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Johnson's Russia List


March 29, 2000    
This Date's Issues: 4206  4207   4208

Johnson's Russia List
29 March 2000

[Note from David Johnson:
1. AFP: Albright calls for broader relationship with Russia under 

2. Bloomberg: Putin's Next Cabinet to Include Kasyanov, Kudrin, 
Paper Says.

3. Reuters: Gareth Jones, Putin quietly weighing up foreign 

4. Washington Post: Leon Aron, Putin's Order of the Day.
5. Moscow Times: Yulia Latynina, How Much The Elections Actually 

6. Itar-Tass: Duma to Look at Monopolism in Aluminum Industry.
7. Rossiiskaya Gazeta: Vladimir Lapsky, LEADER FOR A "GROWN-UP 

8. The Russia Journal: Ekaterina Larina, Katya’s kitchen table.
(political rumors)
9. Ed Crane: Federal State and Intersectoral Balance.
10. Vlad Ivanenko: Re: Stratfor/Putin's Plans for Russia.
11. Jonathan Weiler: Research request re aid.
12. : Andrei Stepanov, Tax Minister Pins Hopes on 
Cypriot Money.


14. Izvestia: Svetlana Babayeva, FORTUNE-TELLING IN THE KREMLIN 
CUP. Deliberations About the New Cabinet of Ministers.]


Albright calls for broader relationship with Russia under Putin

NEW ORLEANS, Louisiana, March 28 (AFP) - 
US Secretary of State Madeleine Albright called Tuesday for expanding ties 
with Russia following the weekend election of Vladimir Putin as president.

Albright, in an interview with AFP en route to a meeting with Caribbean 
foreign ministers here, said Putin's election represented a chance to heal 
wounds in Washington-Moscow relations that have soured since last year's NATO 
bombing of Serbia.

And, she said, it removed Moscow's pre-occupation with the vote that had 
slowed down a rapprochement.

"We were in a period when they were focused on something else and I think 
that now it's time to get down to work," she said, specifically noting talks 
on nuclear arms reduction and possibly amending the Anti-Ballistic Missile 
treaty to allow for a proposed US national missile defense system.

Putin had made clear to US officials, including the secretary and her top 
deputy, Strobe Talbott, that he was open to discussion on the ABM treaty, 
amendments to which Moscow has long been suspicious of and opposed to.

"He has made evident that they are open for discussions ... the question is 
whether we will come to an agreement," Albright said.

"That's something else, but there will certainly be a fairly intense dialogue 
that was difficult during the interregnum," she said, referring to the period 
between former President Boris Yeltsin's surprise New Year's Eve resignation 
and his appointment of Putin to be acting president pending the poll.

"I think they're more open for business," Albright said, adding that she 
hoped Putin would be able to push the Russian parliament to ratify after long 
delays the START II strategic arms reduction pact.

She predicted that relations between Washington and Moscow led by Putin would 
be "very businesslike."

"It seems to me he (Putin) has a very straightforward working style," she 
said, stressing that the United States would continue to watch Putin as he 
negotiated Russia's severe economic problems, its actions in Chechnya and 
made rule of law improvements.

In addition to dealing with Putin, Albright said she would like to see the 
United States step up its ties with individual Duma members as well as local 
and provincial Russian officials.

"There are people who feel more and more that the Duma is quite a serious 
place and we need to have more relationships with the Duma," she said. "I 
would like to broaden our relationships.

"I think that we need to really to deal more with governors, deal more with 
the Duma and a whole host of other officials," she said.

"They have a more varied spectrum and we need to deal with them."


Putin's Next Cabinet to Include Kasyanov, Kudrin, Paper Says

Moscow, March 29 (Bloomberg)
-- The following is based on a document from Russia's presidential 
administration, published by Kommersant newspaper, on plans for the new 
cabinet. The newspaper said it obtained the document, without citing a 
source. President- Elect Vladimir Putin says he'll name the new cabinet in 

Deputy Prime Minister and Finance Minister Mikhail Kasyanov will be appointed 
prime minister. Alexei Kudrin, first deputy finance minister, will become 
first deputy prime minister. Minister of Agriculture and Food Alexei Gordeev 
will be nominated one of four vice ministers, responsible for agricultural 

The other three vice ministers will be Health Minister Yuri Shevchenko, who 
will manage social policy, Communication Minister Leonid Reiman, who will 
coordinate science and technology and Deputy Prime Minister Ilya Klebanov, 
who will be in charge of industry policy. 

German Gref, deputy property minister and director of a center that is 
helping develop Putin's economic program, will be nominated economics 
minister. Viktor Khristenko will become finance minister and Sergei Ivanov 
will be appointed interior minister. The rest of the members of the present 
cabinet will keep their posts in the future government, paper says. 


ANALYSIS-Putin quietly weighing up foreign invitations
By Gareth Jones

MOSCOW, March 29 (Reuters) - Vladimir Putin says he loves to travel and he 
certainly has plenty of invitations in his in-tray since his victory in 
Russia's weekend presidential election. 

The former KGB agent is barred from leaving the country until after his 
inauguration in early May because he holds the posts of both head of state 
and head of government. He is expected to name a prime minister only after 
the inauguration. 

But this has not stopped frenzied speculation about where he might go first 
and about what his choice might suggest about Russia's course under its 
forceful but enigmatic new leader. 

