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Johnson's Russia List


October 7, 2000    
This Date's Issues: 4563 ē 4564 ē4565 


Johnson's Russia List
6 October 2000

[Note from David Johnson:
1. Business Week: Paul Starobin and Olga Kravchenko, Russia's 
Middle Class. It has emerged from the rubble of 1998. But can 
it grow and prosper?

2. Business Week: So Far, the Mobility Is All Upward.
3. Washington Times: Lesley McKenzie, Threat seen in Russia's 
biological agents.

4. Segodnya: THE TAMING OF THE DUMA COMPLETE. The Right Will 
Team Up With Government Budget's Advocates. (Interview with

5. AP: Russian Envoy Backs Kostunica.
6. Reuters: Russian deputies lash out at Kostunica's ``coup''


9. Unimportant Gathering Of Important People. (The 
Enterprise Council)

10. The Electric Telegraph (UK): Ben Aris, Children train as 
Russia's tax police.]


Business Week
October 16, 2000
[for personal use only]
Russia's Middle Class
It has emerged from the rubble of 1998. But can it grow and prosper?
By Paul Starobin in Samara, with Olga Kravchenko in Moscow 

Irina Lyakhnovskaya is a go-getter. Her hometown of Samara in central Russia 
straddles the Volga River and is surrounded by miles of fertile grassland and 
the Zhigulevskiye Mountains. In 1996, she started a tourist company, with 
seed capital supplied by herself and three friends, that specializes in 
arranging hunting and fishing trips for visitors from Finland and Norway. She 
drives a Russian-made Lada that she purchased new, for $3,500, two years ago, 
and she spends weekends at a country dacha that has an apple orchard she 
harvests to make her own wine. Last year she took vacations in Hungary and 
Romania, and this year she plans to get to Britain. In a country where the 
average factory worker is lucky to make $150 a month, she makes as much as 
Lyakhnovskaya, 38, embodies a major shift in Russia's economic landscape. 
Boosted by a resurgent national economy and by its own bootstraps, a middle 
class is taking root in the former land of the proletariat. They're 
concentrated in the big western metropolises of Moscow and St. Petersburg. 
But millions of others, like Lyakhnovskaya, are sprinkled across Russia in 
provincial cities from Samara and Nizhny Novgorod on the Volga River, to Perm 
and Yekaterinburg in the Ural Mountains, to Vladivostok in the Far East. By 
profession, most are entrepreneurs who own their shops, restaurants, hotels, 
bakeries, and computer software companies. Many are accountants and lawyers. 
Others are managers at big Russian and multinational companies such as 
Coca-Cola Co. (KO) and gas monopoly Gazprom (OGZPF). Analysts estimate 12 
million to 30 million Russians, some 8% to 20% of the nation's 145 million 
population, qualify as middle class.
What does it mean to be middle class in Russia? Forget the house and 
mortgage, the golden retriever, and the sports-utility vehicles so common in 
the U.S. They're not saddled with mortgage payments because most live in 
apartments they got for free during privatization. They don't put their 
savings in the bank because they don't trust the banks or the oft-devalued 
FRAGILE. But like their counterparts in the West, they're a stabilizing force 
in Russia's economy. Many are plowing their savings into their own 
businesses, creating jobs in the process. Russia's middle class now produces 
some 30% of the country's gross domestic product of $220 billion, calculates 
the Russian business magazine Expert.
In Moscow, a typical family of three ought to be able to make it into the 
middle-class with a combined monthly intake of $800, according to estimates 
developed by BUSINESS WEEK. In Samara, the same family could make it on $300. 
Members of the upper strata earn as much as $7,000 a month. Families in the 
center of the new class enjoy what most citizens can only regard as a dream 
lifestyle. They can afford to own a foreign car, as opposed to a more 
breakdown-prone Lada. They can escape to a country dacha that, unlike the 
makeshift shacks typically kept by poorer people, has indoor plumbing and 
heating. They can afford private medical care in an emergency, whereas those 
below are confined to the abysmal care meted out by public clinics. Such an 
existence breeds what analysts view as a distinguishing psychological feature 
of the sturdiest members of the new middle class--a sense of empowerment.
But their newfound status is fragile. Members of this group quake in fear 
that a grasping government will snatch away their hard-won savings. They 
uneasily sense that their neighbors envy their relatively high stations. Many 
are eager to start new businesses, but hardly any can find a bank to lend 
them money. And they are haunted by the prospect of a fresh national economic 
calamity. ``One new crisis, everything I have will be wiped out,'' says 
It's happened before. A fledgling middle class got its start during the 
chaotic rein of Boris N. Yeltsin, but many saw their fortunes wiped out by 
the economic crisis of August, 1998. Now, a buoyant economy is lifting them 
back up--and bringing new people with it. Aided by soaring oil prices and a 
devalued ruble, Russia's economy is projected to grow 5.5% this year, after 
expanding 3.2% in 1999. The 1998 devaluation helped boost a new set of 
entrepreneurs by creating an opportunity to fill a niche once supplied by 
now- too expensive imports. ``In the wake of the 1998 crisis, a lot of people 
have managed to survive and even improve their situation,'' says Harley 
Balzer, a Russia expert at Georgetown University.
BEST HOPE. Their ranks will grow if President Vladimir V. Putin can push 
