production 
sphere. 

A serious obstacle on the road to a policy of economic growth is the 
position of the International Monetary Fund, which insists that Russia 
continue to follow a policy of completely open markets, superprofitable 
financial speculation, compression of state expenditures, that is, in 
fact, a policy of rejecting national sovereignty. This position is 
supported by the Central Bank in a document in which monetary emission is 
tied to the growth of foreign currency reserves. Such a policy means that 
the growth of money in the economy will be determined either by exports 
or the inflow of foreign capital. Therefore, in order to finance trade 
inside the country, let's say, grain at combines, it is first necessary 
to export some products in order to receive money to service such 
internal circulation. 

Shortly after the crisis of 17 August, when the country's banking system 
lost on the order of 100-150 billion rubles and the money of investors 
ended up frozen in bankrupt banks, the lords overseeing the economic 
policy, including three former ministers, came out with a new program in 
which they proposed that the government return to the most brutal system 
of tying the ruble to the dollar. This meant emission under the growth of 
gold currency reserves invested in the Central Bank's monetary-credit 
policy program. It was recommended the Bankrupt Russian banks be sold to 
foreign banks at a symbolic price--one dollar per bank. 

An analysis of the decisions of 17 August and the consequent events, 
and also of what was proceeded by these decisions indicates that Russian 
along with other developing countries in the world are being subjected to 
disintegrating actions by the so-called "fusing" of nations concept. 
Recently, the term being used is "asphaltization" of nations in order to 
arrange a new global economic space in which there will be no states as 
subjects of economic regulation. The latter will lead to minimum support 
of the proportion of exchange of national currency with each other. 

The "fusing" or "asphaltization of nations" concepts consists in the 
fact that speculative capital dominating in international financial 
flows, coming into one country or another, will begin massive 
speculations with the national currency and in the national valuable 
paper market. The more foreign speculative capital comes into the 
country, the more dynamic the market becomes and the greater the growth 
of returns in this market. In 1996-1997, the valuable papers market in 
Russia grew by more than 3.5 times. Moreover, 70 percent of the deals in 
the market for valuable papers of Russian enterprises were made in favor 
of foreign companies; in addition, the basic operations for 
buying-selling Russian valuable papers frequently took place in foreign 
exchanges. 

After the cost of valuable papers is artificially inflated several times 
and the "financial pyramid" built in such a manner nears the point of 
unavoidable collapse, the foreign financial capital leaves the country, 
which then has the effect of a multiple depreciation of the national 
currency and a sharp--in our case, ten times--fall in prices and yields 
in the valuable papers market. The capitalized value of the economy falls 
sharply, as if deflated. At the same time, devaluation of the national 
currency takes place. After that, foreign capital again comes in and 
carries out speculative operations in the valuable papers market but with 
more favorable currency exchange rates, buying up enterprises at very low 
prices. 

The capitalized value of the Russian economy after the artificial 
collapse of 17 August decreased to less than one thirtieth of its former 
value. This made it possible for two or three large foreign commercial 
banks to get control over it. For example, an aviation factory capable of 
producing 70 modern airplanes a year costs less today than one wing of an 
airplane. 

All discussion that foreign capital is not coming to Russia and 
therefore it is necessary to create more favorable conditions for it are 
from the devil. Foreign capital will come as soon as it receives 
political guarantees, since there is no more profitable and promising 
market in the world. 

The result of applying the concepts "fusing" or "asphalting" nations in 
practice is the disappearance of national capital as such after two or 
three waves of inflowing-outflowing foreign speculative capital in the 
financial markets of one state or another. International capital easily 
establishes control over key sectors of the economy. As a consequence, 
namely it begins to influence decisions on problems of national security. 

This is a real threat. Already today the aggregate expenditures of the 
Russian budget are one sixtieth that of U.S. budget expenditures. They 
have been decreased on an order in comparison with the pre-crisis level. 
One more infusion of foreign speculative capital could finally undermine 
any possibility of restoring any serious national defense system. 

In light of these trends, it is import to ensure that all decisions 
made on economic and financial policy undergo expert analysis from the 
point of view of the National Security Concept. This will be insurance 
from the repetition of huge mistakes already made. 

