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Johnson's Russia List


October 20, 2000    
This Date's Issues: 4590  4591  

1:47 PM 11/2/00

Johnson's Russia List
20 October 2000

[Note from David Johnson:
1. Interfax: Russian minister outlines future government tasks.

2. AFP: Kremlin turns up the heat on Russian tycoon Berezovsky.
Kursk Widow Reveals Appalling Truth Behind Charity.
4. Business Week: Paul Starobin and Catherine Belton, The Oil Gods 
Are Smiling on Russia. Will the country's industry modernize?

5. AP: Gore's Russian Relations Examined.
6. Anne Williamson, Chernomyrdin bucks Bushwhack.
7. BBC Monitoring: Russia's economic losses in Gore-Chernomyrdin Iran 
deal can be rectified. (Nezavisimaya Gazeta)



Russian minister outlines future government tasks 

Moscow, 19th October: The government will concentrate on reforms after 
parliament approves the draft budget for the next year, Russian Minister for 
Economic Development and Trade German Gref said at a press conference in 
Moscow on Thursday [19th October]. 

If parliament approves the draft budget for 2001, it will mean the government 
has coped with the task of drawing up a balanced economic policy, Gref said. 

"The government's next task is structural and tax reform, the adoption of a 
new customs code, work to perfect the payments and banking systems and the 
reform of natural monopolies," Gref said. 

The government will pay great attention to the energy sector, Gref announced. 
"Energy supplies to industrial enterprises are lagging behind the economic 
growth rate, as in Russia the consumption of electricity for the production 
of one unit of output is two times greater than in Europe. This is the goal 
of restructuring," he said. 

In reorganizing the natural monopolies, measures must be taken to ensure 
their transparency, "to fit them into a market background" and to ensure 
"control over the monopoly functions", Gref said. 

"The production of gas is falling," which is very alarming, he said. 

An analysis must be made of how one source of energy may be effectively 
replaced by another, Gref noted. This issue is being discussed with Unified 
Energy Systems of Russia (UES), he said, pointing out that he does not belong 
to either the UES or the Gazprom groupings. 

Gref also announced that a working group will analyze the list of enterprises 
which cannot be cut off from the electricity supply system. There are over 
2,000 enterprises on the list, he said. 


Kremlin turns up the heat on Russian tycoon Berezovsky

MOSCOW, Oct 19 (AFP) - 
Jetting back into Moscow from abroad, Russia's one-time kingmaker, 
billionaire tycoon Boris Berezovsky, met with an unwelcome reminder of his 
precipitous fall from grace.

Claiming he was forced at short notice to vacate his palatial home near the 
Russian capital, rented for several hundred thousand dollars a year from the 
state, he says he had to book into a hotel like an ordinary business 

The Kremlin's property manager, Vladimir Kozhin, denied the decision was 
political and insisted that Berezovsky had been granted four weeks to hand 
over the keys to the property three months ago.

But Berezovsky, who pulled the levers of power under former president Boris 
Yeltsin, is the focus of a bid by the Kremlin to rid itself of a troublesome 
critic and political opponent, commentators say.

The tycoon has accused President Vladimir Putin of hounding him using the 
threat of prosecution, after prosecutors grilled him about the alleged 
embezzlement of hundreds of millions of dollars from flag carrier Aeroflot.

"The full responsibility for this political affair lies directly with the 
president. But as I have already said, I don't give into blackmail," he said 

Berezovsky, who claimed last month he was threatened with jail by the 
authorities if he did not relinquish his 49-percent holding in Russia's most 
popular television station ORT, was investigated once before in the Aeroflot 
case in 1999.

But the case suddenly collapsed as Yeltsin fired left-leaning Prime Minister 
Yevgeny Primakov, accused by Berezovsky of being behind the prosecution.

The Kremlin this time around is serving Berezovsky notice that he should 
quietly leave the country and drop his opposition to the new Putin regime, 
said respected Moscow commentator Yevgeny Volk.

Volk said Berezovsky was in the same situation as Vladimir Gusinsky, the 
owner of the largest independent Russian media group, who has not returned to 
Russia since he was briefly jailed on fraud charges in June.

"The authorities don't want those two to remain here, to play an active 
political role. Their interference in Russian politics appears dangerous for 
the Kremlin," said Volk, head of the Heritage Foundation think-tank.

"They would prefer to conclude some kind of agreement with him (Berezovsky) 
so that he remains out of the country in his villas in the Cote d'Azur so he 
stays outside the Russian political arena," he added.

Gusinsky is already effectively in exile, his Media-MOST empire having been a 
constant thorn in the side of the Kremlin with its critical coverage of the 
year-long war in Chechnya, and probes into high-level corruption.

Last week he invited Russian prosecutors to Israel, saying he would only 
provide testimony in a criminal case against him outside Russia.

Gusinsky said he had "no guarantees" that he would be not be thrown into 
prison the moment he appeared to give testimony.

His media group, which includes the flagship NTV private television station, 
has been locked in a debt dispute with natural gas giant Gazprom, whose 
largest shareholder is the state.

The move has been widely regarded as a government attempt to take over 

Berezovsky, once a fierce rival of Gusinsky when he himself was still a 
Kremlin insider, said Monday that the two had met outside Russia.

Gusinsky advised him not to go to the general prosecutor's office "because 
they will either put you in prison or kill you," Berezovsky said.

After Putin's pledge to crack down on Russia's business elite, known here as 
"oligarchs", the band of tycoons who amassed fabulous wealth and political 
influence in the Yeltsin era, others have made sure they escape a similar 

"They have understood the new rules of the game. They are keeping a low 
profile and are not trying to get involved in politics," said Vyacheslav 
Nikonov, director of the Fond Politika think-tank.


Kursk Widow Reveals Appalling Truth Behind Charity

Sixty-seven days after the tragedy in the Barents Sea shook the world,
Irina Lyachina, widow of the Kursk’s Captain Gennady Lyachin, has revealed
appalling facts about the embezzlement of charity donations for the
families of the Kursk crew. 

