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Johnson's Russia List


June 20, 2000    
This Date's Issues: 4377 Ľ 4378 

Johnson's Russia List
20 June 2000

[Note from David Johnson:
1. Segodnya: The President is Not Looking for Friends. Putin's 
International Image Has Started to Crumble, Even Before it Has 
Been Built.
2. AFP: Russian Jewish Congress accuses Kremlin of "divide and rule" strategy.
3. Moscow Times: Andrei Zolotov Jr., Elite Split on Blame for Gusinsky Arrest.
5. Reuters: Russian media firm challenges prosecutor on arrest.
6. Ekonomika i Zhizn: FACTS AND FIGURES. (re social funds)
7. Nezavisimaya Gazeta Predicts Soon Demise of Engaged Media as an Instrument of Power Play.
8. Dale Herspring: Mlitary's Social Problems.
9. Paul Backer: Inability to learn (from) Russian history and Putinshina.
10. Moscow Times: Charles Frank, Best and Worst of Times for Economy.                                   (acting president of the European Bank for Reconstruction
and Development)
11. PBS NewsHour: MUZZLING THE MEDIA? (With Michael McFaul, 
Dimitri Simes, and Ellen Mickiewicz)]


Russia Today press summaries
June 19, 2000
The President is Not Looking for Friends
Putin's International Image Has Started to Crumble, Even Before it Has Been 

On Saturday, the grand European Tour of President Putin finished. Over the 
week, he visited three countries--Spain, Germany and Moldova. And lately, 
the President's international activities have become extremely numerous-- 
this month he has also met with CIS leaders, with the U.S. President, with 
the Pope and with the Finnish President. Apparently, Putin wants to 
strengthen his position on the international stage. His style of interaction 
with Western leaders is very different from that of Boris Yeltsin, who made a 
stake at personal relations with foreign partners and always called Western 
leaders "friend Bill", "friend Riu" or "friend Helmut".

In fact, Yeltsin's style was inherited from the Soviet era, when Communist 
leaders also paid great attention to their personal contacts. Putin's 
emotional coldness and closeness is an obstacle to close inter-personal 
relations. Instead, Putin has taken up the role of a superman on 
international stage, possibly at the discretion of his image-makers. But the 
majority of foreign media interpret Putin's "superman's image" in a negative 
sense. They are simply scared of him.

Thus, Putin's international image has started to destroy, even before it was 
built. And it is a shame, because the international situation is rather 
complicated for Russia even without this.


Russian Jewish Congress accuses Kremlin of "divide and rule" strategy

MOSCOW, June 19 (AFP) - 
Russia's main Jewish organisation Monday accused the Kremlin of pursuing a 
"divide and rule" strategy as the government bestowed official recognition on 
a rival group.

The Russian culture ministry signed a protocol with the ultra-Orthodox 
Federation of Jewish Communities in Russia, pledging to promote Jewish 

The much larger Russian Jewish Congress said it had not been offered any such 

"It proves beyond any doubt that the government has decided to stick its nose 
into religious affairs, inside the Jewish community," said a member of the 
congress, Tancred Golenpolsky.

"The whole thing is part of the anti-Gusinsky campaign," he added, referring 
to independent media tycoon Vladimir Gusinsky, who heads the Russian branch 
of the powerful World Jewish Congress.

Gusinsky, a prominent critic of the Kremlin, was jailed for four days last 
week and charged with "massive fraud," in a move liberal politicians and 
business moguls branded as a clampdown on free speech and the opposition.

The Jewish congress, the oldest and largest Jewish body in Russia, says that 
the rival federation -- which held its first convention last year -- 
represents no more than five percent of the Russian Jews.

But the federation counters that its membership includes a majority of strict 
observing Jews -- a small minority of the Jewish population in Russia.

"Our organisation is the most representative Jewish body," said spokesman 
Borukh Gorin.

Last week the federation elected its ultra-Orthodox leader Berl Lazar as a 
rival to Chief Rabbi Adolf Shayevich of the Jewish congress.

Shayevich denounced the vote as illegitimate and insisted he remained leader 
of all Jews in Russia.

Commenting on the fact that there are now two chief rabbis in Russia, Culture 
Minister Mikhail Shvydkoi said the government did not intend to interfere in 
internal Jewish affairs.

"We have good relations with both Mr. Shayevich and Mr Lazar. This issue will 
be resolved inside the Jewish community," the minister said, cited by 
Interfax news agency.

The row started when the federation was the only organisation representing 
Russia's Jews invited to attend the inauguration ceremony of Russian 
President Vladimir Putin on May 7.

In late May, the rivalry burst into the political arena when Shayevich 
accused the Kremlin of trying to seek his ouster in order to weaken Gusinsky.

In a letter to Putin released to the Western media, Shayevich charged that 
federation was trying to make him step down "with the green light" of the 
presidential administration.


Moscow Times
June 20, 2000 
Elite Split on Blame for Gusinsky Arrest 
By Andrei Zolotov Jr.
Staff Writer

In answering the quintessential Russian question "Who is to be blamed?" f 
this time around, for Vladimir Gusinsky's arrest f the political elite has 
split. While almost everyone blames the "family," the "family" blames the law 
enforcement organs. 

This positioning reflects a struggle for influence over President Vladimir 
Putin, who so far has enjoyed the full support of at least three power 
groups: the Kremlin insiders known as the "family"; people from the former 
KGB; and pro-market politicians from the Union of Right Forces, SPS. 

Just two weeks before his arrest, Gusinsky himself described Putin as a boy 
holding the leashes of three huge black dogs that are dragging him in 
slightly different directions, the sum of which is back to authoritarianism. 

