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Johnson's Russia List


February 8, 2000    
This Date's Issues: 4094 4095 4096


Johnson's Russia List
8 February 2000

[Note from David Johnson:
1. The Russia Journal: Andrei Piontkovsky, Putinism: highest stage of robber capitalism.
2. Financial Times (UK): The battle for Putin's political soul. As Russia claims victories in Chechnya, the fight to influence the man set to win the presidency intensifies, writes John Thornhill.
3. Reuters: Putin says Russia needs stability, strength.
4. Moscow Times: Simon Saradzhyan, FSB Says Babitsky Alive, But Can't Say Where.
5. RFE/RL: Sophie Lambroschini, Chechnya: President Says War Will Continue.
6. Kommersant-Vlast: Yelena Tregubova, VLADIMIR THE VAGUE.
7. Vek: Interview with Sergei Glazyev, Chairman of the Duma Committee on Economic Policies and Entrepreneurship.
8. Moscow Tribune: Stanislav Menshikov, SHOULD WE COUNT ON FOREIGN INVESTMENT? Let Us Be Cautiously Optimistic.
9. Izvestia: Andrei Stepanov, PRIMAKOV GIVES YAVLINSKY A CHANCE. Nonetheless the Main Presidential Contender Remains the Same. 
11. Reuters: Russian economic strategy-ask the people first.
12. Bloomberg: IMF Won't Lend More Money to Russia Without Reforms.]


The Russia Journal
February 7-13, 2000
Putinism: highest stage of robber capitalism
Opinon piece by Andrei Piontkovsky

No discussions are required to define the socio-economic situation that has 
taken root in Russia over the last decade. Observers from staunch Communist 
Viktor Anpilov to Anatoly Chubais in Russia, and from George Soros to 
Laurence Summers abroad, all describe it in more or less the same terms: 
crony capitalism, family capitalism, oligarchic capitalism, robber capitalism.

The choice of this or that epithet is a matter of linguistic taste and 
doesn't change the essence. The essence lies in a complete merging of money 
and power at a personal level, a situation for which even the word 
"corruption" is no longer apt. 

In classical corruption, there are two players, the businessman and the 
government official to whom the businessman gives a bribe. But Russia's 
oligarchs -- its Potanins, Berezovskys, Abramovichs and so on -- didn't even 
have to waste time and money and state officials. They either became those 
same officials or became shadow figures in the president's entourage and 
acquired the right to dish out official jobs and functions. Boris Berezovsky 
even boasted as much to the whole world in his famous interview to the 
Financial Times in October 1996.

Thus this shameless coupling of money and power reached its logical 

With this system firmly cemented in place by the 1996 presidential elections, 
even some of its own creators realized to their horror that their baby had 
grown out of hand and wasn't going to let them deprivatize the state. One of 
those creators was Anatoly Chubais. Speaking after his resignation from the 
government, he said "In 1996, I had a choice between the communists coming to 
power, or robber capitalism. I chose robber capitalism."

Chubais, like many other reformers, thought it wasn't important how to divide 
up assets -- the main thing was to create owners who, once they'd stolen all 
they could, would turn to effectively developing production. But this won't 
happen. In Russia, it wasn't so much assets that were privatized as control 
over financial flows, above all budget money. Such a system cannot give 
birth to effective owners.

The reformers created a Frankenstein -- a creature that has now tasted 
fantastic wealth and, like a drug addict, won't ever come off the injections 
of budget money. 

When he personally appointed these super-rich, Chubais naively imagined that 
at some point, he would be able to feed honest and transparent rules into the 
system. The oligarchs' revenge was immediate and pitiless. They ordered their 
media outlets to concentrate their fire on Chubais and destroy his moral 
reputation. Unfortunately for Chubais, the oligarchs had little trouble 
digging up a series of episodes from his past, enough to accuse him of a 
"conflicting interests" in the very least.

Timid and inconsistent attempts by subsequent governments (Sergei Kiriyenko 
and Yevgeny Primakov) to limit the oligarchs' power, drag them away from the 
budget feeding trough and from the state decision-making process met with the 
same resolute resistance. Some oligarchs, such as Alexander Smolensky or 
Vladimir Potanin would see their influence wane. Others, like Roman 
Abramovich or Nikolai Aksyonenko would see their star rise. But the essence 
of the system would remain unchanged. And the only genuine concern was Y2K,
not the imaginary computer threat, but the very real problem of having to 
face the democratic formality of presidential elections.

Due to a number of constitutional and physiological reasons, the reliably 
privatized Boris Yeltsin was unable to run a third time. And the 1996 
campaign strategy -- dangling the threat of communism -- had exhausted
Stalinist concentration camps could not serve as a pretext for "democratic" 
thievery any longer. It was time to find a new and original idea. The 
intellectual lackeys found it.

Continued next week.
(Andrei Piontkovsky is director of the Center
of Strategic Research in Moscow.)


Financial Times (UK)
8 February 2000
[for personal use only]
RUSSIA: The battle for Putin's political soul 
As Russia claims victories in Chechnya, the fight to influence the man set to 
win the presidency intensifies, writes John Thornhill

The battle for the Chechen capital, Grozny, may be largely over. But with 
Russia's presidential elections less than seven weeks away, the battle for 
Vladimir Putin's political soul is intensifying. And Russia's liberals, once 
counted among Mr Putin's most eager early supporters, fear they are rapidly 
losing ground in the struggle as the clear presidential favourite surrounds 
himself with illiberal former colleagues from the security services.

