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Johnson's Russia List


July 9th, 2000    
This Date's Issues: 4391 ē 4392  ē


Johnson's Russia List
9 July 2000

[Note from David Johnson:
1. Reuters: Highlights of Putin's state of the nation address.

3. The Russia Journal: Eric Helque, From Massachusetts to
Mayakovskaya. Johnsonís Russia List author comes to Moscow.]


FACTBOX-Highlights of Putin's state of the nation address

MOSCOW, July 8 (Reuters) - President Vladimir Putin set out his diagnosis of 
Russia's ills on Saturday in his first state of the nation address. In a 
50-minute Kremlin speech to both houses of parliament, Putin listed his 
nation's social and economic problems and was largely pro-reform and 
pro-democracy in his proposed solutions. 

The following are the main points of his speech: 


Russia has to become a strong state with an active leader. ``The only real 
choice for Russia is to be a strong country, strong and sure of itself.'' 


Russia should be ruled by strong laws. ``We need to get all the authorities, 
all citizens to be aware of their responsibilities before the country, so 
that the strict adherence to the law becomes the accepted norm for all 
Russian citizens.'' 


Russia's population is falling. ``In our homes today, the situation is far 
from comfortable. For very many people, it is difficult to bring up children, 
to secure for their parents the conditions for a dignified old age. It is 
difficult to live. Year by year, we, the citizens of Russia, are getting 
fewer and fewer.'' 


Russia's economy is still weak and its growth is precarious. ``The signs of 
growth are extremely slight. As in the period of recovery in 1997, they are 
on thin ice....Current growth is only to a small extent due to the renewal of 
reforms. To a great degree it is the result of favourable external economic 

Putin called for less state interference in the economy and said many 
government-controlled businesses were ineffective. He also defended property 
rights and said the foreign debt burden remained a threat to the state. 


Russia needs a pragmatic foreign policy to protect its interests. 
``Independence in our foreign policy is not in doubt. Our foreign policy must 
be based on pragmatism, ensuring economic efficiency and should prioritise 
national aims...'' 


Freedom of speech is an unshakeable value in Russia, but the owners of 
Russia's commercial media abuse public trust. He said commercial owners had 
used their outlets to fight each other and with the state, creating ``media 
of mass disinformation.'' 


Russia needs to grow spiritually and people should not forget Russian 
traditions and culture. ``The unity of Russia is strengthened by the 
patriotic nature of our people, by our cultural traditions, memories.'' 


Russia will develop its education and health sectors. ``Social policy is not 
only about aid for those in need, but it is also an investment in the 

REGIONS Russia needs to rein in its far-flung regions. ``The regions should 
not compete for power, but attract investment in their natural resources.'' 
``We created little islands of power, but there were no bridges to connect 


Russia has to restore control over breakaway Chechnya. ``The situation in the 
republic has become complicated to such a level that the territory has become 
a springboard for the expansion of international terrorism into Russia.'' 


Source: Russia TV, Moscow, in Russian 0800 gmt 8 Jul 00 

President Vladimir Putin spoke of the need for a strong democratic state in
his address to both houses of parliament on 8th July. Putin said that the
central state should exert its authority over the regions but that people
should take more responsibility for their own lives. In the address, which
was relayed by Russia TV, Putin said he wanted stronger political parties,
a genuinely free media and a competitive economy. The following is the text
of the TV relay of his address. Subheadings have been inserted editorially. 

[Russian President Vladimir Putin] Esteemed Yegor Semenovich [Stroyev,
chairman of the Federation Council]. Esteemed Gennadiy Nikolayevich
[Seleznev, chairman of the State Duma]. Esteemed deputies of the State Duma
and members of the Federation Council. Esteemed citizens of Russia. I am
delivering my address to the Federal Assembly of Russia in accordance with
the constitution. It will deal with priority tasks in the work of the state
authorities. A great deal has already been started and is being done by us

However, there are also tasks for the future which will require intensive
efforts. We agreed with the leadership of both chambers [of parliament] to
meet a little later - after my speech - and discuss the main provisions in
the address I am delivering. 

I very much hope that this conversation will help in the effective
organization of further work. This time the presentation of the address is
taking place in the middle rather than the beginning of the year. As you
know, the reason for this is objective. Firstly, the holding of Russia's
presidential election. Only the head of state in office has the right to
set programme tasks for state agencies. Only he has the actual ability to
organize their effective implementation. 

The past six months showed that society had already reached a rather high
level of agreement with regard to the principal issues of the country's
development. Constructive, if difficult, joint work of the legislative and
executive branches of power has been launched. The newly formed federal
government is proving capable of systematic well-planned work. Programmes
on the social and economic development of the country have been approved in
principle. It is largely evident that tasks are approached at the state
level. I am grateful to the Federal Assembly and the government for the
fact that we have begun preparing and carrying out decisions important for
the country together. I want to thank all citizens, everyone who has
supported us in these undertakings. 

I count on everyone's active participation in the affairs of the Russian
state in the future, too. The examination of laws to improve federal
relations has become a major event in the recent months. 

