July 25th, 2000    
This Date's Issues: 4421 • 4422   • 

Johnson's Russia List
#4422
25 July 2000
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Putin sees no need for Big Brother-style force.
2. Reuters: Swiss banks probed in Russia IMF cash inquiry.
3. APN: Most of Russians are indifferent to their neighbor's fate.
4. Interfax: CHECHEN LEADER WANTS KREMLIN GUARANTEE OF NO MORE WAR 
FOR 40-50 YEARS.
5. Moscow Times: Simon Saradzhyan, General Manilov's 'Dead Souls' 
Math.
6. The Guardian (UK): Amelia Gentleman, RUSSIA'S BEST BRAINS FOR 
SALE: THE SECOND IN OUR THREE-PART SERIES ON THE DECLINE AND REBIRTH OF 
RUSSIAN SCIENCE FINDS PURE RESEARCH IN THE DOLDRUMS AS INSTITUTES ARE 
FORCED TO WORK AT BARGAIN PRICES ON WESTERN COMMERCIAL PROJECTS.
7. The Nixon Center: Greg May and Paul Saunders, Unnatural Union: 
The China-Russia Partnership is America's to Make or Break.
8. Transitions Online: Peter Rutland, RUSSIAN FILM AND TELEVISION: 
MAKING A SLOW COMEBACK.
9. Ekonomika i Zhizn: Mikhail Delyagin, CAPITAL FLIGHT 
ACCELERATES.
10. Financial Times (UK): Russian oligarchs take the bankruptcy 
route to expansion: The country's controversial laws are being used by 
businesspeople as an empire-building tool, says Charles Clover.
11. BBC MONITORING: RUSSIA MAY LOSE OUT TO ASIAN NEIGHBOURS IF 
FAR EAST NOT DEVELOPED - PUTIN.
12. Financial Times (UK): Mini boom in GKO demand signals upturn: 
Russian banks and foreign investors pour money back into short-term 
treasury bills.]

*******

#1
Putin sees no need for Big Brother-style force

MOSCOW, July 25 (Reuters) - President Vladimir Putin dismissed rumours on 
Tuesday he planned to turn the clock back and create a huge Soviet-style 
secret police force. 

Putin's past as an agent for the Soviet-era KGB and then head of one of the 
KGB's post-Soviet successors has prompted speculation he favours recombining 
the various services hived off after the collapse of communism into one big 
force. 

``We need to stop this talk, we must put an end to rumours about a merger, 
about the creation of some kind of super-system,'' Putin said in televised 
comments. 

``We do not need anything like that..,'' he added in remarks to senior 
officers about to go on new duties or who were receiving state honours. 

Putin has denied he plans a return to Soviet methods of rule. He has talked 
instead of a dictatorship of the law, meaning everyone obeys the law and that 
it is equally applied. 

However, pressure on the owner of Russia's only independent national media 
outlets, Putin's past as a spy and the war in Chechnya, have prompted fears 
of an authoritarian streak. 

After the Soviet collapse, the KGB was split into two main bodies: the 
Federal Security Service covering domestic intelligence, which Putin led for 
a year, and the Foreign Intelligence Service. 

Putin used the officers' ceremony to praise the role of the military and took 
a new swipe at U.S. missile defence plans. 

``Today the factor of military strength is of great importance, most of all 
in preserving the stability of the country and guaranteeing its peaceful and 
progressive development,'' he said. 

``This is even more important when efforts are being made to reshape the 
geopolitical map of the world, touching directly on Russian interests. 

Of course, the main international problem is in the area of the destruction 
of the world's strategic balance,'' he added. 

His words were a reference to U.S. plans to build a national missile defence 
system, which Russia opposes and says will lead to a new nuclear arms race. 

*******

#2
Swiss banks probed in Russia IMF cash inquiry

GENEVA, July 25 (Reuters) - A Swiss magistrate said on Tuesday he was 
investigating banks in Italian-speaking Switzerland as part of a probe into 
whether a $4.8 billion IMF credit tranche to Russia was diverted via secret 
Swiss accounts. 

Geneva magistrate Laurent Kasper-Ansermet told Reuters that he asked a number 
of banks in the canton of Ticino 10 days ago for information and documents on 
whether they handled any diverted International Monetary Fund cash. 

Kasper-Ansermet heads an investigation into possible Swiss links to a Russian 
money laundering case involving the Bank of New York under which he has 
already frozen 30 million Swiss francs ($18 million) at a dozen Swiss banks. 

``I am investigating several banks in Ticino as part of my inquiry into 
whether a $4.8 billion tranche of IMF credit to Russia was diverted through 
Swiss banks,'' Kasper-Ansermet said. 

He said he had ``some information on possible Swiss links to the Bank of New 
York affair'' but declined to elaborate. 

A former bank executive and her husband pleaded guilty in a U.S. court in 
February to being involved in a $7 billion international money-laundering 
scheme. 

IMF has rejected charges that its money was misspent, saying that the cash 
was used to defend the rouble. 

The suspected diversion of massive Western aid to Moscow has been an issue in 
campaigning for U.S. presidential elections. 

Kasper-Ansermet complained that U.S. investigators had still not handed over 
documents he had formally requested on January 28 as part of Switzerland's 
own investigation into the Bank of New York Russian money laundering affair. 

``We haven't heard anything from the American investigators so far. Without 
U.S. cooperation, it would be very difficult to advance our own 
investigation,'' said Kasper-Ansermet. 

*******

#3
APN
July 24, 2000
Most of Russians are indifferent to their neighbor's fate

The Russians were put a question during the July all-Russian polls conducted 
by independent research center ROMIR on a random base (N=1500, 40 subjects of 
the RF, 160 points of inquiry) if they are willing to take pains to improve 
their neighbor`s life.

