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Johnson's Russia List


April 12, 2000    
This Date's Issues: 4242  4243

Johnson's Russia List
12 April 2000

[Note from David Johnson:
1. APN: Natalya Laydinen, Who thinks logically? (Views of Putin
and Yavlinsky)
2. Bloomberg: Russia Must Prove It Has Credible Economic Plan, Investors Say.
3. Maskhadov Says: Basayev, Udugov and Berezovsky Started the War.
4. APN: [Igor] Chubais offers restitution instead of privatisation.
5. Cyrille Arnould: Re Ira Straus on Council of Europe (DJRL 4239).
6. Itar-Tass: Russia in Crisis Over Conflict Between Two Energy Giants. 
7. Rossiyskaya Gazeta: Vadim Kopin and Vladimir Mashin, Small Business Will Not Pull Out Economy. (Govt Economic Strategy Change Expected)
8. Stanley Fischer (Acting Managing Director of the IMF): Russian Economic Policy at the Start of the New Administration. (Speech in Moscow)
9. Interfax: Igor Denisov and Vitaly Davydov, START II: LONG AWAITED SENSATION.]


April 11, 2000
Who thinks logically?
Independent Research Center ROMIR

(Vasily Ivanovich Chapaev is a hero of the 1918-1920 Civilian War in Russia. 
Furmanov - his commissar /Communist representative in the army/. Petka - 
Chapaev`s adjutant. There are a lot of jokes existed in Russia in which these 
characters are played upon.)

Chapaev meets Furmanov.
The latter has a book titled «Logic» in his hands.
- Furmanov, what does «logic» mean?
- Look, Vasiliy Ivanovich. Do you like shrimps?
- Yes, I do.
- It means you like beer as well.
- Right, I do.
- And this means you like also vodka.
- It`s true.
- It comes of it you have a mistress.
- Correct. I have one. Such a thing this logic is!
- Later Chapaev meets Petka.
- Petka, do you like shrimps?
- No, Vasily Ivanovich, I don`t.
- You don`t like shrimps?!
- No.
- You don`t like shrimps?!!
- No. I don`t.
- Well, then you are just…an impotent!!!

Two contemporaries act now on the Russian political stage: 48-year-old 
Vladimir Putin and 48-year-old Grigory Yavlinsky. But the Russians, 
particularly, ordinary citizens, so-called non-expert audience, whose opinion 
sociologists survey by a focus-group method, always try to underline Putin`s 
youth despite his maturity, and at the same time they call Yavlinsky, who is 
old by no means, a «long-liver» though a political one.

On the eve of the 1996 presidential election, our colleagues-sociologists 
revealed more surprising things. Some of the voters, focus-group 
participants, declared that Gennady Zyuganov, 51 at that time, was older than 
Boris Yeltsin, 65. What was all that about?

Evidently, in the modern world, millions of voters take politicians not as 
real persons but just through the prism of their virtual images existed in 
the informational space. Social psychology calls it a «phenomenon of remote 
perception». The reason is quite clear: a president of the country, a 
governor or a deputy are not a village elder whom his neighbours can see 
every day and judge him by his real affairs.

What is the difference between a politician`s image and the politician 
himself? In scientific terms, specificity of the image consists in imputing, 
to the object, - through the method of associatiom - additional values 
(social, psychological, aesthetic, etc.) which are not necessary to have 
anything in common with the object`s real characteristics but have social 
meaning for the percipient.

Your imagination plays an extraordinary part in this situation. That is, the 
less it is known about the figure the more unknown and non-existent qualities 
will be possible attributed to him in case of positive perception. If the 
image has been already of negative shade it seems more likely to be supplied 
by additional negative characteristics.

Examine a number of examples. In this February, ROMIR conducted a series of 
group discussions in 10 Russia`s cities to survey certain presidential 
candidates` images. The Yabloko leader`s economic program, in particular, was 
discussed with ordinary voters -Yavkinsky`s allies. It was obvious nobody had 
read the program. However Yavlinsky`s electorate was positive to declare that 
this unread program was «well-founded», and «industrial upsurge», «tax cut», 
and «reforms in social sphere» had been envisaged in it. One should remember 
a popular, in former times, phrase: «I`ve never read the Pasternak`s novel 
but I wanted to say»

According to other candidates` allies who also had never read the Yavlinsky`s 
program (and were not going to), it was «pro-western», and aimed to 
«transform Russia into a raw material`s adjunct to western countries.»

Neither will ever read this document because they have had their opinion 
about Yavlinsky.

A similar effect was described by Herbert Wells in 1907 and later social 
psychologist Thorndike called it «halo`s effect» - boosting one quality, 
«colouring» the rest characteristics with it.

Let us discuss Vladimir Putin, the most popular, at present, Russian 
politician. His image created by public opinion presents a «resolved, strong 
person», «fighter against terrorism and criminality», «defender». These key 
descriptions are automatically transferred to other spheres of new 
President`s activity.

Majority of respondents have no doubts at all that Vladimir Putin not only 
knows how to control «those in power» but is also qualified in economics, 
social sphere, etc., in one word in all areas without any exception.

But liberal Yavlinsky`s image is a «defeatist» and «weak person» because 
liberalism and weakness are very close notions for many Russians. Endless 
footages showing Yavlinsky with boxing-gloves are running in vain: no 
correction in his image has been observed.