Condemns "unreasonable level" of taxation 

These laws will change the situation in the social and taxation spheres.
The introduction of these laws will become a starting point for a new era,
both in building the state and in laying down the rules of economic
behaviour. An era is beginning in Russia when the authorities are gaining
the moral right to demand that the established state norms should be

The unreasonable level of taxation has perhaps become one of the most acute
problems in recent years. It is one of the most acute problems. Much was
said about it, but there were no further developments, and discussions
could not break through a vicious circle. Very few people believed that the
situation could change. Now the first steps have been made. New legislative
parameters are being created, and new rules are being set. But the work in
this sphere - as we have just discussed this with the prime minister - is
going very slowly, with many difficulties. 

The introduction of a single income tax rate and decreasing the amount of
payments to social and extra-budgetary funds will help to move income out
of the shadow area. Easing the tax burden will make it possible for
conscientious and hard-working entrepreneurs to develop their own business
in their own country with confidence. 

We must admit that the state itself has to a greater degree facilitated the
dictatorship of the shadow economy and grey schemes, the raging corruption
and massive outflow of the capital abroad. The state has contributed to
this because the rules were vague and restrictions were not well defined
and not justified. 

Strong and confident Russia "the only realistic choice" 

We have been trying to make our choice for a long time - whether to lean on
others' advice, help and credits, or to continue our development supported
by our own uniqueness and our own strength. Many states in the world were
faced with a similar choice. If Russia remains weak, we'll indeed have to
make this choice. This will be the choice made by a weak state, a weak

The only realistic choice for Russia is the choice to be a strong country,
strong and confident in its strength, strong not in spite of the world
community, not against other strong states, but together with them. 

Today when we are moving forward it is more important not to reminisce
about the past, but to look into the future. 

We all - entrepreneurs, the power-wielding structures, all citizens - must
strive to deeply feel our responsibility for the country. Strict
observation of laws must become a need for all people in Russia by their
own choice. 

A policy built on the foundation of open and honest relations between state
and society will protect us from repeating previous mistakes and will be a
fundamental condition for a new social contract. 

Esteemed colleagues: Before talking about priorities and setting tasks, let
me list for you the most acute problems facing our country. 

Population decline threatens the survival of the nation 

We have come to regard Russia as a system of bodies of authority or as an
economic mechanism. But Russia is first and foremost people. People who
look on it as their home. Their welfare and a worthy life for them are the
main task facing the powers that be - whoever these may be. But the fact is
that our home today is far from being a comfortable one. For very many
people it is still difficult to bring up children, to ensure a fitting old
age for their parents - life is difficult. As each year goes by there are
fewer and fewer of us citizens of Russia. For several years past the
population of the country has been diminishing on average by 750,000 a
year. And if we are to believe the forecasts - which are based on realistic
work by people who are experts in such matters, who have devoted their
entire lives to this - then in 15 years from now there may be 22 million
fewer Russians. I ask you to ponder this figure - one seventh of the
country's population. If the present tendency continues there will be a
threat to the survival of the nation. We are under a real threat of
becoming a drifting nation. Our demographic situation today is an alarming

Another serious problem remains Russian economic weakness. The growing rift
between the leading states and Russia is pushing us towards becoming a
third-world country. We can take no comfort at all from the current figures
for economic growth. As before, we are continuing to live in conditions in
which we are progressively slipping further and further behind
economically. I ask you to pay particular attention to this. At first sight
the state of the country's economy looks all right. There is growth in the
gross domestic product, in industrial output, in investment, in tax
collection. But the fact is that economic growth, as was the case in the
period of upturn in 1997, is on the brink of collapse. 

Russia needs a competitive and just economy 

Two years ago, seeming wellbeing, based on large-scale state borrowings,
collapsed under the impact of a powerful financial crisis. Today's economic
indices look optimistic only against the background of yesterday's. I would
like to stress this - only against the background of yesterday's. However,
they are very modest as compared with other countries which are developing
at a much higher rate and in a much more stable manner than we do. The
current growth is only partly connected to the renewal of the economic
mechanism. In many ways, it results from favourable foreign economy factors. 

Deviating from the text, I would like to return to something I mentioned at
the beginning - the tax reform. I'm asking State Duma deputies to examine
the government's proposals attentively within the context of what I have
just said. 

We cannot put up with this situation, and the reason for this is not just
our national pride - although this is also important - the question is much
more acute and dramatic: will we be able to survive as a nation, as a
civilization, if our wellbeing, again and again, will depend on
international loans and favours from leaders of the world economy. Russia
needs a competitive, effective and socially just economic system, a system
which provides for a stable political development. Stable economy is the
main guarantee of democratic society and part and parcel of a strong state
which is respected in the world. 

Russia faces a challenge to its sovereignty 

Russia also comes across serious external problems. Our country is involved
in all world processes, including economic globalization. We also have no
right to miss the information revolution which is now gaining momentum in
the world. We cannot and we should not lose strategically. This is
precisely why an updated foreign policy blueprint was approved recently. It
stipulates the supremacy of internal objectives over external ones.
Independence of our foreign policy is beyond any doubt. This policy is
based on pragmatism, economic efficiency and priority of national
objectives. However, we still need to work to ensure that these principles
become a norm of state life. 

