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Johnson's Russia List


August 30, 2000    
This Date's Issues: 4484

Johnson's Russia List
30 August 2000

[Note from David Johnson:
Warning: Over the next few days there will be fewer JRLs than usual. Use your free time wisely.
1. Moscow Times: Sarah Karush, Police Storm Glasnost Foundation.
3. Leonid Bershidsky: Re: 4483-Stratfor/Oil.
5. From Edward Lucas. (The Economist's man in Moscow)
6. St. Petersburg Times: Vladislav Schnitzer, Anti-Semitism Robbing Russia of Its Best Minds.
7. The Guardian (UK) editorial: Russia in crisis. It is doing too much with too few resources.
8. The Guardian (UK): Larry Elliott, Russia in limbo. President Putin needs time and money to steer his country's transition to a market economy. And neither are in very great supply.
9. Moscow Times: Yulia Latynina, Another Banking Experiment? 
10. George Szamuely, The Kursk Affair: When Nations Collide.]


Moscow Times
August 30, 2000 
Police Storm Glasnost Foundation 
By Sarah Karush
Staff Writer

Masked commandos wielding automatic rifles charged into the office of a human 
rights organization, held a dozen people facedown on the floor for 40 minutes 
and then left without a word, said witnesses Tuesday. 

Sergei Grigoryants, head of the Glasnost Foundation, said about 10 commandos 
and a police lieutenant, who during the raid introduced himself as Ivanov 
from the 18th precinct, broke down the back door of the office at about 7 
p.m. Monday. 

About a dozen people were in the office at the time, discussing plans for an 
emergency congress of human rights activists. 

The commandos forced everyone f including a 10-year-old child f to lie on the 
floor, according to Grigoryants, who said that one of the masked men kicked 
him in the head and back. 

The police did not check any documents and did not offer any explanation as 
to why they came, he said. 

"They knew exactly where they were going," said Grigoryants in a telephone 
interview Tuesday. 

"This was a conscious, government action aimed at intimidating civil societ," 
he said. 

The Glasnost Foundation is a harsh critic of the war in Chechnya and the 
Federal Security Service, or FSB. The organization conducts an annual 
conference titled "The KGB: Yesterday, Today and Tomorrow." 

Ivanov could not be reached for comment Tuesday at the 18th precinct, where 
other officers confirmed that there was a patrol officer of that name. An 
officer who gave his name only as Alexander Nikolayevich and said he was in 
charge of all patrol officers at the 18th precinct said he knew nothing of 
the operation at the Glasnost Foundation. 

Grigoryants said that before they broke into the office, located in a 
residential building on Tsvetnoi Bulvar in central Moscow, the police knocked 
on the door. When he asked who it was, Ivanov said he was the local patrol 

But Grigoryants said he knows his local beat cop and he is not Ivanov. 

"I said, 'You're not my patrol officer and I didn't call you,'" said 
Grigoryants, adding that Ivanov did not show him a warrant. 

After Grigoryants returned to the meeting, he said the police attempted to 
break down the front door, but failed. They then went around the back and 
easily broke through the wooden door. 

The police held them on the floor until a police captain showed up, said 

"He ordered me to show my documents, and I said, 'According to the law on 
police, you must show me your documents first.' He refused to. He said, 'You 
know the laws too well,'" said Grigoryants. 

The captain and the rest of the officers then left without offering an 
explanation, he said. 

Ernst Chyorny, a leader of the organization Ecology and Human Rights who was 
present during the raid, said that after police left he found his bag, which 
he had left in another room, had been gone through. 

Chyorny said an account of the incident that he sent out by e-mail did not go 
through the first time he tried to send it Monday. 

Grigoryants said the message was likely blocked by the FSB because Chyorny 
originally had the word "glasnost" in the subject line. 

Simon Saradzhyan contributed to this report. 


Jamestown Foundation Monitor
August 29, 2000

GOVERNORS PREPARE TO FIGHT FOR THEIR TURF. Aleksandr Veshnyakov, chairman 
of Russia's Central Election Commission (CEC), has begun a trip to the 
provinces to check on preparations for the upcoming gubernatorial 
elections. Veshnyakov's first port of call was Kaluga Oblast in central 
Russia, where elections are set for November 12. Next he will visit the 
Republic of Adygeya and to Krasnodar and Stavropol Krais in the North 
Caucasus (Russian agencies, August 22-23).

At first glance, Veshnyakov's trip might seem routine. In fact, it marks 
the start of a new stage in Russian politics. A new cohort of governors is 
about to be formed: one made up of leaders selected, with the participation 
of Putin's team, who will replace the governors whom Putin inherited from 
his predecessor, Boris Yeltsin. Not surprisingly, the Kremlin's main aim is 
to refresh the ranks of the regional leaders and replace the most odious 
and least reliable with Putin-loyalists. While no fireworks are anticipated 
in peaceful Kaluga, the presidents and governors in a number of other 
Russian regions are expected to put up a serious fight to stay in power.

The media have already identified several of the candidates who will, with 
the Kremlin's backing, be challenging incumbent governors in the coming 
months. In what is fast becoming a Putin-era tradition, most of them come 
from the ranks of the security services. For example, Admiral Vladimir 
Yegorov, commander of the Baltic Fleet, is preparing to stand in November 
in Kaliningrad Oblast against incumbent governor Leonid Gorbenko. Viktor 
Surzhikov, former head of the Federal Security Service (FSB) in Volgograd, 
will challenge incumbent Aleksandr Rutskoi for the governorship of Kursk 
Oblast. Vladimir Kulakov, head of the FSB in Voronezh Oblast, plans to run 
for governor there. Former Interior Minister Anatolii Kulikov has also been 
identified as a prospective candidate, though it not yet clear where he 
plans to run (Vek, August 25; see also the Monitor for August 1).

