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Johnson's Russia List


July 20th, 2000    
This Date's Issues: 4412 4413   4414


Johnson's Russia List
20 July 2000

[Note from David Johnson:
1. Moscow Times: Yevgenia Albats, Oligarch Hunt Is Popular, But It Isn't Justice.
2. Kremlin Spin Doctor Gives Verdict on Berezovsky.(Gleb Pavlovsky)
3. RFE/RL: Sophie Lambroschini, State Duma Approves Putin's Centralization Reforms.
4. Russian Reforms: All Shock and No Therapy.
5. The Wall Street Journal Europe: Thomas Dine, Did We Expect Too Much From Free Media?
6. Los Angeles Times: Robyn Dixon, Russia's High-Tar Tasters Live and Breathe Cigarettes.
7. Mark Ames: Re: McFaul/Russian Rationalism. 
8. Moscow Times: Anna Badkhen and Sarah Karus, Prosecutors Impound Gusinsky's Property.
9. Bloomberg: UES's Chubais on Company Reorganization and Putin.]


Moscow Times
July 20, 2000 
POWER PLAY: Oligarch Hunt Is Popular, But It Isn't Justice 
By Yevgenia Albats (

Let's talk oligarchs. With the exception of the potentates themselves, few 
doubt that the creation of the oligarchy has been the biggest failure of the 
process of modernization and democratization in this country. 

Just off the top of my head, they are responsible for the following: 
corruption and obstruction in the decision-making sphere; creaming off 
profits from the nation's natural resources and then smuggling them to 
offshore havens; falsifying the election process; and corruption of the 
media, the legislature and the judiciary. Finally, as one oligarch recently 
said to me as he was condemning two others f namely Boris Berezovsky and 
Roman Abramovich f "They bought the president's family f this is outrageous, 
it is beyond all limits." 

Nevertheless, I did not feel happy last week when the open season on 
oligarchs gained momentum. Simple logic forbade me. Take the Vladimir Potanin 
case. The Prosecutor General's Office accused him of buying Norilsk Nickel 
much too cheaply. Did he? No question. Now I ask myself: If I go to the 
market and a seller offers me some excellent carrots for almost nothing, am I 
going to argue? Unless the seller looks insane, I will pay his price, 
concluding that either he is badly in need of money or that no one else is 
looking for carrots. 

No question, Norilsk Nickel f which controls, among other things, the world 
palladium market f is no bunch of carrots. But for the sake of the argument, 
let's leave that aside. 

Thus, if we agree that Potanin behaved purely rationally, as I did with the 
carrots, we should redirect at least some questions to the seller. Who was 
the seller? Oh, that's right f it was the state. Was the state crazy to 
conclude the deal? As a citizen of Russia and before that, of the Soviet 
Union, I, in fact, never doubted that to be the case. 

Did someone in the state get a kickback, then? Fine, go after the officials 
involved, and bring both them and the buyer to justice. But in doing so, the 
one who gives the orders should remember two things. First, "Norilsk Nickels" 
happened all across the country and involved thousands of officials on one 
side and thousands of rational businessmen on the other. Second, who will be 
the judge? Who will be accepted by this country as a righteous person to 
decide? And will the truly righteous be able f or be allowed f to become such 
a judge? 

These are all rhetorical questions. We know the answers. President Vladimir 
Putin proclaimed that the state created such unlawful rules of the game that 
many were forced to abuse the law. Thus, the populist war against the 
oligarchs is lacking its main f as I understand it f purpose: to bring 

Neither does it ensure the achievement of another goal: to divorce business 
and power. If one uses unlawful means to bring the oligarchs to their knees, 
one will have to rely on help from another set of favorites who will just 
replace the old ones. 

It is very clear that merely putting 10 percent of the wealthiest citizens in 
jail will not deprivatize the Kremlin and the government. Instead, the 
president should ensure that neither he nor his bureaucrats, nor the courts 
nor the law enforcement authorities are involved in any murky deals. This 
means respecting the law. And lots of hard work. All the non-law-based 
methods used for forcing people to be good have had one and the same outcome 
in this country: another round of the Red Wheel. 

Yevgenia Albats is an independent journalist. 


July 19, 2000
Kremlin Spin Doctor Gives Verdict on Berezovsky

The fact that Boris Berezovsky at his press conference on Monday referred to 
the Kremlin's masterful spin-doctor but failed to remember "what's his 
name", is indicative of the fact that Gleb Pavlovsky has managed to establish 
and maintain a massive, perhaps decisive, influence over the country's 
political course while largely avoiding the media's eye. Gazeta.Ru asked him 
to comment on Berezovsky's latest moves and the fate of Putin's reforms. 

Here is what he told us: 

"All of Boris Abramovich Berezovsky's reactions and pronouncements are 
designed for inciting others to seek some hidden meaning in his words. And, 
as a rule, Boris Berezovsky uses the image of authority for that purpose, for 
it is considered that the authorities are working to some kind of plan, and 
this a common misconception. And as far as I'm concerned, my role is 
exaggerated: I am only a member of the team. 

Generally speaking, Berezovsky's statement leaves many questions concerning 
his true political position unanswered. His words were the words of a man who 
views politics as a sphere of his personal interests. And when he talks about 
representing the Karachai-Circassian people in the Duma, he says that he is 
entitled to act not just as a deputy, he is emphasizing his commercial 
approach to politics. And he's already become a superfluous factor (in 

Obviously, Berezovsky will search for some kind of defence for himself, but 
it will not be a political force. When he speaks of oligarchs, he says that 
Putin is turning into their political opponent. That is not true. Putin is 
the only force entitled to speak on behalf of the majority of population and 
he is the only one duly authorized to declare and guarantee the lawful mode 
of action, at least in dealing with the oligarchs. 

