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Johnson's Russia List
1 August 2000
[Note from David Johnson:
1. Moscow Times: Simon Saradzhyan, Putin Sacks 6 of Sergeyev's
2. AP: Russia Gas Giant May Buy Media Co. (Gusinsky's Media-Most)
3. Bloomberg: Russia Negotiates Buying Berezovsky's ORT Stake,
4. Izvestia: Vyacheslav NIKONOV, GUBERNATORIAL ELECTIONS GET
5. Reuters: Putin's popularity in Russia soars-opinion poll.
6. Segodnya: RUSSIA HAS COUPLE OF YEARS FOR REFORMS.
(Interview with Bureau of Economic Analysis fund director LEONID
7. Baltimore Sun: Kathy Lally, From Chesapeake to Caspian.
Russia: A former state agriculture secretary has taken on the tough
task of overseeing a huge program of U.S. food aid.
8. Moscow Times: Yevgenia Borisova, Kremlin Hints 13% Flat Income
Tax Is a Ruse.
9. New York Times: Sabrina Tavernise, Russia Eases Taxes, but
Businesses Call Deeper Cuts Essential.
10. Christian Science Monitor: Fred Weir, Russia's Intellekt firm
sends message in a bottle. Moscow company gets patent for 'glass
containers' and claims everyday bottlers owe royalties for its
11. The New Statesman (UK): Liberals fear a Pinochet-style regime;
but Russia's new leader is their best hope. Vladimir Putin profiled
by John Lloyd.]
August 1, 2000
Putin Sacks 6 of Sergeyev's Generals
By Simon Saradzhyan
President Vladimir Putin has fired six of Defense Minister Igor Sergeyev's
senior generals, seriously undermining Sergeyev in his efforts to preserve
the most powerful element of Russia's strategic nuclear triad.
Sergeyev strongly opposes proposals by General Anatoly Kvashnin, chief of the
General Staff, to downsize and downgrade the Strategic Missile Force, which
is the only element of Russia's depressed armed forces that still remains on
par with its U.S. counterpart.
Putin signed a decree unseating the six senior commanders, including Colonel
General Anatoly Sitnov, chief of procurement and armament, a presidential
spokeswoman said Monday.
Putin also fired chief of the Defense Ministry's radiation, chemical and
biological defense, Colonel General Stanislav Petrov; head of the army's air
defense force, Colonel General Boris Dukhov; chief of the Defense Ministry's
main rocket and artillery directorate, Colonel General Nikolai Karaulov;
chief of the Defense Ministry's central directorate of material resources and
foreign economic relations, Lieutenant General Alexander Zobnin; and chief of
the ministry's press service, General Anatoly Shatalov. The Kremlin
spokeswoman, speaking by telephone, would not say when Putin penned the
All of the fired generals, except for Shatalov, are either protÎgÎs or allies
of Sitnov, who also opposes Kvashnin's proposals.
The removal of Sitnov leaves Marshal Sergeyev in a much weaker position ahead
of the Aug. 11 meeting of Putin's Security Council, which is to decide
whether to dramatically cut the number of intercontinental ballistic missiles
operated by the Strategic Missile Force, or RVSN, said Konstantin Makiyenko,
deputy head of the Center for Analysis of Strategies and Technologies.
Such cuts are being advocated by Kvashnin, who told a closed-door meeting of
the Defense Ministry's top brass earlier in July that he believes that 400
out of RVSN's some 780 land-based ICBMs should be decommissioned.
Kvashnin insisted that downsizing RVSN would spare more cash to reinforce the
struggling conventional forces, which must be able to fight two local
Under his proposal, RVSN would be downgraded from an independent branch of
service to an arm by 2003, but would continue to report directly to the
Both Makiyenko and other independent experts said they believe Kvashnin is
pushing ahead with his plan merely to weaken Sergeyev, who used to command
RVSN, even though any drastic cuts in this force will leave Russia unable to
maintain even the remnants of strategic nuclear parity with the United
And maintaining this parity is one of the few, if not only, reasons that the
West still treats Russia as an equal.
Putin has so far dropped no hints on whether he will support Kvashnin's plans
at the pending Security Council meeting. Instead, the president chose to
blast both Sergeyev and Kvashnin for publicizing their rift.
Both Kvashnin and Deputy Prime Minister Ilya Klebanov could have played a
role in the removal of Sitnov and his team, Makiyenko said. Sitnov and
Klebanov, who oversees arms production in Russia, have repeatedly clashed
over their vision of defense industry reforms.
The departure of Sitnov, who was installed in his post by then-Defense
Minister Pavel Grachev in 1994, leaves the Defense Ministry with no top-notch
professionals capable of outlining and pursing a long-term strategy of arms
procurement and armament, Makiyenko said.
One of Sitnov's achievements was providing financing for the Russian defense
electronics industry's efforts to catch up with the West, Makiyenko said.
Sitnov also used his office's meager financial resources to fund development
of promising weaponry systems rather than massive procurement of arms
designed back in Soviet times. This strategy will enable the armed forces to
procure up-to-date systems if the national economy ever recovers to allow for
higher defense expenditures, analysts said.
It remains unclear who will replace Sitnov. One candidate is chief of the
Defense Ministry's main armor directorate, Colonel General Sergei Mayev.
All senior commanders, including Sergeyev and Kvashnin, submitted their
resignations in May along with federal ministers when Putin was inaugurated.
Most of the generals have been reinstalled in their posts, but not Sitnov and
Two of the fired generals f Dukhov and Petrov f are now to retire because
they have surpassed the mandatory retirement age for senior commanders of 60.
