August 9, 2000    
This Date's Issues: 4447•  4448   • 

Johnson's Russia List
#4448
9 August 2000
davidjohnson@erols.com


[Note from David Johnson:
1. Reuters: Gareth Jones, One year in power, Putin still haunted 
by bloodshed.
2. Reuters: What Russia's Putin has done in a year.
3. Moscow Times: Yulia Latynina, Macroeconomic Pilfering Won't Work.
(re IMF funds) 
4. Moskovsky Komsomolets: Alexei Borisov, A YEAR IN THE LIFE OF 
PUTIN. The President's Lucky Period Can Be Over Soon.
5. RIA Novosti - Moscow Diary: Boris Shmelev, RUSSIA'S PLACE IN THE 
WORLD MARKET.
6. Stratfor.com: Moscow Tackles Military Corruption.
7. Boston Globe: Nikolai Sokov, The future of Russia's nuclear 
arsenal.
8. Reuters: U.S. intelligence assesses global NMD reaction.
9. Joseph Serio: FBI in Russia.
10. Reuters: Russia plans balanced budget for 2001.
11. Reuters: Russian 2001 budget draft details.]

*******


#1
ANALYSIS-One year in power, Putin still haunted by bloodshed
By Gareth Jones

MOSCOW, Aug 9 (Reuters) - Vladimir Putin marked his first year at the summit 
of Russian politics on Wednesday, but a deadly bomb blast in Moscow spoiled 
his anniversary and provided a grim reminder of the bloodshed which marred 
his rise to power. 


Instead of celebrating what has been a remarkably successful year for the 
47-year-old ex-KGB spy, Putin found himself heading a criminal probe into 
Tuesday's blast in an underpass near the Kremlin which killed seven people 
and wounded dozens. 


Some Russian officials, including Moscow Mayor Yuri Luzhkov, have blamed 
Chechen rebels for the blast, just as Putin did last year for a series of 
similar explosions which killed nearly 300 people and helped trigger a new 
war in breakaway Chechnya. 


The rebels have denied involvement in any of the blasts and on Wednesday 
Putin himself cautioned against rushing to pin responsibility for Tuesday's 
explosion on any specific group. 


But political analysts said the fact the bomb coincided with the anniversary 
of Putin becoming prime minister strongly suggested a link with events in the 
North Caucasus region. 


CHALLENGE TO PUTIN 


They said it posed a direct challenge to Putin's authority and underscored 
the lack of progress towards any long-term settlement of the conflict in 
Chechnya, where rebel fighters continue random harassment and ambush of 
Russian forces. 


``I think Luzhkov was close to the truth. This bomb was an anniversary 
present to Putin, a reminder that Moscow is the capital of a state which is 
still at war,'' said analyst Alexei Malashenko of the Carnegie Endowment for 
International Peace. 


``Unfortunately, it is not the first terror attack... and it is almost 
certainly not the last,'' he told Reuters. 


The analysts said the blast also exposed the limits of Putin's power, showing 
that no leader, however tough his rhetoric, can prevent such random attacks. 


``If a bomb goes off on the anniversary of the day he came to power, it means 
that the terrorist threat he pledged to remove is still there,'' said Boris 
Makarenko of the Centre for Political Technologies. 


Boris Yeltsin stunned the nation on August 9, 1999, when he named the 
little-known Putin both as his prime minister and as the man he wanted to 
succeed him in due course as president. 


Yet scepticism quickly gave way to admiration -- among Russians at least -- 
as the energetic, no-nonsense Putin presided over the defeat of 
Chechen-backed Islamic rebels in the southern Dagestan region. 


The spate of devastating bomb blasts in Russian cities, blamed on the Chechen 
rebels, helped cement popular support for a crackdown. Putin dispatched 
troops to retake Chechnya, whose separatist leaders had defied Moscow since 
1991. 


Putin took over as acting president on New Year's Eve after Yeltsin's shock 
resignation. His uncompromising stance on Chechnya, now mostly under shaky 
Russian control, helped him win a landslide victory in the March 26 
presidential election. 


PUTIN'S POPULARITY NOW BROADLY BASED 


Putin's continuing popularity goes beyond Chechnya. He has skilfully appealed 
to Russians' nostalgia for a strong state, he has impressed the West with 
pledges on market reforms, and his very vigour and youth provide a refreshing 
contrast to the ailing Yeltsin's final erratic years at the helm. 


But analysts said Putin faces a huge task in achieving his goal of making 
Russia a strong, prosperous and orderly country. 


``The Yeltsin era generated huge expectations which all ended up as kasha 
(porridge) -- for small businessmen, whatever middle class was created and 
those in science and the academic field,'' said Yuri Byaly of Moscow's 
Experimental Creative Centre. 


``Russia remains weak in every sense -- the economy, the military and lack of 
elite. Putin has so far not put forth any specific ideology or goals and 
therefore risks disappointing the expectations of people who form the big 
pool of his support.'' 


For now, however, Putin is riding high. A recent survey put his support at 73 
percent, far ahead of his nearest rival, Communist leader Gennady Zyuganov 
whom he trounced in March. 


He has overturned economic policy by securing passage of a tax code based on 
a 13 percent rate for all and vowed to avoid special ties with ``oligarch'' 
businessmen. 


Putin has moved to revive relations with Soviet-era allies like North Korea 
and Libya. But he also won accolades from Western leaders at the July G8 
summit in Japan and stressed that Russia had to move closer to Europe and 
other Western partners. 


