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Johnson's Russia List


July 11th, 2000    
This Date's Issues: 4395 4396  


Johnson's Russia List
11 July 2000

[Note from David Johnson:
1. Itar-Tass: Individual Tax Number Assigned to 20 M Taxpayers in Russia. 
2. Reuters: Russia must pursue pragmatic foreign policy-Ivanov.
MAINTAIN HIS RATING. An attempt to carry out liberal reforms may cost 
the president his popularity. (Interview with Andrei Ryabov)

4. The Guardian (UK): Larry Elliott, MOSCOW GOLD WOULD BE BETTER 

5. Agentstvo Voyennykh Novostey: RUSSIAN REACTION TO AMERICAN NMD 

6. Russia`s Political Elite Comment On Putin`s Address.
7. RFE/RL: Paul Goble, Putin's Bet.
8. Wall Street Journal: Andrew Higgins, Putin's Push for Order in Russia Pits Local Moguls Against Political Bosses.
9. AP: Jim Heintz, Company Raids Leave Russia Questioning.]


Individual Tax Number Assigned to 20 M Taxpayers in Russia. 

MOSCOW, July 10 (Itar-Tass) - An individual tax number (INN) has been 
assigned to more than 20 million people in Russia, tax Minister Gennady 
Bukayev said. 

He told a press conference on Monday that this process has been most active 
in Moscow where two million taxpayers already have their own INNs. 

The minister said INN assignment is a priority now because "without the INN 
we will not be able to switch to individual subsidising". 

Bukayev said the modernisation of the tax service will require foreign aid 
and expressed the hope that the World Bank will provide a credit of 100 
million U.S. dollars to this end. 


Russia must pursue pragmatic foreign policy-Ivanov
By Andrei Shukshin

MOSCOW, July 10 (Reuters) - Russia has come to terms with its diminished role 
in world affairs and will pursue a pragmatic foreign policy aimed at helping 
it overcome internal problems, Foreign Minister Igor Ivanov said on Monday. 

Ivanov, presenting Russia's new foreign policy doctrine to reporters, 
signalled that Moscow was ready to draw a line under years of post-Soviet 
attempts at international grandstanding and concentrate on rebuilding its 
ailing economy. 

``Today our foreign policy resources are objectively limited. And they will 
be concentrated in the fields that are vital for Russia,'' Ivanov said. 

``One of the key ideas of the concept is that foreign policy should actively 
assist in solving internal problems at the current largely crucial stage in 
Russia's development.'' 

Ivanov then named a basic set of tasks his ministry was assigned to follow, 
including maintaining security, pursuing favourable trade relations and 
protecting ethnic Russian minorities in other former Soviet states. 

The new doctrine, signed by President Vladimir Putin on June 28, replaced a 
previous document adopted under President Boris Yeltsin in 1993, when Russia 
was aiming to pursue a clearly pro-Western foreign policy. 

The new document has been updated in line with a months-old new security 
doctrine, which stressed the need to combat religious extremism and lowered 
the threshold for possible use by Russia of its nuclear forces to defend 

Despite persistent economic woes and political instability, Moscow has long 
used its vast nuclear arsenal and permanent seat on the U.N. Security Council 
to pose as a key international player, strong enough to confront Washington 
in the world arena. 

Russia has protested U.S.-led strikes against Iraq and NATO's eastward 
expansion. It fiercely opposed NATO's intervention in Kosovo, then sent its 
forces into the rebel Yugoslav province ahead of NATO peacekeeping troops. 


Ivanov said Russia would have to rely on deft diplomacy rather than military 
might in the post-Cold War order. In veiled references he appeared to blame 
the United States for trying to impose its will on the world now that Russia 
is weak. 

``I dare say our hopes for an automatic transition from a bi-polar world to a 
broad partnership for international stability have not materialised,'' he 
said. ``We will have to strive for it and it is not going to be easy.'' 

Ivanov indicated that safeguarding the U.N.'s leadership in world affairs was 
key to achieving that goal. 

``The organisation of the United Nations must remain the main centre of 
regulating international relations in the 21st century. Russia will 
resolutely oppose any attempts to lower (the United Nations') role and that 
of its Security Council.'' 

Ivanov dismissed speculation that under Putin, a former KGB spy, security 
services were taking control of Russia's foreign policy. He said policy was 
under the president's direct control, as stipulated by the constitution. 

Speaking about Russia's position on U.S. plans to build a national 
anti-missile system, Ivanov said Moscow remained adamant it was a major 
threat to global stability. 

He said Putin would raise the issue with U.S. President Bill Clinton at the 
G8 world powers summit talks on the Japanese island of Okinawa later this 


July 8, 2000
[translation from RIA Novosti for personal use only]
An attempt to carry out liberal reforms may cost 
the president his popularity

Putin's rating is surprisingly stable. Avtandil TSULADZE,
a correspondent of the Segodnya daily, asked Andrei Ryabov, an
expert with the Carnegie Foundation, to comment on this

Question: What expectations does Putin personify?
Answer: As it happened more than once in Russian history,
the need for the nation's consolidation against an enemy
formed the public demand for a certain type of leader:
resolute, energetic, and agressive in a good sense of this
word. This happened after the explosions in Moscow. Later,
this demand was modified. The demand for greater social
justice was added to it. Putin's team sensed the need for this
change in time. For instance, people look at the federative
reform as the president's attempt to bring more order and
justice into society, since the arbitrariness of regional
barons is there for all to see. Take the attacks on the
oligarchs, for instance. For the educated section of the
population such values as observance of democratic procedures,
freedom of speech, etc., are of great importance. But most
people look at this differently. According to sociologists'
data, 60 percent of the population are ready to support
administrative confiscation of the new Russians' wealth. That
is, the demand for the Russian traditional interpretation of
justice is very stable. A politician playing on these
sentiments always has a chance to get public support.

