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Johnson's Russia List


July 28th, 2000    
This Date's Issues: 4428ē 4429   ē 

Johnson's Russia List
28 July 2000

[Note from David Johnson:
1. AFP: Russia vows to break up "natural" monopolies.
2. RFE/RL: Sophie Lambroschini, Russian Officials Increasingly 
Hostile Toward Media.

3. Moscow Times EDITORIAL: It's Not So Easy Being An Oligarch.
4. Jamestown Foundation Monitor: PUTIN AND OLIGARCHS SET TO MEET 
TOMORROW. ("Despite Kremlin PR hype, some oligarchs remain more 
equal than others.")

5. Putin Has Upper Hand at Roundtable.
6. Chicago Tribune: Colin McMahon, KREMLIN BOOSTS CONTROL OVER 

7. Reuters: Russian tax reform seen boosting confidence in 

8. Woodrow Wilson International Center for Scholars:
Russia's Future: Progress, Prospects, and U.S. Policy. Remarks by 
Leon Fuerth, National Security Advisor to the Vice President.]


Russia vows to break up "natural" monopolies

MOSCOW, July 27 (AFP) - 
Russia's cabinet on Thursday vowed to take the axe to so-called natural 
monopolies in a bid to bring more competition to unproductive businesses that 
are putting brakes on the country's economy.

"We are preparing new structural measures for autumn -- the reform of natural 
monopolies. The materials are being prepared for at least two of them," Prime 
Minister Mikhail Kasyanov told a government meeting.

Deputy Prime Minister Alexei Kudrin later announced that the government first 
intended to tackle the nation's struggling electricity supplier UES and the 
railroad system.

However no mention was made of the natural gas behemoth Gazprom, whose 
break-up had been high on the priority list of economists from the 
International Monetary Fund for years.

Moves to take on the powerful monopolies come hard on the heels of 
parliament's overwhelming approval of a major overhaul to Russia's Soviet-era 
tax system, the first major project launched by Kasyanov.

With the tax code streamlined, the cabinet announced it will submit a 2001 
budget to the State Duma lower house of parliament on August 26.

UES, run by former economic mastermind Anatoly Chubais, has struggled from a 
non-payment crisis as well as artificially low tariffs, which are set at 
around eight percent of the average in Europe.

Only 48 percent of the Russian electricity bills are paid in cash, with the 
rest coming in barter and mutual debt write-offs.

Analysts and shareholders believe a reform of the electricity utility is 
vital but many think the plan is too vague and fear that it will lead to 
asset stripping by powerful local businessmen and regional governors.

UES is 52-percent owned by the state and more than 30 percent is held by 
foreign shareholders. UES operates an old network across the country and 
controls almost 80 regional subsidiaries.

Chubais has come under heavy criticism from foreign investors for his 
original plans to sell-off stakes in the company, and government ministers 
failed Thursday to specify any details of their own plan.

"The date for discussing this question (on reforming UES) has not yet been 
set," said the minister of economic development and trade, German Gref, 
adding only that "these reforms are very necessary."

Thursday marked the first time that the government aired plans to break up 
Russia's railroad network, which is overseen by former cabinet number two 
Nikolai Aksyonenko.

Once a top power-broker in the government of former prime minister Sergei 
Stepashin, Aksyonenko was one of the first ministers to be demoted by 

Aksyoneko's influence has since waned, although analysts believe he remains 
bitterly opposed to the railway's break-up.

Kudrin, who also serves as finance minister, said the option of the 
railroad's privatization arose just recently.

"We discussed this question both last week and this week, in meetings 
involving the trade unions and heads of the railroads," Kudrin said.

ORT television reported that the government has already drafted plans to 
auction off five factories now belonging to the transport ministry which 
Aksyonenko still runs.


Russia: Analysis -- Russian Officials Increasingly Hostile Toward Media
By Sophie Lambroschini

Officials in Moscow appear to be taking an increasingly hostile stance toward 
the media. RFE/RL Moscow correspondent Sophie Lambroschini examines a highly 
restrictive draft media bill to be debated soon in the Duma and the "Cold 
War" phraseology of a recent Russian document on media distributed at an 
international conference: 

Moscow, 27 July 2000 (RFE/RL) -- The Russian State Duma is expected soon to 
consider a controversial media bill that would establish a special ethics 
council and could introduce major censorship provisions into what are now 
quite-liberal media laws. 

The bill is likely to be debated in the autumn, when the lower house resumes 
work after its summer break.

Russian private television NTV recently aired excerpts of the draft and 
showed examples of reports which it says could provoke warnings from the 
council. NTV says a media organization could lose its license after just two 

According to the report, the draft would make it a crime to disparage a 
person's dignity if an interviewer -- in the draft's words -- "takes 
advantage of its interviewee's emotional state whose consequences he does not 
appreciate." It would also force media outlets to give equal space to 
different points of view -- a difficult task, given Russian ministries' 
usually terse replies.

The bill is a long-standing pet project of the Duma's communist faction that 
was rejected by former president Boris Yeltsin. Now, members of the Duma 
committee for information policy tell RFE/RL it's back on the agenda and 
being promoted by the Duma committee on cultural affairs.

The proposal coincides with a recently revealed Russian document on the media 
that focuses on protecting the country from what it calls foreign 
"information wars." The six-page document, entitled "A Media Policy for 
Tomorrow," was distributed at a Council of Europe ministerial conference on 
mass media held last month in the Polish city of Cracow.

Council of Europe official Roman Prieto-Suarez tells RFE/RL the unusually 
worded pamphlet portrays international relations as a covert battleground 
where states wage wars at least partly by using their journalists as weapons.

