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


Johnson's Russia List
#4378
20 June 2000
davidjohnson@erols.com


[Note from David Johnson:
1. Bloomberg: Russian Government Says 10-Year Economic Reform Plan Completed.
2. Reuters: Russia's Putin pushes Lenin,Stalin out in the cold.
3. Interfax: RUSSIAN TYCOON ATTACKS PRESIDENT'S GOVERNMENT REFORM PLANS. (Berezovsky)
4. Baltimore Sun: Will Englund, Plea to Putin backfires on schoolgirl.
Respect: A Russian country high school student pays a heavy price for a
perceived lack of etiquette in a letter she wrote to the president. 
5. Reuters: Russian capital flight drops to $300 mln a month.
6. Jamestown Foundation Monitor: RUSSIA'S MANUFACTURING BOOM: 
THE BEGINNING OF THE END?; CAUSES OF SLOWDOWN: ENERGY 
SHORTFALLS, STRENGTHENING RUBLE AND BASE EFFECTS;
IS RUSSIA'S ECONOMIC RECOVERY PETERING OUT? 
7. RIA Novosti: Boris Petrov, WHO RUSSIAN MASS MEDIA ARE DEPENDENT ON.
8. MOSCOW TRIBUNE: Stanislav Menshikov, THE ROUBLE CONTROVERSY IS A SQUABBLE FOR POWER. Too Many Drivers Endanger Economic 
Stability.
9. AFP: Moscow struggles to regain influence in ex-Soviet zone.
10. Los Angeles Times: Nina Khrushcheva, Why Gusinsky Was Arrested, 
Let Go. Culture:Russian leaders have always sought to keep the mass 
media under their thumb, and artists at their side. 
11. Interfax: RUSSIAN MP SUSPECTS AUTHORITIES TO MOVE AGAINST SECOND ENTREPRENEUR
12. Financial Times (UK): Russian taxman puts faith in the people: 
Andrew Jack on a 'self-assessment' project aimed at taking the stress out 
of paying tax - and improving revenues.
13. BBC MONITORING: RUSSIAN ANALYST: PUTIN MUST BE MORE DECISIVE IN CASES SUCH AS GUSINSKIY AFFAIR. (Interview with Gleb Pavlovskiy)]


*******


#1
Russian Government Says 10-Year Economic Reform Plan Completed

Moscow, June 20 (Bloomberg) -- The Russian government said its new economic
program is complete and includes a breakup of electricity, natural gas and
railway monopolies and extensive changes to the tax and social security
systems. 


President Vladimir Putin earlier this year instructed a team of economists
led by German Gref, the economy minister, to draft a plan aimed at lowering
poverty and achieving growth rates of as high as 10 percent a year. The
Russian economy grew 3.2 percent last year, its fastest growth rate since
the Soviet Union's 1991 collapse, and accelerated further in the first
quarter of this year, growing 7.9 percent. 
The new program is based on free-market principles, such as ending direct
and indirect state subsidies - such as giving companies cheap utility rates
-- because Russia doesn't have the money to subsidize its industry and must
attract private investment, Gref said. 


``We had an alternative: we could either choose a few successful industries
and subsidize them, or allow most companies to breathe'' by lowering and
simplifying taxes, said Gref, at a conference for foreign investors
organized by Renaissance Capital. ``We don't have enough resources to
subsidize the economy.'' 


International Lenders 


The government's economic program also is a requirement for Russia to
resume negotiations with the International Monetary Fund. While the
government says its high budget revenues will allow it to get by without
foreign loans for the moment, it still will need IMF approval to attract
private investment in the future and start talks with creditors on reducing
a part of its Soviet-era debt. Russia is preparing to ask Western creditor
governments to reduce by about half its $42 billion of Soviet-era debt,
after its bank creditors agreed to a similar reduction earlier this year. 



An IMF team is expected to visit Moscow at the end of this month to review
the new program. Gref said the government also asked for a more detailed
quarterly program for the next year-and-a- half in addition to a
longer-term plan. The government is expected to discuss the polices at its
meeting on June 28. 
While Putin's economic plans have generally been well-accepted by foreign
and domestic investors and legislators, the president's plans to centralize
power through proposed reforms of regional authority have drawn criticism
from some governors and business tycoon Boris Berezovsky, among others. 


Putin proposes ejected regional governors from the upper house of
parliament and replacing them with regional representatives. A proposed law
also would allow governors to be fired if they act against the constitution. 


``Authoritarian politics and economic reform are incompatible,'' Berezovsky
said, addressing foreign investors at the Renaissance Capital conference.
``Sooner or later things will blow up.'' 


Berezovsky also criticized Putin for a lack of strategy in Chechnya, and
his attitude towards the media and public relations. 


Berezovsky said Russia still has large investment potential in high
technology, food processing industries and agriculture. He also said he
supported the economic policies the government is planning. 


*******


#2
Russia's Putin pushes Lenin,Stalin out in the cold
By Elizabeth Piper

MOSCOW, June 20 (Reuters) - Lenin, Stalin and Russia's former President
Boris Yeltsin are out. President Vladimir Putin and Russia's last Tsar,
Nicholas II, are in. 


A think-tank said on Tuesday that a poll of more than 2,000 Russians had
shown that Putin, little known before he rocketed to power when Yeltsin
resigned on New Year's Eve, had won the hearts of middle Russia with his
vision of a strong state. 


``Putin is the result of a change in mass consciousness,'' Mikhail
Gorshkov, general director of the Russian Independent Institute of Social
and National problems, told a news conference. 


``One important lesson is that Russians do not want revolutionary methods
to change people's lives...There has been a change in Russia's mentality
and there has been a serious drop in the ratings of Lenin and Stalin,'' he
said. 