Question: Is the demand formed amongst the people, or
through the authorities' manipulations?
Answer: People have long been attracted by a strong
personality. The demand for it was ripening gradually. It
became clearly expressed as a result of internal evolution of
public consciousness and of a skilful use of political
technologies and media resources.

Question: There was much talk about Yeltsin having ousted
all strong politicians from among those who surrounded him.
Was it for this reason that Putin managed to step in?
Answer: To be more precise, Yeltsin has created the elite
which is not able to assume responsibility. Look at any
politician. None of them is responsible for anything. People
have got tired not only of Yeltsin himself, but of all the set
of leaders associated with his times.

Question: Isn't it dangerous for Putin that people expect
too much of him?
Answer: Great love awaits a great response. This is a
normal thing. People expect from Putin paternalistic social
policy, above all else. If liberal reforms painful for the
social sphere are started in autumn, this may become a
starting point for a fall in the president's popularity. If,
on the contrary, he chooses the South-Korean version, there
will be even a greater surge in his popularity. Such is the
reality. Here, we could draw a parallel with the Lukashenko
phenomenon. The Belarussian president can quickly sense the
dominating public requirement and react in line with the
people's expectations. We can get a similar situation, in
fact, it is partially in place. Putin has every possibility to
become the "father of the nation." However, it seems to me
that after a couple of crises, steps will be made to create a
rather stable power coalition and the president will have to
make some concessions. This will mean a return to a different
type of leadership: from an authoritarian to a dominating
leader prone to make agreements and compromises.

Question: Could the public opinion be turned in a
different direction, say, with the help of mass media?
Answer: Only towards strengthening the leader's role. It
is unlikely that people could favour liberal reforms.


The Guardian (UK)
10 July 2000
[for personal use only]
By Larry Elliott (

It seemed, just two years ago, that Big Mac Russia had managed to do what
Iron-Curtain Russia never could - bring capitalism to the point of
collapse. When Moscow stuck two fingers up to the global financial markets
and defaulted on its debt, the tremors were felt around the world. Stock
markets collapsed, hedge funds teetered on the brink. 

In the end, full meltdown never came about, largely because America proved
willing to spend the global economy out of recession. After its 15 minutes
of fame, Russia ceased to be of any great interest. Everybody knew what
Russia was like - backward, corrupt, crime-ridden, bristling with nuclear
missiles - and there was nothing more to say. 

But actually there is more to be said on the subject. Beyond the bright
lights of Moscow, male life expectancy has fallen by a staggering 10 years
since the break-up of the Soviet Union, opiates are arriving from
Afghanistan to satisfy Russia's growing drugs habit, HIV/Aids and
tuberculosis are on the increase. 

For Russia's new rich, life is sweet. They have their fast cars and their
fast women, they have their money safely stashed away in Switzerland and
Cyprus. But Russia has no middle class, because the scientists, university
lecturers and doctors who did reasonably well under the old regime have
suffered from cuts in public spending, from the loss of their savings and
from inflation. For the poor, life is more miserable than ever. 

Russia has seen larceny on a grand scale, with valuable assets pocketed by
the so-called oligarchs, and scant evidence that 10 years of hardship have
succeeded in turning the country into anything approaching a market economy. 

The west is in part to blame. The idea that Russia could be the test bed
for every crackpot idea dreamt up by free-market economists, and that 200
years of development could be telescoped into a supercharged dash to
advanced capitalism was always utterly fatuous and so it has proved. From
the outset, the plan was to ensure - even if it meant handing the country
over to a handful of robber barons - that all traces of communism were
expunged. This has not really happened. Large chunks of the population,
especially pensioners, still hanker for the 'bad old days'. 

The new president, Vladimir Putin, is part economic liberal, part
traditional Russian hard man. Some see him as the Kremlin's General
Pinochet, offering a mixture of market economics and authoritarianism.
Certainly, the gist of his state-of-the-nation address at the weekend
suggested that he advocates an aggressive form of economic nationalism,
under which the country will go it alone and win back self-esteem without
recourse to 'simplistic' models. 

The geo-political implications of this are serious. Russia has an ageing
population, and on current trends this will become a serious problem over
the next three or four decades. On some estimates, the population could
shrink to 90m in 40 years, with a rapidly declining number of people of
working age. Evgeny Gavrilenkov, one of seven advisers appointed by Putin
to chart a way forward, says that Russia could become a 'buffer zone
between the developed countries of the west, where the population will also
be shrinking, and the poor countries of Asia and the near and middle east,
where the population will be growing at rapid rates. One should not rule
out the possibility that the country may also be faced with the threat of
territorial claims on the part of forces with fundamentalist views, and
supported by a number of orthodox regimes.' 

Russia now has three options. It can try to rebuild its strength by
returning to a form of central planning of the economy, it can seek to make
the full transition to a market economy, or hope to finesse a combination
of the two. 

Given that the relative decline of the Soviet economy in the 1970s and
1980s meant that it could not compete with the US even as a
military-industrial complex, an attempt to turn the clock back does not
seem remotely feasible, nor would it be desirable. Russia still has more
restrictions on freedom than would be acceptable in the west, but the
country is freer politically and the better for it. Who can blame them? 

However, establishing a fully functioning western-style economy, complete
with social safety net to protect the poor from the consequences of
industrial restructuring, is not going to be easy either. The Russian
people feel let down by their own leaders and by those in the west who led
them up the garden path in the 1990s, and who can blame them? 

