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Johnson's Russia List


October, 13 1999    
This Date's Issues: 4577    


Johnson's Russia List
13 October 2000

[Note from David Johnson:
1. Reuters: IMF surprised at U.S. presidential debate remarks.
2. BBC Monitoring: Russian Audit Chamber says Bush Jnr's accusations 
re IMF money are justified.

3. RIA: Over one-third of Russians live in poverty - minister.
4. Edward Lucas: personal thoughts about Putin.
5. Business Week: Persuading Russia's Bullies to Play Fair.
The country's securities czar discusses his plans for real reform.

6. Peter Ekman: The Prophet Boris.
7. RFE/RL: Putin Failing To Stop 'Theft Of Russia'. (Vladimir 

8. St. Petersburg Times EDITORIAL: Physics Prize Winner Sets a Fine 

9. Moscow Times: Alla Startseva, Gref Pledges PSA Reforms And 
Membership in WTO.

10. Stanislav Menshikov: NEOLIBERAL UTOPIAS IN BOSTON And Strong 
Realism in Helsinki.

11. Fourth Quarter 2000 ­ Bracing for Crisis.
12. Bloomberg: Russia Sells Arms to Iran, Breaking Secret US 
Pact, NYT Says.

13. Nezavisimaya Gazeta - Stsenarii: Oleg Dobrocheyev, Advice to 
Political Innovators II. A CAR MAY GO FOR AS LITTLE AS 1,000 ROUBLES 
IN 2001 This Is Realistic, If the Government Makes Good Use Of 
Current Financial, Economic Stability.

14. Wall Street Journal: Alan Cullison, Russia's Case Against 
Aluminum Baron Raises Speculation of a KGB Frame Up.
15. Reuters: Russian media boss invites investigators to Israel.]


IMF surprised at U.S. presidential debate remarks
By Mark Egan

WASHINGTON, Oct 12 (Reuters) - The IMF on Thursday welcomed calls for reform 
from both leading U.S. presidential candidates, but said it had no evidence 
to back claims by Texas Gov. George W. Bush that its funds were embezzled by 
former Russian Prime Minister Viktor Chernomyrdin. 

Bush, the Republican presidential nominee, and his Democratic rival, Vice 
President Al Gore, both urged reform of the International Monetary Fund 
during their televised debate on Wednesday night. 

"We were perhaps somewhat impressed with the amount of attention that was 
received last night," chief IMF spokesman Tom Dawson told reporters at a 
regular weekly news briefing. 

But Dawson said the IMF had no evidence that Bush's claim had any merit. 

"With regard to the possible misuse of funds in Russia, we do take seriously 
all allegations and examine them," Dawson said, before adding, "We are not 
aware of (any evidence to support) this particular allegation." 

During the debate, both Bush and Gore advocated reforms at the IMF to ensure 
its money ends up in the right hands. 

Bush, going further than Gore, singled out controversial loans in 1998 to 
prop up Russia's ailing economy, saying part of the $4.8 billion, "ended up 
in Viktor Chernomyrdin's pockets." 


Chernomyrdin responded on Thursday, saying he would sue Bush. Chernomyrdin, 
who had been out of office for several months by the time the money reached 
Moscow, said Bush's remarks were damaging to his reputation. 

"It was strange to hear such statements from a politician running for high 
office. Making responsible statements is a vital trait for a statesman in a 
democratic society," Chernomyrdin, now a member of parliament, said in a 

"It's a shame that Mr. Bush Jr. was brought up in another tradition. I think 
Mr. Bush Jr. should be getting ready for a court hearing on the issue," he 

The Bush campaign on Thursday stood by the governor's statements, saying 
Chernomyrdin had "made a fortune in personal profits" in the Russian oil and 
gas business while he was a minister of oil and gas and then as prime 

"The Russian oil and gas industry benefited greatly from foreign aid, 
including aid from the IMF," campaign spokesman Ray Sullivan said. 

International officials are investigating whether any of the $4.8 billion of 
IMF loans for Russia was diverted via Swiss bank accounts. The IMF has 
repeatedly denied that any of the money it lent to help shore up Russia's 
ailing ruble in 1998 was misappropriated. 

It has also mandated stringent audits for future flows of cash to Russia, 
aimed at ensuring no repeat of the same allegations in the future. 

Dawson characterized the calls for reform as, "quite appropriate," noting 
that the IMF is actively tackling the issues raised by the candidates. 

The international lender, based in Washington and funded by more than 180 
member nations, has had a tough year. It has been verbally attacked by myriad 
groups who argue the fund's harsh economic policies harm the poor and protect 
huge, multinational companies. 

More comfortable with a low-key profile, the IMF has found itself 
uncomfortably in the spotlight as thousands of protesters rallied on the 
fringes of its meeting in Washington in April and in September at its annual 
meeting in Prague. 


BBC Monitoring
Russian Audit Chamber says Bush Jnr's accusations re IMF money are justified
Source: Ekho Moskvy news agency, Moscow, in Russian 1120 gmt 12 Oct 00 

[No dateline as received] Yuriy Boldyrev, deputy chairman of the Russian 
Audit Chamber, described as "absolutely justified" accusations by George Bush 
Jnr against [ex-premier] Viktor Chernomyrdin and other Russian officials that 
IMF loans were used not according to purpose. 

Speaking on Ekho Moskvy radio, Boldyrev said: 

"Accusations that the executive power system used the money provided 
illegally and not according to purpose are founded, and probably the money 
was stolen". 

He said the Audit Chamber's information was that "the losses from 
misappropriation of budget money and the irrational and senseless use of 
budget money considerably outweigh the volume of credit in recent times." 