Ronald Koven, a European representative of the U.S.-based World Press Freedom 
Committee, says he found the words and phrases used in the document to be 
reminiscent of the Cold War: 

"International control over such things as so-called 'international 
information terrorism,' the use of international information weapons and so 
forth. This is the kind of language that we have not heard here in Russia or 
abroad since the end of the Cold War and which we therefore find extremely 

The document calls on national governments to stop using information with the 
intention of "undermining a state's political, economic, and social system, 
the psychological manipulation of a population for the purpose of 
destabilizing society." It also calls on foreign countries to refrain from 
cross-border dissemination of information that contravenes international or 
domestic laws.

Prieto-Suarez works with the Council of Europe's media section, which 
organized the Cracow conference. He was careful to distance the council from 
the wording in the text:

"It's the Russian authorities who were invited to submit a text, and we 
simply circulated it among the conference participants. But I think it's 
important to see that it's not a Council of Europe document, not a political 
document adopted at the conference, and that the entire content is 
exclusively the Russian authorities. It was not even edited by the Council of 
Europe -- simply photocopied."

It's not clear yet to what extent the pamphlet represents official Russian 
views on the media.

In spite of the council's insistence the pamphlet is genuine, the head of the 
Russian delegation to the Cracow meeting, Mikhail Seslavinsky, has denied any 
knowledge of the document. The press spokesman for the Foreign Ministry also 
says his ministry had nothing to do with the document. Spokesman Yuri Grechko 
tells RFE/RL his ministry only provided technical support for the conference.

Russian officials may be at loss about who actually was responsible for 
writing the report. But because Russia lost what Moscow calls the 
"information war" during the 1994-1996 struggle against Chechen rebels -- who 
were often portrayed as freedom fighters by the foreign press -- many 
officials are clearly concerned about the media's role in the current 

The Russian delegation's report to the Council of Europe meeting is 
consistent with worries voiced in the past. One result of Moscow's earlier 
information problems was the establishment of a Russian Information Center. 
This organ centralizes all information about recent and current Russian 
operations in Chechnya and all press trips to the region.

Two months ago, Radio Liberty -- which broadcasts to Russia and several other 
former Soviet republics -- was labeled a "hostile" media outlet by two 
information ministry officials. At the time, Deputy Information Minister Yuri 
Akinshin said his ministry intended to limit the activity of hostile media 
because of their alleged abuse of freedom of speech. Any such intention was 
later partially denied by Seslavinsky, who said his colleagues had only 
expressed their own personal opinions. 


Moscow Times
July 28, 2000 
EDITORIAL: It's Not So Easy Being An Oligarch 

So why is it, exactly, again, that the oligarchs need to meet the president? 

Oh, right: The oligarchs need to learn "the new rules of the game." They also 
want to "reach an agreement" where they will obey the law f provided it 
sounds attractive enough. In other words, this is President Vladimir Putin's 
big chance, in the oligarchs' view, to give them his best "crime doesn't pay" 
sales pitch. 

"[The Kremlin] should tell us what to do next," said Uneximbank founder 
Vladimir Potanin in an interview with the Financial Times. "Many oligarchs 
are tired of the lack of well-defined rules and are waiting for the Kremlin 
to define the guidelines." 

Potanin says the oligarchs are wondering: Do we have to start obeying the law 

"Many oligarchs fly to the south of France in their private jets and rent 
yachts, they spend $2 million to $3 million a year, but then they put these 
costs down as business expenses. This is unethical," Potanin explained 
oh-so-helpfully. "We [oligarchs] should say to people: 'You think we were 
bad, but we want to be normal and socially acceptable.' Let us promise we 
will all pay our personal taxes." 

Oh, let's do! C'mon, it'll be fun! 

The oligarchs have gotten so used to pious nonsense about tax evasion being 
morally OK because "taxes are high" that they just chatter away 
self-confidently about writing off yacht rentals and hiding their money in 
Europe (where personal income taxes are higher than they are in Russia, don't 
forget: Oligarchs evade personal income tax not because it is high but 
because they can). 

Potanin, the Financial Times tells us, also suggested that Putin on Friday 
hand the oligarchs "a new code of conduct," so that, as the FT put it dryly, 
"the oligarchs would know what is bad and what is good." 

It's all so surreally Ģ earnest. We want to be good! Tell us how! Imagine one 
of the oligarchs standing up tomorrow and saying, "Well, how about murder? Is 
killing people still OK? Or is that out now? Because lots of us oligarchs 
here are really tired of the lack of undefined rules about this. What's the 
new policy on murdering business rivals?" 

And Vladimir Gusinsky will be watching it all from Spain. Gusinsky's 
treatment f reviled, arrested, scorned as a traitor "struggling against the 
state," then just as contemptuously released, provides all sorts of insights 
into where Russia is headed. 

But look a little deeper at Gusinsky himself, however, and it's clear he's an 
oligarch too: He doesn't know how to be good, or even polite. 

He has had not a word for his defenders f not a hint of what he gave up so as 
to run to Spain. Perhaps he surrendured NTV itself? (Remember Kommersant a 
year ago?) Perhaps he gave up all of us, period? 


