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Johnson's Russia List


September 19, 2000    
This Date's Issues: 4523  4524   4525 


Johnson's Russia List
19 September 2000

[Note from David Johnson:
1. AP: Anna Dolgov, Duck Statues Replaced in Moscow.
Yulia KANTOR interviews President of the USSR Mikhail 

3. AFP: Russia says no further arms reduction unless ABM treaty 
remains in force.

4. Moscow Times: Sarah Karush and Andrei Zolotov Jr.,
Gusinsky Swapped Assets for Liberty.

5. Reuters: Russia's Putin opens Jewish centre.
6. RFE/RL: Sophie Lambroschini, Onako Privatization To Test 
Putin's Pledge Of Fairness.


8. The Russia Journal: Otto Latsis, No more easy victories.
Temporary factors that have fueled economic growth will exhaust 
their potential.


10. Michael Donnelly: Re: Recent articles and commentary on proposed 
cuts in Russian armed forces.

11. Oleg Desh: Russia's Iraq policy/Weeks/4521.
12. Jeffrey Temple: Moscow and Iraqi oil JRL 4521.
13. AP: Russia Seeks More Investment.
DESTRUCTIVE IN THE WORLD." (Interview with Gleb PAVLOVSKY, head of the 
Effective Policy Foundation)] 

DJ: And now back to the Olympics.

Duck Statues Replaced in Moscow
September 18, 2000

MOSCOW (AP) - A mother mallard and three of her ducklings were restored to
Moscow on Monday, to the joy of Russian children who clambered over the
bronze statues to celebrate. 

Three of the duck statues were sawn off at the legs and spirited away from
Novodevichy park in February, while a fourth was stolen in 1991. Russian
police said the vandalism appeared to be the work of people looking for
metal to sell for scrap - a type of theft that has become endemic in Russia. 

The figures are replicas of statues in the Boston Public Garden and portray
the characters from Robert McCloskey's ``Make Way for Ducklings,'' a
beloved American children's book. 

The book recounts the travails of a mallard family looking for a new home
in a noisy city. The Moscow park is adjacent to the Novodevichy convent and
cemetery, which are among the capital's top tourist destinations, and it is
an area of calm amid the central city's clamor. 

On Monday, former Soviet President Mikhail Gorbachev cut a blue ribbon over
the statues, and helped a group of Russian children pull off and carry away
a white cloth covering the mallard family. 

``It's a wonderful, wonderful day,'' said sculptor Nancy Schon, who crafted
the original statues and the replacements. ``I'm so happy. And obviously,
the people of Moscow are delighted to have the ducklings reunited, as I am.'' 

Small children - Russians and Americans living in Moscow - flocked around
the statues, petting the ducks and sitting astride them. 

The nine statues were presented by America's then-first lady Barbara Bush
in 1991, after her Russian counterpart Raisa Gorbachev admired the
originals in Boston. 

Mrs. Gorbachev died of leukemia last year, and she was buried in
Novodevichy cemetery. The ducks returned to Moscow two days before the
anniversary of her death, and the ceremony also became a tribute to the
former Soviet first lady. 

``Today, she is here with us, near the ducklings,'' Gorbachev said. 

Gorbachev, who was accompanied by his daughter Irina, said looking at the
mallard family made him think of his own family. 

``For me personally, for Irina, this is a reminder of wonderful days,''
Gorbachev said. ``I look at those ducklings - this is a family. ... We in
our family take this as a tribute to Raisa Maximovna.'' 

Mrs. Gorbachev chose the Novodevichy site for the ducklings after
considering eight other locations. After touring the Russian capital nine
years later, Schon said she agreed that the park was ``the most beautiful
spot'' in the city. 


September 18, 2000
[translation from RIA Novosti for personal use only]
Yulia KANTOR interviews President of the USSR Mikhail 

Y.K: Your relations with the first Russian president were 
far from simple, to put it mildly. And what about the second 
M.G.: I easily build relations with those with whom I am 
united by the political destiny. For this, it is not necessary 
to be favorably disposed towards someone or love someone. It's 
enough to realize that this is needed... Incidentally, when 
they wanted to throw Yeltsin out of the Kremlin, I insisted 
that he should be let to stay and given the rank of minister. 
When he was elected the president, I said: "If this is what the 
people want, I will cooperate with him." It's another matter 
what Yeltsin felt... As to Vladimir Putin, we got acquainted in 
St. Petersburg several years ago when he accompanied me as a 
representative of the mayor's office. He produced the 
impression of a self-restrained, well-educated and serious man. 
However, I am telling you straight that his potential is not 
enough to lead such a state as ours. If the people supported 
him by electing him the president, then they did it because 
they were sick and tired of the intrigues and idle talk that 
had been going on for ten years without coherent 
decision-making. It is clear that neither Yavlinsky nor 
Zyuganov will enjoy people's trust. A new man was needed, even 
if he did not know many things. People think that he is free 
from all that has been weighing heavily on us for ten years.

Y.K.: And what do you think?
M.G.: I would not say that he is completely free - we all 
are not free. I think that many of the president's 
"benefactors" count on his dependence. I told him during a 
private talk: "Since you got the people's mandate, you should 
disavow all the 'contracts' and 'obligations' assumed before 
that." Vladimir Putin will have to move towards freedom. I know 
that this is an uphill road: leaving all those among whom you 
spent many years, on whom -- let's put it bluntly -- you 
depended in many respects.
What I know from my talks with him (as you know, the last 
three-hour talk concerning the State Council was held in the 
Kremlin recently) allows me to hope that he wants to work for 
the country. He has normal, sound ambitions of a young man, he 
realizes in what position he is, he makes mistakes... Why don't 
you ask me about last August's submarine disaster?