On the plus side, the macro-economic climate in Russia is much better now
than it was two years ago. Breaking free from the deflationary policies
supported by the International Monetary Fund was the best thing that could
have hap pened to the country, since it resulted in a more competitive
exchange rate that made imports dearer and encouraged growth in domestic

Industrial production rose by 8% last year, a rate not seen since the early
1970s, and there was growth on a broad front. Russia's problem has been
that it has been good at getting things out of the ground and good at
getting things out of its citizens' brains but not very good at the bit
in-between. It needs to diversify out of oil and gas. 

The effects of the devaluation are now petering out. The crisis left Russia
with debt mountain on top of the Dollars 43bn in foreign loans that Russia
inherited when the Soviet Union collapsed. Russian finance minister Alexei
Kudrin got a dusty answer when he asked western finance ministers to
forgive the country's Soviet era debts at the G7 summit this weekend. 

Inflation is running at around 2% a month, factories are still over-manned,
and large chunks of the capital stock date back to the days of the Soviet
Union. The need is for investment on the scale that allowed countries in
east Asia to industrialise rapidly, and this could come either from abroad
or by recycling Rus sia's domestic savings. But foreign investors are put
off by Russia's micro-economic deficiencies - the lack of a system of
property rights, bankruptcy and contract laws that work, a banking system
that actually provides credit. For domestic investors, it has been more
profitable to send money abroad than to invest it at home, which is one
reason why domestic savings are running at around 25% of gross domestic
product and investment at around 15%. 

It is too late to crack down on the oligarchs or to try to seize their
ill-gotten gains. The best that can be hoped for is a sustained period of
investment-led growth before widening income inequality and declining
living standards tear the country apart. That means keeping demand strong
so there is an incentive for the new rich to keep their money in the
country, and a concerted attack on Russia's supply-side problems. 

The west should not give up on Russia. It is a land of immense potential,
but it could easily fall to pieces. Debt forgiveness would be a start.
Condemning a little less and understanding a little more would be even


Text of report in English by Russian news agency Agentstvo Voyennykh
Novostey web site 

Moscow, 10th July, (AVN): Russia was correctly planning its steps in case
the USA withdraws from the 1972 ABM Treaty and deploys its National Missile
Defence (NMD) system, a high-ranking official of the Defence Ministry told
the Military News Agency. 

"We have prepared measures that will completely undermine the US attempts
at deploying the National Missile Defence," the official said. Russia is
bettering the Topol-M missile system, changing the combat equipment of the
on-duty missiles with multiple warheads, changing the principles of
application and deploying the operational and tactical weapons, increasing
the number of nuclear ammunition on cruise missiles, invulnerable to the US

The interceptor missile consisting of PLV (Payload Launch Vehicle) booster
rocket and the EKV (Exoatmospheric Kill Vehicle) interceptor started off
the silo-based launching pad. It exploded several minutes after the launch
without accomplishing the task for hitting the warhead of the LGM-30F
Minuteman II ballistic missile that was fired from the US Vandenberg Air
Force Base, California. 

Since October 1999, this is the most effective Pentagon's failure. On 2nd
October 1999, the interceptor missile launched from the Marshall Islands
hit the Minuteman II missile under strange circumstances. At first the
interceptor reacted and tracked the false target, failing to recognise the
true one. The ballistic missile was detected and eliminated only in the
last moment. The official of the Pentagon claimed then that the American
specialists failed to explain the logic of the missile's "behaviour". But
according to foreign experts, the target missile carried a radio beacon. 

The second intercept test on 2nd January 2000 was a complete failure. The
interceptor missile detected the target at the height of 200 km of the
Earth's surface, approached it, but then missed it. 

Now, the third test is also abortive. It cost the American taxpayers over
100m dollars. Given that the president's decision on NMD was dependent on
results, the Pentagon was only interested in success. 

The Pentagon has therefore streamlined the task: the combat squad was
supplied with full data on the target missile, its type, trajectory, flight
speed, the parameters of the false target, etc. But it did not help in the

However, according to the official, the failure does not mean that the USA
will abort the NMD programme. According to the data of the Russian Defence
Ministry the deployment of the NMD system is only the first step in the
establishment of a multifunctional global system of combating all types of
ballistic, aerodynamic, space and surface targets. Such all-embracing
defence will be aimed most of all at the nuclear containment potential that
is in the hands of Russia and China. Thus its establishment should be
regarded as breaking the bases of stability in the world, the official said 


July 10, 2000
Russia`s Political Elite Comment On Putin`s Address
In Russia reaction to Vladimir Putin’s 1st annual address to the Federal
Assembly has been mixed. State officials have expressed their full support
for the head of state’s plans to turn Russia into a different country,
while some independent politicians claim the speech contained contradictory

Politicians and State Officials Comment on Putin’s Address. Vladimir
Rushailo, Minister of the Interior: 
In his address the head of state confirmed his resolution to pursue the
course, which he indicated during his election campaign. The president is
keeping his promises. 

Igor Sergeyev, Minister of Defense: 
In his address to the Federal Assembly the president named the principal
directions of state policy – both interior and foreign. I have a very
positive opinion about his speech, in which all the emphasis was in the
right place. 

Sergei Stepashin, Chairman of Audit Chamber: 
One of the main features of the Russian President’s annual Address to the
chambers of the Federal Assembly is the idea that there must be equal
conditions for everyone. The fact that during the last ten years large
financial groups have been playing their games, including political ones,
and at the same time have been enjoying state privileges must now become a
thing of the past. If Putin succeeds in doing this, it will be a different

Alexander Voloshin, Head of the Presidential Administration: 
The president’s message to the Federal Assembly can undoubtedly be carried

Akhmad Kadyrov, Head of the Chechen Administration: 
I support all the goals that the president has named in his address to the
Federal Assembly. In the address I heard not only a summary of the
country’s latest development, but also expectations for the future. 