Jamestown Foundation Monitor
July 27, 2000
Despite Kremlin PR hype, some oligarchs remain more equal than others

PUTIN AND OLIGARCHS SET TO MEET TOMORROW. President Vladimir Putin is set 
to meet tomorrow with eighteen of Russia's leading oligarchs as part of an 
attempt to smooth relations between the authorities and the tycoons, many 
of whom have recently been the objects of unwanted attention from the tax 
and law enforcement authorities. Among those who have been invited are: 
Vaget Alekperov, head of LUKoil, which is being investigated for alleged 
large-scale tax evasion; Vladimir Potanin, head of the Interros 
financial-industrial group, whom prosecutors have accused of conspiring to 
defraud the state of US$140 million in connection with the 1995 
privatization of Norilsk Nickel; Rem Vyakhirev, head of Gazprom, Russia's 
natural gas monopoly, whose offices were recently raided in connection with 
the criminal case against Media-Most chief Vladimir Gusinsky; Alfa Group 
co-founder Mikhail Fridman; Russian Aluminum co-founder Oleg Deripaska; 
Yevgeny Shvidler, the president of the Sibneft oil company; and United 
Energy Systems (UES) chief Anatoly Chubais, whose company, state auditors 
have charged, may have been partially sold to foreigners in violation of 
Russian law (Vedomosti, July 25; see also the Monitor, July 14). Notably 
absent from the invitation list were Media-Most's Gusinsky; Boris 
Berezovsky, the controversial tycoon and veteran Kremlin insider who was 
declared himself a "constructive" opponent of Putin and who recently gave 
up a seat in the State Duma; Roman Abramovich, the tycoon who is formally a 
State Duma deputy but believed to be the real No. 1 at Sibneft and 
Deripaska's partner in Russia Aluminum; and Moscow banker Aleksandr Mamut, 
who is said to be close to Abramovich and a key Kremlin insider.

Indeed, despite the frequent statements from Putin and other Kremlin 
officials that the era of the oligarchs is over, there remain strong 
reasons to doubt that Putin's real goal is either to end their existence 
"as a class," as he once promised, or even to hold all of the tycoons 
equally at arm's length. While it may be the case that Berezovsky, once 
considered the most powerful of the oligarchs, may now be considered a 
liability by his erstwhile allies--including Abramovich, Kremlin 
administration head Aleksandr Voloshin and Putin himself--the Kremlin still 
appears to be playing favorites. For example, the Finance Ministry recently 
completed a study which found that Sibneft was required to pay eight times 
lower taxes than other large oil companies like Surgutneftegaz, Sidanko 
(owned by Interros) and Onako. According to a newspaper report, 90 percent 
of Sibneft's business is peacefully operating "in the shadows"--that is, 
off the tax authorities' radar screen (Segodnya, July 26). Sibneft, 
together with Deripaska's Siberian Aluminum and Berezovsky's LogoVAZ, moved 
earlier this year to take over a number of key aluminum smelters. Despite 
the fact that their joint holding, Russian Aluminum, is said to now control 
as much as 80 percent of Russia's multibillion-dollar aluminum industry, 
the authorities have repeatedly claim that the take-over did not violate 
Russia's antimonopoly laws (see the Monitor, March 10).

Such factors have caused some observers to dismiss both Putin's overall 
anti-oligarch drive and tomorrow's planned roundtable meeting. Indeed, a 
newspaper controlled by Potanin's Interros group cited unnamed "analysts" 
as saying that the meeting could become simply the latest "smokescreen by 
the Kremlin authorities" (Komsomolskaya pravda, July 26). Chubais, 
meanwhile, said in an interview published this week that much of the 
current conflict between the tycoons and the authorities is the result of 
"splits" within the business world itself, which is carrying out its 
"competitive struggle via the authorities." Chubais called the situation 
"especially alarming," and said that Putin must address the issue 
"publicly" in connection with tomorrow's meeting (Novaya gazeta, July 24). 
Chubais, meanwhile, may be in imminent danger of losing his position as UES 
head. Minority UES stockholders have challenged his plan to restructure the 
company, and some observers believe they are being supported by the Kremlin 
(Russian agencies, July 27).


Putin Has Upper Hand at Roundtable
July 28, 2000

Eighteen of Russiaís most powerful businessmen, seeking immunity from the
Kremlinís recent criminal probes into their business practices, requested a
conference with President Vladimir Putin July 28. The meeting will
determine the course of the relationship between Putinís Kremlin and the
oligarchs. Will it be confrontation or compromise? 

Putinís administration has investigated several powerful business leaders
in the past few months, including media magnate Vladimir Gusinsky, against
whom charges were dropped on July 26. Gusinsky seems to have struck a deal
with the Kremlin. If the remaining oligarchs are lucky, they will also be
extended offers. 

Since his inauguration in May, Putin has aggressively investigated and
prosecuted the wealthy Russian businessmen known as the oligarchs, due to
their historically strong political influence. Putin plans to split the
businessmen from the political connections that enabled them to amass vast
personal fortunes. Cracking down on the oligarchs is one of the vital first
steps to regaining central control of the Russian economy. 

Under former President Boris Yeltsin, the oligarchs grew rich from
participating in deceptive privatization deals and circumventing national
laws and taxes. The men, some of whom found their way into Yeltsinís inner
circle of friends and advisers, had access to the presidentís ear and the
nationís coffers. Putinís inauguration in May heralded the advent of an
administration much less receptive to the corrupt businessmenís interests. 

The oligarchs, temporarily unified by the hope of safety in numbers, called
for a meeting with Putin. The group, which includes such magnates as Rem
Vyakhirev (director of Gazprom), Mikhail Khodorkovsky (holdings in Yukos
Oil), Vladimir Potanin (owns Norilsk Nickel) and Vagit Alekperov (holdings
in LUKoil), asks that the government cease the investigations into the
privatization deals that made them all rich during Yeltsinís regime. In
return, they have offered to pay their taxes, which provide a significant
amount of Russiaís revenues when combined. 