``This is not a beauty contest, `` said one senior Western diplomat based in 
Moscow. ``But where he goes first still matters because it will be a 
conscious decision on his part reflecting his priorities.'' 

Putin has standing invitations to visit all of Russia's most important 
foreign partners, which include China, India, Japan, Britain, Germany, France 
and the United States. He has also been invited to several former Soviet 

``I would expect him to try and touch all the main bases before the summer 
break,'' said the senior diplomat. 

The Kremlin is remaining tight-lipped for now. 

``No foreign trips are planned for the time being,'' a spokesman said. 


The only firm foreign engagement in Putin's diary is the annual summit of the 
Group of Eight nations -- the world's seven biggest economies plus Russia -- 
on the southern Japanese island of Okinawa on July 21-23. 

One European diplomat said Putin might deliberately not travel abroad until 
Okinawa to meet the heads of the G7 nations all at once and so avoid showing 
early favouritism to any of them. The G7 embraces the United States, Japan, 
Germany, Britain, France, Italy and Canada. 

Putin's predecessor and patron, Boris Yeltsin, pushed hard for membership of 
the elite capitalist club to prove that Moscow had made an irrevocable break 
with its Communist past, even though Russia's economy is far smaller than 
those of the other seven. 

Putin is expected to be less concerned with such grand symbolic gestures than 
Yeltsin and more focused on promoting Russia's economic interests on the 
international stage. 

But the Okinawa summit will provide a useful forum for Putin to get across 
his message that Russia has finally started opening up its economy for much 
needed foreign investment -- if that is indeed what has started to happen by 


Putin, 47, is the first Kremlin leader since Soviet state founder Vladimir 
Lenin to have spent any lengthy period of time abroad. He lived five years in 
East Germany and speaks fluent German. 

``Putin is genuinely interested in foreign policy. Since he became acting 
president he has spent a lot of time with foreign representatives and 
visitors. There is a sense of real engagement,'' said one Western diplomat. 

On Tuesday, German Chancellor Gerhard Schroeder discussed with Putin the 
prospects for holding their annual bilateral German-Russian summit but no 
date was announced. 

The press spokesman for Germany's embassy in Moscow, Hansjoerg Haber, told 
Reuters the summit had initially been planned for January or February but had 
been postponed after Yeltsin's shock resignation on New Year's Eve triggered 
Russia's early election. 

``We still have to agree a new timetable,'' Haber said. 

But although Germany is Russia's biggest creditor and traditionally its 
closest Western partner, political analysts said Putin had been irked by its 
strong criticism of Moscow's six-month military campaign against rebels in 

Boris Makarenko of the Centre of Political Technologies said Putin might 
travel to London before Berlin to build on a good personal rapport with 
British Prime Minister Tony Blair. 


Blair became the first, and so far only, Western leader to have met Putin 
since he became acting president, paying a brief trip to Putin's home city of 
St Petersburg earlier this month. 

Blair hailed Putin as a man the West could do business with, echoing a 
similar tribute paid by former British prime minister Margaret Thatcher to 
Soviet leader Mikhail Gorbachev in 1985. 

``You must remember that British Foreign Secretary Robin Cook and another 
Briton, NATO's Secretary-General Lord Robertson, have also met Putin in the 
past couple of months. Putin could see Britain as his bridge into Europe,'' 
said Makarenko. 

Analysts said Putin might be seeking to exploit Britain's occasionally 
ambivalent attitude to the European Union to draw other EU nations into 
closer dialogue. He also appreciates Britain's traditional role as 
Washington's closest ally in Europe, especially in this year of a U.S. 
presidential election. 

Blair was the first Western leader to congratulate Putin after Sunday's 
election victory. Russian television took the unusual step of showing Putin 
speaking by telephone with Blair, whom he addressed as Tony. 

Analysts added the caveat that Putin might well decide to visit China rather 
than any European capital if the Council of Europe decided at a planned 
session next month to suspend Russia over its alleged human rights abuses in 


Washington Post
29 March 2000
[for personal use only]
Putin's Order of the Day
By Leon Aron
Leon Aron, a resident scholar at the American Enterprise Institute, is the 
author of "Yeltsin: a Revolutionary Life." 

As Russia's new leader, Vladimir Putin faces a fundamental and unavoidable 
choice, one that will be at least as fateful as the one made by the Russians 
almost four years ago, when they gave Boris Yeltsin the victory over the 
Communist Party leader Gennady Zyuganov. He must choose between alternative 
means of bringing "order" and normalcy to Russia.

After 8 1/2 years, Boris Yeltsin--who inherited a decaying, impoverished, 
thoroughly corrupt totalitarian state--leaves behind a Russia that is by far 
the freest, most tolerant, liberal and open to the outside world of any time 
in its history, save the eight months between February and November 1917. But 
Yeltsin did not remake the system into an efficient, equitable, orderly, 
upright or stable one. Dismantling a totalitarian state is much like an 
earthquake, in that it leaves behind deep ravines and ugly piles of debris in 
the political and economic landscape. If Russia is to become prosperous, 
stable and respectable, this terrain must be made safe.

One way to do this is to pour concrete from above. Russian history is replete 
with attempts (often lasting for decades) to achieve "order" and "unity" by 
expanding the state's control over society and retrieving the instruments of 
authoritarian coercion and mobilization, which have been significantly dulled 
under Yeltsin. Moreover, there is a strong national tradition of 
longing--when everything else fails--for the honest policeman, smart, 
energetic and incorruptible.