Berezovsky is able to consolidate around himself a certain part of our 
(Russia's) former politics. He possesses the necessary resources and ties. 
But all forces of the old order are weaker than the new ones. 

Reform of the Federation Council has not failed, it is happening. Putin's 
bills have played their role: The Federation Council has lost its meaning. 
Today the whole country sees that the senators are fighting for compensation, 
not for political goals. If Putin had been slower, the senators could have 
turned into a serious political force. If they try to resist tax reform, for 
instance, that will be their suicide. 

But, in my opinion, the leadership is not going to rush either. The economic 
component of Putin's reforms is also very important. And in this case the 
leadership has made the right move, having decided against combining all 
aspects of reform into one single concept, as did Gorbachev. And this 
decision has deprived the governors of an opportunity to become a real 
political force."


Russia: State Duma Approves Putin's Centralization Reforms
By Sophie Lambroschini

After weeks of wrangling with hostile governors in the upper house, the lower 
house of Russia's parliament has adopted two bills aimed at centralizing 
control over the regions. RFE/RL's Sophie Lambroschini reports. 

Moscow, 19 July 2000 (RFE/RL) -- Over the past several years, as federal 
authorities sank into economic and political crisis, Russia's regional 
leaders often took matters into their own hands. Some of the governors and 
presidents of the 89 regions effectively ran their own fiefdoms. 

That era is now at an end. Russian President Vladimir Putin scored a victory 
in his efforts to curb the power of regional leaders when the Duma today 
adopted two laws stripping the governors of some of their powers. 

The Duma overwhelmingly voted to eject regional leaders from the upper house, 
the Federation Council. They are to be replaced by appointed legislators. 

At present, the Federation Council seats 188 representatives, two for each of 
Russia's regions, although the two seats allotted to Chechnya are presently 
empty. The governor or president of each region gets one seat and the speaker 
of the regional legislature the other. 

The upper house has the power to approve the imposition of martial law or the 
stationing of troops abroad. In the past, governors have wielded significant 
power there. 

Now they are barred from the Federation Council as of 2002. Under the new 
law, the governors will now appoint one of their region's two seats in the 
upper house, but the regional legislature has the right to reject or dismiss 
the appointee by a two-thirds vote. The second representative will be elected 
by the regional legislature. 

The second bill passed today overturns a Federation Council veto of a 
provision allowing the president to fire regional governors if they break 
federal laws or come under investigation. 

A third bill, adopted earlier, considerably increases the power of the 
federal authorities with regard to mayors. 

Together, the measures strengthen federal authority and consolidate power in 
the Kremlin. President Putin has been strongly pushing the reforms, which he 
presented to the public in May in a special television address. At that time 
he warned that measures had to be taken against what he called regional 

Proponents of the reforms argued that the governors were too busy with their 
local responsibilities to fulfill their obligations as federal legislators. 
And they said some governors used the immunity from prosecution given by 
their parliamentary status to break federal laws. 

Most Duma deputies agreed with these arguments. The little opposition in the 
lower house came from some of the Communists and some of the democrats, 
including Boris Nemtsov. Almost all of the governors in the upper house were 

Critics of the new laws warned darkly that the reforms are a step towards an 
authoritarian state. 

Business tycoon Boris Berezovsky stepped down from his Duma seat today, 
partly out of protest against the reform. He called it Putin's biggest 
mistake and a step towards the destruction of Russia. 

Another Duma deputy, Vladimir Ryzhkov, was recently kicked out of the 
pro-Putin Unity faction for criticizing the reform. Ryzhkov argues that by 
barring the powerful governors from sitting in the upper house, Putin is 
considerably weakening parliament and depriving the political system of the 
only check on presidential power. 

This battle may not be over yet. Krasnoyarsk Governor Aleksandr Lebed points 
out that the Federation Council could still veto the law barring governors 
from seats. That would send the bill back to the Duma. 


July 18, 2000

Russian Reforms: All Shock and No Therapy


Presidential economic advisor Andrei Illarionov, an economic
ultraliberal, stated July 15 that Russia's economic competitiveness
had decreased by 30 percent since the beginning of the year,
partially due to rising inflation, according to Segovnaya. Analysts
are estimating Russia's year-end inflation could be as high as 35
percent, almost double the 18 percent upon which Russia's budget
was founded. Wrangles between the administration and the Duma are
significantly reducing the probability of economic growth. The
result will be a stagnant economy beset by inflation.


Russian economists are sounding warning bells. According to
Segovnaya, presidential advisor Andrei Illarionov claimed that
Russia's economic competitiveness had decreased by 30 percent since
the beginning of the year. Inflation too, is a problem. In the
first six months of the year inflation jumped 9.33 percent -
tripling in the past two months alone. This inflation burst is
directly linked to many of the reform policies of Russian President
Vladimir Putin and Prime Minister Mikhail Kasyanov.

The reform efforts are half of a two part plan, the other half
being foreign investment. Neither effort will succeed without the
other. Foreigners won't invest in a corrupted economy, and painful
reforms will only hurt the public if that investment fails to
materialize. In the coming months, it is unlikely the reforms will
achieve their goal. Instead, inflation will continue to strengthen,
weakening the already tenuous economic hold of the Russian

Most observers are parroting Putin's June 3 statement faulting
increases in Russia's money supply for the inflation. While the
money supply undoubtedly plays a role, the Kremlin's reforms -
which have directly raised prices - are the true culprit. As the
official argument goes, federal law requires exporters to sell 75
percent of their hard currency earnings to the Central Bank in
exchange for rubles. The immediate result is an increase in the
amount of money in the Russian economy. With more money in
circulation, producers can charge more for their limited number of
goods. The result is demand-pull inflation.