The Russian media claim that the oligarchs now have the upper hand, because
they called the meeting and extended an offer. However, Putin still holds
all the cards. By using the police and secret services to deal individually
with each businessman, Putin has been able to conduct legal, publicly
popular and economically necessary investigations into the lucrative crimes
committed by the oligarchs. If Putin gave in to the oligarchs, he would
reinforce the very political influence he is trying to strip from them. The
president has no reason to be swayed by the joint offer. In fact, he may be
in the position to offer the oligarchs something. 

Suddenly this morning, Media-MOSTís spokesman, Dmitry Ostalsky, reported
that the governmentís case against Gusinsky had collapsed, lacking
evidence. Other sources, however, suggest that although the charges were
lifted, the investigation will continue. Gusinsky flew to Spain late in the
night, as soon as he was free to leave Russia. 

Gusinskyís arrest sent a warning to the rest of the countryís influential
tycoons that their own arrests might be imminent. Gusinsky slept four
nights in a notoriously harsh Moscow prison in June before making bail.
Since then, the holdings of his company, Media-MOST, were subject to police
searches, and he was interrogated and forbidden from traveling abroad. 

The exact details of the deal that set Gusinsky free are unclear. He was
accused of withholding $10 million gained during a privatization of a
television station. Russian daily Kommersant, owned by Gusinsky rival Boris
Berezovsky, reported today that Gusinsky had been in intense negotiations
with the Kremlin, in which he refused to sign over a higher stake in his
television station, NTV, to state-owned gas giant Gazprom. Gusinsky did
reportedly agree to soften NTVís criticism of the president and the state.
This may be true but was not likely the only concession. 

The Kremlin needs to find a way to wrench the stateís money and property
from each businessman. Now that Putin has shown them what he is capable of,
the oligarchs might consider relinquishing some of their property before
doing time in jail. 

Although the oligarchs called the meeting, Putinís goals will determine the
results. The oligarch roundtable will be an introduction to reality for the
oligarchs. Putin will maintain his cool hold on control, as he did by
excluding Berezovsky and Gusinsky from the meeting. This meeting will serve
as Putinís final warning to the oligarchs Ė a chance to face them in person
and confirm that he intends to arrest and investigate each one, unless they
are willing to exchange some of their illicitly earned wealth for their


Chicago Tribune
27 July 2000
[for personal use only]
By Colin McMahon 
Tribune Correspondent 

ST. PETERSBURG, Russia -- For years, Victor Cherkesov worked for the 
Soviet-era KGB. These days, he has a new job, but many people in Russia 
believe it also to be menacing.

As chief of one of seven new federal districts, Cherkesov is part of 
President Vladimir Putin's plan to give the Kremlin greater control over 
Russia's more independent-minded regional governments.

To the Kremlin, the idea makes sense because some leaders of Russia's 89 
regions run their territories like personal fiefdoms.

But many in the regions fear the Kremlin has a darker motivation; they claim 
Putin aims to take back the power the Kremlin lost or gave away under Boris 
Yeltsin. Putin's critics also object to his reliance on former colleagues, 
all longtime veterans of the KGB or the state security organizations that 
replaced it.

On Wednesday, the balance shifted a bit more in Putin's direction as he won 
another victory over regional bosses. The upper house of parliament approved 
a law to end the automatic right of governors and their appointees to sit in 
parliament. Putin already had pushed through legislation allowing the 
president to fire governors--who are elected directly by the people--if they 
violate laws.

Nikolai Fyodorov of the Chuvashia republic warned of a new era of central 

"The atmosphere in our society is such that the will of the emperor, or that 
of the president, is tantamount to law," Fyodorov said. "A Kremlin official's 
opinion is more important than the Federation Council's constitutional 

Some regional leaders contend that the new system of federal districts will 
discourage initiative among provincial authorities who know their areas and 
their people best. They also see the system adding another layer of 

Cherkesov, who heads the Northwest federal district, predicts smoother 
governance for all 89 regions.

"I'm convinced that the new system is more favorable for the regions," 
Cherkesov said. "Because the center becomes closer than Moscow. I'm speaking 
of federal power. The center with which you have to cooperate, with which you 
have to coordinate, from which you have to get permission--now it's not in 
Moscow. It's coming closer to the regions, and now there are seven points 
that can make decisions."

Without Kremlin control of the regions, Putin says, Russia cannot prosper. It 
may also have trouble staying intact.

The separatism of Chechnya is only the most painful and obvious example of 
breakaway ambitions. Minority ethnic groups and even some Russians in other 
parts of the Caucasus, in Siberia and in the Far East talk about breaking 
away from Moscow. Much of the talk is idle. Some surely is not.

"What society has lacked is a clear-cut understanding of the role of the 
state in the administration of the country," Cherkesov said. "Amid the 
independence of Russian regions, local interests have dominated over national 

Putin rose to power promising to restore to Russia strength and greatness. 
Yet he dismisses fears that such strength would come at the expense of 

In a state of the nation speech this month, Putin said, "It is only a 
strong--an effective, if someone does not like the word `strong'--it is only 
an effective state and a democratic state that is capable of protecting 
civic, political and economic freedoms."

Why then, critics ask, is Putin filling his administration with veterans of 
the military, the KGB and other state security forces? These are not men with 
careers dedicated to "protecting civil, political and economic freedoms."

Of the seven federal district chiefs that Putin appointed in May, for 
example, five have military or state security backgrounds.

