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
2. AFP: Russian Jewish Congress accuses Kremlin of "divide and rule"
3. Moscow Times: Andrei Zolotov Jr., Elite Split on Blame for Gusinsky
4. Jamestown Foundation Monitor: PAPER CLAIMS "FAMILY," NOT
PUTIN, ORDERED GUSINSKY'S ARREST.
5. Reuters: Russian media firm challenges prosecutor on arrest.
6. Ekonomika i Zhizn: FACTS AND FIGURES. (re social funds)
7. smi.ru: 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
10. Moscow Times: Charles Frank, Best and Worst of Times for Economy.
(acting president of the European Bank for Reconstruction
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
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
June 20, 2000
Elite Split on Blame for Gusinsky Arrest
By Andrei Zolotov Jr.
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
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
PAPER CLAIMS "FAMILY," NOT PUTIN, ORDERED GUSINSKY'S ARREST. Observers have
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.
DOCUMENTS SENT TO COURT
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
[translation from RIA Novosti for personal use only]
FACTS AND FIGURES
M. PANOVA, D. SUETIN
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.
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
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.
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
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.
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
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
National newspapers are likely to leave the local markets as "supplements"
and restore to its traditional format by creating a national high pro special
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: email@example.com (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
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" <firstname.lastname@example.org>
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.
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
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.
MUZZLING THE MEDIA?
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,
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
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
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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