Once again Russia's liberals are confronting the age-old dilemma: is it 
better to press for incremental improvements within an imperfect 
administration or stand outside and call for radical change?

The outcome of their deliberations will colour the complexion of any Putin 
regime. But it could also influence Russia's relations with the outside 
world, since Russia's liberals remain the preferred interlocutors of most 
western governments.

The approval of Russia's liberals could therefore help lend moral legitimacy 
to Mr Putin's regime abroad; their condemnation could lead to Russia's 
further isolation.

Some liberals simply oppose Mr Putin out of principle. As a former officer in 
the repressive Soviet-era KGB, Mr Putin should be considered guilty until 
proven innocent, they say.

Moreover, his behaviour since becoming prime minister last August has shown 
an alarming streak of authoritarianism.

Grigory Yavlinsky, leader of the liberal Yabloko party, argues that Mr Putin 
has turned a legitimate anti-terrorist operation in Chechnya into a brutal 
war against an entire people.

Mr Putin is also shielding the corrupt oligarchs, who helped muzzle the press 
and manipulate the parliamentary elections in December.

Mr Yavlinsky is determined to carry the liberal standard into the 
presidential elections - even though he has almost no chance of victory.

"Since 1991 we have been fighting for an open society, a liberal democracy, 
and private property rights. We cannot rely on fantasies," he says. "That is 
why we must compete with Putin and oppose him in the elections."

Some other liberals are even more outspoken in opposing Mr Putin.

For example, Andrei Piontkovsky, director of the Centre for Strategic 
Studies, a Moscow-based political institute, argues that Mr Putin's ruthless 
prosecution of the Chechen war should have exploded the myth that Russia's 
acting president could ever be a friend of liberalism.

"People say Putin is the lesser evil but in what units can you measure evil?" 
Mr Piontkovsky asks. "Everything that I know about Putin makes me think he is 
very dangerous for my country and for the world."

Some of Russia's economic liberals, however, scoff at such "hysteria" saying 
it is important to engage - rather than alienate - Mr Putin and help set the 
presidential agenda.

When deputy mayor of St Petersburg, Mr Putin worked in one of the most 
liberal administrations in Russia. He is a market-minded manager who wants to 
turn Russia into a modern, civilised country, not turn back to some 
semi-mystical model of Russia's past, they claim.

The most powerful advocate of this view is Anatoly Chubais, chairman of the 
UES electricity company and prime strategist for the liberal Union of Right 
Forces movement, which did unexpectedly well in December's parliamentary poll.

He argues that liberals should support Mr Putin's attempts to consolidate the 
state and modernise the economy. "I do believe that the liberals will be able 
to press the president to follow their basic principles," he says.

But some of Mr Chubais's colleagues are far more ambivalent about Mr Putin. 
Sergei Kiriyenko, the parliamentary leader of the Union of Right Forces 
movement, has already criticised Mr Putin's parliamentary manoeuvres - even 
though he seems likely to back him in the forthcoming elections.

"This is not going to be our government. These are not going to be our 
policies. Our time will come in 2003-04 or even 2007-08," Mr Kiriyenko says, 
referring to the timetable for the next rounds of parliamentary and 
presidential elections.

Another leading member of the Union of Right Forces, Konstantin Titov, the 
governor of Samara, has even declared he will stand against Mr Putin, saying 
Russia must have a contested democratic election rather than a nomenklatura 

"It is essential to have a further liberalisation of the economy and give 
more rights to the regions in the Russian federation," he says.

However, Yevgeniya Albats, one of Russia's most courageous reporters, says 
that liberals should only judge Mr Putin on his future actions rather than 
his past associations.

"We should not judge KGB officials by their affiliation because that was how 
they judged us in the past. We do not want to repeat their legacy," she says.

Such a view may be commendably high-minded. But, as Mr Piontkovsky argues, it 
could also prove fatal for Russia's liberals if it is mistaken about the true 
nature of a Putin regime.


Putin says Russia needs stability, strength
By Ron Popeski

MOSCOW, Feb 7 (Reuters) - Acting President Vladimir Putin said on Monday 
Russia needed to end its chronic political instability and finish off its 
campaign to destroy Chechen rebels to help build a strong post-Soviet state. 

Putin, runaway favourite in next month's presidential election, returned to 
his favourite theme in an interview with ORT public television of restoring a 
measure of Russia's greatness and dealing firmly with its detractors. 

Chechen separatists, he said, had been taught a lesson in the Russian army's 
four-month offensive. What was needed now was to complete the job and entice 
investors by persuading them the country was stable and would offer a fair 
deal for all. 

"If you go from one coup d'etat to another, if you are always living in 
anticipation of the next one and what its consequences might be, just who is 
going to invest?" Putin asked. 

"There will be no major investment until we have a solid political system, 
stability and a strong government defending the market and creating 
favourable conditions for investment. It seems to me that the president who 
will be elected must be just such a factor." 

Russia had no need to go begging to international financial institutions like 
the International Monetary and World Bank, he said, though both their credits 
and expertise were welcome. 

