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Johnson's Russia List


September 30, 2000    
This Date's Issues: 45484549


Johnson's Russia List
30 September 2000

[Note from David Johnson:
1. Washington Post: Michael McFaul, No Simple Truths About Russia.
2. Reuters: Biography of Putin in Russian children's textbook.
3. Moscow Times: Irina Titova, Little Vladimir Makes a Big Comeback.
Problems Are Real But Solutions Are Available.

5. Business Week: Catherine Belton, Western Banks to Russia: All 
Is Forgiven. They were burned by the 1998 debt default, but they're 

6. The Economist (UK): Russian banks. Bank error. Russia’s corrupt 
and unreformed banks are ensuring that the country’s economy deserves 
the same adjectives.

7. Garfield Reynolds: Peter Ekman and ``Media Most as a bad business''



12. Stephen Blank: Ware and Getov.
13. Jamestown Foundation Monitor: MEDIA TOUTS A NEW OLIGARCH
(Vladimir Kogan) 

14. Reuters: Putin criticises security chiefs.]


Washington Post
September 30, 2000
No Simple Truths About Russia
By Michael McFaul
The writer is a senior associate at the Carnegie Endowment for International 

Last week a commission headed by Republican Rep. Christopher Cox of 
California released a report sharply critical of the conduct of U.S. policy 
toward Russia. On the eve of an election and a new administration, the report 
does the country a service in sparking a debate on Russia policy. 

While assailing the means pursued by the Clinton administration, the Cox 
report endorses its basic objectives: promotion of democracy and markets in 
Russia and integration of Russia into the West. Apparently, George W. Bush 
and his advisers disagree, since they have advocated less engagement in these 
areas and a return to a more traditional, Realpolitik approach to foreign 
affairs in which the internal composition of other states is not considered 

But to have a real debate, some omissions of the report need to be corrected. 
The first is the beginning of the story. The missed opportunities in 
U.S.-Russian relations did not begin in January 1993, when Clinton took 
office, but in December 1991, when the Soviet Union collapsed.

The Cox report rightly states that the Soviet dissolution "presented America 
with its greatest foreign policy opportunity since the end of World War II." 
This euphoric moment ushered in a new, truly reformist government that 
initially had the backing of the people. The Bush administration had more 
than a year to work with and support this new team. It did not. By the time 
the Clinton administration took over, the Russian reformist government had 
been ousted.

The second error of omission is a failure to acknowledge the real menu of 
choices foreign policymakers face, especially when dealing with a revolution 
in midstream such as Russia's in the '90s. The same Mikhail Gorbachev who let 
the Warsaw Pact fall apart and helped Germany reunite also let his government 
loot Soviet gold reserves and allowed his armed forces to kill innocent 
people in Georgia and the Baltic states. Was George Bush wrong to deal with 
such a leader? The same Boris Yeltsin who bombed his parliament in 1993, 
invaded Chechnya twice and allowed corruption to flourish also destroyed the 
Soviet empire, introduced markets and democracy to Russia, destroyed 
thousands of nuclear weapons, acquiesced to NATO expansion and cooperated 
with the United States to end the Kosovo war.

In retrospect, Clinton should have criticized Yeltsin's horrible mistakes 
more vociferously, but then what? Work with the communist opposition on NATO 
expansion or Kosovo?

Congressional leaders, in fact, know about these hard choices because they 
too had to make them. Though the Cox report rightly calls for less money to 
the Russian state, Congress continues to earmark multimillion-dollar 
subsidies to the Russian state through the Nunn-Lugar program--designed to 
destroy and make more secure Russian nuclear weapons. Congress surely 
understands that Russian military officials are no less corrupt than other 
Russian officials, but probably calculates--rightly--that this program 
advances U.S. security interests even if it may also have indirectly 
supported bad people and bad practices. Choices regarding Russia are not 
black and white. Under Russia's new president, Vladimir Putin, they will 
become even grayer.

A third omission is a critical actor in this drama--Congress. The report 
calls for more aid to the Russian people when in fact Congress has steadily 
cut grass-roots assistance programs in Russia during the past decade. The 
report's call for more attention to the Russian opposition in parliament 
would have been blocked by Congress just a few years ago. I remember. As the 
field representative in Russia in the early 1990s for a congressionally 
funded nongovernmental organization, I was reprimanded for working with 
centrist and leftist groups in the Russian parliament. "Congress," I was 
told, "does not fund aid to communists."

The fourth omission is the absence of Russia in the narrative. In the great 
international drama of our lifetime--the end of communism--the United States 
played only a marginal role. The report chastises the Clinton team for 
failing to transform Russia into an ally like Germany and Japan. But we did 
not occupy Russia! At the end of the day, when we can finally make a 
determination whether Russia has been won or lost, it will be Russians who 
should be primarily blamed or praised, not U.S. officials.

The final omission is a clear guide to the future. The report ends with sound 
and obvious recommendations for land reform, more rule of law and a better 
investment environment in Russia. To encourage change in any of the areas, 
however, the next administration will face the same set of tough choices that 
confronted Bush and Clinton. After pages and pages about the corruption of 
the Russian government, Recommendation Five of the report calls for more 
frequent high-level meetings with the Russian government! A contradiction? 
Yes. Easy to avoid? No. Welcome to the real world of international diplomacy.


TEXT-Biography of Putin in Russian children's textbook
September 29, 2000

ST PETERSBURG, Russia (Reuters) - Following is the text of a biography of 
Russian President Vladimir Putin from a children's textbook used in schools 
in St Petersburg. 