Sergei Kiriyenko, Presidential Envoy in the Volga Federal District: 
The task of all envoys of the head of state in Federal Districts is to
implement the idea that the state must be strong. Russia is now
decentralized and not different regions, but different states exist within
it. The Presidential Envoys in the Districts must see to it that the
functions of municipal and federal authorities should not get mixed up. We
should realize who is responsible here – and the head of state dealt with
this in his address. 

Alexei II, Patriarch of Moscow and All Russia. 
The main objects for the country’s future were set in the address. 

Viacheslav Khizhnyakov, Presidential Representative in the Federation
The merit of today’s address of the Head of State is that Vladimir Putin,
in a concise and compact form, spoke about what is already being done to
strengthen state power. 

Boris Nemtsov, Leader of the Duma Union of Right Forces faction: 
I don’t have any questions concerning the economic part of the address. At
the same time in the political part of this document I failed to find
several issues, which seem important for me. First of all, not a word was
said about the Prosecutor General’s Office and its abuses. Apart from that,
I did not hear a single word about the special services. I was also
somewhat perplexed by that section of the president’s address where he
spoke about relations between the state and the media. On the one hand, the
head of state declared that the media should be free. On the other, he
criticized the possibility of it being owned by anyone. But the main thing
is that the state should not dominate the press industry. 

Yegor Stroyev, Speaker of the Federation Council: 
One can support every proposal in the address – this is the conclusion that
most members of the upper chamber and Duma deputies have reached today. I
agree with the head of state that the state should be strengthened, that
the economy should become mobile. It so happens that presently the power is
not federal, but ‘degeneralized’, and this is what has led to society’s
At the same time I think that even though some want to solve those problems
instantly, with just one pill, they should be treated only in an
evolutionary way, wisely, taking into consideration foreign experience and
observing the principles of democracy. Vladimir Putin is like a surgeon who
has operated on a patient and seen that practically all the organs are
infected. Now a consultation of doctors, i.e. the parliament and the
president, should decide upon the course of treatment for the country to
avoid it being permanently crippled, and become normal and healthy. 
I also think that a civil society should not consist of two or three
parties, which could be mobilized for support, but of different unions,
representatives of science and industry. The fact that many issues which
the president touched upon today have already been discussed in the
Federation Council for the last several years, shows that we have reached a
stage where everyone realizes that we have to reform the state power
structure and to improve the standard of living of the population. 

Yuri Luzhkov, Mayor of Moscow: 
The address that the Russian President made to the Federal Assembly was
clear and specific and this is what I liked most about it, regardless of my
attitude towards this or that particular proposition. It was clear what the
president wants. However, many propositions and ideas are close to what I
would like to see happening in Russia. 

Vladimir Ryzhkov, State Duma Deputy: The head of state in his address to
the Federal Assembly has not attempted to avoid a single important issue.
He spoke about Chechnya, the economy, demography, foreign policy and
federalism. The president is truly trying, together with society and the
political elite, to overcome the crisis. 
However some evaluations made by the president cause concern. For example,
when the president says that there is real freedom of speech and wrong
freedom of speech. I don’t know what real freedom of speech means. I think
that there is either freedom, or there isn’t. As for the problem of
federalism, Putin’s worries about authorities of different levels competing
between themselves stand out as contrary to the modern theory of state. It
is perfectly normal when in the modern world different authorities compete
with each other. It is a norm of the modern world. 

Anatoly Yefremov, Governor of the Archangel Region: 
The president’s address was practical and open. Vladimir Putin did not try
to obscure the problems. For the first time Vladimir Putin officially
voiced the idea of creating a State Council. This can have a positive
effect on the work of the conciliatory commission that is supposed to
revise the new law on the formation of the Federation Council.
Nevertheless, criticizing the media and attacking it for allegedly giving a
wrong version of the events is not right. The media simply describes the
way we work and the state of the economy. 

Nikolai Fiodorov, President of Chuvashiya. 
It is necessary to carry out the plans set forth in the president’s
address. In particular, the federal system of state should be strengthened. 
At the same time I disagree with the president when he criticizes
decentralization of the state. In my opinion we should openly name the
regions to which the Federal Center has granted privileges. And it is these
regions that should be dealt with, which would actually mean efficiently
strengthening power. I disagree with the plan to make the banking business
transparent. To make the banks transparent only means making them
state-owned and destroying the Russia’s banking system. 

Sergei Antufiyev, First Deputy-Governor of the Smolensk region: 
I am sure that the president’s calls for a systematical approach to the
reforms, supporting initiative and backing perspective homegrown programs
and projects, he will doubtless be supported in the regions. Practically
all these ideas, of which Putin has spoken before, are already being
realized. Now it’s as if they have received ‘presidential patronage’. 


Russia: Analysis From Washington -- Putin's Bet
By Paul Goble

Washington, 10 July 2000 (RFE/RL) -- Russian President Vladimir Putin's newly 
enunciated priorities represent an explicit updating of the ideas of Petr 
Stolypin, the tsarist prime minister who tried to recoup the power and 
authority the Russian state had lost in the 1905 revolution and who attempted 
to revive the national economy before World War I by using state power to 
promote individual initiative. 

In Putin's address to the nation on Saturday, Stolypin was the only 
individual the current Russian president mentioned by name, and Putin's 
reference to his tsarist predecessor provides significant clues as to how 
Putin views his current challenges as well what measures he will adopt to 
meet them. But this reference also has the effect of highlighting just how 
difficult Putin's task in fact is. 

At the beginning of his remarks, which were delivered to the Federal 
Assembly, Putin said that "we do not always succeed in combining patriotic 
responsibility for the country's future with what Stolypin once described as 
civil freedoms." He then suggested that this is "why it is still so difficult 
to find a way out of false conflicts between the values of personal freedom 
and the interests of the state." 

