Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List

Johnson's Russia List


June 17, 2000    
This Date's Issues: 4371  4372  4373

Johnson's Russia List
17 June 2000

[Note from David Johnson:
Prior warning for careful readers: A week from now I will
arrive in Moscow and will be there until July 3. There may be a 
JRL vacation during this period.
1. Reuters: Russian media mogul freed amid growing outcry.
3. MOSCOW TRIBUNE: Stanislav Menshikov, WILL THE GUSINSKY AFFAIR HURT INVESTOR CONFIDENCE? Foreign Businesses are Not Exactly in 
Love with the Oligarchs.
4. Komsomolskaya Pravda: Six Little-known Facts From the Life of the Oligarch.
5. Kommersant: “Media-MOST” Doesn’t Own NTV Anymore.
8. Carnegie Moscow Center's New Book: Multi-Dimensional Borders of Central Asia.
9. Novaya gazeta: Boris Kagarlitsky, The Decay of Yabloko and the Void on the Democratic Left.
10. The Globe and Mail (Canada): Amy Knight, Crime and punishment.
The arrest of Russian media tycoon Vladimir Gusinsky has sent shock 
waves around the world. 
11. Jamestown Foundation Monitor: CHUBAIS FACES INVESTOR REVOLT AT UES.
12. AFP: Do Not Fear New Russia Says Putin.]


Russian media mogul freed amid growing outcry
By Oleg Shchedrov

MOSCOW, June 16 (Reuters) - Media magnate Vladimir Gusinsky, charged with 
embezzlement, was unexpectedly freed on Friday, one day after President 
Vladimir Putin said prosecutors acted too harshly by jailing the owner of 
Russia's only independent media empire. 

``I want to express my deep gratitude to all people who supported me,'' a 
relaxed Gusinsky said, shown by his NTV television station standing outside 
his Moscow office. ``I am not naming these people because the list is too 

Dmitry Ostalsky, spokesman for Gusinsky's Media-MOST holding company, said 
the authorities of Moscow's overcrowded Butyrskaya jail received orders to 
free him at 10 p.m. (1800 GMT). 

``He was just told to pack up and go,'' Ostalsky said by telephone. Gusinsky 
had to promise not to leave Moscow. 

Earlier on Friday Gusinsky, who had been detained on Tuesday, was formally 
charged with embezzlement. Investigators then refused to free him and said 
they were unlikely to reconsider their decision before next Monday. 

Interfax news agency quoted a statement from the Prosecutor General's office 
as saying that investigators had taken into account the fact that Gusinsky 
had been awarded a Russian order. 

This fact had been known from the day of his arrest. 

Gusinsky's detention stirred fears at home and abroad of a clampdown on press 
freedoms. Many political and business leaders in Russia bitterly protested 
against the arrest. 

Leaders of Spain and Germany, where Putin spent most of this week, also asked 
for details of the scandal over the media empire, whose television network, 
radio, newspapers and magazines are known as bitter critics of the current 
Kremlin administration. 


Putin said on Thursday he believed the arrest of Gusinsky was excessive, but 
denied suggestions that it was the start of a general crackdown on the free 

On Friday, at a joint news conference with German Chancellor Gerhard 
Schroeder, Putin repeated his view. ``I don't think the prosecutor should 
have taken a step like arrest,'' he said. 

Gusinsky's chief lawyer, Genri Reznik, suggested that his release late at 
night aimed to tone down public reaction. 

``This has been done to avoid public celebration of his release,'' RIA news 
agency quoted Reznik as saying. 

Gusinsky is charged with embezzlement in the course of the acquisition of a 
television company in the second city of St Petersburg, a charge punishable 
by up to 10 years in prison if proved. 

His lawyers have denounced the charges as groundless and said they would 
fight to have even travel restrictions lifted from their boss. 

In theory, Gusinsky, who has been awarded a Soviet order ``Friendship of 
People'' could benefit from the latest amnesty announced last month. But he 
is unlikely to use this opportunity because it could leave an impression he 
admitted the charges. 


Gusinsky's detention has already caused a considerable headache for Moscow. 

U.S. Jewish leaders and 52 U.S. Congressmen appealed to Putin on Thursday to 
free Gusinsky, saying the case could harm Russia's efforts to win more 
foreign investment. 

The head of the European Bank for Reconstruction and Development, the largest 
investor in the private sector in East Europe and the former Soviet Union, 
said the move raised the question of whether Russia had its priorities right. 

``Why is this a concern? Because the arrest of the media-company chief 
appears discriminatory. We don't know if Mr Gusinsky is guilty or innocent. 
But we know all too well that a myriad of crimes -- notably in the 
financial-services arena -- are not being prosecuted,'' its Acting Vice 
President Charles Frank said in an opinion piece sent to the Wall Street 

Eight U.S. senior executives from the U.S.-Russia Business Council, founded 
by former U.S. Ambassador to Russia Robert Strauss, put off a visit to Moscow 
on June 20-21 because the arrest had raised ``serious political and legal 


Source: `Segodnya', Moscow, in Russian 16 Jun 00 

Text of statement by Media-Most chief Vladimir Gusinskiy from Butyrka prison 
entitled "Regime begins move towards totalitarianism", dated 15th June 2000 
and published in the Russian newspaper 'Segodnya' on the 16th 

