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1. Kyodo: Russia suggests it may not veto new U.N. resolution on Iraq.
2. Interfax: Moscow will reject resolutions leading to use of force against Iraq - official.
3. Nezavisimaya Gazeta: Yevgeny Verlin, MOSCOW IS RISKING MORE THAN PARIS. Washington may declare no confidence in Russia.
4. Washington Times: Jeffrey Sparshott, U.S. eyes easing of trade with Russia.
5. US Department of State: Lugar Urges Repeal of Jackson-Vanik Amendment for Russia.
7. Chicago Tribune: Rajan Menon, Why Russia says 'nyet' to the U.S.
8. AP: U.S., Russia Sign Reactor Shutdown Deal.
9. Moscow Times: Simon Saradzhyan, FSB Looks An Awful Lot Like The KGB.
11. Interfax: Yabloko Party opposes unprepared referendum in Chechnya.
12. Moscow Times: Torrey Clark, Investment Climate Still Chilly Despite Thaw.


Russia suggests it may not veto new U.N. resolution on Iraq

TOKYO, March 12 (Kyodo) - Visiting Russian Vice Foreign Minister Georgy
Mamedov indicated Wednesday his country may refrain from using its veto in
a vote on a new U.N. resolution that would authorize war on Iraq.

''Russia is hoping to avoid the use of its veto. It would mean the collapse
of diplomatic efforts and leave only military actions,'' Mamedov told Kyodo
News and some other news organizations in Tokyo.

The comments came as a U.S.-led war on Iraq looms ever larger, with U.S.
President George W. Bush saying that if Washington deems it necessary, it
will not hesitate to take military action without adoption of a U.N.

Russia has rejected the new resolution that would endorse the use of
military force to disarm Iraq, and has threatened, along with France, to
use its veto if the resolution is brought before the Security Council for a

Security Council resolutions require support from at least nine of the
council's 15 members. Additionally, there must be no veto from any of the
five permanent members -- Britain, China, France, Russia and the United

The new resolution, presented by the U.S., Britain and Spain, was revised
Friday to give Iraq until Monday to disarm or face war.

Mamedov reiterated Moscow's opposition to a rush to war and called for U.N.
weapons inspections in Iraq to continue.

''Russia is calling for continued inspections, and doesn't see the need for
a new resolution,'' he said, adding that a U.S.-led assault on Iraq would
''destabilize the Middle East and the entire world.''

But in case war erupts, Russia will cooperate with the U.S. for an early
settlement of the situation, he said.

''We will strive to minimize negative effects and bring the situation back
to political and diplomatic arenas,'' he said.

Regarding attempts by several nations to extend the proposed deadline,
Mamedov expressed opposition, saying, ''Giving days for a grace period for
an ultimatum means nothing.''


Moscow will reject resolutions leading to use of force against Iraq - official

MOSCOW. March 12 (Interfax) - Moscow has not yet received any specific
proposals on amending the draft resolution on Iraq submitted to the UN
Security Council in New York on March 7, Russian Deputy Foreign Minister
Yuri Fedotov told Interfax on Wednesday.
He confirmed that Russia will turn down any draft "containing ultimatums
and opening the path to automatic use of force against Iraq."
"The draft resolution submitted by the U.S. and Britain on March 7 is
not supported by most UN Security Council members. Therefore, its authors
decided not to bring a vote forward," Fedotov said.
"Rumors were circulated that the draft may be amended," he said, adding
that Russia "has not received any specific proposals in written form to
this effect."
"We are stating, as before, that any resolutions containing ultimatums
and opening the path to automatic use of force against Iraq would be
unacceptable for Russia," Fedotov said.
He also said that the exact date of the vote on the draft resolution on
Iraq has not been set yet.


Nezavisimaya Gazeta
March 12, 2003
Washington may declare no confidence in Russia
Author: Yevgeny Verlin
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

The split between Washington and Moscow over the issue of Iraq
could have some dangerous consequences for Russia, according to a
senior NATO representative. According to him, Moscow is risking much
more than Paris in this situation, even though the latter is
considered to be America's "most hardline opponent" on Iraq. According
to our NATO source: "The differences between France and the United
States are nothing out of the ordinary; the Americans have always been
in a dispute with the French over one thing or another. But with
Russia it's more complicated..."
Indeed, French President Jacques Chirac made a perfectly calm
response to Secretary of State Colin Powell's warning that France's
use of its veto power in the UN Security Council "would have serious
consequences for bilateral relations". Both America and France
evidently accept that there can be no direct or lengthy confrontation
between them over Iraq.
However, it is believed that some far more significant warnings
could be addressed to Russia. Observers in Washington and Brussels
believe that Russia should weigh up the possible consequences of a
rift with America very carefully.
The statement made by Foreign Minister Igor Ivanov on Monday -
that Russia would vote against a new resolution on Iraq - was viewed
by Washington as the first clear indication that Russia is prepared to
go to the limit in opposing US military plans. But the boundary at
which Washington's displeasure could turn into open confrontation
which threatens to disrupt the budding strategic partnership between
Russia and the US is fairly flexible.
The present balance of forces in the UN Security Council is not
only due to France's threat to use its veto power, but also to
Russia's position. For example, if the US had succeeded in bending
Moscow to its will, Beijing would probably have followed suit; and the
French would have been left in a clear minority within the Security
According to The Washington Post, the confrontation between Putin
and Bush over Iraq is the greatest difference of opinion since
September 11, 2001. Now Putin is no longer seen as a reliable partner
of the United States; and as a result, "Bush administration
representatives are threatening Putin with some unspecified
consequences" if Russia blocks the American resolution in the UN
Security Council.
Observers agree that the latest contacts between the Kremlin and
Washington have not gained Moscow any guarantee that its economic
interests in Iraq will be upheld. Yesterday's news that the US
administration has already started selecting contractors for restoring
infrastructure in post-war Iraq (selecting only American companies) is
unlikely to increase optimism in the Russian oil sector.
In fact, Bush administration representatives and President Bush
himself have never promised Moscow any guarantees; they have always
repeated that they will only "take Russia's interests into account".
In this situation, Washington is being forced to urgently search for
some kind of "bone" to throw to Moscow. After over a decade of talk
and promises, the US Senate started debating a bill on Monday which
would repeal the infamous Jackson-Vanik amendment, which provides
grounds for discrimination against Russian exporters.
On the surface, Moscow's position appears consistent: Russia is
opposed to resolving the problem of disarming Iraq by the use of
military force. However, as it has done repeatedly in the past, the
Kremlin may still have the last word; especially since Washington and
London have taken some time out, and are likely to put the military
resolution on Iraq to the vote only at the end of the week. In the
interim, Moscow may be promised something new and substantial (besides
repealing the Jackson-Vanik amendment). And then everything could
change again: Moscow would withdraw its objections, and even its
concerns, with respect to the inevitable.
(Translated by Andrei Ryabochkin)


Washington Times
March 12, 2003
U.S. eyes easing of trade with Russia
By Jeffrey Sparshott