In an open letter published in Thursday’s issue of the Russian daily
Komsomolskaya Pravda, Mrs. Irina Lyachina, the widow of the Captain of the
Kursk submarine Gennady Lyachin explains why she has decided to leave the
Relief Commission, formed by the Murmansk Region governor to collect
donations for the families of the deceased Kursk crew. 

Irina Lyachina’s concise letter published by Komsomolskya Pravda is imbued
with bitterness and indignation. She refrains from lengthy comments and
merely states the facts that speak for themselves. 

The Relief Commission, of which Irina Lyachina was until recently a member,
was set up upon the orders of the governor of the Murmansk region to
“render assistance to the families of the deceased members of the nuclear
submarine missile cruiser Kursk crew”. As Irina Lyachina points out, the
fund is known to those involved as the “Governor’s Fund” 

Lyachina’s explains in her letter that the commission formed under decree
No.376/3, dated August 23, 2000, issued by the Murmansk region governor
Yu.A.Yevdokimov, until her resignation, consisted of 10 persons, 9 of whom
are representatives of the regional administration and of the Northern
Fleet’s command. The Yevdokimov invited Irina Lyachina to join the
commission as the sole representative the family members of the deceased

In her letter Irina Lyachina describes a meeting of the commission she
attended along with several other widows. 

Firstly the commission resolved to pay 5000 rubles out of the fund’s money
for letters of gratitude sent on behalf of the Murmansk region governor to
entities and citizens, who donated financial support to the families Relief
Commission. In other words, each ‘letter of gratitude’ cost 53 rubles,
(just under $2). 

The second resolution adopted provided for the payment of 23 000 rubles
from the fund for the book compiled by Oleg Poptsov ‘The Nuclear Submarine
Kursk. A Chronicle of the Tragedy,’ which, as Irina Lyachina points out, is
full of “mistakes and inaccuracies.” 

Several other widows attended the relief commission meeting, but the
commission did not discuss any of the issues they raised. 

Irina Lyachina was the only member of the commission to vote against the
adoption of the above-mentioned resolutions, thus her objections were
dismissed by 9 votes to her 1. 

“This is only one thin stroke in the picture of the relief commission’s
work,” writes the widow and adds with bitter irony, “having weighed up my
role in the commission, I have reached the decision to relieve myself of
the honourable duty, placed upon me by Y.A. Yevdokimov, of being a member
of the commission for helping us.” 

Irina Lyachina concludes her letter with words of “enormous gratitude” on
behalf of all the relations of the Kursk crew to all individuals and
organizations who have rendered aid to the families of the deceased
submariners, “not in an official capacity, but from their hearts.” 


Business Week
October 30, 2000
[for personal use only]
The Oil Gods Are Smiling on Russia (int'l edition)
Will the country's industry modernize?
By Paul Starobin and Catherine Belton in Moscow 