through his initiatives to allow private ownership of land and to create a 
national banking system that can extend mortgages to prospective homeowners 
and credits to small businesses.
There can be no better news for Russia than the emergence of a middle 
class. Such a cadre of stakeholders is this troubled country's best hope for 
building a stable, civilized, prosperous society. Above them, in income if 
not manners, are Russia's notorious oligarchs, who have plundered the nation. 
Below them are Russia's working poor. Although these lower-income citizens 
are extremely resourceful, they are in no position to assert their interests 
against an overweening state or to create the sturdy civic institutions that 
Russia so badly needs. If such a thrust is going to come at all, it will 
likely be spearheaded by the new middle class. And despite the best efforts 
of the old Soviet regime to annihilate the very idea of a middle class, the 
dream of attaining just such a status is the central animating vision for its 
legions of strugglers. ``Everyone wants to be middle-class,'' says Leokadia 
Drobizheva, director of the Institute of Sociology at the Russian Academy of 
Sciences in Moscow.
Samara is an example of the depth and resilience of Russia's new sredni 
klass, as the Russians call the middle strata. A city of 1.2 million on the 
Volga River in southeastern Russia, its economy has been lifted by the 
progressive, probusiness policies of Governor Konstantin Titov. It is home to 
Russia's largest auto company, Avtovaz, which makes the Lada. Foreign 
investors such as Coca-Cola and Nestle (NSRGY) operate there. Noting its 
improved economic performance, Standard & Poor's Corp. recently raised its 
long-term credit rating on Samara region bonds to B- from CCC.
Samara is, as Americans would say, a nice place to raise a family. In the 
heart of the city is a mile-long beach and riverfront promenade graced by 
ashberry trees, ice cream stands, and outdoor cafes. Pensioners in bathing 
suits bat around a volleyball on the beach. Young men and women in business 
dress stroll the walkway alongside mothers with baby carriages. Up the road 
is the town's new entertainment center, a mall featuring a Dolby-sound 
multiplex cinema, a billiards hall, a video arcade, and a children's play 
Seeking a grasp on the sensibilities of Russia's new middle class, 
BUSINESS WEEK recently gathered together a crew of seven in Samara. The 
participants, ages 23 to 50, four women and three men, included an engineer 
turned crayfish farmer, a lawyer, and a trio of business consultants. For two 
hours on a Thursday evening, they sipped beer (Heinekens, preferred to 
Russian-made Balticas), snacked on salami sandwiches and potato chips, and 
talked about how they were doing.
Sure, things are tough. But they're getting better. The economy is adding 
jobs--and business opportunities. As bad as the 1998 economic crisis was, 
these folks weathered it, and they have acquired an unpaternalistic attitude, 
unusual in Russia, toward risk. Capitalism, at least, offers flexibility.
CAREER CHANGERS. Most of these folks have already changed careers at least 
once. Lyakhnovskaya, an environmental engineer at a defense plant in the 
Soviet era, founded an insurance business in 1992. But the enterprise 
struggled, and four years later she abandoned insurance to launch the tourist 
agency. The tourist company itself nearly died during the 1998 financial 
turmoil. For three months, no money came in at all. Vitali Kozhevatkin, 43, a 
Soviet-trained sea transport engineer, turned to crayfish farming after his 
precrisis venture installing car alarms went belly-up. Volatility, he said 
philosophically, is an inescapable part of business life in Russia.
Also starting such businesses are a growing number of ex-military men. 
``Many officers are just afraid to change their lives. It's a hassle, but I 
am glad I did,'' says Sergei Tolmachev, 39, a former major in the military's 
engineering corps who now runs a Samara consulting firm that helps businesses 
lease commercial real estate. Tolmachev, who sold his Lada to raise funds for 
his enterprise, estimates that from 15% to 20% of small-business operators in 
Samara hail from the military or the security services. ``The skills you get 
in the Army help you to be more flexible, to understand a situation 
immediately, to make decisions,'' he says.
The revival of a small-business-dominated bourgeoisie in Russia harks back 
to the twilight of czarist times, when Moscow, St. Petersburg, and leading 
provincial towns had a nascent middle class that also consisted principally 
of merchants and small firms. In the greater Samara area, a new generation of 
such proprietors have established some 150 to 200 enterprises within the last 
two years alone to supply equipment such as tables and shelves to a growing 
number of shops, street kiosks, restaurants, and bars. There are now some 400 
independent bakeries in the region and approximately 80 independent gas 
stations. There are also a number of furniture makers and companies that make 
computer software. With the benefit of a cheaper ruble, small firms producing 
dairy products have increased their share of the regional market from 10% 
before the crisis to 40% now.
No doubt, many of the entrepreneurs underreport income to evade 
taxes--something of a national pastime in Russia. Nevertheless, in sharp 
contrast to the oligarchs, who specialize not just in tax evasion but also in 
asset-stripping and offshore banking accounts, these folks typically are 
