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Johnson's Russia List


May 27, 2000    
This Date's Issues: 4327 4328 4329


Johnson's Russia List
27 May 2000

[Note from David Johnson:
1. AP: Strategy May Change in Chechnya.
2. Reuters: Putin bungled last great spy task -German official.
3. Reuters: Putin denies attacking Russian regional bosses.
4. Emperor Putin To Create Court.
5. Jacob Kipp: The Putin Question.
6. The Journal of Commerce: John Helmer, THE THREE STOOGES.
7. NG-Politekonomiya: Sergey Glazyev, Statement to the Conference "Russia: 2000. A Look Into the Future"
8. Voice of America: Eve Conant on Russian hackers.
9. Newsday: Dimitri K. Simes and Paul J. Saunders, Putin's Power Move Bears Close Watch.
10. St. Petersburg Times: Charles Digges, Kudrin Survives To Secure Top Post.


Strategy May Change in Chechnya
May 26, 2000

GROZNY, Russia (AP) - With federal forces making little progress against 
rebel fighters in breakaway Chechnya, a top Russian general said Friday the 
military was changing strategy to focus on the elimination of rebel 

Gen. Gennady Troshev, who leads the Russian troops in Chechnya, said Russia 
would consider initiating peace talks with the rebels after the field 
commanders are wiped out. But he ruled out talks with top rebel leaders, 
including Chechen President Aslan Maskhadov. 

Moscow wants to negotiate ``with those Chechens who understand, not those 
with weapons in their hands,'' Troshev said on the NTV television station. He 
said the new strategy called for ``the apprehension or elimination of the 
bands' leaders.'' 

Russian forces have had little success ousting rebels from strongholds in 
Chechnya's southern mountains since invading the republic in September, and 
the conflict shows no sign of ending soon. Russia relies on air and artillery 
raids on the rebels, who strike back with ambushes on Russian convoys, often 
behind federal lines. 

Rebels also have launched sporadic attacks in Grozny, the Chechen capital, 
even though the main rebel contingents fled the city this winter. Two Russian 
checkpoints in Grozny were shelled on Wednesday. 

The city's military commandant, Gen. Vasily Prizmelin, on Friday denied any 
full rebel detachments are still in Grozny, but said individual rebels remain 
and may have infiltrated the local police forces. 

Occasional calls for negotiations with Chechens have also brought little 
result, partly because Moscow's conditions for talks are not likely to be 
met. Moscow says the rebels must lay down their weapons and abandon their 
drive for independence. It also says they must turn in suspected 
hostage-takers who made Chechnya extremely dangerous for both Russians and 
foreigners in the years after it gained de-facto independence in a 1994-96 
war with Moscow. 

Meanwhile Friday, federal jets kept up bombing raids near the border between 
Chechnya and the neighboring Russian region of Dagestan, where rebels have 
attacked federal troops. 

Dagestan was the site of several rebel incursions last year leading to the 
Russian ground offensive that began in September, and the federal command has 
said the militants are planning more attacks inside the republic. 

Russian officials said they were also bracing for attacks in Chechnya's 
largest towns - Grozny, Gudermes and Argun - according to Interfax news 

Some Grozny residents on Friday went about trying to restore some sense of 
normalcy to the city, devastated by intense air and artillery shelling. Teams 
of women cleared debris from main streets and applied new coats of paint to 
the local mayor's office and several other administrative buildings left 
standing after the Russians' months-long siege. 

Without electricity, water or gas and a lack of tools or money, the progress 
was slow. The women said they received extra humanitarian aid for their work, 
but had not been paid anything. 


Putin bungled last great spy task -German official
By Adam Tanner

BERLIN, May 26 (Reuters) - Russian President Vladimir Putin badly bungled his 
last assignment as a KGB agent in East Germany, causing the collapse of a spy 
ring, an official overseeing East German secret service records said on 

``He was not very good. His success rate, as far as we know it, was not good. 
He made a great mistake,'' said Johannes Legner, spokesman for the Berlin 
government agency which runs the archives of the East German secret police, 
the Stasi. 

Putin worked from 1984 to 1990 as a KGB spy in Dresden, in Communist East 
Germany, before working his way up in post-Soviet politics to take the 
Kremlin this year on the strength of a reputation as a clear-headed operator 
who gets things done. 

Yet it appears he blundered during perhaps his most important assignment 
after the 1989 fall of the Berlin Wall. 

His mission, according to Legner, was to recruit a spy ring that would 
continue to spy on Moscow's behalf after East Germany's impending collapse. 

``He organised a network that was acting out of Dresden, infiltrating towards 
Munich (in the west),'' Legner said. 

Putin turned to colleagues in the Stasi with whom he had collaborated closely 
in previous years but who were fast losing their once considerable influence 
as East Germany crumbled. 

``He used former MfS (Stasi) people for it but one of these people, if you 
want, defected,'' said Legner, whose agency is known as the Gauck authority 
after the former dissident pastor who runs it. ``This guy went later on to 
our (West German) counter-intelligence and told them the whole story.'' 

``This was one of his most important guys, he was an instructor for the 
group, so they located the whole group and found out whom he wanted to use.'' 

Legner said that after the Putin-recruited spy's defection to the West, 
officials made several arrests related to the case. 

``If you choose the wrong person, the central figure of a network you 
construct, and this person defects after two months, that's a real 
catastrophe,'' Legner added. 

``Any case officer in London or Washington or wherever in the world would get 
a lot of problems for doing this.'' 

``The funny thing is that soon after this (in 1990) Putin disappeared,'' 
Legner said. ``You could speculate that he had to get out of Germany because 
this network was uncovered.'' 