The press has also named the governors most at risk of losing their jobs. 
They include Stavropol Krai's Aleksandr Chernogorov who has already, like 
Rutskoi, become embroiled in open conflict with the president's new 
representative in the Southern federal district (Vedomosti, August 23). 
Someone else who need not expect Kremlin support is Vyacheslav Kislitsyn, 
president of the Republic of Marii-El. A campaign against Kislitsyn has 
already started in the national media and the CEC has written to advise the 
republic's legislature to postpone the election scheduled for October 8 
because, the CEC claims, the republic's election law does not conform with 
federal law (Russian agencies, August 23). The national media are also 
reporting plans to remove as influential a figure as Tatarstan's President 
Mintimer Shaimiev. Farit Gazizullin, federal property minister, who is an 
ethnic Tatar, is being named as a possible successor who would be "more 
obedient to the authorities." Shaimiev himself says he "has not yet 
decided" whether to run for a third term when his present term expires next 
year. According to one newspaper, Gazizullin is not enthusiastic about 
replacing Shaimiev but would find it "very difficult" to resist Kremlin 
pressure (Versiya, August 22).

One of the toughest battles facing the Kremlin is the election set for 
December 22 in Ulyanovsk Oblast, Lenin's birthplace on the River Volga 
(Radio Ekho Moskvy, August 24). Incumbent governor Yuri Goryachev, an 
outspoken critic of privatization and market reform, was for years a thorn 
in the side of President Yeltsin, who tried but failed to remove him from 
office. Replacing a governor as notorious as Goryachev would raise Putin's 
authority in the regions. This explains why the Kremlin has reportedly 
picked a particularly strong challenger: General Vladimir Shamanov, hero of 
the Kremlin's latest Chechen war (Radio Ekho Moskvy, August 24).

Apparently perceiving Shamanov as a serious threat, the leaders of 
Ulyanovsk Oblast are preparing to give battle. There are reports that the 
regional legislature will change the local election law to allow for only 
one round of voting instead of the normal two (Vedomosti, August 23). The 
idea is that this will increase Goryachev's chance of victory by 
frustrating the efforts of his opponents to unite around a single 
candidate, such as Shamanov. An information war is already raging. A local 
newspaper, "Simbirskiye gubernskiye vedomosti," has published a report 
apparently aimed at splitting the regional elite. This alleged that certain 
regional officials were secretly negotiating with Shamanov. The officials 
in question have unanimously and angrily denied the allegation. The united 
front presented by local officialdom may give Shamanov cause for thought. 
It is not clear how an outsider would fare in the face of such cohesive 
animosity on the part of a regional elite that clearly perceives itself as 
threatened by a hostile takeover. Shamanov may decide that his personal 
charisma is insufficient, especially in light of the current decline in the 
popularity of the Chechen war in Russian public opinion.

It is of course far too early to predict the outcomes of the upcoming 
elections. It is nonetheless worth remembering that, so far, all of the 
Kremlin's attempts to oust sitting governors have failed: The elections in 
St Petersburg and Samara are cases in point. There, the Kremlin was 
defeated not only because it lacked a local support base but also because 
it failed to transfer experience gained in federal elections to the 
regional level. An attempt by the Kremlin simultaneously to replace dozens 
of governors seems doomed to failure. It seems more likely that weak 
regional leaders will be replaced, with Kremlin support, by stronger ones. 
In the long run, this could find the Kremlin facing a stronger, rather than 
a weaker, corps of governors.


Date: Tue, 29 Aug 2000 
From: "Leonid Bershidsky" <> 
Subject: Re: 4483-Stratfor/Oil

Dear David,
I haven't submitted anything to your excellent service for almost two years,
but some recent stuff on JRL complels me to comment. It's not the amateur
analysis of Putin in relation to the Kursk disaster, nor even the misguided
front-page coverage of an injection given to a woman in Vidyayevo. It's
August and I can understand all of that, being a newspaper editor myself.
The thing is, I edit a business newspaper (Vedomosti, the Russian joint
project of The Wall Street Journal and Financial Times), and I would like to
draw readers' attention to some appalling coverage of Russian business
issues that has been featured on JRL.

A glaring example is this Stratfor piece in JRL-4483 (Putin?s Coming
Concession to the Oligarchs).
Whoever wrote it deserves to be fired. Follows a list of factual errors in
the piece.

>Russian law limits the amount of equity that foreign investors can control
>in the country?s oil companies, capping ownership at no more than 15
>percent, according to a June edition of the St. Petersburg Times. The
>shares in ONAKO will be auctioned off to the highest bidder. 

The SPTimes is wrong, and no one checked the facts. Foreigners are not
barred from owning as much of any Russian oil company as they want. There
are legislative curbs on foreign ownership of large stakes in Gazprom and
RAO UES (the gas monopoly and the power monopoly). Since the oil market is
competitive, foreigners can buy into its participants. Only in the infamous
loand-for-shares auctions of 1995 were foreigners barred from bidding. 

>More than 20 groups have submitted an offer, but only two are true
>contenders: LUKoil, the largest oil producer in Russia, and an alliance of
>three smaller companies, Yukos, Sibneft and Surgutneftgaz. 