His most visible political success was taming the State Duma (lower chamber 
of parliament) so hostile to Yeltsin and revamping the Federation Council 
(upper house) and regional bodies. 


Governors, key to post-Soviet federalism, were browbeaten into voting for 
their removal from the upper house and for a law empowering Putin to remove 
them if deemed to have broken laws. 


CHECHNYA REMAINS DARKEST BLOTCH 


But Chechnya looks set to haunt Putin for a while to come. 


Although nominally in control of all but Chechnya's southern mountains, 
Russian troops remain vulnerable to sporadic attack by the rebels, who have 
vowed to fight on regardless. More than 2,500 servicemen have died in 
Chechnya over the past year. 


Political analysts played down the chance of Tuesday's bomb harming Putin's 
popularity, at least for the time being. 


``His image is more complicated now (than when he was premier). One bomb 
can't kill his reputation,'' said Makarenko. 


``But it will still have a powerful effect,'' he said. ``On the one hand, 
people will demand tough action against the rebels, but on the other, they 
will be more sceptical about the chances of winning the war.'' 


(Additional reporting by Ron Popeski) 


*******


#2
FACTBOX-What Russia's Putin has done in a year

MOSCOW, Aug 9 (Reuters) - Vladimir Putin marked his first year at the top of 
Russian politics on Wednesday. 


Boris Yeltsin appointed the little-known former KGB spy as prime minister on 
August 9, 1999, and also named him his preferred successor as president. 


Putin duly took over as acting president on December 31 after Yeltsin's shock 
resignation and went on to win a presidential election on March 26 on a 
platform of restoring order and prosperity in the impoverished ex-superpower. 


Here is a summary of Putin's main achievements since he took charge of the 
government one year ago: 


THE ECONOMY - Putin has presided over the strongest economic recovery in 
Russia since the 1991 collapse of communism, with gross domestic product 
expected to rise by more than five percent this year, the rouble stable and 
inflation under control. But the recovery has been from a very low base 
following a deep financial crisis and has been attributed largely to higher 
world market prices for Russia's main commodity and energy exports, notably 
oil. The 1998 devaluation of the rouble has also helped to make Russian 
producers more competitive against imports. On Monday, Putin signed into law 
part of a new tax code, cornerstone of his government's reform programme 
which aims to ease the fiscal burden, encourage Russians to pay their taxes 
and improve the business climate. 


OLIGARCHS - Putin has moved against some of the so-called ``oligarchs'' or 
business elite, accusing them of ``fishing in murky waters'' by using their 
political connections in the Yeltsin years to amass huge personal fortunes. 
Tax police launched cases against several big companies including oil giant 
LUKOIL and prosecutors briefly had independent media magnate Vladimir 
Gusinsky jailed for alleged fraud. The case against Gusinsky, which also 
raised concerns about press freedom under Putin, was later dropped. 
Influential businessman Boris Berezovsky resigned his seat in parliament in 
protest against what he called Russia's lurch towards authoritarian rule. But 
at a meeting in the Kremlin late last month -- from which Berezovsky and 
Gusinsky were absent -- Putin reassured the business elite that he would not 
overturn Yeltsin-era privatisations. The ``oligarchs,'' for their part, said 
they would not seek special favours from the authorities. 


CHECHNYA - Putin was the architect of Russia's military offensive against 
separatists in breakaway Chechnya. The campaign remains broadly popular among 
Russians despite the deaths of more than 2,500 servicemen in under a year. 
Putin calls the rebels ``terrorists'' and blames them for a series of crimes, 
including bomb blasts in Moscow and other cities last autumn. Some Russian 
officials have also blamed the rebels for a bomb blast in central Moscow on 
Tuesday which killed at least seven and injured dozens more. Putin has taken 
personal charge of the criminal investigation. In Chechnya, the rebels are 
now mostly confined to the southern mountains but retain the ability to 
attack Russian targets even in the capital Grozny, and Moscow's overall 
control of the province remains shaky. There is no sign of peace talks, 
despite Putin's claim that he wants a long-term political settlement. 


THE MILITARY - Putin has approved Russia's new military decree which upgrades 
the role of nuclear weapons. But an unusually public row has erupted between 
Defence Minister Igor Sergeyev and Chief of General Staff Anatoly Kvashnin 
over the future course of military reforms. Kvashnin proposes cutting the 
size of the strategic rocket forces and putting them under air force command 
while funnelling more funds to conventional forces. The advisory Security 
Council, which under Putin has gained more influence, is expected to consider 
the reforms later this week but, in the meantime, Putin has sacked six 
generals seen as close to Sergeyev, a former head of the strategic rocket 
forces. 


WEAPONS AGREEMENTS - Shortly after his election as president, Putin secured 
parliamentary approval of the START-2 nuclear arms reduction treaty with 
Washington after years of delays. Parliament also ratified the Comprehensive 
Test Ban Treaty, further underlining Putin's influence over lawmakers in 
contrast to the fierce wrangling which marked Yeltsin's eight-year spell in 
the Kremlin. In two meetings with U.S. President Clinton since his election, 
Putin has reiterated his opposition to U.S. plans to deploy an anti-missile 
defence shield. Russia says the plans violate a key Cold War-era treaty. 