The cold war remained in the past, but dire consequences are still have to
be overcome. These are attempts to infringe on the sovereign rights of
states under the pretext of humanitarian operations or, as it is
fashionable to say now, humanitarian interventions. These are also
difficulties in finding understanding on issues which pose a regional or
international threat. 

Thus, within the context of the type of external aggression which is new to
us - international terrorism and the direct attempt to move this threat
inside the country - Russia had to face a systematic challenge to its state
sovereignty and territorial integrity, face forces seeking geopolitical
reorganization of the world. 

Our efforts to rid Russia of this danger are sometimes interpreted in a
biased and one-sided way, become a pretext for various kinds of
speculation. In this regard, contribution to objective perception of Russia
and provision of accurate information on developments in our country should
become an important area of [Russia's] foreign policy. At present, this is
an issue of both its reputation and national security. Response to these
and many other challenges is impossible without the strengthening of the
state. Not a single nationwide task can be resolved without this. Despite
the fact that the strengthening of the state has been declared the crucial
aim of Russia's policy for more than one year, over all these years we have
not moved anywhere beyond declarations and empty words, have not moved

Only a strong state can protect freedoms 

Our essential task is to learn how to use the state levers for ensuring
freedom, freedom of the individual, freedom of entrepreneurship, free
development of civil society institutions. The debate on the ratio between
force and freedom is very old, older than time itself. It still gives rise
to speculation on the subject of dictatorship and authoritarianism.
However, our stand is perfectly clear. Only a strong - effective, in case
someone does not life the word strong - effective democratic state is able
to protect civil, political and economic freedoms and to create the
conditions for a good life for the people and the prospering of our native

Esteemed deputies and members of the Federation Council. Many of our
failures are rooted in the fact that civil society is underdeveloped and
the authorities do not know how to communicate and cooperate with it. The
authorities always go to extremes. They either ignore society or become
excessively protective of it. The domineering idea is that everything in
Russia hinges on the authorities. The authorities are indeed responsible
for everything. However, a great deal depends on Russia's citizens

The development of the country is largely determined by the degree of their
responsibility, maturity of political parties and public organizations, the
responsible attitude of the media. Important changes have taken place in
the country over the past decade. The constitution guarantees the rights
and freedoms of the individual. A democratic political system has been

A multi-party political system has become a reality. The Russians elect
their president and deputies of the State Duma, governors, mayors and the
bodies of local self-government. However, quite often the distance
separating laws from real life is too great. 

We have only outlined the civil society to be built in Russia. Joint and
patient work is required now, to make society the government's equal partner. 

We do not always succeed yet in combining patriotic responsibility for the
country's future with what Stolypin [Petr Stolypin was a reformist Russian
tsarist minister. His reform envisaged an attempt to resettle peasants to
homesteads in accordance with land allotments] once described as civil

This is why it is still so difficult to find a way out of false conflicts
between the values of personal freedom and the state's interests. 

Strong political parties need to be built 

Meanwhile, it is not possible to have a strong state without respect for
human rights and freedoms. Only a democratic state is capable of ensuring
the balance between the interests of an individual and society, of
combining a private initiative with all-national objectives. In a
democratic society, political parties provide a constant link between the
people and the authorities. 

Thanks to elections, this instrument of major importance has been given the
best opportunities for development. Without parties, it is impossible to
carry out the policy of the majority or to defend the positions of the

On the background of centuries-long traditions of parliamentarism and
multi-party systems in other countries, the drawbacks of our party system
are noticeable especially clearly. 

It is advantageous for a weak power to have weak parties. The weak power
finds it much more comfortable and easy to live according to the rules of
political haggling. But a strong power is interested in having strong
rivals. Only under the conditions of political competition can it be
possible to have a serious dialogue about the development of our state. 

Russia needs parties that enjoy mass-scale support and stable authority.
Russia does not need another bureaucrats' party that sucks up to the
authorities, and even more so, tries to replace the authorities. 

Experience has shown - we know this from the past several years - that such
formations die instantly like hot-house plants as they find themselves out
in the cold, among other competitors. 

The time is now right to prepare a law on parties and party political
activity. In fact, I think there is a draft law in the Duma. It seems to me
it needs some active work. Perhaps only public and political associations
should have the right to nominate candidates to the post of head of state. 

Independent trade unions needed 

I understand that this is a serious question that requires a separate wide
discussion. A separate discussion is required regarding the current state
of the trade union movement. 

The tendency to formalism and bureaucratization have not bypassed these
public associations either. In the new conditions the trade unions should
not be taking upon themselves state functions in the social sphere. This
should not be necessary. What the people of Russia need is not just another
middleman for distributing social benefits, but professional monitoring to
see that labour contracts are just and their conditions properly observed.
What this means is that the task for the trade unions is to protect the
rights of hired labour in both the state and private sectors, to study the
structure of the market and to organize law studies and seek priorities in
the sphere of vocational retraining. This is an enormous field of activity,
one which the state alone cannot cope with and which the state should not
have to. This is precisely where it needs to work in conjunction with the
trade unions. 