Like Stolypin, Putin argues that Russia risks not only political and 
demographic collapse but also the danger of falling ever further behind the 
world's advanced economic powers and becoming ever more dependent on 
"international loans and favors from the leaders of the world economy." 

"We cannot put up with this situation," Putin said, echoing the words of 
Stolypin 90 years ago, because, according to Putin, such an arrangement 
raises the question of whether "we will be able to survive as a nation and as 
a civilization" or whether other countries will be able to "infringe" on 
Russia's "sovereign rights under the pretext of humanitarian operations." 

Given this diagnosis of the problem -- one Stolypin made of the Russian 
Empire nearly a century ago -- Putin comes up with analogous prescriptions: 
promoting economic growth by relying on the most entrepreneurial elements in 
society, rebuilding state power at the expense of the regions and society at 
large, and justifying both in the name of patriotism and even nationalism. 

Like Stolypin, Putin focuses on the economy but largely for political 
reasons. He calls for further liberalization of the marketplace, removing the 
state from some of the spheres in which it is active while building it up 
where the state now is weak. And he urges changes in the country's 
regulatory, tax, and social welfare arrangements that will benefit the most 
entrepreneurial elements. 

Such changes, Putin clearly believes, will ultimately benefit everyone. But 
at least in the short term, they seem certain to generate opposition both 
among those in the elite who may see his moves as taking their current 
benefits away and those in the broader population who may conclude that Putin 
has little interest in taking care of the least advantaged groups. 

That combination of elite anger and popular unrest may prove to be as much an 
obstacle to Putin now as it was to Stolypin at the end of the tsarist period. 

Also like Stolypin, Putin seeks to rebuild the power of the state. Stolypin 
cut back the power of the tsarist Duma and suppressed the autonomy of 
Finland; Putin seeks to transform the current Federal Assembly as well as 
rein in the regions -- all in the name of restoring what he views as the 
legitimate and necessary powers of the executive over state and society. 

Moreover, Putin does all this in the name of freeing many elements of society 
from what he suggests are the false freedoms they think they enjoy. He argues 
that even though "censorship and interference in the activities of the media 
are prohibited by law," in today's Russia, "journalistic freedom has become a 
tasty morsel for politicians and weighty financial groups" and "a convenient 
instrument in the inter-clan struggle." 

And he says that a strong Russian state needs strong political parties to 
help guide the state and protect human rights, in place of the weak parties 
that currently compete for the attentions of a weak state. Indeed, Putin 
explicitly rejects the creation of "another party of bureaucrats that sucks 
up to the authorities and even more tries to replace the authorities." 

While many may accept Putin's critique just as many accepted Stolypin's 
analogous arguments, few who believe in democracy and political liberty are 
likely to be entirely comfortable with his prescriptions: an expanded role 
for the state in the media in order to break the power of the oligarchs, and 
a state-defined approach to the building of civil society and political 

But it is the third parallel between Putin and Stolypin that could prove to 
be the most disturbing. Like his tsarist predecessor, Putin cloaks his 
arguments in appeals to patriotism and the defense of Russia's uniqueness. 
Under Stolypin, these appeals sometimes were used by others to justify the 
actions of extreme nationalistic and openly anti-Semitic groups. And Putin's 
language, recent events suggest, could have a similar impact. 

If that happens, the Russian president may have to choose between greater 
coercion or reaching out to those political groups in the regions and in the 
capital which he now seeks to ignore. Either action could quickly reduce the 
likelihood -- as it did for Stolypin -- that betting on the strong in Russia 
will prove to be a winning wager. 


Wall Street Journal
July 10, 2000
[for personal use only]
Putin's Push for Order in Russia Pits
Local Moguls Against Political Bosses

KIROV, Russia -- Soaked with sweat after a sauna in his private spa, Oleg 
Valenchuk towels his ample belly and takes a swig of beer. "Delicious," he 
says proudly. "We own the brewery."

His next treat is a table laden with grapes, marinated mushrooms and vodka, 
in a nightclub restaurant upstairs. His company owns this, too, along with 
the hotel and shopping complex that houses it. The 40-year-old businessman 
settles back to enjoy the show. Scantily clad showgirls dance a can-can on a 
smoky stage. Mr. Valenchuk says he takes great pride in their technique: His 
wife coaches them.

In Kirov, a sleepy provincial capital 500 miles northeast of Moscow, Mr. 
Valenchuk has a plump finger in nearly every pie. A former band leader and 
activist in the Soviet-era Communist Youth League, he controls two TV 
stations that let him reach into nearly every Kirov home. He has a bakery, a 
dairy, a sausage factory, a pharmaceuticals distributor, a travel agency, a 
dozen shops, an advertising agency, a big chunk of prime real estate and 
stakes in two local newspapers. His company, AO Sputnik, sponsors a soccer 
team and a music festival.

A small-town big fish, Mr. Valenchuk is Kirov's local "oligarch." It's a 
lucrative but, in recent weeks, stressful occupation.

Russian and foreign observers alike often trace the country's economic ills 
and Byzantine politics to the commercial and political clout of a small 
coterie of Moscow-based oil magnates, media moguls and other tycoons. But the 
crony capitalism spawned by the collapse of the Soviet Union extends far 
beyond the Russian capital. And uprooting it is a far tougher and messier 
task than just reining in a handful of business barons.

Before his election in March, President Vladimir Putin pledged to eliminate 
Russia's oligarchs "as a class," and some -- though far from all-Moscow 
moguls now are feeling the heat. Vladimir Gusinsky, the head of Media-Most, 
has been charged with fraud. Vladimir Potanin, the head of Interros, has had 
his acquisition of his most valuable asset, a mammoth Arctic metals company, 
placed under review by prosecutors. Boris Berezovsky, a tycoon whose 
political and business machinations did so much to discredit Boris Yeltsin's 
administration, has lost some of his influence with the Kremlin.