He said that after a loan worth 4.8bn dollars was received in 1998, the 
Central Bank allocated 3.5 bn dollars to certain Russian commercial banks to 
change into roubles. Moreover, this happened just before Russia defaulted on 
its debts, and at an exchange rate where 1 US dollar equalled R6. He added 
that in 1995 some 9 bn dollars were taken from the budget via the National 
Sports Fund and other sporting organizations. 

"As for precisely which pockets the money reached, that is a matter that is 
revealed not by the means of the Audit Chamber but by the means of the 
Prosecutor's Office, the secret services and the FSS", Boldyrev said. The 
Audit Chamber does not have the necessary mechanisms to check. 


Over one-third of Russians live in poverty - minister
Russian news agency RIA 

Moscow, 13th October: Over one-third of Russians (36.7 per cent) have incomes 
below living wage, Russian Minister of Labour and Social Development 
Aleksandr Pochinok told the State Duma today. 

At present the monthly minimum wage in Russia is fixed at R132, he said. It 
will be raised to R200 from 1st January 2001 and to R300 from 1st June 2001. 
The government plans to increase public sector wages 4.2-fold within the next 
10 years. 

The average pension in Russia increased by 39 per cent in 2000, Pochinok 
said. The government plans to increase it again by 30 per cent in the next 
year. The task is that the average pension make 140 per cent of living wage, 
he said. 

Pochinok said that about 200 groups of citizens, or 103m people, are entitled 
to various social benefits. "The law obliges us to help these people but we 
cannot do this due to the lack of finance," he said. He reminded that R70bn 
from the year-2001 federal budget are allocated to paying benefits to 
disabled people and families having children. 


From: "edward lucas" <>
Date: Fri, 13 Oct 2000 06:52:34 -0000
Subject: [EdwardLucas] From Edward: personal thoughts about Putin

It is probably time for a quick update on Putin.

I am still resolutely unimpressed, even by what is supposed to be
this government's strongest point: the economic reforms. Things 
were so bad before that even modest changes look brilliant. What has
actually happened so far is this

1) The cowing--but not the reform--of other centres of power (duma,
oligarchs, governors) 

2) Tax reform--which mainly benefits the rich, but never mind: clear
low taxes are actually good for everybody (says The Economist, 

3) A privatisation--Onako--which doesn't look rigged

Plus a lot of rhetoric about the rule of law, the investment climate,
etc. The main result of this is that when the bureaucracy does 
something bad (like confiscating Vimpelcom's mobile phone
frequencies) there is a bit more shamefacedness about it, and a
chance of getting it reversed. That is good for business
confidence--but it would be even better if these things weren't
happening in the first place.

Still, it is fair to say that the government is mildly better for
business than what went before.

Against this is all the bad stuff.

-- Putin doesn't really understand economics. He thinks that
investment is the key to growth. Actually this is a fallacy.
like profits, innovation and all sorts of other good things, are a
by-product of free markets (meaning competition, rule of law, etc). 

--Putin is allergic to criticism. He doesn't understand that
democracy needs an opposition and a free press.

--Putin tolerates corruption all around him so long as the
perpetrators are not cheeky,

--Putin encourages xenophobia and racism

--Putin is a professional liar and an unrepentant, unthinking, Soviet

A clever Swedish diplomat wrote to me recently saying that I should
not personalise Russian politics too much. Correct. It is much 
better to look at what the government is actually doing, rather than
what its most prominent figure is saying.

Finally (no hard feelings, Dickie) I strongly recommend a look at the
EBRD's report on Russia at I wish other bits of the
Hurrah Chorus were so honest.

Have a nice weekend.

To subscribe to this weekly mailing, send an e-mail to 


Business Week
October 23, 2000
[for personal use only]
Persuading Russia's Bullies to Play Fair (int'l edition)
The country's securities czar discusses his plans for real reform

Igor Kostikov has one of Russia's most challenging jobs. As chairman of the 
Federal Securities Commission, he's in charge of cleaning up Russia's 
notoriously wild markets. Since being appointed by President Vladimir V. 
Putin in February, Kostikov has protected minority shareholders from the 
maneuverings of some of Russia's most powerful companies, including Norilsk 
Nickel and Unified Energy System. In a few weeks, he will propose an 
ambitious overhaul of Russia's oppressive taxes on securities. On Oct. 6, he 
sat down in Washington, D.C., with BUSINESS WEEK European Edition Editor 
Patricia Kranz.

Q: What is your primary goal?
A: The corporate governance issue today is the most important issue for the 
economic development of the country. We need investments in order to grow. 
Until we solve it, we won't see Russian or international investments.

Q: Why should foreign investors consider putting their money into Russia?
A: Political confidence is in place. The economy is growing. But we don't see 
growth in investment because of this single issue--corporate governance. That 
single issue is too big.

Q: What are you doing about it?
A: We are working on a corporate governance code. But we need to make 
business part of the process. Otherwise, it would be completely alien to 
them. They would say it wouldn't work in Russia. That's rubbish. It will work 
in Russia. Society is ready--not like three to four years ago.

Q: What has changed?
A: Big corporations see that they have to change their attitudes toward 
shareholders. Yes, there's a long way to go, but they understand it's the way 
for them to develop. In medium and small companies, the culture is not there 
yet. They talk about corporate management, not corporate governance.
In Russia generally, the attitude has changed. All the defaults, bank 
failures, asset-stripping is widely known. It's part of our history. People 
think these were very bad things, but it was experience as well. Now, 
everyone wants to go forward and build society. I'm not a rosy optimist. I 
understand it's not an easy task, but we will learn.

Q: Isn't enforcement a problem?
A: We're building relationships with the tax police, which will give us more 
enforcement power. And we would like to educate judges.