Several of Putin's policies reinforce this demand-pull inflation.
Putin has committed his government to paying up all wage arrears,
and the Duma and Federation Council have already agreed to more
than triple the minimum wage percent over the next 12 months. On
July 10 Putin raised the average pension by one-sixth, the third
raise this year, and set the stage for further increases in 2001.
Like the Central Bank's policy on appropriating hard currency,
these moves increase the amount of cash in the economy without
raising productivity: more demand-pull inflation.

But Russia's Central Bank statistics indicate the money supply has
not kept up with the hype. Exports for the first five months of the
year totaled $39.3 billion, or 1.1 trillion rubles. That means 840
billion rubles should have entered the money supply. However,
according to the Russian Central Bank, from January to June the
money supply only increased by 161 billion rubles.

So if the official line is at best only partly correct, what is
actually causing the inflation? Over the past several months the
Putin/Kasyanov administration has scrapped various subsidies and
enacted broad taxes. The results are increased costs for the basic
consumables in Russian society: Electricity prices have soared 55
percent, natural gas 15 percent to 20 percent, vodka 40 percent and
telephone lines 15 percent. This is cost-push inflation, and it
directly affects all Russians.

Russia has few tools to deal with its inflation. Russia could use
some of its 48.6 billion ruble budget surplus to pay off some of
the government's debt to the Central Bank. This would both improve
Russia's internal debt and mop up a few billion excess rubles,
partially offsetting the demand-pull inflation.

But the only thing that can alleviate cost-push inflation is
stable, broad-based economic growth. Petroleum sales don't count.
The only way Russia can achieve that growth is by increasing worker
productivity. That requires strong managerial skills, new
technology and abundant capital - three things that Russia lacks,
but foreigners have. Simply put, Russia needs foreign investment.

That investment remains elusive. The 1998 ruble crash, combined
with endemic corruption, burned most foreign investors. To lure
those investors back, Putin is implementing two types of reform:
legal and economic.

Under Putin's firm hand, Russia has already taken the first legal
reforms: getting the government out of business, getting business
out of the government and strengthening the rule of law - albeit
through the implementation of a police state. Putin is knocking the
oligarchs down to size as well. The latest target is Anatoly
Chubais, former privatization minister and Yeltsin chief of staff
and currently head of Unified Energy Systems, Russia's electricity

On the economic front, Putin is revamping the tax system and
dismantling price controls. Yet, the economic reforms must be
approved and implemented quickly in order to work without
triggering hyperinflation.

It is difficult to understate the obstacles to progress. While
currently on the run, the oligarchs still control vast tracts of
the economy. Russian culture, traumatized by decades of communism
and previous rounds of shock therapy, lacks the ingrained civic
responsibility - not to mention corruption-free law enforcers -
needed to ground an advanced economy. And regional governors, along
with corrupt government bureaucrats at all levels, are fighting
tooth-and-nail to slow or deflect almost the entire Putin/Kasyanov
reform package.

The regional governors have met with some recent success. After
vetoing a law in the Federation Council that would reduce their
power, regional governors managed to convince Duma deputies to
water down many of Kasyanov's new taxes that would shift the burden
away from Russia's beleaguered producers (and onto its beleaguered
consumers). For example, Kasyanov proposed 20, 200 and 600 percent
increases on alcohol, tobacco and gasoline taxes, but the Duma only
approved 5, 50 and 300 percent increases, respectively, according
to the Moscow Times. More importantly, the Duma also voted to keep
one of Russia's odious turnover taxes.

Turnover taxes are perhaps the single most damaging feature of the
Russian economic system. First of all, they apply to every
transaction a business makes: salaries, advertising, sales, rent,
utilities, phone lines, equipment rental, etc. Second, they are
applied cumulatively with all other taxes: payroll, excise, fuel,
profit, etc. Turnover taxes encourage dishonest bookkeeping and
barter trade, which in turn pushes the economy toward the
corruption-prone black market. After all, if there is no
transaction to record and no cash to trace, there is no tax to pay.

Furthermore, the Duma chose to keep the worst of a bad lot: the
road tax. Unlike many other taxes, this one pays into the regions -
not the federal government. According to Putin in an Izvestia
interview, the tax has raised more than $30 billion since 1994, yet
the country has experienced no meaningful road improvement,
implying road tax revenues are going toward the regional governors'
slush funds. The Duma's insistence on the continued existence of an
onerous tax that encourages such widespread, high-level corruption
is exactly the type of action that will discourage essential
foreign investment.

Facing this type of hostility to economic reform, few foreign
companies are returning to Russia. Foreign direct investment in
Russia for the first quarter of 2000 is a mere $853 million. While
this is a 40 percent increase when compared to a year earlier, it
amounts to a paltry $5.80 a person. On a per capita basis, Estonia
garnered 10 times that amount. Most firms view Putin's reforms
favorably, but are adopting a wait-and-see policy before diving
back in, according to the U.S.-Russia Business Council.

If Russia fails to attract foreign investment and continues reforms
that produce inflation, Putin and Kasyanov will have achieved the
worst of both worlds: growth-free inflation. This will erode
Russia's remaining competitiveness while further impoverishing its
citizens. Sadly, this seems to be the direction in which Russia is
heading. Having already signed decrees that will further boost
pensions and the minimum wage - moves that will trigger more
demand-pull inflation - Putin will find it difficult to backtrack.
Meanwhile, reductions in housing subsidies and new taxes on
automobiles are already in the pipe - causes of cost-push
inflation. Russia is brewing a deadly concoction of across-the-
board price increases and chronic inflation that will further lower
the average Russian's already abysmal standard of living.