Political analysts said Monday that Gusinsky's arrest last week is unlikely 
to have much of an effect on the wider public: Putin's approval ratings may 
drop a few points but will remain high. 

But among the elites, "a clear positioning is under way in regard to the 
forces [in the Kremlin] that want to make Russia's political environment 
monotonous and homogeneous," said Andrei Ryabov of the Moscow Carnegie 

A few politicians closely tied with the "family" f such as State Duma Speaker 
Gennady Seleznyov and Prime Minister Mikhail Kasyanov f unconditionally 
supported Gusinsky's arrest. 

Many f from SPS leader Boris Nemtsov to Moscow Mayor Yury Luzhkov f condemned 
the arrest, but they spared Putin personally and cast the blame on Chief of 
Staff Alexander Voloshin, who is seen as a central member of the "family." 
Nemtsov demanded that Putin fire Voloshin. 

At the same time, the "family" blamed the law enforcement agencies. In an 
interview with German magazine Der Spiegel, Boris Berezovsky said Gusinsky's 
arrest was "simply an ill-planned action of the special forces." 

Putin is "not a strategist" and "has bad advisers today," said Berezovsky, 
implying that his own advice has not been heeded. 

ORT anchor Sergei Dorenko, who is known as "Berezovsky's bulldog," has 
relentlessly targeted Gusinsky's Media-MOST holding company, which includes 
NTV television. But he was greeted with applause last week when he appeared 
in an NTV studio during the Glas Naroda program on the night of Gusinsky's 

Dorenko went on to attack the "robots" of the former KGB, who he said had 
started to rise up upon hearing "magic music" from the Kremlin. 

During his own program Saturday on ORT, Dorenko continued to blame "mutant 
law enforcers" for Gusinsky's arrest. Dorenko said he had been told by one 
"secret service employee" that "if these oligarch-Jews don't leave for warm 
islands themselves, we will send them to Novaya Zemlya." 

But the ORT anchor urged Gusinsky not to use his place in the spot light to 
"resolve private issues" with Roman Abramovich and Alexander Mamut, 
businessmen seen as Kremlin insiders. 

Ryabov called Dorenko's program "a brilliant propaganda operation" that took 
the "family" out of the heat of the fire. 

Sergei Markov, director of the Institute of Political Studies, said 
Gusinsky's arrest showcased new alliances. 

If before the recent developments, Putin had been able to promote his own 
political agenda with little opposition, he will now have a tougher time. 

The media tycoon's arrest has led to a consolidation f perhaps only 
temporarily f of political forces based on Russia's nascent civil society, 
Markov said. In the Duma they are represented by Yabloko, SPS and, to some 
degree, Fatherland-All Russia. 

Members of the pro-Kremlin Unity Party and the Communists have said little or 
nothing about the arrest. 

The business elite, represented by 17 leading CEOs who sent a letter to 
Putin, also demanded Gusinsky's release. 

Markov said it was likely to be the first of many conflicts that he likened 
to the typical quarrels between newlyweds. "Bureaucracy, business and 
political groups have entered a series of conflicts, which will allow them to 
draw new rules of the game," he said. 


Jamestown Foundation Monitor
June 19, 2000

continued speculating about precisely who was behind Gusinsky's arrest. 
Last week, Putin denied having prior knowledge of the plans to arrest the 
media magnate, calling it a "dubious present" to him (see the Monitor, June 
14). The newspaper Segodnya, which is part of the Media-Most holding, 
suggested this weekend that the head of state was in the dark--at least 
about the timing of the move against Gusinsky. The paper laid out one 
account, according to which the decision to arrest him was made by Kremlin 
administration chief Aleksandr Voloshin, Security Council Secretary Sergei 
Ivanov and Mezhprombank chief Sergei Pugachev, whom the paper described as 
"a new member of the Family." The "Family" refers to the group of Kremlin 
insiders which includes, among others, Voloshin, the tycoons Boris 
Berezovsky and Roman Abramovich, Boris Yeltsin's daughter Tatyana Dyachenko 
and Pavel Borodin, the former head of the Kremlin's "property department," 
who became state secretary of the Russia-Belarus Union earlier this year on 
Putin's recommendation. The presidential administration reportedly called 
the country's "power ministries"--presumably meaning Interior, Defense and 
the Federal Security Service, among others--to persuade them to support the 
move against Gusinsky publicly. The "power ministers," however, apparently 
chose to distance themselves from the action prior to Putin's return to 
Russia, Segodnya reported. The paper compared the Gusinsky incident to an 
earlier one, in which Voloshin reportedly countermanded Putin's decision to 
appoint Dmitri Kozak as prosecutor general (see the Monitor, May 18-19, 
June 15). Segodnya then cut to the chase, alluding to rumors that have 
dogged Putin since his accession as head of state earlier this year. "It 
will be difficult for the president to distance himself from the Family, 
even if he wants to," the paper wrote. "[Yeltsin's] successor," as [Kremlin 
political consultant] Gleb Pavlovsky asserted in one of his interviews, 
"was chosen carefully over a long period of time. [And] probably not only 
according to the principle of loyalty, but [of] ... dependence. In what way 
does Putin depend on the Family? Is it possible that it even has kompromat 
on the president?"