In 1995 the majority of Soviet-era leaders, including dictator Josef Stalin
and Bolshevik leader Vladimir Lenin, were seen in a better light than
Russia's last Tsar, Nicholas II. 


Now, the Tsar is more popular than the Bolsheviks who toppled and killed
him, the Russian institute said in a joint report on the poll with
Germany's Friedrich Ebert Foundation. 


The report said Yeltsin's unpopularity in the later years of his rule had
created a ``moral and psychological crisis'' in Russia that could have led
to unrest. But his resignation and replacement by the popular Putin had
lowered the political temperature. 


Two-thirds of Russians now view Yeltsin's winning of a second term in the
1996 presidential election as a negative event, and more than 87 percent
thought he was right to resign. 


By contrast, two-thirds of Russians hailed the election of Putin, and less
than 14 percent said his election was negative. 



``Boris Yeltsin's withdrawal from the political scene and the
consolidation of the public majority around Vladimir Putin dispelled
tension that had accumulated in the public conscience and prevented a
potential explosive response to the growing moral and psychological
crisis,'' the report said. 
But the popularity of Putin's law-and-order message show a tendency toward
public support for authoritarianism, it said. 


``The research proves that despite all appeals of the 'Western-oriented
liberals', the traditionally minded sections of society continue to
advocate autocratic power and hail a 'Russian Pinochet' regime,'' it said. 


*******


#3
RUSSIAN TYCOON ATTACKS PRESIDENT'S GOVERNMENT REFORM PLANS
Interfax 


Moscow, 20th June: Prominent business figure and Duma deputy Boris
Berezovskiy has again criticized the reform of government proposed by
Russian President Vladimir Putin. 


Putin "is destroying the model of government" developed by first president
Boris Yeltsin with his legislative initiatives, Berezovskiy said at a
Tuesday [19th June] conference in Moscow organized by Renaissance Capital
investment company. This "will inevitably have serious consequences," he
said. 


Berezovskiy again spoke against the dismissal of governors and city mayors
"by a mere presidential decision, (even) if they are publicly elected and
not appointed". 


He also gave low grades to Putin's policy in Chechnya, in particular
disagreeing with the appointment of Akhmad Kadyrov as head of the
provisional administration in Chechnya. "The president is actually
splitting the people in two," he said. 


"Today Russia has two development options: the first one - advancement to a
totalitarian regime, the second - the road to a legalized economy,"
Berezovskiy said. 


Meanwhile, the package of bills aimed at amending the tax system is an
amnesty for capital and their enforcement will promote the repatriation of
a significant amount of capital flight already next year, Berezovskiy said. 


"The political reforms the authorities are proposing now are wrong, while
the economic reforms it proposes are absolutely correct," he said. 


*******


#4
Baltimore Sun
June 20, 2000
[for personal use only]
Plea to Putin backfires on schoolgirl
Respect: A Russian country high school student pays a heavy price for a
perceived lack of etiquette in a letter she wrote to the president. 
By Will Englund


Sun Foreign Staff
MOSCOW - A high school student in a tiny village deep in the Russian
countryside made the mistake of sending a letter to President Vladimir V.
Putin, and now she finds herself stripped of the graduation honors she had
been expecting and enrolled in a dairy academy instead of heading for
medical school. 


The letter had nothing to do with politics, and its author, Anya Provorova
certainly meant no disrespect. It was just that when the six graduating
students of the little school in the quiet hamlet of Vorobyovo felt
something was lacking, they fell back upon centuries of Russian tradition
and decided to send a request for help all the way to the Kremlin. 



It wasn't that crucial - all they wanted was a video camera so they could
record their graduation - but it seemed worth a try, because you never know
what might happen. 


It couldn't hurt to ask, could it? 


It could and it did. 


The problem was this: It seems that in her salutation to "The Esteemed
Vladimir Vladimirovich Putin," the president of Russia, Provorova neglected
to finish the phrase with an exclamation point. Further down, she used the
Russian word for "you," referring to the president, without capitalizing it. 


The letter, besmirched by these insulting errors, rocketed back from the
Kremlin to the district capital of Vologda, and from Vologda to the
regional center of Sokol, and from Sokol to the village of Vorobyovo. And
on graduation day Friday in Vorobyovo, 17-year-old Anya Provorova learned
that her final grades had been lowered by administrative fiat and that she
would not be receiving the silver medal she had been expecting. 


Provorova had hoped to go to medical school. Now she's headed to the local
dairy institute. 


"I don't think it's fair, especially because the medal commission had
already confirmed my marks," she said yesterday. "I don't think these
mistakes should be enough of a reason to lower my score." 


The school's principal, Maria Guseva, defends her students. "The children
are disappointed and confused," she said. "They are hurt." 


But she is powerless before the district school commission. 


Nobody remembers now whose idea it was to write to Putin. But for
generations, Russians who have nowhere else to turn have been sending in
appeals from the deepest recesses of the provinces to czars and general
secretaries and presidents. 


While the others dictated what to say, Provorova wrote the letter. Nobody
even signed the letter; it was sent in the name of the "11th-grade students
of Vorobyovo" - 11th being the highest grade in Russian schools. 


Guseva said that it was a sort of note that anyone might dash off and that
the students didn't really expect it would even be delivered. But it
reached its destination and soon came bouncing back. 
On June 8, two inspectors from the regional headquarters in Sokol descended
on the school. They told Guseva that the letter was unacceptable and that
it had been determined that the handwriting was Provorova's. 


The students were taking their algebra exam that day. As soon as the exam
was over, the six culprits were told to write an explanation of what they
had done. 


