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Johnson's Russia List


December 4, 2000   

This Date's Issues:   4668


Johnson's Russia List
4 December 2000

[Note from David Johnson:
1. Reuters: Russia's rights boss urges more protection, debate.
2. Reuters: Russian communists stick with Zyuganov as leader.
3. Christian Science Monitor: Fred Weir, The troubled 'conscience' of Russia.
4. The Russia Journal: French general, Russian colonel. Collapsing empires usually come smashing down on former subjects. Armed with this insight, Andrei Piontkovsky explains how Putinís use of Chechen separatism was foreshadowed by De Gaulleís descent into Algiers.
FEVER. But IMF Is Not About to Help.

6. The Electronic Telegraph (UK): Guy Chazan, Russian Jews face new wave of race hatred.
7. Reuters: We are dying in poverty, say Chernobyl victims.
9. Wall Street Journal: Alan Cullison, Despite Putin's Fiscal Reforms Investors Are Still Leery of Russia.]


Russia's rights boss urges more protection, debate

MOSCOW, Dec 4 (Reuters) - Russia paid tribute to victims of political 
repression on Monday as the country's human rights chief called for more 
action in recognising and protecting people's rights. 

A small crowd, joined by Russia's Human Rights Commissioner Oleg Mironov, 
gathered in central Moscow to lay red and white flowers on a monument created 
in memory of those who suffered political repression. 

"I hope that such a time will come when on (this occasion) every year the 
president of our country will stand before the population and talk about the 
problems of human rights and about how to protect them," Mironov told 

Mironov, a former Communist lawmaker, laid several red roses on the monument 
-- a large rock mounted on a marble plinth -- and then stood for a few 
moments with his eyes closed and head bowed in front of it. 

He also chatted to some of the 40-odd people gathered at the monument. 

The memorial rock stands on the site of what was once a monument to Felix 
Dzerzhinsky, the founder of the Soviet Union's feared secret police. Behind 
the monument looms Lubyanka -- the headquarters of the former KGB. 

Dzerzhinsky's statue was toppled by jubilant crowds in 1991 after a failed 
coup by Communist hardliners, a move considered a watershed in the 
dismantling of 70 years of totalitarian Soviet rule. 

Leftist factions in the State Duma lower house of parliament are pushing for 
the statue to be returned to its original site. 

Dzerzhinsky founded the Bolshevik "Cheka" police, which ruthlessly eliminated 
political opponents and established a tradition of repression leading 
ultimately to the KGB and its network of labour camps in which million died. 

President Vladimir Putin has recently given the go-ahead for deeper probes 
into Stalin-era political repression. 

Alexander Yakovlev, head of the investigating commission, has said Russia 
might soon officially acknowledge that Swedish diplomat Raoul Wallenberg, who 
used his connections to save thousands of Jews during World War Two, died in 
the Gulag camps. 

"Our task now is to help people," Mironov said. 

"Unfortunately in Russia there are millions and millions of deprived people." 


Russian communists stick with Zyuganov as leader
By Ron Popeski

MOSCOW, Dec 3 (Reuters) - Russia's Communist Party, which has been pushed 
increasingly into the back seat in recent months, stuck with a known quantity 
on Sunday, re-electing as its leader two-times presidential loser Gennady 

The party, which ruled every aspect of public life in Soviet times with 18 
million members, remains the largest group in parliament, but has found 
itself on the outside of policymaking and plush government jobs in the past 

Zyuganov and other leaders declared at a weekend congress that the party, now 
listing 547,000 members, was ready to lead active opposition to the policies 
of President Vladimir Putin. 

Its structures remain well entrenched in many regions of the world's largest 
country. Communist candidates were well placed to win several key local 
elections taking place on Sunday. 

Zyuganov told delegates in the glittering Hall of Columns in Moscow's House 
of Unions that the party would confront Putin's vision of Russia after 
initially giving him a chance after he replaced Boris Yeltsin -- an 
implacable foe of the communists. 

"Taking account of the expectations which...were inspired by the new 
president, the party chose to adopt a restrained approach with regard to 
Putin. Let him prove the seriousness of his intentions," he said. 

"However, Putin has now been in power for over a year, and it must be said 
that the hopes of the Russian people for a change in the course of state 
policy have not been justified." 

He recited a long list of policies which Communists found objectionable -- 
discussion of legislation on land sales, budget plans ignoring social issues 
and proposals to cut the armed forces and cooperate with NATO. 

"We are a responsible opposition," he said. "We will continue to have a 
dialogue with authorities. But we absolutely cannot accept policies which are 
destructive for the country." 

The stolid but affable Zyuganov lost the 1996 presidential election to 
Yeltsin, who was backed by a powerful group of business and media interests. 


He came a distant second to Putin last March, but the party has concluded 
tacit deals with parties close to authorities, reducing opposition in the 
State Duma lower house to the Kremlin. Putin has had little difficulty 
ramming vital pieces of legislation through the chamber. 

The Communists even invited Putin to attend their weekend congress -- an 
unthinkable gesture under Yeltsin. The president failed to turn up but did 
send greetings. 

Zyuganov's authority is generally unchallenged within the party, though the 
communist speaker of the Duma, Gennady Seleznyov, has set up a "Russia" 
movement within the party and regional leaders have developed their own power 

In Sunday's elections in 11 areas spread throughout Russia's 11 time zones, 
several regional governors were likely to win re-election. But some were not 
standing again after Putin's reform of Russia's power structures denied 
governors the right to sit in the Federation Council upper house of 

The Kremlin has been accused of trying to influence gubernatorial elections 
since the leak of a memo suggesting that Putin wanted certain governors out 
of the way. 