The scandal surrounding Gusinsky's arrest certainly did not seem to serve 
Putin's direct interests, especially given that it took place during a trip 
abroad and put him in a very awkward position with his foreign 
counterparts. In addition, the scandal may have also undermined his 
position in domestic politics. Aleksei Arbatov, a leading member of the 
Yabloko faction in the State Duma, said that the incident has significantly 
lessened the Kremlin's chances of getting the 300 or more votes in the 
lower house of parliament necessary to overcome the veto which the 
Federation Council, the upper house, is likely to give Putin's measures 
aimed at restricting the powers of the regions. Likewise, Oleg Morozov, 
head of the Russia's Regions group in the Duma, said that the incident had 
made it less likely that Putin will be able to maintain a pro-presidential 
coalition in the Duma (NTV, June 18).

On the other hand, Gusinsky himself said in an interview that he believed 
Putin knew about the arrest plans in advance (Newsweek, June 18). In this 
regard, it is worth noting that "if-only-the-Tsar-knew" is a time-honored 
method Russian and Soviet leaders have employed to keep their fingerprints 
off particularly controversial decisions. Many observers believe that Putin 
used this method during the controversy earlier this year concerning the 
detention of Radio Liberty correspondent Andrei Babitsky.

Whatever the case, a report in a British newspaper last week would, if 
true, give credence to the speculation about Putin being a puppet of the 
Family. The paper reported that Putin, while still director of the Federal 
Security Service, was seen at a villa in Spain belonging to Boris 
Berezovsky. Spanish police reportedly spotted Putin by chance while 
carrying out surveillance on the neighboring villa, allegedly the property 
of a Russian mafia boss. The paper, citing Spanish police and British 
intelligence sources, said that Putin entered Spain on at least five 
occasions without clearing customs or immigration. The visits reportedly 
stopped after Putin became prime minister last year (Times [London], June 15).


Russian media firm challenges prosecutor on arrest
By Ron Popeski

MOSCOW, June 19 (Reuters) - Russia's only independent nationwide media 
network accused Russian prosecutors on Monday of trying to pervert the course 
of justice on the eve of a court hearing about last week's detention of its 

But an investigator at the prosescutor's office denied the allegation in 
connection with Vladimir Gusinsky's case and said more than 300 pages of 
evidence supporting his arrest had been submitted to the court. 

Gusinsky, whose media outlets have been critical of Kremlin policy under 
President Vladimir Putin, was held for three days in the ageing Butyrskaya 
jail. He was eventually charged with embezzlement and released on condition 
that he remain in Moscow. 

His detention sparked accusations by journalists and politicians that 
authorities under President Vladimir Putin's leadership were threatening 
post-Soviet freedom of the press. The incident distracted attention from 
trade and other issues during Putin's tour last week of three European 

Media-Most, Gusinsky's group, said the prosecutor's office was trying to 
prevent Tuesday's hearing in a Moscow district court called by the media 
boss's lawyers to rule his detention illegal. 

``According to our information, the Prosecutor General's office has resolved 
to try to prevent the proceedings,'' a statement issued by Media-Most said. 

``Media-Most regards these actions by the Prosecutor General's office as an 
attempt to pervert the course of justice and avoid responsibility for its 
staff's unlawful actions.'' 

It said Media-Most intended to press for a court judgment of the actions by 
the Prosecutor's office. 


Valery Nikolayev, a prosecution investigator, said the court had already been 
provided with 307 pages of documents. 

``I already have a note from the court secretary confirming the documents 
were received,'' he told Interfax news agency, adding that a representative 
of the prosecutor's office would attend the hearing. ``No one in the 
prosecutor's office is trying to prevent the hearing.'' 

Gusinsky's lawyers have vowed to have the travel ban lifted. 

Gusinsky told the U.S. weekly Newsweek, which helps produce the magazine 
Itogi among his media interests, that the Kremlin ``would like to establish 
total control over the country and will not tolerate any opposition voices.'' 

In his first interview since his release, he said pressure from journalists, 
Russian businessmen, the Jewish community and a strong stand by the U.S. 
government helped secure his release. 

Putin initially said last week that Gusinsky's detention, while he was out of 
the country, had taken him by surprise. He later said in Berlin he thought 
jailing Gusinsky was excessively harsh, but insisted he had no influence over 
the prosecution service, which he said was politically independent. 

Both the United States and Germany expressed satisfaction at Gusinsky's 
release as did the World Jewish Congress in New York. Gusinsky heads the 
Congress's Russian branch. 

A spokesman for the Justice Ministry said Gusinsky had taken personal effects 
on leaving jail, but left behind a television and refrigerator which could be 
used by other inmates. 

``If other businessmen follow Gusinsky's example, then conditions of 
detention will improve for inmates,'' Gennady Lisenkov told the agency. 


Ekonomika i Zhizn
No. 23
[translation from RIA Novosti for personal use only]

In the opinion of many entrepreneurs, enterprises and 
organisations' deductions to social off-budget funds are 
exorbitant today. Employers pay into the Pension Fund 28 
percent of the labour remuneration fund, and 1 percent is 
deducted from the employees' wages. 5.4 percent of the labour 
remuneration fund is transferred to the Social Insurance Fund, 
and 1.5 percent - to the Employment Fund. Besides, payments for 
mandatory medical insurance are made: 0.2 percent - to the 
Federal Fund, and 3.4 percent - to the local funds.

Pension Fund
In 1999, the Pension Fund's own incomes (without attracted 
credits and federal budget funds) equalled 252.8 billion 
roubles. All in all, 271.4 billion roubles were spent, 
including 254.7 billion roubles - to pay pensions and 
allowances and deliver them.
The actual amount of payments, from which insurance fees 
were paid into the Pension Fund, was 904 billion roubles. The 
wage fund accounted for 97.6 percent of this amount (882 
billion roubles).
The Pension Fund's spending to index pensions and raise 
the pensioners' living standards amounted to 28.11 billion 
roubles in 1999.