As for the rest, they will remain in active military service and may assume
other posts if nominated by Sergeyev, the Kremlin spokeswoman said.
Russia Gas Giant May Buy Media Co.
August 1, 2000
By ANGELA CHARLTON
MOSCOW (AP) - A Russian tycoon may sell his financially strained independent
media company to state-controlled natural gas giant Gazprom, a newspaper
Observers said such a sale has long been under consideration, and warned it
could threaten media freedom.
Vladimir Gusinsky's company, Media-Most, and Gazprom's media arm,
Gazprom-Media, held talks Monday, the Kommersant newspaper reported.
Prosecutors last week abruptly dropped a criminal case against Gusinsky, a
Kremlin critic who said the probe was politically motivated, for lack of
evidence. Kommersant suggested Gusinsky agreed to the negotiations in
exchange for an end to the investigation. Kommersant is owned by tycoon Boris
Berezovsky, a Gusinsky rival.
A Media-Most spokesman said he had no information about talks. Gazprom would
``It would be very bad for Media-Most's independence,'' said Robert Coalson,
analyst for the National Press Institute in Russia. ``But that's the way
these crises are always resolved, through some kind of deal.''
Media-Most's flagship NTV television network is seen as important to Russian
democracy, as the only one of the country's three major networks that is not
Gazprom already owns about 30 percent of NTV and holds 17 percent to 20
percent more of the network's stock as collateral for a loan. Gazprom, which
also owns media outlets that compete with Media-Most's, has been stepping up
pressure on NTV in recent months to settle its debts.
Kommersant said Gusinsky's representative at the talks asked for $350 million
for Media-Most, but that Gazprom-Media head Alfred Kokh said he wouldn't pay
more than $100 million.
Coalson said the state is trying to exert control of the media through
Gazprom, ``so that it looks more palatable than owning it directly, as in
Gusinsky has been in Spain with his family since last week, and has not
commented publicly on the developments.
Gusinsky was detained for four days in June on charges of defrauding the
government in a privatization deal. Gusinsky's lawyers said the state's
evidence was laughable.
The case prompted warnings from business barons, journalists and foreign
governments that President Vladimir Putin was seeking to muzzle his critics.
Media-Most also includes Echo of Moscow radio and several newspapers that
have criticized Kremlin policies.
Russia Negotiates Buying Berezovsky's ORT Stake, Agency Says
Moscow, Aug. 1 (Bloomberg)
-- The Russian government is negotiating the purchase of a stake in ORT
television owned by Boris Berezovsky, a former parliamentary deputy and
tycoon considered among the nation's so-called oligarchs, the Interfax news
agency reported, citing sources in the presidential office. The talks also
focus on ORT's debts to the state. ORT won't be included in any new media
group Berezovsky forms, the agency reported.
Berezovsky gave up his parliamentary seat last month to protest President
Vladimir Putin's efforts to undermine the influence of big business.
August 1, 2000
[translation from RIA Novosti for personal use only]
GUBERNATORIAL ELECTIONS GET STARTED
Vyacheslav NIKONOV, President, Politika Fund
The beginning of a long run of gubernatorial elections has
been absolutely unnoticed against the background of the
President's battle with the regional elite over a reform of
federative relations, which promises to be the most large-scale
political event of the year. In the meantime, 40% of governors
are to be elected in the period between October and December.
Future relations between Moscow and the regions will depend on
their results to a no smaller degree than on Vladimir Putin's
What will be characteristic of the 2000 gubernatorial
It is, first, the devaluation of the main prize, as
Putin's reforms actually deprive governors of the status of
federal-level politicians and parliamentary immunity and create
mechanisms for Moscow's interference in local affairs, thereby
turning governorship into red-hot coals. I am sure that in the
future only those governors who already command countrywide
prestige, that is, those who will be re-elected for a new term,
will be know to the nation as a whole. For all newly-elected
governors it will be very difficult to win countrywide renown
without being members of the upper house of the Federal
Assembly, which would give them a constant opportunity to take
part in the discussion of problems on a national scale and use
the possibilities of the central mass media into the bargain.
The Kremlin and Putin personally will now have a much
greater role to play than before. In the absence of federal
elections the presidential administration will concentrate all
its attention on regional campaigns. It will have quite a few
possibilities to make the life of alternative candidates
unenviable. Putin remains a popular head of state (according to
latest public opinion polls conducted by Mikhail Gorshkov's
sociological service, 45.3% of Russians appraise his activities
positively or sooner positively and 11.9% negatively or sooner
negatively). That is why the President's support for one of the
contenders can be of decisive importance.
Control over the administrative resource will continue to
be a tangible factor, reducing the role of money. Campaigns
will be cheaper, on average, than even a year ago. The
oligarchs, who always wished to come closer to "friendly
powers-that-be" in the hope to get with their help a lump piece
of local assets, no longer entertain expansionist aspirations.
There is a clear-cut implication in Putin's latest "message" to
the oligarchs that they should stay away from politics and that
they should better heed this call. At the same time, outbreaks
of activity on the part of Moscow-based financial-industrial
groups are possible in the regions with remaining large
Characteristic of the coming elections will be the lowest
level of protest sentiments in the past few years. This is a
good omen for incumbent governors. Only 17.9% of potential
voters appraise the situation in the country as catastrophic
and 15.6% say that they live below the poverty line. Production
growth is observed in all the regions, and in some of them, the
Chelyabinsk region, for one, it is approaching the 25% mark.
This gives the ground to talk of an "economic miracle" on the
scale of individual constituent members of the Federation. Such
regions have long since paid their pension and wage arrears.