The removal of Kursk Governor Alexander Rutskoi from the list of candidates 
in his southern region in October on a legal technicality created a stir and 
some embarrassment when the eventual winner, a Communist, made anti-Semitic 

A similar attempt to disqualify the incumbent in the Urals region of Mari-El 
before Sunday's election failed and he is well placed to win. 

Candidates representing the Communists or backed by them were likely to do 
well in southern Krasnodar and Stavropol regions and in Ryazan and Ivanovo, 
outside Moscow. The election on the Pacific peninsula of Kamchatka was marred 
by the shooting death of a prominent lawyer as polls closed. 


Christian Science Monitor
4 December 2000
The troubled 'conscience' of Russia
By Fred Weir Special to The Christian Science Monitor 

After the economic turmoil, social disintegration, and political crises of 
the past decade, Russians are looking back at the Soviet era with ever more 
nostalgia. A recent opinion poll found more than half of those surveyed 
agreed with the statement: "Things would be better today if there had been no 
perestroika," the democratic reforms introduced by Soviet leader Mikhail 
Gorbachev and credited with bringing on the 1991 collapse of the Soviet 

"It's very difficult to prove to people today that democracy is not the cause 
of their suffering," says Konstantin Truyevtsev, deputy dean of the Higher 
School of Economics, a private Moscow university. "It is fashionable now to 
see [Soviet dictator Joseph] Stalin as the leader of a great country who 
brought us prosperity and victory, and no one wants to hear that he was a 

At a time like this, it's difficult to be the self-appointed "conscience" of 
Russia. The Andrei Sakharov Museum and Public Center, the country's only 
full-scale educational facility devoted to the horrors of Communist rule, 
nearly shut down Dec.1, due to an overwhelming lack of interest and support. 
Located in a small downtown building gifted by the city of Moscow - the only 
state support it has received - the center was started by Soviet-era 
dissidents, including Yelena Bonner, widow of the Nobel Prize-winning human 
rights activist Mr. Sakharov. The founders envisaged the center as an engine 
of change, a meeting place for human rights workers, an adviser to the 
government, and a resource for Russia's school system. The center's outspoken 
criticism of the ongoing war in Chechnya - a nearly lone voice in Russia - 
has done nothing to endear it to the government of President Vladimir Putin. 

Depending on the person you talk to, its crisis is either a normal 
development or an alarming sign. "History was an important weapon in the 
struggle against communism, but now that the danger has passed, people are 
obviously less interested," says Alexander Pesov, a Moscow historian. "The 
Sakharov museum is just a victim of Russia's success in shedding communism. 
We have capitalism and democracy now, and people have new concerns." 

Museum director Yuri Samodourov holds a different view. "Our state and 
society still don't know what they want to be," he says. "A community center 
that focuses on the history of repression and the record of resistance to 
tyranny is seen as a threat to social peace in Russia. It makes our 
authorities and many average people feel very uncomfortable." The center won 
an 11th-hour reprieve in a $3 million donation from controversial tycoon 
Boris Berezovsky, who said his gift was to protest alleged government moves 
toward authoritarianism. The center also has received aid from the US Agency 
for International Development. In fact, the US taxpayer has anted up more 
than 80 percent of operating costs for the center's archives, library, 
museum, and community outreach programs since it opened in 1996. Until Mr. 
Berezovsky's donation, just $17,000 - less than 1 percent of the center's 
total budget - had been raised from Russian sources. 

The Ministry of Culture, which funds dozens of Soviet-era museums devoted to 
Lenin and the Russian Revolution, has never offered money for any museum 
exposing the crimes of Communist regimes. 

The Ministry of Education, meanwhile, has yet to set forth clear directives 
on how to teach Soviet history. Mr. Samodourov says the Sakharov Center has 
prepared a textbook and is ready to hold seminars for history teachers, but 
is still awaiting a nod from authorities. "I do not want to live in a country 
that refuses to confess its crimes," Samodourov says. "Our government has 
never taken responsibility, never initiated a process of social repentance." 


The Russia Journal
December 3-9, 2000
French general, Russian colonel
Collapsing empires usually come smashing down on former subjects. Armed
with this insight, Andrei Piontkovsky explains how Putinís use of Chechen
separatism was foreshadowed by De Gaulleís descent into Algiers.

By the summer of 1958, the Fourth French Republic had descended into deep
crisis. The proud and very touchy French elite was devastated by the loss
of its empire and status as a global power, as well as by military defeat
in Vietnam and ever-increasing dependence on the United States. Paris was,
time and again, rocked by political and financial scandal. The Communists
garnered over 30 percent in the elections and had a sizable faction in

The last straw was when bands of criminal separatists began causing
trouble, not somewhere way out in Indochina, but in a traditionally French
stronghold Ė Algiers. This was just what the elite needed. The countryís
greatest general spun the motto "Algerie Francaise," which united France
and brought it out of crisis. The general entered Paris in triumph for the
second time in his life, and received the support of over 80 percent of
voters in a popular referendum, including former Communists, nationalists
and liberals.