``The problem is that now our government does not want to deal with it,'' 
Legner said. ``As long as the guy is so important they don't want to deal 
with it and disturb the relationship with such old stories.'' 


Putin returned to the Soviet Union and by 1992 left the KGB. 

Whatever his record there, after some years as a deputy governor of his home 
city of St. Petersburg he became head of the KGB's successor, the FSB, before 
being hand-picked last year by President Boris Yeltsin to serve as prime 

Yeltsin stepped down on New Year's Eve and made Putin acting president, 
astounding a world that knew little of his past in the shadows of Cold War 
espionage. The 47-year-old was elected president in March and inaugurated 
earlier this month. 

Putin has said little about his work as a KGB agent in Dresden, but former 
Stasi officers have told Reuters he was an efficient, loyal Communist who 
spoke excellent German. He even won a low-grade Stasi medal for his 
cooperation in 1987. 

Putin has described fending off an angry crowd in front of the KGB's Dresden 
headquarters after the fall of the Berlin Wall, telling them he worked as a 

The present German government has declined so far to release the Stasi files 
on Putin, who is to visit Germany next month. 

So far, Putin has not announced any plans to visit Dresden during an official 
visit to Berlin on June 15-16. Last week he named another former KGB spy who 
served in East Germany, Sergei Lebedev, to serve as his new foreign 
intelligence director. 


Putin denies attacking Russian regional bosses
By Patrick Lannin

MOSCOW, May 26 (Reuters) - President Vladimir Putin hit out on Friday at 
critics of his plans to shake up the way Russia's regions are run and denied 
he was trying to weaken the country's powerful regional leaders. 

Putin, initiating the most radical administrative reform since former 
President Boris Yeltsin rewrote the constitution in 1993, wants the right to 
sack governors and deprive them of their right to sit in the upper house of 

It has been widely seen as an assault on the governors themselves. Russia's 
regions have won wide autonomy from Moscow since the collapse of the former 
Soviet Union in 1991. 

Putin denied this was the case. 

"Those who want to undermine our joint actions by provocative statements, who 
want to undermine efforts to consolidate the federal authority, will fail," 
RIA news agency quoted Putin as saying. 

"My actions are aimed at making the federal authority more effective rather 
than weakening regional authorities," he said. 

He sharply criticised "provocative elements who want to cause a schism in 
society and undermine our unity." 

However, Putin's representative in the State Duma, the lower house of 
parliament, caused tempers to rise on Friday when he was quoted as saying 
some governors who were against the scheme were worried about being 
prosecuted if they lost their immunity. 


Alexander Kotenkov, Putin's Duma envoy, was quoted by Interfax news agency as 
saying his remarks did not concern all governors but only those who were most 
opposed to the reforms. 

The Duma must first approve the four laws which set out Putin's reforms and 
they are expected to win wide backing. 

They must then be approved by the Federation Council, the upper house which 
is currently made up of the regional leaders, where they might meet greater 

Putin has asked parliament urgently to pass the laws to allow him to make his 
reforms. Removing the governors from the upper house weakens their influence 
on a national level and also removes the key benefit of immunity from 

He has also created seven huge federal districts with hand-picked Kremlin 
envoys with strong powers to monitor regional authorities. 

Another key event in reinforcing Putin's power was due on Saturday, when the 
pro-government Unity group holds a special conference officially to turn 
itself into a political party. 

This formality was to gain more substance by the expected adhesion to Unity 
of a number of smaller centrist and right-leaning groups, giving Unity more 

One of the parties expected to merge with Unity was Our Home is Russia, an 
earlier "party of power" created by the Kremlin and led by former Prime 
Minister Viktor Chernomyrdin. 

"The time has come for the formation of a stable, two-party system," 
Chernomyrdin, whose party did badly in a December parliament poll, was quoted 
by Russian news agencies as saying. 

"We need the kind of party which would unite the democratic wing," he added, 
saying such a force was needed to outweigh the only other mass party in the 
country, the Communists. 

Unity, led by Emergencies Minister and Putin ally Sergei Shoigu, did far 
better than expected in the December election and is the second largest party 
in the Duma. It was only created two months before the vote and its 
association with the popular Putin was credited with winning it so many 


May 26, 2000
Emperor Putin To Create Court

Vladimir Putin is continuing to develop the concept of the State Council, a 
symbiosis of the Federation Council and a council of elders. On Thursday, May 
25th, the Russian president not only declared his support for the State 
Council but also spoke about life-long membership. 

The idea of creating the State Council was first mentioned by Vladimir 
Putin on Tuesday during a ceremony to introduce the presidential envoy for 
the Northwestern federal district, Viktor Cherkessov to the governors of the 
federal districtís regions. Putin said he saw nothing wrong with the concept 
of creating an advisory body, the presidential State Council that would 
include all the present members of the Federation Council. 

Putin, however, did not disclose who conceived the idea, not that it is all 
that important. On Thursday, Putin presented the concept with such enthusiasm 
that the idea suddenly acquired a new and a very pleasant resonance for the 
members of the upper house. 

On Thursday, Vladimir Putin introduced his envoy to the Central Federal 
District, which includes Moscow and the Moscow Region, to the governors of 
the district. The President provided another portion of novel concepts 
concerning the future of federal relations and federal power structures. 

Putin envisages that the State Council should consist of many, if not all the 
regional governors and presidents of autonomous national republics. However, 
the heads of regional parliaments would not become Council members. Most 
likely, they would keep their posts in the new Federation Council. 