Translation by Reuters (about 300 words): 

This is your president, the one responsible for everything in your country. 
In Russia. Because he is the Russian president. 

When he was little like you, he didn't know he would be president and would 
be responsible for everything. Nobody knew. But everyone on the block knew 
that Vovka (little Vladimir) was not afraid of anybody and would never let 
anybody down. The teacher in school knew he was capable. 

The coach Russian self-defense and judo knew that Volodya (another nickname 
for Vladimir) was a genuine fighter with a strong character, that he would 
fight until the end and never give up. 

Nobody knew he would be president. But all the boys and girls knew that 
Volodya Putin was a genuine friend and someone you can rely on. 

Then he became a grown-up, studied a lot and worked. He helped good people 
and very much disliked bad people. 

He often traveled and was away from home for a long time -- that was the kind 
of work he had. His friends, his wife and daughters missed him. Vladimir 
always came back because he loved his home, his family and his friends very 

And he is still not afraid of anything. He flies in fighter planes, skis down 
mountains and goes where there is fighting to stop wars. 

And all the other presidents of other countries meet him and respect him very 
much. And they show this on television and write about it in the newspapers. 

Then he had so many friends -- the entire country of Russia, and they elected 
him president. 

Now everyone says: Russia, Putin, Unity! 

Russia is a great country and everybody says, everything will be good! 


Moscow Times
September 30, 2000 
Little Vladimir Makes a Big Comeback 
By Irina Titova
Staff Writer

ST. PETERSBURG -- "All the boys and girls knew that little Vladimir was a 
true friend, someone you could count on. þ When he grew up he helped good 
people and really disliked bad people." 

Don't worry. Children's authors haven't resurrected that tousle-headed Soviet 
icon of morality, Little Vladimir Lenin. 

He's been upstaged by his contemporary namesake: Little Vladimir Putin. 

"Nobody knew he would be president. þ But he studied a lot and worked hard," 
says a new booklet distributed to 10,000 city schoolchildren and intended to 
explain their basic rights as set out by the 1989 United Nations Convention 
on the Rights of the Child. 

The booklet, designed by a number of local organizations and funded by the 
city's branch of the Kremlin-backed Unity faction, has only one page devoted 
to President Putin. 

But first-grader Dima says he learned a lot from the new book. 

"I found out for the first time that our president's name is Vladimir," he 
told Reuters. 

The new booklet is illustrated with cartoons and aphorisms to make the 
official UN text more digestible for kids. 

Article 30, for example f which is devoted to the protection of ethnic, 
linguistic and religious minorities f is accompanied by a cartoon of Russian 
Orthodox monks holding icons, dancing Hare Krishnas and fakirs sitting on 
beds of nails, with the caption: "Pray to Christ or sing a mantra, your 
rights are always with you" ("Molis Khristu ili mantry poi/ Tvoi prava vsegda 
s toboi"). 

The booklet also assures children that they have access to their statesmen: 
"Remember!" reads an awkward rhyme, "Wherever you happen to go/ Any 
government 'Mister'/ Will put his work to the side/ For the sake of your 

Moreover, there is a blank page on which children can write letters to the 
president. The facing page is emblazoned with "The Big Bear" f the Unity 
party's symbol and its Russian acronym f and a promise that he will pass your 
letter on to Putin. 

But the reply may not come right away. The booklet explains that Putin "often 
had to leave the country, that's the kind of job he had" and tells of his 
exploits as a fighter pilot, skier and frequenter of war zones "so that the 
war will stop." 

Despite some of the project's more comical aspects, its stated purpose is a 
noble one. 

Simplifying the UN Convention on the Rights of the Child was the idea of 
Andrei Lopatin, an art teacher at a local shelter for homeless boys. 

"There are 26 boys aged from 7 to 18 years old in our shelter, and all of 
them have brutal and complicated life stories," said Lopatin. "Many of them 
used to live in sewers, some have been raped or beaten. 

"It was obvious they had no idea of their rights, [but] when I read the UN 
convention, I saw that the language was too official for a child to 
understand," he said. 

Together with Vladimir Borisov, the director of another children's shelter 
called Vospitatelny Dom, Lopatin began to "rewrite" the convention and gather 
drawings to illustrate it. 

Unity officials secured funding from the Regional Development Fund, which 
aims to support civic projects of this kind and is headed by Viktor Yurakov, 
first deputy head of the local Unity branch. 

Many media reports not only compared the booklet to Little Lenin lore, but 
accused its sponsors of trying to win the support of future voters early on. 

"This is not a political advertisement," said Vladimir Ivchenko, vice 
president of the Regional Development Fund. 

"We had the best intentions in showing children their rights, their national 
symbols and the president who is responsible for defending those rights. þ In 
the United States, every child learns this sort of information and is proud 
of his country. Here, this aspect [of education] has been ignored as of late, 
and now we are facing problems at schools like drugs and violence." 

Leonid Kesselman, a political analyst and sociologist at the Russian Academy 
of Sciences, said that the inclusion of Putin's biography was a thinly veiled 
attempt to cozy up to the president. 

But Ivchenko denied Unity's St. Petersburg faction was trying to draw 
attention to itself. "We weren't out to praise Putin. þ We want him to 
fulfill his duties because the majority of the population voted for him." 

"As for the Unity pages," Ivchenko said, "we wanted to point out to the 
children who can help them. Besides, we have nothing to be ashamed of in what 
we do." 

Yury Kozyrev, deputy director of school No. 80, where the book was 
distributed among first-graders, said the children weren't paying much 
attention to the page on the president. 