All of them have been named to the nation's Security Council, whose 
secretary, Sergei Ivanov, is former KGB.

The Security Council has gained in importance since Putin became president. 
It helped craft major doctrines on defense, foreign policy and the media. It 
helped shape Putin's major speech to the nation. It is becoming, analysts 
say, a seat of power that could rival the Kremlin.

Now working its way through parliament is a bill that would turn final 
governance of the country over to the Security Council should a state of 
emergency be declared by the president and approved by parliament.

Cherkesov, 50, views as a plus his experience in the KGB and the Federal 
Security Bureau, the domestic intelligence agency that is the KGB's main 

And he does not apologize for a career that was built mainly upon prosecuting 
dissidents. According to Russian press reports, Cherkesov was responsible for 
the jailing of at least 39 people for political reasons.

He was chasing dissidents well into the Mikhail Gorbachev era. In 1988 
Cherkesov opened the Soviet Union's last case of its kind, prosecuting the 
St. Petersburg branch of the Democratic Russia party for "anti-Soviet 
agitation and propaganda."

This record has won Cherkesov many enemies. Among them Boris Pustyntsev, a 
human-rights activist who spent 5 years in the gulag for protesting the 1956 
Soviet invasion of Hungary.

"Cherkesov conducted searches and interrogations at the height of 
perestroika, when political prosecution was not in favor anymore," Pustyntsev 
told the magazine Transitions Online. "He was doing it out of sheer 

As a top Federal Security Bureau official in the 1990s, Cherkesov pursued the 
prosecution of Alexander Nikitin, a former naval officer turned 
environmentalist. In a case deemed a travesty by international human-rights 
groups and Western governments, Nikitin was accused of treason for reporting 
on nuclear contamination left behind by the Russian Northern Fleet.

Cherkesov said he could "understand the position" of his critics.

"People have a right to consider a certain line of work or a certain life 
choice as doubtful or unacceptable for themselves," he said. "I respect that 
position. But I don't see any direct reasons for my work to be baseless.

"The work I did, and this was reviewed many times, was in complete conformity 
with the acting law of our country."

As for his current job, Cherkesov said his main task is to "make people in 
the regions understand the necessity of my work." He said he wants to show 
the regional leaders that when they act in their own interests, they do not 
always serve Russia's.

The regional bosses might need some convincing, Cherkesov allowed. But he 
expressed confidence that he would succeed.


Russian tax reform seen boosting confidence in govt
By Julie Tolkacheva

MOSCOW, July 27 (Reuters) - Russia's ambitious tax reforms, which cleared 
parliament on Wednesday and take effect next year, may not reap immediate 
benefits for the economy but should boost investors' morale, analysts said on 

The Federation Council, the upper house of parliament, approved the tax 
package despite misgivings about its impact on regional coffers and simmering 
resentment in the chamber over Kremlin plans to curtail the powers of its 

``These are the fundamental reforms for which we've been waiting for years. 
When they happen, it's great, but it does not mean it is going to change all 
our lives tomorrow,'' Christopher Granville, a strategist at UFG, told 

The measures, the centrepiece of President Vladimir Putin's economic 
programme, should significantly ease companies' and individuals' tax burdens, 
freeing up and attracting resources for investment. 

The new system also aims to simplify Russia's complicated and inefficient tax 
system under which high taxes on almost everything have led to massive tax 
evasion and capital flight. 

The reforms will slash income tax to a flat 13 percent from a sliding grade 
with an upper bracket of 30 percent. 

A unified social tax, combining various separate deductions from workers' 
salaries, will have a regressive scale, meaning those who earn most will pay 
the lowest rate of five percent. 

And a much-vilified tax on turnover, as opposed to profits, will be reduced 
to one percent to cover road construction and maintenance. Turnover taxes, 
seen as ruinous for enterprises working on narrow margins, previously 
totalled four percent. 


Analysts said the new system might tempt some of the huge shadow economy to 
come into the light of tax inspection and increase investors' confidence, 
although foreigners are still worried by political uncertainty and corporate 

``The impact, psychologically, should be relatively rapid,'' said Eric Kraus, 
chief strategist at NIKoil. 

``Putin has done a hell of a lot...and the tax code is one of the major 
achievements of the new economic team. So, people will see the reform process 
is underway, which will increase confidence and willingness to invest, to do 
business in Russia.'' 

Russia's economy has been recovering smartly for the last year and a half on 
the back of high world prices for oil and metals, and the effect of the 1998 
rouble devaluation. 

But the benefit of devaluation is fading, and market prices are volatile with 
a fall in oil prices to 11-week lows in recent days. 

This has added urgency to the debate over the tax reforms, with senior 
cabinet members warning that a rare opportunity for long-term economic 
prosperity could slip through the fingers. 


The government hopes the lighter tax burden will encourage companies to 
produce more by cutting their production costs. 

Vladimir Merkushev, a macroeconomic analyst at CentreInvest Group, said 
companies' net profits next year could rise by an average 10 percent. 

However, Sergei Voloboyev, an economist at CS First Boston, said it might 
take time for the measures to translate into significant gross domestic 
product growth. 

``It will take some time for companies to start feeling sure of themselves 
under the new system and play by the new rules,'' he said. ``But for the 
longer-term outlook the tax reform is a key link in the chain for creating a 
more dynamic economy.'' 

Budget coffers will not suffer, he said, because the government compensated 
for cutting and abolishing taxes by hiking excise duties. 

``Taxes which were paid by barter or not paid at all were cancelled,'' 
Merkushev said. 