It is the third day that I have been illegally deprived of my liberty. The 
third day that none of those who staged this squalid show have been able to 
tell me clearly not only in legally defensible, but also in grammatically 
correct or even articulate language the regime's charges against me! During 
the first official interrogation I witnessed the perfectly incredible scene 
of two investigators spending almost half an hour interrupting one another 
and arguing in a vain attempt to produce a form of words for their suspicions 
against me. I could not describe their flimsy case in my deposition as 
anything but legally and semantically absurd, evidence of the investigation's 
complete lack of professionalism and unfamiliarity with fundamental Russian 

However, it is very easy to explain all the difficulties experienced by the 
Prosecutor's Office and those who provide them with informational and 
political cover - and they, regrettably, include former staff and journalists 
who worked previously at Media-Most. This is a political intrigue organized 
by high-ranking representatives of the "regime" for whom freedom of speech 
poses a danger and an obstacle to the implementation of their plans to build 
what they see as the "new Russia" but is in actual fact a backwards move to 
the totalitarian past - in the past there was also a "strong regime" with 
Gulags and "dictatorship of law" with appointed judges who were "overseen" by 
the CPSU [Communist Party of the Soviet Union] Central Committee. In 
addition, freedom of speech - freedom to know the truth about many 
representatives of the current regime - means a personal threat, a threat to 
their power, their uncontrolled income, their opportunity to commit arbitrary 
acts in the name of and under the protection of the state machine. 

It cannot be denied that in this period I have seen for myself that human 
malice, hypocrisy and cynicism know no bounds. Anyone who has been a coward 
or a traitor, will easily understand that I am referring to them. So, there 
is no point in naming names. They are, regrettably, well known and in the 
public domain. 

Nonetheless, that is not why I am sending you this note. I am profoundly 
grateful to those who have backed me now in a situation where every word of 
sympathy or support for me and my colleagues could be viewed as a challenge 
to the regime - a regime which has begun the move towards the creation of a 
totalitarian regime, whether it realizes it or not. I will not hide the fact 
that there have been far more courageous people prepared openly to voice 
their opinion than I expected. It is just a shame that the need for this 
unity and mutual support has arisen in such dramatic circumstances. 

[Signed] Vladimir Gusinskiy, Butyrka prison, 15th June 2000 


From: "stanislav menshikov" <>
Date: Fri, 16 Jun 2000 

"MOSCOW TRIBUNE",16 June, 2000
Foreign Businesses are Not Exactly in Love with the Oligarchs
By Stanislav Menshikov
Normally one Russian businessman's arrest should not cause serious anxiety
in international financial circles. Even though Mr, Gusinsky is the
principal owner of a large holding company, his interests are mainly in
publishing and media which are not widely represented in the stock market
and are not known to be an important object of foreign equity investment..
It is true that the holding, Media-Most, has not been in good financial
conditions for some time and that it was recently forced to heavily borrow
money from foreign creditors. Some of these loans were given under
guarantees from Gazprom, the natural gas monopoly that happens to be a
significant minority shareholder of NTV, the largest privately owned TV
company in Russia and controlled by Media-Most. Given Gazprom's current
financial condition, its guarantee should be adequate to protect Mr.
Gusinsky's empire from bankruptcy.
This situation could change if the Russian government sought to refuse to
continue providing subsidies to NTV via preferential prices charged for
use of state-owned transmission facilities. These subsidies date back to
the time of Viktor Chernomyrdin (former boss of Gazprom and its current
chairman of the board) and his hand-picked minister of communications.
Today's premier, Mr. Kasyanov, is widely considered a representative of
rival Berezovky-Abramovich oligarchic group which, apart from competing
with Gusinsky for general political influence, is also a direct competitor
with Media-Most in publishing and national television. The current
of communications is a member of Putin's Saint Petersburg group and, by
definition, no friend of Gusinsky. And the minister for media affairs, Mr.
Lesin, whose business is to approve licences of newspapers and TV
companies, is at best neutral, but more probably a secret foe of Mr.
Gusinsky's. Which means that the state subsidies to NTV might well be
renounced under a suitable pretext. Whether this happens should be clear
in the near future.
The current public outcry caused by Mr. Gusinsky's arrest is not
unexpected. First, his media which had actively supported former president
Yeltsin in the 1996 election, has more recently turned against his
successor, Mr. Putin and his party ("The Bear") in the recent
and presidential elections. This media has followed a consistent
anti-government line on Chechnya and the has played up dictatorship and
KGB associated with the Putin presidency. Because of this conflict Mr.
Gusinsky's arrest is widely emanating from the Kremlin inner circle, seen
as a general attack on press freedom and as a attempted return to a mild
version of Stalin's Gulag. Despite Mr. Putin's public refutals, these
accusations are partly true. Whether these attacks will indeed succeed in
creating a reptile media is subject to grave doubt. Both domestic and
international pressure on the president to free Gusinsky from detention
fire Putin's underlings who are directly responsible for the arrest is
pretty strong.
It has to be noted, however, that when criminal charges were raised
two other oligarchs, president of the SBS-Agro bank Mr. Smolensky and
Logovaz boss Mr. Berezovsky, under Primakov as premier, this brought no
wide protests from the Russian business community and hardly caused a
ripple in the West. In fact, western politicians and media have been
constantly accusing Yeltsin and the "family" (to which Putin allegedly
belongs) of favouritism towards the oligarchs and of being an important
source of widespread corruption at the top. It is true that those
were not arrested (largely because they fled the country) and charges
against them were eventually dropped. But the discrimination in favour of
Mr. Gusinsky is obvious.
That most of the multimillion Russian oligarch fortunes were at least
partly amassed by illegal or semi-legal means is obvious. A basis for
criminal persecution could be found against any of them. The political
has been demanding an investigation of the sources of their riches for
years. Prior to the elections Mr. Putin promised that there would be no
reversal of privatisation except for clear-cut cases of illegal behaviour.
In the Gusinsky case, Putin is carefully following that line. The media
baron is charged for alleged participation in the illegal privatisation of
a Saint Petersburg state owned company. Will Putin continue this line
against the other oligarchs? Most of them are scared. But not the
Berezovsky-Abramovich clan. 
It therefore seems that Mr. Gusinsky's arrest is primarily a matter of
settling matters between different Mafia groups that constitute the
Russian ruling elite. Should foreign investors worry about these
under-the-rug dog fights? Yes, and no. Yes, because it is a sign of
continuing high political risks. No, because the general business climate
in Russia is improving and the Putin regime is generally friendly to
business, particularly foreign investors. The probability that Mr. Putin
would want to restore a "Gulag for businessman" is fairly low. 