Y.K.: Let's consider that I asked you...
M.G.: I must say that he is upset. I know that. I think 
that Putin was duped, just like all of us. Still, he should 
have promptly made it out and put the liars in their place, 
taking control of the situation. He was late and people noticed 
That was a difficult lesson and I think that the president 
learned it. Anyway, it's too early to make assessments or sum 
up results. Give Putin his time. 
St. Petersburg.


Russia says no further arms reduction unless ABM treaty remains in force

Russian Foreign Minister Igor Ivanov said Monday his country would not
proceed with a new nuclear arms reduction treaty with the United States
unless a landmark 1972 treaty forbidding missile shields is kept intact.

Ivanov said US plans to create a national missile defense (NMD) -- placed
on hold by President Bill Clinton -- threatened the conclusion of the START
III treaty which Russia wants to lower the number of nuclear warheads held
by each side to 1,500.

"We are ready to actively continue the process of nucelar disarmament and
to move towards the conclusion of a START III treaty ... But this will only
be feasible if the 1972 Anti-Ballistic Missile (ABM) treaty remains
intact," he said.

"Its preservation is a key element of global stability and a strong barrier
to the race of nuclear and missile arms as well as other weapons of mass

Russia maintains that US NMD plans violate the terms of the ABM treaty and
has warned the deployment of the missile shield would lead to a new arms race.

The United States insists that the program -- aimed at reducing possible
future missile threats from North Korea and Iran -- would require only
amendments to the ABM pact and some in Washington believe the treaty is no
longer valid as it was signed with the now-defunct Soviet Union.

In announcing his decision to defer deployment of the missile shield
earlier this month, Clinton noted the objections of the Russians as well as
the Chinese and the implications the system could have on ABM.

But he made clear that the main reason for leaving a decision on NMD to his
successor was that its effectiveness could not yet justify its enormous
cost and hinted that the system would inevitably reach that standard.

Ivanov said Moscow felt so strongly about the ABM treaty that it would
again introduce a resolution at the United Nations supporting the
agreement, which was aimed at maintaining deterrence as a credible method
prevent nuclear war.

"We hope that like last year, our iniative will recieve broad support," he

On September 6, Clinton and Russian President Vladimir Putin, meeting on
the sidelines of the UN Millennium Summit, reaffirmed their commitment to the 

"The United States and Russia reaffirm their commitment to the ABM Treaty
as a cornerstone of strategic stability," they said in a joint statement.

However, it stressed that both sides have been holding intensive talks on
ABM "with a view to initiate negotiations expediently," suggesting
Washington had not abandoned hope Russia would eventually agree to some ABM


Moscow Times
September 19, 2000 
Gusinsky Swapped Assets for Liberty 
By Sarah Karush and Andrei Zolotov Jr.
Staff Writers

Shortly before the criminal charges against Vladimir Gusinsky were dropped
in July, the tycoon agreed to sell his media empire to Gazprom for $300

The revelation, made Monday by both Media-MOST and Gazprom, confirmed
long-standing rumors that Gusinsky had swapped his stocks for his freedom. 

The agreement only came to light after Gazprom lashed out at Gusinsky for
reneging on that agreement f and for squirreling away his assets offshore
to avoid paying his debts to Gazprom. 

The company said it would request a federal investigation. 

Gusinsky said he had signed the deal under pressure and thus it was invalid. 

"On the 18th [of July], two days before the signing of this agreement, in
the presence of foreign lawyers I declared that all papers that I will sign
f or more accurately will be forced to sign f have no legal weight because
I am in fact signing them under pressure, you could say at gunpoint,"
Gusinsky told Ekho Moskvy radio, one of his holdings. 

Gusinsky said he had a video recording of his statement, and the two
foreign lawyers would testify to it. 

In that statement, published on Ekho Moskvy's web site
(, Gusinsky accuses Press Minister Mikhail
Lesin of pressuring him to make give up his assets. 

"Based on the fact that signing the proposed documents to conclude this
transaction is the only possibility for me to escape the threatened
punishment by the Russian authorities, I have decided to execute these
documents," it says. 

But Rem Vyakhirev, the head of Gazprom, angrily said Monday that Media-MOST
had failed to keep up its end of a bargain. 

"Someone has done something stupid, something enormously stupid," he said
on ORT television. "I think that this stupid thing should either be
corrected or more serious measures should be taken." 

"Today we have to say clearly: Guys, there are signatures on this document,
it's a legal document, so it has to be carried out," he said. "If someone
refuses to carry it out, then it will have to be sorted out in another,
not-so-peaceful way. Such scandalous behavior is not acceptable, not for

Gusinsky was briefly jailed in June on charges of embezzlement. Although he
was released after three nights, the charges against him remained. 

Then, as suddenly as the charges were brought, they were dropped. 

Many observers speculated that Gusinsky had made a deal and traded the
independence of NTV television and the other media outlets that comprise
Media-MOST for freedom from prosecution. 

Gazprom's and Media-MOST's statements Monday gave credence to that version
of events. Both companies said that the agreement by which it would acquire
Gusinsky's holdings was signed July 20 f just six days before the charges
against Gusinsky were dropped. 

Gusinsky confirmed the connection, saying he was "freed as a hostage." 