Special quantitative ROMIR`s polls, conducted to examine Putin`s image, in 
which respondents were selected to represent a wide cross section of Russian 
adult population (N=2000), showed that 56% of respondents called the youth a 
dominant characteristic in the politician`s image. Perception of Putin, first 
of all, as a young politician was confirmed also by the results of group 
discussions. Though his age of 48 is quite enough to provide himself with 

Thus, Vladimir Putin is «young», «active», «energetic». And what is more: the 
author of immortal words «Waste in the outhouse» (with a pledge to hunt down 
Chechen separatists even in their outhouses and mochit`, or «waste» them, 
Putin opened the latest war in Chechnya) and of other similar aphorisms is 
taken as a «pleasant», «with correct manners», even «intellectual» person.

Special attention should be paid to the way Putin is perceived by female 
voters. The focus-group female participants spoke out, in particular, like 
that: «We became used to amebiform men but Putin is of another kind», "He 
smiles like a strong man.»

These descriptions changed the stunted and low-key Vladimir Putin into a 
handsome man; he became tall, with wide shoulders. «I am sure he has a lot of 
mistresses,» one of the female respondents said in admiration.

But Putin is not a charming handsome person and not a robust young man for 
those who dislike his policy. Other candidates` supporters described him as: 
a «black box», «Malevich`s black square», «person who keeps himself in
wool», «grey mouse», «fox», and «rodent».

The ordinary voter depicts a politician`s image being guided by his or her 
own associations, which are quite simple sometimes. In other words, the voter 
«thinks in a logic way».


Russia Must Prove It Has Credible Economic Plan, Investors Say

Moscow, April 11 (Bloomberg)
-- Fifteen multinational companies, including investment bank Goldman 
Sachs Group Inc. and gold producer Newmont Mining Corp., appealed to Russia's 
government to pursue a credible economic plan that will lure new investment. 

The companies met First Deputy Prime Minister Mikhail Kasyanov and other 
officials to assess President-Elect Vladimir Putin's attitude toward foreign 
investors' concerns. They said they want to see Putin's economic program, due 
to be published in May, and evidence he can work with the Duma, the lower 
house of parliament, before deciding whether to invest in the country. 

``If the world markets see that they can work together, if they believe the 
economic plan will work -- you will see a lot of capital begin to come 
back,'' said John Kean, president and CEO of NUI Corp., a U.S. company that 
owns natural gas utilities. ``Right now the world markets look at Russia and 
there is a huge discount they apply towards investments here because of the 

Putin, who won election last month, has pledged to protect private property 
and investor rights and create conditions for equal competition, though he 
has yet to implement any program. He will form his new cabinet only after the 
inauguration in June. 

Kasyanov, whom Russian media speculate could be the next prime minister, said 
the government is aware of what needs to be done to attract investment. 

`Serious Action' 

``We plan to take serious action to improve the investment climate,'' 
Kasyanov said after meeting the group. ``In the first few months after the 
new government is formed, we plan to take specific steps, including changing 
relevant laws.'' 

Many foreign investors in Russia were burnt after the government defaulted on 
most of its Treasury debt in 1998 and abandoned its protection of the ruble, 
causing the collapse of stock and bond markets. Many banks failed and a 
number of companies defaulted on their debts. The ruble's plunge also hurt 
foreign companies, because it drove up the price of imports and led Russians 
to buy the cheapest goods produced in the country. 

Investors said they delayed decisions pending the outcome of the March 26 
presidential election and now want to see Putin's actions. 

``We are cautiously optimistic,'' said Ian Bremmer, president of Eurasia 
Group, set up in 1997 to encourage investment in former Soviet republics and 
an organizer of the foreign investors' visit. ``We are facing a historic 
window of opportunity.'' 

The U.S. presidential election later this year also is a factor in investors' 
decisions. Investors said they want to see a strong relationship between the 
new leadership in both the U.S. and Russia. 

Still, the group was generally positive on Putin and what investors view as a 
change in approach compared with his predecessor, Boris Yeltsin. 

``I am encouraged that they have a plan,'' Kean said. ``I am encouraged the 
people I have met understand the economy. It is encouraging for me that they 
are talking openly about issues that Russia faces. It is a different 


April 11, 2000
Maskhadov Says: Basayev, Udugov and Berezovsky Started the War 

In an interview to radio Deutsche Welle, Aslan Maskhadov said the war was 
caused by "a conspiracy of the Kremlin's administration, the financial 
oligarchy" and, on the Chechen end, Udugov and Basayev. The war was financed 
by Russian oligarchs, especially Berezovsky. At the same time, he added, 
Udugov has no powers to represent Chechnya; moreover, "Mr. Udugov, 
"Kavkaz-center" are people and bodies hostile and oppositional to both the 
president and the government+ He [Udugov] may play an agent provocateur, 
too". As for militants, practically all field commanders are subordinate to 
him and keep in touch, according to Maskhadov. Their losses are about 15 
hundred people, whereas their units total ca. 23 thousand people. And "the 
number is growing".