It was quite the party: The fifth anniversary of the privatization of 
Sibneft, Russia's sixth-largest oil producer and 12th-biggest company. For 
the Sept. 8 bash, Sibneft hired Seventies-style pop group Boney M to 
entertain a throng at the Hotel Rossiya in Moscow that included the company's 
largest shareholder, reclusive Russian tycoon and shadowy Kremlin courtier 
Roman Abramovich. Revelers rocked to Boney M's smash hit: Rah Rah Rasputin--a 
song hailing an infamous political puppeteer of Russia's pre-revolutionary 
Sibneft has lots to cheer. Skyrocketing oil prices are projected to boost 
revenues more than 58%, to $2.7 billion this year, and net earnings will 
almost double, to $613 million, according to Moscow brokerage United 
Financial Group (UFG). Indeed, just about everyone in Russian oil is doing a 
boogie step or two these days--even as oil consumers in the West worry about 
Middle East political tensions and other uncertainties that could push world 
market prices still higher. For the Russian industry as whole, UFG forecasts 
that gross sales will rise almost 70%, to $59.2 billion this year. ``These 
revenues are extraordinary,'' says Mikhail B. Khodorkovsky, chairman and CEO 
of Yukos Holding, the country's second-largest oil company.
You're right there, Mr. Chairman. The pressing question is whether the 
boom is enough to give Russia's oil industry the funds it needs to modernize 
and achieve its potential. There are indeed signs that Russia's oil bosses 
are starting to act like real managers. But the legacy of mismanagement and 
corruption will still weigh heavily on this most strategic of Russian 
There's no doubt the windfall is much needed. The biggest single 
beneficiary, according to a UFG analysis for BUSINESS WEEK, is the 
government, whose tax take this year will be fattened by $8.1 billion as a 
result of the spike in oil prices (table). The Russian government also reaped 
$1.1 billion in a recent auction of an 85% stake in oil company Onako--more 
than double the asking price. A new bidding war threatens to develop over 
state-owned oil companies Rosneft and Slavneft, expected to be on the block 
next year.
A LONG-TERM FOCUS. But companies are reinvesting funds, too. A surge in 
capital expenditures, to around $5 billion this year, will push Russian oil 
production up 5% this year, to 319 million tons--a sharp reversal of a 
10-year decline. Moreover, an industry much criticized for its insular 
culture and allegiance to Soviet-style planning methods is turning to Western 
energy-services companies to obtain state-of-the-art extraction technologies. 
Boards are even applying Western strategic planning techniques to streamline 
cost-heavy Soviet-style investments and are focusing more on long-term 
planning and the risks of falling prices. ``Managers are taking a more 
sophisticated approach to investments,'' says Gennady Gazin, an oil-industry 
consultant at the Moscow office of McKinsey Global Institute. ``Before, what 
little investment was made was aimed at squeezing as much cash as possible 
out of existing infrastructure.''
To maintain growth, oil analysts and executives estimate that the industry 
needs to keep this year's investment levels up for at least the next five 
years. Some companies have already announced major new investment 
plans--Sibneft next year intends to more than double capital expenditures, to 
$580 million. Yukos, which this year boosted such spending fivefold to $800 
million, next year plans to exceed $1 billion. And they're getting more for 
their investments. According to Troika Dialog, a Moscow brokerage, efficiency 
gains and the devalued ruble have cut extraction costs from $6 per barrel to 
$1.50. Managers want to improve that by a further 20%.
The industry is sinking most of its money in new fields, which have not 
been ruined by Soviet production techniques. Russia's largest oil company, 
Lukoil, is spearheading this drive in an undeveloped field in the north 
Russian Timan-Pechora Region. It plans to invest $4.7 billion in the field 
over the next eight years to triple production from the current 8 million 
tons per year. Initial drilling costs are quite expensive--but a new well in 
Timan-Pechora produces 1,000 to 2,000 barrels per day, compared with just 70 
from existing wells in western Siberia.
Western advisers are also being recruited. Along with Lukoil and Yukos, 
Sibneft has hired Schlumberger Ltd., the international energy-services 
company, to boost productivity from existing wells. Some 40 Schlumberger 
managers are based permanently at Noyabrsk, adjacent to Sibneft's main oil 
field in western Siberia. Sibneft has also cut corporate fat--reducing 
operating expenses by 24% last year. ``I think we've done one of the best 
jobs in the country in terms of cost cutting,'' says Sibneft president Eugene 
Shvidler, 36.
WARY FOREIGN INVESTORS. Companies are trying other techniques to get a grip 
on costs. Lukoil is buying controlling stakes in Russian pipe makers to 
assure supplies at a reasonable price. Faced with high energy costs levied by 
electricity monopoly Unified Energy System, Yukos even plans to go into the 
electricity business using its own energy supplies.
Yet the great Russian oil boom still faces dangers. Khodorkovsky warns 
that Yukos' investment plans could be crunched if Urals grade, now at $28 per 
barrel, drops below $18. And he fears the government will scotch spending 
plans further by demanding a high take of revenues even if prices fall.
Another issue is access to foreign capital. Foreign oil companies' direct 
investment into Russia's vast oil resources is still limited, mostly for lack 
of production sharing agreements to govern development of fields and settle 
difficult tax, profits, and ownership issues. President Vladimir V. Putin is 
promising to make improvements through new legislation that aims to clear up 
tricky issues, such as enforcing guarantees to make sure investors are not 
bilked by changes in the percentages of output they are due to receive. 
Investors and analysts are optimistic that such legislation will pass next 
year. ``The logjam has been busted on this one,'' says Matthew Sagers, energy 
services director at PlanEcon Inc., a Washington think tank.
Bold plans are needed, since only four production sharing agreements have 
been completed to date. On Oct. 17, BP Amoco PLC, a company with a bitter 
history in the Russian oil industry, announced an offer to buy a stake in a 
field governed by one of these agreements--Sakhalin 1, in the Far East. But 
few Western majors are as brave.
And even though the index of the Russian stock market has nearly doubled 
over the past 12 months, share prices for most oil companies have not kept 
pace. That's mostly because of unanswered questions about ownership and 
perceptions of unfair treatment of minority shareholders. Speculation 
flourishes that oil barons are spiriting substantial sums to their offshore 
bank accounts. Oil money undoubtedly contributes to the $25 billion that 
Russia's Finance Ministry estimates in capital flight this year.
WORKER UNREST? Thus the dilemma for stock investors. Consider Sibneft, whose 
share price of 29 cents is virtually unchanged from a year ago, despite a 
greater-than-anticipated boost in earnings. The company is auditing its books 
according to U.S. accounting standards, and this year paid its first 
dividend. ``They are trying to be more transparent,'' says Dmitry Avdeev, a 
UFG oil analyst. But investors still have few clues about the role played in 
the company by Abramovich, 34, a Kremlin-connected former commodities trader 
whose past dealings have sparked distrust in Russian and Western investment 
circles. Deutsche Bank oil analyst Leonid Mirzoyan says investors are 
suspicious that there is a fund outflow from Sibneft into new Abramovich 
ventures, including the Russian aluminum business. Runicom, Sibneft's 
offshore trading arm, controlled by Abramovich, is being investigated by 
Swiss prosecutors who suspect it may have siphoned off funds from a $4.8 
billion bailout loan issued to Russia by the International Monetary Fund on 
the eve of the August, 1998, crash. Sibneft says the suspicions are 
groundless. Abramovich declined to be interviewed.
Even if shady dealings are still the rule, the petro-boom creates other 
risks. Russia's 409,000 oil workers are frustrated that wages for many remain 
below the peak before the financial crisis. Companies will have to tackle the 
pay issue or face a possible surge in worker unrest. A larger issue is that 
the tax windfall from oil is already reducing pressure for Putin's government 
to make necessary structural reforms. ``Heads are spinning'' from the oil 
windfall, says Putin's top economic adviser, Andrei Illarionov, who's worried 
about stalled momentum for liberal changes. But few are listening to such 
party-pooping sentiments. The reigning cry: Let the good times roll.


Gore's Russian Relations Examined
October 19, 2000

WASHINGTON (AP) - The Clinton administration is refusing to cooperate with a 
Senate investigation into a 1995 arms deal with Russia negotiated by Vice 
President Al Gore, a member of the Foreign Relations Committee said Thursday. 
A Gore spokesman accused the Republican senator of ``despicable'' political 

Sen. Gordon Smith, R-Ore., said the committee will hold a hearing Wednesday 
to determine whether the understanding between Vice President Al Gore and 
then-Prime Minister Viktor Chernomyrdin of Russia is legal. 

White House press secretary Jake Siewert denied the administration was 
involved in a ``secret agreement'' with the Russians and said the Senate 
hearings are meant to embarrass Gore, the Democrats' presidential candidate. 

The New York Times reported last week that Gore promised the United States 
would not interfere with Moscow's fulfillment of existing sales contracts for 
conventional arms to Iran on condition such sales would end by the end of 
1999. The report said Washington agreed not to penalize Moscow under a 1992 
law banning arms sales to countries the United States views as exporters of 

The Washington Times reported Tuesday that Chernomyrdin urged Gore in a 
classified ``Dear Al'' letter on Dec. 9, 1995, to keep Russian nuclear 
cooperation with Iran confidential and said it was ``not to be conveyed to 
third parties, including the U.S. Congress.'' 