Only 5.4% of respondents were ready to do their best to make better the 
old-timers` living standard of in this country. 42.5% expressed their 
readiness to do it. "Neither yes, or no" was a stance in 25.1% of 
respondents. 16.3% of Russians expressed no willingness to make efforts to 
improve old-timers` life. 7% are absolutely not ready to do it. The rest of 
those surveyed said they found difficulty in answering.

6.3% of respondents were willing to take pains to improve the sick and feeble 
people` life. 40.4% of Russians were ready to cooperate on making their life 
better. 25.1% of citizens said neither yes, or no. 16.2 were not willing to 
help sick and feeble people. 8% of our compatriots were not ready absolutely 
to do it. 4% of respondents were difficulty in answering.

As the polls showed, it was migrants whom the Russians are ready to help 
least of all. There were no Russians being ready to be at pains to improve 
their life. 10.1% of citizens expressed willingness to make efforts to 
improve their life. 29.3% said neither yes, or no. 36.7% of those surveyed 
said they were not ready to help migrants to improve their life. 18.7% of 
citizens absolutely not ready to do it. 5.2% were difficulty in answering.

********

#4
CHECHEN LEADER WANTS KREMLIN GUARANTEE OF NO MORE WAR FOR 40-50 YEARS
Interfax 

Moscow, 24th July: Chechnya needs a kind of "safe conduct" pass from the
Kremlin guaranteeing that the republic is not to "be touched for 40 or 50
years", the provisional civilian administration head, Akhmad Kadyrov, said
in an interview published in the Monday [24th July] edition of `Novaya
Gazeta'. 

A corresponding document should say that the nation is the supreme value
and no ideas should lead it to war, Kadyrov said. 

Kadyrov dismissed the very idea of the war-torn republic becoming
independent, saying that its people only want the shooting, killing and
pillaging to stop. Chechnya should follow the example of Ingushetia and
Dagestan, also populated by Muslims, two other republics that do not want
to leave Russia and do not let anybody "deceive" them, he said. 

Chechnya must not become an Islamic republic, although it has to have a
sufficient number of mosques and religious schools, Kadyrov said. 

*******

#5
Moscow Times
July 25, 2000 
General Manilov's 'Dead Souls' Math 
By Simon Saradzhyan
Staff Writer

Nikolai Gogol could not have foreseen that his famed "Dead Souls" character 
Manilov f whose name has become synonymous with dreamer f would one day 
spring to life to don a star-studded military uniform. 

Just like his fictional namesake, Colonel General Valery Manilov, the 
61-year-old first deputy chief of the General Staff, can't help abandoning 
reality for the world of fantasy now and then as he reports on the size of 
enemy forces in the Kremlin's "anti-terrorist operation" in Chechnya. 

Gogol's Manilov simply let his estate fall into disrepair as he sat and 
fantasized about the ways he would beautify it. But Colonel General Manilov's 
dreams are offered regularly to the public as information about the war: A 
simple comparison of the data he has presented at a dozen or more briefings 
held in Moscow since fighting began last August reveals glaring 
inconsistencies. 

For example, Manilov told a Nov. 11 briefing that "the manpower of the entire 
group of terrorists of varying sorts can be put at 5,000." 

Eight months later, however, Manilov tripled his estimates of the number of 
Chechen rebels fighting federal forces in November 1999: "The second stage of 
the military part of the anti-terrorist operation began. It lasted from Oct. 
1 to Nov. 25. 

At that stage, some 16,000 to 17,000 bandits remained in bandit formations," 
the general said at a briefing July 13. 

The July 13 briefing exposed another failure by Manilov to keep track of his 
own statistics. The general said there was an "estimated" total of 10,000 to 
11,000 rebels in January 2000. 

However, on Jan. 28, Manilov confirmed a reporter's calculation, saying the 
number of rebels killed was 10,000 and the number left was 15,000. 

At the same July 13 briefing, Manilov placed the initial total of "bandits" 
as of August 1999 at 25,000 to 26,000. 

But speaking to reporters Nov. 11, Manilov said there had been some 3,000 
rebels killed since August and another 5,000 were still pitted against 
federal forces. 

A simple arithmetic calculation indicates Manilov believed there was an 
initial total of 8,000 "bandits" as of August 1999 f three times less than 
what he announced at the July 13 briefing. 

Furthermore, Manilov told a Dec. 28 briefing that rebels had lost 7,000 men 
between August and December 1999; in this case, his July 13 data would 
suggest that only 1,000 rebels remained as of two weeks ago. 

Both independent experts and war reporters reached by telephone Tuesday said 
they were not surprised to hear that Manilov, who has spent most of his 
military career in public relations, could not keep track of his own figures. 

Manilov is "one of the most shameless people" he has ever heard, said Radio 
Liberty journalist Andrei Babitsky, who frequently traveled to Chechnya to 
cover both the 1994-96 war and the current conflict. 

Both Babitsky and Vadim Solovyov, editor of Nezavisimoye Voyennoye 
Obozreniye, agreed with press reports that Manilov and other generals 
regularly exaggerate the rebels' casualties. 

At the same time, Manilov, who decried civilian losses during NATO's bombing 
campaign in Yugoslavia, has a hard time admitting that there have been 
casualties among Chechen civilians as a result of federal troops' often 
indiscriminate fire. 

Manilov also massages federal troops' casualty figures, putting them at 
numbers so low they look improbable for a side that has been on the offensive 
since August, Solovyov said. 

Solovyov's much-respected military affairs weekly was one of the first local 
newspapers to accuse generals of skewing casualty figures. Solovyov wrote a 
story in the Jan. 21-27, 2000, issue accusing both the Defense and Interior 
ministries of underestimating their casualties. 

