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Johnson's Russia List


October 27, 2000    
This Date's Issues: 4604    


Johnson's Russia List
27 October 2000

[Note from David Johnson:
1. BBC Monitoring: Russian elite opposes law and order at any 
cost - poll.

2. AP: Some Lived Through Kursk Explosions.
3. Boston Globe: David Filipov and David Abel, Some Russian officials 
cling to theory of sub collisions.

4. The Economist (UK) book review: Death in Russia. Hearing silence.

5. Christian Science Monitor: Fred Weir, In Moscow, Chechens complain 
of 'racial profiling' 

6. Increasing the Risk of Investing in Russian Companies.
7. Lawrence G. Kelley: re Patrick Armstrong/JRL-4599.
8. the eXile: Jake Rudnitsky, Corporate Safety Net. (re US Overseas 
Private Investment Corporation-OPIC)]


BBC Monitoring
Russian elite opposes law and order at any cost - poll 
Text of report by Russian news agency Ekho Moskvy on 27th October 

[No dateline as received] According to a public opinion poll conducted by the 
independent research centre ROMIR, the majority of the Russian elite oppose 
establishing law and order in Russia at any cost, including human rights 
violations, ROMIR told the Ekho Moskvy radio. 

The poll was carried out in 10 large Russian cities in September 2000 and 
involved 500 people representing Russian executive and legislative powers, 
private business and state-owned companies, science and media. In the course 
of the poll ROMIR sociologists asked elite group representatives whether they 
would agree that in present situation in Russia it is necessary to establish 
law and order at any cost, even by sometimes violating human rights. Only 9.4 
per cent of respondents fully or partially agree with such a statement, while 
30.1 per cent disagree and 42.5 per cent strongly disagree. 


Some Lived Through Kursk Explosions
October 27, 2000

MURMANSK, Russia (AP) - Stormy seas prevented divers from entering the 
nuclear submarine Kursk on Friday, a day after naval officials revealed 
evidence that more than 20 seamen had survived the initial explosions that 
sank the vessel. 

Meanwhile, anger against the government for its slow and confused response to 
the Aug. 12 disaster was revived after divers found an emotional letter in 
the pocket of a dead crewman describing the survivors' moments after the 

``The Kursk crew has been buried alive,'' Veronika Marchenko, head of the 
anti-military association Mother's Right, said in a statement issued Friday. 
``The government was trying to solve all possible problems, such as 
concealing the tragedy, protecting military secrets, raising the plummeting 
popularity of the president, paying off too persistent relatives or hushing 
up honest journalists. All except one: acting quickly to save the crew.'' 

``We should think what to do to make the government value citizens' lives 
more than oil, military secrets or its own prestige.'' 

Winds of up to 56 mph and a force-six gale in the Barents Sea kept divers 
away from the wreck Friday due to the danger of being jerked about on their 
tethers, said Northern Fleet spokesman Capt. Vladimir Navrotsky. 

``The weather is worsening, with a snowstorm raging around the rescue site,'' 
he said, adding that the storm was expected to continue throughout the day. 

On Wednesday, divers recovered four bodies from the Kursk's eighth and ninth 
compartments. Officials found a note in the pocket of a submariner identified 
as Lt. Dmitry Kolesnikov, which gave the first firm indication that some of 
the sailors had remained alive for at least several hours after the powerful 
explosions that sank the submarine. 

Fragments from Kolesnikov's message told a horrifying story of the 
submariners' struggle for life, saying that 23 survivors of the blasts had 
gathered in a compartment in the stern, hoping to get out through the escape 

Most of the Kursk's crew of 118 apparently died instantly in the explosions 
that sent a giant fireball and shock wave ripping through the Kursk's first 
five compartments, or within minutes as water roared into the submarine. 

But the sickening revelation that some died a slow and torturous death - by 
drowning, hypothermia or suffocation - has brought back the horror that 
gripped the nation in the days after the disaster. And once again, it called 
into question whether the government could have saved some of the crew if it 
hadn't balked at accepting foreign aid for days. 

After the Kursk sank, Russian submersibles were unable to latch onto the 
hatch, and the cash-strapped navy didn't have deep-sea divers who could enter 
the submarine. When Norwegian divers were finally invited to perform the 
work, four days after the sinking, they did it within hours. 

The newspaper Segodnya said that Kolesnikov's note was ``deadly for the 

``The authorities buried the Kursk too early, maybe even when it was still 
alive,'' it said. 

Kolesnikov's note gave no indication of whether any of the crew had survived 
beyond a few hours. At least some of the 23 were injured and the compartment 
showed signs of fire, said Adm. Vladimir Kuroyedov, the Russian naval chief. 

Deputy Prime Minister Ilya Klebanov quickly ruled out Thursday that there was 
any chance to save any of the crew. 

Officials said a memorial ceremony was planned for Saturday in Severomorsk, 
the headquarters of the Northern Fleet, but that it would likely be postponed 
because of the gale, which delayed the recovery of more remains. 


Boston Globe
October 27, 2000
Some Russian officials cling to theory of sub collisions 
By David Filipov and David Abel, Globe Staff

MOSCOW - Aboard the Russian frigate Admiral Chabanenko, three senior Russian 
naval officers gathered around a television set, pointing excitedly at the 
images on the screen - underwater footage of the badly dented hull of a 
submerged vessel.

''Look, right here, you see that?'' says one of the officers, Admiral 
Vladimir Kuroyedov, Russia's Navy commander. ''This is a blow, a glancing 

The Russian Navy says this footage, broadcast on Russian TV Wednesday night, 
proves its theory: The nuclear submarine Kursk was rammed by a foreign sub - 
most likely American or British - shortly before it sank in August, killing 
all 118 aboard.