Psychologically painful non-payments or arrears of child
allowances have remained almost everywhere, but current
payments are already made on them in the economically stronger
There will be no ideological lining in regional campaigns.
This is already the case in some places. The great battles of
communists against democrats, which could be often observed in
1996, are now a thing of the past. People do not care a bit
about ideology. They are more concerned about prices, job
opportunities, healthcare and education. In some regions, which
are used to regard themselves as the local bulwark of the
country, patriotism, the fate of Russia and restoration of its
grandeur are among the most important campaign slogans. The
slogans of restrictions on freedom of expression or economic
freedom, which are popular in Moscow, get no response anywhere
in the provinces.
To what degree will the composition of the governors'
corps change as a result of the 2000 elections? It is obvious
that changes can be expected only in the three first groups of
regions and in those whose administrative heads are unwilling
to vie for re-election for one reason or another (for instance,
Kamchatka Governor Biryukov has not made his intentions clear
According to my estimates, between seven and twelve governors
will be replaced. And this will not make the governors' corps
as a whole any worse.
Regional elections can tentatively be classified into several
groups, proceeding from the degree of interest and
interference in them on the part of the presidential forces
and, correspondingly, prospects of governors to be re-elected.
Group One: regions in which the Kremlin looks forward to
getting rid of notorious Red Governors. A hard lot lies ahead
for the heads of the Bryansk, Volgograd and Voronezh regions
(governors Lodkin, Maksyuta and Shabanov, respectively). The
situation will be uneasy for Goryachev in Ulyanovsk, if, of
course, there is a worthy alternative to him - of whom there
has been no sign up to now.
Group Two: regions with well-known governors who can be
close to the Kremlin ideologically but who have made it sick
and tired by their extravagant and unpredictable behavior. This
may concern Kursk Governor Rutskoi and Kaliningrad Governor
I do not think anyone would bet today that they would be
Group Three: members of the Federation with a small
population, a small economic potential and little known
governors. The issue at hand are some Central Russian regions
and autonomous areas (naturally, with the exception of the
Khanty-Mansi and the Yamal-Nenets area). It is more likely than
not that Moscow will not pay too much attention to them and
they will turn into a kind of free political zones, in which it
is possible to expect both sudden election returns and the
appearance of contenders from Moscow.
Group Four: regions headed by strong politicians whose
views the Kremlin does not particularly like but who have been
able to find a common language with it on current political
This concerns, first and foremost, the Krasnodar and Stavropol
regions: few people doubt about the election success of their
incumbent governors Kondratenko and Chernogorov.
Lastly, Group Five: those regions whose widely known and
strong governors have already assured or are shortly to assure
Putin's direct support and who can count on a victory "by a
knockout". Suffice it to mention Khabarovsk Governor Ishayev,
Astrakhan Governor Guzhvin and, especially, Chelyabinsk
Governor Sumin. They can come across rivalry only on the part
of persons who are absolutely unknown on the scale of the
country as a whole and who can only count on the entire
possibilities of "black PR" and financial injections from
Putin's popularity in Russia soars-opinion poll
MOSCOW, Aug 1 (Reuters) - President Vladimir Putin's domestic approval rating
soared in July with 73 percent of Russians saying they like his performance,
a leading opinion research agency said on Tuesday.
Putin's rating jumped 12 percent compared to his standings in June when 61
percent of respondents said they approved of his performance as president.
Putin's popularity seems to have been buoyed by his successful debut at the
Group of Eight summit in Okinawa last month, his victory in a standoff with
regional leaders over the composition of the upper house of parliament and
Prime Minister Mikhail Kasyanov won the second best approval rating with 49
percent of votes.
Putin won a March presidential election with about 53 percent of ballots, a
result that allowed him to avoid a runoff.
His personal approval rating hit an all-time high of 77 percent in mid-April.
Another poll by the All-Russian Centre for Public Opinion Research (VTsIOM)
also put Putin at the top of the list of Russia's most trusted politicians
with 46 percent of those polled saying they personally trust him.
Communist leader Gennady Zyuganov came a distant second with just 15 percent
of respondents' votes.
He was followed by former Prime Minister Yevgeny Primakov and the Siberian
Kemerovo region governor, Aman Tuleyev, both with 10 percent, and Kasyanov,
The two polls were conducted at the end of July. They canvassed 1,600 people
in 33 of Russia's 89 regions.
July 29, 2000
[translation from RIA Novosti for personal use only]
RUSSIA HAS COUPLE OF YEARS FOR REFORMS
The government has drafted a series of reforms and has
succeeded in pushing the required bills through the Duma and
Federation Council. A more natural way of things until recently
has been different: a cabinet would propose innovations,
lawmakers would vote them down, the government would fall, a
new cabinet would be formed, and everything would repeat
itself. It cannot be said that some undoubted measures have
been suggested this time - the same old tax reform has already
been offered and thrown out. One need not, however, reduce the
reasons for the success only to a set of government tactical
moves. Something has indeed changed in the country, which has
made it feasible to kick-start economic modernisation. This is
the subject discussed by Segodnya analyst GEORGY OSIPOV with
Bureau of Economic Analysis fund director LEONID GRIGORYEV.
-- I call it a "window of political opportunities." The
first such window - readiness for change and reform - opened in
the late 80s and early 90s when society got sick and tired of
the planning system crisis. This time it is frustration with
the results of 1990s reforms. In a couple of years we should
have to carry out far-reaching structural reforms.