The alternative route lies in continuing Yeltsin's policy of granting society 
partnership with the state, allowing the shoots of self-government that have 
begun to break through enough space and oxygen to develop strong roots. This 
is the path that will lead to lasting, organic stability, based on consent 
and consensus--for the first time in Russian history.

In politics, the choice is between tightening the screws (limiting freedom of 
the press; restricting regional autonomy; appointing, rather than electing, 
provincial governors) and continuation of crude, bare-bones yet real 
democracy and federalism (a press free from government censorship, the 
acquisition of power solely through free elections and real choices before 
the voters, and election of all local leaders).

In the economy, the options are putting "oligarchs" in jail by extra-legal 
procedures and kangaroo trials--or putting them out of business by depriving 
them of access to high political offices and separating political and 
economic power. Similarly, the Kremlin could try to stem the flight of 
capital from Russia by suppressing the free flow of money across Russian 
borders--or by ensuring that keeping money in Russian banks is safe and 
profitable. This would require overhauling banking regulations, rescinding 
confiscatory taxes and allowing foreign banks to compete with Russian 
financial institutions.

Given his KGB background and the national tradition, Putin's initial impulse 
is almost certain to be in the direction of a police renaissance, like the 
one that occurred during the brief rule of Yuri Andropov. He should beware, 
however, of misinterpreting his mandate. Russians, like voters everywhere, 
are capable of holding seemingly contradictory views. Their yearning for 
order and stability--nostalgia for pre-1991--is not unlike that of East 
Germans, only a third of whom, in a poll last year, said they liked living in 
a democracy. Every seventh wanted the Berlin Wall back. 

Yet in every poll in which Russians have been asked if they would sacrifice 
the key political and personal liberties (such as freedom to publish, to 
travel abroad, to form opposition parties, to hold meetings and 
demonstrations, or to criticize the authorities) the answer of a clear 
majority has been no. The Russians want order but not a dictatorship nor even 
creeping authoritarianism.

The ability to see the difference and maneuver accordingly will be a test of 
Putin's political instinct and statesmanship. An even more important test 
will be the ability of Russian civil society to resist, slow down and reverse 
encroachment on political and economic liberties. We will know soon whether 8 
1/2 years of liberty under Yeltsin were only a bright interlude--or the 
beginning of a new era in Russian history. 


Moscow Times
March 29, 2000 
INSIDE RUSSIA: How Much The Elections Actually Cost 
By Yulia Latynina 

The presidential elections have concluded with a happy ending, of which no 
one had any doubt. But one question remains: How much did these elections 

At first glance, not much. There's no comparison with the cost of U.S. 
election campaigns. 

According to experts, Grigory Yavlinsky's campaign cost him from $15 million 
to $20 million; Vladimir Putin's - $10 million; and Gennady Zyuganov's - $3 
million to $4 million. 

But do those figures include all election costs? No. 

In addition to the monetary resources spent on the Russian elections, there's 
the important point of costs for administrative resources. 

Take, for example, Putin's "official" flight to Grozny on an Su-27. 

Let's suppose that Putin had to pay for the fuel, the pilot's services, 
television time - for that flight alone, he would have had to pay more money 
than was in his official coffers. 

In Russia, there are two types of pre-election expenditures: cash from 
various sources, and money that candidates save by using administrative 

But there's yet a third type of expenditure, the most important: bits of 
property that the authorities give to sponsors. 

For example, in November 1999, the All Russia bloc was created, with LUKoil 
considered its sponsor. But after the government got rid of the former 
president of the oil company Transneft and named as its head Semyon 
Vainshtok, one of the top managers of LUKoil, LUKoil didn't finance All 

At first glance, the elections cost only kopeks, some $10 million to $20 
million. But if you add in administrative currency, you get a totally 
different picture. 

Of the $170 billion gross domestic product, 6 percent to 7 percent of that 
has been spent on elections in various ways - with state companies changing 
directors; with private companies changing owners; with loans given to the 
"right" governors; and with taxes forgiven to the "right" corporations. 

The volume of resources that the opposition can mobilize can't even approach 
the volume of resources that the state can mobilize. You can talk all you 
want about how much money Moscow Mayor Yury Luzhkov has; but there's no way 
Luzhkov can shuffle the presidents of Transneft. 

The main difference between Russian democracy and Western democracy is this: 
In the West, only funds legally held in election coffers are used; but in 
Russia, elections are paid for primarily by using administrative currency. 
This is the mechanism that guarantees the hereditary succession of power. 

On the one hand, that's good. There is nothing worse than revolutions and the 
bloody partitioning of property, no matter what they might be called: 
revolts, elections or the fight against corruption. 

On the other hand, that's bad. Because if you look closely at the economic 
features of this leadership, it's hard to find even one that looks 

Yulia Latynina writes for Segodnya. 


Duma to Look at Monopolism in Aluminum Industry. .

MOSCOW, March 28 (Itar-Tass) - The State Duma lower house of parliament is 
preparing an inquiry to the government asking about concentration of properly 
on the aluminum industry, the chairman of the Duma's economic policy and 
enterprise committee, Sergei Glazyev, said. 