As usual, the liberals were the most eloquent. Of course, they wrote, Col.
Massouís brave parachutists did go a little overboard with their cleansing
of Arab settlements, and the rape of Jamila Bukhired with a bottle was an
unfortunate incident. But most importantly, they continued, both the
country and its army were being renewed in Algiers, and only traitors could
fail to see the significance of Franceís geopolitical interests in the

Three years passed, and "the smell of dead bodies [was] getting stronger,"
as the head of operations proudly announced in his report on the militaryís
achievements. But somehow the banditsí numbers seemed to grow after each
punitive action. A member of the legion of honor put it succinctly: "We
must consider every male Algerian between the ages of 10 and 60 our enemy."
His comrade disagreed, "No, the criminalsí wives and children are our
enemies as well."

The general realized that the country was sinking ever deeper into a bloody
swamp, and that if he were to save it he would have to make a decision even
more agonizing than the one he made in June 1940. He must have been aware
that many generals and politicians would not agree with him Ė and that the
OAS would try to kill him. Nonetheless, he announced that France wanted to
sign a brave peace, and opened talks with the men who had been shooting his
soldiers and been shot by them. 

Forty years later. In snow-covered Moscow, a Russian colonel, who had come
to power under similar circumstances, uniting the nation with his famous
"weíll rub them out in the shithouse," when addressing the military. Amid
the usual mouthing about "destroying the enemy" and "cutting their throats
in their very dens," a new, surprisingly clear and politically pragmatic
idea appeared.

"We donít care about the formal status of the Chechen Republic. What
concerns us is that no one ever uses the territory as a base for launching
an attack on Russia." And further, "We will not allow anyone to pull the
country into a messy interethnic conflict." This was aimed not only at
Chechnya, but at Central Asia as well, as the presidentís close advisers
were urging him to interfere in the region to fight the Taliban.

It is likely that these ideas do not belong to Putin directly, but can
rather be attributed to a lucky speechwriter whose fragments were not
completely wiped out by ideological cleansing. But the words were read
coherently, indicating that the president understands their import. 

The reaction among Russian OAS wannabes was swift. On the same evening, a
TV midget-cannibal famous for his cry to burn Chechen cities and villages,
including schools (which arenít really schools, but breeding grounds for
future terrorists and drug dealers), rabidly rebuffed the idea that the
formal status of the Chechen Republic is not terribly important. 

For a man who would have gladly kissed up to the presidentís poodle the day
before, this was tantamount to civil disobedience. These are the true
Aryans, with no pity for the Reichís enemies. Special volunteer divisions
of them should be sent to get their share of the action in Chechnya and
Central Asia.

The midgetís despairing audacity was noticed, and it brought results. The
very next day, the presidentís spokesman on Chechnya tried to put a
different spin on Putinís words, saying that there could be no talk of
revising Chechnyaís official status.

The Russian colonel took the first step, careful and uncertain, along the
path to insight, just as one of his political idols, the great French
general did 40 years ago. And all of us, along with him, will have to
follow the path to the end.

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


From: "stanislav menshikov" <>
Date: Sun, 3 Dec 2000 

"MOSCOW TRIBUNE", 1 December 2000
But IMF Is Not About to Help
By Stanislav Menshikov

As expected, recent talks in Moscow between the IMF and the Russian
government led to nowhere. The Fund took the position that Russia, with a
large surplus both in its balance of payments and federal budget, does not
need new credits and cannot expect Paris Club debts to be restructured. It
was strange to observe that for the first time ever the Fund came up with a
more optimistic forecast for the Russian economy than that offered by
officials in Moscow. The Fund expected favourable external conditions to
continue well into 2001 while Mr. Kudrin and his colleagues did not rule
out a substantial fall in world oil prices and therefore a sharp reduction
or even total disappearance of both surpluses. The Fund wanted Moscow to
formally agree to financial targets based on its optimistic scenario, but
the Russian side was afraid it would not be able to meet them and would
therefore be subjected to new accusations of disloyalty to international

The controversy is somewhat paradoxical in view of the recent insistence by
the Fund and the US Treasury chiefs that Russia should not rely too much
on the petrodollar bonanza but needed structural reforms instead. So the
question is whether the Fund really wants: Russia to get rid of its undue
dependence on oil exports or not? 

But this is only one side of the picture. The Russian government is
currently enjoying the freedom of the relatively uncontrolled spending of
revenues that are above formally approved budget figures and amount to an
estimated 200 billion roubles this year ($7.1 billion at the current
exchange rate). The government would like to extend this privilege into the
future and needs a cautious forecast to support its position in the Duma.
Were it to agree with the IMF optimism, it would undercut its poker game in

The game is based, in part, on the widely shared but false claim that the
current economic boom in Russia is due to high world oil prices. The boom
would allegedly peter out if those prices fall below $20 per barrel and
turn into economic disaster for Russia when they reach $8 or so. Actually,
the true petrodollar story is quite different, and the sooner politicians
and the media realise this, the better.

For one, petrodollars (which come together with "gasdollars") do not
automatically translate into higher oil and gas output. This year oil
production in Russia grew by less than 5 percent, while gas output actually
fell. Energy was a drag on the 10 percent total industrial growth rather
than a stimulus. Leading today in growth rates are consumer industries,
machinery, chemicals, armaments. These industries suffer from energy
shortages and higher energy prices. Neither do booming gas and oil profits
automatically translate into larger investments in increasing energy
output. Uncertainties about future prices are keeping oil investment down.

Sure enough, high world energy prices have helped Russia raise its federal
revenues . But related data are controversial. Export duties from oil and
gas (the only direct contribution to the federal budget) amount to only 10
percent of total revenues. Taxes paid on oil and gas profits are not
exactly known. Some sources claim that these two industries account for a
third of federal revenues. But the tax collecting ministry recently
reported that 90 percent of the total increment in tax collection this year
came from outside the energy sector where growth was much faster.