Without a free media Russia will not survive 

In the building of a civil society the media have an exceptionally
important role to play. We talk so much and so often about this problem. In
standing up for the right to freedom Russian journalists have often risked
their own careers - and not only careers, they have risked their lives.
Many have perished. Nevertheless a free press has come about in Russia.
Even so, the Russian media - like society as a whole - are still in the
phase of being built. This needs to be said frankly. Like a mirror, they
reflect all the country's problems and growing pains. Because they are
working right here with us - they are not observing events from some
separate island. Whatever the nature of society, whatever the nature of the
powers that be, so journalism will be. So when people often tell me to get
to grips with the media, to do this or that, my response is that we need to
get to grips with society as a whole, then the media will naturally change

But without truly free media Russian democracy will simply not survive, and
we will not succeed in building a civil society. Unfortunately we have not
yet managed to work out clear democratic rules guaranteeing genuine
independence for the fourth estate - and I want to emphasize the word
genuine. Journalistic freedom has become a tasty morsel for politicians and
weighty financial groups. It has become a convenient instrument in the
inter-clan struggle. As president of the country I consider it my duty to
draw public attention to this. Censorship and interference in the
activities of the media are prohibited by law. The authorities adhere
strictly to this principle. But censorship can come not only from the state
and interference can be not only administrative. 

Economic inefficiency of a large proportion of mass media outlets makes
them dependant on the commercial and political interests of the bosses and
sponsors of these media outlets, makes it possible to use the mass media
for squaring accounts with competitors and, sometimes, even to turn them
into mass misinformation outlets and into a means of struggle against the
state. Therefore, we are obliged to guarantee real freedom to journalists,
not ostentatious one, and to create legal and economic conditions in the
country for a civilized information business. The freedom of speech was and
will remain an unshakable value of Russian democracy. This is our
fundamental stand. 

Sees signs of cultural "renaissance" 

I would like to dwell on one more important issue. I am convinced that
society's development is unthinkable without agreement on common
objectives. And these objectives are not just material ones - spiritual and
moral values are no less important. Russia's unity is bonded by patriotism,
which is inherent in our people, as well as cultural traditions and common
historic memory. And nowadays, a growing interest in our country's history,
in our roots and everything that is dear to all of us can be seen in our
arts, in the theatre and cinematography. Undoubtedly - in any case, I am
convinced of this - this is the beginning of new spiritual development and
new renaissance. 

The country's democratic system and the openness of new Russia to the world
do not run counter to our originality and patriotism, and do not prevent us
from finding our own answers to the questions of spirituality and morals.
And there is no need to carry out a special search for a national idea. It
itself is maturing within our society. And the main thing is to understand
what kind of Russia we believe in and what kind of Russia we would like to
see. With the abundance of viewpoints and opinions, and with the variety of
party platforms, we had and we have common values, the values which
consolidate us and which make it possible for us to be referred to as a
single nation. 

Condemns state interference in economy 

Esteemed colleagues. Going over to the priorities in the economic policy,
it is necessary, first and foremost, to make it clear what stands behind
our economic growth, whether or not it is stable and to what extent it is
vulnerable to influences from outside. I spoke about this at the very
beginning, but I would now like to dwell on this in greater detail. 

On the one hand, today's indices partially result from favourable foreign
trade factors. Everybody in this hall understands perfectly well what I am
talking about. On the other hand, the behaviour of enterprises, market
entities is beginning to change. They are becoming ever more oriented
towards effective demand and they are reducing production costs. This is
also a fact which cannot be ignored. At the same time, there is a danger
that these tendencies will fail to take root here because the in-depth
reasons for instability in our economic development remain the same - the
basic principles for the functioning of the economy are changing at a slow

The gist of these problems is that the state interferes excessively in
spheres where it should be absent and is absent where its presence is
needed. Today the participation of the state is superfluous in the spheres
of property, entrepreneurship and, in part, consumption. And, conversely,
the state remains passive when it comes to the creation of a single
economic space for the country, the obligatory observance of laws and the
protection of ownership rights. 

The main obstacles to economic growth are high taxes, the arbitrary actions
of functionaries and the rampage of criminals. It is up to the state to
tackle these problems. However, a high-spending and wasteful state cannot
reduce taxes. A state that is subject to corruption and with imprecise
delineation of competencies will not deliver entrepreneurs from the
arbitrary actions of functionaries and the influence of crime. 

"We are losing out on the competitive world market" 

An ineffectual state is the main cause of the lengthy and profound economic
crisis. I am totally convinced of that. It is a crisis whose manifestations
are well known. Very many of our country's enterprises remain
uncompetitive. They have survived mainly thanks to the devaluation of the
rouble, the maintenance of low prices for energy resources, nonpayments and
barter. The economy's orientation towards raw materials remains. Budget
revenues depend in large measure on the dynamics of world prices for energy
resources. We are losing out on the competitive world market, which is
geared more and more to innovative sectors and to the new economy: the
knowledge and technology economy. A significant part of the Russian economy
remains a shadow economy. 

One of the symptoms of the weakness of the state and its inconsistency in
the implementation of essential reforms is an excessive accumulation of
state debt, particularly the foreign one. Despite repeated restructurings,
the burden of state debt represents a threat to the development of the
state. The accumulated debts force us to spend at least a third of budget
revenues on their servicing and repayment. The problem is that they are not
getting any smaller. The restructuring is such that they are not getting
smaller, but only grow. 