Two months after the Kursk sank, Russian officials still haven't said exactly 
what sent the sub to the bottom. They have blamed its demise on everything 
from a collision with another sub to a World War II floating mine.

US and British military officials have repeatedly denied their vessels were 
involved and suggested a munitions-room fire probably set off the two 
explosions that sank the Kursk.

After divers found a note yesterday on one of four bodies recovered from the 
sub, US officials and analysts characterized Kuroyedov and other Russians' 
comments as face-saving efforts when it became clear that at least 23 sailors 
temporarily survived the blasts. Russian officials, criticized for initially 
refusing foreign help, have claimed most of the men died instantly.

''It's nonsense,'' said retired Vice Admiral Bud Kauderer, commander of the 
US Atlantic fleet submarine force from 1983 to 1986. ''There's no proof there 
was a collision. He's guessing by looking at underwater video. His comments 
sound similar to Soviet times, and they are clearly a way to save face.''

Yet, without an official explanation, a number of theories here have fueled 
speculation. Russian naval officials have said three NATO submarines - two 
American and one British - were in the area when the Kursk sank on August 12. 
US officials have acknowledged the Russian exercises were monitored by two US 
subs, the Memphis and Toledo; an electronic surveillance ship; and a 
Norwegian intelligence-gathering ship.

To Russians, it's no secret that the dangerous cat-and-mouse game between 
Western and Russian subs continues, despite the Cold War's end. For many, 
it's easier to blame the Americans than to accept a malfunction.

Russian analysts, however, have yet to prove that a US or British sub was 
damaged. The only evidence is circumstantial: Sometime after the crash, the 
USS Memphis arrived at the submarine base in Bergen, Norway.

One Russian theory maintains the Memphis was damaged in the crash but limped 
to Bergen for repairs. Another theory is the Memphis's arrival in Bergen 
masked the escape of the damaged sub.

''Imagine if three submarines were involved in an accident off the shore of 
the United States,'' senior Russian admiral Vyacheslav Popov recently said. 
''An American sub sinks, and one of our subs goes to Cuba for repairs. What 
would American journalists write then?''

US naval analysts note that unlike the Russians, the US government 
immediately acknowledged past collisions between US and Russian subs in 1992 
and 1993.

''The fact that the US Navy has not revealed the details of its submarines 
gives the Russians running room for conspiracy theories,'' said Ron O'Rourke, 
a naval analyst at the Congressional Research Service and a leading submarine 
expert. ''But the history of Russian statements in connection with this 
accident has been replete with lies or misstatements of fact. They have very 
little credibility. It's like what Carl Sagan said, `Extraordinary claims 
require extraordinary evidence.'''

Many Russian theories do rely on the extraordinary. One account suggests 
President Clinton's phone call to Vladimir V. Putin on Aug. 15, and the later 
visit of CIA director George Tenet to Moscow, indicate a deal may have been 
sealed not to divulge the truth about the Kursk in return for US concessions.

Clinton's choice soon afterward to forgo a decision whether to deploy a 
national missile defense system, a $60 billion project that has long roiled 
Moscow, could have been one of these concessions, Russian NTV television told 
the nation Wednesday.

The head of a government commission on the accident, Deputy Prime Minister 
Ilya Klebanov, said Wednesday that his group counted a collision as one of 
three possible causes.

Sergei Zhekov, a member of a Russian parliamentary probe into the Kursk 
sinking, said from Russian naval chiefs and the defense factory that built 
the Kursk supported the theory that a British submarine had been involved in 
a collision.

Despite repeated British and NATO denials, Zhekov said rescue buoys found on 
the ocean floor after the accident were white and green, colors that he 
claimed were those of Britain's Royal Navy. He also said that in the days 
following the tragedy the British Navy carried out its first large-scale 
emergency and rescue exercises in 10 years. And finally, he said, two British 
subs recently had been withdrawn from service in the same week.

Russia recently dispatched a ship equipped with submersibles that allow for 
extended sea-floor research. However, Klebanov said the submersibles found no 
pieces of a foreign submarine. 

At the time, Klebanov said officials no longer considered a collision with 
another vessel the most likely cause of the tragedy. Moreover, some Russian 
admirals have distanced themselves from Kuroyedov's assertions.

In Washington, US naval officials said they have done everything they can to 
clarify the record. ''The president, secretary of defense, and the chief of 
naval operations have assured the Russians and the media a number of times 
that no US surface ship or submarine was involved in a collision with the 
Kursk,'' said Lieutenant Jensin Sommer, a Navy spokeswoman. ''These 
statements should stand for themselves.''

Filipov reported from Moscow; Abel from Boston. 


The Economist (UK)
October 28-November 3, 2000
Book review
Death in Russia 
Hearing silence

By Catherine Merridale. 
Granta; 516 pages; £25 

YOU don’t have to be morbid—or a Russian scholar—to respond to this
extraordinary and important book. The author’s interest is not so much
death itself as the mental world of the Russian people. By combining oral
history with archival research, Ms Merridale, a young British historian,
has produced a highly original study of how Russians lived through and, in
many respects, came to terms with the 20th-century experience of mass
mortality. In convincing human detail, she shows how Russians were able to
draw on rituals and beliefs—both old and new—to rescue from their fearful
history a protective sense of themselves.

At the core of “Night of Stone” lies an argument about the role of what
Boris Pasternak, a great 20th-century Russian poet, called “the glittering
lie”, the official version of reality laid before its citizens by the
Soviet state. During the cold war, Westerners tended to favour a fairly
simple view of the Russians as held in bondage by lies enforced by the fear
of state violence. A noble tradition of dissidents seemed proof of this.
But dissidents are, by definition, exceptional individuals. Ms Merridale’s
research brings out something rather different about popular attitudes,
which this reviewer, who has worked in Russia, has also found. People
assimilated official lies into their own stories. They did so because their
own experiences had often been too harrowing. They welcomed the comfort—and
the inspiration—offered them by the sanitised official version of the
Soviet past. 