For the investment to flow, Putin must simultaneously root out
corruption, liberalize prices, rationalize the tax system and slash
government spending. But the Duma's rejection of some of Kasyanov's
tax plans all too vividly shows just how deep the resistance to
change is rooted in the country's financial bedrock. The
Putin/Kasyanov legal and economic reforms threaten almost every
Russian power group on multiple levels. Putin and Kasyanov have
made impressive progress with few tools, but unless they can
destroy the corruption at the heart of Russia's business community,
their reforms are destined to be all shock and no therapy.


The Wall Street Journal Europe
July 14-15, 2000
Did We Expect Too Much From Free Media?
By Thomas A. Dine, president of Radio Free Europe/Radio Liberty. This
article was adapted from a June 25 speech in Gudauri, Georgia to
journalists and stations in the former East bloc now affiliated with RFE/RL.

Government attacks on independent media in the postcommunist world are
becoming commonplace. They provide unintended testimony to the power of the
free media to undermine those who would keep their societies in a state of
unfreedom. But recent attacks also highlight the extreme fragility of free
media in unfree
or less than free societies.

Because of the obvious and demonstrated power of free media to transform
unfree societies, all too many people in both the post-Soviet states and in
the West came to believe that nothing could prevent the domestic media from
playing that role, that democracy was secure, and that the future was one
of unalloyed brightness.

Only in the year 2000 are we beginning to face up to the destructive
heritage of the totalitarian system, to the impact it had on rulers and
ruled, and to the difficulties of escaping from that past. The post-Soviet
countries often are trying to institute democracy without democrats,
capitalism without capital and rule of law, and free media without free

In most of these countries, many of the same people are in power who were
in power ten or more years ago. The same pattern has held with the way
those who used to control the Soviet economy have privatized it into their
own hands and continued to depend on the special favor of the state rather
than the power of the marketplace to gain enormous and often unearned wealth.

The problem is especially grave for the media. Even where more or less free
media have emerged, journalists must contend with the absence of a
completely free readership or listenership. Because of their experiences in
Soviet times, most readers and listeners do not view the media the same way
people in democratic countries do. They see the media simply as a weapon
wielded by power against them or as a weapon against power rather than a
source of truthful information. And they often are prepared to see it
controlled in various ways to advance what they believe are their own

A poll taken in Moscow earlier this month found that more than a third of
the respondents were prepared to accept restrictions on the press in the
name of national interest. More happily, already 50% said that such
restrictions were unjustified. But this survival of the past provides aid
and comfort to those in power who are unhappy with criticism and want to
prevent a free press from holding them to account.

Many thought that privatization of the media would guarantee its
independence. But things have not worked out that way. Almost all of the
electronic media--radio and television, from which ever more people get their
news -- remains state-owned and state-controlled. In addition, given the
absence of a large advertising sector to provide diverse financing of the
media, many journalists find themselves forced to advance the interests of
their owners
rather than the interests of objectivity and truth. If they try to buck the
system, they find themselves without the means to feed themselves and their

But there is a third element to this problem, which is that we may be
asking the media to do more than the media can in fact achieve on its own.
Can free media by themselves transform unfree societies?

Perhaps not. First, in many countries in this region, there is a growing
gap between the existence of independent media and the rise of the other
institutions of civil society -- instead of the narrowing one we had expected.

Second, in several of them, there has been a retreat from earlier progress
toward a civil society, a real turning back of the clock. Belarus and
Turkmenistan immediately spring to mind, but you can add others.

But third and most important, there is a growing body of scholarship which
calls into question some of the most widespread notions about the rise of
civil society.

Several studies suggest that economic growth by itself will do little to
create civil institutions where they have not existed in the past. Instead,
this literature finds, economic growth may at least for a time stabilize
existing authoritarian structures rather than lead to their replacement by
the stable and
independent institutions that are at the core of civil society.

In a recent book, "Democracy from Scratch," American political scientist
Steven Fish points out that communist regimes were far more effective than
other authoritarian regimes in suppressing the institutions of civil
society and preventing their re-emergence. And they left in their wake
countries which "resembled less a civil society, with its established
political parties, unions, and interest associations, than a movement
society -- that is, a myriad of complex, interacting, apocalyptic political

In such circumstances, Mr. Fish notes, a free media often serves to advance
the programmatic causes of these "campaigns." Instead of providing the kind
of information necessary to help to create institutions most of whose
actions are independent of state power, journalists in these countries may
fall into the trap of covering the conflict with state power as the
defining element of social groups. And that in some cases can serve as a
brake on the development of a civil society in which groups have a more
independent life.

Reporting on trade unions, on informal associations, on law and the courts,
and on all the other elements of an emerging civil society is inevitably
less dramatic than covering conflicts between the state and political
movements opposed to it. No one should ignore these conflicts. But Mr.
Fish's insight suggests that focusing on them alone could actually retard
development of the other institutions and of civil society as a whole. And
it suggests that the media must be sensitive to this lest its own freedom
fail to promote or even retard the development of freedom elsewhere.

That is what being a responsible journalist means. It is not simply about
reporting accurately but about reporting accurately on those topics which
most profoundly affect a free society.