We have become hostages to a model of the economy based on populist
policies. We have tried to employ cosmetic measures to deal with diseases.
We have constantly postponed the adoption of systemic and fundamental
solutions, aimed at the long term. We need to draw lessons from our
experience and admit that the key role of the state in the economy is,
without any doubts, to defend economic freedom. 

State must defence private initiative and property 

Our strategic policy is the following: less administration, more free
enterprise, more freedom to produce, to trade and to invest. The essence of
state regulation in the economy does not lie in excessive administrative
levers or state expansion in certain sectors - we have been through all
that before and that is not efficient. Also, state regulation does not lie
in support of chosen enterprises or market participants. State regulation
lies in defending private initiative and all forms of ownership. The task
of the authorities is to regulate the work of state institutions that
ensure the work of the market. 

We won't achieve stable development without truly independent courts and an
effective system of law-enforcement bodies. I want to stress that no
national programme will be successful unless we ensure a single economic
and legal space. It is an axiom for a federate state. 

Even today restrictions of economic activity in the country are coming from
everywhere. We can see them coming from everywhere: from federal, regional
and local authorities. The federal authorities are responsible for
providing the same conditions for economic activity in the country. But
territorial bodies often introduce bans on grain exports, restrict the sale
of alcoholic products, hamper the setting up of branches by banks that are
"not theirs" in inverted commas, and create obstacles on the way of free
circulation of capital, goods and services. That is disgraceful and
shameful. That may seem to be advantageous but in actual fact it is leading
to disaster. 

There are so many states in Europe and in 1957 in Rome they unanimously
agreed on free movement of goods, people and services. And the system is
still operating. And we can't achieve the same thing within the framework
of a single state. Any measures by regional authorities aimed at
restricting economic freedom should be stopped as unconstitutional.
Officials responsible for that should be punished. Regions should compete
not for powers but for attracting investment and labour resources. One can
do that only by improving conditions for economic activity rather than by
making them worse. 

One must admit that the state will not be able in the immediate future to
avoid participating in the development of some sectors of our economy, I
mean direct participation by the state. The state can't avoid that and it
shouldn't. Such sectors as, for instance, the defence-industrial sector.
The state will continue to keep a close eye on strategically important

Business climate remains unfavourable 

Esteemed deputies and members of the Federation Council. Unfortunately, the
business climate in our country is improving too slowly. It still remains

Business risks and taxes are high. The mechanisms for the registration of
companies are complicated. There are endless checks. In a number of cases
the functions of state agencies turned out to be intertwined with the
functions of commercial organizations. This state of affairs should not be
tolerated and needs to be changed. 

The government and the head of government should work more energetically on
this subject. We know that economic and administrative functions just get
blended together in some central departments. This will not do. This
contradicts both common sense and existing legislation. 

Firstly, the protection of ownership rights should be ensured. The state
will guarantee that shareholders will have access to information about the
operation of companies. It will limit possibilities for erosion of capital
and diversion of assets. The ownership rights of citizens must be
protected. Their ownership of their homes, land plots, bank accounts and
other real estate and movable property should be guaranteed. It is
important to establish the legal foundation for the private property rights
where they have not so far been established. This primarily concerns land,
real estate. These are acute issues. They should be approached carefully.
It is necessary to work for resolving them. 

These problems are an area for joint work of the government and the Federal

The second area of activity is to ensure equal conditions for competition.
At present, the state privileges some companies in comparison with others.
They enjoy lower energy tariffs. They are allowed not to repay their debts.
They enjoy numerous advantages. However, other companies - which formally
operate in the same conditions - are in effect discriminated against. In
fact, they pay for the privileges bestowed on the first category.
Therefore, all unjustified concessions and privileges should be abolished,
including direct and indirect subsidies to companies, no matter what
reasons are given to justify them. Reasons will always be found. It is
necessary to ensure equal treatment during the distribution of state funds,
licences and quotas, and end the selective application of the bankruptcy
procedure. This is an extremely important and very sensitive area of state

In some regions this has just become a method for settling accounts with
political and economic challengers. 

Business should be freed from "administrative dictatorship" 

The third area concerns liberating businessmen from administrative
dictatorship. The state should move away from the practice of excessive
interference in business operations step by step. The ability of
bureaucrats to act at their own discretion and arbitrarily interpret legal
regulations in the centre and in the regions infringes on the freedom of
businessmen and creates habitat for corruption. It is necessary to ensure
the use of directly applicable laws, reduce departmental instructions to a
minimum and put an end to ambivalence in the interpretation of regulations.
In addition to this, it is necessary to simplify the procedure for the
registration of companies, analysis and consideration of investment
projects and so on. 

Many of those present here in the audience may know what this is - they
have done it themselves or have watched how such problems are tackled in
this country. 

The fourth direction is to ease the tax burden. At present the tax system
leads to mass-scale tax evasion, pushing the economy into the shadows,
decreasing investors' activity, and, in the end, it makes Russian business
less competitive, it simply makes the Russian state less competitive. 

We have taken the first step towards reforming the tax system. Let's
continue along this road. You may have noticed that I am returning to this
problem for the third time. 

