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Johnson's Russia List


November 19, 2000   

This Date's Issues: 4642


Johnson's Russia List
19 November 2000

[Note from David Johnson:
1. Newsweek International: 'I Think There's Real Hope For Russia.'  New Economy guru and Internet policy chief Esther Dyson says going online may be the fallen superpower's fastest way to get back on its feet.
2. The Russia Journal: Andrei Piontkovsky, Russia's Fergana Valley crusade.
3. The Independent (UK): Patrick Cockburn, General's life of drink and guns revealed at wife's murder trial. (Rokhlin)
4. Reuters: Putin wants quick approval of new forces pact. (CFE)
5. Los Angeles Times: John Pastore and Peter Zheutlin, Seize the Moment, Ban the Bomb.
6. The Russia Journal: Vera Kuznetsova, Buy the government some washing powder. (re money laundering)
7. BBC Monitoring: Gloomy prospects for Russian economy as end of oil boom nears. (NG)
8. The Guardian (UK): How Russia's cyber crooks hack the net. In St Petersburg, modern villains don't use shotguns to rob banks. Their weapons are rebuilt computers and stolen internet accounts.
Amelia Gentleman reports from the new capital of virtual crime

Newsweek International
November 27, 2000
'I Think There's Real Hope For Russia'
New Economy guru and Internet policy chief Esther Dyson says going online
may be the fallen superpower's fastest way to get back on its feet
   Esther Dyson can boast some impressive credentials as a New Economy
guru. At 48, she has worked as a journalist, Wall Street analyst, author,
globe-trotting venture capitalist and adviser to President Bill Clinton.
   SHE'S THE HEAD of ICANN, the Internet Corporation of Assigned Names and
Numbers, the international agency charged with setting policy for the
Internet's core infrastructure. For good measure, she also heads the global
information-services company EDventure, which earlier this month hosted a
High-Tech Forum in Barcelona, an annual gathering of the international
high-tech crowd. Recently she has concentrated much of her attention on
Eastern Europe and Russia, where she has made pioneering investments in New
Economy businesses such as the Russian software company IBS. On a visit to
London she spoke to NEWSWEEK's William Underhill:
    UNDERHILL: Why the interest in Russia?
    DYSON: It's like being in love with a drug addict: I am drawn to
Russia. Also, it's sort of like the United States: it's big-and worth
fixing. It matters. And culturally the Russians are like the Americans;
they are practical-minded. [By contrast] when I go to Japan I always feel
that I have insulted someone by mistake.
    Can the Internet marketplace really help to turn the Russian economy
    On my optimistic days I would say "absolutely," and that is certainly
what I would argue to people. It won't be easy. You can't magically jump
off into cyberspace. But at the same time [Internet entrepreneurs] are
bringing with them not just technology but ways of doing business, notions
of price transparency and the idea that you ought to be able to ask a
question and get an answer. And if you have the Internet these [ideas] are
low-cost to try out. So I think there's real hope for Russia. It is going
to create a divided economy, but at least the good side will grow while the
bad side will diminish.
    Do the Russians have the skills they need?
    The education level is high and there is a huge pool of underused
talent. What Russians lack are not commercial instincts but management
experience. You can be born a capitalist but you have to be trained to be a
    You are investing in several companies in Russia. Are any of them
making money ?
    IBS [the software company] is profitable. They are the star of the
Russian market. But I have to acknowledge that they are something of an
exception. [Still] it's real; they are Russian and they are honest, and
that's pretty exciting.
    Can the Internet help to reform the local business culture, or at least
provide an alternative for people fed up with the local business culture?
    That's what's exciting. A Russian who is going to do online banking is
more likely to go to Citibank than to a Russian bank. You can have trust
online that you don't have in the local environment.
    What form of aid to Russia works best?
    I once went to visit the Russian Telecom Ministry with an official from
the U.S. government who thought we could just go and explain how
deregulation would be useful to the economy. He was sure they would see the
wisdom of this and immediately change their policies. [But] there are a lot
of people who don't want change. They may want their country to be rich and
powerful but they would rather be rich and powerful themselves.
    In the end you just want to let the market work. You want to foster
direct foreign investment. Someone who goes in [to Russia] doesn't feel
good when they give the money; they feel good when they see that the money
generates a return. And the only way it generates a return is when people
are employed, things are built and services are used.
    What can companies do?
    Putting money through some form of corporate invest-in-people program
is a lot more effective than simply donating it somewhere. There is one
scheme that I love, which is being pioneered by Ford and Delta: giving all
your employees a PC and an Internet connection. In the United States that
may not be very exciting, but it would be in Russia. It is not like just
giving people a car; giving a PC and an Internet connection says "We
respect you as an intellectual human being." And Russia is a very
education-conscious country: the way to get to people is to say "Do this
for the good of your children." If the employees don't get on the Internet
themselves, they have children who will.
    Of course, this doesn't help the poorest of the poor, but you need
someone rich to employ someone poor. You want them to be investing, not
excluding-and a PC is much more of an investment than a car.
    You are dealing with New Economy businesses around the world. Are there
universal rules ?
    What I like about this world is that you can have competing rule sets.
As long as you disclose those rules, people can decide where they want to
trade. They can choose their market.