Social Insurance Fund
In 1999, the Social Insurance Fund received 46.3 billion 
roubles in insurance fees from enterprises and organisations.
They accounted for 93.1 percent of the Fund's total receipts.
The Fund's budget spending equalled 41.9 billion roubles, with 
payments of all kinds of benefits and allowances accounting for 
57.5 percent of the said sum.

Employment Fund
In 1999, the Fund's incomes reached 13.5 billion roubles, 
of which the employers' insurance fees made 10.3 billion 
roubles, or 76.4 percent of the Fund's total receipts. 93.4 
percent of the planned receipts was collected, with the labour 
remuneration fund equlling 804 billion roubles. In 1999, 3.1 
million people were given employment with the help and 
assistance of the labour ministry. Out of this number, 497,000 
people were given socially-useful work.

Federal Fund of Mandatory Medical Insurance In 1999, the 
Fund's total incomes amounted to about 1,984 million roubles, 
of which insurance fees of enterprises, institutions and 
organisations, as well as other economic entities, accounted 
for 98.9 percent of the total. 1,969 million roubles were spent 
to accomplish the Fund's tasks.

* Social transfers - pensions, benefits and allowances, 
student grants and other payments to the population paid in 
money form by state-run and non-commercial organisations (i.e., 
trade union, religious, charity and other organisations) 
account for 9 percent of GDP (gross domestic product), and for 
about 14 percent of the population's money incomes.

** In 1999, total federal budget revenues amounted to 
611.7 billion roubles, while social off-budget funds exceeded 
314 billion roubles. This is more than a half of the revenue 
part of the federal budget.


June 19, 2000
"Nezavisimaya Gazeta" Predicts Soon Demise of Engaged Media as an Instrument 
of Power Play 
"Nezavisimaya Gazeta" in its Saturday edition writes about a new deal in 
Russia's regional media market. Here, a new force is at play now, private 
media-holdings whose target is a local audience. "Power-fed dumping-priced 
newspapers are replaced by new universal newspapers for family reading". 
"NG" discloses secret know how instruments of provincial publications' 
success and poses a question: will the federal media endure their growing 

Balance of Powers
The "heavyweights" are present at the regional media market: 
- local authorities having an edge (budget financing, off-budget finances, 
subordinated advertisers, forced subscription at municipal enterprises etc.); 
- the central power controlling a number of national publications and 
distributing donations to local media; 
- media tycoons and corporations owning national periodicals: LUKoil, 
Gazprom, Interros, Media-MOST, Berezovsky etc.; 
- corporations and companies controlling regional media ("Gazprom", YUKOS, 
- relatively independent national periodicals and media holdings ("AiF", 
"Sovershenno Sekretno", "Ekonomicheskaya Gazeta"); 
- private interregional media holdings ("Provincia", Vedomosti-Media", 
- Up to 1999, the specifically politically oriented newspapers had controlled 
about 80 percent of the regional market. A portion of them supported the 
leadership, a portion of them denounced it. Both were instruments in the war 
for "commanding heights". 

The covert mechanism of media donations has a negative impact on the quality 
of local media markets. In most cases, millions of budget rubles intended to 
support socially important media projects are being sent to most loyal 
Practically in every region, special laws on supporting local media have been 
adopted. As a result, politically engaged publications are almost free. 
Semiannual subscription on a "governoral" newspaper costs 10-12 rubles. 

Since Gorbachev's perestroika, Russian newspapers' total print run decreased 
by 25 times. 

National media has been mostly damaged. "In fact, there are no national 
newspapers now. Not a single one", editor in chief of "Vremya MN" Dmitry 
Murzin argues. In 1996, "Izvestia" was not available in 48 regions out of 89. 
Let alone other "central" ones". 

The so-called "All-Russian" newspapers try to attract readers with special 
supplements. But this approach, in experts' opinion, is hopeless: readers are 
prone to get local news from the local press, which is more informed and 
reactive, better know the local environment and better meet readers' demands. 

More effective are weekly supplements to central dailies. Thus, 
"Komsomolskaya Pravda" has succeeded in promoting its Friday's "fatty" whose 
print run is four times bigger than the daily's. "Trud-7" weekly is printed 
in twice more copies than its daily edition. 
Editors of "Novaya Gazeta" has chosen another direction: they cooperate with 
popular local publications and "Novaya" appears in the regions in the form of 
a supplement. 

Nevertheless, by pollsters' estimates, even the most popular national 
publications have low rating. About only 15 percent Russians read a national 
newspaper once a week. Over 40 percent of "regional" Russians do not read 
newspapers, but watch TV. Over 50 percent prefer reading local print media. 

Most popular are those weekly publications filled with entertaining, 
sensational and how-to information. Political issues, critiques of the state 
power are no longer a bait for a common reader. 

With this down-to-earth pragmatic approach, tips on how to make pickles at 
home are more valuable than a Yuri Skuratov interview. 

New actors
1999 faced an advent of flexible and cheap publishing companies - 
transregional media holdings. 

This advent looked like a storming assault. This is the print run dynamics of 
the newspaper holding "Provincia":
September 1998 - 100 thousand copies 
April 1999 - 336 thousand cc. 
July 1999 - 600 thousand cc. 
October 1999 - 740 thousand cc. 
Spring-2000 over 1 million cc. (estimates confirmed by the RF National Print 
Run Service).

These new mini-tycoons are self-reliable, have no budget backing and are not 
affiliated with any major financial or political group. These are really 
independent media groups living on the locally made money. 