Apart from the 89 regional governors and presidents, around 40 top officials 
would presumably enter the State Council: those are the presidential envoys 
to the newly formed federal districts, government officials and even the 
functionaries of presidential administration. However, the real sensation is 
that some could be made State Council members for life. 

Vladimir Vladimirovich (Putin) said that regional leaders who are elected for 
two terms would qualify for life-long membership of the State Council. The 
President did not specify whether the governor has to be elected for two 
consecutive terms or for two separate terms, with a breakÖ 

In Putinís Russia, in order to remain governor very good relationship with 
the presidential administration must be established and maintained, because 
even if one wins the regional elections, the joy of victory will not last 
long without the presidential seal of approval: on May 31st the State Duma is 
to consider a bill submitted by the new President of Russia to bestow upon 
the head of the state almost boundless powers to suspend elected regional 

Thus, one can interpret Putinís proposal as follows: those who are allegiant 
and obedient will be granted State Council membership for life, the ultimate 
trophy in the competition to prove loyalty to the Kremlin and V.V.Putin 

On the surface one cannot find obvious faults with the proposition in so far 
as those who have run regions for 8 years (1 term is 4 years) are surely good 
leaders. There is no other means for assessment. So let them be the State 
Council member for life. 

To clarify his position Putin said, ďWe should not let people with such 
experience go and work in commercial structures.Ē This statement is yet 
another sensation as it vividly illustrates Vladimir Putinís attitude towards 
business and towards all spheres not related to public service. 

As of today, it is absolutely clear that Putin intends to develop a state 
structure based exclusively on administrative organs, the army and special 
services. The oligarchs will be put at equidistance from the Kremlin, while 
others will be destined to work in business, in Putinís view a 
disadvantageous occupation. Still, one might try his luck and enter the 
public service. Very soon it could be a rather nice career. One can assume 
that further development of the State Council concept and the principles of 
state structure will take place at the next meeting between V.V.Putin and the 

Alexander Kornilov, Elena Ogorodnikova 


Date: Fri, 26 May 2000 
Subject: The Putin Question 

As Dale Herspring mentioned, we have been in a dialogue over Putin and his
policies. As one who spends too much time reading contemporary conservative
nationalist works, I may be too sensitive to the authoritarian/bureaucratic
bias in Putin's policies. Ed Crane suggests that concern about Putin's KGB
connections are miss placed because Primakov was also KGB. I would suggest
that this reflects a fundamental misread of the two men's connections with
the KGB, generational associations, and their world views. Putin has the
mentality of a classic chinovnik who believes that the larger the stamp, the
greater the power; the more telephones on the desk, the further the reach.
His is a society of hierarchy, order, and authority from the top down -- no
one commands before he has learned to obey. Centralization creates unity of
effort and a well-running machine with a single mind and purpose. There is
no place for alternative centers of power, matrix organization, social
autonomy, or contractual arrangements. His model is one optimized for
military and police structures. Unity of command is essential to defeat an
external. Taken over to domestic affairs, it seeks to create a
well-regulated police state at best or becomes an invitation to arbitrary
executive action (proizvol). 

Crane is quite right to ask about options. Federalism, as inherited from the
Soviet Union and then adapted by Boris Yeltsin and his administration via
bilateral arrangements, has been a land mine waiting to explode. Putin has
chosen to attack the problem bureaucratically through the institution of the
seven FDPs. His choice of officials to head the FDs are instructive. 

Crane asks about options and invokes a comparison with Clinton's and
Lincoln's options. This as an historian I find fundamentally false. Putin
is dealing with a deep national crisis of complex dimensions and dynamic
interactions. Clinton is simply irrelevant. Lincoln, of course, inherited a
deep crisis, which his election turned into open conflict and war. Lincoln's
crisis was at its very heart constitutional [states' rights] and social [the
issue of slavery]. It is worth noting that Lincoln tried to confine the
conflict for two years to the constitutional issue. This was in keeping with
national tradition and the balance of political forces in the North. He may
have acted arbitrarily toward state authorities in particular cases -- using
troops to prevent the Maryland legislature for sitting and so having a
chance to vote secession -- but he made no broad assault on state power in
the name of federal authority until the costs of the war demanded a shift to
unit the Union war effort over the abolition of slavery. In this act, he
sanctioned the confiscation of property [slaves] without compensation to
their former owners. Even then while waging total war on the south's economy
he did not mount an attack on federalism. That assault had to wait for
Reconstruction and the attempt to use the Army to role the South, which
proved a political and military failure. In short, Lincoln had a
constitutional context to his crisis and sought to stay inside it. His
successful prosecution of the war may have been the single greatest act of
enhancing federal power in the Nation's history [Before the civil war we
said: "The United States are." And after we still say; "The United States
is." But he tended to try to stay with the accepted framework for resolution
even as the course of events imposed choices among more radical