******

#8
Excerpt
USIA
Foreign Media Reaction
September 9, 1999
RUSSIA: MOSCOW'S 'MISHANDLING' OF FINANCES AND WESTERN 'COMPLICITY'; 
DAGESTAN ACT II

Overseas media continued to chart developments in Russia, with the majority
of commentary focused on the financial "scandals" and investigations into
alleged government corruption. Several editorials discussed the West's
responsibility for that country's economic "crisis," with some holding the
U.S. chiefly to blame for its "one-sided, Yeltsin-only policy" and for
"forcing the IMF to throw dollars into an empty barrel." A lesser number
depicted the West's decision to "maintain the Yeltsin system" as
"expensive...but politically defensible." Dagestan also generated a high
level of media interest and critical comment, particularly from Moscow. A
spate of editorials saw little hope for movement on the U.S.-Russian arms
control front, given Russian opposition to "Washington's plans to revise
the ABM Treaty." Highlights follow:
'AN OLD GAME TO DISCREDIT AND WEAKEN RUSSIA': Several Moscow analysts
contended that "the current scandal" and "the avalanche of stories in the
Western press about corruption in Russia" are part of a "dirty anti-Russia
campaign" to brand Russians "en masse as mafia and bandits." Some further
inferred that its timing was orchestrated by the U.S., which "hates to
share its spheres of influence with anyone" and has "decided to dump
Yeltsin." Only a couple of reformist papers diverged from this tack, with
one stressing that "the U.S. and European press have not invented
corruption in Russia's top echelon of power." A Frankfurt paper retorted
that it was "absurd...to blame the West for spreading rumors about
corruption," adding, "The World Bank and IMF have shown far too much
patience...with Russia." 
'SHOULD AID TO RUSSIA BE CUT OFF?': As analysts resumed their criticism
of Western policy toward Russia--including a Warsaw daily which claimed
that the scandal belies the "cherished" U.S. belief that "it takes a
handful of dollars to help transform a Soviet Russia into a democratic
Russia"--several also debated whether or not additional aid should be
curtailed. Papers in Britain and Germany spoke for many in arguing that
Western money, having "fueled the growth of a mad, violent kleptocracy," is
no longer justified. Suggesting that "such a decision could prove
disastrous," a Paris daily concluded that, in any case, "no one dares to
take responsibility for cutting the purse strings." Many underscored that
Western aid was always about "security, not economics," as did an Italian
writer who observed, "The money was given not to save democracy or to
establish capitalism, but mainly to give political stability to a former
superpower which still has tens of thousands of warheads." 
DAGESTAN ACT II: The incursion of Chechen rebels into Dagestan, the
second such foray since early August, prompted a new wave of criticism from
pundits in Moscow and elsewhere about the Kremlin's handling of the crisis
in this southern republic. Nearly all Moscow media worried that "the
country faces a new war" due to the "lack of a sensible policy toward the
North Caucasus." "It hasn't learned the lessons of Chechnya," lamented
reformist Vremya-MN. A London paper saw the latest upsurge in fighting as
just "one of several crises which Yeltsin is mishandling" and further proof
that he "is unfit to govern."
EDITOR: Katherine L. Starr
EDITOR'S NOTE: This survey is based on 58 reports from 17 countries,
September 1-9. The following editorial excerpts are grouped by region;
editorials from each country are listed from the most recent date. 
To Go Directly To Quotes By Region, Click Below 