With surprising frequency, Ms Merridale was struck by the “almost jolly”
accounts she heard of the second world war, a war which wiped out a
generation of Russian young men and destroyed almost 70,000 towns and
villages. Survivors were naturally eager to forget the grimness, and she
suggests that they were helped in this by kitsch war poetry and by heroic
military films. Much later, soldiers returning from Afghanistan in the
1980s encountered something similar: civilians back home simply did not
want to know.

Nor was it only soldiers who faced this pervasive desire to forget.
Prison-camp survivors released by Khruschchev in the 1950s found that they
posed a threat to the fragile world that other Russians had pieced together
for themselves. Ms Merridale recounts the terrible, and seemingly typical,
story of an 18-year-old girl who received a letter from her father, who she
thought had died in the war. Newly released from camp, he wrote to say that
he had survived only through his love for her. She wrote back to say she
did not want to know him. She never heard from him again.

Ms Merridale offers a much subtler view of the effect that violence has had
in Russia than the one commonly held in the West. Whatever the people she
talked to thought about themselves, they were invariably contemptuous when
outsiders treated them as victims, permanently damaged by decades of state

“Night of Stone” is an admirable attempt to bridge the gulf in perception
which still divides Russia and the West. Ms Merridale is never
condescending towards those she meets, and she listens not just to their
words. She knows that in Russia, if you really want to understand, you have
to listen also to the silences.


Christian Science Monitor
October 27, 2000
In Moscow, Chechens complain of 'racial profiling'
Next week a court hears the case of two children who refused police 
By Fred Weir, Special to The Christian Science Monitor 

Tayita Kayimova and her two sons share a cramped, one-room apartment, but she 
rarely permits the young men, who are both of military age, to go outside. 

Since fleeing the war-torn mountains of their native Chechnya for a Moscow 
suburb a year ago, they have encountered danger of a new sort. "My sons go 
out, they get arrested because they lack the right documents," says the 
gray-haired Ms. Kayimova. "We cannot get permission to live in Moscow, but we 
have nowhere else to go," Kayimova says. "I feel completely trapped." 

She is one of dozens of Chechens, mostly women, seeking help because they 
face official procedures that essentially treat every Chechen as a potential 

"The biggest problem is that Chechens are often denied Moscow registration, 
which makes their presence here effectively illegal," says Svetlana 
Chuvilova, who runs a telephone hotline for Civil Assistance, a Moscow human 
rights group that provides legal advice and food aid to refugees. Ms. 
Chuvilova says she receives about 100 registration-related complaints each 
week, which she passes on to Moscow authorities. "But little is done, nothing 
changes," she says. 

Russia's Constitution guarantees all citizens the right to move freely and 
choose their place of residence. But many cities, including Moscow, maintain 
a registration system that requires even short-term visitors to pay a fee and 
provide full information on their living arrangements in return for a 
"permission" stamp in their internal passports. 

Police have the right to arrest anyone who lacks the stamp. Widespread 
abuses, including refusals by officials to register darker-skinned Caucasians 
and other suspect ethnic groups, and sometimes police brutality, have been 
alleged for years. 

Tight controls after bombings 

But since a wave of apartment bombings - which the Kremlin blamed on Chechen 
rebels - killed 300 Russians last year, the situation of Moscow's estimated 
100,000 Chechen residents has become dire. Moscow's populist Mayor Yuri 
Luzhkov last year decreed that all Chechens over the age of 14 must 
"reregister." Many Chechens complain the procedure, which involves 
fingerprinting, mug shots, and interrogation, is onerous and humiliating. 

Lack of cooperation can result in withdrawal of all municipal services, 
including schooling. The process must be repeated for the entire family if it 
takes in houseguests, such as refugees from ongoing fighting in Chechnya. 

"Even Chechens who have lived in Moscow for decades are viewed as a kind of 
fifth column within our Russian community, and treated as such," says Yevgeny 
Ikhlov, a spokesman for Human Rights, an independent Moscow-based monitoring 
group. "It leads to an inhuman paradox, in which we bomb the Chechens to 
teach them they must remain in Russia, and then persecute them when they flee 
to Moscow seeking the protections of Russian citizenship." 

It is also illegal, say some lawyers. In 1996, Russia's Constitutional Court 
ruled that "registration" must involve nothing more than a citizen 
voluntarily informing authorities of his chosen place of residence. "Instead 
we see an obligatory registration system being enforced in Moscow, and 
absolutely unacceptable measures being applied against Chechens," says Yelena 
Dorovskikh, a leading constitutional expert with the official Institute of 
State and Law in Moscow. "I must stress that this is not a problem with 
Russian law, but with its implementation." 

Moscow authorities say the tough registration is needed to weed out criminals 
and potential terrorists. "This system aids police in carrying out criminal 
investigations, checking the backgrounds of migrants who come into Moscow, 
and ensuring general order," says Vladimir Zubkov, deputy head of the Moscow 
police force's information department. "It is for the benefit of all 
law-abiding people." 

Last week, Georgi Poltavchenko, the presidentially-appointed governor-general 
for the zone that includes Moscow, weighed in with Kremlin support. 
"Abolition of the registration system would violate the human rights of the 
8.5 million Muscovites who built this city," he told a press conference. 

Albina Simonova, a lawyer for Civil Assistance, believes justice will 
eventually be won in the courts. Next week, she will bring the case of Vahid 
Mimbulatov, a Moscow Chechen who refused to submit to police fingerprinting, 
then found his two children barred from enrolling in school. 

Police word vs. defendant's 

"The main problem in these cases is that police never provide written records 
of their actions, so it's always their word against a Chechen defendant," 
says Ms. Simonova. "I wish more Chechens would come forward." 