Comment: Maskhadov' statement regarding "Kavkaz-Center" which is "hostile to 
both the president and the government" sounds exciting. Especially taking 
into consideration that for Western reporters, it is the sole source of 
information on Chechnya. Even more interesting is his statement that the key 
warmonger is Basayev who shoulder to shoulder with field commanders, 
including Maskhadov, has fought with the federal forces. By the way, 
Berezovsky who is, according to Maskhadov, one of the war's instigators, says 
the Chechen president no longer controls the situation, whereas decisions in 
reality are made by Udugov and Basayev, which has been proved true by the 
recent developments of the conflict. All this looks like Maskhadov's attempt 
to dissociate himself from the most odious figures in the hope to pressure 
Moscow regarding the negotiations with "Chechnya's legitimate government".


April 11, 2000
Chubais offers restitution instead of privatisation

APN reporter quoted Igor Chubais (chairman of the EES Rossii board Anatoly 
Chubais` elder brother) as saying at his news conference that "an idea of 
unification" should be a national idea in Russia.

Igor Chubais thinks "a stage of expansion, of imperial policy, lasting for 
500 years, has been finished and now when a quantitative growth has been 
exhausted, a qualitative growth is essential" with "development" as a key 
word: "We should develop our own country but not threaten our neighbours."

Igor Chubais considers restitution (return of property to its former owners, 
in the case in question - to tsarist Russian landowners` and entrepreneurs` 
descendants) one of the means to develop the country. Chubais said though the 
restitution entailed certain costs it was not regarded illegal in any 
country. "But privatisation is considered illegal in our country and its 
discussion will never end," Chubais said.

According to Chubais, until restitution is done nobody will make investments 
in Russia`s economy. Chubais insists that during the last 10 years Russia is 
trying to move simultaneously in three directions: Soviet`, Russian` and 
western`. "That`s why Nikolai the Second`s remains has been buried with state 
honours, and the Lenin`s Mausoleum has been still opened - you can worship 
both who had been killed and his killer, and they tried to cancel 
Solzhenitsin`s 80-th birthday party, and Andropov`s (a fighter against 
dissidents) brass has been restored, and KGB`s jubilee has been celebrated, 
and Andrei Pervozvanny`s order has been revived. The result is something like 
that: 'German-fascist occupants are welcome'," Igor Chubais.


Subject: Ira Straus on Council of Europe (DJRL 4239)
From: "Cyrille Arnould" <>
Date: Tue, 11 Apr 2000 

Ira Straus is correct to question the significance of Russia's losing its
voting privilege at the Parliamentary Assembly of the Council of Europe
(PACE) and to ask whether Russia should have at all join the Council.
However, using the Council of Europe's requirement that Russia suspends the
application of the death penalty is bizarre.

The CE was created right after WW II as Europe's first attempt to unite
around a set of legal and moral values. Its major achievement has been and
still is today the European Convention for the Protection of Human Rights.
More than one additional well intentioned Convention, that signatory States
could ignore as much as their Raison d'Etat would dictate, the Convention
has been remarkably successful by offering to individuals a recourse
against a member State in case of violation of his/her rights as stipulated
in the Convention and its jurisprudence. Early in the 1980s a protocol
outlawed capital punishment as a violation of Human Rights. Consequently,
European countries are also forbidden to extradite criminals to countries
where they could face the death penalty. Generally, extradition only takes
place after the receiving country provides a formal commitment to not seek
the death penalty for the suspect to be extradited.

This list is of course not a forum to debate death penalty or Europe's
growing disgust toward the USA's never diminishing love of State sponsored
culling. However, arguing that the CE's request that Russia or Ukraine
suspend its application was misplaced is a non-starter. The abolition of
capital punishment is to the Council what free movement of goods, capital
and people is to the European Union. It is as close to the essence of its
membership as can be. At this stage, Chechnya is unlikely to be deemed as
sufficiently unbearable to provide the Council of Ministers of the Council
with the guts to expel Russia, however, were Russia to resume legally
sponsored (as different to politically sponsored) execution, expulsion
would then be certain.

Joining the Council required Duma's approval. Hence arguing that the
suspension of execution was done against the volition of the Russian people
goes against the logic of any parliamentary democracy. Arguing that Russian
jails (which had also been the focus of some CE's less publicised
preoccupation) are hellish enough to justify killing criminals is
putinesque. Putin did justify his little bloody electoral campaign in
Chechnya on the ground that vaporising Chechnya was the only solution
within his means to deal with Chechen criminals. Finally, in six years in
Russia, I never heard my Russian friends complain that the country had been
deprived of a rightful means to deal with criminals. I did hear them
despair that killers could live a free life as long as they were on the
pay-roll of the State, some of its agencies or groups carving out empires
not only with the help of inside dealings but also the help of good old
reliable kalatchnikovs. Mr. Straus, how many contract-killers have been
arrested or tried since 1990?


Russia in Crisis Over Conflict Between Two Energy Giants. 

MOSCOW, April 11 (Itar-Tass) -- A new crisis is developing in Russia 
triggered by conflicting relatiols between the two energy giants - OAO 
Gazprom natural gas monopoly and RAO EES Rossii mammoth Unified energy 

As the latter is in deep debt for natural gas supplies, the production of 
electric power has been reduced in individual regions of the country. 