The existing customs system cannot be described as effective either. There
exists a myth that it is allegedly possible to protect domestic
manufacturers by manipulating tariff rates. To tell you frankly, I believed
in this idea myself. However, given the current level of customs
administration - I would like to stress this - given the current level of
customs administration, this system to a great extent protects and
encourages nothing other than corruption. 

This is why, we must radically simplify the customs system and unify the
tariff rates. 

The fifth direction is to develop the financial infrastructure. The banking
system must get rid of non-viable organizations. The banking activity
should become transparent. The stock market should become an effective
mechanism for mobilizing investments and channelling them into the most
promising sectors of the economy. 

Priorities in social policy 

The sixth direction is to have a realistic social policy. I am saying the
sixth one, but it could have been named as the first one because of its

At present the policy of overall state paternalism is not possible
economically, and not expedient politically. The necessity to drop it is
dictated both by the need to most efficiently use financial resources and
by the intention to include development stimuli, to free an individual's
potential, to make people responsible for themselves and for the well-being
of their nearest and dearest. 

Social policy means not just helping those in need, but investing in
people's future, their health and in their professional, cultural and
personal growth. This is why we will give priority to developing health
care, education and culture. 

The current system of social support, based on non-specified social
benefits and allowances, is wasting the government's money by definition.
It allows the rich to use public benefits at the expense of the poor. 

Education and health care, though formally free, in effect have to be paid
for and are sometimes beyond the reach of the less well-off. Child benefits
are minuscule and take years to come through. Pensions are miserly and
don't correspond to the true working contribution that has been made. 

Dishonesty has become enshrined at state level - and it is perhaps
appropriate to mention this when we are all gathered here in this hall. We
pass many laws knowing in advance that there is no real financial backing
for them - we push a decision through simply for reasons of political
expediency, and give it no further thought. We have no alternative but to
cut back on excessive social undertakings and make sure that we deliver
strictly on those we retain. That is the only way to regain the people's
trust in the state. 

Another very important national task is to ensure financial underpinning
for the pension system. The state must avert a crisis in that system
brought about by the rapid ageing of Russia's population. So a mechanism
needs to be brought in for cumulative financing of pensions. We have to
move firmly towards such a system. It will need to be phased in but we
absolutely have to move towards this. 

We shall conduct social policy on the basis of the principles of
accessibility to all and of acceptable quality - acceptable quality of
fundamental social benefits. And benefits have to go first and foremost to
those with incomes substantially lower that the subsistence minimum.
Ministers' children can get by without child benefit and bankers' wives
without unemployment benefit. 

Boundaries of the state should be defined 

Esteemed colleagues: We all know that indecisiveness on the part of the
authorities and weakness on the part of the state bring economic and other
reforms to nought. The authorities are obliged to operate on the basis of
the law and of a single vertical chain of command formed in accordance with
that law. We have created islands, separate little islands of authority
with no bridges between them. We still lack effective interaction between
different levels of authority. We have talked long and often about this.
The centre and the territorial, regional and local authorities still
compete among themselves - compete for powers. And these frequently
destructive tussles are watched by those who benefit from such disorder,
such arbitrariness, those who turn the lack of an effective state to their
own advantage. And some would like to keep such a state of affairs going.
This vacuum of authority has led to state functions being appropriated by
private corporations and clans. They have surrounded themselves with their
own shadowy groups, lobbying groups, and dubious security services using
illegal means to obtain information. 

At the same time, state functions and state institutions are different from
entrepreneurship ones in that they must not be bought or sold, privatized
or handed over to be used or leased. Professionals for whom the sole
working criterion is the law are needed in state service. Otherwise the
state opens up the route to corruption, and a moment can come when it will
simply degenerate and cease being democratic. That is why we insist on just
one dictatorship - the dictatorship of the law, although I know that many
people dislike the expression. That is why it is so important to indicate
the boundaries of the domain where the state is full and only master, to
state precisely where it is final arbiter and to define those spheres where
it should not meddle. 

Russia must be a federal, not a "decentralized" state 

Federal bodies of executive power, responsible and displaying initiative,
should become the engine of our policies. At the basis of their powers are
the constitutional duty to ensure the strength of vertical structures of
executive authority; a state-wide mandate of trust secured by means of the
democratic election of the president; and a single strategy for domestic
and foreign policy. But without coordinated work with the regional and
local authorities, the federal bodies of power will get nowhere. Local
power must also become effective. In essence, it is a question of
collecting together all the resources of the state in order to implement a
unified strategy for the development of the country. 

One must admit that in Russia federal relations are incompletely built and
undeveloped. Regional independence is frequently treated as a sanction for
the disorganization of the state. We keep talking of the federation and its
strengthening. We have been talking of this for years. However, we have to
admit that we do not yet have a full-blown federal state. I want to stress
this. We possess, we have created, a decentralized state. That is what we
have done in recent years. 

When the Russian constitution was adopted in 1993, federal statehood was
seen as a worthy goal, towards which much painstaking work needed to be
done. At the start of the 1990s, the centre farmed out many functions to
the regions. It was a conscious, albeit partly forced, policy. But at the
time it helped the Russian leadership to achieve its main goal, and I think
it was justified as it helped to maintain the federation within its
borders. This must be admitted. The easiest thing is to criticize what came
before us. But very soon the authorities in a number of subjects of the
federation began to feel the strength of central authority, and their
response was not slow in coming. 