He said the Duma will review the inquiry on Wednesday. Glazyev said at 
parliamentary hearings on Tuesday that Russia's anti-monopolism law base 
"thus far is not at a proper level, is imperfect, chaotic". 

"The core of the economic policy of the state is to support competition, 
regulate the activity of natural monopolies and protect interests of 
consumers," Glazyev said. 

He described as the most acute problem "pressure exerted by monopoly 
structures on prices," triggering their growth on the raw material market. 

"Russia should become a country of conscientious competition", the minister 
for the anti-monopoly policy and support of enterprise, Ilya Yuzhanov said in 
his report at the hearings. 

He said the state must not take part in commercial deals, as this is a 
"source of corruption and growth of oligarchism". 

Yuzhanov admitted "serious problems in the field of the activity of natural 

He said it is easier for large monopolies "to violate the law and pay a fine 
than abide with the law". 

Yuzhanov said enactment of a passed law on protection of competition on 
financial markets had been meeting with a "very serious resistance" of the 
Central Bank of Russia and the Federal Security Markets Commission. 


Rossiiskaya Gazeta
March 29, 2000
[translation from RIA Novosti for personal use only]
By Vladimir LAPSKY

It seems that so much has not been written about Russia in 
the past few years as now. It is important that for the first 
time in Russian history the absolute honesty and transparence 
of the presidential election is emphasized. This circumstance 
will give ground to foreign leaders to feel more trust for 
Vladimir Putin.
What are the reasons of Putin's convincing victory in the 
West's opinion? Russians are sick and tired of slowness and 
even inactivity of authorities in the implementation of 
reforms. They are tried of their deteriorating material and 
moral condition, crime and corruption. Putin went to the 
election promising to develop a liberal economy and conduct an 
open foreign policy.
What appeals in particular to the Western watchers of Russia is 
that its President-elect is very far from both political 
romanticism and "power extremes," autocracy. He is a realist 
and a pragmatist who warns his fellow-citizens against pinning 
hopes on miracles.
Foreign commentators say in unison that Russia has entered 
a new era. In the previous decade Western leaders communicated 
with Moscow mostly through Boris Yeltsin and his small inner 
circle. Yeltsin was the most pro-West leader in the history of 
Russia. Putin is different. The West is to understand that from 
now on it should not orient itself to one and only leader or 
elite but will have to deal with some whom it actually ignored 
up to now: deputies of people's bodies of government at all the 
levels, conservatives and members of the artistic and technical 
intelligentsia. From now the West has to regard Russia as a 
"grown-up nation" and understand the threat which it feels in 
connection, for instance, with the events in the Caucasus or 
NATO Eastward expansion, Financial Times commentator John Lloyd 
Though foreign commentators keep writing that Putin keeps 
his foreign policy secret, they offer quite a few ideas how 
such a policy can be shaped. The West hardly doubts that the 
first changes will affect Moscow's relations with Washington 
and Brussels, which is the venue of the NATO Headquarters. 
Foreign observers are sure that Russia expects to be treated as 
an equal partner, does not recognize an uni-polar world in 
which the Americans set the tune, and intends to restore its 
former grandeur. All this is confirmed by the steps and new 
intonations of Russian diplomats lately.
Putin has left no doubt that economics will be his top 
priority. Though he has not submitted a comprehensive economic 
program but only laid down its separate and isolated precepts, 
it is, nonetheless, clear that economics will be his main 
concern and, probably, his biggest headache.
The West has paid attention to the fact that the Russian 
President promises to defend the rights of foreign investors, 
to determine strict and sensible regulations obligatory for 
According to The Wall Street Journal, the Russian 
President has inherited a legal system, which has grown rotten 
all through, and he will need a strong mop to clear the logjam 
of laws the fulfilment of which has been frozen, the cynicism 
of bureaucratic managers and millions of complaints from 
ordinary Russians.
Russia does not have an effective court system, and Putin is 
confronted by an equally difficult and necessary task to 
restore law and order in his country. He has promised to do 
this and, as foreign commentators say, the will and courage he 
displayed up to now give hope for success.
Numerous suppositions are also made in connection with 
Putin's steps in the defense sphere. I do not think that the 
West is interested in a strong Russian army with nuclear 
missile silos - NATO countries would rather prefer a different 
Nonetheless, they presume that Putin is inclined to carry out 
deep military reforms and increase spending for the upkeep of 
the brass and the development of the defense industry complex. 
What is more, he will pursue a course to the creation of a 
professional army in the future.
Western capitals have notices that Russians have been 
talking more frequently lately of their country's grandeur and 
tremendous economic potential. It is obvious that Russians have 
acquired an acute sense of national dignity. This feeling is to 
prompt them that Russia badly needs reforms. In addition, there 
is a growing conviction that the formula of the successful 
reforms should be found at home, rather than in London, 
Washington, Berlin or Tokyo.


The Russia Journal
March 28, 2000
Katya’s kitchen table
By Ekaterina Larina

Opinion on Putin’s sources of support, suspected fraud in a pre-election poll 
and the new struggles for influence as three duma clands battle to keep their 
places after the election. 

Lebed vs. Putin 

Rumor has it that, long before a date was set for the presidential election, 
acting President Vladimir Putin's victory was assured by the 10 percent of 
the vote delivered via "the governors’ resources," whatever the fluctuations 
in support for him.