THE REGIONS - Putin has launched a campaign to rein in Russia's mighty 
regional leaders, pushing through parliament laws which strip them of the 
right to sit in the upper chamber, the Federation Council. Putin has also won 
the right, with court approval, to sack regional bosses who break federal 
laws. A third law to allow regional bosses to sack lesser officials still 
awaits approval. Under the new arrangements, the Federation Council will be 
composed of representatives chosen by the regional leaders but who in 
practice will probably be more vulnerable to Kremlin pressure. 


Putin has also issued a decree setting up seven administrative areas, each 
with a Kremlin representative, to oversee Russia's 89 regions. 


FOREIGN POLICY - Putin has been active on the international scene since 
becoming president, with trips to Britain, Germany, Spain, Italy, China and 
several ex-Soviet republics. Last month, he also became the first Kremlin 
leader ever to visit reclusive North Korea, winning an offer from its leader 
Kim Jong-il to suspend Pyongyang's controversial missile programme in return 
for help to explore space. Putin passed on the message to the world's richest 
nations at the Group of Eight summit in Japan, where his vigorous performance 
and grasp of his brief impressed other leaders. Determined to boost Russia's 
international profile, Putin plans further trips this autumn, to destinations 
including New York, Japan, India and France. 


*******


#3
Moscow Times
August 9, 2000 
INSIDE RUSSIA: Macroeconomic Pilfering Won't Work 
By Yulia Latynina 


Yet another scandal has hit Russian financial circles. According to a probe 
headed by Swiss Magistrate Laurent Kaspar-Ansermet, Prime Minister Mikhail 
Kasyanov may be linked to possible misuse of an IMF loan tranche transferred 
to Russia on the eve of the August 1998 crisis. 


According to a letter sent by Kaspar-Ansermet to various banks, the IMF funds 
left the U.S. Federal Reserve system for a Central Bank correspondent account 
in an unidentified bank. From there, they reportedly were transferred to an 
account at Creditanstalts-Bankverein, managed by Ost-West Handelsbank, a 
subsidiary of the Russian Central Bank. From there, the funds apparently went 
elsewhere: to banks in Australia, England, Switzerland and the United States, 
including the Bank of New York. 


First, a disclaimer: There is no sin in transferring money from account to 
account. That's what banks are for f to transfer money from one account to 
another. 


So what should have happened with the IMF funds? They were intended to 
bolster the ruble rate. That means that when a Russian bank sells rubles and 
buys dollars, the rate doesn't fall because the Central Bank has a lot of 
dollars. Technically, how does this happen? Very simple: Funds sit in a 
correspondent account of the Central Bank in a foreign bank, and after the 
Russian bank has bought dollars, they go from the Central Bank correspondent 
account to a correspondent account in a domestic, Russian bank f that same 
bank. 


Did something criminal happen with the IMF funds? The answer is simple: The 
allocation of the IMF tranche was itself criminal. At the beginning of July 
1998, internal Russian debt was three times greater than tax revenues. And 
the ruble rate was artificially inflated fourfold. 


The country was allocated $4.8 billion from the IMF. As soon as the money 
landed in the Central Bank correspondent account, higher-ups in Russian banks 
and their clients, all of whom were expecting a default, started selling 
their GKOs on the market. With the rubles they received, they bought dollars. 
Runaway bond sales pushed up interest rates, leading to the default. The IMF 
funds were shifted among correspondent accounts, leaving an ultimately fuzzy 
trail. 


The IMF essentially played the role of depositors who arrive at a bank as it 
is being burglarized. The police are standing around, the place is roped off, 
reporters are hovering. "There's a burglary going on in there," they are 
told. "There are only burglars in there f no honest people." 


"That's not important," the depositors respond, driving up to the entrance 
where they unload their bags and start to leave, saying, "We were told to 
replenish the hard-currency reserves." And then they are surprised that their 
bags are grabbed along with everything else. 


It is improbable that anyone will ever show the IMF tranche was stolen. But 
the problem in this country is not that someone has pocketed these funds. The 
problem is that theft has been transformed into a macroeconomic process 
capable of provoking anything, including default. And the threat that this 
possible pilfering will be discovered places Russia on its knees: Each time 
the nation wants to write off even a part of its debt, it is politely 
reminded where the loans may have gone. That's how it is. Taking has come to 
mean stealing; paying off has come to mean writing off. 


But it won't work that way, folks. 


Yulia Latynina writes for Sovershenno Sekretno. 


*******


#4
Moskovsky Komsomolets
August 9, 2000
[translation from RIA Novosti for personal use only]
A YEAR IN THE LIFE OF PUTIN
The President's Lucky Period Can Be Over Soon 
By Alexei BORISOV