Their answers were not deemed sufficient. The school commission met soon
after, condemned the letter to Putin, and chastised the students for their
immaturity. A week later, at graduation, Provorova learned that she was not
getting the silver medal she had earned. She said yesterday that two other
girls who participated in the letter were denied medals. 


There the story might have ended - a not-soon-to-be-forgotten lesson in the
proper way to address one's superiors in modern-day Russia - except that
the Vologda correspondent for the national newspaper Izvestia learned of
what had happened, and yesterday the paper published the story. 



After it appeared, school officials in Vologda immediately denied that the
withdrawal of the medals had anything to do with the letter to Putin,
despite all the evidence to the contrary. 


********


#5
Russian capital flight drops to $300 mln a month


MOSCOW, June 20 (Reuters) - The amount of cash illegally spirited out of 
Russia has been slashed to $300 million a month, barely a fifth of the levels 
two years ago, a Russian Interior Ministry official was quoted as saying on 
Tuesday. 


Leonid Ratmanov, head of the Department for Fighting Economic Crimes, told 
Interfax news agency police were tightening checks on importers and exporters 
and "one day companies" set up to funnel money out of Russia before being 
shut down. 


Capital flight has been at the centre of Russia's problems in paying foreign 
debt, preventing money laundering, and collecting tax. It is popularly 
associated with the yawning gap between a new mega-rich elite and widespread 
poverty. 


Ratmanov estimated that the total amount of illegal capital flight since the 
fall of Communism a decade ago stood at $130-140 billion, but most of this 
had occured six to eight years ago, Interfax said. 


He said $300 million was flowing out of the country every month compared to 
between one and 1.5 billion dollars one to two years ago, Interfax reported. 
The central bank has said $15 billion flowed out of Russia in 1999 and in 
February put the rate at one billion dollars a month. 
Under Russian law, exporters are required to repatriate all their revenue and 
sell 75 percent of it to authorised dealers at special trade sessions closely 
monitored by the central bank. 


Ratmanov was quoted as saying Russian money generally flowed to offshore 
accounts in the Cayman Islands, Seychelles, and the Bahamas. Money also went 
to Cyprus, Liechtenstein, Ireland, Switzerland, Germany and the United 
States, he said. 


Ratmanov could not immediately be reached for comment. The Interior Ministry 
said it had a statement but could not immediately send it. 


********


#6
Jamestown Foundation Monitor
June 20, 2000


RUSSIA'S MANUFACTURING BOOM: THE BEGINNING OF THE END? According to 
official industrial output data, Russia's manufacturing sector has been the 
unlikely hero of its economic recovery. Since April 1999 Russia has been 
recording year-on-year growth in industrial output, thanks largely to the 
weak ruble, which has priced imported manufactured goods out of the market. 
This growth, which was reported at 8.1 percent during 1999, was the key 
cause of last year's reported 3.2 percent increase in GDP. Because fuels 
and electricity--the nonmanufacturing branches of Russian 
industry--reported virtually no output growth in 1999, manufacturing was 
the driving force behind Russia's turnaround. Spending by Russia's 
impoverished households certainly didn't play a locomotive role: According 
to the official statistics, personal consumption dropped 5 percent last 
year, while retail sales were down 8 percent (Goskomstat, 
Sotsialno-Ekonomicheskoye Polozhenie Rossii, March 2000)



Because many Russian manufacturing companies are Soviet-era white elephants 
which experienced asset stripping and decapitalization during the 1990s, 
last year's turnaround was somewhat surprising. This surprise was 
particularly pleasant in such branches as light industry, animal feeds, 
chemicals and glass products, all of which reported output growth of 20 
percent or more. Output growth in the metallurgical, wood and paper, 
construction materials, and machine building branches was 14 percent or above.
But, like other pleasant surprises, Russia's manufacturing recovery may be 
too good to last. The most recent official data, released by Goskomstat in 
mid-June, paint a less sanguine picture of current trends (Reuters, June 
13). According to these figures, seasonally adjusted year-on-year 
industrial growth in May had dropped to 7.2 percent. Seasonal adjustments 
account for different numbers of working days, in order to make the periods 
under examination more comparable. This is below the 8.1 percent industrial 
growth reported for all of last year, and the trend is unmistakably 
downward. Seasonally adjusted industrial growth exceeded 20 percent in 
September 1999, and was at 16 percent for the third quarter of 1999.


CAUSES OF SLOWDOWN: ENERGY SHORTFALLS, STRENGTHENING RUBLE AND BASE 
EFFECTS. A number of factors seem responsible for Russia's manufacturing 
slowdown. The energy sector may be cracking under the strain of supplying 
Russia's energy-intensive manufacturers--many of whom pay for their 
electricity and fuel in barter, promissory notes or other monetary 
surrogates. Gazprom's output of natural gas in May was 4 percent below its 
May 1999 level, while thermal energy produced during the first five months 
of 2000 was some 2 percent below January-May 1999 output. These pressures 
are also driving up energy prices: Year-on-year inflation rates for fuels 
and natural gas in April were 138 percent and 53 percent, respectively. By 
contrast, consumer price inflation is about 20 percent. In addition to 
these higher prices, Russian manufacturers are facing pressures from 
Gazprom and UES--Russia's natural gas and electricity monopolies--to pay in 
cash rather than noncash surrogates. Gazprom in February had managed to 
collect 85 percent of its total receipts in cash, while UES's share had 
risen to 53 percent. These shares were up from 53 and 22 percent, 
respectively, in February 1999. Energy-intensive industrial branches 
without a lot of political influence--like building materials and glass 
products--may be the first to feel the energy constraint. Output growth in 
the building materials branch had fallen to only 5 percent in May, while 
glass production last month was 1 percent below its May 1999 level.
A stronger ruble may also be slowing Russia's output growth. The ruble 
remains much weaker than it was before the August 1998 financial crisis: 