Legislation that would allow normal trade relations with Russia
started working its way through Congress this week, an important step
before the country would be allowed to join the World Trade Organization.
Sen. Richard G. Lugar, Indiana Republican, introduced a measure Monday
that would repeal a Cold War-era rule requiring the U.S. president to
report whether Russia allows its citizens to freely leave the country. The
measure also would authorize President Bush to grant permanent normal trade
relations to Russia.
House Democrats expect to introduce a similar measure this week,
though with more strings attached before Russia could join the WTO. The
Democratic bill would require a congressional vote on WTO membership,
leading Democrats on trade policy said.
Countries that do not have permanent normal trade relations cannot
enter the 145-member WTO. Congress in 2000 granted China permanent status,
one step in allowing that country's accession to the international trade
Mr. Lugar's legislation would repeal a rule passed in 1974, known as
the Jackson-Vanik amendment, that denies permanent normal trade relations
to communist countries that restrict emigration rights.
"Its continuing applicability to Russia no longer makes sense in the
context of the many changes that have occurred since the fall of the Soviet
Union," Mr. Lugar said.
The legislative proposal followed unanimous Senate approval of the
Moscow treaty, a pact to cut U.S. and Russian long-range nuclear warheads
by two-thirds.
The timing of the Moscow treaty vote and introduction of the
trade-related measure were meant to emphasize the strength and importance
of U.S.-Russian relations ahead of a vote in the United Nations on a war
with Iraq, said Andy Fisher, spokesman for Mr. Lugar.
Russia has threatened to vote against a U.S.-sponsored resolution on
Iraq in the U.N. Security Council.
Russia's government sees permanent normal trade relations as an
important step toward WTO membership, said Yevgueniy V. Khorishko, press
secretary at the Russian Embassy in Washington.
"For a long time we have tried to convince the United States that this
Jackson-Vanik amendment is a relic of the Cold War," Mr. Khorishko said.
The Bush administration also has pushed Congress to lift the amendment.
But Russia is not a shoo-in for a quick Jackson-Vanik repeal or
permanent normal trade relations. Legislators have expressed concern with
Russian trade restrictions, especially on poultry and pork, and a potential
U.N. vote against war with Iraq.
"There are a number of different dynamics and factors, and there is a
climate of concern" with Russia's political stance toward the United
States, said a House source.
The potential U.N. vote is the most recent concern, but regulatory
measures that block U.S. meats from the Russian market have angered
American agricultural producers and lawmakers for months.
Sen. Charles E. Grassley, Iowa Republican and chairman of the Finance
Committee, said last week that the agricultural trade barriers hurt
Russia's chances of gaining permanent normal trade relations.
Mr. Grassley's committee has jurisdiction over the 1974 Jackson-Vanik
legislation, named for Sen. Henry Jackson, Washington Democrat, and Rep.
Charles Vanik, Ohio Democrat.


US Department of State
11 March 2003 Text: Lugar Urges Repeal of Jackson-Vanik Amendment for Russia
(Introduces bill providing permanent normal trade relations) (530)

Senator Richard G. Lugar (Republican of Indiana), chairman of the
Senate Foreign Relations Committee, introduced a bill March 10 to
exempt Russia from the provisions of the Jackson-Vanik amendment to
the 1974 U.S. Trade Act and to authorize the President to grant
permanent normal trade relations to Russia.

The amendment denies permanent normal trade relations to communist
countries that restrict emigration rights.

"Since 1994, successive Administrations have found Russia in full
compliance with the requirements of freedom of emigration," Lugar

"While Russia currently receives normal trade relations treatment with
respect to its exports to the U.S., " he said, "repealing
Jackson-Vanik will remove the requirement of semi-annual reports that
have been an irritant in U.S.-Russia relations."

Following is a press release from his office:

(begin text)

United States Senate
Richard G. Lugar
United States Senator for Indiana (Republican)
March 10, 2002


U.S. Senate Foreign Relations Committee Chairman Dick Lugar today
introduced legislation to repeal the Jackson-Vanik amendment to Title
IV of the 1974 Trade Act as it relates to Russia and to authorize the
President to grant permanent normal trade relations to Russia.

"Congress passed the 1974 Jackson-Vanik amendment to deny permanent
normal trade relations to communist countries that restricted
emigration rights. Over the years, it has been an effective tool to
promote free emigration, but its continuing applicability to Russia no
longer makes sense in the context of the many changes that have
occurred since the fall of the Soviet Union," Lugar said in a
statement introducing the bill.

"Since 1994, successive Administrations have found Russia in full
compliance with the requirements of freedom of emigration. Because
Russia continues to be subject to Jackson-Vanik, the Administration
must submit a semi-annual report to the Congress on Russia's continued
compliance with freedom of emigration requirements. Since 1991,
Congress has authorized the removal of Jackson-Vanik restrictions from
Estonia, Latvia, Lithuania, the Czech Republic, the Slovak Republic,
Hungary, Bulgaria, Romania, Kyrgyzstan, Albania, and Georgia. The
conditions that have warranted these countries' removal from Title IV
reporting apply equally to Russia.

"For more than 8 years, Russia has satisfied the requirements of the
Jackson-Vanik legislation. It has supported free emigration and it has
signed a bilateral trade agreement with the United States allowing the
application of normal trade relations status. Last year, the United
States declared that Russia would no longer be considered a nonmarket
economy for the purposes of trade remedies laws. Russia has made
tremendous strides in the last decade. While Russia currently receives
normal trade relations treatment with respect to its exports to the
U.S., repealing Jackson-Vanik will remove the requirement of
semi-annual reports that have been an irritant in U.S.-Russia
relations. Granting permanent normal trade relations also will provide
certainty that will improve the investment climate and promote
enhanced economic relations between the U.S. and Russia," Lugar said.

Lugar introduced the same Jackson-Vanik repeal legislation last year.
The Bush Administration supports the bill.


March 12, 2003
No. 44
[translation from RIA Novosti for personal use only]
Prof. Anatoly UTKIN, Ph.D., history, director of the
Centre for International Studies, Institute of the USA and

This may not be a popular view but I believe that there
will not be a war in Iraq. Here is my reasoning.
Firstly, the most sanguinary war in American history was
the Civil War, when the USA lost about a million in dead. The
two world wars of the 20th century cost the USA 300,000 and
150,000, respectively. The Vietnam War claimed 57,000 lives,
whose names are written on the black obelisk in Washington.
Next there was the war in Lebanon, which the Americans quickly
left after losing about 300 lives. In Somalia, the 18 dead were
enough to send the Americans packing. Two helicopter pilots
lost their lives in Kosovo because of a malfunction, which
taught the Americans never to wage ground operations.
Few people remember but during the first Gulf War in 1991
George Bush Sr. said the US troops would not move to Baghdad
after the Americans had lost 96 lives. Or take Afghanistan. The
USA lost four men in that muscle-flexing operation launched
after the Twin Towers went down in the September 11 terrorist
One CIA man was captured and shot by the Taliban and three
other victims were killed by American bombs. It was enough to
make the US special forces act with more caution than ever
before. In fact it can be said that they stopped acting.
On the other hand, American bombs killed three to four
thousand Afghans. The movement of the Northern Alliance was
accompanied by wholesale slaughter, with 12,000-15,000 people
killed during the seizure of Mazar-i-Sharif, Kandahar and Kabul.
There is no Northern Alliance in Iraq that would do dirty work
for the Americans.
The above prompts the question: Are the Americans prepared
to welcome their boys back in coffins veiled in the US flag?
Secondly, where are the "armour bearers"? During the first
Gulf War, US bombers used the Incirlik air force base and other
facilities in Turkey (the overall figure is 27) as the stage
airfield. But where is Turkish solidarity now?
The new Ankara authorities fear the boomerang effect of
the Kurdish card played by Washington, which provides for the
division of Iraq into three parts, including Northern Iraq
where Kurds live. The latter will inevitably incite the
separatist activity of Turkish Kurds, who have been dreaming
about secession for 30 years. Besides, 90% of the Turkish
population is not just "against" but "firmly against" the war
in Iraq.
Thirdly, where are the allies? It appears that the
governments of Tony Blair and Jose Maria Aznar did not take
into account the opinion of their citizens. The British Labour
Party is on the verge of a revolt and anti-war and
anti-American sentiments have reached a record high level in
Germany. China supports the anti-war actions of Russia, France
and Germany and this foursome can largely control developments
in Eurasia. The Americans are bound to see this.
The USA will most probably get what it wants and Iraq will
eventually become part of the US zone of influence. This can be
achieved with a few thousand of so-called inspectors and
embracing monitoring and control of the Iraqi military
There will be a controlling agency where the USA will set the
tune. But the price of this outcome of the USA-Iraq
confrontation will be tremendous.
Lessons must be drawn from any battle. The next time when
Indonesia with the population of 30 million or Iran with the
population of 70 million find themselves in a similar
situation, they will act on the new rule of geopolitics, whose
birth we are witnessing. It says: One can deal with the USA
only if one has nuclear weapons. Jakarta and Teheran have the
possibilities to acquire this guarantee of national
independence. This is why I think that the reckless desire of
the Bush administration to overthrow Saddam is suicidal.
The USA is becoming a revolutionary force that is
exploding the established world order, which has served us -
though not always very effectively - for nearly three and a
half centuries.
These developments should worry a normal American
imperialist because history gave the USA a unique chance. That
country, which leads the world in technological and other areas
of progress, has 35% of the planet's resources and only 5% of
the global population, should guard its current status-quo like
the apple of its eye.