At a news conference, Smith said the White House has refused Republican 
senators' requests for documents related to the deal, which Smith said may 
have to be subpoenaed for the hearing. 

``We are bringing young men and women home in body bags right now,'' Smith 
said, referring to 17 sailors killed in the terrorist bombing of the USS Cole 
in Yemen. ``We should not be aiding and abetting those who would do us harm. 
That may have happened here.'' 

Gore spokesman Jim Kennedy replied, ``That's a despicable exploitation of a 
national tragedy for political purposes, and he ought to be ashamed of 

``Using the tragedy of the Middle East crisis as an excuse to hold a partisan 
hearing so close to the election is an outrageous use of power and a 
dangerous mix of politics and national security,'' Kennedy added. 

Gore and Chernomyrdin mentioned an arms agreement in general terms at a news 
conference the day it was signed, but details have not been disclosed. Russia 
continues to sell arms to Iran over protests of the Clinton administration. 

Sen. Sam Brownback, R-Kan., who joined Smith at a news conference, said Gore 
lacked authority to ignore the 1992 law without Congress' permission. ``I 
think it's completely illegal what they did in several of these instances 
here,'' Brownback said. 

Brownback also referred to a Jan. 13 letter from Secretary of State Madeleine 
Albright to Russian Foreign Minister Igor Ivanov - also first reported by The 
Washington Times. Brownback said the letter makes it clear that Russian sales 
to Iran should have been subject to sanctions under U.S. law but were not 
because of Gore's agreement with Chernomyrdin. 

The White House's Siewert denied wrongdoing involving agreements between Gore 
and Chernomyrdin. 

``We distributed a fact sheet to reporters on the ground at the time in 
1995,'' he said. ``We also briefed the House International Relations 
Committee at the time. So if members of Congress have some problem with their 
briefings, they ought to look to themselves.'' 

Siewert said, ``There's no doubt that some of these hearings right now are 
more about the election season than about the real substance here.'' 

Smith said the timing of Wednesday's hearing is not politically motivated. 
``Frankly, I don't think The New York Times is working for the Bush 
campaign,'' the Oregon senator said. ``They're the ones that broke the 

On the Net: Senate Foreign Relations Committee: 

October 17, 2000
Chernomyrdin bucks Bushwhack
by Anne Williamson (
Anne Williamson has written for the Wall Street Journal, The
New York Times, Spy magazine, Film Comment and Premiere. An
expert on Soviet-Russian affairs, she is currently working on a
book, "Contagion: How America Betrayed Russia."

After last week's presidential debate, former Russian Prime
Minister and Gazprom big, Viktor Chernomyrdin, threatened to
bring a suit for slander against the Republican presidential
candidate, George W. Bush. A seemingly bewildered Tom Dawson,
chief IMF spokesman, followed up in Washington by telling
curious reporters that the Fund was "not aware of (any evidence
to support) this (Bush's) particular allegation." All that was
missing were the canary feathers in the corner of their mouths.