When compared to producer price inflation trends, the ruble lost 
approximately half of its value between July 1998 and April 2000. But 
between January 1999 and April 2000, the ruble appreciated in real terms by 
more than 40 percent. Manufacturing branches like machine building (as well 


as building materials and glass products), which produce largely for the 
domestic market using domestically produced components, could be feeling 
the squeeze of the stronger ruble. After growing 13 percent in the first 
quarter of 2000, machine building slowed to only 6 percent in May.
Base effects are also slowing Russia's reported industrial growth. Russian 
industry went into recession in May 1998, when the large government budget 
combined with panicking foreign investors caused the Central Bank of Russia 
to boost refinancing rates to 150 percent. These high rates diverted cash 
which could have financed output growth to the government bond market 
instead. Russia's industrial recession during the second half of 1998 then 
lowered the basis for calculating growth in industrial output during the 
second half of 1999, thereby making it easier for Russian industry to 
report rapid production growth late last year. These base effects are now 
coming to an end. Because industrial output levels in the second half of 
2000 will be compared to the high levels recorded after mid-1999, base 
effects will serve to reduce reported industrial growth rates going forward.


IS RUSSIA'S ECONOMIC RECOVERY PETERING OUT? Because industry was the 
locomotive behind the 1999 GDP growth, the industrial slowdown suggests 
that Russia's overall economic recovery could slow as well. However, the 
official data indicate that other sectors are emerging to pick up the 
slack. The volume of construction activities during the first four months 
of 2000 was some 10 percent above the level of January-April 1999, while 
growth in retail trade turnover and the volume of freight transport during 
this time was 8 percent and 7 percent, respectively. Investment spending 
during the first four months of the year was up a stunning 13 percent, 
while household survey data point to an 8 percent increase in personal 
consumption.


These reported growth rates are also benefiting from base effects, since 
activity in many of these sectors collapsed only after the August 1998 
financial crisis. Retail sales and personal consumption, for example, did 
not report any growth until the fourth quarter of 1999. Household spending 
clearly remains well below pre-August 1998 levels. Average monthly wages 
according to the official statistics in April were still only US$71, down 
sharply from July 1998's US$181. Still, compared to the April 1999 monthly 
wage of only US$56, household incomes are up sharply.


This apparent broadening of the recovery to sectors other than industry 
suggests that Russia is on track to report a GDP growth in 2000 which will 
be at least as large as 1999's 3.2 percent. In the longer term, however, 
there seems to be near unanimity among Russian and international economists 
that Russia's growth prospects depend on the introduction of structural 
reforms. Many of these reforms--designed to improve the investment 
environment and restructure Russia's moribund banking system--are called 
for in the program sponsored by Economics Minister German Gref. This reform 
program, which has been the subject of intense speculation and press 


discussion for weeks, is to be formally presented to the Russian government 
on June 22 (Russian agencies, June 14). 


********


#7
RIA Novosti - Moscow Diary, June 19
WHO RUSSIAN MASS MEDIA ARE DEPENDENT ON 
Boris PETROV, RIA Novosti's analyst 


If a vessel is half-filled with liquid, is it half-full or 
half-empty? This argument between the Medieval scholastics can 
be to a certain extent applied to the current fuss around 
freedom of the mass media in Russia. 


On the face of it, the very question might seem artificial 
as one may wonder what restrictions and bans it is possible to 
speak about when the news stands abide in all manner of 
periodicals, including Leftist, Rightist, Centrist and foreign 
editions. Radio stations of different political bents, among 
them BBC, Deutsche Welle and Liberty, broadcast day and night. 


No newspaper, magazine, radiostation or TV channel has 
been cancelled on "ideological grounds". By the way, the 
Russian law "On the mass media" reads that an information 
outlet can be closed only in case it was used for committing a 
crime, disseminating state secrets, urging the seizure of 
power, fuelling national hatred or religious intolerance. It 
should be added that even in the current grim economic 
condition the state keeps subsidising some newspapers and 
magazines of different political views, including quite 
prosperous leading editions. 


The problem is not whether this or that periodical depends 
on the federal centre but whether they are independent by 
themselves. The recent years have proved that independence is 
not an intrinsic feature of most Russian periodicals. 
The reasons are as follows. One lies in the attachment of 
some information media to separate financial groups, 
organizations or definite figures. The information policy of 
such periodicals follows the principle: he who pays the piper 
calls the tune. 


The second reason is seen in an excessive orientation of 
regional mass media toward the authorities in their 
jurisdictions. Journalists who have to earn their living cannot 
but smell the whims in the position of their regional patron. 
It seems to be the trouble rather than the guilt of local 
editions that they more often than not turn into an information 
appendix of an immediate administration. 


The third reason for the voluntary renunciation of 
independence is the political engagement of all-Russia editions 
and TV channels which have formed teams of experienced 
journalists seeing eye to eye as regards many political 
problems. Evidence of this are national election campaigns. 
The mass media have got their specific problems as well: 
feedback. People expect their favourite channel or newspaper to 
report what they have got accustomed to. It's a kind of 
stereotyped perception --one can therefore talk about the 
engagement of the consumer rather than the engagement of a 
periodical. 


In general, absolute freedom of speech exists neither in 
Russia nor in the West. If CNN is owned by Ted Turner, the 
company cannot but be dependent on its boss. His views cannot 
but influence the career of each company journalist. But the 


difference is in the extent of this dependence. There are rules 
of the game on the Western information market, which are 
non-existent here. The mass media are part of the national 
business, which means that they function according to the laws 
accepted in the market economy and won't infringe on these 
rules because it is not profitable--you may lose confidence of 
your consumer and consequently suffer a financial failure. 
As to Russia, it has not yet built a market economy but 
has already turned into a market society where everything is on 
sale, including the mass media. Not as a business, however, but 
as an instrument of political influence. 