A year has passed since the last but one change of 
Premier, when Sergei Stepashin was replaced by Vladimir Putin. 
At that time, no one could know that Putin came not for six 
months but for a four-year presidential term to be followed by 
Boris Yeltsin's dramatic resignation. From the very start of 
his premiership Putin began talking about "restoring order" in 
the country and its finances and economy and the restoration of 
Russia's greatness.
Let us analyze what Putin has managed to accomplish over 
the past year. 
To begin with, he has spared no effort to strengthen 
federal power throughout the year. Today, the government 
comprises only his supporters (excluding Aksenenko), who are 
members of not only the "St. Pete clan."
The owner of the Black Belt has managed to remove the 
Federation Council from the "political Olympus" - and this 
despite the fact that regional leaders were previously regarded 
as almost invincible and the influence of central authorities 
on them was rather relative. Now the Senators will have to 
return to their regions and the building of the former Upper 
House of parliament will be occupied by elected lawmakers.
Putin's second unquestionable achievement is that he has 
practically put electronic and pen mass media under the 
Kremlin's control without introducing official censorship in 
the country.
All suddenly remembered "the censor inside each of us." 
Oligarchs began surrendering their television bastions one 
after another.
Now it became clear that even without amending the law on the 
mass media in the direction needed by the Kremlin the President 
will not have the threat of serious information confrontation.
Lastly, Putin has assured almost complete support on the 
part of the so-called power structures, and this is of prime 
importance for the "dictatorship of the law." The ousting of 
the Russian business elite from politics can also be counted 
among Putin's achievements: after a recent meeting with the 
President financial tycoons finally realized that they would be 
allowed to do business in Russia only in exchange for their 
estrangement from political activities.
In addition to political achievements, Putin has the 
ground to boast of some economic successes. In the year of his 
leadership budgetary revenues have exceeded budgetary spending, 
which has been an unprecedented thing in the past ten years. It 
is true that a great role to play in this achievement had high 
world prices on oil and gas, rather than any super-efforts by 
Putin's economists. Nonetheless, nobody else but he takes 
credit for the pushing through the thick ranks of the Duma 
deputies and senators of the second part of the Tax Code, which 
codified the tax reform.
However, success, which is not backed up by concrete 
steps, cannot last long. In the next few months Putin can come 
across a number of problems, which will be new to him. To begin 
with, he and his team will have to ensure the growth of 
people's incomes in exchange for society's consent to his 
authoritarian rule. Such a growth is rather problematical, 
unless the flow of investments in the economy begins, the rules 
of "the economic game," which will be uniform for all, are 
introduced, an end is put to graft and embezzlements by 
bureaucratic officials and the legally obtained property is 
protected.
On top of that, Putin will have to solve the land problem, 
as it is the key to the solution of the food problem.
And lastly, in the international arena he will finally 
have to make up his mind about the strategic course of Russia - 
whether it is with the West or with the East. Judging by many 
things, the President has not made his choice yet.

******


#5
RIA Novosti - Moscow Diary
August 8, 2000
RUSSIA'S PLACE IN THE WORLD MARKET
By Boris SHMELEV, professor, head of Comparative Political 
Research Centre, RIA Novosti

Although Russia's course of market economy suggests its 
active participation in international economic relations, the 
country has to start its exploration of world markets, so to 
say, from scratch, since the USSR with its planned economy 
never intended to join the market system and did not have any 
links with the world economic community.
Right now, Moscow has to make considerable effort to 
overcome serious difficulties in this sphere. All world market 
have long ago been divided between different countries and 
companies, and Russia should fight rivals in order to sell its 
goods there. The situation is all the more complicated since 
foreign competitors often use the methods permitted in their 
countries to keep Russian goods out of their markets.
The story of Russian steel deliveries to the USA is a good 
example to illustrate this. Various enterprises of the Russian 
Federation used to supply high-quality cold-rolled steel 
overseas at prices favourable for American partners. US steel 
founders, who naturally hated the idea of facing a formidable 
competitor, charged Russian enterprises with dumping prices, 
thereby forcing Moscow to limit export of steel to the United 
States. Of course it was a serious blow for Russian metallurgy, 
but then, American companies kept their profit.
Another sphere presenting difficulties of the same kind is 
production of natural diamonds: Russia's ALROSA company, one of 
the world's biggest diamond producers, has to resist De Beers, 
its famous rival from South Africa, to avoid being squeezed out 
of the world diamond market.
The situation on the arms market is tense just as well.
Back in the Soviet times, Moscow was one of the world's largest 
producers and suppliers of first-class weapons. Yet, the USSR 
did not actually sell its military hardware, but exchanged it 
for some other goods or delivered it on deferred debentures, 
which amounted to billions of dollars as years went by.
Nowadays, Moscow wants to sell weapons like the USA or 
other countries sell it, but encounters an extremely negative 
reaction from Washington, which regards Russia as a dangerous 
rival producing military hardware that has a general run all 
over the world. That is exactly why Washington is doing its 
best to hamper deliveries of Russian weapons to India, Turkey 
and other countries and to ban Moscow from the South-American 
market, which the United States regards as its very own.
The same goes for the market of aerospace technologies, 
which is obviously in need of high-quality and reliable Russian 
equipment.
Meanwhile, Moscow can easily counteract the discriminatory 
policy of the USA and other countries by simply joining the 
existing international agreements that regulate relations in 
the world market and, above all, by joining the World Trade 
Organisation.
Unlike American companies, Russian companies do not have 
the state support they need in their struggle to enter the 
world market--and they do need it, for a company's success is 
not just its own business but a small victory for the entire 
country. The state can always help its commodity producers by 
taking protectionist measures against goods produced by 
countries that are involved in discrimination of Russian-made 
goods. It is a tough struggle that calls for a response blow 
instead of tranquillity.
At the moment, Western countries account for 45% of 
Russia's foreign trade turnover, which means less opportunities 
for selling Russian goods abroad. In the meantime, vast regions 
of the world /Middle East, Asian-Pacific region, Central Asia/ 
really need Russian raw materials and industrial goods like 
high-technology products or military and research hardware. 
These are the markets where Russian products, which meet the 
highest standards, can stand competition and avoid the barriers 
that are inevitable in a struggle over sales markets.