Indeed, conventional wisdom was that, given Putin's unassailable lead, the 
governors would have no option other than to clamber over each other in an 
effort to display their loyalty to Putin – by delivering a strong vote to the 
acting president in order to guarantee their own futures. 

Naturally, there would be some who would not follow this line, namely Samara 
Governor and presidential candidate Konstantin Titov and the regions run by 
the Communist Party. But there were also suggestions that opposition would 
come from unexpected quarters. 

One source of this was Krasnoyarsk Gov. Alexander Lebed. It has not gone 
unnoticed by political observers that Gen. Lebed had dropped out both as a 
newsmaker and even as a commentator on the Russian political scene. Sources 
say Lebed has been somewhat depressed since Putin's rise as prime minister 
and his subsequent ascension to the presidency after Boris Yeltsin's dramatic 
resignation effectively ended Lebed's Napoleonic dreams.

The same sources say Lebed will not pass up the opportunity to belittle Putin 
by diminishing the acting president's result in the Krasnoyarsk region.

Savostyanov's supporters couldn't get through …

The decision last Tuesday night by liberal presidential candidate Yevgeny 
Savostyanov to bow out of the race in favor of Yabloko leader Grigory 
Yavlinsky on NTV Television's "Vox Populi" program was contrived for 
publicity purposes, sources say.

But some people felt the whole event was over the top, even disingenuous, 
particularly in relation to the interactive poll organized by NTV to gauge 
support for the democratic candidates, Yavlinsky, Titov and Savostyanov. 

Three phone numbers were offered on "Vox Populi," one for each candidate, 
which viewers could call to register their support for one of the contenders.

Normally, the technology used in such polls ensures a telephone call is 
registered immediately in order to free up lines for other people trying to 
ring in. However, in this case, witnesses said they made repeatedly 
unsuccessful attempts to call through to Savostyanov's and Titov's numbers, 
constantly finding the line busy. 

Meanwhile, political observers checking the system found that when they tried 
Yavlinsky's number, they got through immediately and were registered with no 

The struggle for influence

Although the Russian political landscape was relatively boring in the days 
leading up to the presidential election, insiders say intense subterranean 
battles have been taking place. Indeed, one of the most savage, they say, had 
been going on in the camp of the likely winner, Vladimir Putin.

The source of the disputes arises from there being at least three clans 
inside the presidential administration. Putin inherited two of them from 
Yeltsin. These include Alpha Group affiliates and those tied to notorious 
tycoons Roman Abramovich and Boris Berezovsky, comprising what has became 
known as "The Family." 

A third group, though, is growing rapidly, developing in both weight and 
influence. These are people who have been personally invited to join the 
Kremlin by Putin, the majority of whom hail from St. Petersburg.

The backdrop to these struggles is the widespread perception that the moment 
Putin was confirmed as president by popular vote, the great cleansing 
campaign of insiders would begin in the Kremlin. Given this threat hanging 
over their heads, both the Alfa people and "The Family" are gearing up for a 
battle to discredit each other.

Berezovsky's team will use its media resources to compromise the Alfa Group 
by linking it to doubtful projects and dramatically exposing a huge story 
about Alfa's role in the daily affairs of the Kremlin.

Meanwhile, for its part, Alfa will be pulling out all stops to make itself 
indispensable to the president. Rumor has it Alfa is the main channel for the 
Kremlin's control over the Duma through its direct financing of a significant 
section of parliamentary deputies with cash, so it does have an important 

But some observers suggest that all these intrigues will be of little 
consequence and will end once Putin begins to enact his promise to bring 
order to the government. They say the political capital gained among the 
public from such a move could well outweigh the benefits of having each 
influential oligarch and tycoon prostrating himself before the president.

An anecdote currently doing the rounds has a Yeltsin aide in December. 99, 
announcing the oligarchs are there to see him. "Have them come in," Yeltsin 
says. Half a year later, an aide informs Putin the oligarchs are there. "Have 
them marched in," he says.

Ekaterina Larina is assistant editor of the Russia Journal.
(E-mail Katya at


Date: Tue, 28 Mar 2000 
From: Ed Crane <>
Subject: Re Straus 4203-10

Federal State and Intersectoral Balance 

The Straus comments (4203-10) on federalism of checks and balances are
important, and deserve to be complimented in another dimension, of
intersectoral balance among state, economy and society. Putin has said that
the strong Presidency should be balanced, not by an independent Duma, but
by a strong civil society. In fact, both will be necessary if the Russian
system is to be effective and sustainable--democratic representation (real
parties) and civil participation (self-organizin groups). In fact, Russia
will need a dynamic intersectoral triad at the base--local government
(local councils), NGOs, small business. Creating the "enabling environment"
and engaging in "capacity-building" for this base will require top-down
support (stimulation, not control), and new international partnerships, a
very "iffy" prospect. Foundations alone cannot do this work. 

Ed Crane, Academy on Civil Society


Date: Tue, 28 Mar 2000 
From: Vlad Ivanenko <>
Subject: Re: Stratfor/Putin's Plans for Russia

The commentary on Russia's election by Stratfor (JRL 4204-10) appears to
infer statements that should be better described as assumptions. I like to
point out two of them

1) "A free market is possible only where there are property rights,
possible only when a legal system can enforce claims. Russia has been
unable to implement such a system."
In fact, property is technically secure when the owner can appropriate the
stream of income that it generates and he is able to capitalize on that
stream (to get a discounted present value of this stream). The Western
system, to which the author(s) alludes, is a special case of impersonal
property rights. Russia appears to have a system of personalized
ownership, which may be inferior to the Western variant but is still quite
adaptive to free market.