plowing profits back into their ventures, thus helping to create jobs and a 
sustainable economic base. And they're looking to get more locally involved, 
not less. ``I'd feel safer if I had my own solid property,'' says 
It's not just small-business operators, of course, that are supplying 
Russia's new middle class. Also feeding the ranks are managers at big Russian 
and multinational firms. Foreign companies, which generally pay higher 
salaries, are turning increasingly to Russians to fill management jobs once 
held by expats. In Samara, for example, the new general manager of Coca-Cola 
Bottlers is a Russian, replacing a British national. Many expats left the 
city after the 1998 crisis, and the available pool of qualified Russian 
managers is getting deeper each year.
The other big segment of the new middle class consists of white-collar 
professionals providing services to businesses and wealthy and other 
middle-class individuals. These include lawyers, accountants, and, especially 
in Moscow, a growing cadre of folks at advertising, marketing, and 
public-relations firms.
Meanwhile, the new middle class is beginning to create civic institutions 
to promote a healthy business environment. A growing force is the Chamber of 
Commerce of the Samara Region, based in the center of town in an elegant 
mansion built by a wealthy 19th century merchant and used as a hotel by the 
Communist Party brass during the Soviet period. There are 900 members, 700 of 
them small businesses. Considerable energy is devoted to lobbying the 
regional political administration and legislature, based in Samara. The 
chamber recently managed to stave off an energy tax proposal that member 
independent gas stations feared would hurt their efforts to compete with the 
retail outlets affiliated with locally based Yukos Oil Co., a big vertically 
integrated oil company. ``We are provided with all draft [regional] laws,'' 
says chamber Vice-President Alexander V. Andriyanov.
Samara's businesswomen, meanwhile, have formed their own club, headed by 
the owner of a local art gallery. Its 20-odd members meet there twice a month 
and helped elect one of the crew, Alla Dyomina, a health-care administrator, 
to the regional parliament. Dyomina keeps the club abreast of the local 
legislative scene, and members have a direct channel into the Samara regional 
administration: The husband of the gallery owner works for Governor Titov. In 
Russia as a whole, some 40% of 890,000 registered businesses are owned by 
women, according to the Moscow-based Federation of Russian Business Owners.
SIMPLIFIED TAXES. That's not surprising, given that women were the first to 
be let go when Russia's economy collapsed in the 1990s. Most of the women in 
the federation are in their forties and fifties; half are supporting their 
entire families; virtually all are making solid middle-class incomes of at 
least $1,500 per month. ``Women are more flexible in changing conditions. 
They adapt more easily,'' says Ludmila Davydenko, 44, a mathematician who 
runs a consulting company in Vladivostok that provides information and 
marketing services to construction contractors.
The real question is whether the truly down-and-out places in Russia can 
get on a Samara track. The development of a middle class is too large a task 
for local initiative alone. That's why there is ultimately no substitute for 
action by the Kremlin to create the basic conditions in which a middle class 
can have at least a chance to establish itself in such hardscrabble soil. But 
the idea that the Kremlin seems to be targeting the middle class as a group 
in need of help triggers a visceral qualm. ``Historically, whatever Moscow 
authorities pay attention to immediately goes wrong,'' says Elena Tsykalo, a 
Samara consultant who helps fledgling entrepreneurs get off the ground.
So far, Putin's regime has a mixed record. It improved matters by enacting 
a tax-reform bill that both simplified the tax code and slashed rates. Under 
the new law, all individuals will pay a flat tax of 13% on income. Payroll 
taxes that are paid by employers, including small businesses, are cut. Also 
helpful is the Putin team's liberal views in favor of open markets, which has 
spurred an increase in foreign investment.
Legislative enactment of a measure supported by Putin to permit ownership 
of land could enfranchise a potentially vast class of new property owners. 
Now, entrepreneurs can buy a building, but they can't buy the land underneath 
No less important is Putin's initiative to create a credible national 
banking system to which small businesses and consumers have easy access. 
There is at present no system of deposit insurance for savers; there is 
almost no market in mortgages for residential housing; and very few 
small-business owners are able to get a loan from a bank. Bank deposits, 
which typically comprise half of gross domestic product in Western countries, 
make up only 4% of GDP in Russia.
Russia remains a laggard among post-Soviet empire nations in building a 
middle class. But it can't be forgotten that Russia was ground zero for the 
Bolshevik Revolution, for the doomed project of building a classless society. 
Lenin, the lawyer who led that cause, was a man of bourgeois origins, a 
native, in fact, of the Samara region who came to despise his own roots. He 
still lies entombed in a mausoleum on Red Square, but an emptier symbol is 
hard to imagine. For all around him, Russians have resumed their quest, 
frozen in time, for a middle-class society. And slowly, with no doubt more 
stumbles to come, they are getting there.