It follows that a fall in world energy prices would not necessarily be
catastrophic for the Russian economy. The federal budget would loose some
revenues from export duties but could gain even more from leading growth
industries. The main sources of economic growth today are NOT EXPORTS but 
personal consumption and investment demand for domestically produced goods.
Given a stable rouble and low inflation such growth can continue even if
world prices are average or low. Domestic demand for energy is high, not
fully satisfied and will keep growing even if export earnings fall off.
Lower oil exports could also help contain domestic inflation.

The best policy for Russia is one that does not rely on the inflow of
petrodollars. Extra dollar earning are always welcome but should not serve
as a major foundation for economic prosperity. There are two ways of
reducing oil export dependence: (1) keeping a reasonable rouble exchange
rate that makes Russian producers competitive in domestic markets and
reduces demand for excessive imports; (2) stimulating growth of new export
oriented high-tech industries. The second route needs time, large
investments and a long-term government strategy to make it possible. While
such a strategy does not exist, domestic market orientation and protection
from unreasonable external incursions is the only realistic way available. 

This is probably not a solution that will create enthusiasm in the IMF and
other centres of international finance. The reaction there would most
certainly be negative. Less credits would be forthcoming. But unless Russia
chooses that alternative, it can never hope to cure itself from the
petrodollar fever.


The Electronic Telegraph (UK)
3 December 2000
Russian Jews face new wave of race hatred
By Guy Chazan in Moscow

JEWS in the western Russian city of Kursk are living in a state of fear after 
the newly-elected governor said it was time to rid Russia of Jewish "filth", 
and an official of the outgoing administration was beaten up by thugs 
shouting anti-Semitic slogans.

The remarks by the communist governor, Alexander Mikhailov, have provoked a 
political storm in Russia and aroused fears among Jewish leaders of a 
re-emergence of Soviet-style official anti-Semitism. There has also been 
dismay at the Kremlin's silence on the issue. Vladimir Putin has made no 
attempt to distance himself from Mr Mikhailov, who claimed the President 
actively supported his campaign and was an ally in his crusade against the 
"world Jewish conspiracy". 

The scandal first broke when the new governor said in a newspaper interview 
that the election marked a victory for ethnic Russians over Jews, and showed 
Russia was beginning to "liberate itself from all the filth that has piled up 
over the last 10 years". He said he had defeated not only the outgoing 
governor Alexander Rutskoi, who has a Jewish mother, but also Mr Rutskoi's 
backer, Boris Berezovsky, the businessman who is of Jewish descent, and the 
Russian Jewish Congress.

The remarks have shocked Russia's Jews who are inured to low-level bigotry 
but unused to open displays of anti-Semitism by people in government. Jews 
here have enjoyed a decade of religious freedom and civil rights long denied 
them by the Soviet communist regime. But many feel the new tolerance is only 
skin deep. Recently a Jewish school was raided by neo-Nazi vandals in the 
town of Ryazan, east of Moscow. Jewish cemeteries have been desecrated from 
Kursk to Nizhny Novgorod.

Mr Mikhailov's interview created outrage, with Mr Rutskoi threatening to sue 
for libel. A group of MPs in the Duma called on President Putin to sack the 
errant governor and even ban the Communist Party for inciting racial hatred. 
The communist leader, Gennady Zyuganov, called the governor's remarks 
"ill-considered" and told him he would be better off trying to solve the 
region's many economic problems. Mr Mikhailov was forced to issue a 
grovelling apology, saying he respected people "regardless of their 

The new governor's tirade has already succeeded in sowing panic among Kursk's 
Jews. Shortly after the election, a gang of youths claiming to be supporters 
of Mr Mikhailov attacked the local Jewish community centre, banging on the 
windows, shouting anti-Semitic slogans and jamming a log against the door. 

"Jews here are worried, especially the older ones, the Holocaust survivors," 
said Igor Bukhman, a local Jewish leader. "It's one thing to hear 
anti-Semitic comments in a shop or a bus queue, but when the governor starts 
talking like that then of course you get scared." Jewish confidence in Kursk 
was shaken by another incident last week with anti-Semitic overtones when Mr 
Rutskoi's deputy, Sergei Maksachov, was beaten up in the Kursk regional 
government building as he was handing in his resignation.

Mr Maksachov, who says his father is Jewish, claims he was kicked, beaten and 
peppered with anti-Semitic insults in a three-hour ordeal by a group of 
assailants led by a man claiming to be Kursk's new deputy governor. He was 
later taken to hospital with concussion and spinal injuries. The alleged 
attackers have been arrested, but Mr Mikhailov has denied that any of them 
occupied any post in his administration.


We are dying in poverty, say Chernobyl victims

KIEV, Dec 3 (Reuters) - Victims of the Chernobyl nuclear disaster and their 
relatives marched through the Ukrainian capital Kiev on Sunday, protesting 
that authorities were letting them die in poverty. 

Chernobyl is due to be shut down for ever in two weeks' time. Fourteen years 
after one of its reactors exploded in the world's worst peacetime nuclear 
disaster, one in sixteen Ukrainians is suffering from cancer and other 
diseases caused by radiation. 

Many victims of the disaster now rely on small state pensions for their 
livelihoods, which are often paid late or only in part. 

Waving banners saying "We protected Ukraine, now Ukraine must protect us" and 
"We are dying," around 2,000 protestors joined veterans of the Soviet Afghan 
war to mark an international day for the disabled. 