2) "The central problem facing Russia is the need to transform vast pools
of money into investment capital. Much of the money was directed out of
Russia; much of the rest was used to purchase and maintain a system of
political protection. Investments in media, real estate and luxury goods
were central."
I fail to see how the spending on real estate and luxury is related to the
system of political protection (maybe, Veblen's conspicuous consumption as
a signalling device?). Yet, the question of why investments do not come
may have a different answer. Britain was unable to restructure its
industry in 1930s because it had accumulated too much of obsolete but
operational capital in the previous period. Until that stock of capital
became exhausted, there was no rationale to invest in new technologies.
After technological adaptation did happen in leapfrogging manner. My
impression is that Russia has started to invest in new technologies in the
last few years because old capital became useless. Thus, there might be no
problem at all and time can be quite on Putin's side in this respect.

Vlad Ivanenko, PhD candidate in economics
University of Western Ontario


Date: Tue, 28 Mar 2000 
From: Jonathan Weiler <> 
Subject: Research request re aid.

I am currently doing some research on Civil Society and NGO development in
Russia, and was wondering if anyone could tell me where I might find
information on the level of funding provided by major donors to Russia
since 1992, by year if possible. I am particularly interested in the
numbers for USAID and its affiliates; Soros and the EU. Also, is the
data broken down into assistance for non-commercial NGOs vs. funding for
facilitation of economic privatization and other aspects of economic

Any help in this matter would be greatly appreciated. 


March 28, 2000
Tax Minister Pins Hopes on Cypriot Money
By Andrei Stepanov

Russia’s Tax Minister Alexander Pochinok has delivered a speech to the upper 
chamber of the Russian parliament in which he revealed some sensational 
facts: every third dollar of foreign capital invested in Russia comes from 
offshore accounts in Cyprus. The Russian Government intends to protect these 
investments and radical tax reform is being prepared. 

So far the Cypriots themselves have invested only several million 
dollars in Russia, while $3 billion of investment is from Cypriot registered 
firms belonging to Russian businessmen. In other words Russian cash is 
flowing home from abroad concealed as foreign investment. 

Pochinok said that it is necessary to create conditions under which 
foreign investments in Russia could increase significantly. To achieve the 
set goals by April 1st the government will introduce a package of amendments 
aimed at changing the basis of taxation policy. As from next year the tax on 
turnover will be cancelled completely. 

The government also plans to introduce changes to income tax 
regulations so that the tax authorities will not have to hunt down highly 
paid employees, on the contrary, the latter will benefit from being paid not 
in ‘black-cash’ (in an envelope), but through direct payment into bank 
accounts, making their earnings transparent. 

The prospective and, undoubtedly, revolutionary measures are conceived 
to preserve the present trend towards economic growth and to lay the 
foundation for the refurbishment of the means of production, says Pochinok. 
According to the figures in Pochinok’s statement, the GDP (Gross Domestic 
Product) for 2000 might amount to 6 trillion rubles , thanks to the low rate 
of inflation, 18% p.a., and a low currency exchange rate. Russia’s GDP was 
the same in 1997; it amounted to approximately $200 billion then. In other 
words, according to Tax Minister’s estimates, this year Russia will 
successfully overcome the current general crisis. 

However, it is difficult to explain Pochinok’s strange behavior; all 
of a sudden he has changed his attitude towards offshore capital and its 
influence upon the Russian economy. It might be explained by the fact that 
the election campaign is over and now the new government will be formed. 

The conditions have changed drastically and, in the view of the 
competition amongst apparachiks’ (top level bureaucrats) to gain posts in the 
new government, Pochinok will not benefit from referring to his earlier 
initiatives. For example, his earlier proposal to introduce amendments to the 
securities’ regulations which, should they be approved, would demand security 
holders to declare their ownership and thus disclose incomes, or his 
initiative to get rid of banking secrecy and to introduce overall control of 
salaries paid in cash to avoid income tax. Of course, Pochinok will gain a 
lot more by being the first to reveal the real source of foreign investment, 
let alone the unprecedented growth in GDP. Vladimir Putin would be especially 
glad to hear about that GDP growth, for the economic policy he strives to 
implement stipulates a 10% growth in GDP. 

It is quite possible that another reason for the abrupt change in the 
Tax Minister’s way of thinking is the undisguised failure of his earlier 
initiatives. The enforcement of securities ownership declaration is 
admittedly unfeasible, the abolition of bank secrecy would further drain 
capital from Russia, and the brilliant earlier ideas of salaries’ control, if 
implemented would deprive the country of its most precious human resources. 

Incidentally, the idea of gaining tax profits from the Cyprus offshore 
funds is also very likely to fail, for even though the ‘Cypriotes’ have 
invested $3 billion in Russia, they have also exported an estimated $10 


Date: Tue, 28 Mar 2000 
From: "stanislav menshikov" <> 

Dear David,

I am forwarding a set of Recommendations on Economic Policy for Russia that
have been compiled by a joint group of US and Russian economists. They will
be published later this year as a chapter of a new book by Stanford
University Press.
The full text of the Recommendations is too large to place on the JRL and
can be found on in the FORUM section. A short
version follows

Comments are very welcome.
Stanislav Menshikov,


Following is an economic policy agenda for Russia prepared by Marshall
Pomer, President, Macroeconomic Policy Institute, Santa Cruz, California
( in consultation with the Joint US-Russia Economic
Transition Group (ETG, or Transecon). The first draft was some time ago,
but it has been revised lately in consultation with Dmitry Lvov, head of
the Economic Department, Russian Academy of Sciences (RAS)
(, and Alexander Nekipelov, Director, Institute of
International Economic and Political Studies (IEPS)
(, both in Moscow.