Q: What advice do you have for investors?
A: They should exercise judgment. Not all [Russian] corporations are bad. 
There are a number of good companies. But you have to work with people who 
know Russia.
We're getting to the stage where people aren't afraid to touch Russian 
assets. We're becoming more and more transparent: 85% of Russian companies 
report on time and in full. But they use Russian accounting. We are working 
with the Ministry of Finance to translate Russian accounting to international 
accounting. Now, large companies keep two sets of books. I propose to let 
them choose one set or the other. Soon, companies will choose in favor of 
international accounting practices.

Q: What tax changes do you seek?
A: We want investors to be taxed on net profits. [Under current law, 
investors cannot offset profits with losses]. This will increase foreign 
investment and encourage Russians to repatriate offshore investments. The 
government will send the draft law to the Duma in November.

Q: Do you have political support for your reform efforts?
A: We have a constructive relationship with the government, the ministries, 
the Duma, and the Central Bank. We can work with each other. That hasn't 
always been the case.


Date: Thu, 12 Oct 2000 
From: "Peter D. Ekman" <> 
Subject: The Prophet Boris

An arrest occurred Tuesday, which was apparently predicted
in Boris Yeltsin's new autobiography "Presidential Marathon," which was
release this weekend . Referring to the time of the NATO bombings 
of Serbia in 1999, Yeltsin wrote 

"There were demonstrations outside the US Embassy. The police detained
a group of extremists who had driven past the US Embassy with a grenade
(as printed in the London Times and JRL 4572 #9)

This is news because no detentions or arrests were ever announced (as far as I
can tell). Police just said that they found a vehicle that had been stolen
the FSB a few years before that had been used in the attempted attack.

This Wednesday, the Moscow Times reported (based on interfax and NTV reports)
that Sergei Gavryushin was arrested for an earlier 1995 grenade attack on the
US embassy (a xerox room was demolished but nobody hurt). 
There were no announcements of an arrest in that matter before Tuesday, as 
far as I can tell. Gavryushin is now being investigated in the 1999
attempted attack.

Either Boris is a prophet or somebody's not telling the truth.


Subject: BRIEFING REPORT: Putin Failing To Stop 'Theft Of Russia'
From: (Martin Zvaners)
Date: Thu, 12 Oct 2000 

Radio Free Europe / Radio Liberty
Putin Failing To Stop 'Theft Of Russia'

(Washington, DC--October 12, 2000) Despite some welcome new rhetoric, 
Russian President Vladimir Putin has 
failed to address the underlying problem that most threatens his country's 
future: the absence of genuine property rights defensible in court.
Because Russian capitalists have "conditional possession" rather 
than real ownership, Vladimir Brovkin told an RFE/RL briefing today, they 
have little incentive to save and re-invest and many opportunities to 
steal from their own companies, defraud the state of tax revenues, and 
send the proceeds abroad.
Indeed, he said, this emerging system represents both a revival 
and an expansion of the one that existed in tsarist Russia. Before 1917, 
the tsarist regime had the power to seize the assets of anyone who 
challenged it and thus in its own way discouraged economic development as 
Brovkin, who heads a research program on organized crime in 
Eurasia at American University's Center for the Study of Transnational 
Crime and Corruption, said that Russia and the other post-Soviet states 
have developed a unique economic-political system, one that combines 
features from the Soviet command economy of the past and of the free 
On the one hand, Brovkin said, government officials in many of 
these countries retain sufficient powers to tell the nominal owners what 
they must produce, to whom they must sell it and how much they must charge 
-- all with the promise that the state will underwrite their losses.
On the other hand, the nominal owners -- precisely because they 
recognize that their holdings can be taken away at any time -- seek to 
sell off assets rather than develop them and to shift assets to offshore 
Together, the officials and their cronies in the economy are 
stealing from the state and ultimately from their fellow citizens, a theft 
that in Russia has amounted to more than $15 billion every year since 
That "theft of Russia," Brovkin said, is leading to the 
deindustrialization of the country and to the expansion of organized 
crime. Ultimately, unless this theft is stopped, he said, Russia's 
factories and other economic infrastructure will simply stop working. 
Unless laws are put in place and enforced, the vast amount of money 
involved will contribute to a further growth of organized crime.
Other post-Soviet countries suffer these same problems, Brovkin 
said, but he added that at least some of them, including Ukraine, by 
virtue of both their size and their interest in escaping from Moscow's 
orbit, may be more willing in the near term to take steps to avoid such a 


St. Petersburg Times
October 13, 2000
Physics Prize Winner Sets a Fine Example 

"Our country is full of optimists because all the pessimists have left."
- Nobel Laureate Zhores Alfyorov

FOR better or worse, Russia's history is a tale of migrations, some 
voluntary, some under the bloody heel of a pogrom boot. More recently, we 
have seen freer migrations, as some of the country's best hopes for the 
future flee a grinding kleptocracy.

During many of these migrations, it has always taken people like Zhores 
Alfyorov to stay put, to be the country's moral barometer, to tell bitter 
truths - and to instill hope. Men like Andrei Sakharov and Alexander Nikitin 
come to mind. This is not to say that St. Petersburg's new Nobel Laureate, 
Zhores Alfyorov, has suffered similar persecutions. But he has displayed just 
as much courage.

When Alfyorov was met at the Duma this week, the leaders of the Communist 
Party - to which Alfyorov, as a Duma Deputy belongs, and Our Home is Russia, 
to which he used to belong, battled for his attention and good graces.