There are more true contenders, of course, notably the aggressive Tyumen Oil
Company (TNK) and the British oil company Sibir Energy, controlled by
Russian businessman Shalva Chigirinsky, who in partnership with BP Amoco
runs a downstream business in Moscow. Chigirinsky is backed by Moscow Mayor
Luzhkov and knows where to find enough money for ONAKO. But that is not the
point. Surgutneftegaz is not a member of the tripartite alliance. It's
Yukos, Sibneft and Stroitransgaz. The latter is part-owned by Gazprom and,
in turn, owns part of Gazprom.

Two oligarchs
>direct LUKoil, Rem Vyakhirev and Vagit Alekperov, although these two men
>are largely under Kremlin control. 
>In contrast, the three oligarchs behind the alliance behind the other
>companies ? Yukos, Sibneft and Surgutneftgaz ? are Mikhail Khodorkovsky,
>Boris Berezovsky and Roman Abramovich. Putin has publicly sought their
>power since taking office. They largely bought their way into power under
>former President Boris Yeltsin, amassing fortunes and increasing their
>political influence. Abramovich, widely considered Berezovsky?s prot?g?, is
>a Duma member, as Berezovsky himself was until recently. 

This is nonsense. Vyakhirev is head of Gazprom. He has nothing to do with
Lukoil. And while he may, to some extent, be under the Kremlin's control
(the Kremlin controls Gazprom's board of directors), Alekperov is

independent enough to resist Kremlin pressure.
Khodorkovsky, true enough, runs Yukos. Berezovsky used to have shares in
Sibneft, but he sold them this year. Thus he will have to interest in ONAKO
if the tripartite alliance wins. Sibneft is run by Abramovich, who is much
more powerful these days than Berezovsky ever was. He is no Berezovsky
protege but a kingmaker in his own right. Stroitransgaz, as I said before,
has ties to Gazprom and thus to Vyakhirev. 

>Though not Russia?s largest companies, ONAKO is one of the most profitable.
>The average Russian oil company makes less than 30 percent of its profits
>from exports; ONAKO exports 40 percent of its product, enabling it to reap
>the benefits of the higher oil prices outside Russia. Last year ONAKO
>earned as much money as some other companies by pumping less oil, according
>to Russica Information on Aug. 16. 

ONAKO was, until recently, more profitable than other oil companies thanks
to a "tax experiment" started by Prime Minister Viktor Chernomyrdin's
government. Chernomyrdin comes from Orenburg, where ONAKO is headquartered.
The experiment was limited to charging lower taxes.
ONAKO exports a smaller share of its products than many other oil companies
(including, for example, Surgutneftegaz). ONAKO's problem is its location,
which is bad for export purposes.

>Allowing Berezovsky or Khodorkovsky to control the company would be a
>dangerous risk for the Kremlin, considering the pasts of the two. Both
>oligarchs were linked to the 1998 IMF money laundering scandal; both have
>been targets of tax police raids or investigations in the past three months
>according to articles in The Moscow Times in late August. Berezovsky was
>notably absent from the late-July summit between Putin and the oligarchs,
>while Khodorkovsky has links to businessmen recently expelled from Bulgaria
>on corruption and money laundering allegations. 

Khodorkovsky's ties to Mikhail Chorny and his friends are nonexistent. I
assume the author is talking about a coincidence in the Bulgarian case: one
of the companies figuring in the Bulgarian authorities accusations against a
group of Russian businessmen is Yukos Petroleum. Yukos Petroleum has nothing
to do whatsoever with the Russian oil company Yukos. YP was once owned by
Yukos, but it was sold off to managers some years ago. The current owners
kept the name because the long-gone association flatters them.
As for police raids and investigations, Alekperov was also the target of a
recent tax police raid, but he has since successfully contested the fiscal
budy's claims in court. Likewise, neither Berezovvsky nor Khodorkovsky was
accused of anything specific during the recent anti-oilgarch campaigns.

>For ONAKO to remain profitable so that the government can take its share of
>revenues and taxes, the government needs LUKoil to win the bid for ONAKO.

I don't know why Sratfor would want to lobby for Lukoil. It seems that a
victory for the highest bidder would be a better idea. But if you are acting
on incorrect information, your conclusions usually come out all wrong as

Best regards,
Leonid Bershidsky



MOSCOW. Aug 29 (Interfax) - A source in the Navy headquarters has
not ruled out the possibility that the sinking of the Kursk nuclear
submarine was caused by a torpedo exploding.
Emphasizing that he was expressing his personal opinion, and having
been promised anonymity, the source said he assumed that the presence of
two civil specialists from the Dag-diesel plant on board the submarine
was connected to the testing of a torpedo engine.
During Soviet times, silver-zinc batteries were used in torpedoes,
but now, due to the fact that such batteries are expensive and a charge
has to be made, more powerful jet engines are used, the source said.
"After American torpedoes with a range of up to 20 miles appeared,
a task was set to equip our fleet with similar [engines]," the source in
the Navy headquarters said.
Such torpedoes initially tested successfully, but further
improvements could have caused some deviations from the norm, the source
In addition, torpedoes were previously tested in a special testing
area in Issyk-Kul, which is now on the territory of independent
Kyrgyzstan, the source said. Therefore, it is possible that new
technology was tested during Northern Fleet training exercises, the
source assumed.
At the same time, he said it would be wrong to consider a torpedo
explosion separately from the version in which vessels collided under
water. "The accident is most likely to have been a combined one, i.e.,
there was a collision and then an explosion or the detonation of a
military load," the source said.
Citing U.S. experts, the New York Times said on Tuesday that the
accident on board the Russian Kursk nuclear submarine that sank in the
Barents Sea was most likely to have been caused by a torpedo explosion
on board the submarine. This is the opinion of U.S. experts currently
analyzing the acoustic records made in this region by the U.S. naval
submarine Memphis.