ETG is an informal network of Russian and American economists established
to facilitate sharing of ideas about economic transition in Russia. 

The recommendations are slated to be the last chapter of book edited by
Marshall Pomer and Lawrence Klein ( and to be
published later this year. The publisher, Stanford University Press, has
prepared the following description:

Economic Transition Reconsidered

Edited by Lawrence R. Klein and Marshall Pomer
Foreword by Mikhail Gorbachev, Preface by Joseph E. Stiglitz

This book has an unpopular message: the West has played a pivotal role in
the Russian economic disaster of the 1990s. Western advisors, including the
International Monetary Fund and the U.S. Treasury, applied a narrow
conception of economics that pushed Russia, after more than seventy years
of communism, toward another failed utopia.

The twenty-three contributions to this book are divided into three parts:
theory, evidence, and policy. Part One directly challenges orthodox
economic theory for obscuring the necessary role of government in creating
and sustaining a market system and features essays by three Nobel laureates
in economics-Kenneth J. Arrow, Lawrence R. Klein, and James Tobin. Part Two
describes the dimensions of the economic crisis in Russia and presents a
Russian perspective on the failure of the West's shock therapy. Part Three
presents policy recommendations, with special attention given to improving
the integrity and administrative competence of the Russian government.

Lawrence R. Klein , who won the Nobel Prize in economics in 1980, is
Professor of Economics at the University of Pennsylvania. Among his many
books is The Economics of Supply and Demand. 

Marshall Pomer is President of the Macroeconomic Policy Institute, Santa
Cruz, California. He is the author of Intergenerational Occupational
Mobility in the United States: A Segmentation Perspective.

An extract from the Chapter on Policy Recommendations follows.

Specific Recommendations

Progress toward the following goals would improve the environment for
private enterprise in Russia and yield a distribution of economic benefits
more compatible with stable democracy:

(1) Augment government capacity.
Upgrade the ability of the Russian government to fashion and implement
economic policies.

(2) De-criminalize the economy.
Stem corruption, combat organized crime, and improve the legal and moral

(3) Promote growth.
Establish a favorable macroeconomic context.

(4) Ensure equity.
Implement social requirements for a democratic market system.

(5) Expedite restructuring.
Address industrial policy and other issues bearing on the creation of a
modern market economy.

3. Promote growth.

Expansionary macroeconomic policy is needed to create employment and reduce
overdependence on exports of unprocessed or minimally processed raw
materials. Investment Stimulus would enhance demand and improve
productivity. Overly zealous campaigns against Inflation would be
counterproductive. Restrictions on capital flows can help moderate Interest
Rates. Trade Policy and Exchange Rates should be oriented toward promoting
exports and diminishing imports. Until Financial Institutions grow in
assets and become oriented toward financing expansion of business,
government must be the dominant source of investment.

Investment Stimulus

3.1 Launch a major public investment program in infrastructure for
transporting Russian goods, including storage facilities for farm produce
now subject to high rates of spoilage.

3.2 Provide technical and marketing assistance to help local governments
market development bonds for water, sanitation, and other infrastructure.

3.3 Establish an autonomous self-financing mortgage agency (Home Mortgage
Agency) both to provide home mortgages and to purchase such mortgages from
original lenders.

3.4 Tailor tax codes to encourage investment in new facilities and
technology by Russian and foreign investors.

3.5 Discourage foreign aid in the form of credits for the purchases of
foreign goods, except for purchases of investments goods leading to
upgraded technology. (See Industrial Policy.)

3.6 Welcome foreign aid that raises investment in Russian production
(finance for investment projects and guarantees for foreign investors) and
infrastructure (risk insurance and interest subsidies for development


3.7 Do not attempt immediate dis-inflation, and temper anti-inflation
efforts once the annual rate is below 20 percent. (See Tax Compliance and
Public Finance.)

3.8 Regulate price increases or fund alternative supplies in order to
counter monopolistic sources of inflation. (See Price Regulation.)

Interest Rates

3.9 Increase hard-currency reserves to strengthen confidence in the
ability of the Russian government to service its foreign-held debt. (See
Trade Policy and Exchange Rates.)

3.10 Lengthen the average term of government debt to discourage runs on the

3.11 Tighten controls on capital flight and enforce severe penalties,
including seizure of assets.

Trade Policy and Exchange Rates

3.12 Introduce a tax on currency conversion (Tobin Tax) to dampen
volatility of short-term capital flows and to reduce hoarding of foreign

3.13 Let the ruble float. Do not establish a fixed exchange rate but allow
moderate use of hard currency reserves to manage temporary exchange rate

3.14 Provide judicious, temporary tariff protection. Conditional on
industrial restructuring and with phased reduction in rates. (See
Industrial Policy.)

3.15 In conjunction with industrial policy, raise import duties on imported
goods which do not comply with domestic content requirements.