"It would be improper for us to go pleading for anything. We are a 
self-sufficient country," Putin said, wearing a casual grey sweater and 
reclining on a peach-coloured sofa. 

"It is not an end in itself to get credits. Rather the aim is to maintain 
good working relations with international institutions...who have experts and 
whose aim is to integrate developing economies into the world economy." 


With less than seven weeks to go in the election campaign, Putin's is well in 
front of a field weeded out of nearly all candidates once viewed as a threat 
to him. 

But one poll announced on a Russian television channel at the weekend put his 
rating at 48 percent -- less than the 50 percent required to win outright in 
the first round of voting. 

The acting president has built much of his popularity on a decisive stand 
against the Chechen separatists and on an image of youth and vitality -- in 
sharp contrast to Yeltsin's slow moving, sometimes incoherent appearances in 
his later years. 

Critics say he has revealed little of plans to right the economy. The IMF 
said at the weekend Russia was lagging on promised structural reforms needed 
to win new loans. 

Putin said he had had no doubts about the success of the Chechnya operation 
which had inflicted a lesson on the rebels. 

"The bandits have been taught a significant lesson, we have inflicted serious 
damage which will be difficult to repair. We can talk about a breakthrough in 
this context," he said. 

"What next? Further on, all the large bandit groups should be destroyed and 
dispersed and afterwards we will pull out the troops from Chechnya," said 

Putin said over the weekend that Russian forces were now in complete control 
of Grozny and the military had turned its attention to rebel strongholds in 
mountains to the south. 

He said the West, which accuses Russia of excessive force, failed to 
understand that "if parts of Russia are dragged away then it will lead to the 
complete disintegration of Russia." 

All countries could be Russia's allies, he said, "if they share our view of a 
multi-polar world." But states, he said with half a smile, had better not 
offend Russia's honour. "Whoever offends us will last no longer than three 
days," he said. 


Moscow Times
February 8, 2000 
FSB Says Babitsky Alive, But Can't Say Where 
By Simon Saradzhyan
Staff Writer

The whereabouts of Radio Liberty reporter Andrei Babitsky remained unknown 
and his colleagues continued to fear the worst despite claims by Russian 
officials Monday that the war correspondent was still alive. 

The Federal Security Service released a tape last week that they said showed 
Babitsky being handed over to Chechens in exchange for two Russian soldiers 
on Thursday near the Chechen town of Argun. 

But leaders of the Chechen rebels said they know nothing about the exchange 
or about Babitsky's whereabouts. "Had he been with us, we would have been 
able to guarantee his safety," Chechen President Aslan Maskhadov said in a 
telephone call to Radio Liberty over the weekend, station journalist Vladimir 
Dolin said. 

Federal Security Service director Nikolai Patrushev told reporters Monday 
that his agency is certain Babitsky is alive. "I don't know where he is - 
that is beyond our department," Patrushev said. He would not elaborate. 

The Kremlin's Chechnya spokesman, Sergei Yastrzhembsky, told reporters that 
Patrushev's claim is based on solid evidence. Yastrzhembsky said he also is 
unaware of Babitsky's whereabouts, but is "very interested" in finding out. 

Meanwhile, the Prosecutor General's Office announced it will issue an arrest 
warrant for Babitsky if he doesn't show up for interrogation. 

Radio Liberty editors and journalists said they do not trust Patrushev's 
reassurances. "I know Andrei and I'm sure he would have already called us if 
[he had been] let go," editor Vladimir Baburin said. "I fear the worst." 

Babitsky's colleagues believe officers of Russian power agencies either are 
still holding him or have killed him for his pro-Chechen coverage of the war. 
They see the filmed exchange as an attempt to shift the responsibility for 
Babitsky's safety to Chechen rebels. 

Dolin, who recently returned from a trip to Chechnya, said he could confirm 
that the taped exchange happened no earlier than Wednesday. Babitsky was 
wearing a shirt that Dolin had passed to him Wednesday morning through the 
prosecutors holding him in northern Chechnya. 

Dolin said he met people who told him Babitsky had been severely beaten 
during his detention. 

One of them, a Chechen refugee, said he had heard a member of pro-Moscow 
Chechen leader Beslan Gantamirov's special police force boasting about 
beating Babitsky in Urus-Martan, Dolin said. 

Yastrzhembsky said an army intelligence unit seized Babitsky when he was 
leaving the Chechen capital on Jan. 16 for failing to have military 
accreditation. He was later accused of collaborating with the Chechen 

Dolin said he was told that Babitsky was taken to Urus-Martan before being 
transferred to a Justice Ministry detention facility in Chernokozovo in the 
district of Naurvsky in northern Chechnya. 

Dolin said he met the aunt of a man who was being held in the same facility, 
who quoted her nephew as saying that Babitsky was beaten repeatedly and 
forced to sing loudly for long periods of time. 

Dolin went to the settlement last Wednesday morning and met with the head of 
the Naursky district prosecutor's office, Vitaly Tkachev, who confirmed that 
Babitsky was being held in Chernokozovo. 

The prosecutor refused to let Dolin see Babitsky but agreed to have warm 
clothes, including the shirt, passed to him. However, when Dolin showed up 
later the same day with food for Babitsky, Tkachev said he had been ordered 
to hand him over to another government agency. He refused to identify the 

Neither the Justice Ministry nor any other law-enforcement agency has claimed 
responsibility for the controversial exchange, which has drawn strong 
criticism from human rights groups and liberal parties, such as Yabloko. 