The Russia Journal
November 18-24, 2000
SEASON OF DISCONTENT: Russia's Fergana Valley crusade
By Andrei Piontkovsky
"There is a mystical tie between Putin and the people."
- Gleb Pavlovsky
"Our people are the right sort."
- Vladimir Putin

Our TV screens have been deserted by the generals who ripped open their
Army shirts and threatened to tear off their stripes if the "traitors in
Moscow didn't let them go through to the end." The generals have already
gone through to the end - several times. And now they're talking a
different tune.

Here's the stream of consciousness of one hero of Russia: "The Army has
fulfilled its mission. There are dispersed groups of rebels still in the
mountains. The stench of corpses is ever-stronger. It's time now to
activate the law enforcement agencies." Another hero decided to leave war
behind altogether and become a regional governor instead.

The liberals have also disappeared. They didn't serve a single day in the
Army, but with solemn faces and official-patriotic dignity, they reasoned
about the renaissance of the Russian Army in Chechnya.

We have also been deserted by the spin doctors, who informed us with the
happy smiles of idiots advertising Viagra, that through the operations in
Chechnya, they finally overcame their case of Weimar syndrome and can once
again feel themselves giants of political science in a Great State.

No one today has the audacity to say that the Army is going through a
renaissance in Chechnya - it is demoralized. It's demoralizing rapidly and
irreversibly, as would any army faced with carrying out punitive functions
that are alien to its very nature. Bombardments and cleansing have turned a
local population that was ready to support us last autumn into an
absolutely hostile force, and a 100,000-strong Army group has become one
giant target.

Chechnya no longer brings political and psychological dividends; nor will
it ever again. The dividends were cashed in for all they were worth during
the elections. Confronted with its bankruptcy, the country's political
"elite," having gorged itself on the lifeblood of the country, needs new,
stronger stimulants to lift its spirits.

Before our very eyes, a new, greater myth is taking shape. We are not
fighting former tractor drivers, district Komsomol secretaries or, at best,
Soviet colonels, in Chechnya. We are fighting the Islamic Fundamentalist
International, which stretches from the Philippines to Kosovo.

This myth has begun living its own life and gathering flesh, which
threatens to rapidly become cannon fodder. With Russia's threats to bomb
Afghanistan - the meeting of Defense Minister Igor Sergeyev with Ahmad Shah
Massoud, promises of full-scale military help for the latter and plans to
broaden its military presence in Tajikistan - the country is fast spiraling
into a new, much larger, conflict than the Chechen war, without having the
slightest idea what it hopes to do.

The Fergana Valley is a powder keg lit not so much by the Taliban as by
domestic problems - poverty, youth unemployment, corruption of the secular
authorities, and ethnic and territorial conflicts over access to irrigated
land. Unfortunately, the region will remain mired in these conflicts for
decades to come. But this won't concern Russia directly unless Russia
itself sets out on a path of war first with the Taliban and then with all
the other forces in the region.

This would make Chechnya look like child's play. The methods that are the
only way we know of waging war, our racial and ideological alienation from
the local population, whom we have no solutions to offer to real problems
other than our megalomania, will quickly increase the number of armed
people ready to fight us. This could be a force of tens of millions.

No matter what legions we send, they'll dissolve in this human sea with no
frontlines, no borders, no directions. The Russian bear already has a paw
caught in the Chechen trap. It can either pull it out or cut it off. But in
the wolves' lair that is the Fergana Valley, Russia will lose its skin

But our generals, liberals and spin doctors will tell us that this is our
Eurasian Shambala - the mystical Shithouse into which our most right sort
of people is following Putin.

(Andrei Piontkovsky is director of the Center of Strategic Research.)


The Independent (UK)
19 November 2000
General's life of drink and guns revealed at wife's murder trial
By Patrick Cockburn in Moscow

A few months before Tamara Rokhlin shot dead her husband, a retired general
with political ambitions, the couple went to see the magician David
Copperfield perform at a theatre in Moscow. To help with his act Copperfield
asked if any woman in the audience had a hairpin.

Tamara jumped to her feet waving a hairpin shouting: "Take it, David!" Her
husband, Lev Rokhlin, one of the few Russian generals to emerge from Russia's
first war in Chechnya with his reputation enhanced, felt she had humiliated
him. He refused to speak to her for several days.

The quarrel was one of many between the general and his wife which culminated
in Tamara shooting him through the head in the middle of the night on 3 July
1998 as he lay in bed in his country dacha. Last week a court in Moscow
sentenced her to eight years in prison, the judge saying she was giving a
reduced sentence because of the circumstances that lay behind the killing.

At the time he died, aged 51, Lev Rokhlin was an important figure in Russian
politics. A career soldier, he had distinguished himself in Afghanistan and
Chechnya before resigning in disgust from the army in 1995.

A gruff, hefty, balding man with a slight lisp, Rokhlin entered politics as a
member of the Russian Duma. Elected as a member of the ruling party, he soon
turned against President Boris Yeltsin, denouncing him as a drunk who was
ruining the army. As a popular figure within the army, Rokhlin organised a
military protest movement whose purpose was to force Yeltsin out of office.

As Rokhlin's political fame increased his relations with Tamara deteriorated.
She told friends she had made him a general. She resented her menial position
as an army wife.