Business Week
October 16, 2000
[for personal use only]
So Far, the Mobility Is All Upward
By Paul Starobin, with Olga Kravchenko, in Moscow 

Muscovite Ella Sytnik, 26, had her hopes raised by Michael Gorbachev's 
perestroika in the mid-1980s, and she became even more excited when the 
Soviet Union itself toppled in 1991. But her living standard today, as a 
person solidly in the center of her city's emerging middle class, surpasses 
her wildest teenage imagination.
Sytnik is head of the Moscow representation office of Petroplus, a Dutch 
industrial equipment manufacturer. Her wages, which range from $2,000 to 
$2,500 per month depending on the size of a bonus, support herself, her 
physician mother, and her retired father. Virtually all of her pay is 
disposable income--the family got the apartment for free during privatization 
and pay just $20 a month for utilities. Sytnik recently plunked down $700 for 
a chestnut mare she keeps at a local riding stable for $200 per month, plays 
pool at an upscale billiards parlor, and is planning a scuba-diving vacation 
in the Red Sea.
IKEA SHOPPERS. So it goes--decidedly upward--for Moscow's new middle class. 
Nothing in Samara or any other provincial town can rival its transformation 
as a haven for folks such as Sytnik. The Yolki Palki restaurant chain, opened 
in 1996 to cater to families and singles, currently has 11 restaurants in 
Moscow. A bowl of hot borscht and a main course of grilled pork, washed down 
with a half liter of Russian-brewed Baltica beer, goes for about $8.50. There 
are at least 10 Dolby-sound movie complexes. Back in March, traffic backed up 
for two miles as some 40,000 middle-class Muscovites, in their Ladas, Volgas, 
Volkswagens, and Skodas, attended the opening of Russia's first IKEA, the 
Swedish home furnishings store, in a suburb just outside the city.
Some 20% of Moscow's adult population is middle class, according to 
ComCon, a Moscow market-research firm. The ability to speak passable English 
is a must. Job sources include banks and financial-services companies, the 
headquarters offices of Russian manufacturers, and representative offices of 
Western companies. Russian accountants and investment bankers laid off during 
the crisis are being rehired. Law firms, too, offer a growing number of 
middle-class jobs. One reason is that foreign companies are relying more on 
Russian firms these days for staple services--their fees are considerably 
cheaper than those charged by Western ones, their training has improved, and 
many expat lawyers bolted Moscow after the crisis.
In a city nearly as conscious of status and style as New York or Paris, 
sharp markers have evolved to separate the middle classes from each other. 
Depending on the dacha you repair to on the weekend, the car you drive, or 
the watch you are wearing, whether it's a $100 Japanese Citizen, a $300 Swiss 
Tissot, or a $1,000 Swiss Raimond Weil, any seasoned Muscovite can peg you as 
a lower-middle, a middle-middle, or an upper-middle class resident.
What binds the class is its shared lot of being neither poor nor rich--and 
its sense of its current station as an earned achievement. This entitlement 
mind-set is not entirely deserved--there were plenty of middle-class 
Muscovites who reaped paper windfalls in the heady precrisis days through 
speculations in the infamous GKO government-bond market. The crash of that 
market just about wiped them out--and in some cases wrecked their lives.
Sytnik's ascent to the middle class has had its rocky moments. After 
graduating from Moscow Polytechnical Institute with a degree in international 
economics in 1994, she landed her first job as a receptionist at a Western 
hotel, for $600 per month. To gain experience as an economist, she took a cut 
in pay to $300 to join Gazprom, the big Russian energy conglomerate, but she 
was turned off by the Soviet-style culture. Then she joined the Moscow office 
of the Dutch ING Barings bank for $1,700 per month, only to be laid off, with 
other Russian staff, during the crisis. ``I will never feel stable again,'' 
she says.
Still, she thinks the crisis helped to sober folks who once behaved as if 
the money would keep flowing along with the French champagne they were 
guzzling. Her long-term goal is to run her own company in Moscow. ``I don't 
want to leave Russia,'' Sytnik says. ``It's improving.''
Could the good times screech to a halt? Sure. Many middle-class 
Muscovites, who tend to be more liberal in their political sentiments than 
their provincial peers, worry that Putin could permanently damage the 
business environment with the sort of strong-arm tactics the Kremlin has 
displayed toward Media Most, the media conglomerate operated by Putin critic 
Vladimir Gusinsky. Bureaucratic corruption and excessive taxation also 
threaten the growth of Moscow's middle class. So cross your fingers: This is, 
after all, Moscow, where good things have a way of getting quashed.


Washington Times
October 6, 2000
Threat seen in Russia's biological agents 
By Lesley McKenzie

Russia's biological weapons sites, which pose a far greater threat than 
do its nuclear weapons, may have been dismantled and hidden for future use, 
according to a leading specialist on the weapons plants.
"The capability of the old Russian Ministry of Defense sites remains 
uninvestigated and largely unknown," said Christopher Davis, a member of the 
first Western team to visit biological warfare facilities of the former 
Soviet Union.
"The suspicion is that, at the very least, the basic know-how, 
expertise, equipment and stock of seed cultures have been retained somewhere 
within the Ministry of Defense system," he said Monday at Jane's Conference 
on Weapons of Mass Destruction in Arlington, Va.
Mr. Davis traced the Soviet history of biological warfare research and 
development, and noted areas of concern.
"Biological agents, if of the transmissible variety, are capable of 
causing casualties far in excess of those caused by nuclear weapons," he said.
These weapons are also available at a lower cost than nuclear weapons.
The special characteristics of biological weapons include their ability 
to attack all "living targets," which range from human beings to plants and 
livestock, possibly rendering a nation unable to feed itself.
Some biological weapons also have the ability to first exhibit their 
effects on an area hours or possibly days after their release, making it 
difficult to ascertain the identity of the aggressor.
The United States chose to disarm its biological warfare program in 
1969, but the Soviet Union continued its warfare development through the 
establishment of an agency named Biopreparat in 1973-1974.
Biopreparat developed biological weapons behind a civilian facade of 
pharmaceutical and biotechnology industries. This tactic served as an 
alternative to chemical and nuclear weapons controlled under arms treaties 
and weapons conventions.
For many years, only a small number of people across the Atlantic were 
aware of the problem, and many chose not to listen to their warnings, Mr. 
Davis said.
Only in the period between 1989 and 1991 were analysts able to convince 
governments that these programs were a threat to the world.
A secret U.S.-British visit to Russian facilities took place in 1991, 
but as late as 1993, the two nations still were confronting the former Soviet 
Union about the continued development of biological warfare.
Since then, while Biopreparat has undergone change, efforts were 
continually being made to help Russians convert these military establishments 
into civilian facilities.
Now the chief scientific adviser for the Applied Sciences Group at 
Veridian Systems, Mr. Davis cited several issues that remain unresolved.
"What happened to the part of the program in the closed military 
facilities to which there have been no visits by Western experts?" he asked.
Also of concern are the hundreds of personnel who were involved in 
Biopreparat. There are rumors that many have been offered work by certain 
governments in the Middle East.
Mr. Davis also stressed his concern with regard to the stocks of seed 
cultures to be used in the production of weapons.
Robert Gallucci, dean of Georgetown University's School of Foreign 
Service, agreed with Mr. Davis' assessment.
"This is not a new problem," he said. "Ever since [former President 
Boris] Yeltsin agreed to a program of visits between the U.K., U.S. and 
Russia almost a decade ago, we have been working with Russian governments to 
bring transparency to this problem."
He added that although some advance has been made in gaining access to 
former Soviet biological warfare facilities, those under the Ministry of 
Defense remain closed to visitors.
"There is concern, therefore, that there remains a very large production 
capacity, and possibly even research and stockpiles, that have not been 
destroyed as required by the Biological Weapons Convention," Mr. Gallucci 