*******


#6
Stratfor.com
Moscow Tackles Military Corruption 
0027 GMT, 000809 


Summary 


The announcement of a graft investigation into four Russian army generals
on Aug. 7 symbolizes the corruption that plagues the ranks of Russia’s
armed forces. President Vladimir Putin has initiated criminal probes, but
trials will not be enough to curb the rampant corruption. Putin will have
to fight from both within and without the institution ­ even purging
officers. The president seems poised to pay the costs of professionalizing
the military. 


Analysis 


Four Russian generals from the Defense Ministry’s finance department are
under investigation for allegedly embezzling $450 million from the state’s
military budget ­ about one tenth of the entire fiscal 2000 defense budget.
Military prosecutors have also arrested a group of soldiers suspected of
stealing equipment from a Moscow base, and on the outskirts of Moscow, yet
more soldiers have been charged with stealing food. 


These cases bring to light the Kremlin’s agenda to combat the corruption
that permeates every rank of the Russian military. Arrests will be the
first step to curing the military’s corruption, but alone they cannot cure
the problem. For that, the Kremlin must resolve the debate over the reform
of the military forces. 


News out of Moscow suggests that President Vladimir Putin favors reducing
the number of troops to afford a more skilled and experienced army. But,
because such a plan would contradict the recent Russian doctrine of relying
on the threat of nuclear weapons to compensate for a weak, bulky army, it
would dictate a fundamental change in the structure of the Russian
military. The most crippling weakness ­ lack of funds ­ will be the most
difficult to overcome. 


The military’s corruption stems from a pervasive feeling among Russian
troops that they are being cheated. Soldiers in Russia earn an average of
about $50 a month, and have been promised significant raises that have yet
to materialize. Often troops are not paid nor rationed food. As of January
2001 servicemen expect a raise of 10 percent, which is less than the
country’s projected annual inflation rate, according to Russian news daily,
Izvestiya. 


The troops’ need to support themselves and their families long ago
outweighed their loyalty and nationalism. Russian soldiers steal, bribe and
extort for army funds. They pilfer food and take equipment; they even sell
weapons to their own enemies. Sporadic corruption would not be crippling,
but when it occurs en masse and consistently, it undermines morale and saps
the military of what little resources it holds. 


Russia’s military corruption, unlike the political and business corruption
plaguing the country, cannot be reversed by arrests, threats, new laws,
private deals, heightened nationalism or making examples of a select few
offenders. The state needs the soldiers and cannot afford to investigate
and decommission them all for prosecution. 


A debate about the future of Russia’s armed forces has circulated in Moscow
since Putin’s accession to the Kremlin. The military leaders themselves are
divided on the best course. Some believe in the strength of the Soviet-era
doctrine that calls for maintaining a large army and spending money on
modernizing the nuclear arsenal. Others seek to cut the military down to a
manageable, and affordable, size. This would free money up for much-needed
training and modern conventional weaponry. 


To execute a complete anti-corruption campaign throughout Russia’s
military, Putin will have to fight from both within and without. The recent
military prosecutions signal the beginning of reactionary steps to fight
corruption. And the resolution of the military reform debate will indicate
the beginning of the fight from within. Putin has already asked for an
increase in the defense budget for 2001 and has begun purging the advocates
of a Soviet-era military out of the ranks. 


The path to a more professional army will be long and expensive, but Putin
seems willing to choose it. It will not happen overnight, and perhaps not
even during Putin’s first term, but under like-minded leadership the
Russian army will eventually evolve into a more compact, professionally
trained force. Only then, when soldiers are paid and fed, will Moscow begin
to battle corruption in Russia’s armed forces. 


*******


#7
Boston Globe
9 August 2000
[for personal use only]
The future of Russia's nuclear arsenal 
By Nikolai Sokov
Nikolai Sokov is a senior research associate at the Center for 
Nonproliferation Studies in Monterey, Calif. 


On Aug. 11, President Vladimir Putin will decide the future of Russia's 
nuclear arsenal when the Security Council debates the proposal about a 
radical reduction of the Strategic Rocket Force. 


In order to shore up conventional forces, whose performance in Chechnya was 
close to disastrous, Chief of the General Staff Anatoli Kvashnin proposed to 
reduce land-based nuclear weapons and use the savings to expand conventional 
troops and supply them with modern arms. His plan envisages reduction of 
land-based missiles from about 750 to 150, the number of ICBM divisions from 
19 to 2, and annual production of ICBMs from about 12 to 2. The force will 
eventually be eliminated as an independent branch of the Armed Forces and 
folded into the Air Force.


This plan, undoubtedly, is encouraging. Russia's reliance on nuclear weapons 
is excessive and dangerous. Moreover, the Russian General Staff indicates 
that Russia will reduce its nuclear weapons unilaterally and will not react 
to an American defense system. 


One should not be excessively optimistic, however. Kvashnin's proposals 
encounter stiff opposition in Russia, and not just from the Strategic Rocket 
Force. Even his supporters contend that savings will actually amount to less 
than one percent of the defense budget and that fast-track reductions will 
cost so much that funding for conventional forces will decrease in the next 
few years. 


Others ascribe the antinuclear aspirations of the chief of the general staff 
to his desire to topple the minister of defense rather than to genuine 
concern about the armed forces. 