Widows wearing black shawls held up photographs of husbands who died after 
working on clean-up crews in the aftermath of the accident. They were joined 
by half a dozen children in wheelchairs whose parents had received large 
doses of radiation. 

Nina Kharchenko, bearing a portrait of her late husband Boris, said: "We want 
them (the government) to give us our dues. We have nothing to live on." 

She said a 50 percent reduction on utilities bills for Chernobyl victims and 
their relatives had been cancelled. Speakers at the protest called on the 
government to plan more generous social spending in a draft 2001 budget. 

The government has been fighting to get a lean budget approved, due to go 
before parliament for a final vote on Thursday, in an effort to persuade the 
International Monetary Fund to resume a blocked $2.6 billion lending 

Chernobyl's number four reactor exploded in 1986, sending a radioactive cloud 
across Europe which has been blamed for thousands of deaths. 

Ukraine still uses the plant's third reactor, which had to be switched off 
for most of last week when cold weather downed power lines. The reactor was 
re-started on Friday. 



Anchor: This is Marina Starostina. Our guest is Yegor Gaidar,
State Duma deputy and director of the Institute of the Economy of
the Transition Period. Yegor Timurovich, good day.

Gaidar: Good day.

Q: I believe I should begin by congratulating you upon the
tenth anniversary of your institute.

A: Thank you.

Q: Now my first question. Anatoly Chubais said that the
Russian economy is reviving, returning to life according to Gaidar
who has only one rival in history -- Karl Marx. Do you agree with
such an assessment?

A: It is extremely flattering. But I think history will put
everything in its place. Why should we give ourselves marks? 

Q: Good. Your institute is called the Institute of the
Transition Period, Economy of the Transition Period. When ... 

Gaidar: Is the transition period going to end? 

Q: Yes. 

A: You know, the transition period will end for me the moment
it will be possible to say that the Russian economy is a normal
market economy in which problems inherited for socialism are not
important problems, that it normally reacts to market signals as a
market economy should, that it can be analyzed and studied like a
normal market economy.
I regret to say that we are still far from this. It can be
said that we have gone through the first stage of the transition
period, the first stage connected with the catastrophic collapse of
the previous political and socio-economic system, with a totally
unavoidable disorganization of socio-economic life, with the slump
of production and so on. But the main tasks of the first stage
right up to the commencement of economic growth have been attained.
But we have a tremendous number of still unsolved problems
that we inherited either from socialism or from the first stage. It
is only now that they are beginning to be solved. And I fear that
this will take at least the next ten years. 

Q: Is the present economic situation in the country a cause
for optimism?

A: I think that on the whole it gives reason for optimism.
Moreover, in my opinion, the most serious grounds for optimism are
connected not so much with the favorable financial results,
something that definitely reflects the situation on the world
market, as with the creation in Russia of a critical mass of normal
market-oriented enterprises capable of producing competitive and
effective output. 
If we look at the structure of industrial growth, we will see
that it is quite broad, that it is concentrated not only in the
energy sector, that it includes a whole range of industries from
light industry to machine-building. 
You know, despite the entire importance of favorable market
factors we have reason to say that we have gone through the most
difficult period. This instills optimism.

` Q: But the President's adviser Illarionov hints that the
government failed to capitalize on the favorable conditions on the
world market. Do you agree with him? 

A: We had a rather big discussion of this at the conference
today between Andrei Illarionov and First Deputy Finance Minister
Alexei Ulyukayev. I must say that I am inclined to give the
government higher marks than Andrei Nikolayevich. But I solidarize
with him in the assessment of the risks that exist today and with
many of his proposals.
You see, economic policy is not something that you invent. It
is carried out in real life and in the context of a real political
process. When the discussions of the budget began at the Duma
Budget Committee, I strictly came out in support of those proposals
and ideas that are upheld by Andrei Illarionov. It must be realized
that today it is possible to get a Duma majority to get such a
budget adopted. Other tasks may not be attainable today. So, it is
necessary to act on the border of the possible. 
One of the important things that the government done is that
in conditions of high oil prices, a situation that inevitably makes
one lower one's guard, makes one want to live calmly and stop
locking horns with difficulties, well, in this situation the
government did start to advance on a number of key problems that
were not being solved for years. I mean the tax reforms, the
reforms of budget federalism and the military reform. All these are
key directions and each of them is political painful. You know,
when one has money and pressure has slackened one has the
temptation not to do anything of this. Yet, the government during
the past six months has managed to achieve serious progress along
these directions. 

Q: You mentioned the budget that is now being actively studied
by the Duma. What do you like and what you do not like in the

A: I like this budget for its sufficiently conservative
assessment of budget revenue. It proceeds not from the best
scenario of the development of the situation on international
markets. And I like it for being a non-deficit budget. 
What I do not like in it? I do not like the fact that the
budget is based on what I regard as an absolutely unrealistic
hypothesis of getting loans and deferments from the Paris Club. For
this reason the budget contains unrealistic sources of financing.
And this means that problems will arise in the process of the
budget's implementation. 

Q: What about the division of the additional revenue that may
be ephemeral? 

A: But it is absolutely obvious that if the present situation
remains the budget will have additional revenue.
It is another matter that we will have not only additional
revenue but also big additional spending because we will not have
a loan from the IMF and we should not expect a deferment of
payments to the Paris Club. So, the question of how the additional
revenue is going to be divided is a serious matter. It is not a
question of dividing a bearskin before the bear is shot. It
definitely will. And it is really important how the skin is going
to be divided. And it is only now that this question has been

Q: Do you agree with the way the additional revenue is going
to be spent? I think it is defense, education and science. 