Abdullah Khamzayev, a Chechen lawyer and 40-year resident of Moscow, says 
it's not surprising that most Chechens have little faith in the system. "Even 
I am afraid of the state, so imagine how people who are fleeing the bombings 
in Chechnya must feel." 

Mr. Khamzayev, a justice ministry official in Soviet times, says his worst 
experience came after a bomb exploded in Pushkin Square in August, killing 16 
people. A few days later, three burly plainclothes officers came to his door 
demanding to be let in for a "security check." Since they showed no warrant, 
he phoned the district police chief, a longtime friend. 

"The police chief came and told them, 'Mr. Khamzayev is a very respected man 
in this community.' They answered, 'He may be respected here, but perhaps 
he's a completely different person on Pushkin Square.' He says the men 
eventually went away and didn't return. 

Police investigators now believe the blast may have been the result of a gang 
war between Russian mafia groups. 

"I will not say that Russia is a bad or uncivilized place," Khamzayev says. 
"But these abuses are poisoning the country.... The sad fact is that some 
people working in the police here know less about the law than I, a Muslim, 
know about Catholic Church theology." 


October 27, 2000
Russia: Increasing the Risk of Investing in Russian Companies

Russia’s Duma may pass legislation redefining the influence Western banks
have over the market of Russian companies’ stock on the New York Stock
Exchange. Western banks have nominal ownership over issued foreign stocks,
allowing them to influence Russian business practices to a certain degree.
The new legislation would curb that influence, which could present a risk
to foreign shareholders. 

Russia’s Federal Commission for the Securities Markets is pressing the Duma
to amend legislation that governs issues of American Depository Receipts
(ADRs) to Western banks. These amendments would limit the power depository
banks have over the ADR market, but could increase the risks for foreign
shareholders trading Russian stocks. 

Foreign companies cannot offer stock directly on the NYSE, so they place a
portion of their shares into a Western bank’s holding. The Western bank,
now the depository bank, holds these shares on behalf of each company and
issues certificates, or receipts, on these shares as ADRs. 

Under current Russian legislation, the depository bank is the nominal
holder and owner of the originally issued block of shares. This nominal
ownership clouds an otherwise transparent foreign market in which Russian
companies could know who the actual registered shareholders of the reissued
ADRs actually are. 

The new legislation would annul the terms of nominal ownership, enabling
Russian companies to account for their registered shareholders. This,
however, would limit the power depository banks have over the market. With
no controlling body to interfere in company actions, Russian businesses
have the tendency to engage in corrupt practices. The new legislation,
therefore, would increase the risk for American investors trading Russian

The Bank of New York (BoNY) has threatened to abandon Russia’s market if
the legislation passes, according to an Oct. 20 Banking and Stock Exchange
report. As a depository bank, The Bank of New York has considerable power
and influence over the ADR market. It controls over an estimated $1.5
billion in ADRs with a daily turnover of $20 million to $50 million,
reported the Banking and Stock Exchange. BoNY also holds a monopoly over
Russian ADRs, though the bank will not confirm this quantitatively. But, in
these facts alone, it largely controls the reissue of ADRs to American
shareholders, which gives the bank power to influence the daily turnover of
Russian stock. 

Apart from the power of reissue, depository banks control the market
through nominal ownership of ADRs. These banks can discourage shareholders
from trading ADRs, refuse to reissue the stock, or arrest trading of
Russia’s ADRs altogether. Because Russian legislation does not provide for
registered shareholder accountability, the Russian companies cannot appeal
to shareholders to resume trading, but must appeal directly to depository
banks. Therefore, the bank somewhat controls the market and influences the
companies that originally issued the stock.

In addition, nominal ownership allows the banks to influence Russian
companies internally. Under Russian law, foreign ADR holders do not hold
any voting rights. Shareholders can circumvent this law by turning over
their voting rights to companies’ boards of directors who then vote on
behalf of shareholders. BoNY, as a nominal owner of blocks of issued stock,
has the power to turn over the collective voting rights on behalf of the
bank, though not necessarily on behalf of shareholders. 

Given depository banks’ control, Russian companies have to be somewhat
transparent if they expect active and fair trading of ADRs on the NYSE. If
the bank determines a company is corrupt or shady, it can use the levers it
has over the company to hinder ADR trade. Diminished ADR trade will limit
the amount of foreign revenue a company earns through foreign stock
exchange, which typically is more lucrative than domestic exchange. 

If the depository banks lose nominal ownership of ADR issues, then they
lose many of the levers they hold over the market and the Russian
companies. The technical duties would remain the same; they would still act
as depository banks and still reissue stock to shareholders. However, the
Russian companies would know the details of their registered shareholders
and would be accountable to them, not to the banks. The depository bank
would lose the power to act as if it were a shareholder in control of
trading a large block of Russian stock. 

Market influence provided by depository banks provides Russian companies
with an incentive to be somewhat honest. Russia’s oligarchs, known for
corrupt business practices and money laundering, run many of the companies
that issue ADRs. The Bank of New York, through its levers, has the power to
intercept or prevent some of these shady practices, thus ensuring profits
and protecting individual shareholders. 

If the bank loses power as a nominal shareholder, the registered
shareholders would have considerably less market and company control acting
as individuals, rather than as a collective. Everyone would have to decide
to suspend trading, and everyone would have to hand over their ADR rights
in complete agreement for the shareholders to exert the same influence the
bank, as an owner, could exert. Given this improbability, the oligarchs
would lose the incentive to avoid shady business practices. 