Russia's political history has no defining constitutional context, no clear,
positive manifestation of popular sovereign will. The break-up of the USSR
may have been inevitable, but the deal struck by Presidents Yeltsin,
Kravchuk, and Shushkevich was never put before the people for ratification.
Russia has a constitution written in the aftermath of a coup/counter coup by
and for Boris Yeltsin. It was ratified but never really debated. Its
federalism is a bastard child of Soviet federalism [party-state democratic
centralism] and Yeltsin's political arrangements. Its presidency is strong
and its parliamentary institutions weak. Its courts have no autonomy. Local
government is weak. That the center has been ineffective and that regional
governors and republican presidents have taken more power was almost
inevitable. But Putin wants to return to a tradition outside the existing
constitution or the practices of the last decade. He wants to restore
central executive authority. To have a unified machine. He does not seem to
understand that society needs autonomy and the rule of law -- not a
dictatorship. His call is for "order" but it is order at the expense of
build a consensus from below. It is a bureaucrat's answer to a complex set
of social, economic, and political problems. It does not seek to build an
alliance with the parliament but to by-pass it. It talks of laws but
judicial autonomy. It is the world of that well-ordered police state.
Russian traditions, Putin's supporters would argue, endorses such an answer.
But that is only partly true and ignores the a tsarist tradition of granting
some regions greater autonomy because they had well-developed institutions
for self role and the repeated crises when autocratic state-building decided
to abridge such autonomy [Congress Kingdom, Grand Duchy of Finland, and
Baltic Gubernias]. Putin's is an imperial system that would impose order
from above without reference to local rights or interests. Yet, such local
rights and interests are the bedrock of a civil society. The quick fix of
recentralization will only kill off any chance for gradual autonomous
development. And that is, in fact, the most likely path to a stronger and
more prosperous Russia. That would not be an easy path nor would it lead to
rapid solution. But it would provide a chance to link the parts of Russia
together on the basis of voluntary union from below, framed by shared
economic interests, and common values. Rather than mobilizing local
interests against the abuses of the governors, Putin has turned to a
bureaucratic answer that promise nothing for local concerns. 

Those who endorse Putin's path seem to be saying that centralization is the
only way to save Russia from dismemberment. I fear that the attempt at
recentralization will set in motion the disintegration of the state itself
unless there is something more than the policeman's order supporting the


Date: Fri, 26 May 2000 
From: "John Helmer" <> 

Coming in The Journal of Commerce
John Helmer

The Three Stooges had three famously ineffective methods of arranging what to
say or do in unison.

There was the double-finger poke to the eye; the rapid nose lift; and the 
skull crusher. They were hilarious to watch. But as for getting each 
stooge to follow his brothers, they always failed.

In preparation for President Bill Clinton's summit meeting in Moscow this
with freshly inaugurated President Vladimir Putin, two important Russians 
have been in Washington. 

Andrei Illarionov, Putin's economic advisor, came to persuade the Clinton 
Administration that he's in charge of the Russian economy. He announced that 
Russia had received a stunning increase in foreign investment this year of $9 
billion -- a number he managed to inflate by counting the rise of the Central 
Bank's reserves. But by the time he got back to Moscow, Illarionov had been
been dumped, and given the job of the president's special representative for 
problems of the G-7 industrial countries. This is the bureaucratioc 
equivalent of the Flying Dutchman -- a job of endlessly circling the globe, 
talking to people about problems he cannot return home to do anything about. 

Anatoly Chubais, once President Boris Yeltsin's chief of staff and currently 
the head of Russia's national electric utility, came to persuade the American 
establishment that he too is in charge of the Russian economy. Chubais has 
always had friends at the U.S. Treasury and on Wall Street. He has looked 
after them. They have looked after him. That was reassurance enough for 
Yeltsin, who counted on Chubais to convince U.S. policy-makers they should 
think of no alternative, and spare no expense to keep him in power. 

But Chubais had no influence on the recent selection of the Russian 
cabinet; he also had no chance of being appointed to it. The most he can do
to turn the nation's lights off, but even his threats to do that are no
credible. His biggest gamble -- the drafting of a program of 
economic reforms by another protege, German Gref -- was pigeon-holed before 
it was finished. 

Gref himself has been given the liberal economist's equivalent of 
prison with hard labor. He is now in charge of a ministry where he will be 
obliged to meet every hour of the day with industry and farm lobbyists. As 
Russia's new trade chief also, Gref must defend domestic producers from 
injury from imports, and from discrimination in foreign markets. Gref must 
now practice the opposite of what he imagined he was preaching.

Even those officials, like new Finance Minister Andrei Kudrin, who were once 
Chubais factotums, are now so loyal to Putin, they won't dare protect 
Chubais, when Putin decides his usefulness is over. 

For a decade now, every presidential summit meeting between the US and 
Russia has included in the communiques a reference to economic reform as the 
key to American support for what Russia does next. Russian officials like 
Illarionov and Chubais have always interpreted the codeword to mean 
Washington's support for them in their factional struggles with rivals in 
the Kremlin and in parliament. The Clinton Administration has grown cynical 
with the codeword, privately acknowledging that even when reform turned into 
massive corruption, Russia's rulers were still "ours".

Now that there is a new man in the Kremlin -- and one who is closer to 
Europe than to the United States -- it is too early for the reform codeword 
to mean anything. Sure, it will be said a dozen times or more this week in 
Moscow. But it isn't as persuasive as the double-finger poke to the eye; and 
it isn't funny.


May 23, 2000
NG-Politekonomiya (Appendix to Nezavisimaya gazeta)
Sergey Glazyev,
Statement to the Conference "Russia: 2000. A Look Into the Future",
organized by Morgan Stanley Dean Witter Comp.
[translation for personal use only]
Dr. Sergey Glazyev is Chair of the Duma Committee on Economic Policy and

In spite of encouraging developments that are present in the Russian
economy, I would like to address you with a few warnings about detrimental
consequences of ignoring certain factors that may divert Russia from stormy
economic revival and may lead to depression.

Since last summer, the rate of economic growth declined virtually to
nothing. A revival began only in December 1999 and continued until March. It
was caused by the increase of financial resources in the hands of the

By now, it can already be said that this revival is also coming to an end.
And it is worth noting a paradox: the slowdown of rate of economic growth
occurs under conditions when its potential is far from being exhausted. As
of today, the utilization of capacities in the real sector of the economy is
only about 50%. And this means that a half of the country's industrial
facilities stand idle.