The "allegation" at issue is Bush's statement that much of the
IMF's lending to Russia "ended up in Chernomyrdin's pockets and
others." Truer words were never spoken.
Russia's entire domestic bond market (GKOs) was in reality a
pass-through arrangement of U.S. public funds to Wall Street
financial interests the Clinton administration was attempting
to seduce permanently into the DNC camp. Moscow was but an
exotic venue for this practice which further accommodated the
unaccountable Yeltsin government by allowing it to siphon off
sustenance from the many billions the IMF lent.
It was in 1992-93, when consultants from the New York Fed
established what was essentially a jury-rigged system
reflective of a completely artificial market. This GKO bond
market quickly evolved into a pyramid scheme whose outlandish
triple-digit yields were paid with the proceeds from IMF
lending, a phenomenon which, in turn, starved the equities
market that badly needed investors' dollars. "Sure, GKOs are
definitely a pyramid scheme, but a legal one," Russia's
representative to the World Bank admitted in early 1997. "In a
developing economy, if the economy is bad, the pyramid can
collapse, and that is why Russia takes money from the IMF.
Otherwise, the pyramid would collapse." And collapse it did in
August 1998.
Somewhat more favorably for Mr. Chernomyrdin, and less so for Al
Gore and the IMF, World Banker Leonid Grigoriev, elaborated on
his admission, "It was a scheme invented and developed by the
IMF, so they cannot blame him (Chernomyrdin). What was the IMF,
the watchdog of the Western economic system, doing by approving
all these measures? They were present, on the spot, they were
signing all these agreements, and they were so happy with him
(Chernomyrdin), so why blame him? He is doing what they advised
him to do, so if anything goes wrong, there is nobody to blame
in Russia; they did as they were told."
And why not? If Russia -- courtesy of the IMF -- had no need to
finance its own bond market by raising revenues through
taxation, then the honchos at Gazprom and other natural
resource producers would have just that much more to deposit in
their faraway private bank accounts. It is thanks to a magical
quality of money known as "fungibility" that the IMF can
technically assert that none of its loans are ever stolen or
misused. (Fungibility is when a quantity of a good can easily
be substituted by a quantity equal in value to that of the same
good, such as grain, refined sugar, gold or currency notes.)
The Fund simply transfers the loan to a borrowing nation's
central bank, which is then free to ship the proceeds to
private accounts in Cyprus, the Cayman Islands, or domestic
trust funds holding coal miners' pensions or wherever the
recipient nation's central bank chooses for whatever purpose,
fair or foul.
Despite the bond matter having gone very wrong indeed in the
summer of 1998, Chernomyrdin was a hack from day 1, whose
shenanigans involving both Gazprom and Al Gore could not
withstand the discovery process. The former Soviet Oil and Gas
minister rose to power in Yeltsin's Russia in the dismal days
after the failure of Gaidar's "shock therapy," when Yeltsin was
growing increasingly fearful of losing power. One insider
characterized the resolution of the backstage intrigues as a
"Faustian bargain," explaining that "Gaidar's departure (in
December 1992) signaled an okay to the oil industry. The
trade-off for Yeltsin to stay put was that his administration
wouldn't try to wrench the wealth from those in the (energy)
industry. Chernomyrdin was put in place only to ensure that the
bargain was kept."
Chernomyrdin had already demonstrated to Russia's oil and gas
"generals" that he was a sound bet by having become a prominent
customer of Bill Clinton's former campaign donor,"Grigory
Loutchansky. Loutchansky ran the Austrian-based company,
Nordex, whose operations involved the transfer and sale of Scud
missiles, nuclear smuggling, the export and sale of natural
resources Russian insiders bought at subsidized domestic prices
and then resold in the West at world prices. Nordex handled the
subsequent multimillion dollar transfers through a network of
Swiss bank accounts and dummy companies set up in tax havens
like the Isle of Man and Liechtenstein.
But Chernomyrdin outdid himself with the 1994 privatization of
Gazprom which proceeded according to special rules and
procedures never made fully public. The share registry's webs
of deceit were initially said to be so clumsily and hastily
woven that two different investment bankers told me separately
that certain owners listed in the 1994 share registry were such
obvious stand-ins that "Shareholder No. 1" was actually a
Siberian peasant and his immediate family.
Another unique aspect Chernomyrdin et al. built into Gazprom
shares is that they trade at two prices, one heavily discounted
and said to be for the benefit of average Russian investors,
and another, higher price on the world market at which
foreigners are obliged to make their purchases. In reality, two
prices for the same good provides enormous opportunities for
insiders to profit. Anyone with access to the discounted shares
and a competent, discreet broker in the West would have a lock
on a steady stream of mind-boggingly easy money.
A citizen would be wrong to think any of these hefty insider
bites out of Russia's cash cow especially alarmed either the
IMF or the Clinton administration. Quite the contrary.
For example, when the IMF touted a 1996 $10.2 billion loan on
the basis of what an extraordinary job Russia had done in
meeting the conditions of a 1995 $6.7 billion loan, one crucial
detail went unmentioned. The $6.7 billion loan was extended
without any conditions via the IMF's Systematic Transformation
Facility, a program then-U.S. Treasury Undersecretary Lawrence
Summers designed especially to funnel money to Russia in return
for "the promise to reform." Also left unsaid was that --
thanks to the fungibility of money -- the $6.7 billion loan
financed almost to the kopeck Yeltsin's bloody and disastrous
assault on Chechnya. Following the Russian Communists' success
in the December 1995 parliamentary elections, the Fund
proceeded into even dodgier territory with the 1996 $10.2
billion loan, which came front-loaded with a billion dollars
meant for Yeltsin's reelection. Clearly the Fund was made to
understand the potential embarrassment to Clinton's own
reelection bid, should the card-carrying Gennady Zyuganov to be
elected to the Kremlin.
When candidate Yeltsin wanted to please farmers by yielding to
their demand for higher import tariffs with a 20 percent
increase and a promise to use the new funds for social
programs, the IMF barked that an increase in import tariffs
would derail the loan. The cagey Yeltsin quick slapped a 20
percent hike on frozen American chicken, a $700 million dollar
market, $258 million of which had been earned by Tyson Chicken.
Let us recall that it was Tyson's agents who engineered Hillary
Clinton's short, but steeply ascendant career trading cattle
futures. And it was Tyson that had come through with a
particularly well-timed loan to the 1992 campaign that proved
critical in facilitating the Clintons' last minute get-away
from Arkansas and federal banking investigators via the ballot
box. Clinton, steeped in the political folkways of his home
state, soon flew to Moscow and advised Yeltsin they ought "to
help each other." After that, all talk of a chicken tariff
increase ceased.
Yeltsin's coming electoral triumph only began taking shape once
the first payout of a billion-plus dollars arrived the
following May. The campaigning Russian president pulled out all
the stops; back wages for state employees and pensions were
paid, and after the IMF's billion was consumed, the capricious
Siberian ordered his initially mulish Central Bank to hand over
a billion more. The West's IMF watchdog kept its mouth shut.
But weren't we told that Russia's financial oligarchy paid for
Yeltsin's reelection? To the contrary, Russia's bankers made
serious money on Yeltsin's electoral weakness by buying
government bonds at distressed prices using cheap money handed
over from government deposits. The domestic Russian bond
market's high yields were always paid with IMF loans. Grigoriev
explained, "Of course, the government was to return this money
and that is why the yields on 3-month paper reached as much as
290 percent. The government's paying such huge, impossible
rates on treasury bills, well, it's completely unbelievable. It
had nothing to do with the market and therefore such yields can
only be understood as a payback, just a different method."
Should Chernomyrdin carry out his threat to litigate, I suspect
investigators armed with the appropriate legal powers would
discover that the secret deal restricting the Russian arms
sales to Iran the New York Times revealed last week wasn't the
only one Viktor and Al struck.
Was there, for instance, any particular agreement regarding a
future payback to Gore 2000 coffers in return for the vice
president's championing of Yeltsin's and Chernomyrdin's cause
in the 1996 Russian presidential election? And in championing
the two Russians was Gore not actually championing the
interests of the Wall Street powerhouses who sat on the Capital
Markets Forums, a key part of the Gore-Chernomyrdin Commission?