In his story, Solovyov also wrote that there simply would have been no rebels 
left to fight had federal troops indeed killed 10,000 of them by January 20 
00. 

The average casualty ratio in wartime is three to four wounded for each man 
killed, wrote Solovyov, meaning there should have been at least 30,000 rebels 
wounded if 10,000 had been killed f precisely the maximum rebel manpower 
cited by army generals before the war began in August. 

Both Solovyov and Alexander Pikayev, defense analyst at the Moscow Carnegie 
Center, said a three-star general like Manilov should have been careful not 
to contradict himself when speaking to the press. 

They noted, however, that generals across the globe toy with casualty rates 
and trumpet their successes, using what has always been a vital propaganda 
tool. 

Moreover, Manilov has been instrumental in Moscow's efforts to keep public 
opinion pitted against Chechen rebels, Pikayev said. 

Confirmation of this is the fact that the Kremlin has allowed Manilov to 
remain in active service even though he has already passed the mandatory 
retirement age of 60. 

Unlike the previous Chechen war, army generals f including Manilov f have 
actually taken pains this time to win favorable coverage of their military 
campaign by holding regular briefings, he said. 

These presentations were especially slanted in the early stages of fighting, 
and the public largely failed to notice contradictions such as Manilov's in 
the flood of pro-Kremlin coverage by local media, Pikayev said. 

However, the longer the war drags on and the more soldiers get killed, said 
Pikayev, the more often local media are criticizing authorities for refusing 
to look for a peaceful solution to the conflict f which increasingly 
complicates Manilov's public relations efforts. 

*******

#6
The Guardian (UK)
25 July 2000
[for personal use only]
RUSSIA'S BEST BRAINS FOR SALE: THE SECOND IN OUR THREE-PART SERIES ON THE
DECLINE AND REBIRTH OF RUSSIAN SCIENCE FINDS PURE RESEARCH IN THE DOLDRUMS
AS INSTITUTES ARE FORCED TO WORK AT BARGAIN PRICES ON WESTERN COMMERCIAL
PROJECTS
By Amelia Gentleman

One of Russia's most successful exports in the past 10 years has been its
brains. Highly educated and available at bargain prices, this human
commodity has been in feverish demand throughout the developed world since
the end of the 1980s. 

Russian scientists, with a combination of enthusiasm and sadness, have been
packing their suitcases and leaving for the west - lured by seductive
salaries and research facilities unavailable at home. 

The flow to the west reduced in the last years of the 1990s, but in its
place new forms of brain drain have emerged. 

For example, scientists are moving to jobs which are more secure or more
lucrative, according to figures issued by the ministry of science and
technology. 

In 19901.6m people were working in science; since then 800,000 have
abandoned their careers, some to go into business, others to scrape a
living in any field that will feed them - as market traders, say, or
taxi-drivers. 

The newest, subtlest form of the phenomenon is the virtual brain drain -
represented by those scientists who stay in their old institutes but work
exclusively on contract to foreign firms. Trade in intellect 

Vladimir Vaschenko, one of Russia's young software tycoons, is one of those
entrepreneurs who have been accused of promoting this trade in intellect -
selling Russian brain power to the west at discount prices. 

Novosoft, the company Mr Vaschenko owns with an American partner, employs
hundreds of Russian scientists and mathematicians who work on programming
contracts for international clients. A cluster of similar firms exploiting
the local concentration of highly educated scien tists has led to the
region of southern Siberia around Novosibirsk being labelled Cyberia or the
Silicon Taiga. 

When Novosoft began it charged western firms wDollars 1 an hour for each
Russian programmer working on their project. It recently raised the rate of
about Dollars 25 ( pounds 16) an hour. In the United States an experienced
software consultant can demand up to Dollars 200 for the same work. 

Mr Vaschenko's venture is part of a global trend. With good phone and
internet links, firms in the west are now in a position to employ skilled
people overseas - in India, the Philippines, or Russia, to name just three
- without the cost of moving them. 

Near Novosoft's offices in Novosibirsk, the Siberian Institute of
Catalysis, once Russia's leading chemical reaction research centre, is
touted by the local authorities as a model of how academic institutes can
transform themselves into profit-making enterprises. This can mean
relegating pure research to the back burner to do paid work for western
firms. 

The institute went commercial in the early 90s when state funding almost
vanished. It now does research almost entirely for the likes of DuPont and
Monsanto. 

'We used to focus mainly on pure science,' said the institute's
vice-director, Vladimir Likholobov. 'Now we have a business section and a
marketing department that directs which lines of research we pursue." 

To Professor Likholobov this has come as a bit of a shock; to many western
academics it has long been a familiar trend. And there are Russian
academics who regard the change with resigned pragmatism: in the absence of
state support, they argue, anything is better than closure. 

Prof Likholobova said that most of his colleagues were fairly satisfied
with the new regime: a proportion of the money coming in from the
commercial contracts was set aside every month to finance their own re
search and buy new equipment. But Valery Ermikov, a professor at the local
university who has seen some of his best students leave, is angry about the
actual and virtual brain drains. Big void in universities 

The state was educating specialists 'for free', he said, then companies
like Microsoft came and stole them. 'A lot of western firms come here and
exploit our talents and intellectual capacities and give nothing back. We
would like them to treat us with more respect." 

Ultimately, though, it is still the physical departures that prove the most
devastating. The departure of so many scientists aged between 30 and 45 -
the age group that ought to be passing on its knowledge to students - has
left a void in the universities. The education system has always been at
the heart of Russia's scientific achievements. 