Another explanation is the conflict between the ''missile mafia'' headed by 
Igor Sergeev and the group of ''Chechen generals'' who made careers during 
the first and second Chechen wars and whose interests are represented by 
Kvashnin, himself a leading figure in both wars. 


The origins of the conflict hide a trap: a reform that is based on a flimsy 
foundation can be reversed easily in the future.


Kvashnin's proposals can also seriously undercut Putin's recent initiatives, 
including rapprochement with Western Europe and the star performance at the 
recent G-8 summit at Okinawa, where US allies joined Russia in opposition to 
America's national missile defense plan. China, which is against the plan, 
will simply feel betrayed, and the ''strategic partnership'' launched by 
Boris Yeltsin in 1997 might crumble. 


For all these reasons, a drastic change of Russia's nuclear posture seems 
unlikely. The country's defense policy does need serious adjustment, so Putin 
might adopt some version of a more measured, cost-effective plan of 
reductions and probably link it to the prospects of US national missile 
defense. 


It also seems likely that he will fire both the minister of defense (who 
represents the entrenched ''missile mafia'') and the chief of the general 
staff, whose excessive radicalism hurts the president's policy. Instead, 
Russia might soon see the appointment of its first civilian minister of 
defense. This will constitute a positive outcome of the debate. 


*******


#8
U.S. intelligence assesses global NMD reaction
By Tabassum Zakaria

WASHINGTON, Aug 8 (Reuters) - A classified U.S. intelligence report predicts 
that if the United States deploys a national missile defence system, China 
would likely add to its nuclear arsenal as a deterrent while Russia would 
continue reductions in its nuclear force, U.S. government sources said on 
Tuesday. 


The classified National Intelligence Estimate put together by the U.S. 
intelligence community assesses the reaction of countries to any U.S. 
decision to deploy a missile shield. 


That report will be one factor that U.S. President Bill Clinton will consider 
in deciding later this year whether preparatory work can start on building 
the system. 


Russia and China have bitterly opposed a U.S. missile defence system, saying 
it could lead to a renewed arms race, sparking concern among some U.S. allies 
in Europe. 


U.S. officials who support a missile defence system say the $60 billion 
proposal to build 20 interceptors in Alaska by 2005, growing to 100 
interceptors in later years, was necessary to counter potential threats from 
hostile countries like North Korea, Iran and Iraq. 


The threat section of the intelligence report was largely similar to an 
assessment last September that the United States would most likely face 
threats from North Korea, probably Iran and possibly Iraq over the next 15 
years, U.S. sources said. 


The intelligence report said that while China did not want to become engaged 
in a costly arms race, if the United States deployed a national missile 
defence system, China was more likely to increase its arsenal of missiles 
carrying multiple nuclear warheads, U.S. government sources familiar with the 
report told Reuters. 


But the increase would likely be small, just enough to make China comfortable 
that its nuclear arsenal gave it adequate deterrence against the United 
States, U.S. sources said. 


``They will build to preserve a small number of missiles that they can use 
against us as a deterrence,'' one U.S. official said. ``The question of how 
much additional they are going to build is up in the air.'' 


A Defence Department report to Congress earlier this year said the only 
Chinese missile system capable of targeting the continental United States was 
the CSS-4 intercontinental ballistic missile and that China had reportedly 
built 18 silos for those missiles. It also said China was designing a new 
generation of mobile intercontinental ballistic missiles. 


RUSSIAN DECREASE TO GO ON 


The new intelligence report says that Russia was likely to continue 
decreasing its strategic nuclear forces due to ageing, limited resources and 
a slow pace of modernisation, U.S. sources said. 


But the report also said that Russia would like to increase the pace of 
developing weapons that could circumvent any U.S. national missile defence 
system, U.S. sources said. 


``Right now they (Russia) are maintaining a bigger force than they can 
afford,'' a U.S. official said, adding that one reason Russia has proposed 
that a new START-3 arms control deal with the United States should reduce 
each country's nuclear arsenal to 1,500 warheads from 3,500 under the 1993 
START-2 pact. 


``It's not a question of building up their forces, it's a question of slowing 
the decrease in force,'' a U.S. official said about Russia's likely response 
to a U.S. missile defence. 


U.S. officials pointed out that whatever steps Russia and China might take, 
Russia would still have a sizable nuclear force and China would still have a 
modest one. 


U.S. Defence Secretary Cohen this year visited Moscow and Beijing to try and 
convince leaders that a U.S. missile defence was in no way intended to 
counter their weapons. He did not succeed. 


Cohen was expected to make his recommendation to Clinton on the technical 
feasibility and cost of the proposed system in the next several weeks. In 
making that recommendation, Cohen will take into account the failure of two 
of three tests of whether the so-called ``kill vehicle'' weapon can discern 
and destroy an incoming missile in space. 


The last test in July failed because the ``kill vehicle'' failed to separate 
from its booster rocket. The Pentagon on Tuesday said the development of a 
new booster rocket for the system was behind schedule and it would likely not 
be tested until next spring. 


2005 READINESS IN QUESTION 


The next scheduled intercept test will also be delayed. Those factors added 
to the question of whether the proposed missile defence system could be 
deployed by the 2005 target. 


Neither last September's intelligence report nor the current one links the 
potential North Korean threat to 2005, a date which U.S. officials have 
repeatedly cited as the timeframe in which North Korea might be able to hit 
the United States with a missile. 