October 6, 2000
[translation from RIA Novosti for personal use only]
The Right Will Team Up With Government Budget's Advocates 
Today, October 6, the Duma will consider a draft of the 
federal budget for the next year. It looks as if the draft will 
be adopted in the first reading: it is known that the SPS, or 
Union of Right Forces, members of the lower chamber decided 
yesterday that they will all vote for the draft to thus ensure 
a victory for the Cabinet's budget policy line.

SPS faction leader Boris NEMTSOV has talked about this, 
below, with Segodnya's Ivan TREFILOV.

Question: The draft of the federal budget has been under 
fire of critics. How come the Union of Right Forces has seen 
more advantages than disadvantages in it?
Answer: To start with, Russia has the unique chance of 
stopping to make new debts and starting to pay back its debts.
This is very patriotic, starting to reduce the debt rather than 
letting the future generation pay it back, and the intention 
has been built into the draft budget. 
Secondly, SPS has demanded more allocations for the needs 
of education. It has been met. Thirdly, we are firmly in favor 
of reducing army conscription - in a planned, rather than 
sporadic, manner. The draft stipulates that 20% of the extra 
revenues will be channelled to make the military more 
Furthermore, we believe that many provinces are suffering 
from the excessive centralization of revenues. We have managed 
to convince the Cabinet to give a part of the money back to the 
provinces. The donor regions will be getting back more than 
others: the payback from the extra revenues will be 
proportionate to the contribution that a region pays to the 
center from its VAT revenues. 
Such are the advantages.
The disadvantages are as follows. The budget remains 
overly centralized, and the government seems to be overly 
self-confident to make such high social pledges. 
Nevertheless, the advantages clearly outweigh the 

Question: There are other reproaches addressed to the 
Cabinet, are not there?
Answer: Of course, there are. They are still toying with 
the expected revenues. Even if one were to use the parameters 
suggested by the government - the rate of inflation, the GDP 
deflator, the dollar's exchange rate - the figure still seems 
to be 75 billion roubles short. The oil price is not taken into 
consideration here. 
Of course, if they respected parliament, they would behave 
differently. The government's obstinacy is not explained by 
economic considerations, I think, but rather by some ambitious 
political objective. Say, not only the president is tough; the 
PM is tough too, and he can throw his weight around here at 
But the Cabinet's might should be used to set things in order 
in the country, rather than forcing the Duma to swallow the 
budget figures it shoves down its throat. 

Question: Do you think the draft budget could be rejected 
and given to a conciliatory commission for honing?
Answer: One is tempted to do just that. But one must 
visualize the consequences. The experience of conciliatory 
commissions proves that as a result the imaginary 150-200 
billion roubles' worth of revenues would be built into the 
budget. This is self-deception. 
If only we knew that a conciliatory commission could make 
a logical and sensible compromise decision, we just might opt 
for the road. But we know that the budget would be mutilated 
and the repulsive result, the problems that are bound to arise 
in this connection, are worse than the current budgetary 

Question: What will you insist on while the draft budget 
is being improved?
Answer: We will struggle for a number of important 
stipulations. The money allocated to the army, including the 
ones from the extra revenues, should be spent not only to pay 
the military but also to build housing for them. 
Another priority is reducing the conscription and a staged 
transfer to a fully professional army. 
I think Putin appreciates the importance of this issue but 
is wary of tackling it. The current beneficial market situation 
will not last forever: if nothing were done today, a 
disintegrating army would poison the life of the nation. 
The budget's non-transparency is intolerable. Last year's 
defense budget was three time more transparent than this year's.
The bureaucrats in a non-transparent agency have a free hand to 
steal as much as they want - if one were to call a spade a 


Russian Envoy Backs Kostunica
October 6, 2000

BELGRADE, Yugoslavia (AP) - Russia joined the international outpouring of
support Friday for the forces that toppled Slobodan Milosevic, leaving the
disgraced regime without its key backer and helping Yugoslavia's new
leaders solidify their control. 

Russia's foreign minister, Igor Ivanov, flew to Belgrade and said he was
conveying congratulations from Russian President Vladimir Putin to Vojislav
Kostunica, the opposition leader being hailed by Western heads and even
Yugoslav state media as the ``president-elect.'' 

Russia was the last major European nation to withhold support for
Kostunica, hailed as the outright winner of Sept. 24 elections by his
supporters and Western leaders. 

Ivanov's statement removes the last possibility of any important
international backing for Milosevic, whose 13-year rule unraveled Thursday
in a rampage by opponents in Belgrade. 

``I congratulated Mr. Kostunica on his victory in the presidential
elections,'' said Ivanov. 

Ivanov's diplomatic mission also reportedly could reach Milosevic in his
secret hiding place. 

The main priorities for Ivanov seemed to be assessing the aftermath of the
rapid-fire revolt and establishing ties with any new government. Russia is
keen to sustain its traditionally close relations with Yugoslavia. 

Yet Ivanov also was not prepared to completely shun officials of the
disgraced Milosevic government. 

He first met with his Yugoslav counterpart, Zivadin Jovanovic, in the
ministry's residential villa, said Yugoslav Foreign Ministry sources
speaking on condition of anonymity. 