Foreign investors should worry more about the threat that Russian
might easily rip them off (like in the case of RAO UES restructuring by
Mr, Chubais) than about the attempts (albeit clumsy) of the government to 
free them of criminalisation. 

Russia Today press summaries
Komsomolskaya Pravda
June 16, 2000
Six Little-known Facts From the Life of the Oligarch

1. As a sophomore at the Moscow Institute of Oil and Gas, Vladimir Gusinski 
was dismissed for not keeping up with the group and skipping class. Some 
gossips say that the reason for this was cards and black-marketing. His 
military service was spent in the ranks of anti-air strikes defense.

2. After the Army, Gusinski graduated from the Institute of Theater Arts 
(Gitis) with a degree in directing and worked as a theater director in Tula. 
In the beginning of the 80’s he returned to Moscow and worked part-time as 
private carrier on his father’s car.

3. In October of 1986, he was charged with robbery. Gusinski supposedly 
promised his lawyer, Yakov Katenel’son, to sell his car and took out 8,000 
rubles on it. He never sold the car and never returned the money. The case 
was dropped due to lack of evidence.

4. Gusinski and Luzhkov became friends through their wives. In the mid-80’s 
their soon to be wives met at an organization for corporation registration, 
where they worked together. From then on, they have been friends, as their 
current husbands are.

5. In 1989, the KGB received an anonymous letter that Gusinski, heading a 
corporation “Infex”, gave bribe money to the substitute of the Minister of 
Exterior Economic Ties of the USSR, Shestakov, and other officials for their 
collaboration on pacts made with foreign partners. The organs came to a 
conclusion: Gusinski will work with the fifth department of the KGB, under 
the alias of Denis and is used in the circle of theater intelligence. 
However, they never put this into work.

6. In January of 1996, Gusinski created the Russian Jewish Congress. He owns 
real estate in Spain, England, the US, and France. His wife, Elena, live in a 
prestige region of London, Chelsea, where her spouse has a fancy mansion.


Russia Today press summaries
June 16, 2000
“Media-MOST” Doesn’t Own NTV Anymore

Yesterday the president of holdings at “Media-MOST”, Igor’ Malashenko, said 
that legally no one can take away NTV, even for their debts. The television 
company really doesn’t belong to MOST, at all.

Vladimir Putin said that businessman Gusinski accrued debt summing up to 1.3 
billion dollars, including those from “Gazprom”. Yesterday Malashenko 
answered Putin in the hotel Astron, “Even if we twist “Gazprom” you cannot 
establish control over NTV. We have, for a long time, been building a system 
of interaction and a system of defense. This is why even if “Gazprom” does 
everything the Kremlin wants, they will not get control of NTV. Attempts will 
be made in this direction, of course. This is what the long term attack 
program of MOST consists of.”

Malashenko has said this before, but then it was looked at as just PR. MOST’s 
debts to “Gazprom” sum up to 200 million dollars ­ the entire commercial 
market in Russia for the year 2000 costs approximately the same. Even if the 
company goes to court and attempts to bankrupt MOST, they will probably not 
get their sum of money. Then the court will be forced to name it temporarily 
in charge of MOST, which carries much authority, including the firing of any 
managers, of course with the proper documents. Then Gusinski would not have 
his media empire any longer.

NTV, however, does not belong to MOST. Last November, when “Vnesheconombank” 
was asking for 42.2 million from MOST, it led to active production. The 
courts investigated every property of MOST, including their stocks. After 
several months it became clear that MOST holds no stocks in NTV so legally 
for debts they can only take away MOST from Gusinski. This is exactly what 
Malashenko meant when he said a “system of defense” against the government 
and creditors.


Source: Russian Public TV, Moscow, in Russian 1700 gmt 14 Jun 00 

["Here and Now" evening news slot presenter, Aleksandr Lyubimov, interviews 
Minister for the Press, TV and Radio Broadcasting and Mass Communications 
Mikhail Lesin] 

[Lyubimov] Shall we begin with the matters directly to do with your job, that 
is, mass media. People are sitting in front of the television and listen to 
what is happening. I mean, they know that something is happening but I do not 
think they quite understand what exactly. 