Question: Why should we believe that things will pan out
Answer: At the first stage, until 95-96, we roughly built
up Russian capitalism. Then, if you remember, we placed our
hopes with foreign consultants. In 97-99, the development
proceeded in its own right. At the same time, Russia saw the
forming anew of a professional scientific community, which now
analyses the new economic system. There is already a large
number of organisations acting as economic consultancies. This
market is free of monopoly. All these organisations are small
enough and draw their brain resources from a mass of Academy of
Sciences universities and institutes. Our bureau alone has
about 400 individual contracts concluded with scientists. Our
consulting expenses on foreigners amount to a mere two per
cent. That is, we have a market on which a variety of agencies
act as clients and within which most diverse scientists work.
So-called domestic capacities have formed, which is gratifying.
As a result, reform suggestions come forth. These suggestions
are injected into reality as political windows of opportunity
appear. The large package of reforms, in the form of the
current programme, is the result of organisations and
scientists bringing their ideas to such a "window."
Question: It means the idea of setting up the Gref centre
for accumulating ideas has worked?
Answer: German Gref has presided over a successful attempt
to muster up everything that has been produced. By March it was
mainly completed. By that time our bureau had finally prepared
a book "A Review of Economic Policy in Russia in 1999," which
summed up a series of our writings. We offered an analysis and
the logic of problems which, in fact, must make up a programme.
Gref's centre took advantage of suggestions made by all
scientific centres. But scientists' recommendations should end
at a menu level, so to say - we propose and the government
chooses ways of solving the problems. I would liken programme
writing to a nest of dolls - the bigger part is all the stream
of materials from scientists - the second is a programme in
general, and the third is what the government accepts.
Question: So a programme is viable because it is a joint
product. Won't its implementation be hampered by Russia's
traditional need for "rushed" measures when conception is
sacrificed for the sake of practical solutions?
Answer: Our economic "rush mentality" is a big
psychological problem. There are two aspects to it. The first
is expecting a catastrophe or a miracle all the time. But our
crisis has lasted 10 years and now things are picking up. Not
very swiftly, without any leaps and bounds, but that is normal.
And all at once we see grumblers asking when the disaster will
strike. It won't. It must not. The second aspect is the view
that reform must be sweeping.
But reform should be steady, and measures and laws
well-considered. Now there are no differences between
economists, and we have a measure of consensus.
Question: But there must be reasons to fear cataclysms,
what with high oil prices adding to the money supply and
inflation advancing ...
Answer: There is no simple law defining the ratio between
the rate of the national currency and inflation. The only thing
that can be stated definitely is that it is wrong once in two
years to drastically alter the exchange rate. Must the rouble
be strengthened? To be sure. But without abrupt changes. When
the rouble is low Russia is getting investments to produce
commodities here. The current rate all the same protects
producers against competition. Ideally, the low rouble rate
should last long enough to enable our plants and factories to
regain their feet.
1 August 2000
[for personal use only]
>From Chesapeake to Caspian
Russia: A former state agriculture secretary has taken on the tough task of
overseeing a huge program of U.S. food aid.
By Kathy Lally
Sun Foreign Staff
MOSCOW - Robert Walker likes to joke that he left the blue crab of the
Chesapeake Bay for the black caviar of the Caspian Sea. His cheerful
optimism has been put to the test since he left his job as Maryland's
secretary of agriculture six years ago to work in Ukraine and Russia.
Walker left Maryland in April 1994 to become U.S. Department of Agriculture
policy adviser in Kiev, Ukraine. Three years ago, he moved to Moscow to
open the USDA trade office here. Either job could have overwhelmed a less
"My first year in Moscow, we had more than $1 billion in sales to Russia,"
he says, "then came the [economic] crisis of August 1998. We went from
selling them $1 billion a year to giving them $1 billion a year."
Walker's job had turned from promoting sales of U.S. products, much of it
chicken from Maryland and elsewhere, to overseeing a huge program of food
aid. Suddenly, he was in charge of making sure American aid was delivered
efficiently and honestly, untouched by the corruption for which Russia has
become so notorious.
His task was no less daunting in Ukraine.
"Ukraine has the largest percentage of the richest black soil in the
world," Walker says. "It should be the most productive in the world. With
the right management and equipment, they could outperform the U.S. Yet they
continue to flounder, not knowing what to do or how to do it."
Last year, the United States gave Russia more than 3 million tons of food
aid. The bulk of the aid was in wheat, corn and soybeans, and it also
included beef, pork, poultry, nonfat dry milk and a variety of seeds. While
the project was mostly cast as help for Russia, it also served as a boon
for American farmers, offering them a U.S. government-subsidized market for
The United States offered Russia 1.7 million tons of wheat as a gift. It
also sold Russia 1.5 million tons of commodities on credit, charging 2
percent interest over 20 years.
The United States sent some of the aid directly to needy groups in Russia
and allowed another part of it to be sold with the profits going to
Russia's pension fund. As a result, pension payments have been brought up
to date after years of arrears.
"This has been a very positive bridge between our two countries," Walker
says. "We've been able to meet a critical need here - and help our own
The 1998 economic collapse coincided with Russia's worst harvest in 50
years. Russian farmers harvested 47 million tons of grain, compared with
the usual harvest of 75 million to 80 million tons. Last year, the harvest
was 54 million tons. Predictions for this year's harvest range from 52
million to 64 million tons. Walker has been crisscrossing Russia,
monitoring distribution of the aid. He and his staff have visited every
region, except Dagestan and Chechnya, where war has kept them away.
"We haven't found any major diversion or fraud," he says. "Look at the
bottom line: Did the commodities go to the regions? Yes. Did the money go
to the pension fund? Yes."