The state-run Tanjug news agency, citing diplomatic sources, reported that
Ivanov also planned to Milosevic. 

Despite Ivanov's statement, there was some opposition among Russian

In Moscow, the State Duma, or lower chamber of parliament, rejected a
motion to send a congratulatory telegram to Kostunica. Some hard-liners
described it as a ``coup.'' 

Another possible political minefield for Russia: negotiating refuge abroad
for a disgraced dictator indicted by the war crimes tribunal at The Hague. 


Russian deputies lash out at Kostunica's ``coup''

MOSCOW, Oct 6 (Reuters) - Russia's lower house speaker lashed out at Yugoslav 
opposition leader Vojislav Kostunica on Friday for organising ``a coup'' and 
a Communist party chief said events in Belgrade smelled of ``marijuana, vodka 
and dollars.'' 

The State Duma, the lower house of parliament, also refused to send greetings 
to Kostunica as the new Yugoslav leader. 

``Today, Yugoslav society is split as a result of a coup. Kostunica has 
declared himself the president of Yugoslavia,'' Duma speaker Gennady 
Seleznyov said in televised comments. 

``Unfortunately there are victims, chaos in the country, people are stealing 
from shops, smashing windows, setting cars on fire. I do not think that 
Kostunica himself can control this chaos any more,'' Seleznyov said. 

Russia has been one of the few allies of Yugoslav President Slobodan 
Milosevic and the country was a fierce opponent of NATO's bombing of 
Yugoslavia last year. 

President Vladimir Putin has offered to mediate in the crisis and Foreign 
Minister Igor Ivanov on Friday flew to Belgrade. 

A wave of protests in support of Kostunica's claim to have won a September 24 
presidential election culminated on Thursday in a popular uprising against 

Kostunica's supporters have occupied key buildings, taken control of the 
capital and set up a crisis committee to assume power in governing Serbia. 

Interfax news agency quoted the head of Russia's Communist Party, Gennady 
Zyuganov, as saying he did not approve of events. 

``This is not democracy, it smells of marijuana, vodka and dollars,'' he 

Seleznyov also criticised NATO, saying the Western military alliance had 
achieved via Kostunica what it had failed to do during its air raid campaign 
against Yugoslavia last year. 

Western nations have called on Milosevic to admit defeat in the presidential 
election and step down. 

Russia's Itar-Tass news agency also said the Duma had rejected a motion from 
the liberal Union of Right-wing forces (SPS) to send a greeting to Kostunica 
as the new Yugoslav president. 



Moscow, 6th October: The 2001 budget spending allocations for servicing 
Russia's foreign debt are underestimated by 90-100bn roubles, the head of the 
Audit Chamber said. 

"The government's estimate of the state debt needs to be revised. 
Particularly in need of revision is the amount of payments to the Paris Club 
[of creditors], which by the Audit Chamber's estimate should be 90-100bn 
roubles higher," Sergey Stepashin said today at the State Duma debate on the 
2001 budget plan in the first reading. 


Source: 'Nezavisimaya Gazeta', Moscow, in Russian 5 Oct 00 p5 

Recent NATO manoeuvres in the former Soviet republic of Kazakhstan can be
seen as an attempt by the alliance to adapt to a new theatre of military
operations, according to the `Nezavisimaya Gazeta' newspaper. It said the
exercises could be linked to a Turkish proposal to set up the headquarters
of the alliance's rapid reaction force for the Balkans, Caucasus and
Central Asia in Istanbul. Such a force, based in Turkey, would be in a
position to keep an eye on the Baku-Ceyhan oil pipeline and would allow
NATO strategists to pursue their interest in unstable regions of Central
Asia such as Afghanistan, Tajikistan and China. With up to 10,000
servicemen from various countries taking part in recent NATO exercises in a
number of CIS countries, both Moscow and Beijing have adopted a cautious
attitude to NATO's increased activity on their borders. The following is
the text of the article by Vladimir Mukhin, published on 5th October under
the headline "Peacekeeping under NATO flag - most international exercises
held in September on territories of CIS countries were financed by alliance": 

NATO is stepping up its activity in the countries of the Commonwealth [of
Independent States]. Military manoeuvres held in September in the CIS
countries and on the territories of our former allies from the socialist
bloc attest to this. Large-scale military exercises attended by servicemen
from Turkey, Britain, the USA, France and some other countries of the
alliance were staged in almost all strategically important regions of the
former USSR, which Moscow has declared a zone of its interests. For
instance, the Tsentrazbat 2000 international exercises were held from 11th
to 18th September in Kazakhstan near the border with China; virtually
simultaneously, peacekeeping units, ships and aviation from Britain, Poland
and Ukraine took part in the multinational exercises Cossack Steppe 2000.
These naval manoeuvres in Crimea were held against the backdrop of a larger
peacekeeping exercise in the foothills of the Carpathian mountains in
Romania under the code name Cooperative Best Effort 2000. 

As was reported by NATO's military command, eight NATO states (the USA,
Canada, Greece, Italy, the Netherlands, Poland, Britain and Turkey) and 10
partner countries (Austria, Azerbaijan, Bulgaria, Georgia, Lithuania,
Macedonia, Moldova, Romania, Slovakia and Ukraine) took part in it. 

Almost without any interval, the military manoeuvres in the Carpathian
country of Romania were, so to speak, smoothly transferred to the
Carpathian regions of Ukraine. (These NATO exercises entitled
Transcarpathians 2000 ended literally the other day). They began in
Uzhhorod and their objective was to rehearse joint activities during
natural disasters. Representatives of 12 countries - Hungary, Georgia,
Belarus, Moldova, Slovakia, Poland, Romania, Slovenia, Sweden, Switzerland,
Croatia and Ukraine took part in the exercises. 