"I lived with Lev for 28 years and every morning he had clean linen and
ironed trousers to put on," she later said. "I did everything myself."

During her month-long trial Tamara came across as having a strong but
slightly hysterical character. In the years before the murder she was also
drinking heavily. Russian press reports say that she would sometimes leave
her house at 3am in a taxi in search of a drink, often carrying a pistol in
her bag. Sometimes she would show the gun to the taxi driver saying: "Just
touch me and you will see what happens to you. I'm a general's wife."

After Lev left the army, his burgeoning political career further strained
relations with Tamara. As chairman of the Duma defence committee, his
campaign to save the Russian army frightened the Kremlin. It feared his
movement might provoke a mutiny by demoralised troops, many of whom were no
longer getting their meagre salaries.

At the trial Judge Lyudmila Zhilina said there was a further reason for
Tamara's anger. The couple had a son, Igor, who suffered from a severe form
of epilepsy. Tamara felt that while the general was out making speeches in
defence of the army he was neglecting the boy.

What happened on the night of the murder is still unclear; Tamara first said
she did it and then retracted her confession.

According to most reports it was Igor's thirteenth birthday and the family
had gathered to celebrate it. Rokhlin missed the party and turned up drunk at
11pm. Four hours later, after he had gone to bed, Tamara took a pistol, one
of many guns scattered around the house, and killed him.

Conspiracy theorists speculated that Rokhlin might have been murdered because
of his political activities. Tamara told the first policemen on the scene: "I
did what I had wanted to do for a long time." She later recanted her
confession, claiming she had made it because of threats from "unknown people
in masks".

As Tamara left the Moscow court after being sentenced last week she shouted:
"I'm not guilty, people. I'm not guilty."

Earlier, speaking of her marriage to Rokhlin, she said: "In our lives
together we had had rainbows and thunderstorms, but I loved him for his good
sides and shortcomings."

She may not spend long in jail. Anatoly Pristavkin, head of the presidential
committee on pardons, said: "The president could decide that despite her
guilt [Tamara] Rokhlin is a sick, unhappy, confused person and could pardon


Putin wants quick approval of new forces pact
MOSCOW, Nov 19 (Reuters) - Russian President Vladimir Putin called on Sunday
for quick ratification of an amended Conventional Forces in Europe (CFE) pact
to take account of Russian troop concentrations in the south of the country.

In a statement marking the 10th anniversary of the signature of the original
pact, Putin said Russia's partners in western Europe had shown understanding
for Russia's need to combat what it calls international terrorism in
separatist Chechnya.

Russia, he said, was ready to respect in full the limits imposed on troop
deployments once the danger was past.

"The Russian side praises the understanding way in which our necessary
measures have been received in acting against the large-scale terrorist
aggression, which led to the temporary raising of the flank limits," Putin

"I am certain that the earliest possible entry into force of the agreement on
adjustment of the CFE Treaty will turn the treaty into an efficient
instrument for ensuring European security in the 21st century. There are no
reasons to delay ratification of the adjusted CFE Treaty."

Putin said Russian authorities were preparing to submit the amended treaty to
Russia's parliament. "We have no doubt that it will secure the support of
deputies," he said.

The signature of the CFE treaty in 1990, as the Cold War was coming to an
end, was a watershed in efforts to reduce levels of troops, tanks and other
forces deployed during the years of confrontation between NATO and the Warsaw

It was amended at a summit last year of the Organisation for Security and
Cooperation in Europe which set higher limits for Russia in its flank
regions, where it had admitted being in violation of the original provisions.

The United States praised the new treaty but said it would not ratify it
until Russia reduced its troop levels in the North Caucasus region, which
includes Chechnya.

Russia sent tens of thousands of troops to crush Chechen separatists just
over a year ago after being forced to withdraw from the region in a 1994-96
war. The Kremlin asked the West for due consideration of what it saw as
potentially explosive situations in its volatile southern regions.

Russian forces now formally control nearly all Chechen territory, though its
troops fall prey to ambushes and other attacks practically every week,
particularly in mountain areas.

"We hereby confirm Russia's commitment to all its treaty obligations,
including the flank limits, to which we will without any doubt return after
completion of the anti-terrorist operation," Putin said.

Russia also committed itself at last year's summit to cut its forces
stationed in Georgia and pull out all its troops from another former Soviet
republic, Moldova, by 2003.


Los Angeles Times
November 19, 2000
Seize the Moment, Ban the Bomb
John O. Pastore Is Secretary and Peter Zheutlin Is Associate Program Director
of International Physicians for the Prevention of Nuclear War, Which Was
Recipient of the 1985 Nobel Peace Prize