However, Yastrzhembsky said Monday that the exchange had been sanctioned by 
the Prosecutor General's Office and the Interior Ministry. 

An official at the North Caucasus directorate of the prosecutor's office said 
in a telephone interview Monday that Babitsky was released on condition that 
he reports to investigators. The official said his agency has found more 
evidence of Babitsky's involvement in the activities of Chechen rebels, but 
would not elaborate. 

The liberal Yabloko party issued a statement Monday condemning the exchange 
of Babitsky even if it had been carried out with his consent, as 
Yastrzhembsky has said. 

"You cannot exchange one citizen of your country for another. A dangerous 
precedent has been set," the Yabloko statement said. 


Chechnya: President Says War Will Continue
By Sophie Lambroschini

The Russian military has raised flags over the Chechen capital of Grozny and 
is reporting that many Chechen fighters were killed fleeing the capital. But 
Chechen President Aslan Maskhadov, in an interview with RFE/RL's Russian 
Service, says there is no end in sight to the hostilities with Russia. 

Moscow, 7 February 2000 (RFE/RL) -- Chechen President Aslan Maskhadov tells 
RFE/RL that Grozny held no strategic value for the rebels and that they will 
now switch to a strategy of partisan warfare.

In an interview with RFE/RL Sunday, Maskhadov said the casualty rate on both 
sides is higher in this war than in the previous one -- but that this 
increased savagery will only make it last longer. He said Chechen ranks are 
being replenished by ordinary Chechens, motivated both by a longing for 
revenge for fallen friends and by a distrust of the Russian government, which 
he said has promised amnesty for Chechen men but then thrown them into 
filtration camps. 

Maskhadov said that those broken Russian promises have ensured that there 
will never be a mass surrender of Chechen fighters.

"Not only for Chechen fighters but also for an ordinary person who doesn't 
take any part in the war -- [they know] what it means to become a prisoner, 
what a filtration camp is. We heard, we saw during the previous war. And 
[because of that] not one fighter would decide to give himself up even if he 
wanted to. And those [missing fighters], who were probably gravely injured 
while they were trying to leave Grozny, may have been made prisoners. I don't 
envy a Chechen who ends up in a filtration point, or ends up missing like 
those 1,500 we're still looking for." 

The Chechen president said that what he called Russian "barbarism" in the 
Russian-occupied zone is motivating new recruits.

"We cannot give an exact number of the number of fighters. If there are up to 
10,000 in position right now, the reserve can count up to 20,000. For 
example, [see] what happened in Bochay-Yurt. It was announced that the Duma 
voted an amnesty, and some of our short-sighted fighters decided to wait out 
[the war] at home. But they were caught and sent to filtration camps. There 
has been an enormous demonstration going on in Bochay-Yurt for a week 
already. The people are out on the streets, demonstrating against the 
[Russian] military commandant's office, whoever. That is [our] reserve. And 
then it just continues like the last war, it is becoming a long partisan war, 
where every Chechen considers it to be his duty to kill one Russian soldier." 

The Russian government has said the fight in Chechnya is being funded and 
fought largely by foreign influences. But Maskhadov says the number of 
mercenaries fighting with the Chechens has been highly overstated -- both for 
the previous and the present war. 

"I'll tell you frankly about the previous war. There were Lithuanians, two or 
three people. One Pole, I think. Around 12 Ukrainians. About 80 Arabs. 
Kabardinians -- five, six. Many Ingush. During this operation it's the same 
-- a few dozens. The rest is lies and politics."

Maskhadov said the current casualty rate is much higher than during the 
previous war.

"If we compare the present war with the previous one for the same period -- 
five months, six months, the harshness of the military operations, the 
strained atmosphere, the casualties on both sides are about ten times higher 
than during the previous one. So in numbers, that's 7,000 or 8,000 for the 
Russian side. On our side, 1,500 to 2,000."

Maskhadov said that 2,000 Chechen fighters withdrew through a corridor out of 
Grozny and escaped into the mountains last week. He denied the Russian 
reports that thousands of Chechen fighters were killed by landmines, lured by 
false information to a supposedly safe corridor out of the city. 

But he said his men did suffer heavy losses during the retreat. He said two 
important field commanders had been killed and a third, Shamil Basayev, 
gravely wounded. Yesterday, Russian television aired footage of a wounded 
Basayev having his foot amputated. 


Kommersant - Vlast No. 4
[translation from RIA Novosti for personal use only]

Vladimir Putin was appointed the acting 
president a month ago. He signs decrees, makes programmatic 
statements and meets with citizens. Nobody seems to doubt that 
Putin will be voted into office on March 26 or April 16 at the 
Nevertheless, the past thirty days have failed 
to clarify his presidential traits. 