Since 1990 approximately 16,000 scientists have left the country
permanently to work abroad. At the height of Russia's painful economic
reforms in the early 90s, more than 2,000 were leaving every year; now the
annual figure has levelled off at around a thousand. 'When you examine the
figures they don't look so bad, just a few thousand in a country the size
of Russia," Michael Kirpichnikov, the science minister, said in an
interview in Moscow. 

'But the reality is that these were often the most talented, energetic
people. In science new ideas are born in the head of an individual, so even
the loss of one person - a Newton or an Einstein - can be disastrous. Pure
science is an international phenomenon, but it is very painful to see our
former colleagues making ground-breaking, world-leading discoveries as
citizens of other countries." 

Russia's aim now was to transfer the economy to the high-technology road,
he said, yet 'one of the basic preconditions for this is a strong pure
science base'. 

Among the chaotic stacks of scientific journals in Valentin Vlassov's study
are piles of photos of his old students, standing in sunshine waving happily. 

>From the backdrops of expensive restaurants and gleaming cars, it is
obvious that they are not Russia. These are the ones who have left the
tutelage of Professor Vlassov, one of the country's leading biochemists, to
seek new lives abroad. There are government schemes to halt such
departures, focusing on giving young scientists flats and equipping labs
with modern equipment. But with funds scarce, the impact has so far been
minimal. 

Shuffling through the pictures with arthritic fingers, Prof Vlassov listed
the most talented to have gone. Among them is his son, now a research
fellow in the US. 

'You can't blame them for leaving. When there's no money, it's impossible
to do research," he said. 'But if the process goes on, Russian science will
die." 

******

#7
From: The Nixon Center <NixonCenter@lists.postmastergeneral.com>
Subject: Unnatural Union: The China-Russia Partnership is America's 
to Make or Break
Date: Mon, 24 Jul 2000 

Unnatural Union: The China-Russia Partnership is America's to Make or
Break
by Greg May and Paul Saunders
(Mr. May is Assistant Director of The Nixon Center while Mr. Saunders is
the Center's Director.) 

The growth of the Russia-China strategic partnership, first announced in
1996, is a testament to America's talent for simultaneously alienating
both Moscow and Beijing. The "Beijing Declaration" signed by Presidents
Jiang Zemin and Vladimir Putin July 18 is merely the latest
demonstration of the fact that the United States is the primary force
driving the two countries together.

In the statement, the two sides pledge to promote the
"multi-polarization" of the world through the United Nations; reiterate
their opposition to any amendment to the 1972 Anti-Ballistic Missile
Treaty (the two leaders also signed a separate joint statement to this
effect); and state that no "outside force" should interfere in the
Taiwan issue. Nevertheless, while the "Beijing Declaration" contains
many digs at the United States, it includes very little discussion of
shared strategic interests beyond the usual platitudes about economic
cooperation (still disappointing to both), stability, and "good
neighborly friendship."

Of the two, China is more gung-ho about the strategic partnership. China
is facing a possible clash with the United States over Taiwan, missile
defense, and Japanese remilitarization and, aside from loopy North
Korea, Beijing has few backers in Asia or elsewhere. Furthermore, with
the U.S. cracking down on Israeli arms sales to China, Russia is more
important than ever as a source of technology for the People's
Liberation Army.

Though eager for Russian support, Chinese leaders worry that Putin will
orient Russia more towards the West. The new Russian president passed up
several opportunities to summit with Jiang and, in the end, stopped in
Beijing for just 36 hours on his way to North Korea and the G-8 summit
in Okinawa. In contrast, Putin has already had two meetings with Bill
Clinton since being elected Russia's president. In February, Putin
talked with Secretary of State Madeleine Albright about Russia's
European "mentality" while describing his own connection to Asia as
going little beyond his fondness for Chinese food and judo.

China was also caught flatfooted in June when the new Russian president
proposed development of a pan-European missile defense system in
cooperation with NATO and the EU as an alternative to unilateral
American anti-ballistic missile programs. Putin's proposal illustrates
the degree to which Russia must balance its foreign policy between East
and West. 

While Moscow is genuinely concerned about U.S. unilateralism and sees
multi-polarity as a way simultaneously to limit America's freedom of
action and to increase its own influence, Russia is significantly
constrained by its present economic circumstances and cannot afford to
burn its bridges. In this context, Mr. Putin seems to have a clear grasp
of his country's need for Western investment (though his understanding
of how to obtain it appears less developed). His statements and actions
suggest that he has taken a pragmatic decision not to rock the boat too
much in relations with the U.S. and the West.

Moreover, unlike China, Russia has a credible option of working with
Europeans skeptical of U.S. global leadership to further its
international objectives. President Putin's remarkably favorable
reception at Okinawa demonstrates this. Thus Beijing is dispensable to
some extent as Moscow can attempt to work with Europe to limit American
"hegemonism" and hardly need fear that China will give up the fight
itself. When added to lingering Russian concerns about China's potential
threat to the thinly populated Russian Far East and low levels of
bilateral trade and investment, this makes it difficult to believe that
the Moscow-Beijing "strategic partnership" will live up to its name.

More broadly, any alliance based so completely on mutual suspicion of a
third party (as opposed to shared positive interests) is bound to be
fragile. The Sino-American strategic partnership of the 1970s and 80s
fell to pieces rapidly when the Soviet threat disappeared. The current
Russia-China partnership will likely plateau as well unless the United
States throws more fat on the fire by, for example, expanding NATO to
the Baltic States.

At the same time, economic recovery in Russia may slow weapons sales to
China driven by a desperate need for cash. A deal on missile defense
that excludes China could also pull the rug out from under any
Moscow-Beijing axis. In short, it would not take much to bring the
natural repulsion between Russia and China back to the foreground. Only
an irresponsible American foreign policy--one that, against all odds,
insures that Eurasia's two giants enjoy better relations with each other
than they do with the United States--could father a serious Sino-Russian
partnership. 