    While Americans were counting votes in Florida, Russian President
Vladimir V. Putin dropped a proverbial bombshell, likely to receive little
notice given the postelection chaos. Putin, too, is conducting a recount--of
his nuclear weapons stockpile--and the numbers aren't adding up. With
Russia's military spending down to about $5 billion per year (compared with
U.S. military spending of approximately $300 billion per year), and his
economy in tatters, Putin knows that trying to maintain nuclear parity with
the U.S. is a losing proposition.
     Today, 10 years after the end of the Cold War, the U.S. and Russia
retain tens of thousands of nuclear weapons, many of which, astonishingly,
remain on hair-trigger alert, ready to be launched on a moment's notice. So
last week, Putin went beyond previous calls for Russia and the United States
to reduce their nuclear arsenals from current levels to 1,500 warheads per
side. Without specifying a number, he said reductions could go well below
that number. The U.S. should seize the moment.
     The wrong conclusion to draw from Putin's offer is that the U.S. should
hang tough and simply wait until Russia drops out of the nuclear weapon
competition, clinging, perhaps, to a mere few hundred warheads.
     First, even with a relatively small nuclear arsenal Russia could wreak
incalculable devastation. Indeed, a 1998 New England Journal of Medicine
study by Physicians for Social Responsibility reported that just 16 warheads
fired at U.S. targets from a single Russian Delta-4 submarine could cause as
many as 6 million immediate deaths, and just as many, if not more, injuries
from radioactive fallout and other after-effects. Under what circumstances
would the U.S. possibly take such a risk?
     Second, Putin's offer, even if made out of weakness, stands on its own
merits, and the U.S. should accept the challenge. Earlier this year, the
U.S., Russia and the more than 180 other nations that have signed the Nuclear
Non-Proliferation Treaty reaffirmed their obligation under the treaty to
abolish nuclear weapons, stating that elimination of nuclear weapons was "an
unequivocal undertaking." And, as recently as two weeks ago at the United
Nations, the U.S. voted in favor of a resolution that calls for complete
nuclear disarmament under international agreement. While the very last steps
in such a process are likely to be the most difficult, the U.S. can quickly
move the world in that direction by reaching agreement with Russia to reduce
nuclear arsenals to a few hundred.
     Third, the world's last, best hope of preventing the further spread of
nuclear weapons lies in rapid progress toward a global ban on nuclear
weapons. Ambassador Richard Butler, the Australian diplomat once charged with
overseeing U.N. inspections of Iraq's nuclear weapons program, recently
stated in Boston that all of his experience leads to the conclusion that as
long as any nation has nuclear weapons, others will seek them. Jonathan
Schell, writing recently in Foreign Affairs, described the status quo this
way: "The current American policy is to try to stop proliferation while
simultaneously continuing to hold on to its own nuclear arsenal
     Under an international ban on nuclear weapons there is, of course,
always the risk that a nation might cheat. However, the risks of defying the
international norm would be great for a such a state, far greater than in a
world where the international norm is a world divided between nuclear "haves"
and "have-nots." Indeed, in a world where the current nuclear powers had
agreed to abolish their nuclear arsenals, there would be great unity of
purpose in stopping would-be proliferators, and ample conventional military
power to enforce the international norm.
     No treaty is perfect and all entail risks. A treaty banning nuclear
weapons would be no exception. But which is the greater risk: to live
indefinitely in a world where thousands of nuclear weapons are on
hair-trigger alert and more and more nations seek nuclear weapons, or a world
in which an outlaw nation may try to harbor a bomb in the basement?
     Putin has put before the U.S. a bold proposal to significantly reduce
the risk of nuclear war. The next U.S. president should say "da." It's time
to ban the bomb.


The Russia Journal
November 18-24, 2000
Buy the government some washing powder
By Vera Kuznetsova  
The West wants Russia to clean up its money-laundering problem. This is a
fundamental issue that comes up at all negotiations with international
financial organizations, especially with the International Monetary Fund.
President Vladimir Putin, incidentally, promised his Western partners that
Russia would pass a new law specifically dealing with the matter.

True, no one has yet given serious thought to just how the law will look
and how it will fit in with the Constitution. Some State Duma (lower house
of parliment) deputies put forward a couple of absurd draft laws to "fight
criminal money," but they were rejected by their colleagues.

Now, government officials have taken up the cause. The Interior Ministry
has drafted a law to combat money laundering, which will soon be submitted
to the government. But the bill has already come in for some criticism from
other ministries and government agencies. The Finance Ministry, in
particular, has come out against it.

The draft law proposes mandatory control over all transactions and
financial operations above $23,500. This would paralyze business life in
Russia. The draft law does away with anonymity as a concept. All
transactions involving the following deposits would be subject to control:
placing money in deposit in the name of the bearer; opening accounts in
travelers checks; transferring money to an anonymous owner.

Transactions made by legal entities from accounts that have not been active
longer than a month would also be subject to mandatory control. In this
way, the fight against "one-day" companies, a praiseworthy aim, is
transformed into total suspicion of any new company until it makes it past
the one-month threshold.

Operations involving cash also come under control, if the transaction from
the account of a legal entity is not directly linked to its commercial
activities. Payments received by check will be examined if made by a
nonresident, or if declared as winnings. So will the exchange of banknotes
from one denomination to another. Loans and the registration of
transactions will also be controlled.

As if this wasn't enough already, the Interior Ministry officials who
drafted the bill added at the end a last little article - all transactions
involving fixed and movable assets, that is, everything.

In the minds of the law's authors, measures to combat money-laundering
should not just include mandatory control, but also non-mandatory control.
What this means in practice is that banks and other financial organizations
would be told to keep a watch for all "complicated, unusual or large
financial operations" and to "make note of suspicious transactions."