The experience of individual enterprises demonstrates that, in case
favorable macroeconomic situation is sustained, about a half of this idle
capacity could be put to work. That is, the room for growth on the basis of
existing resource capacity is no less than 25%. And this is without taking
into account necessary investment of any significance.

Internal savings are being used very little to improve investment climate.
Only a small amount of available savings is invested in the development of
production, the rest is either appropriated at some intermediary stage or is
being simply pumped into foreign bank accounts.

It is very important to establish controls over the development of the real
sector of the economy. The Central Bank begins to move in this direction, by
setting up a mechanism of issuing credits to commercial banks with the use
of viable productive enterprises as collateral. Such a mechanism is strongly
necessary for the government to react to real sector problems as regards

In order to ensure steady economic growth, government policy should resolve
the task of a threefold increase in investment into the real sector of the
economy. Let us note that this amount of investment is required merely to
ensure simple reproduction. Today's level of investment in the real sector
is clearly insufficient for the replacement of aging production capacities.

Of course, in order to get out of economic depression toward a steady
economic growth, a full-scale legalization of Russian economy on the basis
of new technologies is required. The task to be set is to improve investment
climate by several degrees. For this, it is advisable to use a fairly broad
spectrum of instruments to support investment climate, beginning with the
creation of favorable conditions on the part of the financial institutions
and up to government-sponsored financial programs.

Regrettably, one has to admit that over the ten years of market reforms the
working of the market iself was rather weak. I believe that in the
foreseeable future development of competition and curbing of monopolistic
practices will set the compass for economic growth.

Today's levels of population incomes are insufficient for an efficient
regulation of demand that would be able to impart a steady character
necessary for the industrial revival. Therefore, the restoration of normal
compensation levels for Russian employees (who are grossly underpaid) is
also one of the crucial factors that would contribute to the strengthening
of economic growth.

(...) A first serious danger which may block the growth of the Russian
economy may arise from the exit of industrial capacities. The depreciation
of fixed industrial capital has reached two thirds of the total, and in the
coming years we have to expect a half of industrial capacities to become
unusable. To compensate for this today requires a threefold increase in the
level of investment.

A second danger is related to the level of demand. This threat stems not
just from the abrupt decline in population incomes over the years of
reforms, especially after the 1998 financial collapse, but also because of
the contraction of the budget that is enormously burdened by foreign debt

A third danger is caused by uncertainty about the ways of utilization of
those additional funds that will inevitably enter the economy as a result of
the expected influx of foreign investment. Among Russian experts, there is
no doubt about the forthcoming wave of foreign capital inflows. In fact, it
is already there, and one of its observable consequences is the rapid
increase in the Central Bank's hard currency reserves.

Russian financial market is a very advantageous playground for making
large-scale profits through increasing the price of shares of Russian
companies. Today, from the point of view of world standards of valuation of
enterprise assets of this category, these shares are underpriced. And
speculative investors are aware that this a very propitious moment of
opportunity for entering Russia's financial markets to obtain superprofits
through the growth in the price of shares on the stockmarket. Expected
inflow of speculative foreign investment is, according to various estimates,
between 20 and 30 billion US dollars. This is about the same amount that
already went through the Russian market over the previous period.

In fact, this is tantamount to a twofold increase of money in circulation.
There would be two dangers that would stem from it. The first is related to
inflation caused by the channeling of circulating capital over to the
foreign currency market. This is the threat that monetary authorities were
figting in 1996-1998, by erecting the pyramid of Treasury bills (GKO),
during the previous inflow of foreign investment. This pyramid did help to
stabilize capital flows, but it led to financial collapse in the course of
its self-destruction. Regrettably, there are clear signs that our monetary
authorities may yet again move along this same path. In this case, we will
have yet again a barrier that would prevent the capital from moving into the
real sector of the economy. This barrier will consist of high profits on the
speculative financial market, artificially supported through government

Another threat would emerge in case the Central Bank does not issue rubles
in the amount corresponding to the inflow of foreign currency. As a result,
we would have a substantial appreciation of the rouble's real exchange rate,
as it happened in 1994-1996, with predictable consequences for the
competitiveness of the real sector of the economy.

Thus, in spite of the superficially favorable macroeconomic indicators,
Russian economy will face quite serious problems.

In my view, institutions regulating financial flows ought to create
instruments for channeling money into real sector development. If
developmental institutions begin to function, if mechanisms of government
guarantees to attract private investment into the real sector are used to
their full capacity, if favorable macroeconomic conditions are created, then
this excess capital would go into production development, which would allow
to improve substantially the financial condition of companies and to ensure
economic growth. In this case, speculative foreign investment would be
accompanied with the growth of real-sector production, which would enable
Russian economy to attain steady growth of no less than 5% yearly.

If this does not happen, then the inflow of speculative investment would
lead either to the appreciation of the rouble's real exchange rate, or to
the erection of new financial pyramids, and we will not manage to fulfill
the aforementioned task of a threefold increase in investment. If this
scenario were to be implemented, the volume of productive industrial
capacities would decrease by a quarter, and over three years, by half. As a
result, in five to six years Russian economy will enter the period of very
stringent and objectively conditioned resource constraints. This will apply
to fixed industrial capital as well as to infrastructure and even to
extractive industries.

In effect, we have only a few months to choose the right course of economic
policies which would allow for taking opportunity of the favorable economic
and political situation in order to move to a steady and rapid economic
upswing. And the latter is quite possible, assuming adequate economic policy
measures will be taken.