Gusinsky has a long relationship with Gazprom, which in 1996 bought a 30
percent stake in NTV. At that time, Gusinsky needed investment and state
support to expand his empire, and the Kremlin needed the media's help in
securing President Boris Yeltsin's re-election. 

Gazprom, which owns a 14 percent stake in Media-MOST, has also guaranteed
$473 million in loans to Media-MOST and says it holds a 40 percent stake as
collateral. One of those loans f worth $211 million f came due in March,
and Gazprom paid if off. 

Media-MOST has not paid that debt back to Gazprom. 

In its statement, Gazprom said that because Media-MOST could not pay its
debts to Gazprom, the two companies agreed July 20 that Gazprom would
forgive the debts and buy the remaining shares in the company for $300

Gazprom said Gusinsky "refused to carry out the agreement" on Sept. 9.
Gazprom officials could notbe reached Monday evening for comment. 

But in a letter purporting to be from Gazprom Media to the Prosecutor
General's Office and posted Monday on an anonymous web site
(, the gas giant complains that Gusinsky
refused to sign a contract for the opening of a foreign account to which
Gazprom was supposed to transfer $300 million. 

Media-MOST spokesman Dmitry Ostalsky said that Gazprom's accusations were a
response to Media-MOST's latest proposals to negotiate the $211 million
debt. He said Media-MOST was ready to hand over shares in some of its
affiliated companies without giving up a controlling stake. 

Ostalsky said that at a meeting Wednesday in London, Gazprom-Media head
Alfred Kokh said he saw no "economic obstacles" to agreeing to Media-MOST's

On July 19, the day before the agreement was signed, authorities began
seizing Gusinsky's property. Media-MOST lawyers at the time said
authorities were looking for Gusinsky's shares; arresting them would have
prevented Gusinsky from selling or transferring them. 

But if investigators were hoping to find the shares to protect them for
Gazprom, they were apparently too late. Gazprom said in its statement that
as early as April, Media-MOST transferred its assets to offshore companies.
Documents released Monday offered proof that some of Gusinsky's media were
not part of Media-MOST at the time the agreement was signed. 

Gazprom said Media-MOST began hiding its assets that after the gas giant
payed its $211 million debt in March. 

An anonymous group calling itself Democrats for Freedom of Information
posted on the Geocities site what it said is a copy of the July 20
agreement between Gusinsky and Kokh. Ostalsky confirmed that the posted
documents were genuine. 

According to an appendix to the agreement, its contents were "strictly
confidential" and were to be announced only after it is fully completed. 

"An attempt by one party to publish the agreement before it is officially
announced Ģ allows another party to unilaterally invalidate it without any
obligations," it says. 

The parties also pledged to do their best to complete the deal by Aug. 10. 

The appendix, which unlike the agreement itself was published without
signatures, contains a paragraph that names the conditions of the agreement
f that criminal charges against Gusinsky are dropped and that all
shareholders of his companies be free to travel. 

At the same time, the parties are not to make any statements or disseminate
information that would "lead toward Ģ undermining state security Ģ and
discreditation of the institutes of government authorities of the Russian

On its 10 p.m. news program, NTV showed a similar text with what it said
were signatures of Kokh and Lesin. 

Lesin could not be reached for comment Monday evening. 

Another appendix contains a list of 30 companies citing shares that
Gusinsky controlled and planned to sell to Gazprom. The total amount of his
companies' debts, the last of which mature in 2003, according to the
papers, is $900.3 million. Out of this sum, $40 million are owed to
Gazprombank and $223 million to the city of Moscow. A separate list of
state-backed debts adds up to $149.3 million. 


Russia's Putin opens Jewish centre
September 18, 2000
By Peter Graff

MOSCOW (Reuters) - Russian President Vladimir Putin opened a Jewish
community center in Moscow Monday, staging a remarkable public show of
support for Jews in a country that has suffered centuries of
state-sponsored anti-Semitism. 

But the gesture could open him to renewed charges that the Kremlin fomented
a split in Russia's Jewish community. 

Security was exceptionally tight. Hundreds of police shut down an area of
several Moscow city blocks for hours before Putin's arrival at the new
center, at the site of a synagogue that was torched once and bombed twice
in the past decade. 

``The spiritual resurrection of our country is impossible without
remembering that the culture of Russia is formed from the richness of the
traditions of people who have lived on its territory for centuries,'' Putin
said in brief, upbeat remarks. 

``Without this life-giving link to times and cultures, we cannot build our
future, we cannot understand our present.'' 

Former Israeli cabinet minister Natan Sharansky, who spent years in Soviet
prison as a dissident, also attended the opening of the modest, $12 million
building in Moscow's central district of Marina Roshcha. 

``I think there is a lot of symbolism here, just at a place that for us was
a symbol of pogroms and persecutions and fires -- now I see this great
building, a community center, with the blessing and participation of the
president,'' Sharansky said. 

``It symbolizes a lot about the new era of relations between Jews and
Russia,'' he told reporters. 


Russia has a deep history of anti-Semitism. Jews were targeted in violent
pogroms in the tsarist era and often denied access to top jobs and higher
education under Soviet communism. 

Nor did anti-Semitism end with the Soviet Union's fall: the synagogue at
Marina Roscha, one of only two that functioned in Moscow openly during the
Soviet era, was destroyed by suspected arsonists in 1993 and by bombers in
1996 and 1998. 

Both Putin and his predecessor, Boris Yeltsin, have spoken out strongly
against anti-Semitism. 

But Putin has angered some Russian Jews by supporting the ultra-religious
Lubavitch movement, which built the new Marina Roshcha center, while
snubbing other Jewish organizations. 