The Interior Ministry ideologues didn't bother defining exactly what they
understood by "suspicious transactions," probably so as not to overburden
their government colleagues with too much reading.

This "police" project would simply do away with the whole idea of banking
and commercial secrets.

It encourages financial and credit organizations to keep watch on their
clients and strictly prohibits clients from being informed about the
various "preventive measures" that could be applied to them.

Moreover, if businesses were to refuse cooperation with law enforcement
agencies, they face having their licenses revoked.

Those who agree to denounce their clients would be encouraged by the fact
that they wouldn't be held liable in cases where their information caused
losses for business.

For government officials, on the other hand, the database they would put
together in the Interior Ministry would open the door to numerous business

The Interior Ministry draft law makes it compulsory for credit and
financial organizations to supply their information to the Interior
Ministry's Interministerial Center.

Thanks to this new official business called "fighting money laundering,"
Interior Minister Vladimir Rushailo could open a second diamond fund.

If this draconian draft law comes into effect, it would have only one
result - business would either go underground, or would begin to feed
corrupt officials even more than it does now.

None of this would bring more money into the state coffers; Western
partners wouldn't sleep any better, and even the most honest, conscientious
financial organizations would start to fear the police.

(Vera Kuznetsova is a member of the governmental and presidential press
pools and a longtime observer of the Russian political scene.)

BBC Monitoring
Gloomy prospects for Russian economy as end of oil boom nears
Source: 'Nezavisimaya Gazeta', Moscow, in Russian 17 Nov 00

All Russia's economic successes and political achievements over the past 18
months became possible thanks to unprecedented world oil prices, but all this
prosperity could collapse in a moment, according to the 'Nezavisimaya Gazeta'
newspaper. Almost one-third of the Russian budget is formed through revenue
from oil and gas. The lack of any remotely coherent economic policy under the
obvious oil prosperity has led to a situation where Russia is now unable to
control or influence its own economy. "The country's leadership faces a
choice: What must be changed? First of all, we must change the government",
the paper says. Security Council Secretary Sergey Ivanov is named as the most
likely candidate to replace Mikhail Kasyanov as prime minister. The following
is the text of the article published on 17th November. Subheadings have been
inserted editorially.

Russia's economic elite is in a state of semi-fainting. Their hands go cold
and their eyes darken just at the mention of a possible fall in world oil
prices. If oil prices fall to their level of two years ago, it could well
come to pass that the events of the unforgettable August of 1998 will be
repeated in Russia.

The oil banquet is coming to an end

All Russia's economic successes and political achievements over the last 18
months became possible thanks to the unexpected and unprecedented flow of oil
dollars into the country. Expensive oil allowed the authorities to show off:
to increase pensions and wages, to pay off foreign debts, to conduct
political reforms, and to be proud, proud and proud again of the balanced
budget. At the same time, they could allow themselves not to putter in the
economic mud, that is to say, not to tackle structural reforms, not to force
the adoption of economic laws and not to engage in planning the development
of the country's economy at all. Why think about the future when your pockets
are stuffed with dollars?

But all this prosperity could collapse in a moment. The OPEC leadership's
words on Monday [13th November] about an upcoming sharp drop in oil prices
resounded like thunder in a clear sky. The economic ministers clutched their
hearts: almost one-third of the Russian budget is formed through revenue from
oil and gas (it gets 7bn dollars in the form of taxes on oil and gas; 3.5bn
dollars in the form of customs duties on oil export; and another 0.5bn
dollars in the form of duties on gas). If world oil prices fall from their
current 30-35 dollars a barrel to 15 dollars, the budget will have a
shortfall of around 3bn dollars from the customs alone. If the price falls to
10 dollars (as it was two years ago), it will be possible to give up on the
duties entirely.

That is to say, in the most unfavourable oil scenario, various estimates say
the 2001 budget could have a shortfall of 6-7bn dollars. In this case, Russia
will have to remember the sweet word "sequestration" with all the
consequences that follow from it, a deterioration of the social sector and
then political cataclysms too.

IMF wants Russia to settle its debt

But that is not all. Although we can at least in some way fight the
consequences of a fall in oil prices, for instance, by non-market measures
(confiscating the oil revenue that is left or damn well nationalizing the oil
sector - the relevant nationalization bill is already ready), a trick like
this will not work with the International Monetary Fund or the Paris Club.
The IMF experts who have been working in Moscow this week have given the
Russian government to understand that the IMF does not intend to allocate our
country 1.7bn-dollars worth of loans in 2001. But this money has already been
entered into the revenue side of the budget. The IMF's rigidity automatically
entails a refusal by the Paris Club to restructure Russian foreign debt.
Experts have remarked not without malice that things are so good in the
Russian economy that it should settle its accounts. This means the government
will have to stump up another 3.5bn dollars that has not been covered by
budget revenue. Such conduct by the international finance organizations means
that the budget's debt losses will exceed 5bn dollars next year.

In other words, the most pessimistic scenario for the development of the
economy in 2001 reads that federal budget losses could come to 12bn dollars
(this amount is formed from 7bn dollars of oil losses and 5bn dollars of debt
losses). Twelve billion dollars - that is the price that Russia will pay for
[Minister of Economic Development and Trade] German Gref's philosophical
merry-making in Aleksandr House, for the deputies' fight for the mythical
"additional" billions of dollars of budget revenue, and for the general
economic impotence of the president's consultants and advisers.