But it is out in the provinces, where most Russians live and local economies 
are often dominated by well-connected deal makers such as Mr. Valenchuk, that 
the most bruising battles have now begun. Here, Russia faces a free-for-all 
as local business and political elites scramble to protect themselves. Aiming 
to settle scores and redivide the spoils, both sides are exploiting mixed 
signals from Mr. Putin about how he plans to unravel a web of cozy 
connections between businessmen and government officials.

Like the big-name tycoons in Moscow who snapped up oil fields, nickel mines, 
aluminum smelters and other assets in often-rigged privatization deals, Mr. 
Valenchuk has built much of his local empire on formerly state-owned 
property. In the early 1990s, he teamed up with friends from Komsomol, the 
youth wing of the Communist Party, and took control of the local branch of 
its tour agency, Sputnik. The company kept on selling vacation packages but 
quickly became a vehicle for broader ambitions.

After lobbying a local government stacked with fellow Komsomol veterans, Mr. 
Valenchuk closed his first big deal: Sputnik rented and, in 1993, became the 
owner of the crumbling Central Hotel, a vast Stalin-era property in the 
center of town. Other sweet deals followed, including a contract to provide 
medical supplies to the city of Kirov. "It was a wide-open field back then," 
he says. "We could do what we wanted."

No longer, says Vladimir Sergeenkov, governor of Kirov, a region of 1.6 
million people that shares that name with its capital. Though once Sputnik's 
protector, Mr. Sergeenkov now denounces Mr. Valenchuk as "our Berezovsky and 
Gusinsky" and vows to "return to the people" Sputnik's flagship property, the 
Central Hotel, which these days contains a dowdy but bustling shopping mall. 
"Only machine guns," he says, "can stop us."

"Putin is working against the oligarchs," says the governor, a career 
apparatchik steeped in Communist-era slogans. "I fully support him in this. 
People demand it. People demand that order be restored." He scurries to his 
desk to fetch a photo of himself standing shoulder-to-shoulder with Mr. 
Putin, a 16-year veteran of the Soviet-era KGB who came to power promising 
"dictatorship of the law."

A few blocks away, Mr. Valenchuk sits in his own office next to an aquarium 
filled with tropical fish and brandishes his own photograph of Mr. Putin. 
Taken in the Kremlin, it shows the president standing next to Mr. Valenchuk. 
He, too, says Mr. Putin will restore order, but by stamping on "totalitarian" 
regional governors such as Mr. Sergeenkov.

Indeed, Mr. Putin's main policy initiative so far has been a drive to tighten 
Moscow's grip on leaders of Russia's 89 unruly regions. And despite its feud 
with Mr. Gusinsky, the Kremlin has ruled out a sweeping review of the 
corruption-tainted post-Soviet division of assets. Prime Minister Mikhail 
Kasyanov says violations of the law will be investigated, but "there's no 
talk about reversing privatization results."

Uncertainty over the Kremlin's intentions has left both governors and local 
oligarchs jittery. And, as each group frets about its own future, old 
alliances are crumbling. After years of cooperation, Mr. Sergeenkov, the 
governor, and Sputnik's Mr. Valenchuk are at each other's throats. Each says 
he is taking his cue from Mr. Putin.

"If you've stolen something you should give it back," says the 62-year-old 
governor, a former state prosecutor. "We shall grab their property away from 
them via the courts. I don't think they need to be hanged or sent to the 
Gulag. But it might be a good idea to throw them in the slammer for a couple 
of days like Gusinsky," the Media-Most boss.

Scrutinizing Accounts

Determined to rid Kirov of the "swindlers" who he says "grew like mushrooms 
after the rain when everything was dirt cheap," he has sent a team of tax 
inspectors to pore over Sputnik's accounts. For weeks now, they've been 
camped out in a room down the hall from Mr. Valenchuk's office. Another group 
of inspectors has been dissecting the finances of Sputnik's TV stations, 
Grand TV and Channel 9.

Mr. Valenchuk says they won't find anything, and he accuses the governor of 
trying to grab his property and hand it over to docile businessmen willing to 
kowtow to the regional administration. Nonetheless, behind two thick doors 
monitored by a video camera, fitted with intercoms and guarded around the 
clock, Mr. Valenchuk is busy shoring up his defenses.

On the outside wall of the Central Hotel, he has strung a huge banner 
emblazoned with a big black bear, the logo of Unity, a pro-Kremlin political 
party that now dominates Russia's parliament. He has pasted a smaller bear on 
the main door through which tax police pass on their way to scrutinize his 
books. "They should know that I'm the one who really supports Putin, not the 
governor," he says. Guards from Sputnik's 54-man security unit patrol the 

Mr. Valenchuk's most potent weapon, though, is television. His two stations 
broadcast news reports that fawn on friends and flail enemies. To add more 
punch to the programming, he has been grooming Andrei Mikhailov, a muscular 
former gymnast and erstwhile Komsomol activist, as an on-air attack dog. 
"He's still fairly soft at the moment, but that's because we've been feeding 
him," says Mr. Valenchuk. "He'll bite hard when he's hungry."

Mr. Mikhailov, whose day job is managing one of Mr. Valenchuk's restaurants, 
hosts a Thursday-night program modeled after a weekly news digest broadcast 
by a Moscow station controlled by Mr. Berezovsky notorious for its vicious 
attacks on his political and business foes. Mr. Mikhailov says it isn't easy 
being nasty. "I'm a friendly, easygoing guy. On TV I have to look so serious 
my friends don't recognize me," he says.