Andrei Shleifer, the Cambridge-based manager of Harvard's
USAID-funded consultancy (currently the subject of a $120
million civil suit filed by the federal government which also
targets Harvard's Moscow-based manager, Jonathan Hay, both
men's wives and the university), organized participants into
groups devoted to such juicy topics as "Investor Protection,"
"Capital Market Infrastructure," "Collective Investment
Vehicles," and "Taxation, Accounting and Auditing." The Russian
members of the forum were representatives of the intelligence
community, various oligarchical banks, and Moscow brokerages,
including a financial outfit with a prophetic handle, the CJSC
Center of Dematerializing Promissory Notes. (Actually, the
reference is to a peculiar Russian quasi-currency known as
High-powered financiers are always interested in the management
of large investment portfolios, corporate bond offerings,
shareholding offers, syndicated loans, derivative contracts,
lucrative privatizations, oil, gold and other precious metals,
natural gas, and they further enjoy a wealthy, private
clientele who are themselves interested in acquiring diamonds,
furs, rare species trophies, antique pearl-encrusted icons,
high brow art from Czarist collections, and so on. Their
Russian counterparts were the minions of the most successful
ex-Komsomol ("Young Communist League") banksters who had
control of fabulous assets that provided immense cash flows to
their personal Western bank accounts and who were very
interested in putting those accumulating sums to work
profitably in the West's asset-inflated equities markets. How
much, I wonder, would it be worth to this crowd to have Al Gore
and Viktor Chernomyrdin advancing their agenda?
A close look at Itera, a Florida-based client company of
Gazprom, would raise yet more questions. Itera, about which it
has so far been impossible to even establish who the owners
are, is believed to be used by Gazprom executives and their
relatives to siphon money out of the company (as is an
Irish-registered company, Milford Holdings Ltd.). The firm has
already been fingered as the source of contributions to
certain, Florida state politicos. And yet the EBRD says it is
ready and willing to make a new loan to Gazprom!
But the most intriguing set of circumstances and possibilities
revolve around a particularly obscure figure in Chernomyrdin's
circle, one Peter Castenfelt, a London-based Swedish financier
who operates an outfit called Archipelago Enterprises. I first
spied Castenfelt in the winter of 1994, when he acted as an
intermediary between Camdessus (the IMF chairman) and
Chernomyrdin during Russia's negotiations for an IMF loan. But
how, or why, I wondered at the time, could a private Swedish
businessman with offices in London intercede between some of
the most powerful governments in the world and their proxies?
And how and for what purpose had Chernomyrdin become involved
with a heretofore unknown Swedish financier?
The next I heard of Castenfelt was from Truth in Media's Bob
Djurevic who chronicled how Castenfelt, described in the
Hamburg-based paper, Welt am Sonntag ("World on Sunday") as a
"trustworthy" contact of the German government was secretly
dispatched to Belgrade on 20 May 1999 via Bulgaria, equipped
"with a bag full of sticks and carrots." Castenfelt, Djurevic
established, finished off a 13-day stay at the Intercontinental
Hotel with a visit to a Belgrade bunker where he presented a
memorandum of the West's demands and possible fudges to
Slobodan Milosevic's representatives. Schroder's foreign
affairs adviser, Karl Kaiser, later said, "Castenfelt played a
central role in showing Milosevic how the accord could be made
to look better than what was offered at the Rambouillet peace
Could it be that a large chunk of discounted Gazprom shares,
possibly to be hand-delivered by Chernomyrdin, looked "better"
to Milosevic, especially knowing Castenfelt was there to market
them at the world price and then deposit the proceeds in a
secret bank account in the appropriate tax haven?
The only error George W. Bush made when he questioned Gore's
management of the Clinton administration's Russia policy is
that he made his target too narrow by naming only the IMF. By
rights, Mr. Bush should have mentioned too the World Bank, the
International Finance Corporation, the European Bank for
Reconstruction and Development, the Overseas Private Investment
Corporation, the Export Import Bank of the United States and
the Russian American Enterprise Fund. The lending of these
institutions goes towards specific projects and enterprises via
the recipient government after having been agreed upon with
donor nations' international debt merchants. Their patron
saints are Waste, Fraud and Abuse.
Unfortunately, for Russians and Americans who want answers, Jim
Leach, Chairman of the House Committee on Banking and Financial
Services, has quietly dropped the investigation of exactly what
happened to the IMF's $4.5 billion bailout in August 1998.
Instead, Leach has been pursuing legislation Lawrence Summers
favors which proposes a global "Know Your Customer" regime that
will effectively end American citizens' financial privacy while
crushing the tax competitive "havens." In other words, whether
he realizes it or not, Leach is proposing to penalize American
citizens in hopes of policing a nonstop flow of loans to
corrupt governments through the multinational public lenders on
behalf of an imperial executive branch. As if the comparatively
modest Caribbean financial hideaways of stolid, middle class
professionals suffering high tax rates are the problem! Leach's
climbdown in combination with the Republicans having gotten
through their political angst with the release of the Cox
Report means that taxpayers best hope today of getting any real
answers as to how their money was squandered by the Fund, the
Clinton administration and the New Russia's camarilla
government would be if Chernomyrdin did file suit!
The only question George W. Bush really needs to be asked in
this evening's debate is: What exactly does he intend to do,
should he prevail on Nov. 7, to stop the abuse of taxpayers and
other innocent people around the world at the hands of the
arrogant, ethically rotten and deluded collection of market
bubble-blowers who are today despoiling U.S. foreign policy
from within the inappropriate confines of the U.S. Treasury?

BBC Monitoring
Russia's economic losses in Gore-Chernomyrdin Iran deal can be rectified 
Source: 'Nezavisimaya Gazeta', Moscow, in Russian 19 Oct 00 

Russia has incurred substantial economic losses as a result of 
Gore-Chernomyrdin deal on Iran, while the US Administration made political 
gains, a popular Russian daily 'Nezavisimaya Gazeta' says. However, there are 
clauses in the US-Russian deal that make it possible to rectify the 
situation. The following is the text of an article published by the paper. 
Subheading have been inserted editorially. 

How much Russia stood to lose 

In the context of the scandal that is unfolding in Washington over the 
US-Russian agreements on Iran concluded in 1995 by the then Russian Prime 
Minister Viktor Chernomyrdin and Vice President Albert Gore, in the course of 
which all the grievances are being addressed to the present US 
Administration, nothing is being said about the losses which Moscow suffered 
as a result of the deal. Yet they were vast - the part that can be measured 
in cash alone is estimated by experts at around 4bn dollars, of which 2bn is 
losses resulting from the breaking of contracts already signed with Tehran 
and another 2bn worth of contracts which were at the development stage and 
have been aborted as a result of the Gore-Chernomyrdin agreement. Nor should 
we forget the advantage that was lost through Russia's taking up commitments 
to discontinue cooperation with Iran in specified areas. 