Last fall, most of the bread in Moscow and St. Petersburg contained U.S.
wheat, he says. In the central Russian textile city of Ivanovo, Walker
visited an old-age home that was receiving direct American aid.
"They were so happy to taste bread made from American wheat," he says. "One
woman remembered Studebaker trucks bringing American canned meat in World
War II. She never thought she'd taste American food again."
Walker was well-prepared for dealing with entrenched bureaucracies when he
arrived in the former Soviet Union six years ago. He had, after all, been
on the Baltimore City school board from 1980 to 1986, becoming its
president in 1984. At the time, he was vice president of the Esskay Meat
Co., which operated in East Baltimore.
Russian agriculture has had as much financial difficulty as the Baltimore
school system. The Russian Agricultural Ministry has a budget of $400
million - spent in a country of 148 million people living on land twice the
size of the United States. In contrast, Walker recalls, Maryland, a small
state with about 5 million people, had an agricultural budget one-tenth the
size of Russia's.
The USDA has organized trips to the United States for Russian farmers and
agricultural leaders, and Walker has sent groups to the Jessup wholesale
market and to Eastern Shore farms, trying to show them the methods that
have made the United States No. 1 in the world in agricultural production
In Russia, he says, 30 percent of each harvest is lost - never processed -
because of poor, inefficient Soviet-era equipment.
"That's just the harvest," he says. "There's more waste in transportation,
storage and processing. Then you have the management problems."
Agriculture is being held back, Walker says, because farmers are unable to
get loans to buy new equipment. They have no cash, and they have no credit.
"If they could finance and purchase new combines," he says, "they could pay
for the equipment in a few years with better harvests."
In addition, Russia's parliament has refused to pass laws permitting the
sale of land, which has prevented investment in agriculture.
Before the 1998 collapse, a variety of U.S. products were selling in
Russia, including canned corn shipped by S. W. Friel in Salisbury and
McCormick spices supplied through Finland, Walker says. But poultry,
including Perdue chicken from Maryland, accounted for the bulk of U.S.
sales. Walker notes that in the past six to nine months, imported chicken
has been making a comeback.
Walker studied Russian at Towson State University and speaks it fluently.
He appears as comfortable mixing with ambassadors at formal receptions as
he does with ruddy-faced farmers who drop into his office at the U.S.
Embassy on trips from the Russian countryside. He says he learned public
service from his former boss, William Donald Schaefer.
Walker, who grew up in Baltimore and graduated from City College, had
helped with organizational work during one of Schaefer's mayoral campaigns.
Later, Schaefer appointed him to the city school board. As governor,
Schaefer made Walker his secretary of agriculture.
"I learned a lot from Schaefer," Walker says. "It's his philosophy. See an
opportunity and do something. Don't sit around studying, studying and
reconsidering for weeks, sending it back to committee. Sometimes you make
mistakes, but you can correct them. You're getting something done."
Walker loves working in Ukraine and Russia, though he concedes that he has
done so at some personal cost. Hospitality knows no bounds, and as part of
his work, Walker has faced platter after platter of salami and bowl upon
bowl of mayonnaise-based salads, washed down with the requisite and
numerous vodka toasts.
"I've gained 30 pounds," he says, trying to sound abashed. Somehow, though,
he only sounds cheerful.
August 1, 2000
Kremlin Hints 13% Flat Income Tax Is a Ruse
By Yevgenia Borisova
The government's motivation for introducing the 13 percent flat income tax
was put into question over the weekend after Deputy Prime Minister Ilya
Klebanov said Friday that the tax will increase just after corporations stop
hiding their true incomes.
The new tax was introduced last month in a package of four new taxes, which
also included a drop in the social tax, increase in taxes on alcohol, tobacco
and fuel and amendments to value-added taxes. The new tax is to come into
force at the beginning of next year when current income tax rates of between
12 percent and 30 percent will be abolished.
Fears have been expressed that the lower rates are merely a means to draw
taxpayers to declare incomes they have previously hidden. These fears were
fostered by Klebanov's comments.
Kommersant reported Klebanov as saying Friday at a news conference that the
13 percent tax is a "temporary measure," and after enterprises reveal the
true incomes of their staff, a big progressive income tax will be introduced.
Tax Minister Gennady Bukayev said earlier that the new flat 13 percent income
tax would attract an extra 10 billion rubles ($359 million) to the state
budget. In 1999, only 19.4 billion rubles, or 3.83 percent of all taxes, were
collected as income tax, while the biggest portion of tax revenues f 43.4
percent f came from value-added taxes, the Audit Chamber reported.
Kommersant said Saturday the office of Economic Development and Trade
Minister German Gref had confirmed that the new tax was planned to stay at
the 13 percent level "no later than 2004."
Denis Rodionov, an analyst with Brunswick Warburg brokerage, said Monday: "In
no official documents is a duration given for the new tax."
However, Gref said in an interview on NTV's "Itogi" program Sunday that a tax
hike may take place "in the long-term future," in eight years to 10 years, by
which time the nation will have improved.
Gref said the government values "mutual trust" between it and society and
insisted the "current government" has no plan to raise the tax.
He added that he asked his office staff about the comments printed in
Kommersant, and no one admitted speaking to the newspaper.
Klebanov was not available for comment Monday, but several top officials
hastened to deny that any changes in the income tax are going to happen, at
least in the next three years.
Deputy Tax Minister Dmitry Chernik said in remarks reported by Interfax that
there is no reason to believe the 13 percent flat tax is a temporary measure,
adding that the ministry is preparing materials for its regional branches
that will collect the new taxes.