Russian companies have already begun to register new shareholders, but the
banks’ market influence remains, somewhat protecting shareholders. If the
banks’ role changes, then foreign investors would run an increased risk of
investing in a Russian business ­ and the risk of corruption would likely
From: "Lawrence G. Kelley" <>
Subject: Fw: Patrick Armstrong/JRL-4599
Date: Fri, 27 Oct 2000 

Intentionally or not, Patrick Armstrong's comments in JRL-4599 represent an
attempt to extend political correctness to the realm of post-Soviet
affairs, which I, for one, emphatically reject. The supercharged,
moralistic rhetoric (Russophobe, bigotry, etc.) initiated by Anatol Lieven
and partially repeated by Mr. Armstrong only serves to incite emotions and,
implicitly, to demonstrate personal superiority. 

It is possible to deeply appreciate Russian culture; history; the current
social, financial, and medical plight of the masses; the difficulties of
establishing democratic government and an efficiently functioning market
economy after 70 years of Soviet Power; and any number of other problems
confronting Moscow yet at the same time bitingly criticize the Yeltsin and
Putin governments over their policies -- particularly in Chechnya. As
Miriam Lanskoy has pointed out, noted Russian commentators such as Pavel
Felgenhauer and Andrei Piontkovsky do so regularly and far more outspokenly
than most Western observers. But you do not need to be Russian so as to
describe, analyze, or understand Russia, the contention of some émigrés

In all likelihood, I represent a generic target of Lieven and Armstrong's
criticism. I render harsh judgments on many Russian issues, particularly
concerning security affairs and foreign policy, but can (and believe that I
do) judge Moscow's behavior as objectively as my ability permits. During a
lengthy career in uniform I repeatedly jawboned with Soviet and later
Russian military authorities under tense conditions over contentious
military issues. But the forceful execution of my official duties did not
prevent me from accurately reporting on Russian positions, establishing
cordial personal relationships with counterparts, or appreciating the
conditions which they endured and results which they achieved, and I was
far from alone in this respect. 

One of our most determined GRU adversaries in the GDR in the 1980s once
grudgingly referred to me as "half Russian" -- as sincere a backhanded
tribute as I have ever received, since my family heritage is as
red-white-and-blue as it gets. But forty years' use of the language, a
couple of degrees in the area -- I wrote my AB thesis on Leskov and worked
as a student for the pre-eminent Russian cultural historian of our time
(J. H. Billington) -- study at LGU, and more contact with Russian military
personnel, equipment, and bases than most native Russians (and foreign
correspondents) will ever have, do count. 

I do NOT consider myself a Russophobe. The allegation that scathing
criticism of, say, the undisciplined, marauding Russian Army in Chechnya
without concurrent reference to other nations' misdeeds amounts to
"prejudice" -- a favorite accusation in the PC quiver, by the way -- is
presumptuous and wide of the mark. The historical relativism which
Lieven and Armstrong preach has its place, but facts are facts, and
commentators should not succumb to self-censorship because of the "Hamlet
question". A pot deserves to be called "black" independent of the
existence of other black pots at other places and other times. 

Furthermore, we are talking here about crimes committed in the years
1999-2000 by the well-educated armed forces of a country which is the
legal successor to a signatory of the major Law of War conventions of the
XX Century, a member of the Council of Europe, and a self-proclaimed heir
to the European cultural tradition. The norms elaborated by Law of War
make no allowance for a country's governmental form, and the contention by
Lieven and ra Straus that Moscow deserves a sort of special allowance for
having thrown off Communism only ten years ago has no legal weight
whatsoever. That is the case regardless of the fact that large numbers of
the boyeviki are unmitigated cutthroats guilty of inhuman crimes themselves. 

In all my contacts with Soviet and post-Soviet military personnel none has
ever indicated an awareness that legal (or moral) restrictions even exist
on the conduct of combat operations, much less that he is bound by them.
Without instruction in this area, which does not seem to occur in former
Soviet military institutions, commanders can hardly be expected to
incorporate such considerations into their orders and operations plans.
And without informed, motivated strong small-unit leadership -- a problem
with which the Russian Army continues to struggle, unsuccessfully -- the
discipline needed to focus and control the actions of subordinates will
always be lacking. 

Now, concerning Mr. Armstrong's points: 

1.) Certainly Russia is not entirely synonymous with either the USSR or
Communism, and national forms of Communism did differ (notably Tito's,
among others). But is Mr. Armstrong really attempting to deny that Moscow
(particularly in the persons of Lenin the Russian and Stalin the Russified
Georgian) defined the movement and called the shots in most of Eastern
Europe throughout most of the Cold War? In the eyes of the SED (and the
words of Egon Krenz), the GDR was nothing, if not "a child of the Soviet

2.) Russia is not the only actor in the FSU, but it most assuredly is the
largest, most powerful, most humiliated by collapse of the USSR, and most
intent on reestablishing its former greatness. Moscow inherited most of the
Soviet nomenklatura, armed forces, nuclear weapons, security organs,
natural resources (notably oil and gas), economic infrastructure, and
population, as well as a tarnished image and rapidly deteriorating
superpower status. And it has had few qualms about exercising its various
forms of muscle to achieve its goals (e.g., 14th Army in Moldova,
Grachev-Shevardnadze confrontation over Abkhazia, campaigns in Chechnya,
etc.). Pointing out such actions is a legitimate endeavor, even if Russia
is not alone in understanding the peacetime uses of military power, and
even if other forces may also be at work. Such observations simply reflect
reality; they do not indicate a Manichean world view. 

3.) It is first and foremost Russian citizens themselves who assert that
"nothing happens by accident in Russia," and the reason for this belief is
the pervasive role which intrigue and the security organs played in their
history. Little wonder that Western commentators echo (or even share)
some of their suspicions; given their firsthand experience, Russians have
developed a greater sensitivity to such machinations than the rest of us.
The Moscow rumor and speculation mill is a hard act to top. On the issue
of the Moscow bombings, the Putin government has virtually invited the
current state of affairs through highly suspicious actions, the hasty
demolition of buildings, innuendo, unsubstantiated allegations, and the
absence of an investigation with proven results. 