Gaidar: Financing is to be increased in several areas --
defense, law enforcement, judiciary, education, science,
investments. Well, I would also increase spending on agriculture. 
If we dominated in the Duma, I would have sharply
redistributed these priorities. I would have given agriculture less
and given defense more. I would also spend more on the reform of
education. But this has always been a matter not of choice but of
the existing balance of forces and interests. 
Abstractly, everybody is for everything. You ask any faction
leader and he will tell you that he favors increased spending on
defense, education, science, culture and so on. But then his
representative comes to the Budget Committee and it turns out what
the real balance of forces is. For instance, together with YABLOKO
we actively supported increased spending on education, on
investment projects in education. And I think that we were
absolutely right. We succeeded in getting something done and we did
not succeed in getting some other things done. 

Q: Are you saying that the adoption of the budget remains a
political affair?

A: In any country the adoption of the budget is always a
political affair.

Q: I remind listeners that our guest is State Duma deputy,
Director of the Institute of the Economy of the Transition Period
Yegor Gaidar. You can send your questions to our Ekho Moskvy pager
Our relations with Byelorussia are a special theme. As is
known, Russia is prepared to give Byelorussia a very big
stabilization credit. How possible is this considering that present
situation in Russia? At present it is a favorable one but it can
change at any moment. So, can we afford to give away such money? 

A: There are two moments here and attention has already been
drawn to them. The first is the reason for which we are giving this
money. The second is how in this situation we are going to explain
ourselves to our partners in the Paris Club, to explain to them
that we have no money and for this reason cannot fulfill our debt
obligations? True, we have some extra money which we are now going
to give Byelorussia to strengthen the Byelorussian ruble. This,
frankly, will not strengthen our positions at the talks.

Q: Perhaps, we should ignore the international financial

A: The answer is a yes, if we stand on the position that
Andrei Nikolayevich Illarionov upheld today -- that in the
conditions of such a favorable market situation we should not even
raise the question of the deferment of our payments to the Paris
Club. But in that case we should realize that we will have a hole
in the budget amounting to some 5 billion dollars, or 150 billion
rubles. This means that you must try find something with which to
plug this hole. You must find some additional sources of income and
you will have to cut spending to solve this small problem, so to
say. And after that you are free to tackle all the other problems. 

Q: Don't you think that we are rushing our economic
integration with Byelorussia? Perhaps, we should wait?

A: I have to say that I have always been very cautious about
our economic integration with Byelorussia. Of course, everything
that is happening now is not as terrible as what was discussed,
say, in 1994 so often. It's not really the question of how much
this will cost us. It's something else, God forbid of course, it's
if someone else, including Byelorussia, gets an opportunity to
print money that will be legal tender in Russia. This will be a
We saw this in 1992 and there can hardly be anything more
terrible than this. But this is not relevant now and a very large
number of such potentially dangerous things are not likely to
happen now. Nevertheless, it's a big challenge to integrate Russia
in the economy that operates largely in ways that differ from ours.

Anchor: We will be back after news.... It's 14 hours 47 and a
half minutes. Our guest is Yegor Gaidar. We have talked with you
about relations with Byelorussia. But we have one more close
neighbor -- Ukraine. How should our leadership act with regard to
Ukraine and should we forgive its debts?

Gaidar: I don't think we should forgive its debts. By the way,
Russia has not raised the question of forgiving its own debts. We
have discussed this issue with the London Club and came to
agreement that part of the Soviet debt will be written off but in
the case of Ukraine, we have to discuss a serious debt
restructuring mechanism. This is something that is being negotiated
now. The sides are now discussing very important details, such as
the form of restructuring, which particular debt should be
restructured and for what period, and on what terms.

Q: Another topic is economic amnesty which has been very
actively discussed lately. What do you think about this?

A: I think this is a bad idea. You see, capital has found a
way of getting out of the country, and I can assure you that when
it wants to come back, we will have a good tax system, property
right guarantees and a favorable investment climate. And it will
find a way of getting back here. There is no insoluble problem of
how capital that has left the country can get back?
In this sense, amnesty is always a bad signal to taxpayers
because it discriminates against those who observe laws and pay
taxes. Because it simply tells them, You, friends, were not very
wise and don't behave like this again. Behave as all normal people
do and don't pay taxes. And when amnesty is announced some time in
the future, you will always be able to make a deal with the state
on better terms.
This is why I think that we do not need these things. We need,
however, to exert serious effort to create a normal investment
environment, and the tax reform, the first stage of which has been
completed this year, is an important step. But this is only the
first step in this direction.

Q: A 1,000-ruble banknote will be introduced in Russia on
January 1. Why do we always introduce new money? For some reason,
America does not introduce a 200-dollar banknote. I have almost
said a 200-ruble banknote. Why do we keep on doing this all the

A: It's because we have inflation. Inflation in America is
about 2.5 percent while here it will be around 20-21 percent this
year. There is a difference. If you have inflation of 2 percent,
you can live a century without really having a need to change the
existing banknote structure. But if you have inflation of 20
percent, sooner or later you will have to introduce a new
1,000-ruble, then 3,000-ruble and 5,000-ruble banknote.

Q: What is the best way of protecting our savings?

A: Savings? The best way to do this is by keeping them at
banks which have at least informal state guarantees. Of all the
banks Sberbank is a more or less decent place for keeping your
savings in.

Q: What will happen to the ruble, what is your forecast?