Chechnya "an extreme example" of decentralization 

But I would like to draw your attention to the fact that the response came
not from the centre and not from Moscow but from towns and villages. Local
self-government bodies also started pulling the powers over to their side,
now mostly the powers of the constituent parts of the federation. The
authorities at all levels have been affected by this disease. Our common
and sacred duty is to break this vicious circle. 

Chechnya is an extreme example of unsolved federal problems. The situation
in the republic has exacerbated to the extent that its territory became a
bridgehead for the expansion of international terrorism in Russia. The
initial reason for this was also the absence of state unity. And in 1999,
Chechnya reminded us of the earlier made mistakes. Only a counterterrorist
operation could remove the threat of Russia's disintegration. Professional
military helped preserve the dignity and integrity of the state. We bow to
them. But at what price they did this? 

Esteemed members of the Federation Council and State Duma deputies. The
setting up of federal districts and the appointment of Russian president's
representatives in these districts has become one of our first steps
towards consolidating federalism. The essence of this decision is not to
enlarge the regions, as this is sometimes being interpreted or presented,
but to enlarge the structures of the president's vertical chain of command
in the territories, not to remake the administrative and territorial
borders but to raise the efficiency of the authorities, not to weaken
regional authorities but to create conditions for streamlining federalism. 

Defines functions of regional appointees 

I would like to emphasize that the federal authorities have become closer
to the territories rather farther from them. Public opinion ascribes evil
intentions to the president's plenipotentiary representatives. There are
allegations that they are the punitive sword or that they are bureaucrats
mediating between the centre and the regions. 

Meanwhile, by cutting down the apparatus of federal employees in the
regions we want to ensure that they are mobile and efficient. Strictly
outlining the sphere of competence of the federal plenipotentiary
representatives, we make their work transparent for regional
administrations and the population of the territories. Refraining from the
duplication of functions we ensure that specific individuals bear the
responsibility for their actions. Undoubtedly, this decision consolidates
the country's unity. Of course, plenipotentiary representatives will help
solve problems in their districts in an effective way, but they have no
right to interfere in the sphere of competence of the elected heads of
regions. In their activities plenipotentiary representatives will lean only
on the law and the powers vested in them. 

Our second move provides for the possibility of federal intervention in
situations where local bodies of power trample upon the Russian
constitution and federal laws and violate universal rights and freedoms of
Russian citizens. 

In the regions today a state body or an official can evade implementing a
decision by the court that has recognized a law or another normative legal
act as running counter to the constitution or federal legislation. They can
continue to apply acts recognized as illegal by the court. It is common
practice in our life nearly everywhere. This humiliation of the Russian
court as a branch of federal authorities acting on the basis of the
constitution is intolerable. Strictly speaking, it is a manifestation of
what I have said: that our state is not a federate state but a
decentralized state. And no tools have yet been created to see this process
through to the end. Federal authorities and the president of Russia should
have legal opportunities to restore order, and regional leaders should have
the right to influence local authorities when the latter adopt
unconstitutional decisions or trample upon citizens' freedoms. Under no
circumstances can we weaken the powers of regional authorities - they are a
link on which federal authorities cannot but rely. 

Similar institutions of interference are present in many other federate
states. They are applied extremely rarely but their very existence is a
safe guarantee ensuring strict adherence to the constitution and federal
laws. Even now, at the discussion stage of this problem, Russian regions
have already begun restoring order. And we can see some obvious results in
some regions. 

Upper house of parliament must be reformed 

Our next move is reform of the Federation Council. It is also a move
towards development of democracy and professional principles of
parliamentary activity. Changing the principle of the formation of the
Federation Council raises the question of how to organize a permanent
dialogue between the heads of the constituent parts of the Russian
Federation and the head of state on the main problems of state life and on
the form of participation by the regions in the preparation and adoption of
most important nationwide decisions. A state council under the Russian
president can become such a form. The idea of such a council was expressed
by some governors and, as the country's president, I am ready to support it. 

I also want to touch upon another problem: the struggle, that is unfolding
everywhere, between mayors and heads of municipal bodies, on the one hand,
and heads of regions, on the other. Only occasionally this struggle can be
regarded as the protection of the interests of local government as an
institution of power. Far too often local self-government begins and ends
with mayors. Therefore one should not confuse personal ambitions and the
tug of war for power with the protection of people's real interests.
Increasing the responsibility of the heads of the constituent parts of the
federation and legislative assemblies should be accompanied by the process
of increasing the responsibility of the heads of municipal bodies. 

Of course, this doesn't deny the need to further develop the local
self-government system itself. It enjoys the protection of the federal
constitution, and it is one of the fundamental foundations of people's
power in Russia. 

Lists main problems to be solved 

Esteemed colleagues. One of our primary tasks today is to establish order
in the bodies of authority. But this is not the final aim, this is just the
very first step towards modernizing the state. In order to tackle other
serious problems it will be necessary to pool together the resources of the
federal, regional and local authorities. 