Instead, with as much moral conviction as humor, he excoriated them for 
approving a national budget that is the antithesis to creating anything good 
and lasting in this country. He singled out $39.5 million - four times more 
than what will be spent on the sciences - that the deputies gave themselves 
to build new lavish homes.

"After all, when a Nobel Laureate is expressing his opinion," he joked in 
conclusion, "it's different."

But Alfyorov was pointing out something more than just flagrant misuse of 
public funds. He was - by calling himself an optimist in the same speech - 
saying this country should expect more of itself. Instead of taking his 
superconductor technology and leaving the country to make millions - like 
many would have done - he is saying that money should be spent to make sure 
more home-grown geniuses get the water they need.

Science is about a better future. Politics, at least as is employed by the 
Duma, means robbing that future.

It is a hard point to argue with and one that is almost laughably obvious: 
Build something worth living for - and in - and people and money won't leave.

It also goes to the heart of Russia's neurotic struggle for a national 
identity. During Soviet times, Russia conquered the world in math and 
science. Reinvigorating that sector could make Russia rise again as one of 
the world's centers of knowledge.

To do this, Russia needs to move beyond its crippled and insulted self image 
and tap its own greatness. Alfyorov, whose wizardry made possible everything 
from CD players to cell phones, has given it a start. But it is up to the 
rest of the country to be optimists.


Moscow Times
October 13, 2000 
Gref Pledges PSA Reforms And Membership in WTO 
By Alla Startseva
Staff Writer

Economic Development and Trade Minister German Gref promised a room full of 
the country's most powerful oil and gas players Thursday that Russia will 
soon pass the Land and Labor codes, enact new laws protecting shareholders 
rights, overhaul the judicial system, restructure its rail and gas monopolies 
and join the World Trade Organization. 

He also cleared up the government's position on production sharing 
agreements, or PSAs, which are crucial to attracting more foreign investment. 

Gref, speaking to the heads of some 30 Russian and foreign oil and gas 
companies at the Moscow International Petroleum Club, said that the previous 
government's work on PSAs was "very inefficient" because the state had no 
experience in project financing. 

"But if Russia want to go into partnership with foreign investors, it is 
necessary to develop the PSA system," he said. 

PSAs are contracts between the government and oil or gas companies that fix 
taxes, tariffs and other production costs in advance of extraction, part of 
which the state gets. 

Without such binding agreements, oil and gas firms will not shell out the 
billions of dollars needed to develop major new fields. Russia currently has 
only four PSAs in place: Sakhalin 1, Sakhalin 2, Kharyaga and Samotlor. A 
handful of other PSAs have been approved by the government and are being 

Gref, who heads the government's PSA program, stressed the government's 
commitment to hammering out PSA investment policy as quickly as possible. 
Gref proposed establishing a new organization to take charge of PSAs. He said 
the government was debating whether the new body will be a federal organ or a 
national oil company f a model used by several countries around the world. 
Either way, Gref said, the body should belong to an "economic department of 
the government." 

Gref also defined a healthy investment climate as consisting of macro 
economic stability, political stability, property protection and attractive 
interest rates. 

"In many ways," he said, "Russia has already reached macroeconomic and 
political stability. The next steps should be realizing the rest of the 
conditions needed to attract investments." 


From: "stanislav menshikov" <>
Subject: NEOLIBERAL UTOPIAS IN BOSTON And Strong Realism in Helsinki 
Date: Fri, 13 Oct 

"MOSCOW TRIBUNE", 13 October 2000
And Strong Realism in Helsinki 
By Stanislav Menshikov

The future of the Russian economy was discussed in two recent international
seminars, one in Boston dominated by US and Russian neoliberals, the other
in Helsinki where Bank of Finland experts talked to economists from the
Russian Academy of Sciences. The general tone and accents were very
different ideological and impractical in Boston, pragmatic and problem
oriented in Helsinki.

The keynote speaker in Boston, US Treasury Secretary Lawrence Summers, 
lectured Russians on how to turn their current upturn into long lasting
prosperity. He warned against relying on high oil prices and rouble
devaluation and recommended tighter fiscal policies, deficit reduction,
strengthening of financial markets, more integration into the world
economy. The real sector was mentioned only once when he advised
"distributing resources into key industries". He did not specify the
industries or where to find the resources.

Most surprising is that these recommendations are coming too late. Neither
the government or parliament or businessmen are relying on high oil prices
to stay. On the contrary, from past experience they dread collapsing oil
revenues more than most other unpleasant things. The government refuses to
include expected extra revenues into the regular 2001 budget. Oil companies
shirk from investing their superprofits into rising oil output. Far from
counting on rouble devaluation, the Bank of Russia is supporting a stable
rouble. The situation in Russia is very different from Mr. Summers

His accent on tight fiscal policies and deficit cutting is equally beside
the point. The Russian federal budget is enjoying a surplus which came
about due to a booming economy liberated from artificially cheap imports,
not thanks to tight fiscal policies. Contrary to Mr. Summers's beliefs,
integrating into the world economy had its destructive aspects: an
unrealistic exchange rate, short-term capital instability that helped bring
about the financial debacle of 1998. To insist on tight fiscal policies
today means working against economic growth based on expanding aggregate
demand. The value of the Boston seminar, if any, was clearly compromised by
such proposals.