Date: Tue, 29 Aug 2000 
From: "edward lucas" <> 
Subject: From Edward Lucas

Just back from holiday. Rather belatedly, here are the pieces from 
this week's Economist for those of you who have not seen them on the 
JRL. [DJ: Not here.]

The leader (the first one) is not by me, although I wish it were. The 
other piece is mine, with contributions from another journalist who 
was--luckily for us--in Murmansk while I was in Somerset.

It is striking how quiet the Hurrah Chorus has gone. Perhaps they are 
just away on their summer holidays. But Putin's dismal performance 
over the Kursk: first tongue-tied, then callous and then manipulative 
and treacly has gone down very badly with non-experts in the West 
(oddly, Russians have been more forgiving). 

The Ostankino tower fire also shows how clapped-out everything is. 
Both incidents undermine one of the crucial tenets of Hurrah-ism,
Russia is very like any other European country and could catch up
quickly given just a bit more time and money. 

I also noticed recently the way in which Russia is so remarkably 
unimportant in world trade. According to the latest OECD monthly
statistics (my idea of light holiday reading...) for the first
of this year, Denmark, Hungary Finland Poland and Sweden all exported 
less (or in Poland's case about as much) to Russia (population 143m) 
than to the Baltic states (population 8m). The import picture looks 
less bad for Russia because the numbers are inflated by oil and gas 
(imagine what they would be without that fat cushion). But Sweden
even imported more from the Baltic ($135m) than from Russia ($55m). 

The numbers are tiny, and the Baltics have a long way to go too. But 
it is striking how even farther behind Russia is, The Baltic states 
are 6% of Finland's $3.6bn exports while Russia is only 3.7%. 

Have a nice week


St. Petersburg Times
August 29, 2000 
Anti-Semitism Robbing Russia of Its Best Minds
By Vladislav Schnitzer
Vladimir Schnitzer is a pensioner and freelance journalist.

HIS name was never mentioned in the open press, and he was shielded from any 
sort of exposure, but many knew him as a key scientist and organizer, a 
specialist in the area of electronics and the latest in communications 
technology. His name? Frol Lipsman, now well into his ninth decade. For 
years, Lipsman was the head of a division of one of the largest institutes of 
radio technology in the country. More than 40 years ago, he organized a new, 
so-called "post office box," now known as the Moscow Scientific Research 
Institute of Radio Technology, a unique center for the development of the 
latest in radio communications, complicated data-relay systems and equipment 
for the space program. He was the institute's chief engineer and designer. In 
those days, one of the responsibilities of this "apparatus" was ensuring that 
the country's leadership could view the launching of satellites on television 
in Moscow, thousands of kilometers from the launch site.

A person of amazing modesty and a man who loved his work, Lipsman gathered 
around him the best minds. But his higher-ups could not forgive him for not 
paying them lip service, for not promising "to fulfill the plan and 
overfulfill the plan."

Lipsman had one other "fault" that the higher-ups couldn't tolerate. In 
helping the institute choose the best and brightest employees to head its 
various divisions, he selected candidates solely on their merits, knowledge 
and ability to work with others. It turned out that many heads of the 
divisions were Jews, and Lipsman, a recipient of Lenin and State prizes for 
his myriad efforts and achievements, was pressured by anti-Semites. Mountains 
of letters about the predominance of Jews at the institute flooded into Party 

In response, the authorities named to the post of institute director a man 
who was recommended for his ability to fight against "the predominance of 
Jews." There followed the tried and true method of squeezing out the 
unwelcome scientists and division heads, and then creating a vacuum around 
Lipsman himself. Lipsman subsequently found it impossible to work, and, at 
the tender age of 64, he decided to retire. And his superiors shamelessly 
agreed to let him go.

Lipsman recently celebrated his 86th birthday. Although his health is not 
what it used to be, he still maintains a positive attitude, and he often 
likes to visit his old institute, his stomping grounds of so many years. The 
former "chief" is met warmly by the institute veterans who are still working 
there. Together, they reminisce about the former halcyon days of their 
collaborative work and fondly remember their colleagues - some of the best 
and brightest - who have emigrated to Israel and the United States.


The Guardian (UK)
30 August 2000
Russia in crisis 
It is doing too much with too few resources

Nations are always looking for clues to their condition. They find them in 
military victories and defeats, in sporting triumphs and reverses, in 
cultural achievements and failures, in crime and its detection, in economic 
advances and retreats, and especially in accidents and disasters. Britain 
frequently has such moments - after the Bulger case, after Diana's death, 
after the collapse of Rover cars, after the Paddington rail crash. Germany 
looked inward after the Kohl scandal and after recent neo-Nazi violence in 
the East. Japan pondered its national character after the nuclear accident in 
1999. When one disaster follows on the heels of another, as in Russia, the 
impulse to gloomy self-diagnosis is compounded. 

Vladimir Putin himself has suggested that the fire in the Moscow television 
tower is a metaphor for the faults of the Russian economy and of Russian 
society. The Ostankino disaster showed the dire state of the country's " 
vital installations", he said. Putting two and two together and making five 
is common in these situations. If the Kursk had not been lost, the tower fire 
would probably not have been seen, either by Russians or by foreigners, as 
anything other than a bad accident of the kind which happens from time to 
time in all countries. The Kursk tragedy, on its own, could be understood as 
specific to the especially parlous state of Russia's armed forces and as 
having no wider implications. 