Chicago Tribune
March 12, 2003
Why Russia says 'nyet' to the U.S.
By Rajan Menon
Rajan Menon is a senior fellow at the Council on Foreign Relations.

The uncertainty is over. It's apparent that Russia will veto the UN
resolution for an attack on Iraq if it comes up for vote. Moscow wants
continued inspections for weapons of mass destruction in Iraq and opposes
any rush to authorize the use of force.

This is dismaying news to the Bush administration, which is convinced that
more inspections will simply enable Saddam Hussein to play shell games.

Why, then, did Moscow choose to break ranks when Russian President Vladimir
Putin, the arch-realist, has worked so hard after Sept. 11 to forge a bond
with President Bush?

The first reason is psychological. In a little more than a decade, Russia's
economic and military power has plummeted and it has lost its superpower
status. That's a tremendous change. It has been hard for Russians to accept
it and they are more than a little irritated about what they see as
American cockiness and triumphalism. Now that Russia is a democracy, these
sentiments filter upward and influence the leadership.

Second, the prospect of a world where the U.S. rules the roost and acts
without restraint is particularly galling to the Russian national security
bureaucracy--the military and secret police--where distrust of the U.S.
runs particularly high. These institutions, particularly the intelligence
services, have a great deal of clout in Putin's Russia--and they're making
themselves heard.

Third, Russia, like other second-order powers, cannot afford to see the
U.S. brush international organizations aside. Their most effective way of
restraining what the French call the American "hyperpower" is through a
Lilliputian strategy aimed at getting the U.S. to act in and through global
institutions and not as a lone ranger. The Bush administration's repeated
statements that it does not need the UN's approval to go to war against
Iraq, while true in a literal sense, are unwelcome to Russian ears.

The fourth reason for Russia's opposition to using war for regime change in
Iraq is never mentioned by Moscow because to do so would be to acknowledge
it, and that's the Islamic factor. Muslims account for 18 percent of
Russia's population of 148 million people. They live in the North Caucasus
and in Bashkortostan and Tatarstan, two large republics deep in the
country's interior. The Tatars are, in fact, Russia's second largest
nationality. Then there are six post-Soviet Muslim states on Russia's
southern border: Azerbaijan and the five so-called "stans" of Central Asia.

Islam, in some instances in its radical variants, is now an integral part
of politics within and around Russia. An American war against Iraq followed
by a prolonged occupation could inflame the Muslim world. In the era of
globalization, the ripple effects could travel fast and far, bringing
upheaval to Russia and its southern flank. No Russian leader wants that,
especially because Chechnya, where Islamic fundamentalists are entrenched,
is already a bloody quagmire.

For Putin, then, the bottom line is this: The hazards of supporting the
U.S. in a war that is unpopular in much of the world and anathema to most
Muslims are clear and serious. Significant and tangible displays of
American gratitude for Russia's support might make the risks worth running.
But the current direction of the U.S. economy and the history of American
policy toward Russia over the past decade can hardly make the Russian
leader confident about big payoffs. Putin may get pats on the back, kind
words, and invitations to Camp David from Bush were he to stand alongside
the U.S. against Hussein. But Putin needs more than praise and pageantry to
go out on a limb.

These are Putin's calculations, and as a former KGB officer he knows the
arithmetic of power. The experts' confident claim that Russia had no choice
but to join the United States against Iraq was more than faulty analysis.
It was also hubristic.


U.S., Russia Sign Reactor Shutdown Deal
March 12, 2003

VIENNA, Austria (AP) - The United States and Russia signed agreements on
Wednesday reviving an on-again, off-again deal to shut down the last three
Russian reactors producing nuclear weapons-grade plutonium.

Under terms of the accords, the United States will spend an estimated $500
million on two new fossil-fuel power plants to replace the reactors, which
provide heat and electricity to Seversk and Zheleznogorsk. The Siberian
cities once were secret, ``closed'' locations of the Soviet military

The agreements ``set the stage for another important advancement in our
cooperative nonproliferation efforts,'' U.S. Energy Secretary Spencer
Abraham said. The signing ``demonstrated to the entire world that Russia
and America are friends and partners,'' said his Russian counterpart,
Atomic Energy Minister Alexander Rumyantsev.

They signed the documents at Vienna's Hofburg Congress Hall, on the
sidelines of a three-day global conference, co-sponsored by their
governments, on another nonproliferation concern, the potential for
development of terrorist ``dirty bombs'' - conventional, non-nuclear bombs
packed with radioactive materials.

A U.S.-Russian deal under which Washington was to help phase out the
plutonium reactors was first signed in 1997, and was celebrated as a
historic event in the costly U.S. campaign to ensure that Moscow
safeguarded and reduced its vast nuclear stockpile.

The United States halted its own weapons production of plutonium in the
late 1980s, as a result of a series of U.S.-Soviet arms control treaties.

The Russians, who have shut down 10 other plutonium-producing plants,
continued operating the two at Seversk and one at Zheleznogorsk because
they were vital to the power supplies of the cities, formerly known as
Tomsk-7 and Krasnoyarsk-26. They continued reprocessing the spent uranium
fuel from the power plants into plutonium not to make bombs, but because
indefinite storage of the spent fuel would have been prohibitively expensive.

The 1997 deal foundered, however, because its original goal of modifying
the reactors proved impractical, and because of Russian financing problems
and disputes over American audits on use of U.S. funds.

The Russians also have been slow to move because the plan would dislocate
thousands of people employed by the combined reactor-reprocessing operations.

The original plan envisioned conversion by 2001. Now, under Wednesday's
agreements, the Seversk shutdown is to take place by 2008, and the shutdown
at Zheleznogorsk by 2011.

The governments hope displaced staff will be re-employed under the
``Nuclear Cities'' program, a U.S.-financed effort to develop jobs
elsewhere in Russia for workers from the former ``closed cities.''

The three plants are the source of 3,300 pounds of plutonium a year,
roughly enough to make one nuclear bomb per day.


Moscow Times
March 12, 2003
FSB Looks An Awful Lot Like The KGB
By Simon Saradzhyan
Staff Writer

By regaining control over the national encryption agency and the border
guard service, the Federal Security Service emerged as a clear winner in
Tuesday's power reshuffles, with its status and capabilities now comparable
to those of its mighty and fearful predecessor -- the Soviet KGB.

President Vladimir Putin announced that the Federal Security Service, or
FSB, will take over the entire Federal Border Service and parts of the
Federal Agency for Government Communications and Information, or FAPSI.

Both used to be directorates within the KGB, which was split into several
agencies with the collapse of the Soviet Union as a way to weaken the
secret services and break with the KGB's repressive past.

Now a restored FSB lacks only the Foreign Intelligence Service and Federal
Guard Service, which are responsible for espionage abroad and the physical
security of top officials, respectively, to put it back on par with the KGB.

But even without these two now independent services, the FSB has become a
"superagency" when compared to the other so-called power agencies, said
Alexander Pikayev, defense and security analyst with the Moscow Carnegie

In addition to its own staff of tens of thousands, the FSB will now control
more than 150,000 border guards armed with thousands of artillery pieces,
armored vehicles, patrol boats and aircraft and can engage in intelligence
across Russia's borders. They will be under the command of first deputy FSB
director Vladimir Pronichev, a former border guard officer.

Parts of the FAPSI agency, whose activities have ranged from conducting
opinion polls to encrypting communications, will also now report to FSB
director Nikolai Patrushev, whose agency is already responsible for
eavesdropping and monitoring Runet.

Patrushev, in turn, reports only to President Vladimir Putin, a former KGB
officer who headed the FSB from July 1998 until he was appointed prime
minister in August 1999.

Given the lack of parliamentary oversight over the secret services, this
could open up more opportunities for abuse of powers, according to Valery
Pribylovsky, head of the Panorama think tank. Considering the KGB's history
of abuses, "this is alarming," he said.