"Mostly, they just look at the colorful pictures," he said. 

Kozyrev also said the book would not be mandatory reading, but was intended 
to supplement the regular curriculum. 

"But I think the people who created the book have the right to include a page 
on themselves." 


From: "stanislav menshikov" <>
Date: Fri, 29 Sep 2000 

27 September 2000
Problems Are Real But Solutions Are Available 
By Stanislav Menshikov

Once again, doomsday scenarios for the Russian economy seem to be in
fashion. For instance, Mr. Illarionov, the President's economic adviser,
believes that further slowdown in quarterly growth rates could lead GDP to
a standstill as early as next summer. Other government officials continue
to believe that a fall in oil prices might undermine growth considerably.
The IMF prescription, as usual, is more reforms. According to their latest
wisdom, growth will evaporate if the banking sector is not restructured,
and if the Russian government strays away from restrictive fiscal policies.

Private analysts point to the growing obsolescence of fixed capital,
particularly in the energy sector where capital investment continues to
fall despite record profits. They also point to inflation pressures from
natural monopolies, stagnating real exports, expected stronger competition
from imports. Domestic demand from consumers and business firms, they say,
is growing too slowly. If these trends continue, the end of the current
boom could well become a reality. 

Admittedly, all dangers specified above are real. However, they are not
necessarily seen in the right perspective. For instance, when Mr. Kudrin
claims that oil prices are the principal factor of growth, he is certainly
wrong. First, nominal growth in the value of exports comes together with
the stagnating volume of oil exports in real terms. This does not
contribution to real growth, only to inflated nominal GDP. Second, the
extra revenues that the government captures from high oil prices are
largely spent to repay external debts, not to support the real economy. 

More meaningful is to look at the principal components of GDP which
directly determine real growth ­ personal consumption, capital investment
and government purchases of goods and services. When the economic recovery
started in late 1998 and in 1999, these elements of domestic demand did not
contribute to real growth. On the contrary, due to a sharp fall of
household consumption in 1999, total real domestic aggregate demand shrank
by 6 percent. Yet GDP rose that year by 3.2 percent. How come? The answer
was drastically reduced imports which led to a large real external balance
and to import substitution. What triggered this change was the fourfold
rouble devaluation following the August 1998 crisis. Relative prices of
domestic and imported goods did the trick.

A year ago, most forecasters believed this to be a temporary phenomenon
which would fade out soon. But the new preference of the Russian consumers
and business firms for domestic goods turned out to be of a more permanent
nature. This year, imports remained stagnant but real domestic demand rose
by more than 9 percent. Based on figures for January-June, personal
consumption increased by 7.8 percent, capital investment by 14 percent,
government consumption by 6.2 percent. These results cannot be explained by
high oil prices. It is the spontaneous internal mechanism of growth that
started working after many years of bad policies and misplaced reforms.

Is this a going to last? You bet. Increasing personal consumption is
supported by growing incomes. This past summer, real wages were 24 percent
higher than a year before and there were nearly 2 million more people
employed than in early 1999 when the labour market hit the bottom. Real
wages will probably not rise as fast in the coming months, but they still
have a long way to go before regaining their 1997 level. Given low
inflation they should keep growing.

The phenomenal turnaround in capital investment is logical. Growing output
inevitably leads to more investment because firms need more new equipment
and are able to buy it out of increased cash flow (one exception is the
energy sector where profits are plentiful but are stashed away rather than
invested). Banks keep holding back on loans to industry but so far internal
resources of firms are adequate to finance investment for some time to
come. Mark you: the investment boom is proceeding practically without
substantial foreign capital inflows. Whether the boom will help reduce
capital flight abroad is yet to be seen. Our hunch is that most of that
flight is from the richest companies in the energy sector, not from
manufacturing industries.

What if private demand slows down due to cost-push inflation? Then, in the
current situation the government has enough financial elbow room to support
aggregate demand by more active fiscal policies. This does not necessarily
means dropping balanced budget policies. Today the fiscal surplus is used
mainly for reducing foreign indebtedness. It could be used more for
increasing government purchases and government assisted capital investment.
When economic growth is spontaneous, active fiscal stimulation is not so
important. In a slowdown or recession it becomes crucial.

To make a long story short. The Russian economy today is growing on its own
momentum. Various external and domestic shocks could create serious
barriers to growth. However, most of these problems can be solved if the
government makes necessary preparations and follows the correct course of
action. No need to hide problems. But no need, either, to overdramatise
difficulties. Steady and cool does it.

Stanislav Menshikov
Visit my homepages at:
Also visit ECAAR-Russia web site at


Business Week
October 9, 2000
[for personal use only]
Western Banks to Russia: All Is Forgiven (int'l edition)
By Catherine Belton in Moscow 