The `Nezavisimaya Gazeta` has uncovered some aspects of the five-year-old 
deal within the framework of the "Gore-Chernomyrdin" commission which were 
perhaps deliberately concealed by the sources within the CIA and the Congress 
which supplied the `New York Times` and the `Washington Times` with 
information on the basis of which the public learned about the content of the 
behind-the-scenes talks between the co-chairmen of the Russian-US Commission 
on Economic and Technological Cooperation. An analysis of these leads to 
conclusions not only on the ruinous nature, for Russia, of the commitments it 
made under the 30th June 1995 memorandum, but also on the possibilities for 
revising these accords stemming from points 5 and 7 of the document itself. 

It is known that under the Russian-US accords formulated in the 
Gore-Chernomyrdin memorandum, Russia pledged to complete implementation of 
all its contracts with Iran for deliveries of arms and military equipment and 
for services of a military nature by 31st December 1999 and to conclude no 
new ones in the future. Russia's commitments to Iran were based on four 
intergovernmental agreements signed in 1989, 1990, and 1991. Under these, 
Moscow pledged to supply Tehran with arms and military equipment, such as 
MiG-29 and Su-24MK aircraft, 877EKM submarines (including construction of 
shore facilities for them) and S-200VE air defence systems, as well as to set 
up production facilities to manufacture under license T-72S tanks and BMP-2 
infantry fighting vehicles. 

US political consessions against Russia's economic ones 

It should be recalled that under US legislation (the Iran-Iraq Arms 
Nonproliferation Act and the 1996 amendments to the 1992 Foreign Assistance 
Act) these contracts were in themselves sufficient grounds for the imposition 
of sanctions against Russia by the United States, which is now being 
emphasized by Albert Gore's critics who accuse him in effect of conniving 
with the export of arms to a country which is on the State Department's list 
of states supporting terrorism. 

For Russia, the crux of the problem has nothing to do with US diplomats' 
assessments of the terrorist potential of a given state. By 1995, a 
problematic situation had developed which Moscow and Washington had to tackle 
somehow. Deliveries of Russian arms and military equipment to Tehran had 
become major irritants in the generally good relations between the Russian 
Federation and the United States. That was why a compromise was achieved, 
under which, at a first glance, both sides made concessions. In theory, the 
conclusion of the Gore-Chernomyrdin accord went against both Russian and US 
interests. But whereas for the United States the losses were mainly on the 
legal plane, Russia's losses were in the economic sphere. 

Moscow was unable to implement all the contracts already signed with Iran in 
full by the date indicated in the memorandum - 31st December 1999. Now the 
question of completing their implementation is left hanging. Apart from that, 
Russia has been forced to abandon the delivery to Iran of spare parts for 
arms and military equipment, which under the Russian-Iranian accords it was 
to carry on supplying up until 2011. Apart from that, the estimated value of 
possible future purchases in which Tehran had shown an interest - such as 
large consignments of S-300 air defence systems and Igla portable 
antiaircraft missile systems, Mi-17 military transport helicopters, Su-25 
ground-attack aircraft, Gamma and Kasta radars, and so forth - is also close 
to 2bn dollars. 

Clinton bullied Yeltsin into backtracking on Iran deals 

It is also interesting to observe the dynamics of the events that led to the 
deal between Chernomyrdin and Gore. Let us remind you that the scandal about 
the Moscow-Washington-Tehran triangle had arisen rather earlier than the date 
of the Gore-Chernomyrdin memorandum. During a visit to Moscow by US President 
Bill Clinton on 10th May 1995, Boris Yeltsin was forced to admit publicly 
that the contract for Russia's construction of a nuclear power station in the 
Iranian city of Bushehr included a military component, which in the end the 
presidents agreed to remove from the contract. It was a question of the 
delivery, among other items of equipment, of a centrifuge with the help of 
which the Iranians might have intended to obtain materials for the 
manufacture of nuclear weapons. The cost of the centrifuge alone - 500m 
dollars - was half of the total cost for the entire contract. At that time, 
Clinton had managed, in effect, to twist Yeltsin's arm and wreck the deal, or 
at least half of it. `Nezavisimaya Gazeta` has information that Yeltsin was 
forced to cancel the delivery of the centrifuge to Iran after Clinton showed 
him a copy of confidential Russian-Iranian agreements which had fallen into 
the hands of the US special services. 

There is another important factor: immediately after Yeltsin's statement on 
Russia's refusal to supply the centrifuge to Iran, a high-ranking Russian 
diplomat who was well informed about the nature of the clash, told 
`Nezavisimaya Gazeta' correspondent that the Americans would not stop halfway 
and will try to get more. He also added that the plan for this 
Russian-Iranian deal would be examined by the Gore-Chernomyrdin commission 
(see Nezavisimaya Gazeta No. 80, 12th May 1995). And so it turned out. The 
Americans, making a kind of deal with their "conscience" - their domestic 
legislation - managed subsequently to do even more substantial damage to 
contacts between Moscow and Tehran, not only in the sphere of nuclear power, 
but also in the area of military-technical cooperation. After putting Yeltsin 
in the position of defendant at the May 1995 summit, the US leadership found 
it fairly easy to obtain from Chernomyrdin concessions far larger than may 
have been planned at the outset. 

Now that the details of the Gore-Chernomyrdin accord have become known, the 
events of spring-summer 1995 in Russian-US relations are perceived as links 
in a single chain: Clinton's strong attack at the summit may have led 
eventually to the "voluntary" restrictions accepted by Moscow in its 
cooperation with Iran. 