In Helsinki the tone was set by scholars who know how the Russian economy
works and the result was different. Viktor Ivanter who heads the
Institute of Macroeconomic Forecasting convincingly showed that the current
economic growth was not caused by high oil prices. It actually started when
they were at a record low ($8-8.5 per barrel). The role of devaluation was
also overplayed. Adjusted for domestic inflation the rouble lost only 40
per cent of its former value. This was hardly adequate to trigger an
economic boom. Dr. Ivanter recalled that the euro has lost 24 per cent in
value in the last year or so, but that did not produce a boom in Western

According to Ivanter, the Russian rebound was caused by three principal
factors: (1) falling real incomes that were transferred into industry
profits; (2) strict control over prices in natural monopolies; (3) stable
and non-ideology minded financial policies in the last two years. However,
two of these factors are by now being exhausted. A new collapse of real
incomes is hardly feasible. Natural monopoly prices are now rising

Dmitry Lvov, head of the Academy's Economics Department added his
pessimistic assessment of the prospects for the fuel and energy complex
(FEC). On the one hand, natural rent created in this sector accounts for a
large share of national income. On the other hand, the absence of a
long-term national strategy for energy helps FEC stagnation. Not only has
it become a principal source of cost-push inflation. The country is fast
approaching the physical limits of its energy producing potential. This is
threatening to put an end to overall economic growth. 

The Helsinki seminar also addressed other aspects of growth. One of these
is very low expenditures on R&D coming from government sources and financed
by the industry itself. Only a tiny minority of enterprises is able to
develop new products or use new technologies. This is potentially a major
factor undermining competitive power of Russian-made goods. The defence
complex with its vast R&D network could be transformed into a factory of
new products and technologies. The idea is supported by President Putin but
needs vast financial support for its implementation.

Military production reached an all-time low in 1998 (9.9 percent of the
1991 level). A turnaround occurred under Primakov and Putin. In 1999
military output increased by 40 percent and by another 29 percent in
January-July, 2000. But considering the previous collapse, it is still 5.6
smaller than in 1991. Because of large unutilised capacity in defence and
civilian industries, military expenditure could become another strong
factor of overall economic growth, at least in the short- and medium-term.
But that would need spending much more than the meagre 20 percent of the
defence budget on military hardware, and substantially reducing in numbers
of soldiers and officers on active service. This is easier said than done. 

Helsinki did not answer all these questions. But at least it pinpointed the
real issues which are in striking contrast with neoliberal utopias
emanating from Boston.


Fourth Quarter 2000 ­ Bracing for Crisis
10 October 2000


The fourth quarter will see geopolitical repositioning in South and
Northeast Asia by Russia, China and regional powers. Tension will intensify
in and around Israel, with the potential for conflict in Lebanon. The
coming months will also see increasingly desperate economic manipulations
in Asia. Kosovo, too, remains a hotspot, with the Kosovar Albanians likely
to lash out should the West and Yugoslavia begin to cooperate. 


As we enter fourth quarter 2000, we find ourselves looking back as well as
forward. In January, we said this would be a year of process in which the
great powers, particularly Russia and China, would concentrate on defining
new relationships that would characterize the coming generation. The
forecast was one of incremental change, rather than systemic crises. With
one emerging exception ­ a systemic shift in Israel and the Palestinian
territories ­ this holds true. 

Great Powers Look East 

The fourth quarter could see increasing Russian and Chinese involvement in
India and the rest of South Asia, as this becomes a more important arena of
geopolitical competition. 

Eurasia has spent the last nine months engaged in tectonically slow
political maneuvering. Yugoslavia and its troublesome Kosovo province, the
crisis of 1999, settled down to a nagging headache. The Asian economy
stewed in remission. Iraq, Afghanistan, and Kashmir, always ready for
trouble, remained almost dull. 

But from Berlin to Beijing the biggest question has been: What would or
could Russia’s new president do to reverse the course of Russian economic
and social decline? Vladimir Putin has performed almost according to
script. As we predicted in Russia 2000 and our Annual Forecast for 2000,
Putin has attempted to strike a difficult balance, using nationalism to
cement his fragmented nation while trying to maintain good relations with
the West. 

This compromise has been most evident in his handling of Russia’s
oligarchs. Putin has used the tax police, state prosecutors, and the
government’s representatives on corporate boards to target most major
oligarchs, including Media Most’s Vladimir Gusinsky and Logovaz founder
Boris Berezovsky, a Kremlin insider under former President Boris Yeltsin.
Despite constant pressure on the oligarchs, none have lost their business
empires and only Gusinsky has spent a brief time in jail. 

This incomplete crackdown, driven partly by the desire to avoid the
appearance of a return to totalitarianism, has received a commensurately
tepid payoff in terms of the return of foreign investment in Russia.
Foreign perceptions of Putin’s anti-corruption campaign are generally
favorable, though there remains some suspicion of Putin’s domestic
political motivates. And merely prosecuting profiteers from the Yeltsin era
will not render the Russian economy attractive to investment. Putin must
also rationalize the legal and banking systems, and gain control of the
regional governments. 

Foreign investment is up from 1999, but total investment in Russia still
only amounted to $4.78 billion this year. The World Bank is considering a
$1 billion structural adjustment loan for Russia, and the International
Monetary Fund and the Paris Club of international lenders are to decide in
November on debt restructuring or forgiveness. 

Burned once by Russian corruption and mismanagement, Western lenders and
investors are slow to jump back into Russia. Fortunately for Putin, his
moves against the oligarchs are laying the groundwork for an alternate
economic plan, with the state tightening its grip on a number of key
industries ­ from minerals, petroleum, and energy, to transport and

As Putin has remained open to the West, he has sought a strategic
counterbalance to Western politico-military strength to the East. He has
shied away from his predecessor’s overtures to China. Russia has no desire
to play junior partner to China. At the same time, Beijing does not need
the stigma and hassles of collaborating with Russia, opting instead to deal
directly with Central Asian republics and even Ukraine for China’s fuel and
security needs. 