They were burned by the 1998 debt default, but they're back

To hear Western investment bankers talk about Russian debt today, you'd never 
guess that barely two years ago most fled Moscow after a bad mauling. Russia 
had defaulted on domestic debt, devalued the ruble, and frozen payments on 
some Soviet-era commercial debt. The price of a 30-year Eurobond issued just 
before the crisis plunged to 15 cents on the dollar, and the markets dried 
up. The U.S. and European banks, which lost some $10 billion to the debt 
default alone, cried highway robbery and vowed never to go near Russia again.
Now those same banks are hailing the former pariah's first step toward a 
return to international bond markets in the form of a massive issue of 
restructured commercial debt, which some say could become an emerging-markets 
benchmark. And they are looking forward to a possible new Eurobond issue next 
What's behind this case of collective amnesia? Russia was the 
best-performing fixed-income market in the world this year and last, as 
measured by J.P. Morgan's Emerging Markets Benchmark Index. Year-to-date, it 
shows that Russia's commercial foreign debt has risen an average 54.2% in 
price vs. a 12.8% average for all emerging markets. To be sure, trading 
volumes are just $250 million a day--no more than a quarter of the cash that 
washed through the markets daily before the crisis. But Russia's debt bazaar 
has clearly bounced back from the August, 1998, crash, along with the Russian 
Luck has played a big role in Russia's improving outlook. Oil prices have 
surged, while the ruble's devaluation has fed an export-driven rebound in 
industrial production. These twin bonanzas have helped generate a budget 
surplus equivalent to 2.4% of gross domestic product and allowed the central 
bank to almost double foreign reserves, to $24 billion.
HIGH MARKS. Russia's economy is expected to grow--yes, grow--by about 5.5% 
this year. Investors have been heartened by the political stability under 
President Vladimir V. Putin. Prime Minister Mikhail Kasyanov, a former 
Finance Minister, gets high marks for his stewardship of the economy. The 
government is making businesses and consumers pay in cash instead of barter 
and is starting to trim growth-choking corporate taxes. Fiscal policy has 
tightened, and the government has used most of the budget surplus to pay down 
International Monetary Fund loans. ``The new administration is eager for 
Russia to be perceived as worthy of G-8 status,'' says Marcel Cassard, 
Deutsche Bank's London-based chief economist for the region, who has followed 
Russia's debt travails closely.
There are now several ways for outsiders to play the Russian boomlet. 
Moscow has just completed a restructuring of some $32 billion in Soviet-era 
commercial debt with the so-called London Club of creditor banks. The banks 
wrote off $10.6 billion, and Russia issued two new tranches--an $18.2 billion 
30-year issue and a $2.8 billion 10-year issue--covering the balance.
In late August, ratings agencies boosted Russia's status for the first 
time since before the crisis, and now Moody's is considering doing so again. 
An upgrade would move Russian debt out of the high-risk category and back 
into the same class as benchmark emerging-market powerhouse Brazil. 
Restructuring $42 billion of Soviet-era debt with the Paris Club of sovereign 
creditors would also improve the outlook for Russia's bonds. Formal 
negotiations are slated for November.
Still, the country's fragile recovery could come tumbling around 
investors' ears again. After all, Russia labors under a staggering $155 
billion of foreign debt. Crunch time for Russia could come as soon as 2003, 
when it faces foreign-debt repayments totaling $18 billion, a hefty rise from 
$10.2 billion this year.
Government officials say they hope to sustain today's growth to assure 
creditors that Russia can pay. But those hopes rest on shaky foundations. 
There are signs that devaluation-driven industrial growth is petering out 
because the ruble is appreciating in real terms against the dollar. And the 
big question is how Russia will fare when soaring oil prices fall again, as 
they inevitably will. ``Oil is 75% of the story in Russia,'' says Deutsche 
Bank's Cassard. ``If the oil outlook is benign, with a price in the $20s, 
[bond investors] will make money.'' At $10 a barrel, the picture turns much 
Tariffs on oil exports account for around 30% of total budget revenues. 
For every $1-per-barrel decrease in the oil price, Russia's $26.7 billion 
budget loses $400 million in revenues. Even Kasyanov has cautioned against 
too much ebullience. ``Global economic growth is forecast to slow in the next 
year, and this will be reflected in a decrease of exports from Russia,'' he 
recently told lawmakers.
BIG SPREAD. Still, some investors find Russia an irresistible gamble. 
``Russia is an animal that generates returns as far as the eye can see,'' 
says Arnab Das, an emerging-market debt strategist at J.P. Morgan in London. 
``But high volatility comes hand in hand with that.'' The 30-year Eurobond 
issued as part of the London Club restructuring is now trading at about 38% 
of face value for a yield of 17%, a spread of 1,119 basis points over 
benchmark U.S. Treasury bonds.
But investors like its liquidity, and they're counting on Putin to keep 
the economy buoyant. ``There's certainly a lot of upside to that bond,'' says 
Eric Kraus, an economist at NIKoil investment bank. If it follows in the 
footsteps of Russia's Eurobonds due in 2001 and 2003, holders are in for a 
lucrative ride. The 2001 bond traded at 30 cents on the dollar of nominal 
value in October, 1998. Now, it's at 96.75 cents to the dollar. The 2003 bond 
has gone from 20 cents to 95.8 cents.
If yields remain much over 12% for short-term issues, Russia may shy at 
the expense and not issue new bonds. But Western banks think the giant nation 
needs to return to the debt markets to regain credibility. ``It makes sense 
for Russia to come back to the market,'' says Philip Poole, head of emerging 
markets at ING Barings in London. ``Once [Russia] re-accessed the markets, 
its ability to manage the rest of its obligation would significantly 
improve.'' And as August, 1998, recedes into the past, investors will be 


The Economist (UK)
September 30-October 6, 2000
[for personal use only]
Russian banks
Bank error 
Russia’s corrupt and unreformed banks are ensuring that the country’s
economy deserves the same adjectives 
EVERYBODY agrees, but nobody acts. That familiar theme from Russian
literature echoes through the tragi-comedy of the country’s crippled and
poorly supervised banking system, which consists largely of grandly named
but tiny outfits that conduct murky treasury operations for their owners.
One Moscow brokerage, Renaissance Capital, robustly refuses to call them
banks at all, preferring the term “bank-like institutions”. But until money
starts circulating normally between borrowers and lenders, most of Russian
industry will be deprived of a vital source of financing for restructuring. 