******

#8
From: zm001@slav.hokudai.ac.jp (Peter Rutland)
Date: Tue, 25 Jul 2000 
Subject: RUSSIAN FILM AND TELEVISION: MAKING A SLOW COMEBACK

forthcoming in Transitions Online (www.tol.cz)
RUSSIAN FILM AND TELEVISION: MAKING A SLOW COMEBACK
By Peter Rutland

After the collapse of the Soviet Union in 1991, the disappearance of state
financial support dealt a devastating blow to Russia's movie and television
industry. Ten years later, the film industry is still in the doldrums, but
the Media-Most group, which runs the independent television channel NTV,
has recently been pouring money into making movies and TV serials. This
revival was set back by the August 1998 financial crisis, and is again
under threat with the Russian government's recent moves to investigate the
company's finances and the arrest of its founder, Vladimir Gusinsky.

These points were made in a presentation by Vladilen Arseniev, the director
of NTV-Kino and deputy head of the Russian Cinematographers' Union, to a
conference on "Russian culture on the threshold of the new century" at
Hokkaido University in Sapporo, Japan on 13 July.

NTV was founded in 1993 and quickly gained viewers with its combination of
Hollywood movies and aggressive news programming. Arseniev conceded that
Russian Public Television (ORT), founded in 1994, is the leader in
entertainment programming, but argued that NTV can claim first place for
the quality of its current affairs coverage. Ratings surveys indicate that
the most popular shows are the Vremya news program on ORT, followed by the
NTV news Segodnya and the NTV game show Field of miracles. The top show for
RTR is its news program Vesti at no. 20. Even though ORT is a private
company (albeit with 51% state ownership), Arseniev said that viewers still
regard it as the state channel and have the habit of watching Vremya (which
has been airing since 1968) for the official take on the day's news. 

The annual budget of ORT is about $100 million, the state-run RTR about $80
million, and NTV from $60-70 million. Between 1994 and 1999 Arseniev
estimates that the main central channels spent more than $250 million
buying foreign programming, and earned $2 billion from advertising,
although virtually all of this was spent on operating costs. He argued that
"There is no TV company in Russia today that makes some sort of profit.
Especially after the financial crisis of August 1998." The August crisis
radically cut advertising revenues - although it also cut costs. For
example, a top-line American movie which used to cost $300,000 for a TV
showing now commands less than half that sum. Backers finance TV companies
in the hope that they will become profitable in the future - and in the
knowledge that their support brings political influence. 

The content of TV programming is still heavily weighted towards imports.
For example in 1999 34% of the films shown were American in origin and 20%
European. Another 35% of the films were Soviet-era classics and only 8%
were new Russian movies made since 1991. A similar picture holds true for
TV serials, which were 30% American, 33% European, 19% Soviet, and 8%
post-91 Russian. Another 10% came from elsewhere in the globe (such as the
popular Brazilian and Mexican soaps.) Cartoons were 27% American, 27%
European, 38% Soviet, and only 2% post-91 Russian.

Arseniev said that viewers are now tiring of watching US serials. Russian
TV was quick to adapt American format game shows for domestically-produced
programming. Making Russian thrillers and soap operas is a slightly more
expensive proposition, but is now becoming more common. In contrast to
Hollywood, Russia can make TV serials for only $30-50,000 per hour.
Media-Most is preparing 250 hours of Russian serials over the next two years.

THE SILVER SCREEN

The situation in the movie industry is more grim than in television.The
Soviet state lavished money on the movie industry, which used to produce
120 films a year. Cinema was considered to be the third biggest earner
after tobacco and vodka. A Soviet blockbuster like Pirates of the 20th
Century (1980) could attract 85 million viewers and generate $50 million in
ticket sales (at the old, official exchange rate). Since 1991, however,
Russian movie industry output has slumped to only 20-25 films per year.

After 1991 some private businesses tried pouring money into movie making,
but soon discovered that it was not a profitable business. Russians have
stopped going to the cinema, as movie tickets climbed above $4 (more than
the average day's pay), while many theaters closed down. A 1999 survey by
Double-V found that 75% of respondents had not been to the cinema even once
in the past year, and only 5% had seen several movies in the previous three
months. However, 54% of respondents said that they watch a movie every
night on TV. The same survey found that Russians still want to see
home-grown movies. On a 10-point scale, the average rating given to
contemporary Russian films was 5.3, followed by 4.9 for European movies,
and 4.5 for American.

Russian filmmakers have to operate on a shoestring. While Hollywood
consides the $20 million spent to make American Beauty a bargain, the most
expensive film made by NTV, Russkii bunt (Russian rebellion), cost about $5
million. Arseniev joked that there are four price levels for making a movie
today. You can blow up a Mercedes, you can blow up a Zhiguli, you can show
the car driving around a corner followed by an explosion, or you can have
an actor say "Did you hear that bang?" 

This year 35 movies are scheduled for production, of which 20 are being
produced by Media-Most affiliates. Media-Most started the production
company NTV-Profit in 1995, and its first film Vor (The Thief) was
nominated for an Oscar. In 1997 it made 14 films. Media-Most' other
company, Kinomost, has made 8 films.
\
Nikita Mihalkov, who won the foreign-language Oscar for his Burnt by the
Sun, last year spent $42 million making Barber of Siberia - although $30
million of that came from the French co-producer. He got generous help from
the Russian state (including use of the Kremlin for shooting). That could
be the pattern of the future, since President Vladimir Putin has made it
clear that he is willing to use state funds to defend the jewels of Russian
culture - which will include politically-acceptable movies. For 2000 the
federal budget has set aside $15 million to help the movie industry: up
from $7 million last year, but still a paltry sum which will disappear into
maintaining the bureaucratic infrastructure and maybe some help for the
studios.