Los Angeles Times
July 19, 2000
[for personal use only] 
Russia's High-Tar Tasters Live and Breathe Cigarettes 
By ROBYN DIXON, Times Staff Writer

YELETS, Russia--Through waxy red lips, Larissa Solovyova expels a heavy 
cloud of acrid-smelling smoke, which wafts like a small thundercloud by her 
face. She thrusts her nose into the smoke, sniffing heavily, her face stern 
with concentration. 
She says it takes years of practical smoking classes at Russia's main 
tobacco university to learn to smoke correctly. Even after five years of 
study there, her palate was green and inexperienced. 
Solovyova, 45, takes another pull on one of Russia's roughest 
cigarettes, dubbed papirosi, inhaling for so long that the end flares 
"You just breathe it in as deeply as possible into your lungs," she 
says. "This is the final inhalation, to see how strong it is." 
Solovyova isn't smoking for pleasure. It is the most important part of 
her job. She and four other members of the Yelets tobacco factory 
"degustation committee" take their work--as quality barometers of high-tar 
"I've been smoking 48 years, and I never tried to quit. All my conscious 
life has been devoted to this," says the committee chairman, Anatoly Topekha. 
"He taught me everything I know," Solovyova says humbly. "He taught me 
to memorize the flavor specifics of each tobacco and the sensory perceptions 
that a smoker has while smoking. It's a complicated process." 
The pair have matching smokers' coughs, barking into their hands from 
time to time. 
Solovyova and Topekha are testing Belomorkanal papirosi, made of 
fifth-grade tobacco. No one in Russia is making papirosi of lower-grade 
tobacco than Belomorkanal, a big seller for the Yelets factory, which makes 5 
billion papirosi and other cigarettes a year. 
Papirosi are peculiarly Russian, popular among the poor, prisoners and 
soldiers. Instead of a filter, each one has a long hollow cardboard tube that 
smokers squash flat at both ends before lighting up. 
Even as cigarette sales decline in the United States, Russians smoke 265 
billion cigarettes annually--about 1,800 per capita--and the figure is 
expected to rise 1% to 1.5% this year. 
Smoking is much more common among men than women, although young women, 
particularly in Moscow, are taking up smoking in increasing numbers. Among 
men ages 30 to 34, 72% smoke, and 59.8% of males older than 15 smoke. The 
comparable figure for females older than 15 is 9.1%. 
In mortality rates for cardiovascular disease, cancer and infectious 
diseases, Russia ranks second highest in the world among 140 countries, 
behind Hungary. Another former Soviet bloc country, Latvia, is in third 
Last year, 63,092 Russians died of lung or throat cancer, and health 
authorities blame 90% of the cases on smoking. In the same year, 2,355,658 
died of cardiac disease, and 25% of these fatalities are blamed on smoking. 
Not deterred, Solovyova's committee meets every Thursday at 2 p.m. in 
this town 220 miles south of Moscow to smoke for one to two hours, randomly 
testing all the factory's products and all the raw tobacco to be used in 
The papirosi and filterless cigarettes that the company turns out have 
very high tar levels. For its Prima cigarettes, the level is 22 milligrams of 
tar per cigarette. There is no regulation in Russia governing the amount of 
tar in papirosi such as Belomorkanal. The committee members couldn't say how 
much tar the papirosi had but acknowledged that it's harder to reduce the tar 
in them. 
While Western cigarette companies also have regular panel samplings of 
cigarettes for subjective values such as taste, their products are much lower 
in tar, often around the 12-milligram mark or lower, and they use machines 
rather than the Russian deep inhalation method to test for strength. 
Typically, testers don't smoke raw tobacco samples, as the Russian panels do. 
"It is hard when we are tasting for more than an hour," Solovyova says. 
"Sometimes we take a 10-minute break to revive." The committee members avoid 
spicy foods on Thursdays and drink weak black tea at testing sessions to 
refresh their exhausted palates. 
Topekha insists that the work isn't harmful and doesn't lead to disease 
because "tobacco leaves the body very quickly." 
"According to the latest research from the Academy of Medical Science 
[in Russia], tobacco is useful for your body in certain quantities," he 
asserts. "Tar is hazardous, but nicotine is not." 
Belomorkanal papirosi were launched in 1933 to commemorate the opening 
of the White Sea-Baltic Sea canal, a project Russians today associate with 
the 300,000 gulag prisoners who died building it. 
Solovyova, who says her salary is a commercial secret, is the chief 
tobacco engineer at the factory and, when she isn't smoking, is responsible 
for quality control of papirosi and cigarettes, labels and boxes. 
She takes her job so seriously that even off duty she smokes only Yelets 
tobacco factory products: Belomorkanal papirosi, Prima cigarettes made of 
fourth-grade tobacco and Yeletskiye filter cigarettes. Smoking the product 
full time, she says, improves her work on the degustation committee. 
Although she says she tried her first papirosi secretly when she was 7 
and found it repugnant, she took up smoking seriously when she began her 
studies at the tobacco institute. 
During the degustation, committee members remain silent, scoring each 
item on detailed sheets for flavor, bitterness, acidity, the degree of 
irritation to the throat, the burning sensation on and around the tongue and 
other qualities. 
Although the Yelets tobacco factory experienced some difficulties in the 
transition to a market economy, production has increased since the collapse 
of the Soviet Union--despite the invasion by Western companies that have 
surged into Russia, investing in many local tobacco factories or setting up 
their own operations. 
"Not everybody has the chance to smoke expensive products," Topekha 
says. "Lots of people are extremely poor but can't quit smoking." 
The company's heyday was in the 1960s, when the factory products were in 
heavy demand on the black market and security at the plant had to be 
tightened to prevent theft. 
Anatoly Berezhnov, 69, a pensioner and former cowherd from the village 
of Tishanka, 325 miles southeast of Moscow, is a typical Belomorkanal smoker. 
"You either eat meat or potatoes," he says of his smoking habit, 
comparing Western cigarettes to meat--often too expensive for many 
Russians--and Belomorkanal to potatoes. He took up smoking out of boredom 
when he was 30 and working as a cowherd, with nothing to do but stare at 
cattle all day. 
His daily pack costs him 2 rubles, or 7 cents, but popping down to the 
local shop to buy the cheapest brand makes him feel rich, "because tobacco is 
a very difficult plant to grow. It's very hard to raise your own tobacco and 
cure it and roll your own cigarettes." 
Berezhnov has his first daily papirosi before breakfast, "and it's good. 
If I didn't smoke, I'd probably live for a hundred years, but I'll probably 
live 10 or 15 years less than that," he says lightly. 
Five years ago, Berezhnov managed to give up vodka on his doctor's 
advice, but he finds it much harder to quit smoking. 
Like many of the factory's clients, Solovyova has been trying to cut 
"I think the health of the nation is the key thing, but our task as 
producers is to make cigarettes that will cause as little harm as possible to 
people," says Solovyova, despite the high tar levels in the factory's 
cigarettes. Sounding a little prim, she adds that people should limit their 
intake, suggesting that less than 10 a day would be a reasonable level, 
though she herself smokes double that. 
But in the next breath comes a rueful admission: "I'm trying to reduce 
the number, but it's really hard." By now she is coughing heavily. 
In the United States, major tobacco companies have suffered legal 
setbacks in recent years, most stunningly on Friday, when jurors ordered 
cigarette makers to pay $144.8 billion in punitive damages to Florida smokers 
who became sick or died as a result of addiction to cigarette smoking. 
But Solovyova and Topekha are certain that Russian manufacturers will 
never have to face that problem. 
"It might happen in America. It would never happen here," Topekha says. 
"In America there are more rights for consumers than there are here." 