So, what is a way out of this situation whereby the 
Russian mass media are "free but dependent"? There seems to be 
one crucial condition: the information media should obtain 
economic independence through competition on the information 
market. This is the age-old world practice--so why should we 
ignore it? 


********


#8
"MOSCOW TRIBUNE", 20 June, 2000 
THE ROUBLE CONTROVERSY IS A SQUABBLE FOR POWER 
Too Many Drivers Endanger Economic Stability 
By Stanislav Menshikov (menschivok@globalxs.nl)


The latest good news is that the Russian economy continues its spectacular 
rise. Industrial production rose 10.4 percent during the first five months 
of the year compared with the same period last year. Despite oscillations 
from one month to another the economy is operating on a relatively high 
level, inflation remains low, personal incomes are rising, financial 
conditions of companies are improving, the rouble is stable and official 
hard currency reserves have returned to their pre-1998 crisis peak. The bad 
news is that some official economists and IMF experts see these 
achievements as indications of looming disaster ahead and the architects of 
economic policy are bickering on which road to take next. Some insist on 
turning left, others on turning left while the real economy needs one 
steady hand that avoids extremes and helps it move on its own momentum 
very much as a regular market economy should. So why are the experts 
fretting?


The main force driving the economy upwards is growing aggregate demand for 
products of domestic industry. Aided by the fourfold devaluation of the 
rouble since the 1998 crisis Russian producers have regained their 
competitive power. Due to large unused capacity they are able to raise 
output sharply without massive new capital investments. This is, of course, 
a special and temporary situation that cannot last long probably another 
year or so. New sources of economic dynamism most notably capital 
investment will have to be introduced into the picture if the current rate 
of business activity is to be sustained beyond 2001. Whether this indeed 
happens depends largely on government economic policy.


So far, the government and the Central Bank have been doing well. 
Government purchases of goods and services have been on the rise adding to 
aggregate demand. Pensions and salaries of government employees have been 
increased, and the current plan to appreciably raise the official minimum 
wage in the year ahead are steps in the right direction. This has been done 


without increasing government debt due to exploding federal revenues and a 
balanced federal budget. The tax reform, despite its inconsistencies, will 
also help. There is no reason why this strategy should not continue as it 
is.


However, some experts claim that this course is dangerous. According to Mr. 
Illarionov, Putin's economic advisor, the federal government is spending 
too much and therefore allegedly endangering macroeconomic growth. But the 
figures he quotes in support of his view are inconsistent with known facts. 
According to Illarionov, federal expenditure runs at 38 per cent of GDP and 
should be reduced to 30 per cent. But actually, the federal government 
spending only 15 per cent of GDP, if servicing state debt is included, and 
only 11 per cent, if it is taken out. The problem with government 
expenditure is that it is too low, not too high. This has been restricting 
aggregate demand and aiding stagnation for too long. Putin and Kasyanov 
should not be paying attention to this advice, and it looks that so far 
they are not listening. Mr. Illarionov's principal role is that of a 
chatterbox meant to soothe extreme foreign Neoliberal critics. But he is 
too aggressive in publicly promoting his views and should not be ignored as 
present danger to rational economic thinking in government circles.


Experts from the IMF are lately promoting the view that a large balance of 
payments surplus is another threat to the economy. According to them, it is 
a pro-inflationary factor because increased foreign currency reserves need 
more roubles in circulation to back them up. This argument does not hold 
water for two reasons. The economy has been undermonetised for too long. It 
needs a growing money supply to support economic growth and help getting 
rid of barter. Printing roubles is not necessarily inflationary when 
production capacity is lager than money demand. IMF experts draw their 
conclusions from developing countries' experience which is very different 
from the Russian situation. 


Closer to reality is the current controversy between the Central Bank and 
the Mr. Kasyanov as to whether the rouble should remain stable or be 
further devalued. There are serious arguments both pro and contra these 
divergent views. A stable rouble is a principal factor promoting domestic 
price stability and reducing inflationary pressures. A devalued rouble is a 
source of higher profits for exporting industries dominated by the 
oligarchs and maintaining competitive power of domestic industries in 
general. The way to resolve this controversy is to discuss it in private 
between the Bank and the Government and reach a compromise decision purely 
pragmatic and businesslike grounds. Making it a public propaganda issue 
smacks of power struggle between the two most important economic policy 
actors and even a personal vendetta aimed at squeezing out Mr. Geraschenko 
and putting the Bank under less competent and reptile leadership. Central 
Bank independence is a necessary condition for running a normal market 
economy and should be preserved at any cost. Continuing the current 
squabble between high placed economic actors is against the best interests 


of economic stability. 


********


#9
Moscow struggles to regain influence in ex-Soviet zone


MOSCOW, June 20 (AFP) - 
Leaders from 12 ex-Soviet states grouped in the Commonwealth of Independent
States (CIS) meet in Moscow on Wednesday, amid patchy success in Russia's
efforts to regain lost influence in its backyard.


The one-day summit, like others in the past, is expected to conclude in a
flourish of joint declarations about the need to combat the scourge of
international terrorism and forge closer economic ties.


But Russia's new president, Vladimir Putin, who set himself the task of
reviving the moribund organisation as part of a strategy to upgrade
Moscow's role in the region, will have to scale back his ambitions,
analysts say.


"He has made little progress in this field. The interests of CIS members
are too different to bring them together, and to find a compromise.
Everyone wants to receive more and give less," commented Yevgeny Volk of
the Heritage Foundation.