The mainly U.S.-based Lubavitch movement has played an important role in
revitalizing Russian Judaism over the past 10 years, opening schools and
synagogues across the country. 

But the majority of Russia's estimated one million Jews are either
non-practising or follow other branches of the faith. 

Since last year, the Kremlin has recognized a newly-formed, Lubavitch-led
Federation of Jewish Communities as the official voice of Jews in Russia,
although many of its senior officials are recent arrivals from abroad who
speak little or no Russian. 

The Federation voted earlier this year to name a Lubavitch movement member,
Italian-born Rabbi Berl Lazar, as Russia's head rabbi. The move apparently
ousted Russian-born Rabbi Adolf Shayevich, who had held the post for a

Elan Steinberg, Executive Director of the New York-based World Jewish
Congress, has described the Kremlin's recognition of Lazar as chief rabbi
as ``government manipulation of the Jewish community, reminiscent of
Soviet-style politics.'' 

Shayevich is still recognized as Russia's chief rabbi by the Russian Jewish
Congress, headed by Vladimir Gusinsky, a media baron whose NTV television
network has feuded with the Kremlin. Gusinsky left Russia in June after
being briefly jailed. 

Shayevich said he had declined an invitation to Monday's ceremony, but he
wished the new community center well. 

``We are very happy that Jews will have another place to gather,'' he said
by telephone. 

``With his presence, (Putin) underlines that he is paying close attention
to Judaism. If this will benefit Russian Jews, we support this of course.
But so far we haven't seen this.'' 


Russia: Onako Privatization To Test Putin's Pledge Of Fairness
By Sophie Lambroschini

The result of the bidding for Russia's state-owned Onako oil company is to
be announced tomorrow. The Onako privatization is seen as the first test of
Russian President Vladimir Putin's pledges of fair and transparent bidding,
an important part of his economic-reform program. RFE/RL Moscow
correspondent Sophie Lambroschini talked with Russian oil-investment
analysts about their views of Onako's future. 

Moscow, 18 September 2000 (RFE/RL) -- Investors are focusing on tomorrow's
announcement of the winner in Russia's first big privatization tender under
President Vladimir Putin. At stake is an 85 percent share in Onako,
Russia's 11th-largest oil company, which has been open only to Russian

In the past, privatization tenders were seen by many analysts as rigged
contests. They said the bidding served merely as a cosmetic cover for
behind-the-scenes division of state property among those business tycoons
-- the notorious oligarchs -- who managed to cut a deal with the
authorities. The Onako decision should show whether the Kremlin's methods
have changed.

Ivan Mazalov is an analyst for the oil investment firm, Troika Dialog. He
told RFE/RL that the result of the Onako tender will show whether the
government is willing to act on its own pledges to act independently of the

"[The announcement will make] clear what position the government has taken
toward the oligarchs. The first privatization tenders [in 1996] -- the
so-called loans-for-shares auctions that were held under [former President
Boris] Yeltsin -- showed to what extent the Yeltsin government had a
behind-the-scenes deal with a group of oligarchs who bought up the state
assets for a very low price."

The official State Property Fund did not announce who were the final Onako
bidders when it closed the tender last Thursday (Sept 14). But some of
Russia's most powerful oil companies had lined up for the tender. And over
the weekend, Russians news agencies and newspapers said there were at least
four final bids.

According to these reports, two major oil companies -- Russia's second
biggest, Yukos, and sixth biggest, Sibneft -- have joined forces with the
giant Gazprom's subsidiary Stroitransgaz. Together, they are represented by
Profit House, which submitted the official bid. Sibneft is controlled by
Roman Abramovich, who is considered an influential Kremlin insider by
investment analysts.

Among others who are said to have expressed the intention of participating
in the bidding is Lukoil, Russia's top oil company. Tyumen Oil Company, or
TNK, and a Russian subsidiary of British Sibir Energy were also thought to
be in the competition. Dmitry Avdeyev, an analyst with the Russian
investment company United Financial group, says that the major bidders --
Profit House, Lukoil, TNK, and Sibir Energy -- all have good chances. 

Avdeyev and other oil-investment analysts point out that, in contrast to
previous large investment tenders, the main criterion this time will simply
be the price offered. The starting bid for Onako was put at $425 million,
but the financial daily "Vedomosti" said today that the price could go as
high as $700 million. In the past, the winner was determined not by how
much he offered but largely by the nature of his investment plan. Avdeyev

"The conditions of this auction are quite straightforward. Whoever offers
the highest price should win. So in principle, being close or not close to
the Kremlin, should not mean all that much. All the participants have a
real chance."

Despite the bidders' theoretically equal chances, Abramovich's Sibneft is
seen by some experts as the most likely winner -- for both good and bad

First of all, Avdeyev points out, number 2 oil giant Yukos and number 6
Sibneft represent a very solid alliance. But there are also worries that
the Kremlin may have intervened to increase Sibneft's chances. Analyst
Mazalov says that "investors will worry about favoritism if [Sibneft] wins
because there are already suspicions that Abramovich [continues to have]
influence over the president and his entourage."

Mazalov also says investors are unsettled by reports that Lukoil might have
been bullied out of the bidding by Abramovich through his contacts in the
Kremlin. "Vedomosti" said today that Lukoil had pulled out at the last
minute, a report on which Lukoil has not commented. Actually, Mazalov adds,
such suspicions have been around for two months, ever since Lukoil became
the object of an official investigation into alleged tax evasion.