'Like Afghanistan'

But he's learning fast. On camera he has slicked-back hair, a dark suit and a 
permanent frown. He dedicated a recent show to accusations -- scripted by Mr. 
Valenchuk -- that Kirov's governor is dragging the region toward "Asian 
despotism." Kirov, he intoned, could "end up like Afghanistan."

To make sure Mr. Mikhailov has enough ammunition, Mr. Valenchuk has been 
collecting kompromat, or compromising material, on the governor and his 
administration. He says he will make it public if any of his property gets 
taken away. Helping him search for mud is a former chief of Kirov's local 
secret police.

The governor, too, is digging for information he thinks will damage Mr. 
Valenchuk. Mindful of Russia's rampant anti-Semitism, he says he has 
discovered that the businessman is a "Greek Jew" and that fancy Moscow 
lawyers might help him because "all Jews are friends." Mr. Valenchuk says he 
isn't Jewish, and adds that the governor says "this about all his enemies."

Mr. Valenchuk dislikes the tag "local oligarch" but, on a more modest scale, 
he mimics Moscow's moguls. He plays politics with gusto. He is an adviser to 
the head of the regional parliament and a local organizer for Unity. He hands 
out name cards that make no mention of Sputnik and describe him as the Kirov 
representative for Indem, a well-connected lobbying group.

The Biggest Office

Like Mr. Berezovsky, who now sits in Russia's parliament and masks his role 
in business with shell companies and proxies, Mr. Valenchuk says he has shed 
his personal stake in Sputnik, whose shareholder list is secret.

Sputnik's formal boss is Igor Kasyanov, 39, another friend from Komsomol, 
whose title is general director. "There is a secret agreement between them," 
says the governor. "Under it, everything belongs to Valenchuk." Mr. Valenchuk 
declines to provide details of who owns what, but he does say that he no 
longer figures among Sputnik's direct shareholders.

Mr. Valenchuk has the biggest office and makes the big decisions. He carries 
a handheld device that allows him to summon Sputnik staff at any moment. When 
he goes to the sauna, Mr. Kasyanov fires up the heater, sprinkles scented 
water on the coals and, in a gesture of deference, strokes and strikes Mr. 
Valenchuk's naked body with a bunch of twigs.

Mr. Valenchuk concedes that the early years of reform were sometimes chaotic. 
Sputnik, for example, acquired several shops and a restaurant after their 
previous owner was murdered in 1996. But Sputnik and its satellites, which 
employ 3,200 people, have matured, he says, and are now building new 
enterprises, not just buying up old ones.

Fifteen miles outside Kirov, along a dirt track flanked by the rusting 
tractors of a bankrupt state farm, a three-story concrete building churns out 
50 tons a day of butter, yogurt and cheese. Sputnik invested 10 million 
rubles ($370,000) to build the plant. Next door to it stands Sputnik's 
sausage factory, which it purchased in a bankruptcy sale and refitted with 
new equipment. There, workers sweat over clanking machinery in return for 
just $55 a month; even so, Sputnik has far more applicants than jobs.

After a visit there, Sputnik's Mr. Kasyanov points out the window of his 
chauffeur-driven purple Volga at the ruins of a Soviet-era barn. "Is that 
what the governor wants?" Sputnik, he says, is "creating while everything 
else is collapsing."

Marriage of Convenience

Messrs. Sergeenkov and Valenchuk were never friends. But as long as a 
post-Soviet status quo established under Mr. Yeltsin seemed secure, they 
cooperated. Sputnik's TV stations praised the governor and his policies. A 
charitable fund it set up to help orphans invited him to its events to let 
him pose for the cameras and share the credit for the fund's beneficence.

The governor now says that the food Sputnik served the orphans and him was 
foul -- a cheap stunt to burnish Sputnik's image. He says he "felt like a 
fool sniffing cabbage soup with a feeling of growing nausea."

Mr. Sergeenkov returned the favors. When Valentin Pervakov, a vice governor 
in charge of the regional property committee, filed a suit last year that 
accused Sputnik of acquiring the Central Hotel and other assets illegally, 
the governor swiftly fired him for "drunkenness." (Mr. Pervakov denies having 
a drinking problem: "Maybe they'll say I'm a drug addict next.") The governor 
then went on Sputnik's TV channel to denounce his former deputy. "The 
governor persuaded everyone that Sputnik had to be protected," says Mr. 

Mr. Pervakov says Sputnik gained ownership of the Central Hotel, a 
400,000-square-foot property, for a "funny price" equivalent to the cost of a 
three-room apartment. Mr. Valenchuk says the price was low but fair. "You 
don't pay much for a jacket if it has no collar or pockets," he says. The 
deal also gave the Kirov property committee an 18% stake in Sputnik.

The governor and Mr. Valenchuk were also united by a shared dislike of 
Kirov's only independent newspaper, Vyatsky Observer. It infuriated both with 
its critical reports on intimate ties between local business and government. 
"They both hated me," says Sergei Bachinin, the paper's editor. They both 
still dislike him, says Mr. Bachinin, who has been the victim of a knife 
attack, frequent visits by tax police and trumped-up charges of marijuana 
peddling. But now each cheers when his paper criticizes the other.

Their partnership began to unravel late last year. Ahead of parliamentary 
elections in December, Mr. Sergeenkov and most other regional governors 
backed Fatherland-All Russia, a party that had looked poised to become 
Russia's dominant political force. Mr. Valenchuk, however, put a risky bet on 
Unity, a hastily confected rival backed by the Kremlin, then still ruled by 
an ailing Mr. Yeltsin. Mr. Valenchuk gave Unity an office on the top floor of 
the Central Hotel and sang its praises on his TV stations. Unity won. 
Fatherland crumpled. The governor was humiliated.