``I think that even the consolidated budget (including regional budgets) will 
not lose, while the federal budget will of course gain.'' 


Woodrow Wilson International Center for Scholars
Russia's Future: Progress, Prospects, and U.S. Policy 
Remarks by Leon Fuerth, National Security Advisor to the Vice President
Woodrow Wilson International Center for Scholars
July 25, 2000

Leon Fuerth is the National Security Advisor to the Vice President of the 
United States. He sits with the Secretary of State, Secretary of Defense, and 
the President's National Security Advisor on the Principals Committee, 
President Clinton's top foreign policy team.

Mr. Fuerth is deeply involved in a wide range of foreign policy issues and 
manages the Vice President's binational commissions with Russia, South 
Africa, Egypt, Ukraine, and Kazakhstan. He is also a specialist on economic 
sanctions, playing a leading role in the Clinton administration's efforts to 
tighten sanctions enforcement against Serbia.

Mr. Fuerth is Vice President Gore's longest serving aide. Their relationship 
dates back to 1980, when Mr. Fuerth began advising Congressman Gore on arms 
control and defense policy after Gore was assigned to the House Permanent 
Select Committee on Intelligence, where Mr. Fuerth was a staff member. When 
Mr. Gore was elected to the Senate in 1984, Mr. Fuerth joined his Senate 
staff as Senior Legislative Assistant for National Security. In that 
capacity, he advised Senator Gore on arms control, space policy, 
international trade, and global environmental issues.


I appreciate the opportunity to speak to you today on a subject of interest 
to us all: Russia's future -- progress, prospects, and U.S. policy. 

Last week's meeting with President Clinton and President Putin underscores 
the unique juncture at which we find ourselves in our relations. 

Both the United States and Russia are at a pivotal moment as we both undergo 
a period of transition in our national leadership. After successfully 
conducting the first democratic transfer of executive power in its history, 
Russia and its new government are in the early stages of charting a new 
course. Meanwhile, our country is also approaching the season in which the 
voters will select new leadership. 

It is therefore a particularly important moment to survey the past, the 
present, and the future. So let me begin by taking you back to 1993, when the 
Clinton-Gore Administration took office and confronted the question of how to 
respond to a Russia in profound crisis. 

With the fall of Soviet Communism, Russia was forced to undergo a wrenching 
transformation encompassing three revolutions at once: 

a political revolution, from Communism to democracy; 
an economic revolution, from a command economy to a market-based system; and 
a geopolitical revolution, from an imperial state to a federation surrounded 
by newly-independent nations. 

There was hunger in Russia such that emergency international food assistance 
was necessary. The shelves of Russia's pharmacies were empty of medication, 
with especially harsh consequences for the very old and the very young. 
Russia's industry was in near free fall because the Soviet integrated and 
state-controlled system of suppliers and consumers was torn asunder. There 
was hyperinflation. There was unrest among critical parts of the labor force 
such as miners. There was desperation among the pensioners who were reduced 
to penury. The Russian people had been thrust almost overnight from the 
certitudes of the Soviet state into conditions of chaos, both material and 

Amid the ruins of the Soviet state, only the Communist mindset seemed to 
remain intact. The Communist party alone had an endowment of national 
organization and a potent voter base, which in turn made it the strongest 
political force in the countries' new parliament. 

There were a number of nightmare scenarios: 

complete economic failure and destitution 
a restoration of Communist authority, or the appearance of the "man on the 
white horse" 
Russia clinging to the objectives and methods of the Soviet state and 
refusing to acknowledge the loss of empire and grimly preparing for the day 
when it could recover what it had lost 
a nuclear superpower unable to protect even these assets from theft, or from 
the outright sale of knowledge by scientists, too desperate in the present to 
be guided anymore by concerns for the longer-term future. 

In the midst of all of this, Russia faced a truly monumental challenge: to 
create as it destroyed -- to build new institutions, adopt new practices and 
follow new approaches even as it simultaneously struggled to remove the 
debris of the past. 

We realized in those early months in 1993 that the decisions in front of us 
were strategic in the highest sense of the word. We decided that in these 
circumstances, we had three primary objectives: 

To protect ourselves and the world against a breakdown of Russian control 
over the inherited Soviet nuclear arsenal. 
To help those who had come to power in Russia make sure that there was no 
return to the Communist past. 
To do this by supporting the forces of market reform and political democracy. 

We pursued these objectives knowing that we might have only a brief window of 
opportunity in which to make an impact. We also knew that we were working 
towards outcomes that were not ours to dictate but rather belonged to the 
Russian people themselves to determine. We felt deeply that we had before us 
a once-in-a-millennium opportunity, and that if we tarried on the sidelines 
of this struggle, our successors would look back upon this as a moment of 
failed nerve and failed imagination -- as one of the great and tragic 
"might-have-beens" of modern history. 

And finally we realized that we would need to find some unprecedented way to 
convert our general intentions into specifics and facts on the ground. The 
Bi-National Commission -- concerning which I will have more to say later -- 
became the joint American and Russian response to the sense that an entirely 
new technique of cooperation was needed. 

>From the outset, this strategy -- and the policies and programs we developed 
to execute it -- was controversial. Some of that controversy was based on 
legitimate differences in points of view. But much of it, unfortunately, 
simply reflected the vehement brand of political partisanship that overtook 
our country in those years. It also reflected an attitude about Russia on the 
part of some that bordered on a kind of historical fatalism, on the view that 
at some level Russia was immutably antithetical to democracy and to us, so 
that a policy based on the premise that nations can redirect their histories 
would seem to be light-headed romanticism. 