Instead, Putin has attempted to reinvigorate Russia’s partnership with
India, which had declined over the 1990s. During his October visit to New
Delhi, Putin offered unqualified support for a permanent seat for India on
the UN Security Council. He declared Russian support for the Indian
position against foreign interference in Kashmir, and said his talks with
Prime Minister Atal Behari Vajpayee had “confirmed the long-term
coincidence of the national and geopolitical interests of India and Russia.” 

The two leaders signed a strategic partnership agreement affirming the need
for a “multi-polar global structure.” The two also signed a series of
agreements on everything from cooperating on counter-terrorism activities
and arms deals to cooperating in the diamond trade and oil exploration and
production sharing contracts. 

Still, India’s response to Russian overtures has been cautious. India has
some way to go before it can assert itself as a major regional power, and
does not want to fall into the Russian mire in the meantime. India is not
ready to challenge its major rival, China, and we have yet to see how
Beijing will respond to the nascent Russian-Indian partnership. 

Certainly China sees India as a threat, as New Delhi has already publicly
justified its nuclear weapons program as an answer to what India sees as a
Chinese threat. And the growing Indian navy has begun to operate in the
South China Sea ­ an area Beijing considers well within its sphere of
influence. Pakistan is China’s traditional lever against India, but trouble
also appears to be brewing in the border states of Nepal, Bhutan, and


Russia Sells Arms to Iran, Breaking Secret US Pact, NYT Says

London, Oct. 13 (Bloomberg)
-- Russia is still selling conventional weapons to Iran in breach of a 
secret 1995 pact signed with the U.S., the New York Times reported on its Web 
site, citing Leon Fuerth, an aide to Vice President Al Gore. 

Under the terms of the secret agreement signed in Moscow by Gore and Russia's 
then-prime minister, Viktor Chernomyrdin, Russia was allowed to fulfill its 
existing arms contracts with Iran, notably for a diesel submarine, in return 
for a pledge to halt exports by the end of 1999, the newspaper said. 

That deadline passed with no apparent change to Russia's position as one of 
the Persian Gulf state's major suppliers of conventional weapons, according 
to a Central Intelligence Agency report in August. 

The U.S. had agreed in return not to seek sanctions against Russia under a 
1992 U.S. law requiring penalties against states supplying advanced weapons 
to countries, such as Iran, deemed sponsors of terrorism by the State 

Senator John McCain, the co-sponsor with Gore of the 1992 law, was quoted by 
the New York Times as saying of the submarine sale: ``If the administration 
has acquiesced in the sale, then I believe they have violated both the intent 
and the letter of the law.'' 

The submarine was of particular concern to the U.S., the newspaper said, 
because it was hard to detect and could threaten oil tankers and U.S. 
warships in the Gulf. The U.S. Fifth Fleet is based in the Arab Gulf state of 

Fuerth told the paper that Russia had failed to honor the pact, though he 
said the arms sales didn't contravene the 1992 law and didn't significantly 
shift the balance of power in the Persian Gulf. 


Nezavisimaya Gazeta - Stsenarii
No. 9. 
[translation from RIA Novosti for personal use only]
Advice to Political Innovators II (*)
Is Realistic, If the Government Makes Good Use Of Current 
Financial, Economic Stability 
By Oleg DOBROCHEYEV, MS (Techn.), head of the Forecasts 
Center of the Institute of Economic Strategies and chief 
specialist of the Kurchatov Institute 