Whatever the result of the Onako privatization, the analysts agree, it will
take more than one tender to determine whether bidding has truly become
fairer and more transparent under Putin -- or whether Kremlin cronyism has
simply gown more sophisticated. 



MOSCOW. Sept 18 (Interfax) - 46% of Moscow residents approve of the
decision by ORT television to pull the weekly Saturday analytical news
program hosted by Sergei Dorenko off the air.
Another 34% oppose the management decision and the remaining 20%
found it hard to respond to the question from the All-Russia Public
Research Center, which polled 1,000 Muscovites on September 14.
A significant 29% of those polled think that the program was pulled
because of "the low morals of the program and its host." Another 23%
think that Dorenko was bounced because of his criticism of the
Fifteen percent of the respondents see the move as an effort "to
clean ORT from the influence of media mogul Boris Berezovsky." Ten
percent of the Muscovites surveyed see the decision as reflecting
internal problems at ORT, and 8% think that the program was pulled due
to low ratings. Fifteen percent of those polled found it difficult to
answer this question.


The Russia Journal
September 16-22, 2000
No more easy victories
By Otto Latsis 
Temporary factors that have fueled economic growth will exhaust their
Prime Minister Mikhail Kasyanov and Deputy Prime Minister Alexei Kudrin
announced on the same day that the high growth rate in the first six months
of 2000 would not last through the second half of the year, and that growth
in 2001 would be lower than this year.

GDP growth for the first half of 2000 was 7.5 percent above the
corresponding period of 1999 and higher than the pre-crisis 1997 figure.
This level of record growth was unseen, neither in the Russian nor Soviet
economy, for at least 30 years. But after 10-15 years of severe recession,
the growth rate would have had to last another 10 years before having a
meaningful effect on production levels. Kasyanov and Kudrin, however,
predict GDP growth for the year to be around 5 percent as a result of a
slowdown in the second half.

These statements came at a time when Russian oil exports were fetching an
incredible $35 a barrel and gold reserves were about to reach a record
high, with an expected $30 billion by the end of the year, instead of the
$13 billion at the beginning of 2000. 

But, as competent economists, Kasyanov and Kudrin realize that a flood of
oil dollars alone isnít enough to fundamentally transform the Russian economy.

Basic capital investment over the past seven months has increased 17.2
percent over the same period of 1999. In times of normal economic
development, this would be positive, but after a decade-long slump with a
fivefold drop in annual investment volumes, it is disappointing progress. 

Buildings and equipment are so obsolete and in such a state of disrepair
that in some cases they are literally falling to pieces. The only way to
turn this trend around is to increase investment by far more than mere
percentage points. If this doesnít happen, it means only one thing ≠ real
economic growth hasnít taken place.

Other negative trends havenít had much publicity, but they havenít escaped
the attention of the countryís main economists. This concerns, above all,
the fairly high inflation rate ≠ the reverse side of the oil-dollar coin.

To buy hard currency from exporters, the Central Bank prints rubles, but it
hasnít managed to keep this flow of rubles under control. It is this that
has provoked inflation, a seemingly unjustified phenomenon when the
government is pursuing a policy of financial austerity and maintaining a
budget with a primary surplus. 

Inflation was brought down to an acceptable 0.6 percent rate in March, but
then it began to rise, reaching a worrying 2.6 percent in June, 1.8 percent
in July and 1 percent in August. Seeing the August result, Kasyanov
hastened to declare it a sign that inflation was coming down. But this is
in fact a high rate for August, a month usually characterized by deflation,
when cheap fruit and vegetables push prices down.

The worst news, however, is that real incomes dropped by 3.4 percent in
July, compared with the June figure. Real incomes also decreased in January
and in May. Again, were Russia a country with a normal economy, these
figures would have no ominous significance, but Russia still hasnít
overcome the poverty unleashed by the over fourfold devaluation of the
ruble in August 1998. At that time, real incomes hadnít yet returned to the
levels they were before the ruble devaluation of October 1994. This means
that real incomes are currently about a third of what they were six years ago.

Now, new trials await the Russian economy. Every day, news comes in of
electricity monopoly RAO UES cutting off power to consumers who havenít
paid their bills. Even sections of the Trans-Siberian railway and strategic
missile forcesí garrisons have had their power shut down. Meanwhile, the
railways have announced new price increases ≠ and there will be more to come. 

The public has been discussing the social consequences of these measures,
but hasnít yet noticed their economic significance. What these measures
mean is that it has now become impossible to keep prices for electricity
and gas so low that they no longer cover production and transport costs.
Thatís significant, because keeping those prices down has been one of the
most important factors behind the economic growth of the past months. 

The temporary and artificial factors that fueled growth have exhausted
their potential, while natural and ongoing factors havenít yet begun to
have any impact. The reforms proposed in German Grefís economic program,
starting with tax reform, are supposed to create conditions to get the
economy moving. But for now, all that seems to be happening is talk and
compromise between the government, the Duma and other political forces. 

The reasons for this political hesitation and lack of haste are
understandable ≠ the reforms proposed will be painful for society.
Successfully implementing them requires social consensus, which the
politicians donít yet know how to achieve. Perhaps this could explain
President Vladimir Putinís contradictory policies with regards to
developing democracy and relations with the media.