Conclusions: Dozens of thousands low circulation periodicals are published in 
Russia today. It may be assumed that in the years to come, the media market's 
tendency will be a reduction of the number of them combined with growing 
print runs of the survivors.
As long as a more stable political system is implemented, media's role as an 
instrument of the fight for power and property will diminish; yet, media 
projects' profitability will grow . Most promising in the short-run 
perspective are "light" weeklies, from sheer tabloids to "mix" types 
combining trashy reading and objective information, entertainment and serious 
political commentary. 
National newspapers are likely to leave the local markets as "supplements" 
and restore to its traditional format by creating a national high pro special 
correspondent network. 

Comment: The analysis looks more like a PR move by the "Provincia" holding. 
However, we cannot dismiss Giller's success. Still, it would be a more 
objective portrayal if the author mentioned "MK" with its regional network 
and "AiF" that seemed to lose its momentum after flirting with vulgar 


Date: Mon, 19 Jun 2000
From: (Dale Herspring)
Subject: Military's Social Problems

I would like to comment on the recent article in Defense and 
Security (No. 69, 16 June 2000). In essence, the article argues 
that if the Putin government goes ahead and cuts social benefits, 
problems within the military will grow.

First, permit me to say that I recommend that everyone take the 
time to read this article. Second, to say that morale will go down 
is rather obvious. On the other hand, this is not Putin's idea, 
Yeltsin was pushing the same ideas when he was in charge. 

Third, it is worth nothing that the disastrous situation of the military 
is nothing new. Some of us have written about it in great detail. 
What is difficult is to determine where the flash point is. Based on 
my own experience with the US military, I would have assumed 
that it would have occurred some time ago. Yet, the military still 
seems to be obedient, and even like Putin.

Fourth, there is the "so what" question. What if the situation 
continues to deteriorate? Clearly, at some point, push will come to 
shove and the s - - - will hit the fan. So what if it does? At this 
point, the real question becomes -- will it spread? Similarly, will 
any blow-up be aimed at Moscow and Putin, or will it remain a 
local issue?

For the present, I suspect those in the military like the kind of 
"action program" that Putin seems to be implementing -- like 
getting control of the regions. Finally, a leader who seems to be 
trying to deal with the country's problems. Even if the situation 
were to deteriorate, it is not self-evident that military dissatisfaction 
will necessarily be turned against the center. It could also be 
entirely local and lead to further splintering of Moscow's control 
over the regions. 

In short, I would not over estimate the importance of these social 
issues in the military. They have been going on for some time and 
will probably continue to go on a bit longer. Having said that, 
however, I think we must keep a close eye on the situation in side 
of the military. So far, so good from Putin's standpoint. 


Date: Mon, 19 Jun 2000 
From: "Paul Backer" <> 
Subject: Inability to learn (from) Russian history and Putinshina.

Russian public figure, who happens to be Jewish and prominent in the media
is arrested by a government increasingly seen abroad to be acting in a
clearly arbitrary and illegal manner toward its citizenry.

That figure is slammed into jail without anything resembling due process.

Outcry in foreign press and public.

Russian leader expresses surprise at the "over-reaching" by the apparatchik
in question, and quickly gains approval in Western press by "easing" the

Everybody in the West is relieved that the leader turns out to be "one of
us" and apparently sensitive to niceties of legality and Rule of Law, leader
gains in international stature.

The person in question, and all those aware of the situation in Russia,
learn their lesson. The idea that a recently appointed Prosecutor General
would take this sort of independent action is beyond laughable.

It's a great story, and while the Putin/Gusinsky and hs "what's his name"
Prosecutor General version has some charm, but I am not a great fan of
sequels. The original and equally illustrative version is Stalin/cast of
millions and Yezhov. If you would like to read more, see Alan Bullock's
fine book on Hitler and Stalin, or if you read Russian (better choice) E.
Radzinsky's, Stalin. Though, digging up the suitably laudatory NYT articles
of that period complimenting Stalin for his commitment to "Rule of Law" is
probably a bit harder, though not impossible.

What is remarkable, is that the Clinton/Gore administration (with Gore
arguably having lead) wasted billions in taxpayer funds on malfeasance and
nonfeasance in the RF in the name of Rule of Law. Programs that can point
to almost no tangible achievements. Programs that DIRECTLY contributed to
the creation of a Ponzi scheme stock market and ongoing banking sector
collapse. With the Gore-Chernomyrdin commission engaging in activities that
simply defrauded U.S. taxpayers.

Now, they appear set to do so again, to support this "new generation" (first
security apparatchik to achieve that rank) Russian leader and his
"commitment" to Rule of Law, with the same predictable results and

Simultaneously, Putinshina taught its lessons to the overly independent
media and ethnic groups in Russia and Putin emerges as an enlightened,
Western style leader, the only bulwark against the "over-reaching" of
government organs. Please send billions.

PS. For anyone keeping score, despite the scorn heaped on him the grand
total of media leaders put in jail (with or without due process) by Yeltsin:
Zero. Putin, in less than six months: One.

It is my belief that Yeltsin's contribution and commitment to democracy is
perhaps one of the most under-rated of the twentieth century.


Moscow Times
June 20, 2000 
The Best and Worst of Times for Economy 
By Charles Frank 
Charles Frank is acting president of the European Bank for Reconstruction and 
Development. These remarks were adapted from a speech he delivered Wednesday 
at the St. Petersburg Economic Forum.