The repercussions of the "war" between the two giants should not tell on the 
energy sector of the Russian Far Eastern, where natuzal gas is supplied to 
the power-generating enterprises by a separate entity, 
Rosneft-Sakhalinmorneftegaz stock-company, the press service of the 
Rosneft-Sakhalinmorneftegaz declared on Tuesday. The company is the operator 
of the federal plan for the gasification of the Far East and it runs a joint 
company Daltransgaz. But indirectly the leading gas producing enterprise of 
Sakhalin has been known to cut its supplies of fuel to the neighbouring 
Khabarovsk territory from time to time because of the debts owed to it by the 
territorial energy generating facilities. Their outstanding debt now stands 
at 210 million roubles. 

The leading trouble-maker in East Siberia's Krasnoyarsk territory is OAO 
Krasnoyarskenergo which has been rising prices and cutting supplieq of 
electricity not only to industrial enterprises but also to schools, 
kindergartens and hostels for delays in the settlement of accounts. The 
Krasnoyarsk municipal authorities have already threatened Krasnoyarskenergo 
with a law suit, and the prosecutor has already issued a directive for a 
check of the lawfulness of such actions. 

Hundreds of consumerq are left without electricity for two or more hours a 
day in European Russia's Krasnodar territory due to the fact that the power 
stations in the neighbouring Stavropol territory have cut their supplies of 
electricity to Kuban by 200,000 kilowatt a day, according to director-general 
of Kubanenergo stock-company Igor Reva. The main suppliers - the 
Novocherkassk and evinnomyssk power stations - have had to resort to these 
unpopular cuts because of the catastrophic shortages of natural gas supplies. 

The Yaroslavl region, 200 km northeast of Moscow is also among the region 
where t`e lack of fuel has resulted in dramatic cuts in energy supplies. 
Yarenergo chief engineer Viktor Kalivanov said "the provision of electric 
power to the region has dwindled by approximately eight percent. The cuts 
have not yet affected the homes, but about 60 industrial enterprises in the 
city of Yaroslavl and in the Yaroslavl region have already begun to feel the 
impact. The black list includes both debtors and those who have no arrears. 
For all the efforts design to lower the consumption of electricity in the 
region, it has been only reduced by 20 megawatt. 

Both gas and electric power supplies have had to be cut by between 15 and 20 
percent in northwest Russia's Novgorod region. No electricity is available in 
daytime in many districts with the farmers being the worst hit as their 
preparations for spring field work are under threat. Attempts are being made 
to set things strait in the region. Governor Mikhail Prusak and his deputy 
Nikolai Ivankov who is in charge of energy supplies are now in Moscow where 
they hope to secure an increase in the gas supplies to the region. 

No cuts in the supplies of electricity have been registered lately in West 
Siberia's Omsk region, and the regional economy has not been affected, 
regimnal energy commission chairman Yery Felimendikov said on Tuesday. He 
stressed that the short supplies of natural gas cannot affect the Omsk 
regional energy sector because only one of its heat and electricity 
generating facilities burns natural gas, while all the others burn coal from 
Ekibastuz and Kuznetsk. 

In the southern districts of the Arkhangelsk region on the southern shore of 
the White sea, the customers have begun to feel the insufficient energy 
production in the region. Director of the regional administration's 
construction, hoUsing, municipal property and energy department Gennady 
Biryukov said with certainty that all the trouble is due to the crisis in 
relations between the Unified Energy Systems of Russia and the Gazprom stock 
company. The consumers in the region owe nearly three billion roubles for the 
consumed energy. 

The Unified Energy Systems have cut by 10 percent the supplieq of electricity 
to the Nizhny Novgorod region on the River Volga for at least one week. The 
local energy company has drawn up a plan for cutting debtor enterprises off 
power supplies. The Sibur-Neftekhim company tops the list with its 90 million 
rouble debt to the energy providers. The region's major chemical works are 
likely to follow suit shortly. The seriousness of the situation on the energy 
market was definitely confirmed by Nizhnovenergo director-general Alexei 
Sannikov, who declared that the only way to avoid such sanctions in the 
future is by the timely payment in cash. 

All heat supplies have been discontinued as of Tuesday to 60 facilities in 
Russia's northwesternmost Kaliningrad enclave. The first to be affected were 
the employees of the mayor's office, the regional administration, the Baltic 
Fleet heCdquarters, the kriginal internal affairs administration, the medical 
schools and the buildings whose owners have considerable arrears in their 
payments for heat supplies. And all this at a time when the air temperature 
in Kaliningrad does not rise above plus four degrees Celsius. 