Pikayev and Nikolai Leonov, former head of KGB's analytical department,
agreed that the lack of parliamentary oversight is a problem, but noted
that the empowerment of the FSB should have a positive impact on Russia's
national security.

Among other things, the FSB may now be more effective in its efforts to
counter terrorism and violent separatist threats, especially when it comes
to interdicting either groups or funding trickling into the volatile North
Caucasus from abroad. A mere merger of the agencies' databases should have
a tangible effect, they said.

"In general it is better to have a single agency tackle one major issue,
which is state security in this case," Leonov said.

Under Boris Yeltsin, who bore a grudge against the KGB, the secret services
were weak and divided. But for Putin, the FSB has been a base of his
support, and he has allowed and helped it to consolidate its own power.

The expansion of the FSB's powers, however, could backfire on Putin, who
relies on Patrushev to maintain a grip on the agency, according to Pikayev.
"Will Patrushev always support Putin? Friends may fall out. It may be
dangerous to keep this all in one hand," Pikayev said.

While boosting the FSB's capabilities and bureaucratic clout, Tuesday's
reshuffle also weakens the Interior Ministry by stripping it of its
anti-drug department and merging it into a new separate, independent
committee -- to be headed by a former KGB officer, Viktor Cherkesov.

In addition to taking over this Interior Ministry department, the federal
anti-drug committee is also set to engulf most of the staff and resources
of the Tax Police.

Under Putin's plan, the responsibility for fighting tax evasion will go to
the Interior Ministry.

With the Kremlin reportedly considering also taking away the Interior
Ministry's investigation department, it is clear that its political and
bureaucratic weight will continue to diminish, according to Pribylovsky and
Pikayev. And Interior Minister Boris Gryzlov may be too busy preparing the
pro-Kremlin United Russia party, where he is chairman of the higher
council, for this year's elections to prevent a further weakening of his

In addition to empowering the FSB and weakening the Interior Ministry, the
president ordered the Defense Ministry to take over those parts of FAPSI
that will not be transferred to the FSB, and also created a separate
committee within the Defense Ministry to oversee procurement of
conventional weapons for all of Russia's so-called power agencies.

Until now, all of these agencies have been responsible for their own
procurement and often ordered weaponry and communications systems that were
not compatible with those used by Defense Ministry troops. The new
procurement committee will be headed by former FAPSI head Vladimir
Matyukhin, who has no relevant experience for his new job as he has spent
his entire career in the KGB and FAPSI.

Unlike their predecessors, both Matyukhin and outgoing border guard chief
Konstantin Totsky lacked the political weight to resist the FSB takeover,
one staffer in the State Duma's defense committee said in a phone interview
Tuesday. He asked not to be named.

In late 1997 and early 1998, there were several reports that the FSB was
eyeing the border guards and FAPSI. The heads of both agencies then, border
guard chief Nikolai Bordyuzha and FAPSI director Vladislav Sherstyuk,
managed to fight off these attempts.

One sign of their political weight was that Sherstyuk went on to become
deputy secretary of the Security Council and Bordyuzha the chief of
Yeltsin's staff.

In comparison, Totsky has been named Russia's envoy to NATO while Matyukhin
will run a committee within the Defense Ministry, and their agencies have
been taken over by Patrushev, one of the men Putin has said he trusts most.


Vremya MN
No. 36
March 12, 2003
Andrei LIPSKY and Viktor MYASNIKOV

Numerous theories are being advanced in order to explain
this decision; meanwhile the following explanations deserve
serious mention.

The Military-Strategic Factor

Russia faces new threats, the terrorist threat included,
at this stage. Therefore it has become necessary to unite all
state security components under the auspices of one single
agency. The Chechen counter-terrorist operation shows only too
clearly that FPS (Federal Frontier Service) units operating
along the Russian-Georgian border and the Federal Security
Service (FSB), which supervises this operation, don't interact
effectively enough. Inter-departmental rivalry has now ended;
from now on, all reconnaissance operations, undercover
operations, police activity and combat operations will be duly
coordinated. The FSB will obtain the FAPSI's electronic
surveillance, cryptography and data protection divisions.
Unnecessary parallelism will also be eliminated. The concerned
parties will no longer be squandering money; intelligence data
will also be promptly relayed.

The Political Factor

Putin continues to amass additional powers, while relying
on the FSB, which is devoted to him. The FSB now controls part
of the state-run automated vote-counting system together with
some FAPSI segments; this is particularly important on the eve
of elections. One can suppose that this will entail numerous
discourses concerning an all-out encroachment on human rights
and liberties.

The Administrative Factor

This theory was outlined by well-known political scientist
Alexei Zudin from the Center of Political technologies in his
Vremya MN interview.
According to Zudin, as compared to 2001 changes that were
implemented by Putin (Top Defense Ministry and Interior
Ministry officials were replaced back then -- Ed.), present-day
changes boast some new serious aspects.
First of all, previous changes had something to do with
the personnel policy alone. Right now, one can talk about a sum
total of personnel-related and structural changes. Second,
there is every reason to believe that current changes are not
something permanent; on the contrary, they highlight an
incipient process that aims to completely change the
configuration of law- enforcement agencies.
Plans are in place to establish the federal investigation
service, the municipal police service, as well as the national
guard in place of the Interior Ministry's military units. Some
other changes are being contemplated today. This concept, which
is linked with Kozak's name, should therefore be taken
Moreover, one should keep in mind that Putin considers
Cherkesov to be a rather valuable person. Consequently, his new
post seems to be an intermediate appointment prior to the
establishment of a new federal agency with his involvement.
And now a few words about the re-subordination of the FPS
and the FAPSI to the Federal Security Service. As I see it,
President Vladimir Putin wants to modernize the Russian state,
perceiving this as his strategic goal. The Russian leader
understands perfectly well that civil departments, as well as
law-enforcement agencies, have to be overhauled at this stage.
Therefore one can say that a cumbersome, ineffective and
hard-to-control super-agency is unlikely to be established on
the basis of the FSB.
The re-subordination of border-control forces to the FSB
seems to be an interim option; this scenario is even more
plausible. This decision was made for the sake of overhauling
these departments, which had existed separately for a long
time, and which had got used to it to such an extent that the
FAPSI even implemented some commercial operations. The format
of these departments should now match their main functions.
Therefore one can suppose that these agencies won't remain
subordinated to the FSB, eventually changing their essence and
becoming smaller.
Moreover, such agencies will be able to tackle purely state
tasks more effectively.
Other explanations are still being offered.


Yabloko Party opposes unprepared referendum in Chechnya

MOSCOW. March 12 (Interfax) - Yabloko Party leader Grigory Yavlinsky has
expressed the opinion that the Chechen referendum has not been fully
prepared and a peace conference with all warring parties should be held
Settlement of the problem surrounding Chechnya will only be possible if
all interested sides participate in a wide political process, Yavlinsky
said in a statement.
"The referendum on the constitution and elections to the Chechen and
local governing agencies can be part of the process. However, conditions
for the elections have not been created," the statement reads.
It is impossible to organize a thorough debate of the draft Constitution
over a short period of time, the statement reads.
"Mass events during the ongoing war may trigger new large terrorist
acts," he said. Yavlinsky warned of the long-term impact the unprepared
referendum could have. It could aggravate the standoff in Chechnya and help
forces that encourage civil war, the statement reads.
"Moreover, it was a mistake to exclude international agencies from the
Chechen settlement and to disband the Duma-PACE commission," the statement
"By refusing to discuss the conditions, dates and observers for the
referendum, PACE is avoiding responsibility for the Russian authorities'
actions and has created conditions for serious future aggravation of the
situation," the statement reads.
However, "further steps must be taken towards a political settlement in
Chechnya," the statement reads.
Yavlinsky emphasized the importance of "returning the situation to the
legal vein," of terminating mop-up raids and other forms of violence. The
federal authorities should promote talks among all conflicting sides in
Chechnya and use international assistance in deterring violence.
"These steps would lead to a peace conference among the warring and
interested sides which the Russian president would chair. It should only
exclude odious figures and war criminals whose guilt has been proven," the
statement reads.