3.16 Negotiate directly with "brand-name" corporations to require that a
certain percentage of their sales are derived from Russian production.

3.17 Establish quality control inspection and certification for
manufactured commodities with large export potential.

3.18 Conduct export promotion fairs.

3.19 Negotiate with other governments and international agencies to ensure
favorable treatment in the world market for Russian producers, especially

Financial Institutions

3.20 Strengthen central bank regulation of financial institutions,
including investment funds.

3.21 Require banks to utilize a certain proportion of their capital to fund
productive investment or to contribute capital to government lending
institutions (i.e., Development Banks and Home Mortgage Agency).

3.22 Ensure safe registry of stocks and bonds, either by licensing such
activity or by establishing government agencies for this purpose.

3.23 Require stock-ownership registration by either a public agency or by
an entirely independent private body.

3.24 Establish government responsibility for recording assignment of assets
as collateral and for certifying legal transfer of real estate.

3.25 Increase the power of the Federal Securities Commission to require
disclosure, stem fraud, and ensure shareholder rights, thereby upgrading
corporate governance and encouraging investment.

3.26 Establish a premier stock exchange with strict disclosure
requirements, including modern accounting and certified independent

3.27 For stocks listed on the premier exchange, require that all
transactions go through the exchange and be immediately publicized via
ticker tape.

Public Finance

4.10 Reinstate export duties on energy and metals until other mechanisms
fully capture economic rents from natural resources. (See Industrial

4.11 Concentrate taxation on natural resources, alcohol, imported tobacco,
and luxuries.

4.12 To complement taxes on natural resources, use competitive bidding for
concessions, with extensive safeguards to ensure fair pricing.

4.13 Intensify enforcement, increase penalties, and eliminate loopholes in
order to end the nearly complete avoidance of personal income tax by the

4.14 Impose substantial real estate taxes on personal residences with a
high market value.

4.15 Raise the minimum income which is subject to taxation.

4.16 Discontinue subsidies to the banking system, especially indirect or
covert support.

4.17 To lower interest on government debt, issue debt instruments which pay
interest in dollars or other hard currency, or in rubles adjusted for


March 29, 2000
[translation from RIA Novosti for personal use only]
Deliberations About the New Cabinet of Ministers 
By Svetlana BABAYEVA

Vladimir Putin met with Defence Minister Igor Sergeyev on 
March 28 and promised to sign a decree prolonging the marshal's 
service in the armed forces for another year. The thing is that 
when a marshal or a general turns 60, only the president can 
decree that he can serve for another year. Sergeyev was the 
first law-enforcement minister to be thus assured of a chair in 
the new cabinet of ministers -- "so far," add the presidential 
Nearly all political scientists, behind-the-scenes players 
and officials agree that the rules of the game have changed, 
and only a very limited group of four or five people, one of 
them Putin, will make decisions on appointments to the 
government and the presidential staff now. 
It seems that Putin has already determined his attitude to 
the key figures in the new cabinet, as proved by other sources, 
who say that "it will be a quite acceptable group." It is 
possible that Mikhail Kasyanov, the coordinator of the current 
government, will be offered the post of the premier. "His 
chances are 99% fail-safe," say the knowing people. But he will 
be mostly a technical, rather than a political, figure, for key 
decisions, including economic ones, will be made in the Kremlin 
The core of Putin's team has been outlined and consists of 
Leonid Reiman (the head of the State Committee for 
Communications who is expected to become a vice-premier), 
Alexei Kudrin (the first deputy finance minister, to become a 
vice-premier or the first vice-premier), Ilya Klebanov (the 
vice-premier responsible for the defence industries, he can 
well keep his post), and Dmitry Kozak (the head of the 
government staff who can become a vice-premier). 
Valentina Matviyenko might cede her "social" duties to the 
current Health Minister, Yuri Shevchenko, or the head of the 
Pension Fund, Mikhail Zurabov. Candidates from the State Duma 
and the Federation Council have not been considered yet, but 
are not neglected either. The Kremlin sources admit that the St.
Petersburg reserve has been virtually exhausted.
It is much more difficult to speculate about ministers. It 
has not been decided yet who will assume the central function 
of making economic decisions -- the government staff or the 
Economics Ministry. The economic "guru" will be chosen only 
after this question is decided, but neither Yasin, nor 
Shapovalyants or Gref will get the cloak. 
We also know the names of others who do not suit the 
authorities, for some reason or other. They are Minister of 
Fuel and Energy Viktor Kalyuzhny, Minister of Taxes Alexander 
Pochinok and Economics Minister Andrei Shapovalyants. The 
Ministry of Fuel and Energy might be headed by a variety of 
persons, from Sergei Chizhov, assistant to the premier, to 
Sergei Generalov, a minister in the Kiriyenko government. The 
claimants for the economic chair are Alexei Ulyukayev and 
Andrei Illarionov.
The presidential staff will be overhauled, too, although 
to a lesser extent. Its head, Alexander Voloshin, will most 
probably keep his chair at least until autumn, until Dmitry 
Medvedev, his deputy and head of Putin's election staff, 
"matures" sufficiently to replace him. The future of Sergei 
Prikhodko, deputy head of the presidential staff, and chief 
speech-writer Dzhakhan Polliyeva is unpredictable so far, but 
Igor Shabdurasulov will most certainly go. 


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