[Lesin] I agree, we are having this situation for the second day running. 
Today, I went to the Prosecutor-General's office to meet its representative 
and tried to find out if there was indeed any threat to the freedom of media, 
of which there has been made so much noise lately. I also wanted to get more 
information about the this Russian Video company case and find out whether 
there is going to be any danger for other media companies - members of the 
Media-Most holding as well as any other media companies active in the Russian 
Federation at present. 

I can now assure you that there is no danger whatsoever for the media, and 
the Prosecutor-General's Office has no intention to curb journalists' 
activities in any way. The Prosecutor-General's representative stated this to 
me in very clear terms... 

[Q] The matter is not just about media companies. Although your comment 
brings some clarity to the matter, the information itself is the issue here. 
In the recent past, we came to believe the authorities were becoming more 
predictable. But to what extent was Gusinskiy's arrest predictable? Do you 
know anyone in the government who was not surprised about it? 

[A] I think practically everyone was surprised about this arrest. Indeed, I 
cannot recall any incident lately whereby such a prominent public figure, a 
proprietor of a great number of media outlets which occupy such a large 
sector of the market was taken into custody. However, there have been 
instances in which people of such a high standing featured as suspects in 
criminal cases, some of them are still under investigation. Nevertheless, 
incidents like these happen world over. Media magnates in other countries - 
Berlusconi for example - also spend some periods in their lives in prison for 
whatever reasons. Naturally, the public follows such events closely, trying 
to figure out the reasons behind such conflicts: whether this is about 
political pressure or just a way for the state to demonstrate to its citizens 
that conditions and opportunities in the country are equal for all. 

I do not agree that this particular case poses any danger to the freedom of 
speech. I know that the freedom of speech has become in the past six months 
or so one of the dangers most frequently declared. But as a minister, I can 
state with full responsibility that in the past six to nine months while I 
was in this post, I received no complaints based on any real evidence either 
against the ministry or judiciary bodies in connection with violation of the 
freedom of speech... 

The authorities never had, and never will have any intention to cut off, stop 
the work of, or try to influence media companies in any other way. 
Regrettably, such allegations are still being made and will continue to be 
made. But we only had a very short time to learn to live under the present 
political climate and adopt proper journalist ethics... 

As a minister, I would prefer such things not to happen at all, because it 
complicates relations in the mass media market as well as relations between 
the state and the mass media. This brings confusion to the terms and 
conditions which we have already established in the media market... 

I cannot call Gusinskiy a journalist, but his whole media holding naturally 
depends on him and his views. The mood of his employees and their attitude 
towards the state and society will also be affected. At the same time, I 
should emphasize that the law must be equal for all. There can be no special 
people - by virtue of their public or financial standing - who can be treated 
differently under the law. As a state official I know that I have to act in 
strict compliance with the law... 

As we know, Vladimir Vladimirovich [Putin] has only one, very clear and 
unambiguous position regarding this matter: there can be no free society 
without free mass media. Our president has no other position on the matter at 
present. Russia's future lies in a free society... 


Nezavisimaya Gazeta
June 16, 2000
[translation from RIA Novosti for personal use only]
By Lyudmila ROMANOVA

The presidential administration is taking on a new shape:
Alexander Voloshin signed job distribution instructions the 
other day. Not that the administration is in for cleansing or a 
serious reshuffle. On the contrary, the Kremlin administrators 
display bureaucratic conservatism and prefer promoting staffs 
who have been tested in the latest election battles. 
Sergei Medvedev was appointed the first deputy chief of 
the Kremlin staff a week ago. The career of the man from St.
Petersburg who has headed Putin's election staff, is clearly on 
the rise: he is becoming the Number Three in the Kremlin table 
of ranks - after Putin and Voloshin. Moreover, Medvedev will 
have to largely monitor matters that only recently have been in 
the chief's turf - from events with the president's 
participation to concrete political decisions. 
The new presidential administration's outline makes 
clearly discernible the Kremlin's political priorities for the 
foreseeable future. This newspaper has learned of the formation 
of two new departments in Voloshin's domain. A territorial 
department and a department of internal policies have 
supplemented the already existing control department and state 
law department. 
Andrei Popov, a former assistant to Voloshin, will be 
placed in charge of domestic policies. He will have to take on 
relationships with the two chambers of the Federal Assembly and 
a variety of religious, cultural and public outfits. Popov will 
also have to tackle some of the matters that used to have been 
entrusted to the political planning department, seen as the 
personal project of deputy administration head Dzhokhan 
The department will likely be disbanded, and Ms. Pollyeva will 
return to writing speeches for the president. 
The main political department will be subordinated to 
deputy administration head Vladislav Surkov. Voloshin is about 
to entrust this former Alfa-Group man with suggesting domestic 
policies to be used by the president and himself. 
The territorial department, which from now on will be a 
'main' department, will continue to be headed by Sergei 
Samoilov and monitored directly by deputy administration chief 
Alexander Abramov. Its turf will be probably the most delicate 
and sensitive task - that of enacting the president's project 
of reforming the territorial-administrative setup in the 
Dmitry Kozak may be instrumental: he has been charged to bring 
regional laws in line with the Constitution. 
The main departments of state law and of control will be 
exempt to change. Incidentally, Vladimir Putin has started his 
Kremlin career in the latter. Nothing has changed in the 
department since: its functions still include control over the 
distribution of budgetary resources to territories and regions. 
Interestingly, the economy is formally outside the 
Kremlin's political priorities. For months, the economic 
department in the presidential administration has been expected 
to be disbanded.
And although it has been preserved - but not elevated to the 
level of a 'main' department - Voloshin will continue to deal 
with economic matters personally. 
Judging by the presidential administration's new 
structure, the Kremlin wants to make all basic political 
decisions itself.