Yet Putin's remarks suggest that he, and presumably many other Russians, 
connect the two events and interpret them as revealing a systemic lack of 
competence. There has always been in Russian affairs an element which might 
be called the Potemkin factor. Prince Grigory Potemkin was accused of 
erecting fake villages to impress Catherine the Great on her visit to the 
Crimea in 1787. The accusations were unfair, but the "Potemkin village" 
nevertheless became a symbol of the kind of fraud that often flourishes in 
autocratic states. The behaviour of the Russian navy after the Kursk was 
damaged was of such a nature. The Russian navy "ought" to have been able to 
swiftly establish contact with the disabled submarine - so it pretended it 
had done so. It "ought" to have had advanced rescue submersibles and diving 
equipment - so it pretended it possessed them. 

It "ought" to have been able to manage without foreign help - so it pretended 
it could do so. Perhaps the officers concerned hoped that some great stroke 
of luck would enable the crew to be rescued without this pretence being 
discovered. In any case they persisted in it in an extraordinary way. It may 
be that the tower represents a civil version of the same phenomenon, if the 
suggestion that this allegedly most modern of installations had never had its 
fire-safety arrangements approved turns out to be correct. 

Russia is a society trying to do too much with too few resources. Corruption, 
thievery, and evasion of standards for purely monetary reasons obviously play 
their part. But the fundamental problem is that too many tasks are loaded 
onto organisations and enterprises by authorities perpetually ready to 
admonish and punish but reluctant to provide the funds and other means for 
those tasks to be adequately carried out. This is a problem by no means 
unknown in other nations and the answer is everywhere the same. Those who 
carry out the tasks should indeed be subject to regulation and sanction, but 
this will only work if those who assign them have a realistic understanding 
of what is and what is not possible. 

The Guardian (UK)
30 August 2000
Russia in limbo 
President Putin needs time and money to steer his country's transition to a 
market economy. And neither are in very great supply
By Larry Elliott
Larry Elliott is the Guardian's economics editor 

The speed of Russia's decade-long descent from superpower to basket case has 
been staggering. Living standards have fallen by more than a third; five 
times as many people are living in absolute poverty now compared with 10 
years ago; suicides and vodka binges have slashed years off the life 
expectancy of men. 

But the numbers tell only half the story. What Russians have lived through 
over the past decade is a slump deeper and longer than the Great Depression 
of the early 30s. The 15% decline in German gross domestic product between 
1929 and 1932 helped bring Hitler to power. The 28% fall in US GDP brought 
Roosevelt to power. By contrast, the great free-market experiment in Russia 
saw the market value of the Russian economy contract by 44% between 1989 and 

In the circumstances, it is easy to forget that 40 years ago the west was 
seriously concerned about the economic threat posed by the Soviet Union. Even 
at the end of the 70s, when oil prices were shooting up for the second time 
and the US was deep in post-Watergate gloom, there was a sense that Moscow 
was a force that could not be ignored. 

The days when Nikita Khruschev could say to the west with a reasonably 
straight face "we will bury you" are long gone. Well might Vladimir Putin say 
that strengthening the economy is the only way for Russia to avoid further 
blows to its self-esteem following the loss of the Kursk nuclear submarine 
and the fire in Moscow's Ostankino TV tower. These high-profile calamities 
have merely highlighted the fact that Russia is not making a rapid transition 
from centrally planned to market-driven economy. 

Instead it is trapped in limbo between the two systems, suffering from the 
worst defects of each - an explosion of income inequality and poverty 
alongside obsolete plant and a basic economic structure that stifles (legal) 
enterprise. Or, as Evgeny Gavrilenkov of the Bureau of Economic Analysis in 
Moscow puts it, "the Russian economy is open at the exit points and remains 
fairly closed at the entry points." 

Russia was not ready for the shock treatment administered a decade ago by 
free-market ideologues drunk on victory in the cold war. While it had become 
increasingly clear that isolationism behind the iron curtain helped explain 
the country's relative economic decline under Leonid Brezhnev, the building 
blocks of a market economy were simply not in place. The USSR had been a 
centrally planned economy for more than 70 years, and even under the tsars 
had only taken the first tentative steps towards a western-style industrial 
economy. There was no class of entrepreneurs ready and willing to fill the 
vacuum left by a contraction of the state, with the old Soviet middle class - 
doctors, university professors, scientists - among the worst affected by 
cuts. The bedrock of a market economy, a transport system that can get goods 
from producers to consumers, did not exist. 

Yet the belief was strong that all a liberalised Russia needed were 
macro-economic policies to keep inflation low, control the money supply, roll 
back the state and keep the currency stable. There was a strong desire, too, 
to prevent any resurrection of communism by an intensive programme of 

The upshot was that the Soviet military-industrial complex collapsed but 
nothing took its place. State assets were sold off to gangsters and the 
proceeds spirited away overseas. Foreign direct investment to replace capital 
stock that has an average age of around 20 years has been deterred by 
corruption, the lack of an effective system of property rights, a poorly 
functioning banking system and the absence of anything resembling a 
competition policy to root out subsidies that unfairly benefit some 
enterprises at the expense of others. The fact that Moscow has a chain of 
McDonald's restaurants does not mean that Russia is now a fully-fledged 
market economy. 

The good news for President Putin is that the macro-economic climate is now 
looking more favourable. The crisis of two years ago, when Russia gave up 
listening to the International Monetary Fund and decided to devalue the 
rouble and repudiate its foreign debts, has meant that manufactured imports 
are now dearer and exports cheaper. The result has been a recovery in 
industrial production, bolstered by an increase in overseas of Russia's 
biggest export earner - oil - driven by the trebling of the price of a barrel 
of crude since early 1999. Industrial production was up by just over 8% last 
year, a rate of growth not seen since the early 70s. 