Russia unable to control or influence its economy

But that is still not all. The lack of any remotely coherent economic policy
under the obvious oil prosperity has led to a situation where Russia is now
unable to control or influence its own economy. That is to say, the economy
is controlled exclusively by external factors: The prices of oil and other
raw materials, stock exchange indices in the United States and throughout the
world, and whatever else you like, just not by our own government. It is
startling but even the extraordinary occurrence of the drawn-out election in
the United States has led to capital flowing out from the Russian stock
exchange (as in any political deterioration, US funds immediately cut their
fund limits for working with Russian companies). Meanwhile, a storm warning
has been announced in the world economy. The entire Western press is full of
pessimistic forecasts about the possibility of a sharp slowdown in economic
growth in developed countries, especially in the United States. This could
have the consequence of a global economic recession from which Russia will
have nowhere to hide.

What must be changed? Government must be changed

All these three factors - a fall in oil prices, the noose of debt, and
Russia's lack of protection from a possible world crisis - require immediate
and decisive actions from the authorities. As always, (if it, of course,
realizes the looming threat) the country's leadership faces a choice: What
must be changed? First of all, of course, we must change the government, the
passivity of which is comparable only with the eastern contemplativeness of
[former Prime Minister Yevgeniy] Primakov's cabinet. Rumours of possible
cadre reshuffles in the Cabinet of Ministers have been circulating for a long
time, as have rumours of the president being dissatisfied with the work of
his economic team. But the economic facts cited above prove the inevitability
of the resignation of Kasyanov's team much more powerfully than any rumours.

Russian liberals have a bad credit record

But with whom to replace Kasyanov? As always in domestic politics, this
question turns into an insoluble dilemma. On one hand, it would not be bad to
replace Kasyanov's cabinet with a team of liberal economists capable of
conducting economic reforms over a brief time frame with the same energy as
the presidential administration did very recently in the political sphere.
But where to find these economists who are liberal and energetic to boot?
Indeed, shouldn't we invite them from Chile or Argentina? Russian liberals
have a bad credit history with the economy (over the seven years they have
been in power, they have developed only two prescriptions - either to sell
everything standing to foreigners or to let everything run by itself, which
in their jargon is called "shock therapy").

State offensive into key positions in the economy

On the other hand, we could do without any economists at all, as has often
happened in Russia. And if we take a more attentive look at the political and
economic trends of recent months, we can spot the contours of the path that
the authorities are intuitively getting ready to follow. No-one is intending
to take any economists with them down this path. All the events that are to
the slightest degree significant in the country's economic life boil down to
a state offensive into key positions in the economy. Take just a few facts.
The authorities have decisively established order and taken control of all
the major export sectors, the oil and gas sector, the metallurgy sector, and
the defence sector. Undoubtedly, no property was redistributed during this,
but they achieved something greater - they got guarantees of complete
political loyalty from the presidents of the biggest corporations. What is
the economic essence of this loyalty? It is complete obedience and carrying
out the federal authorities' demands.

That is what happened to Gazprom (the company's management body chair does
not make a single important decision without agreeing it with the state);
this is what happened to all the oil companies (the state now effectively
performs the role of supreme coordinator of this sector - it divides up the
quotas and the markets and determines the balance of power between
competitors); the same is happening to metallurgy; and, finally, the state
has just literally taken arms export into its own hands. Let's summarize the
crux of the changes in big business; the former oligarchs have de facto
turned into appointees of the federal authorities while officially remaining
the proprietors of their companies.

The state is acting even more decisively in the monetary sphere. The question
of stripping the Central Bank of its independence from the executive has been
put point-blank. A troika of three major state banks controls practically
everything in the banking sector while at the same time the flow of private
banks' assets over to state banks continues. In addition, with regard to the
private banks that have survived, the state is acting by analogy with the oil
sector; these banks are effectively being run by people authorized by the
state. Thus, the authorities' current actions are largely reminiscent of the
economic policy of the Bolsheviks in the mid-1920s, which in fact explains
the Communists' current peaceable disposition with regard to the Kremlin.
That is to say, the state is taking control of the "commanding heights in the
economy" (this is Lenin if anyone has forgotten), farming out small and
medium-sized business to private traders.

As we can see, a certain system can be tracked in the authorities' actions.
If you wish, these actions can be interpreted as the preparation for a
crisis. It is funny, but from this point of view Putin's visit to Mongolia,
which had a bent towards animal husbandry, was clearly an anticrisis visit.
Indeed what diligent master does not stock up with food on the eve of hungry
times? But if we are to be serious, why change Kasyanov if the preparation to
meet a global crisis worthily is proceeding normally under him? But they will
replace him if only because it is not he who engages in changing the economic
signs and reference points but the presidential administration.