Govt Economic Strategy Change Expected 

Rossiyskaya Gazeta
6 April 2000
[translation for personal use only]
Article by Vadim Kopin and Vladimir Mashin: "Small Business Will Not 
Pull Out Economy" 

Perhaps the most encouraging result of V. V. 
Putin's victory in the presidential elections is the fact that he has 
received a public mandate for implementing the dynamic transition from 
weakness of state administration to strong power. Of course, the 
historical experience of our country motivates many to view the 
strengthening of the state with a certain degree of apprehension. But 
even in these circles, they admit that the looseness of the state machine 
to a significant degree negates the main thing that reforms have 
brought--democratization of the superstructure. At the same time, 
strong authority may become a factor in economic growth, because it is 
capable of accelerating the implementation of processes which are 
objectively necessary for development. 
In the years of reform, including in the process of privatization, 
the Russian economy practically put an end to the socialist sectorial 
monsters, breaking them up into dozens of individual structures. The 
break-up of production was achieved in a sphere which encompasses over 60 
percent of the economy. First and foremost, it was the excess 
idealization of the Western--albeit solvent--economic practice which was 
apparent here, according to which small business produces up to 60 
percent of the GDP [gross domestic product], as it does in the USA, for 
example. The small-scale producer was rightly viewed as the 
"formulator" of the middle class--the basis of civic stability. 
But alas, the relative share of the active part of the population 
which is ready to assume business risk in Russia is somewhat smaller than 
in the countries with a Protestant work ethic, where, we might add, it 
also does not exceed 10 percent. Due to historic peculiarities, the 
work ethic in Russia gravitates toward the principle of commonality, when 
it is not the individual success that is valued, but the sense of solidarity. 
De-consolidation of production in Russia led to disintegration of the 
established technological relations. And the truncated production 
structures encountered a most acute shortage of working capital. Up to 
80 percent of the new production companies turned out to be unattractive 
to investments. Could this be why Russian bankers, as well as foreign 
ones, preferred to invest in GKOs [state short-term bonds] and OFZs 
[Federal loan bonds]? 
And now, at the Center for Strategic Developments Fund under the 
leadership of German Gref, they are concerned about the new President's 
intention to make the sectors of the Russian economy--at least those 
which have a potential for growth--competitive in the face of economic 
discrimination against Russia on the world market. The consolidation of 
production structures is viewed as one of the options for resolving this 
No, this is not a return to the old monopolies. Consolidation will 
take place according to a new scheme, primarily a vertically integrated 
one. And the restoration of artificially broken production ties will 
increase the working capital of the consolidated structures. This, by 
definition, will entail an increase in their capitalization--the most 
important indicator in investment attractiveness. 
Among the specialists who are "feeding" ideas to the institution of 
G. Gref on Yakimanka, there is the opinion that the creation of 
consolidated--including vertically integrated--structures will make it 
possible specifically to optimize production, and to reduce costs and 
commercial and financial risks to a minimum. Ultimately, the 
profitability of production will increase and, it would seem, so will its 
competitiveness. The dependence of production structures on crisis 
phenomenon will be weakened, including the dependence on crises 
engendered on the foreign markets which have a boomerang effect on our 
current small-scale production structures. 
The closed cycle achieved in consolidated structures facilitates the 
emergence of a higher degree of product processing at every stage of the 
technological chain. Consequently, a new, higher, added value is 
thereby formed. For example, in the processing of each tonne of primary 
aluminum into rolled stock, added value in the amount of $600 is created. 
And in processing of this rolled stock into beverage cans, the added 
value is doubled once again. 
Why is this beneficial to the state? Because at the stage of rolled 
stock, a tax in the sum of $150 is paid on the aforementioned $600. But 
at the stage of turning the rolled stock into cans, as a result of the 
newly created added value, an additional $300 dollars in tax revenues are 
received. And increased deductions to the budget aid in the performance 
of timely payment of wages to budget workers, pensions, subsidies and 
salaries of military servicemen. 
By involving both the producers of raw materials, and their 
processors, and the manufacturers of the finished product in a single 
technological chain, such vertically integrated structures neutralize the 
antagonisms between these segments, which previously functioned 
separately--such as the memorable wars between the miners and the power 
producers, or between the railroad workers and the coal miners. 
The sum of indisputable socio-economic advantages of consolidating 
production will result in the increased investment rating of the new 
structures. It is expected that local and foreign bankers will invest 
funds sooner into large production than into state securities--the sphere 
where up to 70 percent of the available funds go today. 
Consolidated production also has certain political functions, which 
are needed by the new authorities for solving problems formulated these 
days at Yakimanka. 
We know that the new head of state intends to effectively realize a 
need which has come due: To separate business from power, to create 
equidistant relations between the authorities and leaders of production, 
and to replace the behind-the-scenes battles over benefits and privileges 
with an honest struggle for competitiveness. In other words--to change 
over from an economy of individuals to an economy of legal entities. 
In such a scheme, the authorities will be predictable in the eyes of 
business. And the large structures, in turn, will by definition act as 
predictable and effective partners. Such a new mainstay will allow the 
authorities to more effectively implement social policy, because they 
will be able to count on a predictable tax base. 
Relying specifically on such structures, the authorities will take on 
greater moral authority and an economic "support" in mutual relations 
with Western economic organizations. 
In turn, the large structures--since they will in fact be able to 
implement the desire to participate in international division of labor, 
which is inherent to capital--will also create an economic basis for a 
dynamic and nationally oriented foreign policy of Russia. 
Such structures, involving enterprises in various regions of the 
country into a single technological chain, will inevitably tie together 
individual territories, thereby facilitating the weakening of alarming 
centrifugal tendencies. In its own way, the formulation of large 
elements of a unified national-economic complex will serve as a 
contribution toward preserving a "unified and indivisible Russia." 
Moreover, such structures will also fulfill the unique mission of 
integration on the expanses of the CIS. After all, by restoring the 
artificially broken production relations within the scope of a once 
unified national-economic complex, they will in fact implement 
integration processes on the post-Soviet space. 
No this will certainly not be a retreat from the implemented reforms. 
The new form of economic management will fit firmly into the 
coordinates of market relations, because the subject of such economic 
management will be the owner, and not the sectorial main committees. An 
owner who is interested in strengthening this market scheme. 