Many people are finding the current financial stability 
surprising, even mind-boggling. Is this but another gimmick of 
Cabinet and Central Bank bureaucrats pending a new default, or 
is it here to stay?
Analyses of the matter by natural scientific methods, the 
initial results of which were published way back six years ago, 
prompt the conclusion that the latter variant is the more 
probable, although in Russia one cannot fully exclude the 
possibility that even this painfully awaited positive outcome 
of the protracted crisis could be put to bad use. 
There are a number of objective circumstances of the 
recent economic, social and political past to substantiate the 
above conclusion, albeit some features of this recent past 
could be discerned even in the early 1990s while a theory to 
explain it was devised in 1998 only. 
The principal discovery of 1994 was that the Russian 
rouble would be tied to the American dollar for a long time to 
Today, we have the unique chance to compare long-term 
forecasts with the results of financial and economic experiment 
that has lasted for six years to become unprecedented in both 
scale and purity - (the author, a researcher on the staff of 
the Kurchatov institute of physical, not economic, studies all 
these years and a non-staff presidential adviser for national 
security matters in 1995-7, could not interfere in economic 
developments in any way) - and try and make useful conclusions. 
Well what is it that follows from a comparison of 
forecasts and the current economic realities? one is apt to 
If we were to blow up the 'currency corridor' as drawn in 
1994, we would see that the rouble in 2000 stayed within the 
forecasted limits - estimated six years ago, it is right in the 
middle of the corridor of 20-35 roubles for a dollar at 28 
roubles for a dollar.
The country is known to have lived through four major 
financial and economic cataclysms in the six years: in mid-June 
1995, the rouble momentarily jumped 15% up; August 1995 was 
marked by a banking crisis, 1997 brought denomination, and in 
August 1998 the country announced default. 
Today, so many years hence, the author can freely admit 
that he based his long-term forecast on the most pessimistic 
scenario, that of a 'chaotic', or rather 'turbulent', 
development of the country's financial market stretched in 
time. This scenario of the economy's behavior is characterized 
by staged devaluation of the national currency and frequent - 
every eighteen months on the average - financial cataclysms.
It should be noted here that the Russian financial 
market's physical model incorporated a fractional component of 
natural stabilization of the country's economic life 
accompanied by increasingly longer periods in between crises. 
Indeed, many people may remember that in 1992-4 
vacillations of the financial and economic policy were much 
more frequent than today, something that forced entrepreneurs 
to change the nature or practices of their businesses every 
four months.
The above analysis of the experiment would be incomplete 
if it were to pass in silence the author's personal vision 
Way back in 1994, at the peak of a socio-economic crisis, 
one's mind refused to believe that events in Russia's financial 
crisis were crazy and chaotic. After decades of a socialist, 
planned economy and rigidly regulated public life, one found it 
hard to imagine that there was no long-term managerial 
practices on the level of semi-deities in the Central Bank and 
the finance ministry, i.e. that the economic situation in such 
a huge country could be uncontrollable. 
It is for this reason that an article published in a 
newspaper, rather than a research bulletin, was taken for a 
warning of impending loss of economic control, rather than for 
a forecast of the economy's mainline development.
It became known with the passage of time that the 
'uncontrolled', natural,
or rather nature-like, trait of financial and economic 
life is in no way a purely Russian phenomenon. Similar, albeit 
strictly 'national' economic and currency 'corridors' could be 
found in the US, Japan and Germany. It turned out that we all - 
Europeans, Americans and Russians - had but one financial and 
economic God Almighty. 
So what is the conclusion?
To start with, there is the promise of a new financial and 
economic cataclysm in the country's economic life - whether 
controllable or 'elemental' does not matter; what matters is 
that it is natural. 
Its name will be re-denomination.
At least it will be a more natural consequence of the 
current legitimate financial stability than the 1997 
re-denomination, based as it was on the rouble's artificial 
One explanation is in certain organic specificities of the 
'natural' currency 'corridor'; e.g., its width has to grow in 
time - in 1992, it was some four months wide (periodicity of 
crises at that time), about a year in 1996 and close to 2 years 
The proof of the current financial and economic standing 
of the country is the economic growth that began in Russia in 
1999, a term that signifies the relatively slow and unstable 
trend to economic recovery. 
There is yet another beneficial circumstance, albeit of a 
foreign-trade nature - a stably high international oil price. 
This economic situation that the new Russia is not used to 
should entail adequate social and political consequences. 
The most natural way of making use of the current market 
reality is to remove a couple of zeros from Russian bank notes. 
Which means the rouble's 100:1 re-denomination. One rouble 
for 3 dollars!
As we see it, this measure would be exceptionally 
beneficial for the current authorities and would make the 
psychological and social situation in the country healthier. 
Not only would it create the illusion of returning to the 
stability of the Soviet, or even Czarist, epoch when a good 
salary was close to 100 roubles and a car went for 1,000 
roubles; it would return the nation to an organic, i.e., 
psychologically comfortable for Russia, monetary system. Before 
the revolution, one could eat a very good lunch for a rouble, 
and the rouble was rather weighty for nearly thirty years even 
after Khrushchev's reform. 
A new market unit would help devise natural bearings for 
the domestic economic policy, for when a good salary is 100 
roubles, one can buy a car (1,000 roubles) with it in a year's 
time, and an apartment (10,000 roubles) in ten year's time. A 
10-rouble pension would then really be too small. 
Any phenomenon, re-denomination not excluding, has a dark 
side to it. A highly efficient instrument of managing the 
country's economic life - and through it, the country's 
political life (minimum expenditures and maximum stability, if 
only in domestic policies), re-denomination as any potent 
medicine can only be offered to a patient who has undergone a 
careful checkup, and then in strict dozes and under the 
supervision of experts. 
If used unwisely in our closely intertwined world of 
today, it would entail foreign-political and other consequences 
that would be worse than a vulgar deregulation of the national 
market due to simple incomprehension of current problems. 
Nevertheless, there is no avoiding a discussion of a broad 
range of consequences of the natural and rather long-term 
stability of the rouble, if only because the issue has long 
been in the focus of many economic and political friends and 
foes of ours.
(*) Article I by O. Dobrocheyev was published in the 
September 26, 2000 issue of Daily Review, Part II, Article 3 - 


Wall Street Journal
October 13, 2000 
[for personal use only] 
Russia's Case Against Aluminum Baron Raises Speculation of a KGB Frame Up

MOSCOW -- Russia's aluminum industry, its reputation badly corroded in the 
past by frequent contract killings, now confronts new scandal: a highly 
publicized double-murder case with no bodies, and, say some, no deaths.

Two weeks ago, Russian authorities announced what seemed the latest in a 
series of deaths to blight the industry -- the murder in a Moscow apartment 
of two men involved in the aluminum business. Five days later, police burst 
into a Siberian townhouse, grabbed aluminum tycoon Anatoly Bykov, and then 
flew him on a military cargo plane to Moscow, where he was jailed on 
suspicion of planning the murders.

The Russian media speculated in detailed reports based on leaks from police 
that the episode showed authorities finally had the goods on Mr. Bykov, a 
former boxing instructor known as "the bull."
Since then, however, the case against Mr. Bykov has been clouded by a serious 
problem: There are no bodies. Russian crime reporters who scoured Moscow 
morgues and hospitals say they found no corpses matching the victims of the 
alleged murder. The funeral for one victim was canceled, the other never 

Authorities Uncertain

State-run television, meanwhile, reports that authorities are themselves 
uncertain about what happened. The prosecutor's office, television reports 
say, is even looking into whether Russia's Federal Security Service, or FSB, 
the main successor agency to the KGB, may have staged a fake murder to try to 
entrap Mr. Bykov.

Sergei Lapin, deputy Moscow prosecutor involved in the case, says he can't 
confirm whether anyone is dead until "a little later, when we clarify this 
situation." One of the two alleged murder victims had been a close business 
associate of Mr. Bykov but recently fell out with him. The other was a 
businessman involved with offshore companies that Russian media say were 
linked to aluminum trading.