However, Russian economists are not fooled. "In the future, it will not be 
possible to count on the devaluation effect", says Mr Gavrilenkov. "Growth 
should be tied to a reduction in costs, and an increase in production 
efficiency, which has not yet happened". Already, inflation has started to 
erode some of the benefits of the boost provided by a cheaper currency. 

In one sense, President Putin's problem is simple. Russia needs capital - and 
plenty of it - if it is to transform itself into a modern capitalist economy. 
But that means either staunching the flight of domestic capital and recycling 
into investment or making Russia a safe and profitable home for foreign 
investors. By attacking the so-called oligarchs, those who cleaned up in the 
90s, President Putin won himself some cheap plaudits at home but did little 
or nothing to hasten the repatriation of capital. Nor does it seem sensible 
to lapse back into cold war posturing when an enfeebled Russia is desperately 
in need of western aid. 

A more effective long-term strategy would be for Mr Putin to show that the 
Russian state is capable of performing its basic functions - not least the 
maintenance of the rule of law and the rule of contract. That would help to 
underpin the supply-side reforms Russia needs if it is to make the transition 
to a market economy. But this requires two things Putin does not possess - 
time and money. 


Moscow Times
August 30, 2000 
INSIDE RUSSIA: Another Banking Experiment? 
By Yulia Latynina 

Last week, the government took a look at the draft budget for 2001. Prime 
Minister Mikhail Kasyanov gave it high praise, saying it would allow society 
"to better control the authorities." 

This phrase sounds very apt given that there is a line in the budget that 
entails the allotment of 5 billion rubles ($180 million) to the Russian Bank 
for Development. 

The Russian Bank for Development was always a favorite dream of the 
Communists and Deputy Prime Minister Yury Maslyukov. The Communists 
envisioned it as a state bank that would invest in industry state funds and 
money allotted by Western banks and guaranteed by the Russian government. 
Thus, comrade Maslyukov dreamed of creating essentially two parallel finance 
ministries: The usual one, which would sit on Ilinka and deal with the state 
budget; the other, smaller one, which would essentially function as a 
privatized ministry. 

So now look what has happened: When Yevgeny Primakov was prime minister, 
there was a lot of noise about this bank, but nothing happened. And now that 
Kasyanov is prime minister, everything has been done f but quietly so. This 
summer, the bank was licensed and on July 21 the bank's supervisory council, 
under the guidance of Kasyanov, selected Tatyana Ryskina as its new chief. 

If we don't take into account the grand experiment of the Soviet Union, state 
banks in Russia don't have a great track record. 

Take, for instance, Agroprombank, which by 1995 had been stripped of its 
assets f and rightly so, because why have a state bank if it can't be 

Then there's Roseximbank. This was the grandiose beginning for Alexander 
Shokhin. After Shokhin agreed with the West on restructuring Soviet debt, he 
decided to hand off these Soviet debts to the old Soviet Vneshekonombank and 
have the main influx of state funds go through the new Roseximbank, where he 
later became the chairman of the board. But Vneshekonombank didn't give in to 
Shokhin: It bravely continued servicing its financial obligations, and 
Roseximbank actually later ran into problems in the form of two minor 
financial scandals and a search of its offices. 

Then there was the Bank for Business Development, partially under the control 
of the Finance Ministry. This bank was famous largely because of its offsets 
of mutual liabilities. (For those who don't know, this is a procedure that 
allowed one of the participants in the operation to misappropriate up to 70 
percent of third-party debts to the budget. Of course, to be cut in on such a 
sweet deal, everything had to be worked out with the Finance Ministry.) 

Will the Russian Bank for Development be any different than these other 
experiments? Perhaps so, if only by the magnitude of its operations. 

There's another interesting point. It turns out that 5 billion rubles isn't 
enough for the bank to begin operations. For that, the bank will need what 
Maslyukov once tried to cultivate: for Western creditors to come to the new 
bank and, through it, hand out credits to Russian entrepreneurs. 

Of course, Western banks didn't trip over each other to get to Maslyukov. 
With Kasyanov, it's another matter; he came of age, so to speak, in 
establishing a dialogue with the West and is now conducting negotiations with 
the Paris Club on restructuring the external debt of the Soviet Union. 

Isn't this a conflict of interest? It looks like you can sign on to a 
restructuring deal that isn't very advantageous for Russia and in gratitude 
get more loans f which will flow through the Russian Bank for Development. 

Yulia Latynina is the creator and host of "The Ruble Zone" on NTV. 


August 25, 2000
Decline of the West
The Kursk Affair: When Nations Collide
By George Szamuely
George Szamuely was born in Budapest, Hungary, educated in England, and has
worked as an editorial writer for The Times (London), The Spectator
(London), and the Times Literary Supplement (London). In America, he has
been equally busy: as an associate at the Manhattan Institute, editor at
Freedom House, film critic for Insight, research consultant at the Hudson
Institute, and as a weekly columnist for the New York Press....

There can hardly have been a better example of the media acting as adjuncts
of government than their coverage of the sinking of the Russian submarine
Kursk. From the start, there was to be little deviation from the storyline
as familiar as it is comforting. A decrepit submarine manned by a worthy
but incompetent and underpaid crew went down to the bottom of the Barents
Sea. The cause of the accident was almost certainly the shoddy level of
maintenance that prevails throughout the Russian military. (Russia, it has
been repeated ad nauseum spends a measly $5 billion on defense as against
America's healthy $300 billion.) When news of the catastrophe reached
Russia's commanders, they flapped their arms helplessly and put out
incorrect and contradictory statements. The West, with its vastly superior
technical know-how and generosity of spirit stood by eager to help. But the
Russians, proud and paranoid as ever, rejected intervention from outsiders. 