Now, nearly eight years later, the views of our critics have hardened into a 
kind of standard critique which runs roughly as follows. The administration 
has bungled whatever opportunity it might have had by 

failing to insist that Russia develop all of the laws and institutions needed 
to run a modern economy, before it began to dismantle the Soviet economy 
through privatization. 
turning a blind-eye to corruption as it spread through Russian society and 
pouring good money after bad into the Russian economy. 
placing too much weight on personalities of individual Russian leaders and 
not paying enough attention to other parts of the Russian political system 
and society. 

The elements of this critique are surely going to be debated vigorously in 
coming months. So let me just touch on what I think are its central errors. 

(1) Russian institution building versus privatization. We absolutely 
understood that Russia was struggling to create a market economy in the 
absence of the laws, institutions, and habits of behavior that are essential 
for the maintenance of a free market system. Our assistance programs were 
focussed from the beginning on helping Russians to become accustomed to the 
very idea of transparency, legality, and regulation. But it became clear 
early on that much as we might wish in a perfect world to see Russia set all 
these things in place before privatization, privatization would in fact have 
to take place ready or not. Because privatization was the one sure way to 
break away from the past. 

Had we adopted a "go-slow" approach to privatization, as some critics 
advocate, we would have given the Communists leverage to maintain state 
control and further retard the development of a free market. Ironically, many 
who advocated this alternative have taken aim over and over again at the 
programs most needed for institution building. Today, for example, those who 
say that because of Russia's policy in Chechnya we should withhold all forms 
of assistance except for the portion devoted to denuclearization are actually 
saying that we should spend all of our efforts to help Russia acquire the 
kinds of civil institutions it most needs. 

(2) Corruption. The Administration has been committed to combating corruption 
in Russia from the outset, by 
strengthening law enforcement cooperation; 
assisting Russian authorities draft a new civil code, criminal code and 
bankruptcy laws; and 
supporting rule of law programs from 1993 onwards. 
We also understood that deeply ingrained corruption predates the Russian 
federation. Institutionalized corruption virtually defined the Soviet state. 
It was not an invention of the "New Russia." The cure for it will require 
years of struggle. 

(3) Wasted money. We have continuously sought to tighten our internal 
auditing procedures to achieve accountability for U.S. assistance. The truth 
about the IMF is that it has consistently pursued a prudent, responsible, and 
forward-thinking lending program for Russia. Where there have been concerns 
about Russian practices, the Fund has tightened control, required audits and 
reduced lending. The IMF has conditioned further lending on the 
implementation of effective financial safeguards and accounting measures. 
Supporting Russia's economic transformation is not risk free and certainly 
has had its share of rude shocks -- but the IMF and the other international 
financial institutions keep working to reduce these risks without breaking 
off their operations, which are vital. 

(4) Over-personalization. Boris Yeltsin was the duly elected president of the 
Russian Federation for about eight years. For a good portion of that time, he 
was personally a bulwark against a resumption of power by the Communists. His 
time in office was marked by the appearance and flowering of a rambunctious 
free press, the appearance of scores of thousands of non governmental 
organizations, and hundreds of thousands of private businesses. His conduct 
of Russian foreign policy was marked by belief in the importance of 
partnership with the United States and readiness on numerous occasions to 
accept the considerable political costs at home in order to sustain that 
vision. So we are justified to ask of those who criticize us for working so 
closely with him. If not with him, then with whom? 

And if the come-back question is well, you neglected others, let me say that 
we have engaged the Russian government at every level, from ministerial on 
down. We have engaged the Russian parliament, its leadership and its members; 
and we have engaged the Russian people. Over 50,000 Russians have 
participated in U.S. supported training and exchange programs. Thousands of 
Russian judges and lawyers have improved their understanding of the law and 
judicial ethics through USAID sponsored programs. Over 4,000 staff from 
regional and local media outlets in Russia have benefited from programs to 
promote a free and independent press. 

And I might add that some of the Administration's harshest critics have been 
some of the most persistent opponents of these efforts. 

At this point it seems logical to say a few more words about the Bi-National 
Commission, co-chaired by the Vice President. The Bi-National Commission was 
founded on three essential principles: 

We sought to broaden and deepen our engagement with the Russians in 
government and out. 
We aimed to develop regular -- rather than episodic -- contacts with 
officials from the top to the depths in the bureaucracy. 
Most importantly, we were determined to achieve concrete benefits -- not 
photo-ops and paperwork -- for the American people and the Russian people. 

The practical benefits of the Commission include 
reduced trade barriers 
improved public health 
heightened attention to the environment 
improved safety of nuclear plants 
tighter protections for fissionable materials 
efficient cooperation in the demilitarization of Russian nuclear weapons 
cooperation in commercial space launch 
work with Russia's regional governments to improve investment and trade flows 
The Bi-National Commission is ultimately proof of principle that on a day-in, 
day-out basis mutual cooperation is not a general goal but a workable 
reality, in hundreds of transactions between our governments. 

Overall, as we look back on the result of our Russia policy, what we see is 
an extensive record of accomplishment: 

Americans are measurably safer today than they were eight years ago, with the 
successful dismantling of nearly 5,000 nuclear warheads; the denuclearization 
of Ukraine, Kazakhstan and Belarus; and the withdrawal of Russian troops from 
the Baltics. At the same time, we seized the opportunity to unite Europe and 
remove Cold War dividing lines by expanding NATO to include Poland, Hungary, 
and the Czech Republic while joining with the Russians in partnership to keep 
the peace in the Balkans. 