Chernik said that in his opinion, any tax rate must function for at least two
to three years.
Interfax reported Deputy Prime Minister Viktor Khristenko as saying the new
income tax rate will not be reviewed in the next three years. He added that
by dropping the tax, the government wanted to increase revenues to the state
coffers, not to uncover the true taxation base.
"I believe that on the level of ideas, increasing taxes has always existed in
the government," Brunswick Warburg's Rodionov said.
He doubted that the low income-tax rate will increase tax collection much.
"No one knows what to expect from the government," Rodionov said.
Kseniya Yudayeva, an analyst with the Russian European Center for Economic
Policy, agreed. "We can trust the current government when they say they will
not change the rate, but can we trust the government at all? They change too
often," she said.
Sergei Prudnik, an economist with Troika Dialog, said, "I don't think the
rate will be increased even if the tax collection drops.
"I think the state will concentrate on the increase in tax collection f it
will put people in jail, or somehow talk them into paying taxes f there is
just no reason to raise them if people don't pay small taxes," he said.
New York Times
August 1, 2000
[for personal use only]
Russia Eases Taxes, but Businesses Call Deeper Cuts Essential
By SABRINA TAVERNISE
MOSCOW, July 31 -- For much of the last decade, Russia's government had
promised that it would reduce the country's huge tax burden. Last week it
finally did. But the changes, business owners say, do not go nearly far
Since the collapse of the Soviet Union in 1991, businesses have been
plagued by a tax system so complicated and burdensome that most have chosen
to keep big chunks of their revenue hidden. Armies of bureaucrats, many of
them prone to bribery, make operating even more expensive and turn company
accountants into tax negotiators. Even losses are taxed, while slender
profits can turn into losses after taxes.
The overhaul of the Russian tax code aims to drag enormous portions of
revenue out of hiding and onto company books by reducing the tax burden
about 20 percent.
But many businesses, which pay only a fraction of what they really owe, say
that only deeper cuts and a fairer system will induce them to pay.
A payroll tax is considered one of the biggest drags on business. Oleg
Ryabov, who owns a small blouse-maker with about 50 employees in northern
Moscow, says the deepest cuts in the new tax code passed over him. His
seamstresses earn an average of 5,000 rubles a month, or $180, more than
double the country's average wage. Still, that is well below the level at
which sharp reductions in the payroll tax apply. Mr. Ryabov's business is
eligible for a tax cut of only two percentage points. He said he would
continue, as before, to show only a third of his workers' wages to the tax
In all, about 15 percent of Russians' wages are eligible for the deepest
"Now if we pay what we owe, we just cannot compete," said Mr. Ryabov, 39,
whose small company is tucked away in the back of a former machinery factory.
The company pays about one-sixth of what it really owes in taxes. Any more
would make his blouses more expensive than the Chinese imports at Moscow's
biggest outdoor markets. Importers of such garments often avoid paying
tariffs, and the imports come to the consumer virtually tax-free.
Larger businesses have a harder time trimming officially reported wages and
revenue. One of Russia's biggest cosmetics producers, Kalina, says it
cannot get away with hiding revenue. It welcomed the tax changes, in
particular a flat-rate income tax reduction to 13 percent from a maximum of
35 percent. The company, which employs about 2,500 people, will have to
withhold far less from workers' wages.
"When I say we pay taxes, people look at me as if I am crazy," said
Aleksandr Petrov, finance director at Kalina, in the Ural Mountains.
The company is languishing in wait for long-delayed changes in taxes on
profits, which the government is to begin wrestling with in the fall.
Current laws allow it few write-offs for business expenses. For example,
only 0.5 percent of advertising expenses can be deducted, while write-offs
for aging equipment must be spread over 25 years, reducing the tax benefit.
Still, the tax changes so far have been welcomed by many Russians as a good
start. They allow the poorest people for the first time to take additional
write-offs for education and health care, and reduce the revenue tax, until
now 4 percent of company income, to 1 percent.
The Russian industrialist Kakha Bendukidze, who heads Uralmash, a big
machinery producer, called on President Vladimir V. Putin at a meeting last
Friday to further reduce tax rates. High taxes are the single biggest
hindrance to doing business in Russia, he said. "Until the tax rates are
lowered, every businessman is a criminal," Mr. Bendukidze said after the
The government has promised more cuts in 2002 and 2003.
Christian Science Monitor
August 1, 2000
Russia's Intellekt firm sends message in a bottle
Moscow company gets patent for 'glass containers' and claims everyday
bottlers owe royalties for its 'invention.'
By Fred Weir, Special to The Christian Science Monitor
In Russia's volatile commercial climate, few could have foreseen that the
latest tempest would erupt in a bottle.
A Moscow company has thrown Russian businesses - breweries especially - into
tumult by successfully patenting "glass containers," including the lowly
The little-known firm Intellekt, which claims to represent struggling
inventors, is demanding bottlers of everyday products pay up to 0.5 percent
of their total income in royalties. "They are trying to intimidate us into
signing a license to use bottles. It's unbelievable," says Valery
Krasnopolsky, chief lawyer for the Moskvoretsky Brewery in Moscow, one of
half a dozen companies targeted by Intellekt. "This country is just crawling
with people who are trying to make money from thin air."
Vladimir Zaichenko, director of Intellekt, says his company was set up to
help inventors navigate the labyrinth of Russian patent law. He says the
invention is a new and useful one, and that the company's legal case is
solid. "Let the beer companies prove in court that they aren't using the
bottles described in the patent, or that they were using exactly those
bottles before the patent was filed," he says.