In addition, on the training grounds in Krtsanisi (not far from Tbilisi) on
16th September, 70 US servicemen began the training of a group of Georgian,
Azerbaijani and Armenian military mine-clearing specialists. As was
reported by the Georgian Ministry of Defence, the training exercise is
being held in the context of NATO's Partnership for Peace programme and
will end in two months. The US side covers all the expenses. 

Therefore, a total of up to 10,000 servicemen from European, Asian and
American countries took part in [exercises held] on the CIS countries'
training grounds. It is worth pointing out Russia took part only in one
event staged by NATO - the one in Kazakhstan. 

"Despite the fact that relations between Moscow and Brussels have been put
on ice, Russia, just as in the past, did take part in the international
exercise Tsentrazbat 2000. We do not conceal we have our interests here and
these very interests were the reason for our participation in the
manoeuvres," the author of this article was told by Lt-Gen Vasiliy
Grigoryev, a representative of the main directorate for international
military cooperation of the Russian Federation Ministry of Defence. In the
Ministry of Defence he is in charge of collaboration with CIS countries. 

At the exercises held near Almaty, Russia was represented by a motorized
rifle company from the 201st motorized rifle division stationed in
Tajikistan. All servicemen in the company are contractors. Whereas other
participants in the manoeuvres were only just learning how to conduct
peacekeeping operations, servicemen from the 201st motorized rifle division
had taken part in those kinds of operations in practice. The command of the
exercises highly appreciated the performance of the Russian motorized
riflemen in Kazakhstan. 

Meanwhile, representatives of NATO countries rehearsed the most global
training issues during the manoeuvres. They were represented by airborne
units from the USA and Turkey. After a transcontinental flight on military
transport aircraft (which were refuelled in the air) the alliance's units
immediately joined the active phase of the exercise by making a landing on
Kazakhstan's soil. Similar actions were rehearsed in Uzbekistan in 1997.
There are various versions regarding the reasons for this kind of concept
of operation. However, it cannot be ruled out we are observing NATO's
intention to get adapted to a new theatre of military operations. This
conclusion can be drawn based on statement by Huseyin Kivrikoglu, chief of
the Turkish armed forces General Staff, made in Athens in mid-September at
a session of NATO's Military Committee, which comprises the heads of
military departments of member-states of the North Atlantic Alliance. The
general proposed to the NATO leadership that the staff of the alliance's
rapid reaction force, whose zone of responsibility would include the
Balkans, the Caucasus and Central Asia, be set up in Istanbul. The proposal
is already being discussed in Brussels. According to NATO sources, some
1,500 officers would make up the skeleton of the units. In crisis situation
it is planned to increase the numerical strength of the units to
50,000-60,000 servicemen. Speaking about the importance of deploying the
staff of the rapid reaction force in his country, the chief of the General
Staff pointed out that "Turkey, according to NATO estimates, is a country
located closer to unstable and crisis regions than other countries". "In
the event of deploying it in our country," Kivrikoglu stated, "the staff
will play the important role of regional deterrent." 

Among the hypothetical objectives of NATO forces in Turkey, experts mention
protection of the Baku-Ceyhan oil pipeline that will be laid through
Azerbaijan and Georgia to Turkey. At the same time, however, they do not
specify whether the forces' functions will include the protection of the
pipeline on the territories of the two CIS republics. It cannot be ruled
out that NATO strategists also display an interest in the unstable regions
of Central Asia (Afghanistan, Tajikistan, China and so on). After all, it
is no accident the issues rehearsed with peacekeepers in Kazakhstan were
related to the situation that had developed close to the zone of the
exercise. Mostly Uighurs, Kazakhs and Chinese live there. It would be
incorrect to say that any kinds of ethnic contradictions exist among them,
but, as we all know, separatist organizations opposing official Beijing
exist in the Xinjiang Uighur Autonomous Region [of China] bordering
Kazakhstan, including Wahhabite-type organizations supported and financed
by Usamah Bin Ladin. 

The organizers deny any kind of relation between the concept of the
exercise and the situation in northwest China, but in military experts'
opinion, the scenario of the Tsentrazbat 2000 exercise, where reception of
refugees was rehearsed, may theoretically take place on the border between
Kazakhstan and China. It is necessary to be prepared for this. 

It is worth pointing out that on the eve of the exercises in Kazakhstan a
truck loaded with ammonite blew up in a suburb of Urumqi, the
administrative centre of the Xinjiang Uighur Autonomous Region mostly
inhabited by Muslims. Sixty people died as a result of the explosion and
more than 200 suffered more or less serious wounds. The explosion destroyed
more than 20 cars, and ruined and damaged a lot of buildings and structures
adjacent to the road. No foreigners were hurt. Zhu Rongji, prime minister
of the State Council of the People's Republic of China, was in Xinjiang
during the tragedy. There, the head of the Chinese government met with
former US Treasury Secretary Robert Rubin. The Chinese Ministry of Foreign
Affairs ruled out the possibility of the explosion in Xinjiang being a
terrorist attack. Nevertheless, observers do not rule out it might have
been carried out by Uighur separatists advocating the creation of
Independent East Turkestan, who are closely related to the Wahhabites in

There were no representatives of the People's Republic of China at the
exercises. Beijing is taking NATO's recent activity in the CIS countries
with a pinch of salt. Russia's attitude is equally cautious. It will be
difficult for Moscow to prevent NATO's eastward expansion. However, the
situation indicates Russia will have to counteract this process acting
jointly with other countries. There are not many such countries at this
point: China, Belarus... [newspaper's ellipsis] Who else? 