4.) Russian official statements are not all suspect, but you need to
consider the source. Can you tell me, for instance, of anyone who
routinely believes statements emanating from Col-Gen V. L. Manilov, First
Deputy Chief of the General Staff? The organization that provides the
forum for his colorful performances has come to be known unofficially as
"RosDezinformTsentr." Mr. Armstrong may not have experienced direct,
purposeful, lying at the hands of his own official Russian counterparts,
but I have, and I will always be wary. Certainly the absence of a free
press during Soviet times and the willingness of most Russian media today
to unquestioningly repeat government statements contribute to the problem.

5.) To a resident of a country in the Near Abroad or in much of Eastern
Europe, the issue of whether Russia is more or less imperialistic than
various Western powers in the past takes on more visceral than academic
coloration. Whatever your position may be on NATO expansion, fear of
Russian expansionism/hegemony represents the principal reason why most
former Warsaw Pact countries and some former Soviet republics, including
the Baltics, want to joint the Alliance. The only individuals who seem not
to perceive (or accept) this point, reside in Moscow. 

6.) The question of the degree of Russian resistance to change resurrects
an old historical theme -- "continuity vs. change", which used to be
considered an important analytical tool. Regrettably, in the past decade
-- perhaps encouraged by Francis Fukuyama's "The End of History" -- some
have come to believe that precedent and continuity with the past are
irrelevant considerations. To me, such thinking represents a serious
error, and I personally find Custine's observations to be instructive.
Even in an age of instant news and dynamic social upheaval, national
character remains strongly influenced by factors which change only
glacially. "Continuity" deserves its due but has often not received it. 

7.) Finally, in response to the rhetorical question about what other
country than Russia has "suffered from such a fog of unexamined assumptions
and hostilities," I would answer: Germany (both the GDR and FRG, with few
distinctions made between them), China, and the US during the Soviet
period at the hands of Moscow's historians, ideologists, journalists, and
political cartoonists. The official demonization of those countries
remained near total. 


From: "Jake Rudnitsky" <>
Subject: eXile lead/Corporate Safety Net
Date: Fri, 27 Oct 2000 

the eXile
Corporate Safety Net
By Jake Rudnitsky

Ever since the good old days of the Cold War, the US always aspired to an
ideology with which to preach to the masses in underdeveloped nations. It
was never enough to become just a colonial overlord; the US wanted to offer
a glimpse of the promise land. But, despite numerous attempts to prove
otherwise, the US hasn't been able turn capitalism (or globalism, or free
marketism) into a morally saleable missionary creed. Trying to do so has
been like trying to make Darwinism out to be a hippie philosophy where
animals help each other to keep from going extinct. Still, a series of
bullshit attempts in this direction continue to be financed by US taxpayers.

The repeated failures of traditional foreign assistance programs in Russia
and the world, such as the United States Agency for International
Development (USAID) and government-to-government cash transfers, are
relatively well documented. Much has been written about how USAID is an
impotent organization that does nothing but provide work or Americans with
useless masters degrees. Even the New York Times admits that IMF cash
transfers in 1998 simply funneled money to Russian oligarchs. However, the
US can at least feign good intentions with these programs.

Not so with the Overseas Private Investment Corporation (OPIC). Ostensibly,
OPIC is a taxpayer-backed attempt to spur private sector growth in
developing nations. In reality, it's a front to subsidize big business, and
doesn't try to show that it is anything else. In the name of fostering
private enterprise and competition, OPIC insures and doles out huge loans to
companies like Citibank, Pepsi and US Steel for the development of projects
in over 140 'risky' countries. Russia, of course, is one of those countries.

The very premise of a state agency mandated to help develop a free market is
patently absurd, of course. However, when that mandate is a thinly veiled
effort to provide big business with deals they couldn't get otherwise, this
would-be absurd element turns into a justification for genuine paranoia.

According to the OPIC handbook, its mission is "to mobilize and facilitate
the participation of US private capital and skills in the economic and
social development of... countries in transition from non market to market
economies, thereby complementing the developmental objectives of the US."
This it achieves by providing US companies with political risk insurance,
project finance and investment funds.

This means that projects too risky for commercial banks and insurers to
accept fall into OPIC's lap. Basically, its dual functions are private
investment bank and insurer. The only difference is that, as a government
agency, everything is backed up with the resources of the US government and,
ultimately, US taxpayers.

Since it was founded in 1971, OPIC has turned a profit every year, although
occasionally congress appropriates foreign aid funds to expand OPIC's
presence. It currently has reserves of over $3 billion, held in US bonds.
OPIC provides three types of political risk insurance, offering policies up
to $200 million per project. Their insurance protects against currency
inconvertibility (the inability to convert profits into dollars and transfer
them abroad), expropriation, and political violence that results in loss of

The financing arm, which was first commissioned in the mid 1980's by Reagan
and expanded tenfold by Clinton, provides both direct loans and, for loans
above $10 million, loan guarantees. Loans are distributed through investment
funds. These funds are established by an act of congress and directed by
private managers. OPIC provides a loan guarantee for half of the fund, with
the rest of the money coming from the private sector. Thus, private banks
and investment groups provide the money, but should the loan go bad, the US
will compensate half of the bill. For banks, it is the equivalent of a
K-Mart clearance sale. Twice the loan, half the risk. Loans are generally US
Government rates plus 2.5 to 5 percent; in other words, market rates.

Of course, they're not really market rates. If OPIC offered market rates,
then corporations would bypass them and go directly to private banks.
Dealing with the US government means dealing with a longer review period,
more bureaucracy and endless moralizing. The terms would be market rates in
a more stable situation, but the fact that private investors don't offer
similar loans means that the rates are actually below market and subsidized
by the US.