The CIS includes all the Soviet Union's successor states apart from the
three Baltic states.


The only scope for closer ties lie in Central Asia, where Russia can offer
the region's authoritarian regimes the carrot of military help against
Islamic radicals, said respected Moscow-based commentator Andrei Piontkovsky.


"The most Russia can hope for is to be used as a military post in Central
Asia to protect local regimes," he said.


Putin's first trip abroad after his inauguration in May was to Uzbekistan,
a country of 24 million people which borders Afghanistan and which faces a
resurgent threat from Islamic extremism.


President Islam Karimov, who since independence in 1991 has fiercely
resisted Moscow's influence in the region, changed his tune and appealed to
Putin for Russian military assistance against fundamentalist Islamists.


"Karimov was most one of the most sceptical leaders about integration, but
now he has rushed to the Kremlin for protection against Islamic radicals,"
said Piontkovsky.


In Tajikistan, where a five-year civil war between government and Islamic
opposition forces raged from 1992-97, Russian border guards patrol the
frontier with Afghanistan.


But the largest Central Asian country, Kazakhstan, is keeping a safe
distance from Russia, despite making the right noises about safeguarding
the rights of its large Russian minority and making use of military
cooperation.
Kazakh President Nursultan Nazarbayev "will never refuse cooperation with
the West just for the sake of the rhetoric of friendship with Russia,"
Piontkovsky commented.


In the battle for influence with the United States, Moscow is handicapped
by its inability to provide investment to develop Central Asia's vast
mineral and hydrocarbon resources.


Russia in particular has not succeeded in quashing a US-backed pipeline
project to transport Caspian crude to Turkey -- bypassing Russia and Iran,
which are both touting rival routes.


In the volatile Caucasus region, Azerbaijan and Georgia are sticking firmly
to their pro-Western policy -- both states are hoping to join NATO --
mindful of Moscow's past role in stoking ethnic conflict.



Russia supported Armenia in its conflict with rival Azerbaijan over the
status of the Nagorno-Karabakh ethnic Armenian enclave which lies inside
Azeri territory, as well as Abkhazian separatists in Georgia.


"These countries are very closely oriented towards the West, towards the
United States and Turkey. I don't see any likelihood of a rapprochement
(with Russia)," said Volk.


Russia, meanwhile is likely to balk at the economic cost of unification
with its impoverished Slavic neighbour Belarus, despite signing a union
treaty last year.


And Ukraine, despite its reliance on Russian energy supplies, is pursuing
gradual integration with the West, strongly encouraged by Washington which
wants to create a buffer to Moscow.


*******


#10
Los Angeles Times
June 20, 2000
[for personal use only]
Why Gusinsky Was Arrested, Let Go 
Culture:Russian leaders have always sought to keep the mass media under
their thumb, and artists at their side. 
By NINA KHRUSHCHEVA
Nina Khrushcheva Is Director of Special Projects at the East/west Institute
in New York


By arresting media mogul Vladimir A. Gusinsky last week, the
Kremlin--whether by order of President Vladimir V. Putin or not--revived
fears of censorship and thought control. Are those fears justified, and
what does Gusinsky's arrest--given his speedy release a few days
later--mean, if anything? 
Neither censorship nor the gulag ever completely suppressed
intellectual life in Russia. Witness the genius of Anna Akhmatova, Osip
Mandelstam, Dmitri Shostakovich, Boris Pasternak and Sergei Prokofiev, who
created great works even in the nightmare years of Stalinism. Recognizing
this indestructibility, Russian leaders have always sought to keep the mass
media under their thumb, and artists on their side. Newspapers buckled and
often artists returned the state's embrace. Alexander Pushkin, for example,
announced, "I am not a flatterer when I sing praises to my Tsar." Even
Mandelstam, although he did it under duress, wrote an Ode to Stalin, which
nevertheless failed to save him from the gulag and death. 
Lenin, Khrushchev, Brezhnev, Gorbachev--all constructed their ruling
Soviet ideology on the foundation of the Russian intelligentsia. When
communism imploded, however, Boris Yeltsin sought to divert Russia's
intellectual energy toward money and the media. High culture was abandoned
as a Kremlin plaything and left to survive--or not--on its own. The
Internet and mass media, not poetry, was to be the catalyst in
jump-starting Russia's civil society. 
As president, Putin vowed last January to revive the moral fiber of
the Russian people, their glory and international respect. To achieve this
goal, he has sought to restore high culture to a position of primacy in
Russian life, and to put mass media back in its (politically) subservient
place. If geniuses like Alexander Solzhenitsyn and Andrei Sakharov helped
dismantle the Soviet Union, Putin appears to believe, other artists and
thinkers could revive Russian greatness. 
But politics in Russia has never been a matter of greatness, only
control; and because the media is key to controlling politics, it seems
almost natural that Putin is now seeking to manage it more directly. 
Indeed, in his half-year as acting and elected president, Putin has
posed as a great supporter of Russian culture in all its aspects: film,
literature, music, architecture, science. Mass media, because of its
political usefulness, now seems exempted from these tender concerns. 