Instead of striking a blow against a man whom Russian police have long 
identified as a major crime boss, Mr. Bykov's arrest has fueled allegations 
of police incompetence and speculation about possible meddling by so-called 
oligarchs competing for control of Russia's aluminum industry. "All my 
experience as a lawyer says that nobody died, and that the victims are 
alive," says Mr. Bykov's lawyer, Genrik Padva.

Mr. Bykov has a lot of enemies who would like to see him behind bars. A 
legislator and friend of Mr. Bykov, Vyacheslav Demin, says federal agents are 
pressing a case against Mr. Bykov because he controls a 28% stake in Russia's 
second-largest aluminum plant, Krasnoyarsk Aluminum, and won't sell to 
powerful rivals.

Mr. Bykov has also clashed with the governor of the resource-rich Krasnoyarsk 
region, Alexander Lebed, who two years ago called in Moscow investigators to 
look into the aluminum tycoon's affairs. The investigation led to charges 
against Mr. Bykov for conspiracy to commit murder and money-laundering. He 
was arrested in October last year but released two months ago after a judge 
ruled that evidence was insufficient to keep him in jail.

Industry's Struggles

Russia's aluminum industry has long been plagued by murky struggles involving 
powerful interests in both business and politics. Earlier this year, a group 
of Russian investors led by big shareholders in oil company AO Sibneft bought 
up the aluminum interests of Trans-World Group, a London metals company, and 
created Russia Aluminum, a holding company that now controls most of the 
country's aluminum production. After the group bought a controlling stake in 
the Krasnoyarsk plant, Mr. Bykov was fired as plant director.

Before his arrest last week, Mr. Bykov said in an interview in Krasnoyarsk 
that "various people" offered to get earlier charges against him dropped if 
he sold his shares. "I answered that I would rather stay in prison," he said.

Russia Aluminum denies any role in any investigation into Mr. Bykov. The 
company's spokesman, Vladimir Alexandrov, says the company has never offered 
to buy his shares either directly or through intermediaries. "We are a 
civilized company, and we always try to come to voluntary agreements," he 

Mr. Bykov's career is emblematic of the uncertain nature of much of Russia's 
metals business. Prosecutors allege that Mr. Bykov used criminal connections 
to gain control of the Krasnoyarsk smelter in the early 1990s. Mr. Bykov 
denies any illegal activity. Many in Krasnoyarsk praise Mr. Bykov as a patron 
of local arts and charities, and say he has given millions of dollars to 
found a local orphanage, several churches and an eye-care center.

Mr. Demin, the State Duma legislator who is friendly with Mr. Bykov, says the 
current murder case is based on testimony of an unreliable witness. Mr. Demin 
says he was with Mr. Bykov when a man arrived at the tycoon's house 
unannounced and said that he had shot two men in Moscow the previous week. 
Mr. Demin says no murder took place and that the man who visited Mr. Bykov is 
working undercover in an entrapment operation. "It looked to us like a 
provocation from the very beginning," he says.

The prosecutor says a man did visit Mr. Bykov after the murders, but he 
refused to say what they talked about. Mr. Bykov is being held on suspicion 
of plotting to commit murder, but not murder itself.

Mr. Bykov's spokesman, Giorgi Rogachenko, says he expects the supposed 
victims to reappear after formal charges are filed. Mr. Rogachenko says no 
one was killed and that the supposed assassin has already been spotted 
dancing at a Moscow nightclub.


Russian media boss invites investigators to Israel

MOSCOW, Oct 13 (Reuters) - The head of Russia's leading independent media
company told prosecutors on Friday that he refused to come to Russia for
questioning on allegations of hiding company assets, and invited them to
Israel instead. 

Prosecutors have alleged that Media-Most boss Vladimir Gusinsky shifted
assets abroad to avoid having them seized in a debt dispute with Russia's
state-owned gas giant, Gazprom. 

Media-Most says the case is part of official pressure to force Gusinsky to
give up control of Media-Most. 

``He (Gusinsky) does not believe he has guarantees of security on Russian
territory and he has said that he is ready to testify at any convenient
time to the prosecutors in Israel,'' Media-Most spokesman Dmitry Ostalsky
told Reuters. 

He said a letter to this effect had been sent to the General Prosecutor's
office. It was the second time in recent weeks he has refused to appear
before prosecutors. 

Gusinsky holds Russian and Israeli citizenship and has been in Israel since
prosecutors dropped a previous, unrelated case. 

Russian news agencies quoted the prosecutor's office as saying they would
press on with their pursuit of Gusinsky. 

``Someone called for questioning must appear at the time and place set,'' a
spokesman said. ``The law has demands which every citizen must fulfil and
Gusinsky is no exception in this.'' 

The Media-Most case has raised fears for press freedom but President
Vladimir Putin has said he supports freedom of speech. 

Media-Most has accused the Kremlin of orchestrating a campaign to seize
Media-Most, which owns Russia's only independent national television
channel, NTV. 

Of the other two national TV channels, one is state-owned while the other
is under strong official influence amid an unending tug of war between the
state, which owns 51 percent of it, and the other key shareholder, Boris

NTV is the only one that even mildly criticises Kremlin policy. 

Gusinsky, jailed for three days in June, left Russia after saying he had
been forced ``at gunpoint'' to sign a deal in July to hand over Media-Most
to settle debts to Gazprom. 

He has repudiated the deal but Gazprom has gone to court to have it
honoured. Ostalsky said Media-Most had asked a firm of U.S. lawyers to
check on the firm's assets to prove that none of them had been shifted

He said the firm's conclusions would be ready soon. 



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