OPIC finances up to 50 percent of the costs needed for new projects and 75
percent of the costs for expansions of existent enterprises. Often, they
work in conjunction with other international lenders, such as the World Bank
and Export-Import Bank. OPIC loans up to $200 million per project, bringing
their maximum exposure on a single project to $400 million. Projects
receiving OPIC financing can be up to 75 percent foreign owned.

When considering investments, OPIC is mandated to consider a long list of
guidelines. They read like a multinational's web page. They can do no harm.
OPIC theoretically reviews the economic and social impact each project will
have. It should focus on the less developed areas of the country. No project
that unacceptably damages the environment should be funded.

The guidelines also insist that 30 percent of OPIC projects involve small US
businesses. But this doesn't mean mom-and-pop stores. A 'small' business
means companies with annual revenues of less than $250 million or
individuals worth less than $67 million. Thus, even the small business loans
and insurance target America's elite.

Furthermore, while 30 percent of projects are for small businesses, only a
miniscule fraction of OPIC insurance and loans are allocated to them. While
half of OPIC's 1999 projects in Russia involved small businesses, OPIC's
exposure to small businesses was one-fifth of one percent of exposure in
Russia that year. Obviously, the small business clause is nothing but a weak
nod to US rhetoric crediting America's economic success to small business.
The vast majority of OPIC money helps fat corporations get fatter. Reading
OPIC's investment lists is like looking at a page of Forbes' Fortune 500.
Caterpillar, Cargill and McDonalds all have received tens of millions of
dollars in insurance or financing in Russia alone.

OPIC is also mandated to discourage monopolies and not to enter into
projects where partners in the host country exert excessive influence on the
national government. Apparently, these considerations did not deter OPIC
from investing in the Polar Lights project that exports oil from
Ardalinskoye field in north Siberia. Polar Lights is a joint project between
Conoco and LUKoil that, at the time of the loan, was granted rights to
export 100 percent of the fields production through Russia's oil export
pipeline network, in contradiction to Russian norms which generally allow
for only 30 to 40 percent of extracts to be exported. Saying that LUKoil
does not have political swing defies metaphor. In smaller countries, large
American corporations that receive loans can dominate political decision
making in the country.

Another ostensible restriction on OPIC is that it does not finance or insure
projects that would harm US trade or take away any US jobs. OPIC claims it
has "generated $58 billion in US exports, and helped to create 237,000
American jobs." However, these statistics are impossible to confirm, as OPIC
claims the right to withhold confidential business information within the
framework of the Freedom of Information Act. This means while they provide
information on the companies and projects provided with funds, they refuse
to elaborate on what exactly the project entails or even where the site is

Still, limited evidence that OPIC does cost American jobs has been found.
According to the think tank, OPIC "insured
Kimberly-Clark in 1994, the same year that the Department of Labor certified
some 600 of the company's former U.S. employees as eligible to receive
trade-adjustment assistance because of increasing imports from the company's
overseas plants." The website lists other instances of American job losses
that are directly linked to OPIC.

In Russia, OPIC began its operations in 1992 and has committed over $3.7
billion in political risk insurance and financing since then. Currently,
OPIC provides about $810 million in insurance to 46 contracts and has loans
valued at $166 million to six projects.

After a slow spell after the 1998 crisis (OPIC only sponsored four projects
in Russia last year), investors have started expressing interest in OPIC's
help again. In July OPIC Executive Vice President Kirk Robertson visited
Moscow to investigate investment possibilities. Since the crisis, however,
OPIC has suspended insurance for currency inconvertibility and does not plan
to re-institute it in the near future. About 20 projects representing about
$2 billion in financing are being discussed currently.

In theory, the projects supported should spur investment in Russia and lead
to further development in Russia. However, a look at recipients of OPIC
money and insurance fails to illuminate how exactly that will happen.
OPIC has primarily financed energy, mining and financial services in Russia
and insured energy, junk food, telecommunications and financial services.
While individual recipients clearly benefit from the money, even OPIC
officials seem to be at a loss as to how these projects will help Russia as
a whole.

Lawrence Spinelli, OPIC's Director of Communications, first tried to explain
the benefits by describing OPIC as a market driven entity. "At the end of
the day," said Spinelli, "we don't give grants. These companies ring our
doorbell asking for assistance."

However, that doesn't justify why, say, Chase Manhattan Bank in 1996
received a $200 million loan guarantee backed by the US government. It is
nothing more than a logical tangent. Just because OPIC doesn't give grants
does not mean that the US government should risk its money securing cheap
loans for private corporations.

Spinelli's next justification was that commercial banks, even when willing
to provide loans, generally search for relatively short-term loans. OPIC,
however, offers loans that mature in up to ten years. This again dodges the
fact that the US still has no place bankrolling huge companies that want to
enter into a foreign market. These investments won't spur a grassroots
entrepreneurial surge. It is just a corporate handout. No matter what the
reasons were for Coke's need to secure $240 million in insurance for its
bottling facilities in 1996 (they got more than the $200 million cap by
distributing the money between three different bottling projects), there is
no logical reason why the solution to its problems should involve taxpayers.

The next justification of the program was that it a logical continuation of
the Marshall Plan. "At the end of the day, OPIC traces its roots to the
Marshall Plan," said Spinelli. He said "At the end of the day" at the
beginning of every other sentence. "In the forties, we quickly learned that
handing a dollar to Germany had no positive effect. What's more, it was not

There are three logical leaps in this statement: 1. that handing a dollar to
Coke does have a positive effect on Russia's overall economic prospects 2.
that somehow the Marshall Plan, in which the US injected 1.2 percent of its
GNP for five years and earnestly devoted itself to rebuilding Europe's
shattered infrastructure, is comparable to OPIC's insuring plastic bottles,
and 3. OPIC supporting a few multinationals' projects is adequate to
transform Russia into a thriving economy.