Russian Economic Policy at the Start of the New Administration
Remarks by Stanley Fischer, Acting Managing Director of the IMF1
Prepared for the conference on
"Investment Climate and Prospects for Economic Growth in Russia"
State University: Higher School of Economics
Moscow, April 6, 2000

1. It is a great pleasure to be taking part in this timely conference at the 
Higher School of Economics on the economic policy choices that confront the 
incoming Putin administration. And it is an extra pleasure to be 
participating in a conference organized by my friend and widely respected 
colleague, Professor Yevgeni Yasin, with the participation of so many other 
leading Russian economists and policy analysts. 

2. I will make four main points:

After ten years of experience in over 25 transition economies, the evidence 
is clear that the basic economic reform and growth strategy recommended by 
mainstream economists works.

Despite the many disappointments and setbacks in Russian economic reform, we 
should not underestimate what has so far been achieved in Russia.

The way ahead for economic policy in Russia at this critical moment is clear. 
To achieve sustained and equitable growth in Russia will take a strengthening 
of macroeconomic stability and the intensification of sectoral structural 
reforms, including improving the social safety net. 

Worldwide experience shows that economic programs are most likely to succeed 
when they are "owned" by the country implementing them, and if necessary 
supported by the international financial institutions and bilateral lenders. 
Russia's economic program is more likely to succeed the more it is designed 
by Russians. The IMF and the international community stand ready to help 
support a serious Russian economic reform program, whose seriousness is 
demonstrated by progress in its implementation. 

International Experience

3. The experience of the transition economies that started on the process of 
economic reform at the end of the Cold War has been studied intensively. 
There has rarely been an occasion when so many countries changed economic 
policies at the same time; this makes it possible to use econometrics to 
study the determinants of their growth experience since the start of 
transition. My IMF colleague, Ratna Sahay, and I have examined this 
experience, using data from the 25 countries for which it was available.2 We 
measure the extent of structural reforms using the indices of different 
elements of structural reform constructed by the EBRD. We conclude that the 
basic strategy advocated by market-oriented proponents of reform a decade ago 
is correct: namely that both stabilization policies and structural reforms, 
particularly privatization, contribute to growth; and that the faster is the 
speed of reforms, the quicker is the recovery from the inevitable initial 
recession, and the more rapid is growth. 

4. To say that the basic strategy is well understood is not to say that 
carrying out a reform program is easy, nor to deny that the way the strategy 
should be applied in each case varies from country to country, nor to deny 
that policymakers face technically and politically difficult choices every 
day. That is all true, and we must salute those policymakers who have 
succeeded through their insights, technical and political skills, and 
courage, in moving furthest in the transition process. 

5. But it is also true that since the basic growth strategy is understood, 
it is necessary to ask what determines the extent to which a country embraces 
transition and is effective in undertaking the needed economic reforms. An 
answer relevant for some countries is that they lack the technical expertize 
to implement the required policies. That could have been true at some early 
stages of reform in Russia, but given the technical skills and sophistication 
of policymakers in this country, it certainly cannot have been true for most 
of a decade. The answers must lie elsewhere, in the political realm, in a 
lack of effective political or societal support, and in problems of 
governance. I will return to some of those issues at the end of my remarks 

Russia's achievements

6. This seminar is taking place at a time when the public debate in Russia 
and abroad has been dominated for some time by disappointment about the 
achievements to date and some cynicism about the future. Much of this 
skepticism has remained despite the favorable events in the Russian economy 
over the past year. While there is much to be disappointed about, and many 
negative developments that need to be reversed, Russia also has had positive 
achievements during the last decade. I am not talking here only about the 
great historical achievement of the last decade, the remarkable extent to 
which democracy is becoming entrenched in Russia. Much has also been achieved 
in the economic sphere:

Most fundamentally, a consensus has been reached that the process of 
transition is irreversible and that the establishment of a truly market-based 
economy should continue to be an overriding policy objective and the road to 
sustained growth and future prosperity in Russia.

A commitment to low inflation and sound fiscal policies has taken hold across 
a broad segment of the public as well as within the political elite. After 
the 1998 crisis, some Russian policymakers argued that the country should 
welcome moderate--say 40-60 percent--inflation, and that larger budget 
deficits were desirable. That did not happen. There is a clear resolve to 
limit public expenditures to available revenues and to avoid inflationary 
financing. And that is being done.

There has been considerable domestic market liberalization, including price 
and wage liberalization and the dismantling of most of the system of state 
direction of economic activity. Privatization, while flawed in several 
respects, has allowed much of economic activity to be governed by the 
incentives of the market. There has also been far-reaching exchange and trade 
liberalization, with liberalization of exports and imports, introduction of 
current account convertibility, and unification of the exchange rate.