Mr. Zaichenko says he will start going after dairies, soft drink makers, even
bottlers of perfume and other products after he wins the case with the
The former Soviet Union is already notorious as a haven for counterfeiters,
software pirates, and trademark copy artists, who collectively cost Western
companies an estimated $1 billion per year, according to the Coalition for
Intellectual Property Rights, an industry-funded lobby group.
But the chaos doesn't stop there. A new type of huckster is using Russia's
fledgling intellectual property laws to corner the market on items that have
been around for years.
Vague intellectual property laws
"The trick is to define an old invention in new terms, which isn't so hard to
do," says Nikolai Lynnik, director of the Institute of Industrial Property in
Moscow, which advises the Russian government on property issues. "It's pure
bluff, of course, but you'd be surprised how much trouble this sort of thing
So far, no one has paid anything for the use of bottles. Both Intellekt and
lawyers for the breweries are playing a waiting game. "We think the onus is
on Intellekt to take us to court and prove we're using their invention," says
Julietta Arutunyan, chief lawyer for the Badyevsky Brewery near Moscow. But
she admits that Russian courts can be unpredictable, and in the vague world
of intellectual property law, there is no such thing as a cut-and-dried case.
"Basically, we're just going to fight this thing for as long as it takes,"
The breweries blame Rospatent, the government patent bureau, for issuing the
certificate to Intellekt. Russian patent law is poorly developed, and those
who administer it lack experience, acknowledges Valery Djermakyan, deputy
head of Rospatent's expertise department.
First come, first serve
"Speaking frankly, we can't prevent this sort of thing from happening," he
says. "The only thing we can really do is check to see that such a patent
hasn't been filed before. And it hadn't."
Not that the officers who issued the patent were foolish enough to think the
bottle was really a fresh idea. "The drawings that were submitted described a
particular kind of geometric curve, detailing a difference in thickness
between inside and outside edges. It looked new," says Mr. Djermakyan.
Unfortunately, that particular sleight of Euclidean geometry could apply to
almost any bottle, jar, ampule, or flask. "We know we are dealing with a new
type of racketeer, but we lack the tools to weed them out," says Djermakyan.
Over the past year, he says, Rospatent has accepted patent applications from
various small companies that might give them legal grounds to claim the tin
can, the oil tank, the wing nut, the screw and the common nail as their own.
The cost of obtaining a patent in Russia is as low as $25, with other fees
added for "expertise" and processing.
Djermankyan says the bottle patent will probably be annulled if it is
properly challenged. "The producers just need to prove in court that they
were making these bottles before the patent was issued," he says. "It's not
for us to do this. There has to be a process."
Zaichenko, Intellekt's director, insists the law is on his company's side,
and bottle users will eventually have to pay up. "If a patent is issued, then
Rospatent recognizes the idea as original," he says. "They are the experts."
Zaichenko accused beer bottlers of resisting capitalism. "The directors (of
the beer companies) are reacting to our proposals in a completely Soviet
way," he says. "They immediately begin to sling mud at us instead of
negotiating, as should be done in a civilized market economy.
"Their problem is they don't want to pay, though they are using a product
they didn't invent. They simply don't understand patent law at all,"
The real problem is Russia's short experience with such market tools as
patents, says Tom Thomson, Russia representative of the Coalition for
Intellectual Property Rights.
"This story with the bottles is really absurd, and it underlines the kind of
problems we face in the former Soviet Union," says Mr. Thomson. "Russian laws
on intellectual property are actually very good, and getting better every
year. The difficulty comes in enforcement. Private industry, the courts, and
the patent office are very inexperienced in this country."
The New Statesman (UK)
31 July 2000
The New Statesman Profile - Vladimir Putin
Liberals fear a Pinochet-style regime; but Russia's new leader is their
best hope. Vladimir Putin profiled by John Lloyd
John Lloyd, who writes fortnightly for the New Statesman, is a former
Moscow correspondent for the Financial Times
A few weeks short of nine years ago, in August 1991, as the all-but comic
coup against Mikhail Gorbachev collapsed, I stood at midnight outside the
Lubyanka in the centre of Moscow and watched as the statue of Felix
Dzherzhinsky was wrenched off its pedestal. "Iron Felix" had founded the
KGB on Lenin's command. Cruel, ascetic and devoted to the Bolshevik cause,
he had served as an icon for the men who worked in the hulking building
behind the statue, some of whom (one could see from the twitching curtains)
were watching events on the square outside.
Dzherzhinsky's was one of the finest of the thousands of statues of the
early Bolsheviks, then spread thickly across the Soviet Union. The sculptor
had given him a long coat, which swept about him as he gazed haughtily down
what had been Marx Avenue to Revolution Square, his little beard jutting up
into the Moscow air.
But down he had come. The crowd's leaders had got acetylene cutters to
sever the brass rods holding him upright on his plinth, and had fetched a
tall crane - which had been doing some repairs on the US embassy a mile or
so away - to lift the statue clear. That statue's fall was even more
unambiguous in its unerring aim at oppression than was the scaling of the
Berlin Wall two years before. As it hung there for some minutes at the end
of the crane's jib, before being tenderly lowered, you felt that to be part
of such a crowd was to be given the nearest thing to grace in a world from
which God had long since departed.
Off went Iron Felix - not to hell, but to a purgatory near the Tretyakov
Gallery, which was named the Park of the Totalitarian Period. And there he
has stayed, a little piece of exotica for the knowledgeable tourist, a
place of pilgrimage for the dedicated pro-Soviet. Until now. Now, on the
initiative of a group of deputies of the Agrarian Party - closely allied to
the Communist Party - Dzherzhinsky may be moved back to look down towards
Revolution (now Manezh) Square once more.