Moscow Times
March 12, 2003
Investment Climate Still Chilly Despite Thaw
By Torrey Clark
Staff Writer

BP's unprecedented $6.75 billion deal last month with Tyumen Oil Co. was
not only the largest foreign direct investment deal in Russian history,
eclipsing total FDI for all of 2002, it also reignited hopes that a flood
of foreign money would soon follow.

After all, the deal wedded former and formidable foes, huge companies with
long and checkered histories of trying to do business together in Russia.

"At some stage, somebody had to take the first step," said Peter Henshaw,
BP's head of external affairs in Moscow. "We saw what was happening, we
knew the experiences we'd had, we knew the relationships we'd built and had
confidence in those relationships for the future."

But while the deal has been widely hailed as a piece needed to complete the
picture of Russia reformed, it has also be called an anomaly, not proof of
a paradigm shift.

Last year Russia's economy grew 4.3 percent, bringing cumulative
post-1998-crisis growth to more than 25 percent, according to the World
Bank. President Vladimir Putin has built warmer contacts with the West and
the government has received kudos for focusing on numerous urgently needed
reforms. Corporate governance has improved as the country's blue chips have
consolidated, and the country's stock market was one of the world's best
performing among emerging markets last year.

But despite economic growth, political stability and progress on reforms,
FDI remains, in the words of more than one expert, "pathetically" low, at a
mere $4 billion in 2002, not even 1 percent more than in 2001. In
comparison, China attracted $53 billion in FDI alone in 2002.

The global downturn appears to have kept many foreign investors -- both
portfolio and strategic -- at home.

"Investors are just nervous about putting their money anywhere," said
Andrew Somers, president of the American Chamber of Commerce in Moscow.

Continuing fears of corruption, violations of shareholder rights, arbitrary
bureaucratic decision and red tape have also repulsed some investors.

Much of the FDI appears to come from old hands in the Russian market,
rather than fresh blood.

"My impression is that foreign companies remain cautious toward making
first-time investments in Russia," said Richard Brody, president of United
Technologies Corp. in Russia. "But foreign companies that are already here
generally remain committed to their projects and some of them, especially
in the industries that are expanding rapidly, are making ambitious new

Connecticut-based UTC has invested more than $400 million here over the
last decade making everything from elevators to aircraft engines.

Foreign investment as a whole showed respectable 38.7 percent growth,
reaching $19.8 billion in 2002. The biggest change last year was a 56
percent leap in "other" investment, primarily loans and trade credits, to
hit $15.3 billion.

"Other" investment edged past foreign direct investment to account for 49
percent of the accumulated $42.9 billion in foreign investment. FDI fell to
47 percent of the total.

Foreign portfolio investment -- in equities and bonds -- inched up by 4.6
percent to $472 million, despite the benchmarks RTS Index's 39.9 percent
growth and the corporate bond market coming into its own, with the face
value of issued bonds nearly tripling in 2002. Portfolio investments soared
210 percent in 2001 and 365 percent in 2000.

The strong growth of "other" investment shows investors' interest in
financing Russia.

"The large amount of money available as loans and so on signals that
there's interest, although perhaps not willingness to take a concentrated
ownership interest," said Christof Ruhl, chief economist at the World Bank
Moscow office.

"'Other' is basically trade credit and is mostly Russian money coming home.
It's like having a banking system outside the country," he said.

Cyprus, Luxembourg, the Netherlands, Great Britain and Switzerland --
regarded as havens for Russian money and the banks that channel it back --
all ranked among the top 10 foreign investors in 2002, sending between $2.2
billion and $1.3 billion in direct, portfolio and "other" capital into
various sectors of the Russian economy: oil and gas, retail and catering,
food processing and power.

The increasing flows of Russian capital coming home should also send
foreign investors a strong signal that the climate is improving.

"The good news is that the amount of investment in Russia is significantly
increasing from Russian capital, which is something foreign investors have
been waiting for," Somers said.

The increase in "other" investment shows that Russian companies are still
eager for funds, Ruhl said, although domestic investment growth appeared to
slow to 2.6 percent last year, far behind the 8.7 percent growth in 2001
and 17.4 percent growth in 2000.

In part, domestic investment may have slowed because profit tax laws, while
lowering the tax rate to 24 percent, cancelled previous tax breaks granted
for investing as of January 2002. The investment rate picked up in January
2003, increasing 7.9 percent year-on-year, although it's too early to see
how significant the change will be, he said.

Not as Bad as All That

While far from rosy, the picture of FDI might not be quite as desperate as
it appears at first glance.

"Four years ago, I was arguing whether any money would come back to this
country. Now we're talking about why there isn't more," said Roland Nash,
head of research at Renaissance Capital. "That's fantastic."

Many deals are recorded offshore, so while Russia benefits, the numbers do
not get reflected in official statistics, Nash said. Thus, the BP deal with
Tyumen Oil Co., or TNK, won't cause FDI rates to soar in 2003, as
Heineken's $400 million acquisition of the St. Petersburg-based Bravo
brewery didn't boost 2002 statistics. Similarly, the multimillion-dollar
deal earlier this year between SUAL, Russia's No. 2 aluminum producer, and
London-based Fleming Family & Partners to set up an international company
will take place offshore.

Large Russian companies, such as the oil and metals majors, have also been
able to reap some benefits that foreign direct investment offers --
management and marketing expertise and technical know-how -- without
selling a significant stake to a foreign partner.

"The FDI number looks pathetic, but the transfer of technology and
management isn't as woeful, because a lot of companies are buying it," said
Charles Ryan, CEO of United Financial Group. "People are paying for it."

Unfortunately, hiring foreign managers and consultants is not an option for
most of the country's neediest companies, especially those in the middle of
the "Soviet sandwich," the aging industrial base of textiles, automobiles,
aviation, machinery-building and defense.

This layer has seen some high-profile investment, especially in the
automotive industry from foreign investors, such as General Motors, Ford
and Renault, which last month agreed to pump $250 million into the Moskvich
plant in Moscow. Export earners have also entered the automotive industry,
notably Severstal and Oleg Deripaska's Base Element holding.

But the success of these ventures has yet to be proven. Russian-made cars
can only compete in terms of price. As continued inefficiencies and
increasing power and steel prices have squeezed margins, the country's two
largest car manufacturers, AvtoVAZ and GAZ, have had to suspend production
to avoid a massive glut. The hope is foreign investors will inject quality
into the mix.

When the government and experts talk about the need to diversify the
economy, they mean getting this middle layer, which provides employment for
the bulk of the population, back on its feet. But to do so, massive
investment is needed. And if this layer can't be saved, investment will be
needed to create new businesses and jobs to avoid potentially tragic social

Diversity would also wean Russia from dependency on exports of commodities,
such as oil and metals, which are both volatile and determined independent
of Russia.

"That middle layer is what distinguishes Russia from other
natural-resources-rich countries," Brody said. "This layer can provide the
jobs and industries to support Russia's development as a complex,
technology-intensive, industrial economy integrated into world markets."

Competition for Assets

The problem is not only lack of funds.

High oil prices have pumped masses of money into the economy: UFG estimated
that about $60 billion per year, or 20 percent of gross domestic product,
is available for investment.

"The amount of money in Russia? There's too much, too many funds chasing
too few assets right now," Nash said. "Russian needs an enormous amount of
investment. But there's less available of the low-hanging fruit."

Both foreign and domestic investment has tended to go into natural
resources or sectors, such as retail and food, that were underdeveloped
during the Soviet era and thus mercifully free of the politics dogging
traditional sectors.

"You don't need to have so much specifically Russian expertise in those
parts of the economy, i.e., you don't have to have the connections," Nash

In the absence of a banking system, the money sloshing around isn't going
to those who need it most.

And when there isn't enough fruit to go around, Russian money flees the
country looking for other investment opportunities. Despite encouraging
signs that Russian money is returning home, the country continued in 2002
to be a net investor overseas: Russian companies invested $19.9 billion
abroad, about $120 million more than the total amount of foreign investment
in Russia.

But a number of the country's largest companies have gone on shopping
sprees over the past few years, picking up assets and building nationwide
conglomerates. Ample domestic money may spur consolidation, like with oil
and base metals, creating sectors that are more welcoming to foreigners.