It's not too late to rectify the situation 

It is noteworthy that this whole episode has provoked a stormy reaction not 
only in the Capitol Hill but also in Okhotnyy Ryad [the Duma]. Yesterday, the 
State Duma supported a motion from LDPR [Liberal Democratic Party of Russia] 
Deputy Aleksey Mitrofanov that US senator Christopher Cox, who allegedly 
possesses information "on corruption links between US Vice President Albert 
Gore and the Russian leadership," be invited to Moscow. But whereas Gore's 
policy was, in effect, beneficial to US national interests (albeit with a 
possible formal violation of US domestic legislation), Chernomyrdin's actions 
regarding Iran pose far greater questions from the viewpoint of Russia's 

In principle, the situation can be rectified. This is indicated, as noted 
above, by point 5 of the memorandum, which offers the possibility for a 
review of the sides' commitments, given a change in the political situation 
in Iran. These changes have been acknowledged, in effect, by both President 
Bill Clinton and Secretary of State Madeleine Albright. Statements to this 
effect were made by Washington after the victory of reformist forces in the 
elections in Iran, after partial lifting of US sanctions on a number of 
Iranian goods and after the Millennium Summit. It is reported that other 
countries - partners in the Wassenaar Arrangement (export control), including 
the West Europeans - are reviewing their policy on Tehran. In this case too, 
point 7 of the Gore-Chernomyrdin memorandum offers a possibility of reviewing 
the commitments. 

It should also be pointed out that Russia has its own complaints against the 
United States regarding Washington's non-compliance with its commitments 
under the memorandum: the United States has failed to prevent unauthorized 
transfers of American weapons from countries of the Near and Middle East to 
the zones adjacent to Russia. Washington continues to hinder Russia's access 
to the high technology market and is actively applying the principle of 
double standards in competition aimed basically at squeezing Moscow out of 
world weapon markets. 


October 18, 2000
[translation from RIA Novosti for personal use only]
By Natalia RAISKAYA, Jacob SERGIYENKO and Alexander FRENKEL, 
Russian Academy of Sciences' Economics Institute 
The Russian economy continues to recover, despite somewhat 
slower growth rates. At the same time, various factors, which 
serve to determine specific economic- performance trends, have 
changed considerably. Previously, economic growth was mostly 
facilitated by foreign trade;
however, investment and domestic end-product demand exert the 
main impact at this stage. One can safely say that all these 
indicators will account for an increasingly greater share of 
the entire Russian GDP this year.

Preliminary estimates show that basic Russian sectors have 
expanded production by 8.5 percent over the January- September 
2000 period (on corresponding 1999 levels), what with 
industrial output swelling by 9.7 percent.
Ferrous metallurgy and non-ferrous metallurgy have 
expanded production by 19 percent and 11.2 percent, 
respectively. The chemical and petro-chemical industry has 
expanded production by 15.5 percent. The machine-building and 
metal-working industry has expanded production by another 16 
percent. Meanwhile the break-down for this country's timber, 
wood-working and pulp-and-paper industry, 
construction-materials industry and food industry is 13.7 
percent, 9.5 percent and 9.2 percent. The light industry 
chalked up the most impressive production increment of them all 
(29.2 percent). The current economic recovery should be largely 
attributed to a steadily swelling production base (since May 
The quality of Russian economic growth has now changed, 
constituting the most important feature of the overall 
economic-performance trends. The foreign-trade share has 
dwindled on a par with that of foreign clients inside the 
entire end-product demand pattern. According to the Russian 
State Committee for Statistics, the national foreign-trade 
surplus totalled $33.3 billion over the January-July 2000 
period (as compared to $16.3 billion throughout the 
corresponding 1999 period). Net exports accounted for 22.8 
percent of the entire Russian GDP over the January-June 2000 
period. However, their share will apparently drop to 19.8 
percent of this country's GDP throughout 2000. This can be 
largely explained by the less substantial value of exports 
during the last few months at a time when Russia continues to 
import additional products. In fact, the entire import volume 
is going to swell by 3.8 percent throughout 2000.
The investment component of Russian economic growth is 
becoming more and more important. Preliminary estimates show 
that the Russian economy has received investment to the tune of 
719.5 billion roubles over the January-September 2000 period, 
having raised by 16.7 percent on the corresponding 1999 period. 
Basic-capital investment volumes exceed GDP-growth rates a 
great deal. Consequently, the basic-capital accumulation share 
would be expected to increase from 14.5 percent to 15.5 percent 
of the Russian GDP by the end of the year.

Yet another domestic-demand component, e.g. consumer 
spending, continues to become ever more prominent. The people 
of Russia spent 1,737 billion roubles on consumer goods and 
various services throughout the January-August 2000 period (as 
compared to 1,336 billion roubles over the corresponding 1999 
period). The share of consumer spending has grown in the 
structure of monetary incomes. In June 2000 it was 74.9 
percent, while in August it rose to 80.9 percent.
The financial standing of local enterprises and 
organizations makes it possible to improve the state of 
payments and settlements. The Russian State Committee for 
Statistics estimates that, as far as big-league Russian 
tax-payers and industrial monopolists are concerned, the share 
of cash payments (inside the overall volume of paid products, 
operations and services) has increased from 67.7 percent to 
72.8 percent this past July.
The share of overdue debts continues to diminish within 
the framework of the non-financial sector's debentures, 
although nominal corporate-debt volumes keep swelling to some 
extent. For instance, they increased by 1.8 percent in July.
As of August 1, 2000, aggregate corporate debentures, as well 
as those of other organizations, totalled 4,311.6 billion 
roubles, what with the overdue credit indebtedness standing at 
1,647.1 billion roubles.
The state's financial positions and the federal-budget 
situation largely copy specific economic-development trends.
The Russian Tax Ministry estimates that it has over-fulfilled 
the relevant third-quarter tax-proceed targets by 18 percent.
At the same time, less substantial budgetary revenues were 
collected in September, accounting for 97.5 percent of August 
2000 volumes. This can be explained by the income base's 
structural changes. Exporters' earnings were largely 
instrumental in collecting more impressive revenues since early 
2000. For example, local oil companies alone swelled their 
respective payments by an impressive 40-45 percent over the 
January-September period. Meanwhile other sources are now 
becoming increasingly important. Their list includes income-tax 
proceeds, which now make up for approximately 27 percent of all 
proceeds, the Tax Ministry noted. On the whole, cost-effective 
domestic-growth factors have emerged in our economy at this 



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