Russia's prospects have seldom appeared brighter. Economic growth has 
resumed. Inflation has declined. The exchange rate is stable. Foreign 
exchange reserves are increasing. A new government has come to power 
peacefully f and is advancing initiatives that are generally well received 
both within and outside of Russia. 

Then the government prosecutor drops the Vladimir Gusinsky bombshell. Why is 
this a concern? Because the arrest of the media company chief appears 
discriminatory. We don't know if Gusinsky is guilty or innocent. But we know 
all too well that myriad other crimes f notably in the financial-services 
arena f are not being prosecuted. It begs the question of whether Moscow has 
its priorities straight. 

This is a critical moment. Russia is enjoying good economic news today. But 
this is clearly the result, first, of high world energy prices and second, a 
substantially devalued ruble. Economic growth will not be sustained over the 
long term unless the government begins now to implement a credible program of 
reform in energy, industry and banking. 

Russia is far behind most of the world in reform of the energy sector. Two 
large monopolies, Unified Energy Systems and Gazprom, control the production, 
transmission and distribution of electricity, heat, hot water, and natural 
gas. They, in turn, are largely controlled by the state. 

Tariffs charged to users of electricity, heat, hot water and gas are subject 
to chaotic and uneven regulationby regional governments. Tariffs are too low 
to cover costs. Although major improvements have been made, collection of 
tariffs is still inadequate. 

This all adds up to extreme waste of energy. Enterprises have had little 
incentive to make investments in energy-saving equipment. Many uncompetitive, 
high-cost, energy-intensive enterprises continue operating because tariffs 
have been too low or not collected. 

There is a worldwide public policy consensus on the main elements of 
successful programs of energy reform, much of it embodied in European Union 
directives. They include the following: 

■Independent regulation of tariffs; 

■The breakup of integrated utility monopolies; 

■Separate tariff regimes for production, transmission and distribution; 

■Competition among producers of energy; 

■Tariffs for transmission and distribution set by the regulatory authorities, 
not only to cover costs but also to encourage cost efficiency. 

These basic principles are at the core of the restructuring proposal of the 
management of UES. It is very much in accordance with accepted international 
principles for the restructuring of the power sector. Yet the proposal has 
met fierce opposition from the private shareholders of UES and the new 
chairman of the Russian Securities and Exchange Commission. Why? 

After having read and reread the proposal and complaints about it, I conclude 
that much of the criticism arises not from what is in the proposal, but from 
what is not in it. One investor has said: "Our objection is not to the 
attempt to introduce market mechanisms into the power sector, which we think 
is a positive and necessary development, but is over the timing and 
methodology of its implementation." 

The proposal contains very little about timing and implementation. It does 
not have enough information about the number and nature of the constituent 
parts into which UES would be split. 

Much of the criticism is also driven by fear that the UES management will 
repeat the mistakes of the past f sale or transfer of generating assets to 
new owners on a closed, nontransparent basis. The sale of constituent parts 
of UES should take place in a fair, open and transparent manner. Distribution 
companies should be sold only to qualified strategic investors with the 
skills, experience and ability to install modern systems of energy billing, 
metering and collection of tariffs. 

Much of the investor criticism is valid, but some of it is driven by the 
desire to maintain the UES monopoly for years to come. It is not appropriate 
to maximize shareholder value through monopoly exploitation. The UES monopoly 
must be broken soon, without waiting for the perfect regulatory regime or 100 
percent tariff collection. 

UES does not have the power or right to reform energy regulation f that is 
the role of government. But we have yet to hear from the government of the 
Russian Federation whether it is committed to energy regulatory reform, or 
when they expect it to happen. 

Enterprise restructuring. If you asked me what has been the single greatest 
failure in Russia's transition so far, my answer would be, without 
hesitation: the restructuring of enterprises. Most key deficiencies in 
Russia's economic performance over the last decade can be attributed to the 
modest achievements in this area. 

Under communism, government-owned industrial enterprises did not purchase 
their inputs or sell their outputs in competitive markets. They looked to 
government ministries or other government-owned enterprises. As a result, 
many of these enterprises expanded through vertical integration, producing 
everything they needed for themselves, from capital goods, spare parts and 
service inputs to final products. Small and medium enterprises to supply 
large enterprises and distribute their products never developed. 

Many of these large enterprises, still grossly inefficient and slow in 
innovating, continue to survive, despite being forced to compete in world 
markets. They survive by receiving directed credits from state-owned banks, 
and by building tax arrears and arrears in payments for energy. 

Enterprise restructuring will only take place if all enterprises are forced 
to adopt international accounting standards, pay their taxes, pay for energy 
in cash, and get their credits from hard-nosed, private-sector bankers who 
face the threat of bankruptcy if they make bad loan decisions. 

Banking. It has been nearly two years since the August 1998 collapse of the 
private-sector banking system. Little progress has been made in rebuilding 
it. Lax accounting requirements allow insolvent banks to continue to operate. 
Assets have been stripped from insolvent banks and placed in new operating 
banks owned by management or privileged shareholders. Creditors of insolvent 
banks often hold nothing more than claims on empty shells. The thieves who 
stole the assets remain unpunished f while Mr. Gusinsky goes to jail. 

Russia will only grow rapidly if the banking system is reformed in two 
crucial ways. 

First, there is a need for more competition, so that savers who make the 
deposits, as well as entrepreneurs who invest in the real economy, have a 
variety of choices for deposits and loans. This will only occur if there is a 
universal system of deposit insurance, in which all banks, public and 
private, share equitably the costs and the benefits. Limitations on foreign 
bank entry into the market should also be eliminated, not just to benefit 
foreign investors but also to benefit Russian depositors and investors. 