At first sight, Russia’s 1,330 “banks”—with average assets of about
$50m—seem to have recovered a bit from the gloom that followed the
financial crisis in 1998. According to Russia’s notoriously soggy
statistics, since the depths of January 1999 their total assets have risen
in dollar terms by 44%, total equity by 59% and deposits by 57%. But by
international standards this is still no reason to open the vodka. Russian
banks’ equity amounts to just 5.4% of GDP, compared with 15% in Estonia,
and 22% in the Czech Republic. Still more striking is that only 19 banks
have been closed this year—fewer than in the same period last year—even
though the prime minister, Mikhail Kasyanov, and a swathe of other senior
officials, have been talking about bank restructuring for months. 

Russia’s economic upturn, based largely on high oil prices, has sent cash
sloshing around the economy, and thus into a banking system that, with a
handful of exceptions, notably the Moscow-based Alfa bank, has dumped its
bad debts but not its bad habits. The clearest vote of no confidence in the
banks is that most ordinary Russians, who until the 1998 crisis were
beginning to abandon their traditional mattress-based savings method, still
steer well clear of private banks. Deposits are increasingly short-term,
and are declining as a share of total bank liabilities. 

So long as the oil-fired band keeps playing, most Russian banks are
cheerfully sticking to their core competences: asset shuffling, kickback
lending, capital flight and money laundering. Blame for this mess lies
chiefly with the central bank, which has shown a grotesque inability to
deal with even the most flagrant examples of asset-stripping, misreporting
and outright fraud. 

In particular, the central bank has hamstrung the feeble efforts of ARKO,
the bank-restructuring agency, to deal with the aftermath of the 1998
crisis. More than two years later, the authorities have been unable to
close down even such spectacularly bust banks as Inkombank, once the
biggest private deposit taker in the country and unusual in not having a
political protector; let alone shutting those banks tied to Russia’s
tycoons, big industries and regional chieftains. The only real initiative
in the past two years has been to pump billions of roubles of subsidies
into banks with which an impartial outsider would hesitate to play Monopoly. 

Although the government’s reform plan promises that giving greater
supervisory powers to the central bank is next month’s top priority, it is
hard to see these being much use without a change of leadership there. The
chairman, Viktor Gerashchenko, can be sacked only by the lower house of
parliament, to which the bank has paid generous attention. As a veteran of
Soviet foreign-trade finance, he also has a detailed knowledge of the
Kremlin’s private financial dealings during the collapse of communism,
which many parties would no doubt hate to see leaked. For the moment, his
position seems impregnable. 

What is stopping a good bank cleaning up amid this mess? One big obstacle
is Sberbank, state-owned—and, uniquely, state-guaranteed. It has around
three-quarters of all deposits and lends cheaply, widely and probably

Another is that, even for a bank that had the skill and courage to run a
proper loan book, Russia’s legal system is full of holes. Foreign banks,
which dominate the banking systems in post-communist countries such as
Poland and Hungary, have so far been extremely cautious about Russia. Some
change is in the wind: this week the European Bank for Reconstruction and
Development said it was giving more money to KMB, a bank it mostly owns
which lends money to smaller businesses. For the most part, however, even
when they have local banking licences, foreign banks prefer to stick to a
handful of ultra-respectable corporate clients in Moscow, rather than risk
the costs and uncertainties of dealing with ordinary Russian individuals
and businesses. 

Kim Iskyan of Renaissance Capital, who has written a new study of the
banking system, believes that without reform another crisis is inevitable.
One quick way for such a crisis to happen would be if foreigners started
lending serious amounts of money to Russian banks again. “Bank-like
institutions may have assessed, correctly, that the international capital
markets would forgive and forget within a few years”, he says. A case of
advance to go—or get out of jail free? 


Date: Fri, 29 Sep 2000 
From: "Garfield Reynolds" <>
Subject: Peter Ekman and ``Media Most as a bad business''

Dear David, just a short note to vent a bit about the series of comments from 
Peter Ekman and others )on and off jrl) along the lines of Gusinslky is a bad 
businessman because he has lots of debts and he can't pay them.

Let's get things straight here. The most important aspect to all this is
NTV is far and away Russia's best tv station -- even its mediocre creations
streets ahead of the other networks, and it relies on Soviet-era repeats for 
much less of its programming than anyone else. And if Gazprom took it over -- 
and we all know it is doing so because it is being pushed to do so by the 
government, holder of the largest stake in Gazprom and with Kremlin deputy 
chief of staff Dmitry Medvedev as board chairman -- then it would
And that would threaten its earnings, which i would think beat other tv 
stations, precisely because it is better. Indeed, the most annoying thing
watching NTV is that there are often enormous amounts of ads in the middle of 
or before the best programs. 
As for the rest of the business side of things, Gusinsky's big miscalculation 
was to take out large, hard currency loans before the crisis to build his own 
satellite network -- a tv network now doing pretty well as best i can tell. 
He, his tv network and his bank were very hard hit by the crash and the t-bill
default (as Reznik noted, the same government that is paying a few cents on 
the dollar for most of its obligations is piously intoning that Media Most 
should pay its debts in full); Most bank went from being a retail and 
corporate banking giant to a smoking ruin, like many others. The tv network 
lost earnings as ad revenues dried up because Russians were being 
sacked/having their pay cut. 
If Russia had a decent bankruptcy system, Media Most would have gone into Ch. 
7 style protection ages ago, and would now be out of it and paying its 
creditors their money. We also had the farcical situation last year when 
Vnesheconombank would not accept its own ious as payment for a debt Media Most
owed to it. 
To sum up, Gusinsky is no saint. He's built the best tv network in the country
largely through his own efforts, plus the government patronage essential for 
almost any major business undertaking in this country, and now it will be 
taken away from him because its the only network that dares to seriously 
criticize Putin. 
And they would be doing so even if Media Most was clearing $1 billion a month.
Yours sincerely, Garfield Reynolds, Journalist, Moscow.