Date: Fri, 16 Jun 2000 
From: KatyaSh@CARNEGIE.RU (Katya Shirley)
Subject: Carnegie Moscow Center's New Book

Dear David:

The Carnegie Moscow Center has recently released a new publication: 

"Multi-Dimensional Borders of Central Asia" 
by Martha Brill Olcott and Aleksei Malashenko (eds.) 

This book includes articles by five Central Asian authors based on papers
first delivered at a conference that was organized in Cholpon-Ata,
Kyrgyzstan from October 19-20, 1999 by the Carnegie Moscow Center. I believe
this publication will be of interest to the readers of your list.

The book is published in Russian. The full electronic version in Russian can
be accessed at:

The English-language contents and summary of the book are at:


June 15, 2000
Novaya gazeta
Boris Kagarlitsky
The Decay of Yabloko and the Void on the Democratic Left
[translation for personal use only]

Five years ago, political prospects of the Yabloko movement appeared to be
certain and rather impressive. Having filled the niche of the "democratic
opposition", the organization led by Grigory Yavlinsky clearly vied for the
support of all those who had become disillusioned with oligarchical
capitalism but were not ready to join the communist ranks. And these people
are quite numerous, even if they don't make the majority of the country's
Today, after its defeats in the presidential and parliamentary elections,
the Yabloko party is struggling to survive. (...) Not only did the party
leaders fail to undertake a critical review of their policies, they did not
even provide a substantive analysis of developments in the country, having
limited themselves with general declarations about the need to struggle for
democracy and human rights. (...)
Yabloko's misfortunes cannot be accounted for by references to electoral
fraud. Undoubtedly, the practice of electoral fraud is a part of our
realities, but it is not directed against Yabloko only. It creates same
problems for the communists as well as for the Fatherland and for
independent candidates. Meanwhile, the electoral decline of Yavlinsky's
party has been registered by all analysts, even after taking into account
the exploitation of "administrative resources" by Yabloko's opponents, which
reduces its electoral results by 2 to 3 percentage points.
(...) The Yabloko leaders complained that in 1999 their votes were hijacked
by people from the Union of Right-Wing Forces (SPS). (...) As admitted by
Yabloko, voters did not see much of a difference between Yavlinsky's and SPS
platforms. And this admission raises an interesting question: how might it
have occurred that, from a voter's point of view, the platform of the
"principled democratic opposition" turned out to be indistinguishable from
the platform of a right-wing party which openly declared its support for the
(...) After the elections, Yavlinsky has been increasingly active in his
attempts to mend fences and establish a dialogue with his liberal rivals on
the right - in the name of the "democratic consolidation". The first step
toward such a consolidation was made still in the course of the campaign, by
Yevgeny Savostyanov, who withdrew his candidacy in Yavlinsky's favor. The
latter, however, did not gain any new votes as a result. New steps in the
direction of the "unification of the democrats" will only lead to Yabloko's
irreversible loss of its stature as an opposition force. It will become
increasingly involved in the legislative servicing of the Kremlin needs.
Yabloko's ambivalence on the issue of the Labor Code is a clear sign of this
tendency. On one side, Yabloko deputies seem to have proposed their own
version of the Code, which is somewhat different from the governmental
draft. Yet, on the other hand, the party is clearly unwilling to fight for
its position, because this would exacerbate its relationships with its
prospective partners on the right...

The secret here is rather simple: Yavlinsky's policies are dictated by the
logic of the Russian intelligentsia's view of liberalism. (...) A liberal
intellectual facing Kremlin's activities responds along the lines of a split
personality: he condemns authoritarianism, without taking notice of the fact
that dictatorial powers are required for the authorities to conduct the very
same liberal reforms which this intellectual so ardently supports. From the
standpoint of the majority of Yabloko followers, actions of the Putin
administration betray a contradiction between its "good", liberal economic
inclinations and its "bad" authoritarian politics. The contradiction indeed
exists, yet it is not in the Kremlin's actions but rather in the
intellectuals' consciousness. (...)
In this situation, the intellectual is unfailingly confident that the
failures of the government's economic policies are caused by erroneous
personnel policies, corruption, authoritarianism, etcetera. He is unwilling
to think that the opposite equation may be true. The intellectual is sure
that were he or his ilk put in the place of the bureaucrats in power,
everything would have gone well. Alas, the experience demonstrates that the
advancement of the children of the intelligentsia into government jobs does
not change the rules of the game (it makes no difference whether the
intelligentsia's appointee is a radical marketeer of Yegor Gaidar's type, or
a moderate financial expert from Yabloko like Mikhail Zadornov.
(...) As long as it is not understood that the specific conditions of Russia
create an organic link between authoritarianism and market liberalism, it is
impossible not just to understand what is going on, but also to formulate a
democratic alternative. (...) It is impossible to continue same policies in
a "democratic" way. A large portion of society does not want liberal reforms
of any kind. What remains is either to take into account the opinion of at
least a half of the country's population, or, yet again, to apply coercion
and pressure. The former option is called democracy. The latter is
liberalism a la Russe.
In other words, the choice is rather simple: either to be with society
against the authorities, or with the authorities against society. Sure, one
can always say that society makes a mistake. Society can be on the wrong
side, and this happens quite often. But the essence of democracy is that
"advanced minority" is not to be allowed to impose its will on the backward
majority. It is even more so given that the ambitions of Russian liberals to
profess the most advanced and the only true teaching are in any case no more
convincing than were the similar claims of the Bolsheviks.
Freedom and human rights are to be defended from no one else but from
liberal reformers and from their reforms that are being imposed from above.
In the situation when Russia is going through the process of the
establishment of a right-wing authoritarian regime, a democratic opposition
logically ought to position itself on the left. This situation is not
changed in the slightest by the fact that the officially recognized "left",
that is, Zyuganov-led communists, are just as hopeless as the officially
anointed democrats. The inefficiency of the Communist party in its capacity
of an opposition force is caused first and foremost by its unwillingness to
occupy the left-wing niche. (...) It is understandable that the heirs of the
CPSU nomenklatura will not turn into revolutionaries. (...) They are pleased
with the nationalist and the authoritarian, "great-power" bent of the
regime, but they try hard not to see the direct connection between this
great-power bent and the economic "liberalism" of the authorities. It looks
like, in spite of all their mutual resentment, the CPRF and Yabloko have
been caught in one and the same trap, even though they jumped into it from
two different sides.