While the Keystone cops undertook one hopeless attempt after another to
save the submarine crew, the 118 men under the sea slowly suffocated. The
lessons then are clear. As CNN put it: "The parlous state of the Russian
military raised questions among observers as to why the Russian navy was
conducting a 30-ship exercise, including sophisticated submarines like the
Kursk." It was a point echoed in a Washington Post editorial (and almost
everywhere else): "What does this incident reveal about whether Russia
truly possesses the money and trained personnel to operate safely the large
fleet of nuclear-powered ships not to mention the vast arsenal
of nuclear weapons that the great-power ambitions of its current leaders
seem to require?" There can be only one answer to the question. The
Russians must give up their increasingly pathetic attempts at trying to
remain a superpower and accept the global dominance of a US-led West. 

Writing in Slate, Anne Applebaum put this argument at its starkest. Russia
has a choice, she explained.
"It can go on 'pretending to be a great power,' competing with the United
States&or it can recognize that its imperial days are over. Putin can
salvage something from this crisis, so to speak, only if he is intelligent
enough to use it as an excuse to retrench, to focus on Russia's ailing
economy&to start thinking about the plight of ordinary Russians rather than
the fate of 'Mother Russia.'" If the Russians are lucky, they may yet get
to live the happy life accorded to small insignificant European powers
(whose fate is to be at the beck and call of great powers): "President
Putin could cut Russia's military expenditure and military ambitions.
Russia's annual budget expenditure, after all, is a quarter the size of
Holland's. Although it would take a brave leader to reduce Russia's armed
forces to Dutch levels, to do so may be Russia's last chance at retaining
Holland's international influence." Applebaum's choice of Holland is
interesting. Next to Great Britain, there is no other country in the world
that follows America's lead as slavishly as Holland. 

"The Soviet era placed a low value on the lives of ordinary Russians,"
intones the Financial Times, "nowhere more than in the armed forces where
political leaders have accepted loss of life on a scale unacceptable in the
west." The West does not accept loss of life when it comes to trained
soldiers. But it has no qualms about inflicting large-scale loss of life on
others particularly unarmed civilians. Concern about Serb casualties was
not exactly uppermost in the minds of policymakers last year as they sent
the bombers and missiles happily on their way. The Financial Times
complains about "the residual Soviet obsession with secrecy, shown by the
reluctance to accept western help and the limited and contradictory
information released to the public. Almost all the known facts have been
revised or modified over the week: the location and depth of the submarine
on the seabed; the number of sailors on board; the status of rescue
efforts; whether signs of life were detected; how long the oxygen can last;
even when the accident happened." It is, of course, unheard of in the West
to provide erroneous or confused information about an accident that later
needs to be revised. The TWA 800 disaster took place more than four years
ago. Yet there is still dispute as to the cause of the crash. During the
investigation, any number of theories have been put forward and widely

Moreover, is it likely that if one of our nuclear-powered submarines went
down, the US Government would ask for help from other countries? Would the
prospect of Russian divers poking around the wreckage be greeted with
enthusiasm in Washington? Indeed, can we even be certain that we would ever
find out about a US submarine disaster? NATO powers that detected the
underwater explosions could easily be prevailed on to keep this information
to themselves. As for the Russians, who would believe their claims to have
evidence of a US submarine blowing up? Certainly not our gullible media. 

"Linked to the secrecy," the FT continues, "is the enduring refusal to make
anyone personally accountable for the submarine disaster, or the rescue
operation." This editorial was written a few days after the Kursk sank. No
one has any idea yet what happened in the Barents Sea, but already the FT
is demanding dismissals. It is mass firings before any of the facts have
been established that marked the Soviet era. 

Let us repeat: We have no idea what it was that sent the Kursk to the
bottom of the Barents Sea. We do not know whether all or most of the crew
perished following the massive explosions. We do not know whether a Western
rescue submarine could have made a successful docking or not. We do not
know if anyone at all could have been rescued. Even if we do not know what
happened, it is clear already that the initial cozy, comforting story of
bumbling Ivan has little bearing on reality. The Russians have insisted
from the beginning that the cause of the accident was a collision with
another possibly British, possibly American submarine. The damaged foreign
submarine then limped its way to a Norwegian port for repairs. Both the
British and the US Governments have denied this. Needless to say, the media
have accepted their denials without further investigation. 

Yet the United States has admitted that two of its submarines were in the
vicinity of the Kursk just before the accident, monitoring the Russian
naval exercises. During the orgy of denunciations of Russian imperial
ambitions, no one thought it relevant to ask why there were US submarines
in the Barents Sea hardly the US coastline? The Russians claim to have
found fragments of a foreign submarine near where the Kursk sank. Defense
Minister Igor Sergeyev has asserted that shortly after the Kursk went down,
men on two Russian ships
detected signs of a large underwater object in the vicinity, about the same
size as the Russian submarine. Moreover, at the same time the Russians
observed a signal buoy of the type Western fleets use to send emergency
messages by satellite to their command bases. 

Though the British and the Americans strenuously deny being involved in a
collision, it is "apparent that both governments," according to a Reuters
story, "were withholding information under their own longstanding refusal
to comment on submarine spying operations directed at the Russian fleet."
In other words, there is not the slightest reason to believe their denials.
Whether or not a collision took place, NATO would deny it. "When Russian
officials at NATO headquarters inquired whether 'even one ship was there
where the accident took
place, they told us no, there were no NATO ships there,' the official said,
adding that Russian officials had reported back that they overheard
'conversation that if this incident had happened,' NATO officials 'would
never acknowledge it.'" 