Moscow, 29th September: A Russian-American Business Cooperation Council
will lobby for the interests of Russian companies on the US market and will
stimulate US investment in Russia, the council's president, former Russian
ambassador to the USA Yuliy Vorontsov, said at a meeting with US Department
of Commerce representatives in Moscow. 

The council will also represent the interests of US business on the Russian
market. The council, which is being created on the Russian president's
instructions and on leading Russian companies' initiative, regards as its
task "assistance to Russian companies in finding a place on the American
market", Vorontsov said. 

Jan Kalicki, an adviser with the US Commerce Department who attended the
meeting, said the main problems the council should seek to solve are the
supremacy of law, protection of shareholders' rights, the functionality of
the judicial system, cooperation between various economic branches and the
flow of investment in the Russian economy. 

One of the priorities is cooperation in power engineering. This concerns
above all production-sharing accords, which must stimulate investment in
Russia, participants in the meeting said. The Council is expected to
endorse its foundation papers and a plan of action for 2000 when it meets
on 6th October. 

Among the council's co-founders are Gazprom, LUKoil, Vneshtorgbank,
Tsentrosoyuzprodtor, the Verkhnyaya Salda metallurgical company,
Promeksport, Itera Holding and the Inspace group of companies. 


Source: 'Kommersant', Moscow, in Russian 28 Sep 00 

Russian science ship has been tasked with finding evidence of a foreign
vessel's involvement in a collision with the Kursk submarine and if such
evidence is found Russia might sue the foreign vessel's owners, according
to a high-ranking naval officer. The action is unlikely to succeed as no
laws governing international submarine navigation exist. In the meantime,
the salvage operation on the Kursk is to go ahead. The following is the
text of report by Russian newspaper 'Kommersant' on 28th September.
Subheadings have been inserted editorially. 

Kaliningrad: Vice-Adm Vladimir Valuyev, first deputy commander of the
Baltic Fleet, has made a sensational statement. He said that the
oceanographical ship Akademik Mstislav Keldysh, which has begun work in the
Barents Sea in the region of the disaster involving the Kursk submarine, is
to find material evidence of a collision between the Russian nuclear
submarine and a foreign submarine. The admiral said that if such proof is
found Russia will lodge financial claims against the guilty party. 

The official aim of the expedition by the scientific research ship Akademik
Keldysh is given as the study of the site of the sinking of the
missile-carrying nuclear submarine Kursk with a view to collecting
information for the subsequent raising of the stricken submarine. But
yesterday Vice-Adm Valuyev announced that "the research equipment on board
the Mstislav Keldysh is to collect fragments around the hull of the sunken
submarine. In the opinion of the navy command, these fragments should
include parts of the hull of the foreign submarine which caused the

The Kursk sank following collision 

Vice-Adm Valuyev, who has served on nuclear submarines for over 10 years,
is convinced that the Kursk collided with another submarine of lesser
tonnage traveling at higher speed. According to Vice-Adm Valuyev, in a
collision of this kind it is mainly the hull of the submarine that is
underneath that is damaged. The submarine that is on top, after losing some
of the components of the hull casing, was able to leave, despite the
explosion outside. In the vice admiral's opinion, the unidentified
submarine rammed the Russian vessel's outer hull under which there are
high-pressure air tanks. They were the first to collapse under the blow and
to explode. That explosion was the cause of the detonation of the Kursk's
main weaponry. Accordingly the fragments scattered around the Kursk should
include pieces of the hull of the foreign submarine that caused the accident. 

The vice admiral said that the most important thing now is to collect the
fragments left on the sea bed around the hull of the stricken submarine.
That is the main task that has been set the Akademik Keldysh crew. The two
Mir deep-water submersibles on board the Keldysh are equipped with optical
instruments and lighting equipment which makes it possible to take
high-quality photographs under water while a special manipulating device
makes it possible to raise various items from the sea bed, including parts
of the ship's casing. They will then be used as the basis for determining
precisely the class and ownership of the foreign submarine. 

Russian navy might sue foreign owners of collision evidence found 

If this expedition produces the results the Russian military expects and an
expert commission receives proof that the Kursk collided with a foreign
submarine, the Russian navy command will try to sue the owners of the
vessel. "Apart from moral liability there will also be financial
sanctions," Vice-Adm Valuyev stated. He refused to name the sum that might
be involved in a possible lawsuit. But the Baltic Fleet headquarters says
that the damage from the disaster already amounts to an astronomical sum. 

However, even if the Keldysh does indeed manage to find proof that the
Kursk disaster was caused by a collision with a foreign submarine, the vice
admiral's hopes that Russia will obtain material compensation are not
destined to come true. The point is that submarine shipping is not
regulated by any international legal normative acts. It is impossible to
break rules which do not exist and not a single court will be able to apply
any financial sanctions against anyone. 