RUSSIA: "Talbott Comes To Clean Up Kremlin" 
Reformist, business-oriented Kommersant Daily (9/9) front-paged this
comment by Vasily Maksimov on Strobe Talbott's visit to Moscow:
"Officially, the talks include arms control, ABM and START III. But the
focus, so it appears, is on a search for a solution to the BONY scandal.
U.S. plans to modify ABM and the Duma's refusal to ratify START II are
indeed among the key issues, but an effective discussion of those two is
hardly possible before next summer, after parliamentary and presidential
elections in Russia." 
"Russian Military Doesn't Trust Americans" 
Oleg Getmanenko remarked on page one of reformist Noviye Izvestiya (9/9):
"The Russian military does not quite trust the Americans saying that they
don't mean their ABM research as something directed against Russia, and
that they only respond to a new military threat and seek to protect
themselves from unpredictable 'unfriendly regimes.'" 
"Ordinary Russians To Suffer Most" 
Kira Andreyeva judged in reformist Noviye Izvestiya (9/9): "The U.S.
authorities and financial circles are seriously worried over growth in
Russian business. An unquestionable global leader, the United States would
hate to share its spheres of influence with anyone. The current scandal is
only an extension of an old game to discredit and weaken Russia as a
nascent financial power. Having Russians branded en masse as mafia and
bandits will most hurt ordinary people. Russia will suffer too, as it will
be long before it clears itself of a stigma whereby 'cooperation with it is
impossible.' In the final analysis, this is also going to hurt the
international community which, by putting up with the U.S. hegemony, has de
facto agreed that it can impose its views on others and decide who lives by
law, including American law, and who doesn't." 
"What Are We Waiting For?" 
Viktor Pritula wrote in neo-communist Slovo (9/8-9): "There are two main
themes in Russia today--war in the Caucasus and corruption in the Kremlin.
The Caucasus is serious. As for corruption, we are used to it.... Chechnya,
at least de jure, is part of Russia, which means that Moscow has every
right to destroy bandits in Chechen territory. So what are we waiting for?" 
"Government Connives With Mafia?" 
Reformist, business-oriented Kommersant Daily (9/8) remarked editorially:
"The West tends to believe that the Russian government connives with the
mafia. If that opinion prevails, we will have to forget about Western
financial aid." 
"While U.S. Investigates, We Stall" 
Vladimir Nadein filed from New York for reformist weekly Literaturnaya
Gazeta (# 36, 9/8-14): "While the Americans investigate the BONY case to
find out how our money got there, our authorities are out to vilify the
inquiry.... As Washington, referring to our wrongdoing, makes excuses to
the American people for overlooking it, our officials blame it on the
United States." 
"West Helps Russian Communists" 
Reformist Izvestiya (9/8) contended in a piece by Andrei Kolesnikov and
Aleksandr Sadchikov: "Russiagate will create a lot of information
opportunities for the Communists to keep the public excited for months.
Whether or not the Western press publications are true, they have helped
the left-wing opposition get out of an ideological crisis. After the
abortive attempt to impeach [Yeltsin], the Communists had nothing to offer
the electorate until the West extended a helping hand." 
"Should Defense Minister Resign?" 
Valery Yakov, commenting on President Yeltsin's invectives against the
military yesterday, said in reformist Noviye Izvestiya (9/8): "After a
bitter attack like that made in public, the defense minister should either
resign or stand up for his subordinates who have really been drawn into
another bloody mess, a semi-criminal civil war, and left holding the bag." 
"Moscow Lacks Will And A Sensible North Caucasus Policy" 
Valery Aleksin charged in centrist Nezavisimaya Gazeta (9/8): "The
current situation is more evidence that Moscow lacks will and a sensible
policy toward the North Caucasus."
"Special Services Fail To Respond Properly" 
Igor Korotchenko argued in centrist Nezavisimaya Gazeta (9/8): "The
impression is that Russia's special services have not been ready to respond
properly to events in Dagestan. Besides, practically all of them...are tied
directly to the president who, due to the state of his health, can't
provide effective management and coordinate the efforts of the intelligence
community."
"Moscow's Stand Hardheaded, Vulnerable" 
Andrei Ivanov, writing for reformist, business-oriented Kommersant Daily
(9/8), offered this view: "To get Russia to ratify START II, the Americans
offer to include it in the ABM THAAD project as compensation. They even
suggest that it should talk Beijing into joining the project as well. But
Russia does not seem interested, afraid that the Americans might just be
after its technological secrets. So, it thinks, it is better that it should
stand its ground and criticize the aggressive THAAD plans and insist that
Washington give up these plans if it wants START II ratified. Experts think
Russia's position is as hardheaded as it is vulnerable. While its heavy
missiles rot in their silos, the Americans keep working on their ABM
systems, not caring a hoot about angry protests from the strategic
Russia-China duo." 
"Media Didn't Invent Corruption In Russia" 
Vyacheslav Nikonov stated in reformist Izvestiya (9/7): "The U.S. and
European press have not invented corruption in Russia's top echelon of
power. That which gave rise to an 'anti-Russia flow of information' is
located in this country and, sadly, is part of it. The West refused to see