MOSCOW. Sept 18 (Interfax) - In the course of negotiations that
ended in Moscow last weekend, Russian and Swiss prosecutors exchanged
important materials relating to an investigation into corruption and
money laundering.
In particular, the Russian side gave the Swiss prosecutors over 500
pages on the basis of a request relating to the investigation into the
so-called "Bank of New York Case" [a case dealing with the laundering of
several billion dollars from Russia through Swiss and U.S. banks],
Russian Deputy Prosecutor General Vasily Kolmogorov said on Monday in an
interview with Interfax. Loran Casper-Anserme, a Genevan investigator,
is conducting the corresponding investigation.
"We gave the Swiss what they were asking for: information about
some people, about bank accounts and something else," the deputy
prosecutor general said.
He said the Russian Prosecutor's Office has also started working on
the international investigation commission, which is part of an
investigation into the relationship between Mercata Trading (a Swiss
company) and the Kremlin property department.
"We assured our colleagues that we are ready to continue
cooperating in the struggle against crime and to fulfil the obligations
we previously assumed," Kolmogorov said.
Moreover, he stressed, the Russian side expressed its readiness to
organize investigation activities in Moscow for Swiss prosecutors, in
particular, Casper-Anserme and Daniel Devaud, who are conducting
investigations connected with Russia.
The Swiss Prosecutor's Office gave the Russian Prosecutor General's
Office a large number of documents pertaining to criminal cases such as
Aeroflot and Mabetex, Kolmogorov said. He noted that the investigators
in these cases - Alexander Filin and Ruslan Tamayev, senior
investigators with the Prosecutor General's Office in charge of
especially important cases, who participated in the working meetings
with the Swiss colleagues - have already started analyzing the obtained
Evaluating the negotiations that took place in Moscow, one of the
top officials with the Russian Prosecutor General's Office pointed out
that "many problems, which mainly worried the Swiss side, were
"We gave exhaustive explanations of a number of matters, in
particular, of the replacement of Investigator Volkov [an investigator
who until recently had led the investigation into the "Aeroflot Case"],
explanations on the Mabetex Case, and finally our Swiss colleagues said
they were fully satisfied with our explanations," Kolmogorov said. "They
said fears that were allegedly going to curtail the investigation into
corruption cases were groundless," he said.


Date: Mon, 18 Sep 2000
From: (Michael Donnelly)
Subject: Re:Recent articles and commentary on proposed cuts in Russian
armed forces

Recent articles and commentary in JRL have made far too much of the 
announced "cuts" in Russia's armed forces, from 1.2 million personnel to 
850,000. The Jamestown Monitor (CDI Weekly #119) views these cuts as 
evidence that Russia "is finally getting serious about restructuring". 
These "cuts" indicate nothing of the sort.

First of all, I would contend that no one in Russia knows the total size 
of the Russian armed forces -- not Putin, not Sergeyev or Kvashin, not 
the general staff, and certainly no one in the Duma. Therein lies the 
primary obstacle to any type of real reform -- the total lack of 
accurate information about the military. There are currently no 
institutions or agencies that provide any type of external (or even 
internal) oversight. The general staff relies the pronouncements of the 
generals themselves. The generals rely on reports from subordinate 
commanders, who have have an interest in inflating their actual numbers, 
in order to conceal desertions and/or to pocket the paychecks of the 
dead souls in their ranks. There is no accountability in the Russian 
military for corruption or dedovshina -- why should we believe that 
personnel accountability is any different? 

Secondly, I believe that the actual number of personnel in the armed 
forces is probably already significantly lower than 1.2 million, 
dropping by the day, and likely to continue dropping. Rather than 
understating its numbers to conceal their force levels, the Defense 
Ministry is overstating them to conceal the decline and decay that is 
taking place. Many military units that were allegedly at full strentgth 
in personnel and equipment were deployed to Chechnya from 1994 - 96. 
When they arrived there, field commanders learned that in many cases, 
these units were significantly underequipped and undermanned. Weapons 
and equipment had long since been sold or stolen; soldiers had deserted, 
or simply never existed in the first place. Nothing that has happened in 
the Russia military since 1996 suggests that personnel accountability 
has gotten any better. The last several drafts have missed their targets 
by significant amounts. Draft-dodging and desertion are commonplace, and 
the armed foces are still taking steady casualties in Russia. By 
announcing these "cuts" now, Putin is like a rooster claimimg credit for 
the sunrise. The Russian military is likely to number 850,000(or less) 
by 2003 regardless of the course of any action taken. 

Finally, a simple reduction of forces alone does not qualify as reform 
or restructuring. Yes, the Russian military is too large. Russia cannot 
afford, nor does it need a military numbering 1.2 million. However, 
simply chopping the force by one-third will simply result in a military 
that is just as inefficient, but is only two-thirds as large. Remember, 
the number of military personnel has dropped steadily for the past ten 
years. These previous rounds of reductions have not resulted in a 
reformed, restructured, more efficient military. Rather, the Russian 
military of 2000 is far less combat-ready than than Russian military of 

The types of reductions are also important. Other than the breakdown by 
services, no one has described exactly which 350,000 personnel will be 
cut. My suspicion is that the majority will be conscript soldiers, who 
are the easiest and cheapest to eliminate. Such a move will leave the 
Russian military of 2003 even more top-heavy with officers. 

The Russian armed forces need real reform, not just numerical 
reductions. The creation of an independent, civilian-controlled defense 
ministry bureaucracy with real oversight authority and accountability 
mechanisms would be a good place to start.