Is this symbolic? Is President Vladimir Putin a new autocrat, bent on
returning to the spirit if not the text of the Soviet era? Last year, he
unveiled a plaque to Yuri Andropov, for two decades the leader of the KGB,
of which Putin was a member. He is widely believed to have drunk a toast to
Stalin on the dictator's birthday last year. One of his new officials has
admitted to keeping a bust of Dzherzhinsky on his desk - and, as a former
KGB general, the man would not have made such a comment without the belief
that it would command an approving grunt from above.
There is more than rhetoric or show here. An acquaintance, a foreigner who
has run businesses here for the past decade, told me how one of his clients
had been turned over by the tax police. On their heels came the security
services, who offered a choice: turn over part of the business profits to
them, or go to jail for tax offences. An employee of the biggest private
bank, Alfa, was arrested by the militia and handed over to the security
services, which proposed that he do some spying for them. As Pytor Aven,
one of the two "oligarchs" who run Alfa, said: "The security services think
they hear the old music playing again."
Is the old music playing again? Are we seeing a not-so-slow, not-so-subtle
undermining of the democratic and civil achievements of the Yeltsin era,
which, although awash with rackets and racketeering, still observed, very
broadly, the classic liberal freedoms and allowed a diversity of opinions
Many liberals certainly think so. The people who voted, by a large
majority, for Putin in March voted for many things, many of them
contradictory. Putin has made it as clear as he has made anything that he
regards the market as the only viable form of economic organisation, and
his determination to further the imperfect economic reforms of the Yeltsin
era has been signalled by his appointment of leading lights from the
liberal economists to the economic portfolios.
Yet Putin has also started a series of challenges, on the grounds of
non-payment of taxes or of illegal privatisation, to the "oligarchs" - the
men who have vastly enriched themselves over the past ten years, under the
protection and with the encouragement of Yeltsin - and these challenges,
clumsily repressive and ill-prepared as they have seemed, have won him more
popularity. That the first object of the Putinschina should be Vladimir
Gusinsky - who in Media-MOST has created the strongest and best-presented
TV and print group in opposition to the present government - has made many
in Russia certain that we are seeing the adumbration of a Latin American
approach of the Pinochet (Chile) or Fujimori (Peru) type. This involves a
devil-take-the-hindmost drive for priva-tisation and strict monetary
control, combined with an authoritarian state that can cope with the
resulting discontents. As the real cynics say of this prospect: "We should
be so lucky."
But the cynics and the liberals are wrong in their scepticism, and their
fear. Putin is not the nightmare they claim him to be. Indeed, he is the
liberals' and the oligarchs' best hope; if he fails in what he intends to
do, then either he will resort to harsher methods or, more likely, he will
be swept away and someone who is dying to be harsh will step in.
The distinguishing feature of Vladimir Putin is his realism. He has told
the people, most notably in his state of the nation address to the
parliament earlier this month, that "the state has to a very large degree
assisted in the dictatorship of the shadow economy . . . raging corruption
and a huge outflow of capital"; that "today's economic indices look
optimistic only against the background of yesterday's"; that "the main
obstacles to economic growth are high taxes, the arbitrary actions of
functionaries and the rampage of criminal elements"; and that "we are
losing out in the competitive world market". He also said that "it is to
the advantage of a weak power to have weak parties; a strong power needs
strong competition"; that "without truly free media, Russian democracy will
simply not survive and we will not succeed in building a civil society";
and that "our strategic policy is the following - less administration, more
free enterprise, more freedom to produce, to trade, to invest".
All a liberal show, like Stalin's constitution? The question is not absurd
when set alongside Russia's history for producing facades of democracy, or
beside the Andropov-Dzherzhinsky "restorations". But it leaves out what has
changed. In the past ten years, alongside the corruption, misery and chaos,
there have emerged 100 shoots of civil societies which, although tender,
are deeply inimical to a presence in the Kremlin that attempts to uproot
them. People travel too much, publish and read too much, trade too much,
use the internet too much. They are undergoing consumer revolutions, sexual
revolutions, intellectual revolutions and business revolutions. They are
surer than they were a decade ago that they are part of Europe, and less
concerned than they were ten years ago that the rich have got rich.
Chechnya, where torture has been used on a vast scale, is a horror. But
horrors (leaving aside that the Chechen "state" had collapsed into
banditry, drug-running and clan warfare, and that no leader existed with
whom the Russians could deal) do not have to blow back into the state
perpetrating them - as the histories of the British and French empires, and
of the US suppression of the native Americans, all show. All of these
states became more democratic and civil in the heyday of their imperial or
internal repressions; the problem was that they left the enemy, or the
imperial subjects, out of the democratic equation. Lenin's dictum, to the
effect that Britain could never be free while Ireland was in chains, is at
best, like many of his dictums, deeply misleading.
Putin has given the oligarchs a fright, in the crude Russian manner. Now he
has to give them a choice: either get out of politics and criminality and
do the business you say you wish to do, or take the heat. He may continue
to act spitefully and viciously towards Gusinsky, and that is a cause for
concern to the future of the media. But further he will not go.
This is not Iron Vladimir, whatever romance he and others care to weave
about the former bosses of their organisation. This is a man seeking to
create an efficient state.
The liberals can preserve themselves, widen their area of influence and
assist Russia to civility by co-operating with him while the chance is
there to do so.