The most important of these problems are: 

\ \to improve the political system and build an effective state which will
serve as a guarantor of stable social development, a guarantor of human

\ to level out and ensure equal opportunities to the constituent parts of
the federation so that all citizens can enjoy the whole gamut of political,
social and economic rights 

\ to create legal guarantees for the development of the Russian economy as
an economy of free enterprise and business initiative of citizens 

\ to ensure accurate and effective implementation of economic strategies
everywhere in Russia. 

We will consistently tackle these three tasks to strengthen our statehood.
To do this, we simply must consolidate the efforts of all levels and
branches of power at present. 

Concluding my speech, I would like to remind you that everyone who serves
the state has their own responsibility before the state, before all Russian
society. This responsibility is defined by the mandate of a deputy,
governor or a government member. 

Regardless of differences in our posts, we all have one duty in common, our
duty before the people and our duty before our country. 

It is impossible to simply make promises in Russia today. Many promises
have already been made, and all the deadlines have expired. Decades of a
difficult and unstable life are enough to demand real changes for the
better. The Russian authorities are obliged to achieve changes in the near

We are all well aware how difficult it is to achieve this goal. But I am
confident that we have enough reason and will power. If this is true,
results will ensue. Stability and national progress will come, success and
prosperity will come to Russia. 

Thank you very much for your attention. 


The Russia Journal
July 8-14, 2000
>From Massachusetts to Mayakovskaya
Johnsonís Russia List author comes to Moscow.

David Johnson is a man obsessed with Russia. But the brains behind
Johnsonís Russia List, which e-mails articles on Russia to more than 4,000
people around the world every day, says he was not inspired by a sweeping
troika ride through Siberia in his youth or a love for Red Army choirs as a

Instead, Johnson said he first got an interest in Russia thousands of miles
away from Moscow Ė when he was sent to a Quaker boarding school in

All right, you might say, Johnson does look slightly like the farmer
character in Grant Woodís painting "American Gothic" Ė we can picture him
in a Quaker environment. But what does this have to do with Russia?

It turns out that one of the teachers there happened to speak Russian and
taught it to the students. Which helps a lot to explain why, after having
graduated from high school and from Brandeis University, young David
Johnson went on to study on Harvardís Soviet Union program. 

And there is something quasi-religious in the way this man in his early
fifties, who is a senior fellow with the Center for Defense Information, a
small non-governmental and non-profit research center in Washington DC,
churns out his list almost single-handedly in his free time. 

As he told The Russia Journal on a visit to Moscow last week, "Itís like an

And quite a time-consuming one, too: Johnson usually gets up at 6:30 a.m.,
works for about two hours on his list, gathering material from newspapers
on the Internet and sending a first selection of articles and
contributions. Then he goes to his real work, comes back in the evening and
spends two to three more hours on his list.

He also works on it during weekends. And, thanks to his laptop, on holidays
too. Actually, the one-week interruption in Johnsonís Russia List from June
24-July 3 caused by his trip to Russia together with his wife was the very
first time in the four years he has been at it. 

And, he hinted, even that could have been prevented: "I had my laptop, I
could have carried on from Moscow, but my wife said no."

Johnson started his list in May 1996, during the Russian presidential
election campaign that eventually led to Boris Yeltsinís re-election.

"At that time, I was feeling uncomfortable with the way the Western media,
particularly the New York Times, covered the campaign," Johnson recalled.
"They made it look like a conflict between good guys and bad guys, and I
felt that was too restrictive. I thought there must be other views as well
and started collecting newspaper articles and original contributions from

He said that even after the collapse of the Soviet Union, Russia was often
seen mostly as a potential danger and threat in the West, and he wanted it
to be considered "in a more constructive way." 

Johnson said English language newspapers published in Russia were "very
valuable" for his work. He also continues to select articles from
alternative Moscow-based English language weekly "The Exile," which he
finds interesting, although this has elicited some controversy among some
readers who didnít enjoy it as much as he does, he said. 

He also has some translations of Russian articles and would like to have
more, although he says it is partly a matter of how much time he can find.
He would like to have more original contributions from scholars as well. 

He hopes he can get some help in compiling his list, which might be funded
by the grant he gets from the Carnegie Corp. and from other donations,
although, for him, Johnsonís Russia List is basically voluntary work.

Although Johnson said he didnít have "any negative characterization of the
way Western media cover Russia," he said some Western journalists are often
too biased in favor of "young reformers" such as Yegor Gaidar and Anatoly
Chubais, and now of Vladimir Putin who, Johnson said, all fall in the same
pattern. They "suck up to the West" and "donít believe in their own
country," he said.

Johnson still regrets that former Prime Minister Yevgeny Primakov wasnít
more successful on the Russian political scene. "He didnít have the young
reformersí arrogance and looked more like someone who wanted to work with
the Russians," not just please the West, he said.

A recent Russian political event that had David Johnson particularly
interested was the arrest and subsequent release of media mogul and Putin
opponent Vladimir Gusinsky. 

"I liked it because that was one case in which the Clinton administration
could not just look the other way, as it has been doing with the war in
Chechnya. It might make it a little more careful about embracing [Vladimir
Putinís] new authoritarian regime."


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