Vladimir Putin does not, nor will, have rivals any more. 
He has covered a third of the road leading to the presidential 
election with no big losses. 
The "small" Chechen operation has turned into a bloody, 
protracted war, and the friendship with the Right liberals has 
been marred by the Duma "collusion," but Putin's rating is as 
high as ever. 
It is true that one public opinion pollster said last week 
that the popular trust in Putin had dwindled 7%. But his 
presidential rating did not suffer: sociologists say that 55% 
to 60% of the voters are prepared to vote for him. This 
percentage is big enough to last Putin until the March 26 
voting, even if Unity, a.k.a. Medved, or Bear, chooses to team 
up with the Communists every day of the week, and Grozny's 
Minutka Square has to be taken again as many times. 
In this sense, the popular opinion that Putin is a 
full-fledged, rather than acting, president, is absolutely 
justified. Still, even though he has no rivals, his is a civil 
marriage to the nation--primarily because he is being led to 
power by Yeltsin's team whose rules of the game he has been 
forced to adopt. 
To be more precise, Putin is conducting two election 
campaigns: one for the nation and the other for his new, or 
rather old, Yeltsinist entourage. 
Understandably, Putin will be heavily dependent on the old 
Kremlin staff which has appointed him the successor, until the 
election: he has to rely on the team for its election 
experience, something he does not have, if he wants to become 
the president. 
On the other hand, the "popular" election campaign forces 
Putin to demonstratively part his ways with the "family." But 
then, the narrow circle of Kremlin insiders is well aware of 
this circumstance. This is why Yeltsin's resignation was 
narrowly followed by the sanctioned dismissal of Tatyana 
Dyachenko from the Kremlin and Nikolai Aksenenko's deposition. 
On the other hand, Putin has kept Alexander Voloshin as 
his chief of staff. Shadow Kremlin helmsman Valentin Yumashev 
continues to play a key role in the making of an absolute 
majority of political decisions. And Tatyana Dyachenko 
continues to keep a close watch on Putin's election campaign. 
There have been no radical personnel changes in the 
government, either: Viktor Kalyuzhny, the old Kremlin masters' 
proxy, is still in charge of the fuels complex, while Mikhail 
Kasyanov, the de-facto premier, was believed to be close to the 
"Family" in Yeltsin's days. 
Putin cannot but understand that keeping company with such 
"friends" may cost him points in the "popular" election 
But jettisoning them would be counter-productive for his 
election campaign as the "Family" sees it. He is therefore 
"fighting on two fronts."
Asking which side he is really working for incorrect--just 
like in the case of any double agent. More probably than not, 
he is working for a third side, his own. 
The Kremlin's strategists who did not have to sweat to win 
the parliamentary elections and force Putin's presidential 
victory in parallel will certainly find it hard to believe that 
they may be asked to vacate the Kremlin by polite men in 
uniforms either around VE-Day or the International Children's 
Day--if Putin wins the election in the first round, he will be 
sworn in on May 8, and if in the second round, on May 28. But 
this is possible theoretically. 
"He has no team of his own. The ones he has placed in the 
second echelon is all he has in his personnel reserves," 
Kremlin old-timers insist. But practical experience indicates 
that a team of one's own, just like a sky-high rating, is 
something one can gain in time...
Once they found themselves in mortal peril, the 
ex-president's men have managed to muster forces and prove they 
are the dream team of election managers. But they have never 
been the dream team of economic managers. And once the voting 
is over, Putin just may find it easier and more reliable to run 
the country with the help of his former colleagues. 
But God alone knows Putin's post-election choice. His 
election rhetorics, at least, are indicative of absolutely 


Valerii Virkunen
Interview with Sergei Glazyev,
Chairman of the Duma Committee on Economic Policies and Entrepreneurship
Vek, No. 5 (370) 2000
[translation for personal use only]