Subject: Russia's Iraq policy/Weeks/4521
From: "Oleg Desh" <>
Date: Mon, 18 Sep 2000 

The explanation may be the usual lack of coordination between the political
and industrial interests of Russian gevernment, or the desire of ambitious
Russian "oil majors" such as Lukoil to expand internationally and get the
exploration & development rights in Iraq. An Iraqi increase will most
certainly lead to a drop in prices, but on the other hand, nobody thinks
the price will stay at these levels beyond Q1'01 anyway. The truth is,
Brent prices has averaged around $18-19/bbl for the last 10 years. It may
also be a blessing in disguise for the Russian economy to push the
structural reforms that may be postponed in the high price environment.

At the same time, OPEC is effectively subsidising Western governments that
are improving their budgets via exorbitant oil taxes and
proportionately-increased VAT on petrol.

In the long term, one has to look at the microeconomic fundamentals, and
while given the current output constraints, Russia should benefit from high
prices, at the end it's the total revenue that counts, not the price level.

One interesting aspect of this is overall predictability of OPEC behavior.
Ostracising Iraq further may lead to an explosive development: One of the
reasons the US have not released the strategic petroleum reserves (SPR)
yet, despite numerous calls from the public, is tacit realisation of the
dangers of Iraq withdrawing its volumes from the market. If Bush is in the
office in November, his vice-president Cheney is there too. Cheney was the
Defence Minister during the Gulf War. Supposing Saddam may want to play
personal vendetta, the most effective (and crazy) thing he can do is to
stop shipping its crude. The winter is the highest demand season. The world
consumes roughly 77 million barrels per day. Iraq produces 2.9 million
barrels per day. Draw your own conclusions, but to me this development
looks quite apocaliptic.

The Caspian projects at the moment are too far from implementation to
affect the picture yet.

Oleg Dschunian
Energy Risk Management
Deutsche Bank AG London
tel. +44 (0) 20 7547 4301
mobile +44 (0) 781801 7259


From: "Jeffrey Temple" <>
Subject: Message further to Albert Weeks: Moscow and Iraqi oil JRL 4521
Date: Mon, 18 Sep 2000 

As always in Russia, things are more complicated and interwoven than meet
the eye. First, the primary reason why Russia is pushing for Iraq to be
"rehabilitated", is because Iraq has a massive debt towards Russia, mainly
from arms sales during the Iran/Iraq war. It is only when Iraq is earning
money again that Russia can get back its debt (reputed to be several
billions of dollars). The secondary reason is that "your enemies enemy is
your friend", and the majority of Russians still see America as an enemy.
As for Caspian oil, the Caspian has no easy way at present of increasing
oil export quantities. The whole export situation is a cauldron of the
most involved and contorted politics imaginable. It will be several years
before Caspian oil gets to be exported in any quantities sufficient to
have an impact on world price levels (indeed, if oil ever gets exported
from that region in large quantities, due to the politics), and who knows
where we will be then with the world oil situation. I hope that this
response clarify things a little. Jeff Temple 


Russia Seeks More Investment
September 18, 2000

MOSCOW (AP) - Russia's economy has made great strides forward since the
financial crisis two years ago, but the government needs to do more to
encourage necessary investment, Prime Minister Mikhail Kasyanov said Monday. 

To solidify the gains made since the ruble's value plunged by two-thirds in
August 1998, Russia needs billions of dollars in investment and new
measures to infuse investors with confidence, Kasyanov said at an
investment conference. 

``It is important that those investing in Russia today realize they are
really investing in a new Russia,'' the Interfax news agency quoted him as
saying. ``The main thing is that the processes taking place in our economy
become predictable.'' 

Many investors have been skittish about entering Russia, where the
potential market is great but where business laws are labyrinthine and the
court system often appears ineffectual. 

Nonetheless, in the past year Russia's economy has shown signs of recovery,
benefitting from renewed investment and high world oil prices. 

Investment this year is 17 percent higher than for the same period a year
ago, Kasyanov said, and the federal government has a 2.5 percent budget
surplus. He also noted that the final inflation rate for the year is
expected to be about 18 percent, down from 36 percent a year ago and 84
percent in 1998. 

However, government revenues, in dollar terms, remain lower than in 1997,
Kasyanov said. He added that some of the factors driving the economic
resuscitation cannot be counted on to continue. 

``The situation is still reversible,'' he warned. 

Russia hopes that the streamlined tax code that is to take effect next year
will boost investment. Kasyanov also said that the government was
considering encouraging investment by eliminating tariffs on imports of
production machinery. 

Also Monday, the Finance Ministry said Russia made a $56.5 million loan
payment to the International Monetary Fund. Moscow has been diligent about
keeping up with its payments to the IMF, and wants to remain in the fund's
good graces in hopes of resuming loans that were suspended after a 1998
financial crash. 

Other lenders would also likely see new IMF loans as a seal of approval,
allowing Russia to resume borrowing on the international bond market and
possibly to win restructuring of its debts to foreign governments. 

Russia has paid about $2.3 billion of about $3.6 billion it owes the IMF
this year. Overall, Russia owes the fund roughly $12 billion. 


September 16, 2000
[translation from RIA Novosti for personal use only]
Gleb PAVLOVSKY, head of the Effective Policy Foundation, 
interviewed by Anna KOVALEVA and Andrei STEPANOV 
Question: Can you explain the insatiable desire of our 
mass media to victimise the president?
Answer: There are three factors. The first is the 
revolutionary origin of our mass media and the politically 
mixed relations of ownership. The second is that a journalist 
is not the link, but the agitator. When journalists engage in 
mutual information, rather than establish contacts between 
different groups of society, they turn into 
counter-propagandists. And the third factor is the traditional 
Russian disrespect for the state.
This is why Putin's situation is doubly complicated. He not 
just has to tackle problems facing him, but lacks the 
instruments of contact with the population. 