Mr. Yeltsin's resignation and the presidential and gubernatorial elections 
that followed sealed the divorce. Mr. Sergeenkov, facing a tough re-election 
battle, exploded when Sputnik's stations gave sympathetic coverage to a rival 
candidate. The governor won but didn't forgive. For the presidency, both 
backed Mr. Putin, who was a shoo-in, but the governor resented Mr. Valenchuk 
muscling in on political turf he considered his own. "There was a gentleman's 
agreement between us on cooperation," the governor says, "but they broke it."

Relaxing in his spa and billiard parlor after a 12-hour workday, Mr. 
Valenchuk plots his next move with his lieutenant, Mr. Kasyanov. They discuss 
lurid rumors about the governor's past and how they might be used against him.

But it is nerve-racking being even a small-time oligarch these days, and Mr. 
Valenchuk, who once led a cabaret band in the hotel now owned by Sputnik, has 
composed a song he sings to fortify his nerves. It is based on the Soviet 
national anthem. Mr. Kasyanov picks up a guitar and accompanies Mr. Valenchuk 
in a boisterous duet: "Sing for the Motherland, home of the free. Bulwark of 
people in brotherhood strong. O party of Putin, the strength of the people, 
to triumph lead us on!"


Company Raids Leave Russia Questioning
July 10, 2000

MOSCOW (AP) - A series of police and legal actions against some of Russia's 
most prominent companies looks to many observers like a siege on Russia's 
notorious oligarchs. But just who's leading the charge and what they're 
hoping to achieve are being widely debated. 

Some see the Kremlin mounting an assault on privatization of Russia's 
businesses, while others say it's a Kremlin move to support privatization. 
Still others don't see the Kremlin involved at all. 

Where these contradictory views mesh is in the belief that privatization, 
which was supposed to build prosperity on the wreckage of the Soviet command 
economy, has been a disappointment at best and, at worst, a ruinous scandal. 

The siege, if that's what it is, began this spring with a raid by armed and 
masked security agents on the offices of Media-Most, a company whose holdings 
include some of Russia's most respected publications and broadcasters. 

That raid, and the subsequent arrest and jailing of Media-Most chief Vladimir 
Gusinsky, was widely seen as a move by President Vladimir Putin to stifle 
media that had given him unfavorable coverage. 

But Putin said he had no connection to the arrest. The prosecutor's office 
said Gusinsky was arrested for allegedly cheating the state in a deal to 
privatize a St. Petersburg television station. 

Next came a suit by the Moscow prosecutor's office trying to halt the 
privatization of Norilsk Nickel, one of Russia's most lucrative industries. 
The suit contended that tycoon Vladimir Potanin had purchased a controlling 
share for an unjustly low price of $620 million in an insider deal. 

That suit prompted speculation of political persecution because the Russian 
parliament's auditing chamber had ruled just a week earlier that the sale was 
legitimate, and because Potanin was one of the business leaders who had 
signed a letter to Putin protesting the arrest of Gusinsky. A Moscow court 
rejected the suit, saying it was poorly prepared. 

The seemingly hasty filing of the suit brought fears that the Kremlin was 
determined to fight privatization. 

``It is an infringement on the rights of conscientious purchasers of 
shares,'' the chairman of the government Working Center for Economic Reform, 
Vladimir Mau, said in the news magazine Itogi. 

``What is to stop them from declaring null and void ... all privatization 
deals in general?'' the business newspaper Kommersant asked. 

Then came the late-June raid by security agents on offices of the giant 
Tyumen Oil company in western Siberia, as part of a probe into the 
privatization of the company. 

The actions ``can best be interpreted as a shot across the bow of the 
oligarchs,'' said Harvey Sawicki of the New York-based Russian investment 
company Firebird. 

``Oligarch'' may be an obscure word on a vocabulary test in most countries, 
but in Russia it's part of everyday speech, and almost always derogatory. 

As Russia started selling off its inefficient state-run industries in the 
mid-1990s, the hope was that private ownership would give a grip to the 
``invisible hand'' that capitalists believe regulates the economy. 

Instead, the hands of a few clever - and perhaps devious - businessmen took 
hold of many of Russia's most valuable and potential-laden companies, while 
millions of Russians given the chance to buy shares through a voucher system 
sold their chances for as little as $20. 

Russians deeply resent how the selloff left enormous wealth concentrated in a 
few hands, while millions have seen their jobs disappear and their standards 
of living plunge. So strong is the anger about privatization that the 
managers of the Lomonosov porcelain factory, which this year won a bitter 
fight with workers to privatize, recently took the unusual step of giving out 
Soviet-era labor awards as a morale-boosting measure. 

In this atmosphere, if the government is trying to turn back some 
privatization, it's not necessarily a bad thing, in Sawicki's view. 

``If the oligarchs are unwilling to cease their practices ... their holdings 
should be renationalized for sale to someone who will run the companies 
fairly,'' he said. 

Others doubt there's any organized campaign for renationalization. 

Because Putin is already deeply involved in a fight to change Russia's 
political structure, ``it's not sensible to open a second front,'' said 
Stephen O'Sullivan of Moscow's United Financial Group investment bank. 

He does not believe the recent attacks have been orchestrated by the Kremlin, 
but are instead the work of oligarchs battling for advantage in an 
internecine war. 

The recent raid on Tyumen Oil likely was pushed for by businessmen connected 
with Slavneft, a government oil company that is expected to be privatized, 
and who want to fend off a Tyumen takeover bid, O'Sullivan speculated. 

The Kremlin, although keeping mum about the Norilsk and Tyumen cases, has 
repeatedly said privatization must go forward. The government still has full 
control of about 21,500 companies and plans to privatize about 1,000 of them 
this year, officials said this week. 


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