Salvage operation going ahead 

Addressing the Federation Council members yesterday Deputy Prime Minister
Ilya Klebanov announced that work on the preparation of the operation to
raise the bodies of the Kursk crew members "has entered the finishing
straight". The deputy prime minister said that work to raise the bodies of
the dead seamen to the surface will begin by 10th October and that it will
be completed by the end of October. He refused to answer a 'Kommersant'
question about exactly which firm will recover the dead, promising to name
it only after the contract has been signed. But Mr Klebanov stressed that
the firm has already been selected and an agreement with it was initialled
yesterday. The relevant government decree will be signed by today and it is
planned to conclude the contract in the next few days (this information was
confirmed for our 'Kommersant' correspondent by Rubin design bureau
spokesman Gennadiy Sorokin). It is known that it is a Norwegian firm, but
not Stolt Offshore, which has been involved in rescue operations on the
submarine Kursk since the accident. The deputy prime minister explained the
choice by considerations of economy. 

Source: 'Segodnya', Moscow, in Russian 28 Sep 00 

Text of report by Andrey Viktorov entitled "Andrey Babitskiy returns to
Caucasus. Whatever the court decides, the Radio Liberty correspondent will
remain free", published in the Russian newspaper 'Segodnya' on 28th September 

There is a little over a week to go to the start of the trial of Radio
Liberty correspondent Andrey Babitskiy, who is accused of "using documents
known to be forged". The case will be heard at the place where Andrey was
detained, in Makhachkala's Sovetskiy Court, under the chairmanship of Judge
Svetlana Goncharova. Andrey Babitskiy himself and his lawyer, Genri Reznik,
met with journalists yesterday in Moscow. 

Andrey Babitskiy's lawyer is confident of victory. according to Genri
Reznik, everything that has happened to his client is nothing other than
"permanent arbitrariness". However, the defendant himself is not so
optimistic. In conversation with the `Segodnya' correspondent, Andrey
Babitskiy sadly remarked that "in the present situation there is no hope of
a not guilty verdict". It is no secret that there is a political subtext to
the Babitskiy case, and, moreover, Genri Reznik admitted that currently
only 0.4 per cent of defendants are found not guilty in Russia. So it is
very tricky to predict the outcome of the case. And it is no accident that
Babitskiy's lawyer asked representatives of the Russian and foreign mass
media "to come to Makhachkala on 2nd October and ensure glasnost". 

For their part, representatives of the Russian Ministry of Internal
Affairs' Investigations Committee are sure that the "Babitskiy case" has
quite good prospects in court. The Investigations Committee's press
secretary, Vladimir Martynov, told `Segodnya' that "if the investigators
had had even any doubts, the case would not have come to court".
Furthermore, he believes, "Babitskiy's guilt concerning the use of forged
documents has been totally proved". At the same time, the Investigations
Committee spokesman declared that the correspondent will not end up in
jail, since the charge of forging a document was withdrawn during the
investigation, and the use of forged documents does not entail
imprisonment. Moreover, the article of the Criminal Code under which the
charge has been preferred is subject to amnesty. 

Text of report by Russian newspaper 'Segodnya' on 29th September 

Russian Federation Prime Minister Mikhail Kasyanov assured the public
yesterday that all Russian fissile materials are under the state's control.
"There is constant monitoring of the functioning of sectors associated with
nuclear energy," the head of government reported. This, ideally, is how it
should be: Whichever department uranium or lithium pass through, they
remain the property of the Russian Federation. In fact, however, it turns
out that everything is not so simple. 

Control on the part of the Russian government is kept afloat by financial
transfusions from Russia's "foreign friends" in the United States and
Europe, who pay for 90 per cent of it, and is exercised using Western
equipment. This was reported yesterday by Valentin Ivanov, first deputy
minister of atomic energy. 

The government was meeting to examine the concept of the federal system for
recording and controlling fissile materials, whose coordination has been
entrusted to the atomic energy ministry. Ivanov reported that the proposals
submitted mainly boil down to how to collect nuclear materials from 61
enterprises scattered around 44 Regions and to concentrate them in the
atomic energy ministry's structures equipped with modern means of recording
and control. Supervision is planned with the help of Russian equipment. In
particular, it is necessary to monitor by satellite the movement of loads. 

It is an excellent plan, but almost unrealizable - primarily because of the
lack of a normative-legal base, which would enable the atomic energy
ministry to exercise undivided "sway" over nuclear materials. This is
precisely what the ministry is seeking: Ivanov reported that the atomic
energy ministry has drawn up and submitted to the government an
intersectoral programme, in which it will act as both the client and the

The second difficulty is that Russia does not possess the necessary
equipment to create the system. The few instruments which do, nonetheless,
exist are nothing more than experimental models. To judge from what the
deputy minister said yesterday, the state allocates almost no money to
developing them. In all, according to the deputy minister, it has been
decided to allocate R70m over six years to creating the system. According
to the atomic energy ministry's estimates, it is necessary to find R2bn
over five years. Thus, Russia cannot afford the peaceful atom. 