Question: Our Tax Code is like the American prohibition 
Can we expect any real changes in the near future?
Answer: Changes are of fundamental nature but they have 
not been carried through yet. The question is for them to work 
as expected, because our authorities frequently fall victim to 
the provocation of public demands. In Soviet times, we demanded 
freedom for the heads of enterprises. They are free now, and we 
all can see the result of this. Now they demand low taxes and 
promise to fill the budget. We'll see if prosperity becomes a 
fact of life. 

Question: We are only at the beginning of the tax reform.
When can it end?
Answer: Do you mean if we'll live to see the end? We are 
pressed for time, and the production instruments are worn out.
The government is closely monitoring this problem and searching 
for the most favourable regime. The small and medium businesses 
should unite, become a force and start talking firmly with the 
government and the Duma. I am surprised by the inability of out 
businessmen to legally influence the political process. 

Question: Could you accept the cooperation proposal from 
the Fatherland-All Russia (OVR) bloc during elections?
Answer: By that time I had been taking part in the 
political process of ensuring a peaceful resignation of Boris 
Yeltsin for several years. The OVR advocated another, 
dangerous, model of that departure, and I could never agree to 
help them. 

Question: Why are destructive people, such as Nazdratenko 
and Berezovsky, more effective in this country?
Answer: Destructive persons are more energetic and more 
aggressive in principle, and there is a shortage of 
constructively passionate people in Russia. 

Question: What about Putin? We elected him as a 
constructive man.
Answer: It is not enough to have a leader in power. You 
think one man in power can overhaul the situation in society 
overnight? Absolutely not! There is a problem of collaboration 
of a constructive leader with the destructive managers at the 
medium level, in the enemy teams and in one's own team. 

Question: I wanted a concrete answer. Does Putin hold all 
reins of power?
Answer: Putin does not hold all reins of power. He is only 
the head of state. 

Question: And the mass media are completely destructive. 
Answer: Yes, but this is our own, national destructiveness.
Russian destructiveness is the most destructive in the world. 

Question: Do you think the president can be described as a 
lucky man? Several strong factors are working in his favour, 
such as high oil prices in the world and probably a good 
harvest at home. Although this is not his doing. 
Answer: Lucky man? This is not the word to describe him. 
He accepts his post as the status quo, with all its positive 
and negative elements. It is possible that if not for the high 
oil prices, the absolutely catastrophic situation in all 
systems of the state, society and the economy, which Putin 
received when he became our president, would have forced him to 
act more harshly, politically ruthlessly. 
The trouble is that there comes a time when fixed assets 
and armaments become worn out and the readiness of society to 
regard the situation as tolerable runs out. And Putin knows 
very well that the deadline is somewhere within his term, and 
this is why he is acting. This situation is impossible for a 
mediocre politician. I think Putin is an outstanding 
politician, meaning that he can learn. 

Question: Should democracy be more controllable?
Answer: There is nothing to control today. Democracy 
exists only as an intention in this country. There is a 
declaration [of democracy] made in the constitution and by the 
leading political forces, but there is no democracy as a system 
of institutions and effective machinery. In this sense, our 
democracy is a chaos of lean-tos built around the Soviet 
structure. The Soviet cyborg into which several democratic 
joints, and not even institutions, have been built. They are 
complicating the situation but are not creating an effective 
democracy. This is why the ongoing reform should create a 
democratic infrastructure. We have a temporary consolidation of 
the basic political forces and the executive authorities over 
the need to build long-term democratic mechanisms. The rest is 

Question: We lack a competent explanation of the work of 
the government and the president.
Answer: This is a genuine problem. The state authorities 
have grown used to a situation where they do not have to 
explain their actions, for some hate it and others support it 
anyway. I think the authorities must learn to be 

Question: I wish you success, but there will always be 
people who disagree, although their number will diminish. 
Answer: I wish it were true. But I don't think so. Russia 
is a country of dissenters. 

Question: We in Tatarstan are worried by the question of 
the third term for governors. President Shaimiyev claims there 
are no legal barriers to this. But everybody seems to be 
waiting for Putin's verdict. 
Answer: I never analyse legal situations without requisite 
documents. I have no such documents at present. 

Question: What can you tell us about Putin's attitude to 
this question?
Answer: He put it forth more than once. He respects law. 
If the legislation does not prohibit this, and the population 
and the given federation member express the wish [to allow 
governors to serve for three terms], you can do it. 

Question: Do you influence the Kremlin's decisions?
Answer: Absolutely not. I have no right to do this. Or 
intention. Indirectly, we all influence each other. I think my 
recommendations can do no harm. And the Kremlin apparently 
thinks so, too, so far. But this is intellectual influence, and 
it has its limits. 

Question: When Putin won the elections, it was said that a 
Pinochet had come to power in Russia and we would have a 
military regime.
Answer: This thesis was advanced long before the 
elections, as a propaganda cliche of his opponents. Putin has 
little resemblance to Pinochet, and our country has little 
resemblance to a dictatorship. There are no structures here 
similar to the ones Pinochet used in Chile. I mean an effective 
professional army and the population ready to assist, to a 
smaller or greater degree, the firmly acting authorities. We 
now have a kind of a state marsh, in which Putin is trying to 
build several islands.
And his envoys are doing the same in the federal districts. 
Their achievements have been moderate, so far. I don't know 
where you saw elements of a military dictatorship. I don't even 
see any normal order in the system of administration. 


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