Almost immediately after settling in their new Duma offices, some CPRF
deputies began to speak about the legislators' need to correct the mistakes
that occurred in the course of privatization.
- Sergei Yuryevich, would you mind to clarify the meaning of your statement
about the review of the privatization results?
- The most grave consequence of our privatization campaign is the emergence
of a class of property owners that bear no responsibility for the use of
their property. The present owners of enterprises are interested only in
the fastest ways to convert their rights of ownership into liquid assets -
such as cash, securities, real estate at home and abroad. The new owner is
not held responsible for anything. He obtained control over his enterprise
without running into serious expenses, through personal connections with the
godfathers of privatization, who were handing out property on behalf of the
government, with severe violations of the law. As a result, the newly
emerging proprietors view the companies that they acquired often as milking
cows: they expropriate current assets, take credits that they know they
cannot pay back, and end up driving their companies to bankruptcy. In a
healthy market economy, in which a proprietor earns his ownership legally,
he is interested in accruing property and in its efficient use.
<...> When the legality of the ownership rights is questionable, the owner
who ripped it off will hardly invest in its development and strive to
achieve high efficiency. He will rather prefer to squeeze maximum profit out
of it, to launder it and hide it abroad in a reliable place. This is the
principal cause of the colossal capital flight out of Russia, which has been
going on for almost ten years.
Even those industries that are potentially profitable - oil, metals,
chemicals - are virtually bankrupt. As a rule, revenues from the use of the
privatized property were not invested in the development of production, but
circulated in financial speculation and exported abroad. As a result, the
privatization of these industries led to the decrease rather than increase
in efficiency, decline of investment and production.
Not only did the procedure of denationalization that was used create
difficult problems with regard to formation of an efficient property owner,
but it also led to severe organizational consequences. Namely, complex
networks of production and technology were fragmented, which led to colossal
rise in production costs in such comples industries as production of
aircraft. The cooperation among producers became very difficult to achieve,
the links of research and development with production were destroyed. The
remains of previously integrated industries that became independent as a
result of privatization are doomed to looting and decay. <...> Tens of
millions of people who lost their salaries and jobs became victims of this
<...> Meanwhile, the revision of the privatization outcomes has become by
itself a permanent process. Large-scale predators swallow small fish, use
the procedure of bankruptcy to take over the property of small holders. The
institute of temporary property administrators has become a permanent one,
while property holders see their positions as short-term. The program that
we propose is not about revising the results of privatization, it is about
the restoration of legality. We will achieve the ultimate clarity as regards
the legitimacy of property rights, with the purpose of increasing the
efficiency of management in the privatized companies.
<...> Citizens who acquired items of former government property on a legal
basis, must be confident that it will not be confiscated at the discretion
of bureaucrats. At the same time, the violations of the law committed in the
course of privatization ought to be corrected, and those guilty ought to be
punished. With this purpose, we will conduct a review of the privatization
results and will go to court in order to overturn illegal decisions.
- The intentions of the Duma faction that you represent, namely to revise
the privatization results, contradict the statement by Vladimir Putin who
ruled out any new redistribution of property. Does it mean that the
Communists declare their opposition to government policies from the first
days of the new Duma?
- Let me repeat: we demand the restoration of legality. We rely on the
principles of economic efficiency and social justice. I don't think the
Prime Minister is against that. At the same time, I have to observe that so
far the government does not have a ny consistent policy as regards the
management of government property.
- You mentioned the facts of collusion between government agencies and
property owners in the course of privatization. Would you mind specifying
your claim of collusion?
- I am not a judge, therefore I must yield to controlling authorities. As
concluded by the Accounting Chamber, the Ministry of Finance deposited
federal budget funds in the accounts of commercial banks, in the amount of
$603.7 mln., which is virtually equivalent to the sum total of federal
budget revenues from the notorious loans-for-shares auctions.
More than a half of these funds - $337.1 mln. - was deposited in the three
commercial banks that soon became winners in these auctions. In other words,
the government provided a virtually interest-free credit to commercial
banks, so that they be able to buy the juiciest chunks of government
property. Some episodes of the loans-for-shares auctions were recognized as
facts of collusion. The General Prosecutor's Office has enough material to
demonstrate the scale of looting of the national wealth.
- How efficient is government management of its own share of property, for
example in the natural monopolies?
- There is little government management to speak of. Government property is
being managed by people who appointed themselves to their positions and who
seek personal enrichment only. In order to stop the looting of the treasury,
we must increase the personal responsibility of individuals who act on
behalf of the government. To this effect, we have prepared a proposal
package. I hope it will be soon reviewed by the State Duma and by the new


From: "stanislav menshikov" <>
Date: Mon, 7 Feb 2000 

Moscow Tribune
Let Us Be Cautiously Optimistic
February 8, 2000
By Stanislav Menshikov

I liked Mikhail Kasyanov's recent accent on economic and social
predictability as a major factor in the new administration's emerging
medium-term strategy of growth. Among other things, predictability means
creating optimistic business expectations about the ability of the
government to help increase aggregate demand. The recent decision to raise
pensions and wages of government employees will add many billions of
roubles to lagging consumer demand while larger defence expenditure should
give a powerful boost to the ailing machinery and associated industries. An
important psychological barrier was crossed when the traditionally
conservative Finance Ministry finally realised that there were no great
dangers in spending more if growing output was providing more revenue to
the Treasury. The task at hand is to maintain that attitude and keep
business reasonably sure that markets will expand, not shrink.

But a demand policy has to be supported by an active supply policy. Mr.
Kasyanov is right to put his finger on promoting capital investment. The
existing reserve of spare capacity will be adequate for maintaining growth
for some time to come. But only investment in new plant, equipment and
technology will create a sound basis for sustainable medium- and long-term

However, the First Deputy Prime Minister is too optimistic in assuming, as
he did in Davos, that most of new investment should come from outside the
country. "Most" means more than 50 per cent. But statistics presented, for
instance, in the annual UN World Investment Report, indicate that there is
hardly a country on the planet (except for some less developed economies of
Africa) that can boast of foreign direct investment (FDI) exceeding half
of their gross fixed capital formation. The typical figure is between 10
and 25 per cent.

The same goes for former centrally-planned economies. In that category the
largest share was reached in Hungary (an average of 30 per cent) and in
China (in some years it was as high as 25 per cent). Poland and the Czech
Republic were behind averaging respectively 15 and 10 per cent. In Russia
the highest mark was set in 1997 at 8 per cent and has since collapsed. In
the near future, given correct policies, it could rise to 15-20 per cent,
at the most. It would be an excellent result if that happens. In dollar
terms, a good benchmark to be reached in the next five years would be $20
billion per annum, twice as low as in China but more than three times
better than in 1997.