Voice of America

INTRO: The onslaught of computer viruses like the 
recent "Love Bug," and growing cases of online credit 
card fraud has brought the world's attention to 
computer crime and the vulnerability of the internet. 
Moscow correspondent Eve Conant reports much of this 
crime originates in Russia, where overeducated and 
underemployed young computer specialists strive to 
become world famous "hackers" capable of breaking into 
secret and lucrative databases.

A crowd of young men and teenage boys applaud the 
leader of Moscow's first annual "hacker congress" -- 
26-year old Ilya Vasilyev. He stands before the crowd 
wearing a purple T-shirt, which advertises his school 
for Russian hackers with the words, "all information 
should be free."
/// Vasilyev Act in Russian, fade under 
"Before, people thought it was impossible to teach 
hackers, that a true hacker is a hacker by birth. But 
I disagree," says Ilya, brushing his long hair from 
his eyes. "And I will show you how to create an 
environment favorable for developing hacking skills."

But Russia already is a favorable environment for 
hackers. For one, the country's combination of over-
educated and underemployed specialists is a recipe for 
computer hackers. Russia's hacker community was 
infused with professionals following a financial crash 
in 1998 that left many computer programmers and 
businessmen financially destroyed and out of work.

/// Opt /// Another typically Russian strength is a 
deep tradition of science. Russian students excel at 
mathematics and physics, and the Soviet education 
system encouraged and produced vast numbers of 
"engineers" in various technological fields. /// End 
Opt /// Eduard Proydakhov, editor-in-chief of the 
magazine PC Week, says the number of internet users in 
Russia doubles each year, and the amount of internet 
crime is skyrocketing.
/// Proydakhov Act in Russian, fade under 
to translation ///
Russian hackers are different than other people. 
A Russian hacker has fewer resources, so he is 
forced to be more inventive.
/// End Act ///
/// Begin Opt ///
In 1999 hackers broke into the state gas monopoly 
Gazprom's computer system, which controls pipeline gas 
flows. Russian hackers even reached as far as the 
United States, systematically hacking into Defense 
Department computer systems.

Russia is still largely a cash-based society, so a 
great deal of computer crime in Russia targets foreign 
consumers or banks. In the mid-1990s, one young 
hacker in St. Petersburg managed to break into a 
computer banking system in New York and transfer out 
millions before being caught and jailed.

Solving cyber crimes in Russia is difficult 
considering the country's underpaid police force, 
which lacks the training to combat high-tech crimes as 
well the absence of laws concerning computer issues.

But Dimitry Chepchugov, head of "Department-R" -- the 
Interior Ministry's high tech crime division -- says 
things are improving. His men have uncovered more 
than 200 computer-related crimes this year, including 
the arrest in April of a five-member cyber gang, 
caught using a fake on-line shop to defraud Russian 
and foreign credit card holders of at least 630-
thousand U-S dollars.
/// Chepchugov Act in Russian, fade under 
translation ///
They were almost all youngsters between 14 and 
18 years old who had mastered computer 
techniques. But they were being controlled by 
professional criminals.
/// End Act ///
/// End Opt///
Many of Moscow's young hackers have visited Ilya 
Vasilyev's one room apartment, home to Moscow's only 
"shkola hackerov" or "hacker school." They are not 
allowed to smoke or drink -- only to focus on 
/// Begin Opt ///
/// NAT Sound computer typing up and under 
20-year-old Sergey Tsaregordsky studies computer 
science at a Moscow university, but comes to 
Vasilyev's tiny apartment twice a week for hacking 
/// Tsaregorodsky Act in Russian, fade 
under translation ///
If I could find a place where they really know 
how to train programmers, I would study there. 
But there is no good place in Russia, we just 
have to teach ourselves.
/// End Act///
/// End Opt ///
Teacher Vasilyev insists that despite his own 
background as a computer hacker who pirated software, 
he is not encouraging young computer whizzes to apply 
their skills in computer crime.
/// Vasilyev Act ///
During my childhood we cracked programs and 
distributed them for free. It was like our 
donation to society. If we take some program 
from a capitalist society and it was protected 
by some computer defense, we thought it would be 
good to crack this program, to bring the program 
to the people. It was a form of honor, like 
Robin Hood who brings programs to the people.
/// End Act ///
/// Opt /// He insists he is doing society a favor by 
training young hackers, and is sure his students will 
not decide on a life of crime.
/// Vasilyev Act ///
I can feel people. If I look at a person and 
see that the knowledge I am giving him he will 
use to commit a crime, that my art will not 
bring him happiness but will take him to prison, 
then I will not take this student.
/// End Act ///
/// End Opt ///
But perhaps those are naive words. At Vasilyev's 
"hackers congress," 15-year-old Yaroslavl admitted his 
aims were hardly pure.
/// Yaroslavl Act in Russian, fade under 
translation ///
I want to stand out from everyone else, not just 
sit and fiddle around on computers to no end. I 
want to make some big break-in, all by myself.
/// End Act ///
/// Rest Opt to End ///
Or there is 21-year old Gosha, a hacker who refused to 
give his last name. He says Russia's federal Security 
Services, the F-S-B, often recruit people like him to 
dig out information on suspects. But Gosha says he is 
more often approached by criminals who want him to do 
their dirty cyber work.
/// Gosha Act in Russian, fade under 
translation ///
People often come to me and ask me to break into 
some system. Usually they are workers trying to 
break into their organization's database and 
steal money from their own company.
/// End Act ///
One outdoor market in Moscow for years has been openly 
selling pirated software. Perhaps it is the best 
proof of what all the Russian hackers say: until 
Russia's police and legal system catch up with the 
times and with the growing hacker industry, cyber 
crime in Russia will continue to go unpunished and 
will, in fact, flourish. 