The institutional setting for the conduct of macroeconomic policies has been 
strengthened. A modern central bank and payments system have been 
established. Interest rates have been liberalized and the elimination of 
low-interest CBR direct credits has strengthened the capacity to conduct 
monetary policy. Fiscal reforms include large reductions in subsidies, 
improvements in the tax system (although this is a job that certainly is not 
yet finished), and the establishment of a treasury. 

In addition to significant privatization, we have also seen the introduction 
of institutions and legislation required for a well functioning market 
economy. These include bankruptcy procedures, competition policy and 
anti-monopoly reguations, improvements in accounting standards, a securities 
commission, and regulatory agencies for the natural monopolies. To be sure, , 
the implementation and enforcement of new laws and regulations has been 
inconsistent. Nevertheless, many of the basic underpinnings of a market 
economy have been put in place.

7. There has been real progress in these areas, even though these reforms 
are incomplete or highly imperfect. Nonetheless, the disappointments about 
the overall progress of the last decade are valid, and the setbacks have been 
dismaying. One needs only to look at the basic social indicators, with life 
expectancy declining and the incidence of poverty increasing. And that takes 
us to the next question:

What needs to be done?

8. In 1996 there was decisive progress in achieving macroeconomic stability 
in Russia. However fiscal policy and the record of policy implementation in 
the structural area after that was poor. While the government's medium term 
program adopted in 1996 constituted a coherent and comprehensive structural 
agenda, performance in that area during the life of that program was very 
weak, and was a fundamental factor leading to the Russian financial crisis in 
1998. And little has been done to tackle Russia's deep-rooted structural 
problems since then.

9. Russia's commitment to low inflation and sound fiscal policies is evident 
in the continuing decline in inflation over the past year, and in the 
improving fiscal situation. However it will take a broad-based acceleration 
of structural reforms, not only to increase growth, but also to maintain 
macroeconomic stability.

The recovery in output, the improvement in the fiscal position, and the 
notable measure of financial stability that has been achieved has in large 
part--though not entirely--due to the effects of the sharp real depreciation 
of the ruble in the wake of the 1998 crisis, as well as the jump in world oil 

Sustained growth and the further fiscal consolidation that is needed to 
maintain macroeconomic stability will require an acceleration in structural 
reforms to spur investment activities and strengthen exports, as well as 
comprehensive tax and expenditure reforms.

The goal of many of the needed structural reforms is to improve the 
investment climate, primarily for Russian investors, but also and importantly 
for foreign investors. The large amounts of Russian capital now abroad will 
begin to return only when the investment climate changes, and as it comes 
back and investment picks up, so too will growth--and here I echo the theme 
of this conference, on the investment climate and the prospects for economic 
growth in Russia.

10. What should be the focus of the structural reform effort? There are 19 
groups in this conference discussing different areas of reform, and the new 
government will have to make progress in all those areas. Four topics are 
grouped under the heading "state regulation of the economy: freedom and the 
rule of law". That is critical. It is part of the pressing need to increase 
transparency in the economy, in both the public and private sectors. This 
will be a crucial factor in assuring external support for the Russian 

11. Rather than go in detail into the overall program, let me select six 

industrial restructuring, including privatization, and other measures needed 
to improve the business climate--especially in corporate governance and 
strengthening of the rule of law 

measures to eliminate the nonpayments and barter problems;

restructuring of the banking system, including reform of the central bank;

tax reform, and expenditure reform, including reform of the civil service, 
which has grown remarkably in the last decade;

strengthening of the social safety net;

agricultural reform and land ownership reform.

With progress in these areas, the stage will be set for Russia to begin 
sustained growth, allowing its people to fulfill their potential. 

Program ownership 

12. It cannot be overlooked, however, that many if not most of the proposed 
measures have already been part of government programs in the past--they have 
just not been implemented. Why? The poor record reflects, fundamentally, a 
failure to overcome fierce resistance from vested interests in the face of 
weak government consensus. There are many examples, but let me mention three 
areas that have been the subject of discussion in this conference--bank 
restructuring, tax reform, and the rule of law:

Following the collapse of a large number of banks in the aftermath of the 
1998 crisis, the authorities made little use of the authority granted within 
the existing legal framework to place ailing banks under administration. By 
the time these banks were subjected to bankruptcy procedures, they had become 
mostly empty shells. One result is that bank restructuring will be more 
expensive than it otherwise would have been.

Tax enforcement is another key area. Politically influential enterprises have 
been able to pay well below their statutory tax obligations for years, 
without effective government penalty. Indeed, instead of strict enforcement 
backed up by bankruptcy or criminal proceedings against owners and managers, 
we have witnessed numerous schemes of tax restructuring and rescheduling, and 
negotiated settlements. This treatment of large taxpayers has been 
accompanied by much tougher treatment of smaller enterprises and individuals. 
Against the background of very favorable energy prices, revenue performance 
in the last year has improved, but this problem still remains.

The failure to strengthen the rule of law and improve governance both in the 
public and corporate sectors is at the heart of weak investment, the failure 
of enterprises to restructure, and capital flight. It helps account for the 
extremely low level of foreign direct investment. FDI in Russia has run below 
1 percent of GDP, compared with around 3 percent of GDP in the Central 
European transition economies. An improvement in the investment climate could 
reap big rewards for the economy in this regard. It could also help reverse 
capital flight, which has averaged $10-20 billion per year since the early 
1990s. Russia's economy, and Russia's financial needs, will look very 
different when Russian savings, instead of fleeing abroad, is used to finance 
productive investments in the domestic economy. 