The Globe and Mail (Canada)
June 16, 2000
Crime and punishment
The arrest of Russian media tycoon Vladimir Gusinsky has sent shock waves
around the world. It's very apparent, says Amy Knight, that Russia's
President doesn't tolerate criticism
By Amy Knight (
Amy Knight teaches political science at Carleton University. She is the
author of several books on Russian history and politics, including Spies
Without Cloaks: The KGB's Successors and Who Killed Kirov? The Kremlin's
Greatest Mystery.

Vladimir Putin is playing an old Kremlin trick. On a state visit to Spain
this week, the Russian President and former head of the Russian security
service, claimed that he was shocked -- shocked! -- by Tuesday's arrest in
Moscow of multimillionaire media tycoon Vladimir Gusinsky, whose irreverant
TV shows have frequently lampooned the Russian leader.

It's a time-honoured technique of official denial that dates back to the
czars: the innocent, well-meaning leader betrayed in his absence by
conniving subordinates. But, given the outraged reaction in both Russia and
the West to what is widely interpreted as an attempt to muzzle Russia's
independent media, Mr. Putin's claim of innocence was understandable. Why
not let the Russian prosecutor-general, whose office carried out the
arrest, take the rap? After all, both of Mr. Putin's predecessors, Mikhail
Gorbachev and Boris Yeltsin, evaded responsibility for unsavoury acts of
force by feigning ignorance, and they got away with it.

In April of 1989, Soviet troops shot 19 Georgian demonstrators in Tbilisi.
Mr. Gorbachev, who was conveniently away from the Kremlin just as the
confrontation was brewing, claimed he never authorized troops to be called
in. Two years later, he portrayed himself as completely taken aback when
Soviet forces stormed the television tower in Vilnius, killing a large
number of civilians. But when both episodes were later scrutinized by
official commissions, the trail of evidence pointed straight to Mr. Gorbachev.

Parallels with Mr. Yeltsin are even more striking because, in his case, the
victim was none other than Mr. Gusinsky. In December of 1994, Kremlin
security forces under the authority of Mr. Yeltsin's top bodyguard,
Aleksandr Korzhakov, burst into the offices of Mr. Gusinsky's Most Bank in
Moscow, allegedly searching for illegal weapons. After Moscow security
police were called in, Mr. Korzhakov's men backed off.

The operation was botched, but its purpose was clear -- to intimidate Mr.
Gusinsky and his supporters. Mr. Yeltsin denied any knowledge of the raid,
but he later promoted his bodyguard.

Mr. Yeltsin laid off Mr. Gusinsky after that -- the media mogul even
supported the president against the Communists in the 1996 presidential
election -- and Mr. Yeltsin was remarkably tolerant of media criticism for
the rest of his tenure. But Mr. Putin is more thin-skinned.

In January, he approved the arrest of Radio Liberty journalist Andrei
Babitsky, who reported Russian atrocities in Chechnya, and then personally
labelled Mr. Babitsky a traitor.

The move against Mr. Gusinsky's independent television, radio and newspaper
group was a logical next step. The biting satirical puppet show Kukly,
which reaches 100 million TV viewers, is one of the most widely watched
programs in Russia. Last month, Media-most offices were raided by masked
police commandos, and the Kremlin threatened to force Kukly off the air if
it did not remove its Putin puppet from the program.

Despite the increasing pressure on Media-most -- and other independent
news outlets -- this week's action against Mr. Gusinsky came as a shock to
even the most seasoned observers of Russian politics. Called to the
prosecutor-general's office to answer questions about Media-most's security
department, Mr. Gusinsky was arrested on charges of fraud and placed in
Moscow's notorious Butyrka prison to await a formal indictment.

Responding to reporters' questions in Spain, Mr. Putin insisted that the
prosecutor-general, Vladimir Ustinov, was acting on his own initiative.
"The prosecutor-general's office is an independent body that makes
decisions on such questions independently," he said, adding that he tried
to get in touch with Mr. Ustinov but was unsuccessful.