"Putin's Power Move Bears Close Watch"
from the May 26, 2000 edition of Newsday,
By Dimitri K. Simes and Paul J. Saunders
(Mr. Simes is President of The Nixon Center and Mr. Saunders is the
Center's Director.)

Russian President Vladimir Putin's recent moves to re-establish central
authority over his country's far-flung regions and republics are
unobjectionable on the surface. After all, many regional leaders have
essentially become feudal lords who have abused their power at the
expense of both their constituents and Russia as a whole. 

Some regions, such as Bashkortostan, Tatarstan and Ingushetia, have
written constitutions that contradict Russia's constitution or federal
laws in important respects. Similarly, leaders in many regions are
elected and re-elected without even the pretense of democratic

Yegor Stroev, chairman of Russia's Federation Council and the governor
of Orel, is an excellent example: He succeeded in disqualifying all
serious challengers. Ultimately, he ran against a collective farm
manager who said that, while she was on the ballot to ensure a
legitimate election (at least two candidates are necessary), she herself
would vote for Stroev. 

Under such circumstances, it is hardly surprising that numerous
governors were re-elected with more than 90 percent of the vote. 

Key to the governors' power is the fact that they often control not only
their regions' executive branches, but also local legislatures, judges
and media outlets. This has predictably led to widespread corruption and
disregard for civil liberties. 

Even in Moscow--which has relatively liberal standards--Mayor Yuri
Luzhkov and his obedient city legislature have systematically refused to
comply with federal laws on residency for years. Although Russians today
have the legal right to live anywhere in their country, Moscow continues
to require special permission (often denied) and registration of those
who want to reside in the city.

Under such circumstances, it is easy to understand the support across
Russia's political spectrum for Putin's initiatives to make regional
leaders more accountable to the Kremlin. Pro-government parties, the
Communists and the liberal opposition party Yabloko all support new

Communist leader Gennady Zyuganov said that the "historical traditions
of Russia demonstrate the need to strengthen (central) authority." But
few things are simple in Russia. Even with their obvious imperfections,
the governors have been an important check on the power of Russia's
super-presidency. They have provided insurance, of sorts, against strong
authoritarian rule. 

But if Vladimir Putin receives the new powers he seeks--which the
parliament is inclined to give him--he will gain the authority to
dismiss regional leaders and legislatures. This could remove a
constraint on the president and may create a concentration of power
unseen since the days of Josef Stalin. 

Even if one assumes that Putin's intentions are benign, these powers are
troubling. And that is not an easy assumption to make. 

In addition to seeking the right to dismiss the governors and
legislatures, Putin has already established a new Kremlin administrative
structure to manage the regions by appointing seven new and stronger
special representatives to oversee large districts created by multiple

They replace 89 weaker officials--one sent to each region--who were
often more dependent on local officials than vice versa. 

Of the seven presidential representatives, five have backgrounds in the
military and security services. The men appointed to the districts
including Moscow and St. Petersburg, federal cities with status
equivalent to regions, are both career KGB officers. The St. Petersburg
representative, Lt. Gen. Viktor Cherkesov, has been especially
controversial because of his role in the suppression of dissidents in
St. Petersburg (then Leningrad) in the 1980s. 

Putin has argued that the driving force behind the appointment of the
seven representatives was a desire to coordinate the work of federal
agencies in the regions more effectively and assure local compliance
with federal legislation. 

But his personnel choices hardly suggest that protecting the rights and
enhancing the prosperity of Russian citizens will be the principal focus
of the new general-governors. 

The impression that Russia is turning in an autocratic direction is
reinforced by attacks on press freedom and the continuing brutal war in

Still, there are many blanks to fill before we will be able to pass
final judgment on Vladimir Putin's intentions, let alone his ability to
make them into reality. 

The Kremlin has yet to propose specific procedures through which the
governors and local legislative bodies would be dismissed. Once the
measures are proposed, they must be approved by the parliament. 

If the process is handled through two separate court decisions, as some
Putin aides have suggested, and if the courts are allowed to be at least
autonomous (if not independent) from the government, cutting regional
leaders down to size may serve a useful purpose. Of course, it also
remains to be seen to what extent the presidential representatives will
rely on KGB techniques to influence local authorities. 

This is not the time to condemn Putin's moves pre-emptively; rather, his
actions should be watched carefully with an open mind. 

When President Bill Clinton arrives in Moscow in early June, he and
Secretary of State Madeleine Albright should raise the issue--not by
giving in to their instincts to lecture Russians about the virtues of
democracy and market economics, but by telling Putin as a point of
information that Americans are increasingly concerned by developments in
Russia that suggest new limits on democracy. 

If these developments continue, they should explain, it may have a
serious impact on Washington's attitude toward Russia and on the ability
of any U.S. administration to support Russia's integration into the
world economy--something Putin seems to desire strongly. 


St. Petersburg Times
May 26, 2000
Kudrin Survives To Secure Top Post
This is the first in a series of short biographies of members of Vladimir 
Putin's government who - like the president himself - come from St. 
By Charles Digges

If you ever get a chance to wander around St. Petersburg's Finance Committee 
offices behind the city legislature, any janitor or long-term civil servant 
can point out the cramped offices where Alexei Kudrin, now a first deputy 
prime minister, used to work as the city's chief economist - alongside the 
head of the External Economic Relations Committee, one Vladimir Putin.