For Russians, Gusinsky's arrest incites a sinister sense of deja vu.
Stalin also posed as a best friend of Soviet linguists, athletes, children
and soldiers, but most of all as the friend of writers, composers, poets
and artists--even as he kept an iron grip on newspapers and broadcasters.
Stalin's friendship, of course, sent Mandelstam to his grave, and
Pasternak, Shostakovich and Mikhail Bulgakov all found themselves isolated. 
Putin's new dictatorship of law also seeks to play the culture card of
his law-and-order predecessors. Thankfully (so far), Putin's cultural
involvements have assumed less grandiose and intimidating forms. Gusinsky,
after all, was arrested in the glare of news cameras, not shipped off to
the gulag in the dark of night, and precisely because the glare was too
bright for the newly established presidency, Putin had to let him go almost
immediately. This gentleness suggests that modern democratic-capitalist
governance can now afford its own forms of surveillance to replace
Soviet-style censorship, mixing tough traditions with less threatening
techniques. The Press Ministry was recently granted more power over the
Russian press by demanding that all publications in the country obtain
government-issued licenses to continue printing, reserving the right to
suspend a license for up to six months if the publisher violates any
law--which includes violating pest-control regulations. 
The point is to atomize and isolate. Great voices can speak, but these
voices must be singular; the chorus of opinion that mass media outlets like
those controlled by Gusinsky offers, it seems, must be overseen, monitored
and, if necessary, controlled when they get too far out of line, as Kremlin
power brokers seem to believe Gusinsky has been. 
Gusinsky's Media-Most empire, including television and influential
newspapers and magazines, bridled at earlier Kremlin attempts to control
them by other means. Gusinsky's arrest seems a signal that the old whips
can still be taken out of storage. 
On the other hand, Putin's benevolent gestures toward mastera cultury
(maestros of culture)--Kremlin benevolence that was once so
life-threatening--are complacently accepted by today's mastera. Valery
Gergiev, the renowned conductor of the Kirov (now Marinsky) Opera in St.
Petersburg, was pleased by the president's direct interest in his new
production of Prokofiev's opera, "War and Peace," as was Nani Bregvadze, a
legendary Georgian singer, whom Putin begged to sing for him after missing
her concert at the Moscow Conservatory. 
In treating cultural masters different from media barons, Putin's
calculations have been proved right so far. On June 12, at the 10th
anniversary of Russia's Independence Day celebration, Nikita Mikhalkov,
director of the Oscar-winning film "Burnt by the Sun," receiving a state
award for outstanding cultural achievements, addressed the new Russian
president as "your excellency" and stated that "there can be no great state
without an idea, and (the) Russian idea is a great state." A month earlier,
the same Nikita Mikhalkov spoke to the press in Moscow in defense of
Putin's strategy in Chechnya. 
Gusinsky may have been just the first to learn the limits of freedom,
and the depth of those obligations. 



********


#11
RUSSIAN MP SUSPECTS AUTHORITIES TO MOVE AGAINST SECOND ENTREPRENEUR
Interfax 


Moscow, 20th June: Leader of the Regions of Russia Duma group Oleg Morozov
has said he is surprised with reports that the Moscow Prosecutor's Office
has filed a suit against the unlawful privatization of Norilsk Nickel
corporation. 


In a Tuesday [20th June] interview with Interfax, Morozov drew attention to
the fact that two weeks ago "the Audit Chamber, responding to an official
inquiry from the previous Duma, reported its conclusions that the
privatization had been lawful." 
The Norilsk Nickel story is beginning to unfold "against the background of
the racket caused by the recent arrest of Media-Most holding CEO Vladimir
Gusinskiy," Morozov pointed out. 


"As far as I know, from the viewpoint of productiveness and relations with
the budget Norilsk Nickel is a model company," Morozov said. 


He said he suspects "we may be witnessing the second series of harassment
of prominent entrepreneurs after Gusinsky's arrest". 
"The question arises: can a war have broken out between the authorities and
Russian oligarchs?" Morozov said. However, he said in his opinion "certain
forces are trying to set the authorities against business". In the case of
Norilsk Nickel, "the task is even less feasible than with Media-Most," he
said. 


Top echelons and the president should find out who is spurring on such
processes, he said. 


Norilsk Nickel is owned by Interros holding, which is headed by former
UNEXIM bank head Vladimir Potanin. 


Interfax has not received confirmation from the prosecutor's office about a
suit on the Norilsk Nickel privatization. 


*******


#12
Financial Times (UK)
20 June 2000
[for personal use only]
Russian taxman puts faith in the people: Andrew Jack on a 'self-assessment'
project aimed at taking the stress out of paying tax - and improving revenues


In a country where the taxpayer is confronted by Soviet-era red tape,
hostile inspectors and lengthy queues, Russian policy experts are
experimenting with a radical new approach: make it easy for the "customer"
to pay. 


Volgograd, site of the battle of Stalingrad, turning point in the German
invasion eastwards during the second world war, is now the site of an
important pilot project. It aims to reform Russia's tax administration
system, a priority at the core of President Vladimir Putin's pledge to
rebuild the state and its institutions. 


With Dollars 3m in funding from the World Bank, and support from central
and local governments, officials in the city have refurbished offices,
bought new computers and retrained their staff. Their objective is to
improve revenues by making tax assessment and payment if not a pleasure,
then at least less of a burden. 


An automatic telephone leaves recorded messages reminding taxpayers that
they should file their declarations. Posters have been put up around the
city, and there is even a class taught in the neighbourhood schools to
stress the importance of paying tax. 


But the central idea of the Volgograd project - and its greatest gamble -
is to trust people to be honest. Using the concept of "self-assessment"
adopted in the UK, US and elsewhere, local residents are allowed to declare
their income and calculate their tax bill themselves, leaving inspectors to
concentrate on the most likely perpetrators of fraud. 
"I am convinced that we have to trust taxpayers and not audit all of their
declarations," says Mikhail Mishishtin, deputy tax minister and head of the
project. "We have to move away from the assumption that they are lying." 



Unlike similar reforms in other countries, there is no focus on increasing
personal contact, identifying tax inspectors by name and telephone number
so that taxpayers can call them directly with questions. In Russia,
officials are trying to do just the opposite: to "de-personalise" tax
filing, in an bid and ideally to eliminate any contact at all. 