It seems like a joke to imply that insuring a few bottle processing plants,
or any of OPIC's projects in oil extraction, finance, timber or dairy
farming, is an adequate investment in Russia's infrastructure. $3.7 billion
distributed mainly in risk insurance is a pebble tossed in an ocean of need.
Russia's infrastructure needs investments in many things - decent roads, a
reliable electricity supply, modern port facilities - but few economists
list bottle-processing plants among them.

Indeed, beyond assisting individual ventures, Spinelli couldn't find any
real advantages to providing loans and insurance to OPIC's clients. "Our
projects have positive developmental effect - the creation of jobs, and that
gives workers money in their pockets," he said. Obviously, neither of these
really effect the macroeconomic situation in Russia. Furthermore, this
trickle down theory directly contradicts OPIC's claim that it will bring
about large-scale change in Russia.

He then argued that, by bringing the first foreign investment to a region,
more would follow. However, policy changes, liberal reforms and investor
confidence are what inspire foreign investment, not companies that were
given government subsidies to invest.

Finally, Spinelli offered a concrete example of how OPIC can be crucial to
attracting more investment. "Often, we will invest in the first foreign
hotel in a region, which serves as a beach head for other potential
investors," he said. Following this logic, what Russia needs is a few more
luxury hotels. Perhaps he believes that OPIC's failure to invest in any
Russian hotel projects in the last five years explains Russia's current

"The bottom line," [as opposed to the end of the day?] argued Spinelli, "is
if our clients feel they can get a better deal from a local bank, they go
there. But they can't get it." This just reiterates that OPIC does not offer
market rates, although it claims that it does. At the risk of being
repetitive, none of this justifies why the US should provide giant companies
with subsidies.
But OPIC isn't concerned with that. Since it has managed to maintain a low
profile, it doesn't need to hide the fact that it is clearly aimed at
offering government assistance to the people who need it least.

Nor is it apparently concerned with following its guidelines about
environmental impact. While Spinelli claimed that they undergo extensive
reviews of every project, he held up a Kamchatka mine project that did not
receive funding as an example.

However, according to documents leaked to the Environmental Defense Fund,
the gold mine had already received environmental clearance from OPIC. Only
after EDF mounted a campaign to stop OPIC funding did OPIC drop the project.
Soon after, the area on which the mine was to be located was designated an
official UN World Heritage Site. The company that lost the funding then
filed suit against OPIC for leading the company on. They reached an
undisclosed settlement.

The Sakhalin II offshore oilrig in Russia's far east is another example of
OPIC's dubious environmental standards. In 1997, OPIC provided a $116
million loan to Marathon Oil (wholly owned by US Steel) for a development
involving Shell Oil and Japanese companies Mitsubishi and Mitsui. The
development's predecessor, Sakhalin I, has repeatedly come under fire from
Russian environmentalists for displacing mud from drilling in Russian
territorial waters.

OPIC has also been criticized for the selection process of investment funds.
Under Bill Clinton, who has made foreign trade a pet project, the number of
investment funds increased from two to 24. Many of the managers of the new
funds were major fundraisers or donors to the Democratic Party. In 1998, the
website published an article alleging that in 1996, an
election year, the sponsors and investors in several funds had attended
White House coffees. The article said that one fund sponsor heads a
political action committee that contributed more than $50,000 to the
Democrats in 1995 - 96.

Of particular relevance to Russia is the Central and Eastern Europe, Newly
Independent States Property Fund ($240 million), which is sponsored by
Auburndale Properties and approved on Jan. 1, 1995. Steven J. Green, a
frequent participant on former Trade Commissioner Ron Brown's trade
missions, heads Auburndale. According to a 1995 Business Week article,
Brown's backing won Green the lucrative contract to renovate Moscow's GUM.
Green also contributed $11,000 to the DNC and $1,000 to the Clinton/Gore
campaign in 1995-96.

Defenders of OPIC claim that since OPIC has been consistently profitable, it
can't hurt. But they're wrong. Taxpayers got soaked when the savings and
loan industry collapsed. OPIC's worldwide exposure could force the US to pay
out a huge amount of money to rich corporations.

So far, bad loans and insurance payouts have been minimal in Russia. The
Polar Lights venture mentioned above was forced to reschedule its loan
payments after poor results. But, after the Russian financial crisis, OPIC's
liabilities have remained low. According to Spinelli, during the last
several years, no insurance payments have been made, and the only financing
loss is currently in arbitration over a $5 million lost loan.

But whether or not OPIC continues to make money for the US is irrelevant.
Any way you slice it, OPIC's activities still-at the end of the day-come
down to subsidizing rich corporations under the guise of foreign aid. It is
not an investment bank, nor do these companies need help. They are already
basking in the current economic boom, and should not be provided with
cut-rate loans and cheap insurance to help them make even more money.
Investment fund managers and sponsors also make a killing through the public

Really, the worst part about OPIC is that it has the gall to claim that its
mission is to help Russia develop a free market. It is a state agency that
distorts the market by providing low rates for investors. What does that
have to do with free trade? It simply reinforces the fact that governments
exist to prop up businesses.

They don't even really try to argue that these arbitrary and isolated
investments will spur free enterprise development in Russia. Aside from a
few nods to supporting small businesses and caring for the environment, OPIC
doesn't even pretend that it is anything but an organization for corporate
welfare. And nobody really cares. Apart from an abortive attempt in the
House to eliminate OPIC funding in 1996, it goes through effortlessly every
two years, when it is subject to approval. OPIC, barring a steep losses,
will never get any press and continue to grant corporations extremely
favorable deals. Because Americans apparently only are offended by welfare
when it helps the poor.



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