Security Council Secretary Ivanov rumoured as next prime minister

Returning to the question of Kasyanov's successor in the post of prime
minister, we would note that considering all that has been said above, he
will be a statist and a skilful inspector first and an economist only second.
Perhaps that is why the press is being so persistent in predicting Security
Council Secretary Sergey Ivanov as a candidate for this position, seeing him
as an ideal administrator of the commanding heights, in this case in the
economy. It is entirely possible that the scenario for these economic reforms
could seem excessively gloomy to some. The question could even arise as to
how this scenario corresponds to the principles of democracy and the values
of the market economy. History has already given its reply. Let's remember,
for example, President Roosevelt, Charles de Gaulle and other well-known
dirigistes who effectively set up mobilized economies. It is one thing that
such an economy can be effective for a very brief, crisis period. But then we
will have to choose - either Russia will perpetuate the mobilization path of
development or it will nevertheless try to marshal a market economy while
preserving a strong state. This choice is inevitable. We cannot soothe
ourselves with illusions that by completely dominating the economy, the
Russian state will thus forever rid itself of the crises and cataclysms
inherent in the market. The path of mobilization is sometimes a medicine but
it is a medicine that is too strong to take for a long time. Undoubtedly, the
market economy suffers from flaws but the number of its flaws is much less
than in any other economic arrangement. This centuries-old axiom no longer
requires proof.


The Guardian (UK)
19 November 2000
How Russia's cyber crooks hack the net
In St Petersburg, modern villains don't use shotguns to rob banks. Their
weapons are rebuilt computers and stolen internet accounts. Amelia Gentleman
reports from the new capital of virtual crime

It takes just four minutes to steal computer software worth 300 from the
internet, using code-cracking instructions developed by the legendary St
Petersburg hacker, Ivanopulo.

No expertise is necessary, just a relaxed attitude towards cyber ethics and a
website address - which lists 10 idiot-proof steps on how to beat the system.

After filling in false credit card details - supplied by the website - and
completing a simple series of tasks, an icon appears on the screen,
declaring: 'Thank you. Payment has been received.' Flash, a sophisticated and
expensive program devised by the American software giant Macromedia, has been
installed for free.

The website's origin is no coincidence. Russia's Tsarist capital, known
fondly by tour agencies as the Venice of the north, has a new image as a
cybercrime centre - populated not only by talented computer programmers, but
also by expert hackers.

At the heart of the Microsoft computer scam which so unsettled the computer
world last month was an email address traced back to St Petersburg. According
to information leaked from Microsoft's Redmond headquarters, hackers broke
through the company's much-hyped defence system into its network, where they
may have stolen blueprints to the latest version of Windows software.
Security employees discovered that classified information and passwords were
being sent from the company's network in America to an email account in St

Some experts have suggested that this was just the first in a chain of
addresses routing the information around the world - a red herring, designed
to confuse. But local computer programmers concede wearily that individuals
in the city are very likely to have been involved.

As well-hidden and silent as the Soviet dissident culture, the city's
underground hacking movement has the same sense of furtive anarchy but is
guided by very different ideals. If there is any element of protest, it is
against big business capitalism. For most, however, this is purely an
obsessive, life-consuming game.

Young, male, unemployed and self-taught, Slava fits a stereotype model of a
khakker (the Russified version of the word). For the past three years - since
a snowboarding accident left him unable to walk - he has spent every night in
front of his computer, devoting 15-hour stretches to perfecting advanced
programming and exploring the remotest regions of the internet.

In his cramped bedroom in the city's northern tower block suburbs (papered
with posters of pouting Celine Dion and dancing Spice Girls) an ageing
computer stands on a shelf hammered to the wall. Bits of the machine have
been unscrewed and put back together with different parts; the front panel of
the disc drive is missing, exposing the inner workings. These changes have
been made to refine its efficiency and, loaded with all the latest software
(illicitly obtained), the computer works smoothly.

Slava, 24, who for the purposes of anonymity prefers to go by his email name
Dr Lynux, cannot afford the $50 monthly internet account subscription fees;
instead he knows how to get access for free.

To the uninitiated, the process is bemusing - although he insists he could
teach anyone the basic principles of his trade in just a few hours. His
system is based on an error written into a computer programme used by
millions around the world. When individuals log on to the internet they are
given the option to save their log-on name and password; those who accept
this option become vulnerable to intrusion from people like Slava, who break
into their system, note down their passwords and use their account as a free
gateway to the internet. Recently he has been using an account belonging to a
man called Asaf Danziger (log-in 'cybro', password 'szutgyi') who he thinks
may be from France.

He has to find a new identity every few days to avoid detection. 'It's a
sport. I hack to get on to the internet which otherwise I wouldn't be able to
afford. I'd guess about 40 per cent of young Russian internet users are doing
the same. If you are living on a student grant of around 80 roubles a month
(2), you can't afford to subscribe. And it's so easy to do.'

In 1997 America Online and Compuserve were driven out of Russia because
widespread use of stolen passwords was making their operations unsustainable.
The new police department opened to deal with hi-tech crime (known as
Directorate R) says this remains the most widespread form of cyber-crime in

A strictly small-time hacker, Slava has developed a firm code of ethics. 'I
think there is a moral line between stealing internet access and stealing
anything else. I would never steal from a Russian computer user - who has
paid hard-earned money to get access. I try to go through western companies
with multi-user accounts.'