that for a long time. Instead, it deluded itself by picturing Russia as a
battlefield, with the noble reformers fighting against the evil and venal
Communists. Exposes in the press appeared, but not before the West put paid
to the Yeltsin team as the only partner, 'immaculate and untouchable.'
There are also political considerations behind the scandal, of course. But
they don't make it virtual or less damaging. You can't dismiss it just like
that. There is nothing Russia can say to justify itself--nobody would
believe it. What it can do, however, is take constructive steps...to show
its desire to remove the causes of the scandal." 
"No Coincidence" 
Andrei Kamakin contended on page one of centrist Nezavisimaya Gazeta
(9/7): "An avalanche of stories in the Western press about corruption in
Russia is no coincidence. It looks as if the West has decided to 'dump'
Yeltsin and his big family in favor of other 'bulwarks of democracy.'"
"Chechens Take Initiative" 
Yevgeny Krutikov said on page one of reformist Izvestiya (9/7): "The
Chechens have taken the initiative. Basayev and Khattab are back in
control. It is clear now that Russia may be drawn into a war of many years
with uncertain prospects for victory, the reason for the coming tragedy
being the generals' lack of military knowledge and experience.... After the
bombing of an apartment house in Buinaksk, the war has acquired a new
frightening quality. With the feds ready to use the most brutal
methods...the fundamentalists are sure to step up terror." 
"Lies Used To Cover Up Impotence" 
Valery Yakov charged on page one of reformist Noviye Izvestiya (9/7):
"Impotence provokes war. The latest events in Dagestan are stark testimony
that statements about a reliable blockade and control are as false as
earlier reports about a full victory over the rebels. The authorities
habitually use these lies to cover up their impotence. As a result, the
rebels again triumph and our soldiers die. This country faces a new war." 
"Strategy Is Missing" 
According to Emil Pain in reformist Vremya-MN (9/7): "As far as the
settlement process in the North Caucasus is concerned, Moscow has no
strategy, nor does it assess, if only in a primitive way, the possible
consequences of what it does. It hasn't learned the lessons of Chechnya." 
"Godsend" 
Vladimir Nadein filed from New York for reformist weekly Literaturnaya
Gazeta (# 35, 9/1-7): "Russia is perhaps the only government the IMF has
accused of deliberately doctoring its financial books.... Charges of
corruption, extortion, favoritism, the misuse of funds and interference
with the process of law, typically, swarm around Russia's top officials.
But they don't seem to care. And that goes for the president, too.
High-ranking officials never hold open press conferences. Only
conversations with trusted reporters. New York's Russiagate is a godsend.
This is a big chance for the Russians. It offers great opportunities. At
best, we will find out that American newspapers lie, the FBI is venal and
impotent, and our leaders, for all their behavioral faults, are honest and
decent people." 
"Civil War" 
Valery Yakov stated in reformist Noviye Izvestiya (9/3): "Russian
soldiers, having no idea about complex political and religious relations
and antagonisms inside Dagestan, have become cannon fodder in a military
and political game. What is it they have to give up their lives and become
cripples for? Is it a Wahhabism-free Islam? Or is it the image of tough-guy
and 'heir-apparent' Putin? Today, in the midst of an election campaign,
nobody cares to answer. The worst thing is that Russia is used to shooting,
clean-up operations and hundreds of nameless victims so much, it won't know
if another civil war breaks out." 
"Summers Does His Bit" 
Reformist Izvestiya (9/2), reporting about Secretary Lawrence Summers's
statement in USA Today regarding loans for Russia, front-paged a comment by
Aleksei Nikolsky and Dmitry Kuznets: "Clouds have been gathering over
Russia, unnoticed by its residents. The West must feel nostalgic for the
Cold War and Iron Curtain.... Russia and Russian business are targets of a
'dirty' campaign based on suspicions some of which, regrettably, may be
justified. That the IMF's money might be misused in Russia is probable.
That somebody in the world can prove that is absolutely improbable. But
that does not matter now. A new 'iron curtain' has ceased to be a figment
of Western reporters' imagination. The American administration has made its
first modest contribution to the anti-Russia campaign." 
"'Russian Mafia' Replaces 'Soviet Threat' As Fashionable Term" 
Editor-in-chief Andrei Vasilyev of reformist, business-oriented
Kommersant Daily (9/2) stated on page one: "Of course, this country has
organized crime, criminal business and corruption. (The United States does,
too.) But we will never agree that Russian mafia and Russian business are
one and the same thing. The term 'Soviet threat' has dropped out of the
Western political vocabulary.... As fashion in politics changes, 'Russian
mafia' has replaced 'Soviet threat.'" 
"Instead Of Bearing Grudge Against 'The Damned West'" 
Reformist weekly Obshchaya Gazeta (# 35, 9/2) editorialized on page one:
"The West does not want another cold war. It does not have to seek
compromising materials about the Kremlin. Stuff like that is readily
available in amounts proportional to our officials' greed. The Russian
elite considers itself free of any moral obligations. That is a challenge
to public opinion. Instead of bearing a grudge against 'the damned West,'
we should set up a special commission to examine bank accounts in
Switzerland, the United States and elsewhere."

*******