A: The ruble will remain more or less stable until the end of
the year. The government and the Central Bank actually may want the
ruble to fall faster than it has so far, but a large trade surplus
and a considerable influx of foreign currency make this impossible.
Next year the ruble's value will be determined largely by the
situation on the oil market. If the situation remains favorable,
the exchange rate will remain more or less stable. On the whole,
the government projects the ruble's exchange rate at 30 rubles per
dollar. I think it would be very good if we could reach this

Q: Another painful topic and it is connected with the
financing of Chechnya. Just today Sergei Stepashin said that no
conditions have been created in Chechnya for economic restoration,
budget money is misused, etc., etc. Isn't it too early to invest in
Chechnya? And invest so heavily?

A: First of all, I am glad that the Audit Chamber is paying so
much attention to this problem, and I think that this was a very
correct statement. At least it will make the government aware of
the problem.
This is a complex situation. On the one hand, when we
discussed this question and when four billion rubles were allocated
for the program in Chechnya because it is clear that wage must be
paid there and the social sphere must be financed -- something must
be done to rebuild the republic. 
But on the other hand, it is terrible if what we do to restore
the republic will be used inappropriately. There have been such
precedents already. But there is no question of giving it no money
at all. Still, the government has every reason to do something to
make sure that this money is used properly.

Q: We are running out of time, and I would still like to talk
a little bit not only about the economy but also about politics.
You have said that on the whole you approve of what the Kasyanov
government is doing in the economic sphere. But are you completely
satisfied with what it is doing in the political sphere?

A: No, I am not completely satisfied with what authorities are
doing in the political sphere. At the same time, I cannot say that
I am dissatisfied with everything. I believe that our foreign
policy has been quite reasonable lately and more or less balanced.
I think the incumbent president understands Russia's real place and
interests very well.
As for the domestic policy, there are things you can hardly
argue with. For example, the need to ensure compliance with federal
laws in regions, and I think that the efforts that are being taken
in this direction are correct.
And yet there are things that worry us. Speaking of the issue
that has been so actively discussed lately, I mean the anthem and
state symbols, I don't think this is the most important political
problem right now. If authorities try to push the anthem to
Alexandrov's music, I think this will be a very serious mistake.
The anthem is probably not the most important thing to think about
in a crisis, but it is important all the same.
I just draw myself the following picture. The State Duma. The
anthem to Alexandrov's music is played, and it has new words about
the tricolor and the coat-of-arms. I am just imagining this. Part
of the Duma, communists, sings the anthem with traditional words
which run something like "We have been raised by Stalin to the
glory of the people". Then there is part of the Duma, the party of
power, which perceives the anthem the way you said. Then there is
a right-wing part of the Duma which will not stand up when
Alexandrov's music is played. I am almost completely sure of this.
It will simply not accept this anthem. 
So, why do we need an anthem that divides society? And a
situation like this will be not only in the Duma. I just know that
there are many people who are our supporters and who voted for
Russia's Choice and the Union of Right Forces, and they will not
accept an anthem based on Alexandrov's music. For them it will be
too closely connected with our totalitarian past, Stalin's
repressions, that kind of things.
I would think that it would be a big mistake to move in this

Q: So, this is fraught with some division?

A: I think so. The most important thing is that I don't
understand why we need this. I can understand this if society
splits over some vital and crucial issue that must be solved, such
as should tax reform be carried out or not. But when we try to
create a problem out of nothing, I think it's wrong.

Q: But on the other hand, there are public opinion polls which
show that most people have nothing against Alexandrov's anthem.

A: I know this, but I want to stress once again that it's not
the question of majority or minority. An anthem is a thing that
must consolidate the country. It must not exclude 30 percent of the
population who do not accept it. It must be an anthem that is
acceptable to possibly the whole country, except may be complete
extremists or people with deviations.
If no consensus can be reached on such a question, it's better
not to touch it at all. 

Q: And the final question, I believe. What can you say about
the possibility of a unification of the Union of Right Forces and

A: I can say that now we are very well and actively working
together in the State Duma and this does increase our influence
there, our chances of upholding our common positions. And we are
getting a big package of votes. This is important because scattered
votes are weaker. So, in my opinion we have a very good joint
coordination work on the level of our factions. And this, no doubt,
is a foundation for further joint efforts.
For this reason, I believe, we should not hurry, we should
build up our efforts to create a common political structure. I
believe that this is movement in the right direction. 

Q: But won't the question of leadership crop up again at a
certain stage? 

A: But it always crops up. Well, whereas in the Union of Right
Forces we have many striking and recognizable politicians...

Q: But that's exactly the matter... 

A: And yet we have managed to come to terms with one another
and I think that we will be able to come to terms with YABLOKO as 

Anchor: Thank you very much. I remind listeners that we had in
our studio Yegor Gaidar, State Duma deputy and director of the
Institute of the Economy of the Transition Period. I congratulate
you upon the tenth anniversary of your institute again. Goodbye. 

Gaidar: Thank you. 


Wall Street Journal
December 4, 2000 
[for personal use only] 
Despite Putin's Fiscal Reforms Investors Are Still Leery of Russia

MOSCOW -- Russian President Vladimir Putin has given his country a revamped 
tax code and fiscal discipline. The question now, though, is whether Mr. 
Putin will root out the corporate chicanery that has made this country a 
financial pariah.