For a man with little sense of humour, Mr. Putin certainly can say some
laughable things. However much people want to believe him -- and many
apparently do -- the President's comments strain credulity. The
prosecutor-general's office has never acted independently. Throughout the
Soviet period, it meekly followed the orders of the Communist Party
leadership and the KGB. Today, it operates under the Russian president, who
is authorized by the Constitution to appoint the prosecutor-general and to
remove him from office (with the approval of parliament), and co-ordinates
its investigations with the KGB's domestic successor, the Federal Security
Service, an agency closely tied to Mr. Putin.

Not authorized to interfere? Mr. Putin seems to have forgotten that just
last year, when he was head of the FSB, he led a concerted campaign on Mr.
Yeltsin's behalf to thwart the efforts of the then prosecutor-general, Yuri
Skuratov, to prosecute business tycoon Boris Berezovsky on charges of
corruption that were said to be well-founded. (Mr. Berezovsky was a member
of Mr. Yeltsin's clan and later the main backer of Mr. Putin's candidacy
for the Russian presidency.) In a recently published book of interviews,
Mr. Putin actually described how he, then prime minister Yevgeny Primakov
and Mr. Yeltsin called Mr. Skuratov to a meeting and showed him a videotape
(which many say was filmed by Mr. Putin's FSB) of the prosecutor cavorting
with prostitutes. They then suggested that he resign.

If Mr. Ustinov, the prosecutor-general, had instigated this latest
sensational arrest on his own (or at the request of other members of the
Putin administration, as some commentators have suggested) he would have
been fired. But Mr. Ustinov, whose rather lacklustre career in the
prosecutor's office dates back to the Leonid Brezhnev era, does not strike
one as a risk-taker. When he was confirmed in his post as
prosecutor-general last month, he gave all the signs of being a team player
who supported Mr. Putin's agenda.

As he told members of parliament's Federal Council, he intended to complete
the investigation of "high-profile cases without undue fuss" and "with the
support of the Russian Federation president." With the arrest of Mr.
Gusinsky, the prosecutor-general followed through on his promise. But he
may well end up losing his job anyway. Faced with an increasing world
outrage over the plight of Mr. Gusinsky, Mr. Putin appears to be rethinking
his strategy. In Germany yesterday, he said Russian prosecutors had "gone
too far," and the word from Moscow is that they will release the media
tycoon on bail.

Released or not, Mr. Putin can rest assured, Mr. Guzinsky and the rest of
Russia's independent media got the message. 


Jamestown Foundation Monitor
June 16, 2000

CHUBAIS FACES INVESTOR REVOLT AT UES. Anatoly Chubais, chief executive officer
of Russia's United Energy Systems (UES) electricity monopoly, is facing a
revolt among the foreign investors who supported his appointment at UES last
year. According to his critics, Chubais' program for restructuring UES by
selling off the company's power generating assets will destroy shareholder
value and is responsible for the sharp dive UES share prices have taken since
March. A closer look at electricity-sector trends, both in Russia and
internationally, suggests that Chubais' predicament is more complicated, and
more difficult than the criticisms imply.

Chubais is often regarded as one of the foreign investment community's best
friends in Russia. He played a key role in Russia's privatization program
during 1992-1996, and was Moscow's negotiator with the international financial
institutions during the 1998 financial crisis. Foreign investors--who hold
a 33
percent equity stake in UES--generally cheered Chubais' appointment to head
the company in 1999. 

The applause has now stopped. "Chubais stubbornly sticks to a plan which
destroys the value of the shareholders. Liquidating the company to local
investors is not a real restructuring," Bill Browder, manager of the US$450
million Hermitage Fund, told the Moscow Times on June 7. According to Browder,
Chubais' restructuring program "is using various good words like
'restructuring' to justify a horrible destruction of value for shareholders."
According to James Fenkner, an equity strategist at the Moscow-based brokerage
firm Troika Dialog, "There is a significant group of investors who believe the
restructuring is not being run in their interests" (Bloomberg, June 6).
Criticism of Chubais' restructuring program also came from Federal Securities
Commission head Igor Kostikov, who in early June wrote a letter to Prime
Minister Mikhail Kasyanov calling for significant changes to Chubais' program.
"It is clear that during a sale at such prices, the interests of shareholders,
including the main shareholder, the government, would suffer," Kostikov said.
The Moscow Stock Exchange, on which UES shares constitute one of the largest
and most liquid stocks, apparently agrees with these sentiments. The value of
UES shares has fallen by about a third since late March, when discussions of
Chubais' restructuring program first began. This fall has reduced UES's market
capitalization by some US$3 billion, and depressed what has otherwise been a
bull market due to Russia's economic recovery and President Putin's election
(Bloomberg, June 7).

WHAT WOULD CHUBAIS' PROGRAM ACTUALLY DO? While his critics may see this as yet
another fleecing of foreign investors by Russian oligarchs, Anatoly Chubais'
restructuring program is broadly consistent with energy policies now being
pursued in many countries. In addition to fully owning the high-tension power
grid that transmits electricity throughout Russia, United Energy Systems (UES)
holds large equity stakes in seventy-three of Russia's regional power
("energos") which produce and distribute electricity to end users. UES also
owns some large generating companies outright, although many of these are
operated by the energos under long-term leases. This monopolistic combination
of power generation and transmission is not the most efficient institutional
configuration for an electricity sector. Among other things, it precludes
establishing independent power companies, which would need nondiscriminatory
access to the UES transmission grid in order to sell electricity to
distributors or end users. Some CIS governments, including Georgia and
Kazakhstan, have already begun "unbundling" generating plants from national
transmission grids. This process is further along in Poland and Hungary, where
this divestiture is a prerequisite for these countries' accession to the
European Union. In short, the separation of generation from transmission and
distribution, and guaranteeing non-discriminatory access to the transmission
grid, are increasingly seen in developing and developed economies as keys to
increasing investment, boosting competition, and lowering prices in the
electricity sector.