"There's enough upside for foreign industry still left that they'll come in
after the assets have been consolidated," Nash said. "It's time for
efficiency gains, that's when the foreigners come in with the money to
invest. BP is a perfect example of that."

BP has definitely seen a change since its days of battles over ownership

"Russian companies in the sector are reforming their attitudes and
behaviors. Part of that is they're probably getting a clear steer from the
government ... and part of that is motivation. They see that's where
they'll be rewarded in financial markets for better corporate governance
and transparency," BP's Henshaw said.

"For anybody, in any country, if you come in as a foreigner and there are
internal battles under way, it's going to be pretty hard not to get
bloodied," Henshaw added. "We've certainly taken our licks at Sidanko and
learned from that. The upside is the hands-on experience we got."

BP bought 10 percent of Sidanko oil company in 1997. It was heralded as a
major foreign investment deal, but that soon soured when TNK moved in to
take over major fields in what BP said were rigged bankruptcy proceedings.
TNK and BP buried the hatchet in 2001 when BP increased its stake to 25
percent and TNK gave it management control over Sidanko.

Unconsolidated sectors offer a questionable target for foreign investment:
The country's worst shareholder rights violations have tended to occur as
Russians fight over prime assets and work out their ownership relations.

But consolidation is not the only factor in welcoming or rebuffing foreign
investors, UFG's Ryan said.

"The way it [competition between foreign capital and local capital] tends
to get itself sorted out is based on the predilection of local owners,"
Ryan said. "There is a subset of local owners who are looking to get bought
out. And no matter who the purchaser is, their dollar has 100 pennies in it."

In such cases, Russian money tends to have the advantage of speed and
connections. "They are often, though not always, less rigorous about things
like due diligence," he said.

Owners and entrepreneurs who want to develop and expand their businesses
tend to look for more than just money. A number of them won't want to incur
the costs of transparency associated with foreign investment, such as
international accounting standards and audits, above board tax and
licensing policies, he said. The remaining group "is prime for foreign
investors and that is a material percentage of what's out there," Ryan said.

The growing economy has also spurred the development of an a competitive
business class.

"One of the things foreign companies are dealing with now is the emergence
of serious Russian competitors," UTC's Brody said.

Jennifer Galenkamp, head of corporate affairs at Nestle, also praised the
crop of young Russian competitors for focusing on "what it takes, not just
sticking a name on a package, but developing a product and a brand.

"The opportunity costs of investing are getting higher and higher,"
Galenkamp added. "For those of us who came in early and stuck through the
[1998 financial] crisis, it was frustrating and hard but we're reaping the

While foreign investment is losing importance purely for the sake of the
money in the more attractive sectors, it still offers much needed
managerial and marketing expertise and can help pave the way for Russian
goods to foreign markets, which is increasingly important in order to

"There is adequate room for foreign money and for domestic money. What
foreign investment brings is technical, management and marketing expertise,
as well as access to Western markets," Brody said.

Foreign investors would not only provide the necessary expertise but also
help Russian goods gain access to foreign markets and fulfill Russia's
promise as not only an attractive domestic market, but a strategic location
for manufacturing exports.

"There is huge unexploited potential, so it could be a very attractive
place for re-export," Ruhl said. "But that hasn't happened yet, largely
because of the customs regime ... and WTO accession hasn't happened yet."

Bugbears and Barriers

The domestic market itself is so large and the natural resource base so
rich that many multinationals feel they couldn't pass it by, despite
nightmares clearing customs and recovering value-added tax paid on inputs,
shareholder rights violations, corruption and the absence of "rule of law."

"Given the size of Russia's resource base and the size of the company [BP],
we need to be here," Henshaw said. "We'd have to have a pretty good reason
not to be in most of the leading oil and gas areas of the world."

"It's a country with 145 million consumers. It's simply a market we have to
be in," Nestle's Galenkamp said. "We're certainly happy we're here right now."

However, those advantages may have robbed the government of a strong
incentive to improve both the investment climate and the customs regime.

"There's just a biding assumption that people are going to want to be
there," Ryan said. "Some of them [in government] are making a try of it,
but there's no sword of Damocles hanging over their heads like in a country
without this scale of wealth."

The delays could leave Russia farther behind its competitors in other
emerging markets in the development race.

"One of the prime reasons for coming here is the local market. But if it
doesn't develop, then you've got an export-based company and you have to
rationalize your investment against possible investments in other
developing economies, in many of which it's easier to do business," Brody
said. "As other emerging markets develop -- especially those that provide
access to Asia and Europe -- it may get tougher to use Russia as a low-cost

Despite the frustrations, foreign investors still see Russia as a potential
strategic location for exports.

"Russia is an enormously strategic country as far as looking at the
capability to re-export to the CIS and Europe," said Heidi McCormack,
general director of General Motors in Russia. "We're planning on half of
our Chevrolet-Niva joint-venture production being exported."

Investors said the State Customs Committee, at least at the top, has
changed for the better and the government's attention to boosting exports
is encouraging. They were also encouraged by work on the tax regime and by
legal, judicial and bureaucratic reforms.

"Rule of law is still the main negative theme and that is transparency,
standards by which licenses are issued and withdrawn, by which bureaucratic
decisions are made," Somers said. But, he added, "It's not as if they're
resting on their laurels."

But the government still takes at least one step back for every several
steps forward. Such bureaucratic backtracking discourages investors.

"Our exports were really taking off two years ago, but the government then
changed its export regime to the CIS," Nestle's Galenkamp said. "We now are
going through more and more of a bureaucratic challenge ... to get the
paperwork processed in order for shipments to leave the country."

World Trade Organization accession could put an end to such cases. As well
as the symbolism of joining the club, Russia would then offer a level of
predictability in its trade regime and tariffs policies that are clearly
missing now.

"An approved WTO accession ... would give us a crystal clear understanding
of what is going to happen to an industry," McCormack said.

Renewed Optimism

Respectable economic growth, growth in real incomes and advances on
reforms, including the enactment of WTO-related legislation, as well as the
BP deal, have boosted hopes that Russia has turned a corner and 2003 will
see real growth in FDI.

"Last year we passed some kind of Rubicon," Ryan said. "There's more belief
that this [economic growth and structural reforms] is for real. As time
rolls on, this will be more and more the case."

"I'm very confident we'll see a marked increase in the amount of FDI this
year and next year," Somers said. "The time is coming for Russia. This is
not based on speculation, it's based on very serious conversation with very
senior U.S. and European executives."

Investors, however, are still watching for a number of things: the
transformation of commitment to bureaucratic, banking and regulatory
reforms into action; the consolidation, reorganization and privatization of
industries and the removal of investment restrictions.

"They seem to be waiting to see if the oil price settles, and we won't see
that until the end of this year," said Christopher Weafer, chief strategist
at Alfa Bank. "This looks to be another transition year."


WPS Monitoring Agency
March 12, 2003
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