From: "Stephen Blank" <>
Subject: ware and getov
Date: Fri, 29 Sep 2000 

For Robert Ware, the issue in the Kursk has nothing to do with U.S.
security. The evidence is that the Russian armed forces are seeking to
cover up their malfeasance by the usual tactic of blaming someone else.
Allowing inspections is irrelevant here since the issue is a red herring, as
for Dimitar Getov's questions: Yes we do satellite surveillance but we never
release the information we receive to the public for intelligence reasons,
2)It may be reasonable that nobody uses live conventionalk charges, but the
evidence indicates test of a new liquid-fired anti-ship missile , the Shkval
(Squall) and the loiquid firing mechanism, is what probably misfired not the
charge itself and liquid firing mechanisms are extremely volatile and this
would answer question number 3 and number 4. Unfotunat\ely over the counter
hydrogen peroxisde is not the issue here 5)If you wish to read about the
Shkvl you can look it up in Jane's Defense weekly earlier this year where
much of the data is given. Moreover Russian defense manufacturers are not
at fault here 6)You can discover a great deal about any submarine from even
a cursory ispection and you need only ask a competent naval office or seaman
who served on one.7)Its quite obvious what the Rusisans gain by lying and it
is a long-standing article of faith in Russian political culture not to tell
the truth when it can be construed as your fault and cost you your job, etc.


Jamestown Foundation Monitor
September 29, 2000

MEDIA TOUTS A NEW OLIGARCH. Oligarch-watching is one of the Russian media's 
favorite pastimes, and the press has recently discovered a "new" tycoon 
whose political influence is reportedly greatly increasing. The new rising 
star is Vladimir Kogan, chairman of the observer's council of the 
Promstroibank-St. Petersburg. According to one observer, Promstroibank 
virtually privatized Russia's second city during the 1990s and is today a 
multibillion-dollar empire which controls St. Petersburg's ports, airports, 
transportation and communications companies (Moskovsky komsomolets, 
September 27). According to several newspaper accounts, as far back as the 
perestroika era Kogan was a patron of St. Petersburg's so-called "young 
reformers," who were led Anatoly Chubais (currently head of United Energy 
Systems) and included Aleksei Kurdrin (currently a deputy prime minister), 
German Gref (today economic development minister) and Mikhail Manevich, the 
St. Petersburg privatization chief who was assassinated in 1997. Kogan was 
also reportedly closely connected to former Prime Minister Sergei 
Stepashin, who today heads the Audit Chamber and whose wife works in 
Promstroibank, and Ilya Klebanov, the current deputy prime minister in 
charge of the military-industrial complex. Kogan, apparently, did not limit 
his contacts to the Chubais group. He reportedly forged "stable contacts" 
with Boris Berezovsky through another St. Petersburg banker, Vadim Zingman, 
and assisted Fatherland-All Russia, the political coalition led by Moscow 
Mayor Yuri Luzhkov and former Prime Minister Yevgeny Primakov, in their 
campaign in St. Petersburg during last year's parliamentary elections. In 
addition, one claimed that Promstroibank has connections with Kostya Mogila 
(Kostya the Grave), one of St. Petersburg's criminal bosses (Novaya gazeta, 
September 25).

Vladimir Putin, of course, started his political career in St. Petersburg, 
as deputy to Anatoly Sobchak, St. Petersburg's first mayor, and Kogan 
reportedly has a direct link into the Kremlin through Dmitri Kozak, deputy 
Kremlin administration chief and a close Putin associate. The newspapers 
speculated that Kogan could win a high government post if, as many 
observers believe, Putin shakes up his cabinet (Moskovsky komsomolets, 
September 27; Novaya gazeta, Kompaniya, September 25).

Other observers, meanwhile, were touting a different new behind-the-scenes 
powerbroker. The website quoted the newspaper Izvestia 
identifying a new frequent visitor to the Kremlin as Lev Levaev, described 
as an "Israeli entrepreneur" who heads two diamond-cutting 
factories--"Kama-Kristall," located in Perm Oblast, and "Ruiz Diamond," 
located in Moscow. Izvestia was quoted as saying that "Levaev's authority 
and influence is not limited to regional diamond markets" and that since 
the summer he has become "a new Kremlin oligarch" who is being compared 
with Roman Abramovich, the power behind the Sibneft oil company and perhaps 
the most influential oligarch in the country. The paper reported that 
Levaev met with Putin several times when the latter was prime minister, and 
that Levaev "has entree" into the offices of the presidential 
administration (Russian agencies, September 28).


Putin criticises security chiefs

MOSCOW, Sept 30 (Reuters) - Russian President Vladimir Putin said on Saturday 
he was disappointed that his security chiefs had failed to prepare adequately 
for a key meeting this week to discuss military reform. 

Turning Russia's oversized and underfunded military into a compact, modern 
fighting force has been a major theme of Putin's presidency, accompanied by 
embarrassing public feuds between top generals over reforms. 

``All these measures are aimed at making our military...more effective, 
better technically equipped, making it mobile, raising the level of material 
welfare of servicemen and the prestige of military service,'' Putin said in 
televised excerpts of remarks to Russian journalists on Saturday. 

Last month's sinking of the Kursk submarine, in which the entire 118-man crew 
was killed, drew attention to the decrepit state of Russian hardware and the 
impoverished living conditions of soldiers, sailors and their families. 

Military priorities were due to be discussed at a meeting of Putin's 
influential advisory Security Council this week, but the debate was put off 
until November to allow more time to settle differences between military 

``I was disappointed that the meeting of the security council was not 
prepared for to the proper extent,'' Interfax news agency quoted Putin as 
telling journalists. The Kremlin confirmed the remarks. 

Russia's media has speculated for months that Putin could sack top security 
officials to resolve their disputes over reforms, although he has not said he 
plans to do so. 

The reforms involve cutting Russia's standing army by 350,000 troops, or 
nearly a third, while raising overall military spending. 

Defence Minister Igor Sergeyev and General Staff chief Anatoly Kvashnin have 
publicly quarrelled over the extent to which the land-based strategic nuclear 
rocket forces should be cut to free up further funds for other priorities. 



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