From: "Mark Ames" <>
Subject: Re: McFaul/Russian Rationalism
Date: Wed, 19 Jul 2000 

You would think that the events over the past couple of years, let alone a
quick glance at uncensored human history, would have humbled Michael McFaul,
or at least caused him to make a few modifications to his heartwarming
central thesis: the more democracy, the more markets grow. This thesis holds
up well when brown-nosing your ninth-grade civics teacher in suburban
America, but expose it to terrible world out there, and it dies a very quick
and insignificant death. The unpleasant truth is that markets respond to
profit. For most companies and investors, that means working in a stable
environment. Democracy is often times the best guarantor of stability (and
profit) because in a democracy, the center of power is better concealed and
dispersed; the mob is pacified by the belief that power is in their hands as
much as in the hands of the oligarchs who write the rules and stage the
spectacles of democracy. This isn’t always the case: in the past few years,
democratic regimes were overthrown by the mob that elected them in Bulgaria,
Albania, Ecuador and Venezuela; several others from Southeast Asia to the
South Pacific and South America are under threat today. Authoritarianism has
proven, at least in the West, to be less stable, and thus less useful for
big business, in recent history. If, like McFaul, you believe that The West
is The World, then you believe that whatever works for us works the same
everywhere else. And where evidence doesn’t support that thesis, you simply
hide your eyes behind an American flag, wait till it passes, then emerge
smiling as if nothing ever happened.

Unlike the West, in the East, global money has poured into the most brutal,
anti-democratic regimes. Take the recent examples of Indonesia versus
Malaysia or China. Following the collapse of the tiger economies a few years
ago, Indonesia buckled under, moved to democracy, and opened its markets.
The results have been disastrous; foreign investors who haven’t fled are
still fleeing, and capital markets are still in the pits, while wars and
separatism grow and the currency is one of the region’s worst-performing.
Malaysia, on the other hand, slapped heavy controls on its capital markets
(which the IMF only recently endorsed after bitter opposition), and arrested
popular opposition leader Anwar Ibrahim, accusing him of being a “butt
pirate”, thereby ensuring that strongman Mahathir Mohamad’s rule would last
well into this decade. The results: Malaysia’s markets have been among the
best performing in Southeast Asia over the past couple of years, rivaled
only by China, Singapore and South Korea. In fact, it seems that for every
Chinese student run over by a tank or every activist jailed or Falun Gong
cultist bonked on the head, another American factory announces its move to
China, another Qualcomm WAP deal is inked in the world’s largest market.
Why? Because investors like stability, and there’s more money to be made in
China and Malaysia than in Indonesia’s post-democracy chaos. They don't care
what system brings the stability or the profit.

But why look so far away when we have our case-in-point right in McFaul’s
Russia itself? The democratic Yeltsin regime that McFaul so tirelessly
agitated for in the 90s not only ushered in the greatest economic decline in
a 20th century industrial nation, but also propelled them into the very top
of the world’s most corrupt nations. McFaul, of course, still ignores this:
“The positive correlation between high levels of democracy and low levels of
corruption in the post-communist world is also striking. The fastest
democratizers in the region are also the countries with the highest growth
rates. The positive correlation between high levels of democracy and low
levels of corruption in the post-communist world is also striking.” Indeed.
What’s worse, Russia’s capital markets have soared since Putin launched the
Chechen War last fall and moved to crush Russia’s fragile democracy. Why?
Because democracy in Russia brought instability, corruption and economic
decline; therefore, the hope among investors is that authoritarianism will
reverse all of that. Investors worship quarterly reports and bonus day, not
God or Thomas Jefferson. Even McFaul briefly concedes this depressing point:
“Western investors want to return to Russia. They applaud President Putin's
rhetoric about restoring law and order and lose little sleep over the arrest
of oligarchs or the harassment of corrupt regional leaders both who have
done much to impede the development of markets in Russia.”