But although Kudrin has risen to the top of the heap, his track record in St. 
Petersburg was slammed by those who took over the city's financial reins when 
Anatoly Sobchak lost to Vladimir Yakovlev in the 1996 gubernatorial elections.

In the early, heady days of the Sobchak regime, Kudrin's office was also 
frequented by Anatoly Chubais, and the two worked out a privatization plan in 
the early 1990s for St. Petersburg, which later became a model for 
privatization throughout the country.

Jump forward to 1996, and the golden boys of Petersburg economic reform were 
retreating in ignominy. Sobchak's administration was smothered in corruption 
and mismanagement allegations, including a real-estate scandal that had the 
former mayor hot-footing it to Paris, and new boys Igor Artemyev, Vyacheslav 
Shcherbakov and Yakovlev blasting Kudrin for having allowed a 2.4 trillion 
ruble ($500 million by 1996 exchange rates, or 23 percent of the total 1995 
budget) hole in the city coffers - money, it was hinted by local press, that 
went to finance Sobchak's failed re-election bid.

The scandal capped a number of failed experiments: setting St. Petersburg up 
as a free economic zone; an obvious lack of serious foreign investment in the 
city, while Moscow - whose own mayor, Yury Luzh kov, had refused to abide by 
the Petersburg privatization model, and who was by now presiding over 
indubitably the hottest economic spot in the country; and a series of city 
budgets that got progressively shorter and laughably opaque.

Kudrin, who enjoys a reputation as a liberal, tight-fisted economist of the 
Chubais school, defended the budget deficit he bequeathed Artemyev by calling 
it "within accepted norms."

His reward? A ticket to Moscow - like nearly all of Sobchak's closets aides - 
to join the federal administration.

"His friendship with Chubais [who was then Boris Yeltsin's chief of staff] 
was everything," said Leonid Kesselman of the Russian Academy of Sciences. 
"Anyone on his good side at that point was guaranteed support and a new job."

Kudrin went on board as head of the Kremlin General Control office, the 
agency that enforces presidential decrees, which Kesselman said was surely a 

"Kudrin is a very bad administrator and should have stuck to his talents, 
which is number crunching and finding money," Kesselman said.

(Kudrin graduated from the economics department of Leningrad State University 
- Putin's alma mater - in 1983, and did his post-graduate work at the 
Economic Institute of the Academy of Sciences of the Soviet Union.)

One of his first jobs in Moscow was to enforce a presidential decree to fire 
the deputy governor of the Primorye region, Mikhail Savchenko, over wage 
arrears to coal miners - and put Gov. Yevgeny Nazdratenko on notice that he 
could be next.

The initial firing of Savchenko was a feather in Kudrin's cap, but 
Nazdratenko, who is still office, was a more intractable case and still runs 
the Primorye region like a fiefdom.

So Kudrin moved on, appointed in 1997 as a first deputy finance minister - 
again under Chubais.

But as Yeltsin fired one government after another, putting Chubais through a 
political revolving door, Kudrin just kept bouncing back. Including Mikhail 
Kasyanov, Kudrin has now served under seven prime ministers.

"He survived because he laid low," said Kesselman. "He has no aspirations for 
a ministership or the bureaucracy, so he's not dangerous to the ambitions of 

With Chubais back in favor of the Kremlin through his connections to Putin, 
Kesselman expects that Kudrin will have a stellar career. "He's one of the 
best, and can bring great good to the country," said Kesselman.

In a recent interview on NTV's Geroi Dnya, or Hero of the Day, Kudrin said 
his priorities under the new government will be to create a less opaque tax 
system, and hinted at more pension hikes for the elderly - two things he 
singularly failed to do in St. Petersburg.

He also said the Finance Ministry plans no increase in defense spending on 
Chechnya in 2001.

"Now we have more funds to spend, not on ... the army, but on reconstruction 
in Chechnya and enabling troops to settle down there for good," he said.



St Petersburg, 26th May: The United States' possibly withdrawal from the 
Anti-Ballistic Missile (ABM) Treaty will lead to the destruction of nuclear 
stability in the world, the commander-in-chief of the Russian Strategic 
Missile Troops, Vladimir Yakovlev, has said. 

The disagreements between Russia and the US on the ABM Treaty "are also being 
transformed now into a problem of relations between the USA and NATO 
member-states, for the principle of equal security between the allies is 
being violated", Yakovlev said on Friday [26th May] in St Petersburg. 

This process may either involve "the transformation of the antiballistic 
missile defence and its spread to Europe, or its being completely stopped at 
the current phase of development", he said. Otherwise, it could lead to even 
further strengthening of the dominant role in NATO played by the USA, and a 
change in the principles for equipping intercontinental ballistic missiles 
with warheads, Yakovlev argued. 

He said he hopes that "the two great powers will be able to come to an 
agreement, for the world would otherwise face nuclear anarchy". 

Pointing to the connection between the ABM, START-1, START-2 and START-3 
treaties, consultations on which latter have already begun, the Russian 
commander noted that "violation of even one of them could lead to the gravest 
consequences, up to nuclear unpredictability and the destabilization of the 
situation in the world". 

On the subject of the construction of the Globe-2 radar station in Vardo, 
Norway, Yakovlev noted that "judging by its technical characteristics, that 
radar is not an element of an ABM system". However, "the information obtained 
by the radar station could be used to develop and improve the antiballistic 
missile system, as it is able to cover the whole northwestern area within a 
2,000-2,500 kilometre radius, including our northern cosmodromes, routes and 
sites for space vehicle launches in the North Sea". Furthermore, "there is a 
theory that the US is ready to deploy in Europe a sea-based antiballistic 
missile system", Yakovlev noted. 



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