The New York Times, in a rare moment of candor, revealed the other day,
that "during the cold war&on more than a dozen occasions, Russian and
Western submarines banged into one another." Moreover, the Times goes on,
"the Russians have long resented the fact that many of the collisions
occurred in or near their waters and, in their view, amounted to
hit-and-run jobs, as American and British spy submarines quickly fled to
safety." "In or near the waters" so much then for Russia's aggressive
imperial designs! There are no instances of collisions taking place in the
Caribbean or the Mediterranean. Thus Russian suspicions about US submarines
are scarcely without foundation. A recent AP story recounted the 1968
sinking of a Soviet submarine. "Russian
officials long have suspected that the Soviet sub K-129 was struck by an
American submarine, the USS Swordfish. But the US Navy says the Soviet
vessel, armed with nuclear missiles and with a crew of 98, suffered a
catastrophic internal explosion when it sank in the central Pacific on
March 11, 1968. As recently as last fall, Russian government officials
complained that Washington was covering up its involvement." The Russians
say that six days after the accident, the USS Swordfish docked at Yokosuka,
Japan to repair a bent periscope. The Americans claim that the Swordfish
collided with an ice pack and was 2,000 miles away from the K-129 when it
sank. However, the AP story goes on, "Moscow has requested the Swordfish's
deck logs, to trace its movements, but the Pentagon has refused. The
Swordfish apparently had a hand in some highly sensitive operations before
and after the K-129 incident." 

Clearly then, a very different story is now beginning to emerge. The
Russian naval exercises took place in the Barents Sea, waters absolutely
critical to Russia's security. If NATO were to succeed in blocking the
Barents Sea during a military conflict, Russia's fleet would be denied
access to the Atlantic. At the time the Kursk sank, the Russian navy was
engaged on defensive maneuvers in anticipation of a possible Western
blockade. There was nothing here of an imperial program, getting to the
Mediterranean, challenging the United States
or any of the other fanciful projects that the retarded Cold Warriors have
been speculating about. NATO, on the other hand, was engaged on a spying
mission. We do not yet know if a collision did take place. But given the
record of US deceit, it is at the very least a distinct possibility. 

The armchair warriors are unable to make up their minds whether to gloat at
Russia's enfeebled military, or to dismiss its fear of the West as
"paranoia." However, Russia's security concerns are very real. Three of its
former allies are now members of a rival military organization. The United
States threatens to invite the three Baltic States to join NATO. If this
were to happen, Russia's access to the Baltic Sea not mention the Atlantic
Ocean would be in severe jeopardy. Meanwhile, the United States continues
its drive into the Caucasus, creating client-states among former republics
of the Soviet Union, and threatening to make of with the oil riches of the
Caspian critical to Russia's economic strength. In the Balkans, Russia's
closest ally, Serbia, is under perpetual threat of armed assault. Both
Democrats and Republicans promise to build a missile defense shield,
rendering Russia's nuclear missiles null and void. 

The Russians, the pundits tell us, must give up their imperial ambitions.
What this means is that they should stop fooling themselves that they can
defend their country against the United States. They should settle for
being a giant Holland as supine as it is irrelevant. Let us hope the
Russians ignore this advice. The issue goes beyond Russia's security. There
are many countries today that look to Russia as the only deterrent to the
global tyranny of the United States. Only the existence of a rival
superpower can ensure that small countries will enjoy a measure of
independence. Russia is today the last, best hope of mankind.


Treatment of spy suspect in Russia raises concerns for travelers: US
Alleged poor treatment by Russian authorities of a former US naval officer 
detained in Moscow on espionage charges raises deep concerns about the safety 
of all American visitors, particular business travelers, to Russia, the State 
Department said Tuesday.

Spokesman Philip Reeker stopped short of advising US citizens not to travel 
to Russia but said the case of Edmund Pope, whose treatment in prison has 
been protested numerous times by Washington, should raise flags for people 
considering travel there.

"The treatment of Mr Pope since his arrest by the Russian government raises 
serious concerns about the safety and security of American business travelers 
in Russia and about our ability to protect the health and welfare of all 
American citizens traveling or residing in Russia," Reeker said.

"Obviously, we have to examine the implications of Russian actions as this 
case is prolonged," he told reporters.

He repeated the US position that there is no evidence Pope, a 53-year-old 
businessman who was arrested in April, was involved in espionage or had 
violated any Russian laws and demands for his immediate release.

"We have seen no evidence that Mr Pope has violated any Russian laws, and 
that we are both disturbed and concerned that he remains in custody," the 
spokesman pointed out.

"They've had plenty of time to review this case, and our feeling is that the 
Russian government should release Mr Pope and allow him to return home now," 
Reeker said.

His comments followed complaints by Pope's wife, Cheri, who visited her 
husband in Moscow's Lefortovo prison on Monday, that he is very weak and in 
need of medical attention.

Russian officials have refused repeated requests from the US Embassy in 
Moscow and Cheri Pope that Pope, who suffers from a rare form of bone cancer 
now in remission, be allowed to see an American physician.

"They won't allow a Western doctor in," Cheri Pope said on ABC television's 
"Good Morning America" program.

"The embassy keeps asking. And they keep refusing. And the cancer he had is a 
very rare form. And we have to monitor it continually. He's very concerned 
and I'm very concerned that the headaches and the stress he's under is going 
to make the cancer reoccur."

Pope stands accused of contacting Russian scientists in Moscow and the 
Siberian city of Novosibirsk, as well as other locations, with a view to 
gathering information classified as "top secret."

He faces a jail sentence of 10 to 20 years for spying, and a term of four to 
seven years for disclosing state secrets, if convicted under Russian law.


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