I am fully aware of the crucial role played by largely state-owned Sberbank 
in shoring up confidence after the August crisis. Sberbank is and will remain 
a key partner for the EBRD, particularly in implementing EBRD's highly 
successful program of loans for small businesses and in trade finance. But 
competition requires that Sberbank's monopoly on the market be broken. What 
chance do other banks, particularly small regional banks owned by Russians, 
have of prospering in the shadow of such a giant? 

Second, there is a need to build more confidence in the banking system in 
Russia. Greater confidence will lead to greater use of banks by the public, 
providing more and less-costly funding for the growth of industry and 

A credible system of universal deposit insurance is part, but far from all, 
the answer to the problem of lack of confidence in the system. Better and 
more consistent regulation of banks f including imposition of international 
accounting standards f is also necessary. 

The world has waited for a long time, and is still waiting, to see if Russia 
has the political will to develop a modern, efficient banking system, worthy 
of an economy of global stature and competitive in the global marketplace. 


PBS NewsHour
June 16, 2000
After a background report, experts discuss the controversy of the arrest of 
Russian media baron Vladimir Gusinsky, who many say was apprehended to 
silence his company's critical news reports of the Kremlin....

Who ordered the arrest? 

MARGARET WARNER: For more on this arrest -- and what it says about the new 
Russian president -- we turn to Michael McFaul, senior associate at the 
Carnegie Endowment for International Peace and assistant political Science 
professor at Stanford University. He travels frequently to Russia; Dimitri 
Simes, president of the Nixon Center and author of After the Collapse: Russia 
Seeks its Place as a Great Power. He was born in Russia and is now a U.S. 
citizen. And Ellen Mickiewicz, director of the Dewitt Wallace Center for 
Communications & Journalism at Duke, and author of Changing Channels -- 
Television and the Struggle for Power in Russia. Welcome all of you. 

Michael McFaul, what do you make of all these twists and turns in this case? 
How do you explain what's going on? 

MICHAEL McFAUL: Well, the day Mr. Gusinsky was arrested I think was one of 
the darkest moments for Russian democracy that I can remember in several 
years. It meant that state was intervening against society, and against 
independent media to achieve political ends. It also meant, secondly, a very 
ominous time that Mr. Putin it appears was not in charge in the Kremlin. But 
then there's a third message here. Civil society rallied to his cause, the 
other oligarchs, the so-called oligarchs rallied to his cause, and the 
Western international community rallied to his cause. It means that democracy 
is not over in Russia. I score this one -- one side for the authoritarians 
and one side for the democrats.

MARGARET WARNER: Ellen Mickiewicz, tell us more about Gusinsky. Do you regard 
him as a great champion of the independent press?

ELLEN MICKIEWICZ: Yes. Gusinsky is no Boy Scout. Nobody who is a major 
businessman in Russia has achieved that position very easily. It's an area 
that is shot through with corruption and illegality. So that's simply to be 
understood. It's a nasty business. But what Gusinsky has done is to create 
for Russia and for almost the whole country an alternative, 
commercially-based media system that has outstanding news gathering and news 
production record -- one that has won really the credibility among Russian 
viewers. And that is a very, very important, because it's the only nationally 
powerful counter weight to state sources of information. I think that is an 
extraordinary kind of achievement and one that makes you wonder why Gusinsky 
-- who is not one of the biggest of oligarchs, was chosen.

MARGARET WARNER: So, Dmitri Simes, is this what Vladimir Putin found 
threatening - that he had this independent media voice - a very powerful one, 
criticizing him?

DIMITRI SIMES: I'm sure that that was a factor. I also have to say that 
Vladimir Gusinsky is not Andrei Sakarov.

MARGARET WARNER: He is not Andrei Sakarov, no.

Corruption, business and democracy 

DIMITRI SIMES: He's closer to Mayor Lansky than to a real democrat. He has a 
very vicious security service led by senior KGB generals who came from the 
political side of the KGB. He used his media ruthlessly to promote his 
business and political objectives. He attacked his critics on many occasions. 
And I have a mixed feeling about his arrest. He was singled out because of 
his free media connection. But I also think that he rather seized the media 
tycoon... and we should put this arrest in perspective and we should 
carefully examine charges against him before dismissing them prematurely. 
MARGARET WARNER: All right. Where do you come down on this difference here? 

MICHAEL McFAUL: Well, I agree, Mr. Gusinsky is no boy scout, and none of the 
oligarchs are. The charges however that were brought against him, to the best 
of my knowledge, as I understand them, and there's a lot of - we haven't seen 
the facts just yet -- by those same standards, every single businessman in 
Russia and every single oligarch also has to go to jail. People got oil 
companies in Russia for a song -- people that are close to Mr. Putin now. So 
what troubles me is not that they're cracking down on having a rule of lost 
state but that rule of lost state means equal law for everyone, not just for 
your critics.

DIMITRI SIMES: You have to start somewhere, and you cannot go everywhere, and 
it just is a fact of life like with American military intervention - you 
cannot go everywhere -- but it doesn't mean you should not try to do what is 

MARGARET WARNER: Let me get Ellen in here. 

DIMITRI SIMES: We want to have a level playing field. 

MARGARET WARNER: Just a minute, Ellen, I'll go right back to you.

DIMITRI SIMES: We cannot have level playing field in Russia as long as 
oligarchs are in power.

MARGARET WARNER: All right. Ellen Mickiewicz.