The latest intelligence report said that the third stage on North Korea's 
Taepodong-1 missile failed but that if a working third stage was put on the 
Taepodong-2 it could hit just about anywhere in the United States. 


If North Korea started testing the Taepodong again it could pose a threat to 
the United States sooner than 2005, but if it maintained its freeze on 
testing, the emergence of a threat would be postponed, according to 
intelligence assessments. 


The latest report does not discuss at any length the latest offer by North 
Korea to drop its ballistic missile programme if other countries would launch 
two or three satellites a year for Pyongyang. 


********


#9
From: Jdserio@aol.com (Joseph Serio)
Date: Tue, 8 Aug 2000 
Subject: FBI in Russia


Although JRL talk about the "Russian mafia" seems to have decreased
somewhat over the past year or so, from time to time a contributor will
wonder aloud why it took the FBI a seemingly inordinate amount of time to
set up its liaison office in Moscow. I do not presently nor have I ever
worked for the FBI and so can't claim comprehensive knowledge of the
internal debate that must have occurred in the late 1980s and early 90s.
>From what I have seen firsthand and have heard from contacts, though,
sufficient information is available to begin to explain the delay. 


In August 1989, two MVD colonels (then-deputy chief of the newly-formed
organized crime control department, Gennady Chebotarev, and a senior
researcher at the MVD Research Institute, Anatoly Volobuev) came to the
University of Illinois at Chicago where I was working at the time to
present papers on the state of organized crime in the USSR. My job was to
escort them and interpret during their week-long stay. The two-fold
bottom-line message of their presentations and private conversations was
clear and concise: 1) we have an organized crime problem we're not
prepared to handle and need your help; 2) sooner or later our organized
crime problem will be your organized crime problem. 


They asked our assistance in setting up a meeting with the FBI during their
visit. Unfortunately, though perhaps understandably to some degree, the
FBI refused. According to US government sources, there was a major
firestorm raging inside the Bureau between the law enforcement side of the
house and counterintelligence. 
Long-time counterintelligence agents who had spent a fair portion of the
1980s surveilling the Soviets in and around New York City were outraged by
even the prospect of opening the door to the very people they had been
laboring to keep out. There was concern that the Soviets would attempt to
compromise the counterintelligence and organized crime control agents who
would be exposed to the Soviets in the event of a working relationship.
One of our local (Chicago) Bureau contacts had mentioned the fear inside
the FBI that these officers could have been KGB agents acting as a Trojan
Horse, extending a hand of cooperation if not friendship while harboring
less gracious motives. 


The following year (May 1990) Chebotarev, the deputy head of the MVD's
organized crime control department, returned to Chicago with two generals,
a colonel, captain and major to explore the possibility of establishing an
exchange program between the University (since the Bureau wasn't
interested) and the MVD. During this visit, local Bureau representatives
did take five minutes to say a guarded "hello" to the Soviets. 
As far as I can tell, one of the earliest "recon" visits (if not the
earliest) of the FBI to Moscow took place in April 1991. At the time, I
was working in the MVD's organized crime control department, supervised by
Chebotarev. He asked me to interpret a meeting between him and the
Bureau's international representative. As could have been expected, the
representative was nearly totally unaware of reality on the ground in the
Soviet Union, and left me with the impression that relatively little was
accomplished, at least during that meeting. As anyone who has dealt with
the former Soviet Union knows well, an unproductive meeting (at least from
an American point of view) was the rule rather than the exception. 


In October that year, together with the United Nations, the MVD sponsored
an international conference on organized crime control. There were some 25
countries represented including the United States in the persons of Jim
Moody, then-head of the FBI's organized crime control department, and
Michael DeFeo, a Justice Department lawyer from the racketeering and
organized crime department. The conference was closed to the public with
only a handful of outside observers present. Perhaps to reduce
distractions or to keep out the "mafia," the conference was held in Suzdal.
To get US practitioners on the ground in the USSR (and even beyond Moscow
city limits) I thought was a positive step. Trying to judge or even to
imagine conditions in the Soviet Union without ever having visited is a
certain impossibility. 


As Moody's interpreter for a number of informal conversations with local
law enforcement and KGB officers of high and low rank, I know he heard
things that sent him into a mild state of shock. Eighty percent corruption
in the local departments. Lack of equipment, vehicles and even gasoline.
My guess is Moody returned to Washington with a more urgent message than
the international representative who preceded him. Shortly thereafter, of
course, the Soviet Union was thrown into the dustbin of history. 


The Bureau then would have found itself in a position to wait for the dust
to settle, re-identify the real decision makers, continue to do battle with
Russian bureaucratic uncertainty and lingering Cold War suspicions. 


In February 1993, then-chief of the Russian Federation's organized crime
control department, Mikhail Yegorov (who had been a deputy chief during my
stay in 1990-91), went to the US for meetings with the Bureau and to get
the relationship moving forward. This seems to have been a turning point
in terms of the Russians' ability to make a commitment to the relationship.


As I understand the process, though, the Bureau then would have had to have
faced our own bureaucratic morass, as permission to open an office overseas
would require the assistance of the State Department and the approval of
Congress. That couldn't have been an easy process. 


According to sources in Moscow, once the liaison office was approved,
relations between some Embassy staff and the FBI were slow to get off the
ground. For example, the Embassy physical plant (housing, office space)
required a directive from the State Department before acknowledging that
the Bureau was part of the Embassy team. Office space was virtually in a
hallway, and housing space that was initially to be allocated was little
more than what Embassy clerical personnel received, if that much. Those
and other such issues needed ironing out.