By removing annual discussions between tax inspectors and taxpayers, they
hope to cut down on the risk of bribes, as well as the arbitrary
calculation of tax. At present, in a region where the average inspector's
monthly salary is Dollars 80, a tax bill is all too frequently the result
of negotiations rather than of honest declarations met by fair
implementation of clear rules. 


Combined with the Russian government's recently proposed new flat-rate
income tax of just 12 per cent, officials hope that easier filing methods
will encourage a growing proportion of Russians to come forward to register
and to pay their taxes voluntarily and in full. 


The task will not prove easy. While Russians in the Soviet era had an
automatic deduction (of 12 per cent) from their salary, there is little
tradition of tax declarations. 


And since the 1980s, rising poverty, deteriorating public services and
corruption have provided plenty of signs that the state provides very
little in exchange. 


"To offer to pay all your taxes is seen as a sign of weakness," says one
tax consultant. "The inspectors just come back for more." 


The reforms were hindered until recently by lack of political patronage.
The World Bank allocated Dollars 16m in 1994 - split between the new
organisational structure in Volgograd, software development in Nizhny
Novgorod and a computer processing centre in Moscow. Yet there was little
progress until 1998, and even today only Dollars 10m of the loan has been
spent. 


A new impetus has been provided by the former tax inspector who has become
Russia's new tax minister, Gennady Bukayev. He implemented a similar system
to register more taxpayers in the republic of Bashkortostan, and has
pledged his support for a programme that would seek more than Dollars 500m
in World Bank funding to expand the Volgograd pilot to 10 of Russia's
largest regions over the next five years. 


There are some signs that the experiment is beginning to work. Volgograd
officials point to rising compliance rates, fewer errors, more declarations
filed on time and the elimination of queues in their offices. But the
limited timescale still makes it difficult to gain a clear picture, and the
tortuous flowcharts and technical explanations they use to explain their
system suggest that implementation elsewhere may not prove easy. 


As Yuri Batrin, head of Vozhsky Orgsynthese, a local company, argues,
administrative changes also have their limits. "We are seeing the first
fruits of reform. We no longer have antagonistic relations with the tax
inspector. But we need new legislation. Our tax code remains highly
imperfect." 


*******


#13
BBC MONITORING
RUSSIAN ANALYST: PUTIN MUST BE MORE DECISIVE IN CASES SUCH AS GUSINSKIY AFFAIR
Text of report by the Russian newspaper 'Segodnya' on 16th June 



Your `Segodnya' correspondent Avtandil Tsuladze asked Gleb Pavlovskiy, the
leader of the Foundation for Effective Policy [and a major player in
Putin's pre-election campaign], about the possible political consequences
of the arrest of the head of the Media-Most holding company, Vladimir
Gusinskiy. 


[Tsuladze] Gleb Olegovich, people both in Russia and in the West have
reacted negatively to Vladimir Gusinskiy's arrest. How will this affect
President Putin's image as a whole? 


[Pavlovskiy] The problem is not how the West is commenting on the affair.
The problem is that there is political vagueness and lack of clarity in a
sphere where the president's own stance should be very clear. This really
is intolerable. I do not regard Gusinskiy as a leading light of democracy,
but even if he were a monster, isolated punitive acts would not resolve
problems in a single sphere of Russian policy or a single sphere where
Putin's programme of state construction is to be implemented. Putin is
currently a leader without appropriate political tools. Everything else
flows from this. 
[Q] In your view, how will events develop further? 
[A] I don't know. The oligarchs' guild has proposed bailing Gusinskiy out.
In my opinion, his release would be an entirely proper option. For the sake
of greater clarity of the political process, I would like to see Vladimir
Aleksandrovich [Gusinskiy] free, or at least no longer held under guard
because his current position makes the situation incredibly confused and is
providing an opening for all sorts of riffraff - right-wingers,
left-wingers, human rights campaigners, functionaries and many others. The
situation must be neutralized. 


[Q] Could Putin's political initiatives suffer from these actions? 


[A] Yes, they are already suffering. There is a whole series of state
problems which have no personal expression. The Gusinskiy problem did not
exist until he was arrested. We are now observing a procession of
frightened political players in the media sphere. This is an abnormal state
of the political process. Politics should be conducted soberly, not in a
state of fright. Nobody should be intimidated. Mr Gusinskiy is an eminent
Russian politician. The president should have a position on the actions of
the Prosecutor-General's Office. I personally am waiting to hear this
position. 


[Q] In other words, there is a decent way out of the current situation? 


[A] With regard to the political situation, action must be taken by the
president and by nobody else, because everyone else acts inappropriately.
Some are demanding that Putin should release Gusinskiy personally, which is
incorrect, while others are secretly pleased, which is despicable. The
oligarchs are frightened, which is natural. It seems to me that the
president should indicate how he understands the interaction between the
public, the power structures and himself personally in the current situation. 


[Q] In the "Glas Naroda" ["Voice of the People"] programme, Sergey Dorenko
[the presenter] talked about certain "robots" that have risen up from the
scrapheap of history. 



[A] There will be more and more situations like the present one unless the
process becomes rational. The old Yeltsin system is inevitably
disintegrating, and unless this disintegration is taken under joint
political control by everyone involved in it, a time will come when the
president, despite all his support, will be unable to deal with it. The
point is that there are a great many "robots" on the scrapheap. There are
not only power department "robots", but also political "robots", regional
"robots" and mass media "robots". There are masses of robots. They are
fragments of the old political system. We have to switch to a new political
system. This can only be done democratically, legally and openly. We must
openly express our mutual recriminations in the media, in the Duma,
wherever we want. However, shadow politics must end. An attempt is
currently under way to escape from shadow politics by shadow means. This is
futile. 


*******

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