13. Why mention these past failures? Because this, the start of a new 
administration, working with a new Duma, presents a rare opportunity for a 
second beginning. Many of the problems of the past occurred because there was 
not sufficient support for the economic reform program within the political 
system and the society. Some of those problems happened because the policies 
were badly implemented. Many lessons have been learned about policy in 
transition economies in general, and in Russia in particular. The question 
now is whether it will be possible for Russia to develop its own economic 
reform program, a program worked out by Russians, and effectively supported 
by the society, a program owned by Russia. 

14. We have seen in this conference that there is no shortage of good ideas 
about what those policies should be. What is needed now is to translate this 
knowledge and energy into a coherent reform strategy that is backed by strong 
public consensus and leadership, and that is implemented. If that happens, 
the IMF--and I am sure also the rest of the international community--will be 
ready to do what it can to support and strengthen the program and Russia's 

Thank you.

1Prepared for the conference on "Investment Climate and Prospects for 
Economic Growth in Russia", State University: Higher School of Economics, 
Moscow, April 5-6.
2See Stanley Fischer and Ratna Sahay, "The Transition Economies After Ten 
Years", IMF Working Paper, WP//00/30, February 2000. 


By Interfax analysts Igor Denisov and Vitaly Davydov

MOSCOW. April 11 (Interfax) - What is going to happen on Friday is
a kind of long overdue sensation: the State Duma will debate
ratification of START II and may well ratify it.
In less than seven years since its signing and five years since it
was sent to the Duma this treaty which is of fundamental importance for
Russian - U.S. relations Moscow has on several occasions been about to
ratify it but each time something happened that made this impossible.
Once it was the NATO plan of eastward expansion, then it was the NATO
operation in Yugoslavia which Russia regarded as aggression.
A pretext could be found this time, too. In particular, communist
leader Gennady Zyuganov has said that the U.S. plans to set up a
national anti-missile system make it impossible for the Left to vote for
ratification of START II.
In its present form the treaty benefits only the United States and
is unacceptable to Russia whose defenses can be harmed, he argues.
Russian generals believe, however, that the opposition's case
against the treaty has no leg to stand on.
Col. Gen. Vladimir Yakovlev, the commander of the strategic rocket
force, has told Interfax that by 2007, when the treaty is to be
implemented, Russia's heavy multiple-warhead intercontinental missiles
will come to the end of their service life.
"Whether Russia does or does not ratify START II, heavy missiles of
the RS-20 and RS-18 type will have to be decommissioned by 2007," he
In effect, "START II has become a treaty under which the United
States [alone] will reduce its offensive weaponry," Yakovlev said.
Those who fear that the United States will pull a fast one on
Russia with the building of an anti-ballistic missile system have also
been answered. "Ratification of START II in a package with the New York
agreement of 1997 on the setting up of a non-strategic missile defense
system would benefit Russia in every respect," Russian Security Council
Secretary Sergei Ivanov said on Monday after a meeting President-elect
Vladimir Putin had in the Kremlin with Duma party leaders.
Russia and the United States have agreed that the ABM Treaty of
1972 implies that a non-strategic missile defense system can be built,
he said. By ratifying the passage Russia would send the world a signal
that it opposes U.S. opting out of the ABM Treaty.
The support in the State Duma for ratification of START II and
protocols on extending the deadline for the implementation of the treaty
and on making a distinction between a strategic and a non-strategic
missile defense system will be sufficient next Friday, parliamentary
observers say.
The entire pro-Putin Unity group which has 81 seats in the Duma and
its kindred People's Deputy group (58 seats) are expected to vote for
ratification. Because former Prime Minister Yevgeny Primakov, the leader
of the Fatherland - All Russia, is a staunch supporter of the
ratification, his group may cast all its 47 votes in favor of it.
The Union of Right Forces with 33 seats and Yabloko, 21 seats, will
obviously vote for ratification. At least one half or even two thirds of
the Russia's Regions group may support the ratification , experts say.
If these groups turn up in force, 260 to 270 votes can be cast for
the ratification while the minimum to see it through is 226 votes.
The Communist Party's 95 and the Agroindustrial Group's 36 Duma
members are expected to vote against.
The only unknown quantity is the position of the liberal democrats
who have 17 seats in the Duma. Its leader Vladimir Zhirinovsky said on
Monday that his supporters would oppose the ratification but his
position may change. On the other hand, this will not make much of a
In effect, if the turnout is good, 240 to 250 Duma members will
support the ratification.
What is obvious is that the Kremlin's arguments in favor of
ratification are very much what it said a year ago, two years ago and
three years ago. What has changed? Why does the anti-American rhetoric
of the Left not work this time?
The answer seems obvious. The new Russian president who is still
being criticized in the West for what is going on in Chechnya is sending
a clear signal to Western leaders that he is in control of the situation
in the country, that his supporters are in control of the Duma and that
the new Russian Cabinet will not embrace anti-Americanism, anti-
Westernism or isolationism, no matter how much some desire this.


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