Yeah… but then, he returns to the fairy tale: “in response to the Gusinsky
ordeal, Robert Strauss, the Chairman of the U.S.-Russian Business Council,
cancelled a trip that would have brought to Russia several CEOs from some of
America's largest companies. The causal relationship between the domestic
and the international could not be more obvious.” Uh… yeah. It would have
been embarrassing for Strauss’s pack of oligarchs to come to Moscow when the
leader of the Russian Jewish Congress was rotting in jail, but something
tells me (I think it’s called “China”) that they’ll be back when the storm
dies down. McFaul also falsely claims that the raid on LUKOil caused a
flight in capital, reflected in the value of the stock: “On the day that
criminal investigations were announced against LUKOil, one of Russia's most
respected companies among international investors, millions of dollars
bolted from Lukoil stocks and the Russian stock market as a whole. Again,
the relationship between political actions at home and foreign policy
objectives could not be more direct.”

Of course, this only holds true if you have a massively selective memory. As
in, you only remember that day, July 11th, and not every day since. One day
after the LUKOil raid, The Moscow Times share index returned to its pre-raid
levels. In the July 13th article “Market Rallies Late in Day, Crackdown Not
a Problem,” the Times quotes Troika Dialog salesman Alexei Dolgikh saying:
“The majority of the market has decided recent events and problems faced by
companies like LUKoil and Avtovaz are not significant enough to push the
market down further. Most investors are fairly optimistic right now despite
what's going on.” A week after the raid, the market has inched up further

What’s the point? Just as religious fanatics will sift through events and
latch onto those that support their desperate faith in a positive spiritual
order to things, neo-liberals like McFaul prefer to squeeze their
reality-intake to a trickle in order to uphold their fairytale narrative of
the world rather than open the markets of their minds to competitive
forces – that is, the forces of bitter truth. To use their own dated
Soviet-like language, by cutting off imports of reality, they’ve consigned
themselves to permanent intellectual decline. For the rest of us, the lesson
to draw on the relationship between markets and democracy was best summed up
by the Croatian taxi driver in Brain Candy: “Life is short, life is shit,
and soon it will be over.”

Mark Ames
the eXile


Moscow Times
July 20, 2000 
Prosecutors Impound Gusinsky's Property 
By Anna Badkhen and Sarah Karush
Staff Writers

CHIGASOVO, Moscow Region -- The Prosecutor General's Office began impounding 
Media-MOST head Vladimir Gusinsky's property Wednesday, starting with his 
two-story suburban house, the 3,500-square-meter plot it stands on and every 
item it contains. 

Valery Nikolayev, the main investigator in the case, was quoted by Interfax 
as saying that all of the tycoon's property will be "arrested" f meaning that 
Gusinsky won't be able to sell, transfer or alter it f as prosecutors 
discover it. 

At around 5:30 p.m., six investigators arrived in Chigasovo, 50 kilometers 
west of Moscow, where Gusinsky's brick house stands in a guarded, elite 
community complete with an indoor swimming pool and a fitness center that is 
home to the dachas of Media-MOST's top management. 

"Literally every needle [in the house] is being examined and listed," said 
Gusinsky's lawyer Pavel Astakhov, who arrived at the house shortly after 7 

"Investigator [Leonid] Chilenko takes special pleasure in examining different 
antique and rare things that are located inside Vladimir Gusinsky's 
house,"Astakhov said. 

"I wonder whether they will list the bushes that grow on this plot of land, 
or the stone paths f there may be some semi-precious stones there." 

During the search, only security guards and lawyers were allowed to enter the 
house or to walk the neatly trimmed grass and cobblestone paths outside it. 

A small group of television and newspaper reporters mingled on the paved 
street in front of the house. 

Dennis Whelan, a Moscow-based lawyer, said the so-called "arrest of property" 
is a measure frequently taken by investigators in cases like that of 
Gusinsky, who is charged with embezzlement. 

"If a crime involves as a punishment the confiscation of property, the 
prosecutor's office has the right to put an arrest on the property, so that 
it can't be transferred or put somewhere else," Whelan said. 

He added that unlike Western legal systems, Russian law does not require a 
judge's decision for such an arrest. 

Although Gusinsky is allowed to continue using his property, he will be 
unable to sell it, give it away or destroy it without permission from the 

"Should Gusinsky wish to break a cup in the kitchen, he will from now on have 
to ask the investigator," Astakhov said. 

Whelan said that Gusinsky would technically have to ask permission to do any 
repairs or other actions that would change the value of the property. 

The authorities aren't allowed to do anything with the property unless it is 
actually confiscated, following a court ruling. 

Astakhov said the company expected the property would be seized and that 
investigators would arrest Gusinsky's shares in NTV television and other 
media "as soon as they figure out the structure of the [Media-MOST] holding 

"They won't miss the opportunity, I'm sure," Astakhov said. "They want to 
control everything that belongs to Gusinsky f management activities, private 
activities. They may even get into his bed." 

But even if the prosecutors do decide to take over his stocks, they won't be 
able to control NTV or other media outlets controlled by Gusinsky, said 
Media-MOST spokesman Dmitry Ostalsky. 

"Arrest does not mean ownership," Ostalsky said in a telephone interview. 
"Gusinsky has not transferred any of his stock [in NTV]; he has no intention 
of transferring his assets [to anyone]; and he has no intention of running 
because he does not feel he is guilty of any wrongdoing." 