The wait for war in Iraq; the impatient determination of the
United States to present Saddam Hussein with a final ultimatum;
resistance from "old Europe" to the American method of dealing with
problems - all this couldn't fail to have an effect on Russian
domestic politics and Russia's foreign policy alike. The media is
discussing the intensification of clan power-struggles in Russia this
spring, and yet another possibility of personnel changes at the top,
and even of changes in the president's foreign policy priorities.
As Yevgenia Albats writes in "Novaya Gazeta", until recently
President Putin has aimed to maintain a balance between two
influential groups in domestic politics: the author refers to them as
"the security group" and "the civilians". Albats says: "Talking in
terms of categories such as chekists, liberals, and oligarchs has lost
all meaning: chekists have become oligarchs, the liberals have almost
vanished, and some erstwhile oligarchs have been showing signs of
wetting the bed in constant fear of losing their business or going to
jail - what kind of oligarchs are these, with wet pants?"
According to Albats, the president has recently been forced to
make substantial concessions to the security clan, which has long
objected to the pro-American policy agenda of the Russian
Albats says that Putin at first tried to alleviate the
dissatisfaction of this group by the usual method of "tightening the
screws" at home: "He twisted the necks of a number of media outlets;
he raised salaries for both military and civilian bureaucrats; he
handed out several tasty chunks of the economic pie - oil, gas, vodka,
lumber, parties, and the media."
But the overall problem didn't go away. Essentially, the
president is being invited to make a choice between the civilian
oligarchs and the security group. This is a real dilemma for Putin: a
conflict with the former would mean problems in the regions during an
election year - but angering the latter would be even more dangerous.
It seems there can be no simple solution here.
Albats notes than when internal resources do not suffice, an
experienced politician usually brings external resources into play. At
present, those resources may be described as "peaceful resolution of
the Iraq situation".
On the one hand, Putin appears to be giving in to the anti-
American views of the security group. On the other hand, he is
responding to the demands of those in the Russian oil sector who have
their own interests in Iraq. Thus, both sides stand to gain something.
However, says Albats, it's uncertain how long the security group
will be content with this bone Putin has thrown them. Very likely,
further concessions will be inevitable.
Albats concludes: "One thing is already apparent: President Putin
is nervous - he is more and more wary of his colleagues from his
previous place of employment."
Meanwhile, the radical left "Zavtra" newspaper emphasizes that
the "Yeltsin's Family" clan is taking the offensive. "Zavtra" says
that during a recent visit to Washington by Alexander Voloshin, head
of the presidential administration, the discussion agenda went beyond
the problem of Iraq; it also included "the operating concept for
Russian government institutions for the entire electoral cycle,
including the parliamentary and presidential elections".
Moreover, according to "Zavtra", during Voloshin's "unprecedented
reception" by President Bush in Washington, the discussion allegedly
covered the possibility of Prime Minister Mikhail Kasianov becoming
Putin's "successor" as president.
According to "Zavtra", Putin's obvious increased contacts with
European Union leaders "have been viewed by the St. Petersburg
security clan in the Kremlin as a signal to step up moves to
investigate abuses of power by a number of prominent figures linked to
the Yeltsin's Family clan."
In a recent issue of the "Versiya" weekly there was an article by
Oleg Lurie about a topic which has been around for some time, but
still remains relevant: the fate of the infamous IMF loan granted just
before the crisis of August 1998.
Everyone knows that the first installment of the unfortunate loan
vanished without a trace in 1998. Oleg Lurie notes that "all sorts of
Russian agencies, including the Prosecutor General's Office, the
Central Bank, the FSB, and others" were involved in the investigation
- but the money was never found. However, the prosecutors of
Switzerland were more successful: they managed to reconstruct "an
amazing scheme, clearly showing how and where the $4.8 billion loan
had disappeared".
Lurie says: "According to information from the Central Bank and
the Finance Ministry, not a single cent of the loan money could have
been deposited in any bank account without orders from the person at
the Finance Ministry who was responsible for foreign loans."
And so, says "Versiya", the first loan installment started out at
the Federal Reserve Bank in the United States. But from there it was
not transferred to the correspondent accounts of the Russian Central
Bank; instead, it went to the Republik National Bank of New York,
owned by banker Edmond Safra - suspected by the FBI of involvement in
laundering money originating from Russia.
Then, via the Swiss affiliate of the Creditanstalt Bankverrein,
the money was distributed to four different destinations.
The first payment of $2.35 billion went to the Bank of Sydney -
which had no connection with Australia, but was registered in an
offshore zone; the money safely disappeared a month after being paid
out by the IMF. According to some sources, this money turned up in the
bank accounts of a certain company in which a 25% stake was owned by
Tatiana Diachenko, President Yeltsin's daughter.
A second payment of $2.115 million went into accounts at the
National Westminster Bank in London. The trail of this money has been
A third payment - initially $780 million, followed by another
$270 million - went to the Credit Suisse bank in Switzerland. The fate
of this part of the loan has been traced by Swiss prosecutors.
But the most interesting story is that of the fourth part of the
loan installment: $1.4 billion which went first to the famous Bank of
New York, and subsequently to its subsidiary - the Bank of New York-
Intermaritime in Geneva - where it was paid into the correspondent
account of a Russian bank called the Unified Bank.
The Unified Bank was owned by Boris Berezovsky and Roman
From there, the money was transferred to the account of RUNICOM,
a Swiss company owned by Roman Abramovich alone. And then the August
1998 crisis took place in Russia.
Many mysterious tales are told in the West about the Russian
loan. One of the most sinister is about the horrible death of Edmond
Safra the banker, that very same owner of the Republik National Bank
of New York where the intricate chain of events that led to the
disappearance of the IMF loan began.
Safra died in December 1999, under circumstances which have not
been entirely clarified: in his own home in the south of France, in a
specially-equipped and well-protected bunker.
Allegedly, shortly before his death Safra was visited by Boris
Berezovsky - who at the time was a fairly influential figure in the
Russian administration, and is now a "London exile". It is said that
their conversation lasted three hours, and voices were raised. After
the meeting, Edmond Safra was overcome by panic. Apparently, in
conversations with FBI agents he even claimed that somebody was trying
to kill him.
In any event, after Safra's death many of those suspected of
involvement in the "bank fraud of the century" flatly refused to
testify. Nevertheless, the Swiss prosecutors are continuing their
investigation; and "Versiya" observes: "It is quite likely that Roman
Abramovich and Mikhail Kasianov soon won't dare go abroad any further
the friendly states of China and North Korea - since there are always
some spare bunks in the Geneva jail."
To all appearances, this media attack on Family clan members may
be considered the first shot - still a distant shot - heralding the
approach of pre-election political battles.
Rumors, media leaks, and various political intrigues have always
been part and parcel of such battles.
"Vremya Novostei" observer Andrei Ryabov considers that the
public response to political rumors has become muted in recent years;
"media outcries" have become routine events which have no
Back in the Yeltsin era, every rumor caused a sensation - even
though if any changes at the top did happen, they happened according
to scenarios which were completely different and not revealed to the
During his last years in power, Boris Yeltsin had very little
public support; but his unpredictability and passion for personnel
changes enabled him to maintain the initiative. Political players
spent most of their time adapting to ever-changing circumstances.
Everyone admits that President Putin's main achievement has been
social stability; under Putin, the number of political rumors and
personnel changes has fallen drastically: "Obviously, personnel
changes always carry the risk of disrupting stability."
Thus, according to Andrei Ryabov, even if some change of
priorities is underway in the Kremlin's policies, it is not altering
the existing balance of power at the top - "let alone any changes to
the political or socio-economic agenda".
Therefore, says Ryabov, rumors have mostly become "a useful tool
in political power-struggles between rival groups within the elite -
used to keep opponents in a constant state of tension, and possibly to
force them into making many mistakes."
Andrei Ryabov says the real personnel and policy changes should
be expected after the presidential election, during Putin's second
term in office.
The nature of those changes will depend on various factors: Will
Putin win in the first round of voting? How many votes will his
challengers get? Who will play the greatest role in facilitating his
victory? What will the next Duma look like - and will efforts to
ensure a pro-presidential majority succeed?
Participants in the political pageant which is starting now are
already trying to answer these questions. And if the answers prove to
be unwelcome, some major effort is put into correcting mistakes - up
to and including repressive measures.
A clear example is party-building within United Russia.
Right now, the centrists are preparing for their party congress
at the end of March - and their personnel circumstances lack any
clarity whatsoever.
According to "Gazeta", Alexander Bespalov, chairman of the United
Russia party's general council - while not been officially dismissed