Peter Rutland
prutland@wesleyan.edu

******

#9
Ekonomika i Zhizn
No. 29
[translation from RIA Novosti for personal use only]
CAPITAL FLIGHT ACCELERATES
No one can appraise the scope of capital flight from 
Russia today. No one knows how to stop it, either. Nonetheless, 
the results of last year pleased us, because unofficial capital 
outflow slowed down by almost 28.6 percent from 25.5 billion to 
18.8 billion dollars. Such is the opinion of Mikhail DELYAGIN, 
director of the Institute of Globalization Problems.

Many decided that the post-crisis improvement of the 
situation was a long-tern trend. Indeed, capital flight was 
estimated at 5.8 billion dollars in the first, 4.0 billion in 
the second and 2.4 billion in the third quarter of the year.
But the trend stopped very quickly. Capital outflow was 
6.7 billion dollars in the forth quarter of last year and more 
than 7.7 billion dollars in the first quarter of this year.
Annual losses may be as high as 25 billion dollars, or 
12.1% of the GDP.
It is indicative that capital flight accelerated precisely 
in the first quarter of this year, in a situation of political 
stability and economic recovery.
The country has started to work better, earning money.
Enterprises have money, but it has turned out that their 
investment possibilities are limited. And they started spilling 
surplus abroad. This extremely unpleasant and dangerous 
tendency can gain momentum.
Having capitulated to natural monopolies, the state 
allowed them to increase prices very high. This will begin to 
negatively tell on the economic situation in October.
Experts issue warnings about an investment and debt crisis.
It will break out in 2003, if the government does not have its 
debts to the Paris Club restructured and does not begin to 
guarantee large-scale projects in those spheres which cannot 
cope with their problems with the help of private investments 
alone.
The Russian economics has split into two sectors in the 
past year. Investments have been quickly growing in the light, 
food and chemical industries, ferrous and non-ferrous 
metallurgy and a greater part of machine building. In the 
present market situation the enterprises of these industries do 
not need additional state support.
The other group comprises capital-intensive industries 
with a long payback term and a high degree of basic assets' 
wear and tear - electric power engineering, gas and oil 
industries and partly railway transport. Investments in these 
industries have been sharply reduced.
Even though all the companies of the latter ground have 
considerably improved their financial situation, it is 
disadvantageous for them to invest in their own development 
under the present circumstances. That is why they, instead, 
invest their money in metallurgy, Internet, machine building, 
and so on, and so forth.
Their situation will not change unless the government 
interferes. Provision of non-commercial risk guarantees for ten 
to fifteen of the largest projects would be a sufficient 
measure to arrest the situation. Part of their property abroad 
could be used as collateral for these projects.
Capital flight will reduce next year if tax pressure on 
legal entities is eased as is provided by the government's 
program.
However, if rationalization of the tax system is not 
accompanied by the dispersal of public fears and removal of 
structural and institutional barriers in the economy, the 
positive effect of all the measures taken will be fully 
neutralized.
Today, when 10% of the GDP flee from the country though 
illegal channels every year, it is ridiculous to talk of any 
improvement in the investment climate through some liberal 
therapy without any state guarantees.

Capital Flight from Russia*, billions of dollars 
----------------------------------------------------------------
-- 
1998 1999 2000
I result I II III IV result I
----------------------------------------------------------------
--
Foreign trade balance -0.3 13.3 5.6 6.1 8.4 12.0 32.1 12.1
Overdue debts of
foreign borrowers 3.7 7.4 4.1 1.3 0.2 0.2 5.8 3.8
Non-returned export
proceeds and unpaid
import credits 3.5 8.9 1.2 1.4 1.3 1.6 5.4 1.6
Net mistakes and
blunders 2.4 9.2 0.5 1.3 0.9 4.9 7.6 2.3
Total 9.6 25.5 5.8 4.0 2.4 6.7 18.8 7.7
Proportion of capital
flight in foreign trade
balance, % -- 191.7 103.6 65.6 28.6 55.6 58.6 63.6
----------------------------------------------------------------
--
* Estimated by Delyagin in keeping with the data of the 
Central Bank's balance of payments.

*******

#10
Financial Times (UK)
25 July 2000
[for personal use only]
Russian oligarchs take the bankruptcy route to expansion: The country's
controversial laws 
are being used by businesspeople as an empire-building tool, says Charles
Clover

Aleksander Abramov did not have to buy any shares to acquire Russia's huge
Kemerovo steel plant this spring. He bought the plant's debts, gathered a
few signatures, and sued for bankruptcy. 

Now he runs Euroasholding, the 10th largest steel producing company in the
world, producing 12m tons per year from three huge Siberian mills, two of
which (including Kemerovo) he acquired through bankruptcy. He is the latest
in a series of Russian businessmen to use the country's controversial
bankruptcy law to amass a business empire of enterprises. 

Mr Abramov, for instance, has not laid anyone off at the bankrupt steel
plants. In fact, he has actually increased the workforce since his company
took over as the plant's external manager, and has nearly doubled
production. He is finally starting to buy the shares. 

"I can say confidently that the plant is no longer in crisis," he said.
"That is the point of bankruptcy: promoting effective property ownership." 

But bankruptcy in Russia is controversial, mainly because it is so
uncommon. Bad debts in the Russian economy equal between one-quarter and
one-third of the country's GDP, according to the World Bank. But only a
fraction of the enterprises actually get bankrupted. 

Enterprises that have most often become bankrupt include steel plants,
aluminium smelters and oil companies, which are among the most profitable
industries in the country. 