But another Media-MOST lawyer, Oleg Maklakov, said that the main purpose of 
the arrest was to put pressure on NTV and that arrest of Gusinsky's stocks 
would "paralyze the media." 

The investigators were expected to leave the house at 10 p.m. Wednesday and 
resume their inventory at 6 a.m. Thursday. Astakhov said the arrest procedure 
could take two days or longer. 

Meanwhile, Unified Energy Systems chief Anatoly Chubais told Reuters that 
President Vladimir Putin would meet with the country's business elite next 

The meeting was proposed by Duma Deputy Boris Nemtsov in light of recent 
crackdowns by the authorities on major businessmen, Gusinsky first among 

But Ostalsky suggested he did not think Gusinsky would be welcome at the 
Kremlin. Media-MOST has accused Putin of being behind the prosecutors' 

"I have a feeling that it will be the president sending the invitations, so 
you can draw your conclusions from that," Ostalsky said. 

Natalia Yefimova contributed to this report. 


UES's Chubais on Company Reorganization and Putin: Comment

Moscow, July 19 (Bloomberg)
-- Anatoly Chubais, chief executive officer of RAO Unified Energy 
Systems, Russia's monopoly power company, spoke in an interview about the 
proposed breakup of the company, relations with minority shareholders and 
next week's meeting between President Vladimir Putin and the country's most- 
famous business leaders, including himself. 

On the company's decision to start major asset sales in two to three years, 
rather than earlier: 

``What was stated by myself and other management of the company last Friday 
is that we do understand that before starting the implementation of the 
restructuring we need to achieve some preliminary results. 

``One of these results is increasing the market capitalization of the 
company, after the deregulation of the market. I stated that in my 
understanding it could be achieved in two or three years and that is the 
timetable for starting the attracting of mass investments in the RAO UES.'' 

On steps to reassure shareholders who disapprove of the restructuring plan: 

``We have not finished our preparation for the restructuring, we haven't 
finished the preparation of the plan. We are in an ongoing process. 

``We are discussing it with the government, with the regional governors, with 
the shareholders. 

``We are not just discussing it, we need to have feedback, which we have now. 
And having this feedback, we are ready to improve our approach. That's what 
we are doing now. 

``Last Friday we announced some new initiative which is our reaction to the 
major shareholder concerns. I know they are now discussing it and we are 
waiting for the final decision of the shareholders. What is very important is 
that officially stated -- we would like to have an official decision of the 
general shareholder meeting before the implementation of the plan.'' 

On whether the government, the majority shareholder, supports the plan: 

``We don't have the final, adopted plan. We are in the ongoing process. We 
started this process in March this year, when there was no governmental 
position, any official position of the Russian government. What is the 
difference now? The plan is not finished, but at the same time the government 
itself accepted the governmental program, made by (Economy Minister German) 
Gref. If you will follow this program you will definitely see that the major 
principles of RAO UES restructuring are completely included into this 
governmental plan.'' 

On the timetable for reorganization of UES: 

``That depends on the support of shareholders and other players in the whole 
game. I believe that the whole timetable for the restructuring of the company 
such as RAO UES is not less than five years.'' 

On Putin's meeting with Russia's top businessmen, proposed by the business 
leaders to discuss Putin's intentions in handling protection property rights 
and earlier state-asset sales: 

``I don't know the final decision on who will be attending the meeting. I 
know there is discussion that is going on now. 

``It is clear there is a topic for the discussion between business leaders of 
Russia and President Putin. 

``The topic for the discussion is -- what is the attitude of the President of 
Russia towards the result of the privatization and if Mr. President will 
really follow his pre-election statement that there is no re-evaluation of 
the result of the privatization in Russia.'' 

On what Chubais would want Putin to do in Russia: 

``The major thing is that there should be equal rules for any business 
leader, regardless of the size of business they run. When one of the 
communists who suggested to cancel the privatization of my company and to get 
back the shares from our foreign shareholders -- that is something which 
could not be accepted as equal rules -- that is a pure political attack, 
which is supported by the communists and that is something where we really 
need the clear position of President Putin.'' 

On whether Putin could hurt democratic freedoms: 

``I think that is something which is very widely discussed in Russia now. But 
at the same what time what are the facts? Facts now are -- something that has 
happened to the Most-Media group in Russia. 

``I myself would not support the steps which have been made by the government 
in this direction and I have stated it openly for Russian and foreign media, 
but at the same time I am not sure that's the fact which would make it 
possible to state that Putin stopped democracy in Russia. I don't think we 
should make such a comprehensive conclusion from this unfortunate fact.'' 

On what he would personally want from the government: 

``As manager of RAO UES I see it as the major goal to get support from 
shareholders and the government in the restructuring plan in our company.'' 

On whether the UES reorganization and planned sale of its power generating 
assets could be carried out like Russia's state asset sales in the 1990s: 

``We could have a different understanding of the result of the mass 
privatization in Russian in the 1990s. The privatization of Russia in the 
1990s and the restructuring of RAO UES has absolutely different goals. 

``To privatize Russia in 1990 -- the main goal was purely political -- the 
only goal was to stop communism in Russia and we succeeded. We really 
succeeded. There is no communist government in Russia. And there is no goal 
of the restructuring of RAO UES to stop communism in Russia. 

``The goal of the restructuring of our company is to have a transparent, 
efficient, modern-type business company and I do believe we will be able to 
achieve this goal via the support of the shareholders to our restructuring 

On how long he plans to stay at UES. 

``I would try to be in my current position as long as possible.'' 


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