from this post - has essentially stepped down. No replacement for him
has yet been found.
Rumors that Bespalov might be replaced by Dmitrii Rogozin, who
recently switched from the People's Party to United Russia, remain
unconfirmed. A "senior United Russia activist" told "Gazeta": "Rumors
of Rogozin's appointment are being deliberately spread by the
presidential administration, in order to unnerve other general council
members - the faction leaders who want this job themselves."
In fact, according to this sources, nobody is taking Rogozin's
candidacy seriously: "He is still dogged by a history of extravagant -
to put it mildly - proposals made by the People's Party, concerning
capital punishment and campaigns against homosexuality."
Duma faction leaders are categorically opposed to Rogozin being
appointed chairman of the United Russia general council. However, the
presidential administration considers it would be just as unwise to
appoint any of the faction leaders. Even though Unity and Fatherland
no longer exist independently (de jure), their leaders are quite
active in intra-party power struggles; and elevating any one of them
would disrupt what is already a fragile balance of power.
All this has led to the idea of amending the United Russia
charter to state that the general council chairman is elected for a
period of no longer than one year.
In any case, says "Gazeta", the supreme council is gradually
becoming the governing body of United Russia.
According to rumors which remain unconfirmed, the supreme council
may soon have a new member: Governor Alexander Khloponin of the
Krasnoyarsk territory, whose relationship with United Russia has been
troubled until only recently. At the gubernatorial election in
Krasnoyarsk, United Russia supported Khloponin's rival, Alexander Uss.
Despite this, according to "Gazeta", Khloponin - who continues to
refuse to join the party - has found a compromise truce with United
Russia: it involves becoming a member of the party's supreme council
without being a member of the party as such. The same has already been
done by athlete Alina Kabaeva, President Mintimer Shaimiev of
Tatarstan, Moscow Mayor Yuri Luzhkov, Emergencies Minister Sergei
Shoigu - and the present head of the supreme council, Interior
Minister Boris Gryzlov.
The supreme council is presently considered to have an observer
function; thus, it can include athletes, performing artists, state
officials, or regional leaders who are not party members.
Overall, United Russia remains intent on swelling its ranks as
much as possible. According to "Gazeta", the party's lack of any
ideology - a criticism often levelled at United Russia - is a result
of this "wholesale expansion in all directions".
"The party declares that it is defending the interests of
practically all social groups: rural workers, the intelligentsia,
state-sector workers, entrepreneurs. It forgets one political axiom: a
party is only part of society, and it cannot please everyone, by
United Russia cannot please everyone - but it's trying to do so;
and "Gazeta" says that this, during the inevitable pre-election
upswing in populism, is why United Russia is shifting to the left.
An example of this shift: Vyacheslav Volodin, leader of the
Fatherland - All Russia faction in the Duma, has supported demands
from the agrarian lobby for the government to write off 170 billion
rubles of agricultural sector debts and raise tariffs on imported food
These demands would be better suited to the Communists; however,
unlike the Communists, the leaders of United Russia are sure that they
can achieve their goal. Oleg Morozov, leader of the Russia's Regions
group, said: "If anyone is capable of delivering real benefits for the
people, we are. It's no good turning to a political organization which
can do no more than stand at your side and helplessly howl at the
The "Izvestia" newspaper says that if Vyacheslav Volodin and Duma
agrarian committee chairman Gennady Kulik succeed with their plans,
even in part, United Russia will gain millions of votes from rural
Russia. At present, rural residents make up 37% of the population:
this represents around 40 million voters.
According to "Izvestia", United Russia means to do more than
"make agriculture healthy" and pass a resolution on regulating fuel
prices before spring sowing begins; it also intends to come to the
defense of small farmers - who produce over half of Russia's food.
Gennady Kulik cites the example of the United States, which spends $35
billion a year on farm subsidies. Russia plans to spend 28 billion
rubles for this purpose in 2003.
"Izvestia" says: "United Russia's agricultural policy platform
will be the main rival to the Communist Party's agrarian slogans -
other parties don't count." Gennady Kulik told "Izvestia" that the
Union of Right Forces and Yabloko don't even have any policies on
Meanwhile, the Communists themselves, who held a plenum in Moscow
recently, admit that the situation on the left isn't looking too good
at the moment.
Duma member Viktor Ilyukhin, a member of the Communist Party
central committee, told the "Kommersant" newspaper that "new left-wing
centers of force are appearing, which will apparently go into the
elections independently." Ilyukhin said that the Communist Party has
found itself "in a very odd quadrangle made up of three Gennadys
(Zyuganov, Semigin, and Seleznev) and one Sergei (Glaziev)" - and
differences between them have yet to be sorted out.
In the meantime, the chief Gennady - Gennady Zyuganov - is
refusing to discuss inter-party differences, claiming that the
Communist Party is still engaged in consultations with over twenty
parties and political movements on forming an electoral bloc.
According to Zyuganov, the candidate lists of this proposed bloc
would be headed by "a communist, an agrarian, and a patriot".
The first of these is likely to be the Communist Party leader
himself - the first of the Gennadys.
According to "Kommersant", the role of the agrarian would best be
filled by Nikolai Kharitonov, head of the agricultural group in the
Duma, or Governor Vasily Starodubtsev of the Tula region.
And the place of a "real patriot" is likely to be offered to
"Sergei Glaziev, who is a member of the Communist faction in the Duma,
but not a member of any party".
According to "Kommersant", this would mean that the remaining two
Gennadys - Seleznev and Semigin - would be forced to compile and head
their own electoral lists. Thus, there's no point in talking about a
broad left coalition at present; especially since the center-left
party are displaying a clear distaste for the Communists.
On the day that Zyuganov's Communists held their plenum, an open
letter was published in the media. This was a declaration "on the
leadership situation in the People's Patriotic Union of Russia and the
Communist Party of the Russian Federation"; it was signed by the
leaders of the New Communists party, the National-Patriotic Foces of
Russia, the Eurasian party (Union of Russian Patriots), the United
Socialist Party of Russia (Spiritual Heritage), the Russia's
Renaissance party, the Russian Party of Peace and Unity, and the
Russian Workers' Government Party.
The declaration states that the Russian leftist and patriotic
movement is corrupted by contacts between Communist Party leaders and
Boris Berezovsky.
From the declaration: "The leadership of the Communist Party,
tempted by temporary gains from cooperation with financial oligarchs,
is losing political substance before our eyes. It is bitter to realize
that the luster of money has so quickly made them forget that most of
our victories have been due to the efforts of the patriotic movement
as a whole, and we have never divided them between the Communist Party
and other parties. The striking contrast between efforts to obstruct
their loyal fellow fighters and the search for alliance with erstwhile
sworn enemies reveals the true face of certain Communist Party
leaders, who are working against the interests of the common people."
But even with their "true face revealed", the Communists still
retain their lead in popularity over the other parties.
According to the latest poll results from the National Public
Opinion Research Center (VTsIOM), published in "Nezavisimaya Gazeta",
if the elections had been held last Sunday 24% of voters would have
supported the Communist Party.
United Russia is in second place, with 23%. This is a substantial
achievement, since it only had 14% support in January polls: so the
heroic efforts of the centrists to recruit performing artists,
athletes, and others from the beau monde into the party haven't been
wasted - voter attitudes to United Russia have improved significantly.
Yabloko is in third place, with 7%. It is followed by the Union
of Right Forces and the LDPR, with 6% each. The remaining parties
would have failed to surmount the 5% barrier if the elections had been
held last week.
What's more, "Nezavisimaya Gazeta" reports that VTsIOM has
recorded a rise in public dissatisfaction with the performance of the
prime minister. In January, the numbers of Mikhail Kasianov's
supporters and opponents were about equal. In February, the situation
changed: 42% of respondents approved of his policies, while 49%
"Nezavisimaya Gazeta" impartially reports that President Putin's
position remains steady: 72% of respondents approve of his
performance, while 22% disapprove. Exactly the same figures as in the
January polls.
The president is also leading in the confidence ranking: 49% of
respondents trust Putin. Mikhail Kasianov is only in fourth place,
with 10% of respondents trusting him.
Gennady Zyuganov is ahead of Kasianov by 4% - he holds third
place in the confidence ranking, after Sergei Shoigu, who is trusted
by 18% of respondents.
So the emergencies minister is trusted by twice as many people as
the prime minister: that seems to present a fairly comprehensive
summary of the situation in Russia.
Further significant figures: apart from Gennady Zyuganov, two
other party leaders have a place in the confidence ranking - Vladimir
Zhirinovsky and Grigory Yavlinsky.
Despite all his recent eccentric escapades (or thanks to them?) -
including his crude abuse of the president of the United States -
Zhirinovsky is trusted by 8% of respondents. Yavlinsky is trusted by
only 6%.
In other words, Zhirinovsky - desribed by highbrow analysts as a
political clown - appeals to significantly more people than his party
does. The reverse is the case for Yavlinsky the intellectual.
There's some material to reflect on as the elections approach.
(Translated by Arina Yevtikhova and Alexander Mazzucchelli)