Democracy is now the accustomed norm in Russia. Three democratic elections -- 
two parliamentary, one presidential -- have been held, with turnout exceeding 
70% in the last. Some 64,000 non-governmental organizations have emerged: the 
building blocks of a vibrant civil society. 
Tens of thousands of state-owned enterprises have been privatized and more 
than 900,000 small businesses have been established, contributing to Russia's 
recent economic rebound. 

This has meant the death knell for Soviet Communism. All mainstream parties 
now espouse democracy and free market reform. 

Russia is increasingly enmeshed in the international community, symbolized by 
its inclusion in the G8 meeting that recently concluded in Okinawa. 

In many of these areas, we have seemed to reach arguably of no return. In 
others, we must still await developments. But we can surely claim that we 
have laid down the foundation for constructive development. 

Turning to the future, the path President Putin is leading his country still 
in many ways yet to be clarified. He is a complex figure with a mixed record 
-- his leadership is a work in progress. President Putin strives for a strong 
Russia, but he has a contradictory -- and sometimes ominous -- concept of 
what constitutes strength. He has demonstrated an instinct to restrict the 
free media; and his policies in Chechnya have resulted in indiscriminate 
killing of civilians, have antagonized the Chechnen people, and have created 
obstacles to Russia's integration with the international community. We have 
been blunt with Putin on all points, making clear that we are prepared to 
work with Moscow where our interests coincide, and to hold firm where they 

But at the same time, it is important to note in President's Putin own 
program -- the program that he outlined in his address to the Russian people 
on the state of their federation -- is a program of vigorous economic reform 
along lines that we ourselves would have advocated and in fact did advocate 
at the beginning of our close association with the Russian government. His 
program, if carried out, offers the single greatest hope for the rebirth of 
the Russian economy on conditions that are compatible with political freedom. 

Let me end where I began. As we assess U.S.-Russia relations during this 
critical period of transition, let us not lose sight of what we have achieved 
and the means by which we successfully achieved them. Because we chose to 
engage Russia -- vigorously and creatively -- we have succeeded in locking in 
important, practically irreversible progress that serves U.S. national 
interests. Engagement has brought us this far -- and is the only means of 
bringing us farther. 

We recognize that Russia's historic transformation is incomplete -- all the 
more reason we must continue to engage Russia. We recognize that Russian 
democracy is challenged by corruption that deeply penetrates her society -- 
all the more reason to engage Russia on behalf of reform. We recognize that 
Russia has her own self-interest and concerns that can and do run contrary to 
ours -- all the more reason to search for constructive forms of cooperation. 
We deeply disagree with what Russia is doing in Chechnya and remain concerned 
about signs of Russian efforts to intimidate the press -- all the more reason 
to step up our discussions with them on those issues. 

This evening at 8:45 p.m. Eastern Standard Time at a distance of 
approximately 150 miles above the earth, the major components of the Russian 
and America contributions of the international space station will dock. If 
this complicated maneuver succeeds, the international space station will have 
become a reality. 

It is in many ways a perfect metaphor for the risks and the gains of Russia 
policy during the Clinton-Gore administration. Seven years ago I arrived in 
Moscow with Dan Goldin and a team of his experts for the purpose of meeting 
with the head of the Russian space agency, Yuri Koptev, to flesh out the 
terms of a cooperative agreement on the station. On the night of our arrival, 
Communist and nationalist forces tried to overthrow the Russian government, 
which responded forcefully. In our hotel we felt the concussion of large 
caliber weapons, heard the fire of small arms, and discussed whether we would 
return to our planes and flee to Finland, or stay and continue to work on our 

We stayed. Through the following day, as negotiations proceeded on the space 
station, both Americans and Russians would gather out in the corridors during 
breaks to watch on television as government forces retook the besieged 
Russian parliament building, and where periodically CNN was carrying 
President Clinton's statement of support for Russia's President, Boris 

So the space station, like our entire relationship with Russia, was born in 
travail, and like that partnership, it has proceeded under continuous 
criticism: that it was a waste of money, that the Russians would not live up 
to their end of the deal, that it was beyond our technological reach. But we 
have managed to maneuver over fifty tons of equipment into the same orbital 
plane, and if all of our planning pays off, we will succeed in inching these 
massive objects together until they click into place. And when that happens, 
all eyes must turn to the future to ask that if we can come this far, and 
accomplish this much, what else is possible? 


Date: Thu, 27 Jul 2000
From: "Mike Heath" <> 
Subject: #3 Gore's Long View

Dear David

Leon Feurth's argument to Jim Hoagland about Chernomyrdin has to be one of 
the most despicable pieces of double-speak ever.

Hoagland wrote: "Fuerth acknowledged that "there have been a lot of charges 
and innuendo" about Gore's principal Russian interlocutor, former prime 
minister and energy czar Viktor Chernomyrdin. "But there has been no proof, 
no smoking gun, and certainly no indictment in a Russian court" of 
Chernomyrdin and nothing in their dealings for Gore to be ashamed of."

No smoking gun? No, that's right. Because no one involved in corruption in 
Russia is ever charged. No details of any illegal transaction are ever 

Why? Because every official here is up to their eyeballs in swindling. If 
one is exposed, you set off a chain reaction that would upset the whole 
insidious system.

No there is no smoking gun. There is a smoking nation of 150 million people 
living in misery.

Nothing to be ashamed of? Perish the thought.

Incidentally, I am sincerely starting to believe The Exile's conspiracy 
theories about The Washington Post.

What sort of journalist repeats verbatim such obvious lies?

Michael Heath


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