October 5, 2000
Unimportant Gathering Of Important People
The Enterprise Council organized by the Russian government held its first
meeting on Wednesday. The meeting made it clear that the Council is a
powerless advisory body. Nonetheless, the businessmen members see the
Council as a means to establish informal contacts with certain influential
ministers. The Council is to meet twice again this year. 
The Enterprise Council was formed in August 2000. President Vladimir Putin
launched the initiative after his meeting in July with the so-called
oligarchs, Russiaís richest and most influential businessmen. The council
is chaired by Prime Minister Mikhail Kasyanov and co-chaired by the
Anti-Monopoly Minister Ilya Yuzhanov, whose department in fact formed the

The Council has 24 members including Oleg Deripaska (Russian Aluminium),
Mikhail Khodorkovsky (YUKOS oil company), Kakha Bendukidze (Uralmashzavody
industrial group), Dmitry Zimin (Vympelcom cellular provider), Anatoly
Daursky (Krasny Oktyabr confectionary), Pyotr Aven (Alfa-Bank), Oleg Vyugin
(Troika Dialog financial group). 

Rem Vyakhirev of Gazprom, Vagit Alekperov of the Russiaís largest oil
company Lukoil, Anatoly Chubais of the energy monopoly RAO UES and several
other tycoons were not invited into the council, although initially their
inclusion was considered. 

To a large extent, it is up to the members to determine the Councilís
agenda. But it is very unlikely that the Council will become a powerful
lobby because its members do not really have a lot in common. Of course,
they are worried by unjustly high taxes and customs duties, by natural gas
and energy tariffs, that have risen sharply of late, corruption and other
problems that worry everybody else in Russia. Everyone understands,
however, that these are problems that the government must tackle alone and
that ultimately, the Council can be of little help in assisting the
government resolve these issues. 

Unsurprisingly the Council members have completely different views and
approaches towards the above- mentioned problems. The Anti-Monopoly
Minister has said that his ministry wanted as many industries and regions
to be included in the council as possible, probably to prevent the members
from forming a strong bloc in opposition to the Councilís chairman. 

At the meeting, the council resolved to meet twice again this year, in
November and in December. Energy and railway tariffs are to be discussed at
one of those meetings. The Anti-Monopoly Minister supported the idea of
forcing the Railway Ministry to account for its latest initiatives. He said
that his department is concerned that the Railroad Ministry has started to
regulate the tariffs by itself, especially for exported cargo. They
themselves determine if cargo qualifies as export. 

In any case, the advisory nature of the Council gives the Prime Minister
absolute freedom to heed or ignore the Councilís advice and proposals. 

The Council decided against calling extraordinary sittings in emergency
situations. If anything extraordinary happens, the Councilís members are to
address Igor Shuvalov, the head of the head of the government
administration and the Councilís coordinator. He will forward requests,
queries and proposals to Kasyanov who will make his own conclusions. 

However, it seems that the Council members are not entirely unhappy about
their status as voluntary advisors consultants. Anatoly Karachinsky from
the company International Business Systems said that the businessmen saw
that the government was ready to listen and that the government saw that
the businessmen were ready to speak seriously about their problems.
Deripaska, Bendukidze and Viugin also said that the Prime Minister listened
to them attentively and called for the Council to meet more often. 

The Council can serve another purpose, best illustrated by the following
example: The Council did not discuss the attempts by the Communications
Ministry to confiscate some of the frequencies from the cellular phone
network companies Vympelcom and MTS, despite the fact that the heads of
both companies are currently members of the Council. The Anti-Monopoly
Minister said that the dispute over frequencies was a private matter
concerning only the two above-mentioned companies. But the ministerís
uncompromising position did not stop Vympelcomís head from having a word
with Kasyanov after the meeting and then with Yuzhanov himself. In other
words, the Enterprise Council may not be a very influential body, but it is
a means for the businessmen members to establish personal contacts with
those ministers whose decisions affect their business activities. 

Olga Proskurnina 

The Electric Telegraph (UK)
6 October 2000
Children train as Russia's tax police
By Ben Aris, in Moscow

AT a newly opened school in Moscow the children are studying extra subjects 
on top of the normal reading, writing and arithmetic - they are taught 
hand-to-hand combat and how to strip a machine gun.

Set up last month, the Third Moscow Cadet Corps of Tax Police school is 
training the next generation of the elite tax corps. Best know for storming 
company offices, Russia's tax police wear black ski masks and carry 
Kalashnikov rifles. But the children at the school are convinced that they 
will be serving the public good.

Vanno, 13, the class leader, said: "I want to enter the tax service as life 
under the law is the best for Russia. We want to help Russia as there are 
financial problems. The world runs on money. Here no one pays their bills."

There are 142 pupils. Unusually for what is effectively a military school, 
the roll includes 20 girls aged 11 to 16. "I'm a good fighter," said Stacy, 
13, who enjoys the hand-to-hand combat classes. "I can beat some of the boys."

Stacy believes that they are following in the traditions of Robin Hood - 
taking from the rich to give to the poor. After only a month of lessons the 
children are already convinced that paying taxes is for the common good. 
Having to carry guns and learning to fight are part of the process.

The cadet school is a throwback to Russia's Tsarist past, when there were 
about 30 cadet schools that supplied employees for the imperial bureaucracy. 
It was a popular way for middle class families to ensure jobs for their 
children. The tax pupils are expecting full uniforms later this month.



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