UES's "competitive restructuring" was first proposed by a government
in 1996, and was authorized by a presidential decree of April of that year.
Although this decree was never implemented, drafts of the reform program
sponsored by Economics Minister German Gref, which have reached the public
also call for UES to be "de-monopolized" along these lines. According to
one of
these drafts, UES's grid would be transferred to a state-owned "network
company" which would transmit electricity on a nondiscriminatory basis. The
network company's role would be similar, in principle, to that of Transneft,
the state-owned oil transport monopoly. UES would be further slimmed down by
divestitures of at least some of its generating assets. The Federal Energy
Commission (FEC) would provide beefed-up supervision of the electricity
in order to guarantee competing generating companies unfettered access to the
power grid. These reforms are seen as essential to creating the investment
environment needed to attract the US$50 billion in capital which UES estimates
is required to modernize Russia's electricity sector.

shareholders of United Energy Systems (UES) are not persuaded by these
arguments, however. The basic problem is that, in current Russian conditions,
there are few credible buyers for Russia's power generating companies. UES,
energos, the FEC and the regional energy commissions (the RECs, which set
electricity prices for local users) all have an influence on the determination
of wholesale and retail electricity tariffs. A web of political and economic
factors has caused these tariffs to decline sharply (relative to other prices)
since Russia's August 1998 financial crisis. While these declines help restore
many manufacturing companies to profitability, they have decimated the
electricity sector's financial position and undermined its attractiveness to
foreign investors. So have the continued unclear and overlapping regulatory
jurisdictions of the FEC, the RECs, and other federal and regional government

This suggests that the fuel suppliers to which UES is most indebted--primarily
Gazprom and various coal companies--could use the divestiture of UES's
generating plants to acquire these assets via debt-for-equity swaps. Regional
governments, which exercise a great deal of influence over UES via their
control over the RECs and their equity stakes in the energos, could also
benefit from UES's sell-offs. Plans to sell UES's equity stakes in 10 regional
energos during 2000-2001, in order to raise cash for the federal budget, have
heightened investor concerns about a potential hijacking of UES's sell-off by
the regional authorities.

Chubais has responded to these concerns by claiming that the sell-offs would
occur through the issuance of new stock, rather than via the divestiture of
existing assets. But in addition to marking a retreat from the goal of UES's
competitive restructuring, issuing new stock would dilute existing shareholder
value. This approach seems unlikely to mollify Chubais' erstwhile allies among
the foreign investment community. 

The controversy over Chubais' restructuring program seems premature in any
case. Chubais announced last week that the implementation of his program
requires passage of at least four new laws, as well as changes to the civil
code and other existing legislation. UES's lawyers are unlikely to finish
drafting these changes before September. Moreover, since the federal
holds a 52 percent equity stake in UES, opposition from any number of domestic
sources--both in Moscow and the regions--could bring Chubais' plans to naught.
If nothing else, the latest controversy at UES shows that--despite Russia's
economic recovery and President Putin's rapid consolidation of power--Russia
remains light years behind the leading transition economies in terms of
structural reform.


Do Not Fear New Russia Says Putin

BERLIN, Jun 16, 2000 -- (Agence France Presse) Russian President Vladimir 
Putin said Thursday that the world should not fear the new Russia he 
represents, and sought to present his country as open to the rest of Europe.

"One should not fear the new Russia. We are ready to function as a factor of 
stability," he told an audience of German business representatives.

Putin put lengthy emphasis on questions of European defense in his speech, 
saying Russia wanted to take part in the joint defense of the continent 
despite continued tensions between Moscow and NATO.

He said that when he asked if Russia could join NATO he was told "no". "In 
that case why is NATO coming closer to Russia's borders?" he asked. Putin 
said Moscow was ready to have an "active dialogue" with NATO.

The Russian president again criticized a proposed US national missile defense 
(NMD) shield.

"If we allow the break-up of the balance of forces and interests which has 
been built up in the framework of international security, that could lead to 
a very difficult situation," he said.

Putin reiterated that the NMD would lead to a new arms race.

He said that Russia would "be obliged to react appropriately to missiles 
aimed at Russia. NATO would respond. That's called a new arms race. We 
consider that very dangerous."

"Together we can avoid that," Putin added.

The Russian president invoked the "primary right of peoples" when he said: 
"Every European country must have the opportunity of taking part in European 
security policy.

"We can contribute to European security," he said.

The Russian president proposed a "denuclearised zone" in central and eastern 
Europe as "one of the next strategic tasks."

Regarding the situation in Russia, Putin said: "We are carrying out 
democratic reforms and we are ready for cooperation in economics, training, 
and culture. It would be a mistake not to do it."

He called specifically for closer German-Russian cooperation, noting that 
Germany is the leading investor in Russia and that "many Russians see Germany 
as an example of a modern state and a modern administration."

On the restitution of cultural artifacts looted during World War II, Putin 
said he was "ready to continue the dialogue" and noted that Russian law on 
the matter "rules out neither exchanges nor gestures."


Web page for CDI Russia Weekly:


Return to CDI's Home Page  I  Return to CDI's Library