In fact some analysts contend that bankruptcy is just a tool to change
control of lucrative chunks of the Russian economy. "Bankruptcy has become
the favourite means for re-apportioning property," said Yulia Latynina, a
respected economic journalist in Moscow. 

Last winter, RAO-UES, Russia's electricity utility, sued or threatened to
sue two of the country's largest aluminium smelters for electricity debts,
forcing shareholders of the Trans-World Group and Mikom, two Russian
aluminium-trading companies, to sell out. 

The shares have wound up in the hands of the gigantic Russian Aluminium,
run by Oleg Deripaska, who enjoys a close relationship with Anatoly
Chubais, head of RAO-UES. 

Mr Deripaska said that it was not his fault that his competitors were not
paying their bills: "Aluminium is the third most profitable business in
Russia, after oil and chocolate. If you can't pay your bills, it means you
are making too much of the money offshore." 

Mr Abramov also defends the practice, saying that many enterprises that
look bankrupt are not in reality, but make their profits in offshore zones
using complicated transfer-pricing schemes. 

Bankruptcy, he says, forces companies to stop such schemes: "It's a fact
that in Russia, the process of bankruptcy has been used as a tool for
market expansion. But let me underline that it is a market mechanism. If
you don't want to get bankrupted, you just have to pay the debt." 

According to the targets of bankruptcy, a main problem is that the courts
can order enterprises to pay huge sums within very short grace periods -
typically 100 days. 

One large Russian oil company explained that after the August 1998 economic
crisis, many otherwise profitable companies experienced temporary liquidity
problems, which their competitors used to bankrupt them. "The bankruptcy
process does not adequately take into account the legal rights of
shareholders," said the company. 

In the case of Sidanko, a large west Siberian oil company, shareholders,
including BP/Amoco, the international oil giant, have stood by helpless as
some of its most profitable subsidiaries have been cherry-picked by rivals
through bankruptcy. 

In other cases, local prosecutors have filed criminal charges against
companies, freezing their bank accounts, and then rivals have taken them to
bankruptcy court. 

The bankruptcy process has put an unprecedented amount of economic power in
the hands of Russia's 89 regional governors, who control the local court
systems in which the bankruptcy suits take place, and in practice often get
to name the external management. 

Recently, the Kremlin has started to tame the governors with legislation
designed to shrink their powers. But the governors are so firmly entrenched
that it will be a tough fight. 

Bankruptcy also means that Russia's biggest creditors, natural gas monopoly
Gazprom, RAO-UES, and the railways, now have gained a huge degree of
control over the distribution of property. 

Just as RAO-UES toppled the established order in the aluminium industry,
Gazprom has been doing it with steel - it was debt to Gazprom that Mr
Abramov used to acquire Kemerovo steel plant. 

Mr Abramov said the flaws in the bankruptcy process were mostly a product
of legal inexperience in Russia's fledgling market system. "We need a few
years to accumulate juridical expertise, and then everything will be fine,"
he said. 

******

#11
BBC MONITORING 
RUSSIA MAY LOSE OUT TO ASIAN NEIGHBOURS IF FAR EAST NOT DEVELOPED - PUTIN
Source: `Nezavisimaya Gazeta', Moscow, in Russian 22 Jul 00 

When Russian President Vladimir Putin visited the Far East of the country
en route to Japan, he commented that people in the region would end up
speaking Japanese, Chinese or Korean if Russia did not put more effort into
its development. On 22nd July, the Russian newspaper 'Nezavisimaya Gazeta'
examined various possible interpretations of this: that development needed
to be accelerated; that all foreigners should be expelled or that such
linguistic ability should be welcomed for its business potential. The
article made the point that while lack of central funding had made the Far
Eastern economy reliant on its Asian neighbours, the area itself was to
blame for many of its own difficulties in that "blind xenophobia" and
extortion had discouraged would-be investors from abroad and illegal
immigration was soaring. The following is the text of the report. Ellipses
are as published. Subheadings have been inserted editorially. 

"If we do not make real efforts to develop the Far East in the very near
future, the Russian population will mainly be speaking Japanese, Chinese
and Korean in a few decades," - that was exactly what Vladimir Putin said
at yesterday's conference on the problems of the development of the Far
East and west to Lake Baykal. It was said after his trip to China and Korea
and on the eve of his departure for Japan - which might lead people to
think that the president's phrases were undiplomatic. 

Putin recognizes need for greater investment in Russian Far East 

But Putin's phrases were so pithy and streamlined that they permit at least
three interpretations - so everything is fine as far as diplomacy is
concerned. And had it not been for these multiple meanings (or incomplete
way of putting things - that is another criterion of sophistication in
works of art, according to Japanese aesthetics), the president's phrase
yesterday might have become as much of a classic as his "taking them out in
the john" [reference to Putin's threatened treatment of Chechen
terrorists]. The fact is that Putin is absolutely right, of course -
exactly what about is another matter. Moreover, he was merely repeating
what literally all Far Easterners (and not just Far Easterners), young and
old alike, have been saying - although this is the first time that the
Russian president has said it. 

The fact that Far Easterners (and, for instance, Moscow political
scientists) sometimes give this thesis diametrically opposed meanings is
another matter. But with Putin everything is clear. It is all a question of
the context and the words at the beginning of the phrase. The president is
talking not about aggressive plans by perfidious neighbours, but about
Moscow's disgraceful negligence of the Far East, about the fact that only
1.5bn [currency unspecified] of the 14bn allocated by the budget has found
its way here, and about much else besides... These things are Moscow's
fault. And, incidentally, Putin's decision at the end of the conference -
to rework a comprehensive programme for the region's development - is not
generating any particular enthusiasm among the Far Easterners. They have
heard these decisions before and seen the improved programmes. 