If we start the clock ticking at January 1, 1992 (after the collapse of the
USSR), it took the FBI two and a half years to open a liaison office in
Moscow. I'm no Bureau apologist, and agree that it would have been nice to
have had the relationship up and running long before 1994 (like 1989),
but….given all the considerable obstacles - including psychological and
bureaucratic - maybe they're lucky ever to have gotten established in
Moscow. 


********


#10
Russia plans balanced budget for 2001
By Svetlana Kovalyova

MOSCOW, Aug 9 (Reuters) - Russian Finance Minister Alexei Kudrin announced 
plans on Wednesday for a balanced budget next year, but said the government 
would have to borrow abroad to meet its foreign debt obligations. 


Kudrin told a news conference his ministry's budget draft envisaged spending 
and revenues of 1.19 trillion roubles -- $40 billion at the projected average 
exchange rate for the year of 30 roubles per dollar. 


The draft, which will be further discussed before being handed to the 
government, called for a primary surplus, which is calculated before debt 
payments, of 3.1 percent of gross domestic product (GDP). 


The government hopes to reduce its total foreign debt, seen at $158 billion 
at the start of next year, as a result of a restructuring deal with the Paris 
Club of creditor nations and repayment of due debts. 


Kudrin said the government planned a conservative foreign borrowing policy 
for 2001, while speeding up privatisation and borrowing 107 billion roubles 
on the domestic market. Domestic debt payments are targeted at 98.9 billion 
roubles. 


However, Kudrin said the government would have to borrow abroad to refinance 
its foreign debt, and foreign borrowing volume would depend on talks with 
creditors: ``Apparently, we will need it (foreign loans). Our debt is not 
small.'' 


Kudrin said the government had discussed International Monetary Fund support 
in the range of $1.8 billion next year and expected $900 million in untied 
World Bank loans. 


The government has also frequently considered tapping foreign markets next 
year for the first time since the 1998 economic meltdown, though Kudrin 
declined to name a total foreign debt figure or say whether bonds were 
definitely on his agenda. 


``Eurobonds will depend on market conditions and the outcome of talks with 
the Paris Club. Russia needs to raise its rating so that interest rates would 
not be a burden for the budget.'' 


PARIS CLUB DEAL MAY SAVE BILLIONS 


A deal with the Paris Club to restructure about $42 billion of Soviet-era 
debt would mean total 2001 repayments of $4.5 billion and a further $6 
billion in debt servicing, Kudrin said. Without a deal, the debt burden would 
total $14.5 billion. 


``We are ready for either outcome and are planning the budget so that 
whatever happens talks will not worsen the main numbers,'' Kudrin said. 


He said Russia had recently reached bilateral agreements with Germany, its 
main Paris Club creditor, the United States and Italy. 


These agreements, part of a framework restructuring deal reached a year ago, 
are needed to start talks on a comprehensive restructuring deal, expected to 
begin in the autumn. 


Kudrin said this year's budget, swelled by high prices for energy and 
commodities exports that have helped keep the economy booming, would have an 
outright surplus of 1.7 percent of gross domestic product and a 4.7 percent 
primary surplus. 


The 2001 budget, as usual largely dependent on international oil and other 
commodities prices, is based on an estimated average $18-19 per barrel oil 
price. 


Inflation is expected to slow to 12 percent, from 18 percent in this year's 
plan, and GDP, expected to grow about four percent next year, will be 7.75 
trillion roubles. 


******


#11
FACTBOX-Russian 2001 budget draft details


MOSCOW, Aug 9 (Reuters) - Russian Finance Minister Alexei Kudrin said on 
Wednesday his ministry had drafted a $40 billion balanced budget for 2001 
with a 3.1 percent of gross domestic product (GDP) primary surplus, 
calculated before debt payments. 


The draft budget, which will be further discussed before being handed to the 
government, included $10.5 billion of foreign debt payments, Kudrin told a 
news conference. 


The government is due to consider the draft budget on August 22 and palns to 
hand it over to the State Duma lower house of parliament on August 26. 


Following are details of the 2001 draft budget, with a 2000 comparison: 


2001 DRAFT 2000 BUDGET 
GDP (trln rbls) 7.75 5.35* 
Total revenues (bln rbls/pct GDP) 1,187/15.3 797.2/14.9 
Total spending (bln rbls/pct GDP) 1,187/15.3 855.1 
Deficit nil 57.9 
Primary Surplus (pct GDP) 3.1 3.0** 
Financing for deficit (bln rbls) 
-Internal n/a 39.92 
-External n/a 18.75 
Foreign credits ($bln) n/a 5.96 
Foreign debt 
servicing (pct of spending) n/a 24.3 
C.bank credits ($bln) 
(included in external financing) n/a $1.0 
Foreign debt payment ($bln) $10.5 $10.2 
- if Paris Club debt not restructured $14.5 -- 
Inflation (pct) 12 18 
GDP deflator (pct) 15.5 n/a 
Average rouble/dlr rate 30 32*** 


* The Finance ministry has revised its 2000 GDP forecast to 6.45 trillion 
roubles. 
** Kudrin said the government expected a primary surplus of 4.7 percent of 
GDP in 2000. 
*** A Finance Ministry official has forecast that on average the rouble will 
not weaken below 29.50 per dollar in 2000. 


******