Given basic instruction by friends in the city, he has already trained
several disciples - initially in his own room, and later through classes on
the internet. The web has dozens of cyrillic script sites, giving tips for
beginners. Many like (which gets around 3,000 hits a day) claim
euphemistically to be offering computer security advice - providing tips on
how to protect systems from intruders - but the line between guidance on
defence and attack is almost invisible.

Although he denies involvement, Slava admits that there are pirating teams
based in St Petersburg, like the United Crackers League, which get together
to orchestrate joint attacks on specific websites. 'It's easier with a team.
If there are a lot of you then the server administrator will find it much
harder to discover the source of the problem,' he said. St Petersburg teams
took part in a Serbian-initiated attack on Nato and US government web sites
during its bombardment of Belgrade - inundating the Nato web page with more
junk emails than it could cope with.

There are no statistics on this silent brotherhood. Traditionally a
scientific centre, excelling in mathematics and physics, over the past 20
years the city's scientists have flocked to computer programming, one of the
few spheres where there is money to be made. Some 17 per cent of Russia's
four million odd internet users are based in St Petersburg.

International companies like Motorola have based large programming operations
in the city, attracted by the high intensity of expertise. Such a pocket of
knowledge inevitably brings with it a greater number of people using their
skills in unconventional ways.

Despite the new Directorate R, police are still struggling to deal with what
they say is a growing crime; officials believe that up to 95 per cent of
computer-related crimes in Russia go undetected.

St Petersburg's reputation for cybercrime was forged in 1994 when Vladimir
Levin discovered a way of breaking into Citibank's computer database, noted
down the passwords and codes of clients and stole $12 million from a variety
of branches around the world - transferring his spoils to bank accounts in
Germany, Finland, Switzerland, California, Israel and the Netherlands.

His cash-collecting accomplices had only managed to withdraw $400,000 before
the scam was uncovered - but the heist, the first major bank raid over the
internet, caused international anxiety and was dubbed 'the defining crime of
the cyberspace age'. 'Forget about piling into banks with a stocking mask and
shotgun, the big money is numbers in a database,' an American official

After a major Interpol investigation, Levin was arrested and later extradited
to America where he was tried and imprisoned; his sentence runs until 2001.
Until his imprisonment, Levin, a slight, nerdish figure, who was 27 at the
time of the crime, had never even set foot in America. He had conducted the
entire operation from his St Petersburg flat.

St Petersburg's new image prompts outraged denials from its computing
professionals and a certain quiet pride from its hackers.

Daniil Dougaev, editor of internet-ru, a news site based in the city,
commented: 'This obsession with Russian hackers is a throwback to a cold war
mentality and a time when the West was paranoid about everyone and everything
in this country.'

Peter Zegzhda, director of the department of computer security at St
Petersburg's highly-regarded Technical University, added: 'I categorically
deny that this is a peculiarly Russian characteristic. It is an international

Nevertheless he conceded that the education system created by the Soviet
Union was still turning out computer specialists of a far higher quality than
any other country, and admitted that the greater the number of experts, the
greater the chance that a few criminals would be hidden among their numbers.

Training of the city's future computing geniuses begins at a tender age. In
the beautifully restored 18th century Anichkov Palace, a former Tsarist
residence overlooking the Fontanka river, about 1,200 children, some as young
as six, spend their weekday evenings studying computer programming. This
state-funded intensive teaching programme is one of the successes of the
Soviet system. After the revolution the palace was transformed into an
educational youth club for the Soviet Pioneers; roundabouts and climbing
frames shaped like giant crocodiles were set up in the Tsarist ballrooms,
classrooms appeared in the dining-rooms.

Renamed the House of Youthful Creation, the computing department is
particularly strong. Year after year students from the St Petersburg
Institute of Fine Mechanics and Optics and from the mathematics faculty of
the rival St Petersburg State University - most of them graduates from the
Anichkov Palace - make it to the top of international computer programming

'There is a concentration of talent here unlike anywhere else in the world,'
said computing professor, Vladimir Parfenov. He argued that the city's
hackers were not produced by this elite system. With high-paid employment
almost guaranteed, the legitimate rewards waiting for those who make it to
the end of the course are so great that there is no need to indulge in
high-risk cybercrime.

One of Russia's most notorious hackers, a talented young music student,
recently released after serving a year in prison - accused of stealing
$97,000 over the internet - said he believed an atmosphere of moral
relativism in the post-Soviet era might be contributing to the cybercrime

Reports of massive financial fraud at the highest level of government helped
foster a relaxed attitude towards this kind of crime, he said. 'People who
commit financial crime here are not always condemned by society. In any case
hackers have their own values. This is a virtual world where morality and
ethics are slightly different.'

A spokesman from Directorate R added: 'Cybercrime involves neither blood nor
cruelty, but it provides people with an opportunity to earn money. A lot of
people delude themselves that this is not a serious crime.'

The Federal Security Service (the FSB, a descendent of the KGB) is in the
process of instituting legislation that will allow the government to monitor
electronic mail, credit card transactions and web traffic live, without
having to apply for a warrant. SORM (System of Ensuring Investigative
Activity) requires internet service providers - at their own cost - to
install a black box device in their system and also construct a communication
link to funnel data from the providers to the FSB.Service providers complain
that they are being asked by to pay for a system which allows the state to
spy on their clients.


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