Investors warned after Russia's 1998 financial blowout that it would take 
years for Russia to lure back western capital. Mr. Putin, they said, needed 
to juice up markets by arresting a well-connected oligarch or two, and shore 
up government finances with a crackdown on tax evasion. After a year in 
office, Mr. Putin has taken steps in that direction: One tycoon accused of 
looting the national airline, Aeroflot, has fled the country. Mr. Putin has 
pushed through parliament a raft of radical tax reform and balanced spending 
that for years were stalled under former president Boris Yeltsin.

Still, Russia is one of the last places foreigners think of putting their 
money nowadays. The fastest economic growth since the Soviet collapse hasn't 
fanned enthusiasm. Russia's tiny stock market jumped when Mr. Putin succeeded 
Boris Yeltsin in early January, but is now down 2.5% for the year. Volume has 
dried to a trickle.

World-Wide Malaise

Russia has fallen victim in part to a world-wide malaise of emerging markets. 
Its privatized Soviet-era behemoths never did tweak the interest of investors 
looking for high-technology opportunities. But as the Nasdaq Stock Market has 
fallen, so too have Russian shares. Today the entire Russian market is valued 
at about $45 billion (53.7 billion euros). "We had naturally hoped for more 
business from the west," said Terry Olin, head of international sales at the 
Troika Dialog brokerage firm in Moscow. "Now about half of our trade is from 
Russian clients."

But this year, just like the previous, has been troubled by a string of 
corporate scandals. The country's largest gas company, OAO Gazprom, has been 
stung by allegations of diverting lucrative business to a little-known 
trading company, Itera, whose ownership is a mystery. Russia's largest oil 
company, OAO Lukoil, has delayed the promised release of financial accounts 
audited to U.S. accounting standards. The biggest metals company, RAO 
Norilsk, without warning embarked on a massive restructure that diluted 
minority shareholders.

Other scandals have dampened hopes that Russia's mobile-phone sector would 
avoid the cronyism plaguing the country's Old Economy industries such as oil 
and gas. In September, Russia's communications ministry tried to confiscate 
frequencies used by Moscow's two biggest cellular operators, MTS and 
Vimpelcom, to make room for a third company, Sonic Duo, with close links to 
state structures. Last week the government suspended the license of a 
regional mobile-phone company days after awarding another license in the same 
area, without a tender, to a competitor with close links to senior officials.

Little Clout

The government has moved to quash some of the scandals. The communications 
ministry gave back the cellular frequencies after protests from foreign 
investors. Russia's market watchdog, the Federal Commission on Securities, 
said it is investigating the Norilsk Nickel restructure. But Mr. Putin and 
his top advisors have been silent on the controversies, leaving the 
impression that investors' worries have little clout in the Kremlin. "If 
people thought that Russian companies and the government were really 
interested in the benefit of shareholders, a lot of these companies would be 
worth two to five times what they are today," said Peter Boone, head of 
research at Brunswick UBS Warburg brokerage in Moscow. "Putin could make some 
statement, but he hasn't. It would be relatively easy to do, and it would 
make an enormous difference."

Russia's economy is expected to grow by at least 5% this year, and its trade 
balance and foreign-currency reserves have never looked healthier. Its 
government budget for next year is the first attempt at balanced books in a 
decade. Companies are improving relations with investors, but portfolio 
managers are hard-pressed to find a company without a skeleton in its closet, 
said John-Paul Smith, global emerging-market strategist at Morgan Stanley 
Dean Witter in London. "The macro picture looks all very great, but you have 
a problem with almost every stock you look at," he said. "Everything is 
tainted on an individual basis."

Foreign direct investment, the long-term engine for growth in any emerging 
economy, is stuck at a fraction of other Eastern European countries -- in 
Russia it sits at around $96 per capita, compared to $546 for Poland and 
$1166 for Hungary. That is creating worries that Russia's recent economic 
growth, now boosted by high oil prices, will suffer doubly if oil prices take 
a tumble.

Fishing for Direct Investment

Private economists and analysts fear the Kremlin could be indifferent to 
stock-market scandals because it is fishing for direct, rather than 
portfolio, investment. "With direct investment, the advantages are 
straightforward -- you build a plant, you employ people," said Roland Nash, 
economist at the Renaissance Capital brokerage firm in Moscow. "There is a 
feeling that the Russian government doesn't see the point in other kinds of 

About half of all foreign direct investment in Russia today is in the oil 
sector. The flow has been choked by a lack of production-sharing agreements 
to govern development of fields and settle difficult tax, profit and 
ownership issues. The government has promised to clear up those issues with 
new legislation next year, though one western oil-company official said 
recent drafts of government instructions on these laws aren't enough to 
change sentiment.

Glenn Waller, director of the Moscow-based Petroleum Advisory Forum, said the 
government appears to be serious about pushing the new legislation, but the 
sense of urgency has been dulled by high oil prices and the illusion of 
prosperity it has brought to the Russian oil sector. "At $30 a barrel, the 
cash is flying into the Russian companies," said Mr. Waller. "You could argue 
that presents a good opportunity to work on some long-term structural 
problems because it gives you breathing room. But then you could just do 
nothing at all."

For now, the government has been proud to point out that domestic investment 
is up 18% so far this year -- the first significant rise since 1992. But 
analysts argue that, after the post-Soviet collapse the figure is 
insignificant because it is rising from such a small base. Investment fell by 
80% from 1992 to 1998, said Mr. Nash of Renaissance Capital.

Mr. Waller said that leading indicators of foreign investment, such as hotel 
occupancy rates in Moscow and load rates on international flights, have risen 
in the past six months. "There is an increase in interest, but that has not 
translated into anything yet," said Mr. Waller. "There are people coming in 
and looking around."

Write to Alan Cullison at


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