Apart from improving inadequacies of political, legal and other
infrastructure there is the more serious issue of Russia's capacity to
accommodate that level of FDI and the capacity to provide it. So far, the
main interest of transnational companies was centred in oil, metals, 
telecommunications, some food and tobacco. Neither automobiles, aircraft,
machinery and equipment, computers, nor other modern industrial leaders
have attracted foreign investors on a major scales. Also, FDI has been
largely in existing producer facilities rather than in new, greenfield
projects. It looks like the transnationals are more interested in
exploiting the country's mineral resource than in creating strong
competitors. If this trend continues, Russia will have to rely mainly on
domestic sources of investment to build up and modernise its industrial

If growth continues at a satisfactory rate and if domestic financial
markets recover, foreign portfolio investment (FPI) could make an important
additional contribution. In 1997, inward moving FPI amounted to $45.6
billion, seven times as much as direct investment. But portfolio investment
is by nature speculative and unstable. It collapsed to only $8 billion in
1998, contributing to the financial crisis, and to practically zero in

The lesson is that to revive capital investment, internal sources will have
to dominate. According to Goskomstat, gross profits in the economy
(including depreciation), after profit taxes, amount to 30 per cent or more
of GDP. At least a third of this huge amount fled the country last year.
Another fifth goes into financial investment which do not add to GDP.
Enough savings are created inside Russia. The problem is to use it
properly. Inducing domestic capital to stay at home and invest in the real
sector is equivalent to attracting $15 billion in foreign domestic

The government could help by providing direct financial support for
investment in the currently depressed industries, particularly high-tech.
It could also help much more by promoting the long-needed banking reform,
which is at a standstill, and creating a more favourable climate for bank
loans to industry. It should also be very careful in reforming taxes. In
1999, it collected taxes way in excess of what was planned. In January
2000, the same trend continued. Nothing new happened to change the
allegedly negative traditional attitude of Russians towards paying taxes.
Yet, business and individuals are paying much more in taxes than ever
before. Why? Because incomes are rising, barter is shrinking, and it is
therefore EASIER to pay. Changing the tax system at this particular moment
could create a new mess and spoil the current picture. Don't repair an
engine when it is working well. Remember - better is the enemy of good.


February 7, 2000
[translation from RIA Novosti for personal use only]
Nonetheless the Main Presidential Contender Remains the Same 

It seemed at first glance that the political Olympus 
situation has been determined. It turns out, however, that 
accidental changes, including those which can trigger serious 
changes in the popularity ratings of the main presidential 
hopefuls, are still possible. Experts from the All-Russia 
Centre of Public Opinion Studies, or VTsIOM, claim that more 
than half Russians (55%) are not sure that they will vote for 
the candidates whom they regard as most suitable for the post 
of president at present. Part of them (14%) are not sure that 
their present choice is right and 41% say that they can change 
their opinion if something out of the ordinary happens.
Yevgeny Primakov's withdrawal from the presidential race 
is not an astonishing step. However, it will inevitably result 
in changes in the pre-election line-up. To judge by VTsIOM's 
polls, only 38% of the ex-Premier's followers are now going to 
vote for Vladimir Putin, whereas 9% will support Konstantin 
Titov (the Union of Right Forces, or SPS), 8% communist Gennady 
Zyuganov and 6% Yabloko's Grigory Yavlinsky. While these new 
votes do not matter much for Titov (his rating is almost around 
1% at present), the additional percentages will give a 
noticeable boost to Zyuganov's and Yavlinsky's ratings. The 
effect will be stronger if Primakov hints the public that he, 
for his part, is on the side of one of the main contenders.
Primakov's decision is a sudden gift of the fate for 
Yavlinsky. If he succeeds in explaining the voters who are 
going to vote "against all" that the best way to express their 
protest is to vote for him and if he has Primakov's support, 
his election results can be very serious. According to opinion 
polls, today only 1% of Russians are going to vote "against 
all". But as electioneering gains momentum, their number can 
tangibly grow. It is only natural that Yavlinsky will be unable 
to be a serious rival for Zyuganov and Putin. But he will have 
a much higher rating than today's 3% and command the reputation 
of a prominent political leader. To achieve this, however, he 
will have to take into consideration the results of opinion 
polls on the Chechen operation and change his stand on this 
Of great importance for Samara Governor Titov is to have 
assurances of support from the SPS. He cannot expect any 
favours from Primakov. However, he can count on the growth of 
his popularity rating to the level of Vladimir Zhirinovsky, 
thanks to which he would stand out among the mediocre failures 
of the race and acquire the repute of a famous politician on a 
federal level.
The line-up of popularity ratings is to change by the end 
of next week. Putin, who has stayed still at the 58% mark is 
likely to gain 2% to 3%. The present approval ratings of 
Zyuganov (15%) and Yavlinsky (3%) may not grow right away. But 
the sure boost the rating of one of them is to have will show 
who has inherited Primakov's votes.

Putin Zyuganov Primakov Yavlinsky
December 50% 15% 9% 4% 
6-10 56% 18% 8% 3% 
January 14-17 62% 15% 5% 2% 
January 21-24 58% 16% 6% 4% 
January 28-31 58% 15% 6% 3% 

Source: VTsIOM


Date: Mon, 7 Feb 2000 
From: Anatoly Zabolotny <>
Subject: Siberia


The Siberian Civic Initiatives Support Center, a five year old network
of 12 NGO resource centers across the region, has expanded it's
English language web-site to include translations of selected articles
from our quarterly bulletin "The Effect of Being". We believe this
information will be of interest to Westerners involved in studying
democratic transition issues or Russian regional democratic
development. Articles deal with such issues as successful mechanisms for
encouraging transparency in local government spending through
competition and efforts towards stimulating a culture of business
philanthropy. The address is In addition, we
are available to provide or collect information and statistics about
the region on request.