ELLEN MICKIEWICZ: Let me just add that this is not an isolated issue with 
respect to freedom of the press. There has been a very disquieting statement 
on the part of the minister of the press that newspapers will have to be 
licensed. This is clearly a cloud on the horizon, and there are other aspects 
too. There are possibilities of yanking licenses of television stations 
because of warnings. The warnings are very vaguely defined. So I would say 
that we are really talking about an attitude toward the press in general that 
actually views press as either "with us" or "against us." And I think this is 
not the best way to approach press freedom. The government people have said 
that NTV, the commercial television station of Gusinsky's, has attacked the 
government or is oppositionist. Well, that's what the press is supposed to 
do. And that is a principle that has not been accepted.

MARGARET WARNER: All right. So Michael McFaul, what does this whole incident 
tell us about Vladimir Putin and how he's going to exercise power? 

MICHAEL McFAUL: Well, we don't know exactly who ordered the arrest when. 
There are two scenarios: Either he was behind it all and then walked away 
from it, or he wasn't and now has to clean it up. Either scenario though I 
think is a bad mark for Mr. Putin. It shows either that he does not respect 
the rule of law, and Dmitri, if I believe he really did respect that rule of 
law and he had credentials on that, I might think there's a good first step. 
But let's not forget that Babitsky, Chechnya, many other leaders who have 
been harassed. His credentials aren't very strong on the rule of law.

MARGARET WARNER: But what about Simes' point that also the West has been 
asking him to crack down on the corrupt oligarchs?

MICHAEL McFAUL: Well, I really believe that that's what he was doing and that 
-- that was what this was about, and he wanted to be credible, he needs to 
crack down on those that are his allies, because we know that there are 
people close to the Kremlin who have broken the same laws. One other thing, 
though. I think it shows his inexperience with these things. I think we have 
to remember this guy is new to this game, he's not quite figuring it out, he 
was terribly embarrassed when he was in Europe. This is not a guy fully in 
control of his administration. 

DIMITRI SIMES: I completely agree with Michael. The problem is that it was a 
selective negotiation of justice for political reasons -- that Putin has a 
very bad record as far as freedom of the press is concerned. And accordingly, 
when he moved against Gusinsky, he had no credibility whatsoever. I hope, 
however, he would not learn the wrong lesson. Maybe is it now the oligarch 
who'd enjoyed immunity.

MARGARET WARNER: I'm sorry, say that again. 

DIMITRI SIMES: I hope Putin will not learn the wrong lesson that namely the 
oligarchs now should enjoy political immunity -- 

MARGARET WARNER: You mean because of the outcry? 

DIMITRI SIMES: Because of the outcry and because he was forced to retreat. 

MARGARET WARNER: All right. Ellen Mickiewicz, what impact do you think all of 
this is going to have now on the media in Russia and on Gusinsky? I mean, 
he's free today but he's under essentially Moscow arrest; he's not allowed to 
leave the country. 

Solidarity among journalists 

ELLEN MICKIEWICZ: Right, he's released on his own recognizance, 
essentially, and there are plans to interrogate other people in his company 
-- Malechenko -- Dubrojayev, who used to be head of the company is going to 
be interrogated -- at least that's the plan. It seems to me that one benefit 
of this issue has been brought up is in fact the solidarity that has taken 
place among journalists who are speaking out. Even the figure of Sergei 
Derenko, who has been -- 
MARGARET WARNER: Explain who he is. 

ELLEN MICKIEWICZ: He's a vicious journalist attacking government opponents 
for Channel One, which is associated with Boris Birizhovsky, who is 
Gusinsky's opponent. Even that journalist has spoken out against this arrest, 
surprisingly. So one benefit is really to mobilize the community -- and 
that's good, because they will keep close tabs on what's happening. 
Mobilizing the international communities is important, but I think not as 
important as what happens inside the country. And that's a different 
atmosphere that Putin will face. I think that's very important. I do not 
think that Gusinsky's properties, media properties, are going to moderate 
their message out of fear. I think not at all. I don't think that's going to 

MARGARET WARNER: Dimitri Simes, what do you think is the likely impact, not 
only on media and Gusinsky, but on the business establishment in Russia and 
on Putin?

DIMITRI SIMES: I think, first, Putin has suffered a very considerable 
political setback. Second, he looks incompetent; he moved at first against 
regionally - now almost immediately he moved against oligarchs - that was too 
much -- he was defeated. I hope he will stay on course in terms of trying to 
consolidate his powers and establish the rule of law. But I completely again 
agree with Ellen and Michael. He's not a champion of free speech. His 
instinct is to be authoritarian whenever possible and to be a democrat only 
when absolutely necessary. 

MARGARET WARNER: Michael McFaul, he has seemed to lead a charmed life 
politically. Do you think this is the first serious misstep? 

MICHAEL McFAUL: Well, there's been a few other missteps, but this is a big 
one. And we haven't heard the end of it yet. After all, Mr. Gusinsky's just 
been released, but now let's see if the rule of law takes place, and let's 
see what happens before his next meeting with the G7 in Japan next month. He 
had expected this to be a kind of coronation on now joining the team. Now 
there's a lot more uncertainty about that. 

MARGARET WARNER: Briefly, what impact do you think it's going to have on his 
media and on the business community, that whole balance of power in Russia? 

MICHAEL McFAUL: Just doesn't get it. The irony was he sat before investors in 
Spain saying, "Come invest your money in my country." On the same day, he was 
arresting not just a media mogul, but a businessman. There's a relationship 
between the rule of law and democracy, the rule of law and the economy. 
There's a relationship between democracy and capitalism. And so far, in my 
opinion, he just doesn't get it. If he doesn't, it's going to be bad for 

MARGARET WARNER: Thank you all three very much. 

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