Far Eastern economy increasingly geared to Asian markets 

As for the gloomy prospect of the region's inhabitants switching to foreign
languages, that problem is purely economic. Without investment and without
a well-thought-out infrastructure development policy, the Far Eastern
economy will inevitably be integrated with the economies of the
Asia-Pacific Region, cutting one economic link after another with the rest
of Russia (or simply with Russia - as people say in these parts,
incidentally). In other words, no perfidious infringements of Russian
sovereignty are needed - it may remain as it is in words, but in reality we
will have to switch to hieroglyphs, katakana, hiragana and so forth. Thus,
even the "Kurils problem" is acute not only because Moscow and Tokyo can in
no way reach agreement on interpreting the legality of various actions and
documents from 1945 and other years, but also because the economy of the
South Kurils (fishing and related sectors) is now mostly geared to Japan
and the people of the Kurils are seeing neither investment from nor any
prospect of selling their catches to Russia. So Putin, we would repeat, is
right. 

Local attitudes towards foreigners have discouraged potential business links 

But to be fair it has to be said that there is also a good reason for the
people of the Far East to think about some of their established traditions
- the special mentality that many entrepreneurs from other countries of the
Asia-Pacific Region can talk about. We are primarily talking about blind
xenophobia and a belief in plots by all and sundry foreigners, who
allegedly want to dismember the Far East and settle it with Chinese or
what-have-you - this is a very popular myth in the region, although one
that has largely been engendered by the policy of the centre. These people,
for all we know, are interpreting what Putin said along the lines of the
"second version", irrespective of all the explanatory initial words in the
phase - that is, as an appeal to deport all the Chinese who have settled
there, to close the borders, and so forth. And however dubious or
short-sighted Moscow's policy in the region may be, this cannot justify
everything that is happening there. For instance, it is not only Moscow but
also the Far Easterners who share the blame for the fact that in the early
to mid-nineties businessmen from the Asia-Pacific Region were prepared to
send goods to Moscow or to West European countries any way people wanted,
including by aircraft - only they did not want to use the Trans-Siberian
Railway or go via Nakhodka because of extortion, arbitrary customs
procedures, theft from containers... The problem at the moment is not so
much that somebody wants to annex Russia's Far Eastern lands, but that, on
the contrary, too many people do not want to have anything to do with the
area - both because of the lack of an intelligible policy from the centre
and because of purely local "features". 

The aforementioned Chinese who are settling in our Far Eastern cities are
also a good example of the way in which it is possible to create problems
for yourself. Yevgeniy Galushko reports from Khabarovsk that of the 2,000
citizens of the People's Republic of China who come into the city every
month on guest visas, 80 per cent are neither tourists or guests, but set
themselves up as traders in the markets of Khabarovsk and nearby cities.
More than 60 per cent of them are caught by law-enforcement agencies - the
Internal Affairs Administration and the Visas and Registration Department -
but the number of illegal Chinese is growing slowly but surely.
"Chinatowns" are being set up everywhere. 

One last point. As has already been said, you could if you so wished find a
third way to interpret Putin's words - although, we would repeat, he
himself said something else. So then, you could very much hope that the
population of the Far East (the Russian population, of course) would indeed
start speaking all these tongues by the set deadline, along with English
and so forth as well - the language barrier is an impediment to business.
Having said that, judging by how busy the many language courses in the
region are, everything is headed that way 

******

#12
Financial Times (UK)
25 July 2000
[for personal use only]
Mini boom in GKO demand signals upturn: Russian banks and foreign investors
pour money back into short-term treasury bills

Two years ago, most people who bought GKOs, Russia's short-term treasury
bills, swore they would never do it again. In one of the most memorable
financial catastrophes of the decade, Russia defaulted in August 1998,
sparking a chain reaction that reached all the way to Wall Street. 

But that was two years ago. Things are different now. Yields on GKOs have
fallen from 45-50 per cent three months ago to 27 per cent last week as
Russia's banks, along with a number of foreign investors, have started to
pour money back into the market. 

In response to the demand, the central bank last week introduced an evening
trading session aimed mainly at foreigners. The move should help mitigate
the time difference and facilitate large trading. 

Dmitri Dmitriev, an analyst at Moscow-based United Financial Grouplk, said:
"Foreigners are definitely coming back into the market." 

Russian banks have been buying large amounts of GKOs for several months,
partly because they have few other investment opportunities and partly due
to confidence in Vladimir Putin's economic programme. 

"I suppose we all have short memories," said Andrei Ivanov Golitsyn, head
of capital markets at state-owned Vneshekonombank. 

But he said Russian banks, flush with cash from high oil and other
commodity prices, do not have many options for investing roubles. 

The other main choice is to buy "veksels", promissory notes issued by
Russian factories redeemable in everything from cash to wheat to vehicle
tyres. 

The GKO mini-boom is ironic because the government does not actually need
to borrow the money. The budget is in surplus for the first time, due
mainly to the high commodity prices that have pumped up tax revenues. 

The rouble is appreciating slightly against the dollar, buoyed by a current
account surplus that JP Morgan, the investment bank, estimates will be 19.7
per cent of GDP this year. 

Investing in GKOs is likely to become easier as the central bank negotiates
further moves to free the market. 

Soon, for example, it might start to trade the so-called "S-accounts" -
foreigners' rouble investments in GKOs, which the government froze
following the 1998 default. Frozen S-accounts still make up a significant
proportion of the money invested in GKOs. 

Arnab Das, emerging market strategist for JP Morgan, said: "Russia is
recovering its solvency faster than just about any other country around.
The best borrower is one who doesn't need the money." 

But he said it remained to be seen whether Russia could introduce
structural reforms in the economy to keep up with the recovery. 

******