Best regards,
Anatoly Zabolotny
Siberian Civic Initiatives Support Center
off. 702, 57, Karl Marx pr., Novosibirsk,


Russian economic strategy-ask the people first

MOSCOW, Feb 7 (Reuters) - A Russian think tank asked by acting President 
Vladimir Putin to draft an economic reform strategy is taking the unusual 
step of finding out first what people want, NTV television reported on 

It said the Centre for Strategic Research had so far found Russians wanted 
order not dictatorship, echoing statements by Putin, the favourite for the 
March 26 presidential election. 

NTV reported some social scientists working with economists were looking at 
what the nation wanted in more detail. 

``They work on the main question -- determining the values of Russian 
society. The strategy for economic reform will be built around those social 
values, so the nation does not refuse them,'' the commercial network's 
reporter said. 

The head of the think tank, German Gref, is also a first deputy privatisation 
minister and former St Petersburg colleague of Putin. He repeated that there 
were no plans for any kind of dictatorship in Russia, although he gave no 

``If you mean a return to a state system of administration, then of course 
not. Absolutely not,'' Gref told NTV. 

Putin has not offered details of his economic programme but has broadly 
outlined that he favours the free market with a strong role for the state. 


IMF Won't Lend More Money to Russia Without Reforms

Moscow, Feb. 7 (Bloomberg)
-- The International Monetary Fund delayed making further payments to 
Russia, leaving the government of Vladimir Putin to continue struggling to 
pay its debts and finance its war in Chechnya with no external loans. 

The IMF probably won't provide more financing until after the March 26 
Russian presidential election at the earliest, investors said. The fund isn't 
going to risk backing Putin while he's in the middle of a political campaign, 
as it did when it made a loan to Russia in the midst of President Boris 
Yeltsin's 1996 campaign. Yeltsin promised to use IMF funds to fulfill 
campaign promises. 

``The IMF, having been burnt once, is probably being as cautious as they can 
be,'' said Kevin Moore, portfolio manager for the $315 million USAA Emerging 
Markets fund, which has holdings in Russia. ``Politicians tend to promise a 
lot of things.'' 

The fund has delayed payment of a $640 million loan installment since 
September. In November, Managing Director Michel Camdessus said the payment 
was delayed mainly because of pressure by the U.S. and other member nations 
over Russia's war in Chechnya. Before the war started, it was delayed by 
calls for more oversight of Russia's finances following newspaper allegations 
that Russian businesses were laundering money through Western banks. 

Legal Changes 

The fund also has called for legislative changes that probably won't be 
possible until after the election. They include new bankruptcy laws, a bank 
restructuring program and laws to stem capital flight, as well as increased 
collection of cash payments for electricity and natural gas. 

A team of IMF officials last week finished a visit to Moscow to monitor 
Russia's compliance with conditions for receiving the next installment of its 
$4.5 loan agreement signed in July. So far, it has received the initial $640 
million payment. 

Since September, the government has made about $2.2 billion in payments to 
the fund on previous loans. Russian officials said the government and 
parliament must work together to approve laws to meet the IMF's conditions. 

``On some targets we didn't move at all, and on others, very little,'' said 
Alexei Mozhin, Russia's delegate to the IMF, in an interview with Russian 
daily Vremya. ``It is about passing laws. All of these conditions remain and 
we just confirmed we intend to fulfill all of them.'' 

Loan Talks 

Russia plans to resume talks on the loan in April after the presidential 
election, Mozhin said. 

Parliament is considering several laws to prevent capital flight that would 
include registering companies and allowing banks to suspend suspicious 
foreign exchange transactions for five days. 

The IMF praised the government for exceeding macroeconomic targets, including 
economic growth, inflation, and external reserves. 

Russia's gross domestic product expanded 3.2 percent last year after 
contracting 4.6 percent in 1998. The annual inflation rate fell to 36.5 
percent last year, from 84.4 percent in 1998. 

``This positive outcome reflects both prudent fiscal and monetary management 
as well as favorable terms of trade owing to significantly higher energy 
prices,'' the IMF said. 

Much of that progress, however, was a function of higher world oil prices, 
which boosted export revenues. In addition, the ruble's devaluation of more 
than 78 percent over the past 18 months drove up the cost of imported goods, 
helping domestic producers. 

Tax Collection 

Russia boosted collections of tax and customs duties last year by increasing 
tax rates for oil, metals and gas exporters. 

The government must depend on its own revenue to cover about $3 billion in 
foreign debt payments in the first quarter without new loans. Central bank 
reserves totaled $13.1 billion on Jan. 28. 

The IMF recommended the government seek financing from commercial banks and 
``non-bank sources'' to cover its budget deficit, rather than borrowing from 
the central bank ``in order not to strain the central bank's capacity to 
manage liquidity in the economy.'' 

The government plans to borrow from the central bank in March to cover the 
budget deficit, Russian news agency Interfax reported citing Finance Minister 
Mikhail Kasyanov. 

Russia will pay the IMF $200 million tomorrow in payments on previous loans, 
the agency said. Russia paid the IMF $434.7 million in January. 

Russia is due to pay the IMF $640 million in February. The government's total 
debt to the IMF is about $15 billion 


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