Johnson's Russia List #6150 22 March 2002 davidjohnson@erols.com A CDI Project www.cdi.org [Note from David Johnson: 1. UPI: Martin Sieff, Analysis: Experts fear for Russia's future. 2. Moscow Times: Anna Raff, Russia Is World's No. 1 Oil Producer. 3. AP: Majority of Russians support U.S. chicken ban. 4. St. Petersburg Times: Alla Startseva and Vladimir Kovalyev, Why U.S. Chicken Bugs Russia. 5. The Guardian (UK): Ian Traynor, Georgia looks west to Washington. Moscow mistakenly imagined that September 11 would give it a green light to eradicate Chechen 'terrorists' in Georgia. 6. Richard Thomas: re 6149-Bloomberg/Browder. 7. Financial Times (UK) letter; Georgy Skorov, Putin as a leader stands well beside his contemporaries. 8. The Economist (UK): Russia's central bank. Mr Rouble quits. 9. Komsomolskaya Pravda: IS THE RUBLE FACING THE THREAT OF ANOTHER DEFAULT? Forecasts from some leading economic analysts. 10. Novaya Gazeta: Anna Politkovskaya, AKHMAD KADYROV: HAD I BEEN THE DICTATOR OF CHECHNYA. An interview with Akhmad Kadyrov, head of the administration of Chechnya. 11. Moscow Times: Vladimir Ryzhkov, No Modernization Without Representation. 12. UPI: U.S., Russia inch ahead in arms talks. ******* #1 Analysis: Experts fear for Russia's future By Martin Sieff Senior News Analyst WASHINGTON, March 21 (UPI) -- Bush administration policymakers take Russia's stability and its predictable, cooperative, subservient behavior for granted. But according to leading U.S., Russian and German experts, they shouldn't. Since the terrorist attacks on New York City and Washington on Sept. 11, Russian President Vladimir Putin has boldly led his country on a course of cooperation with the United States in toppling the Taliban regime in Afghanistan. Now Putin is even working with United States to root out al Qaida groups operating in the former Soviet republic of Georgia in the Caucasus. But Putin's policies are increasingly unpopular in Russia. They are widely and even boldly criticized in the Moscow press. And they are widely unpopular in the Russian Foreign Ministry and among senior commanders in the armed forces, according to some Russian political sources. Putin appears to remain firmly in the saddle, possessing a democratic mandate to retain power to the end of his presidential term. But Lilia Shevtsova, of the Carnegie Endowment for International Peace and a leading expert on current Russian politics, warns that his power and the general stability of Russia's democratic system may be far more tenuous than is comfortably assumed in the United States, all the way to the top of the Bush administration. In early March, Shevtsova, co-director of Carnegie's Project on Russian Politics and Political Institutions, told an audience at the Endowment's Washington headquarters that Russia's current apparently strong political stability and economic growth were in fact based on a bureaucratic authoritarian regime. The vast nation's new political institutions, she said, were still weak. And they would remain so until an advanced economic structural reform and a political administrative reform to divorce "business from bureaucracy (and the) economy from power" could finally be implemented. Heinrich Vogel of the German Institute for International and Security Affairs, or SWP, in Berlin echoed this concern. Writing in the spring issue of journal Internationale Politik he praised Putin's achievements over the past two and a quarter years, especially "implementation of important reform laws in the Duma; reduction of outstanding wage debts; raising of wages, pensions and salaries in the public sector; and a start in disciplining the administration." But Vogel then continued, "There are doubts, however, about the durability of this unaccustomed stability." It was based, he said, upon "political structures that are not very transparent ... There are also basic questions about how much stress public institutions can sustain." Russian living standards have grown since 1999, Vogel said. But they still remain far below the standards even of December 1997. He then painted a grim picture of a nation of 140 million or more people of whom more than a quarter, or 27 percent, still lived in utter destitution "with a per capita income below the minimal subsistence level ... Accompanying the hardship is a demographic catastrophe ... Yet there is not even any effective political medium-range strategy for coping with (these) problems." What will happen if things get worse? Will the strongly centralized state institutions Putin has revived maintain their current course under his successor? Or if Putin himself decided to change direction and crack down more harshly, what could stop him? Oleg Kalugin, a former general in the KGB secret police who came to the United States, warned that strong, even ferocious anti-Western sentiments still circulate in circles of Russian policymakers as well as among the wider public. At the moment, they still appear marginal and unrepresentative, but that could changed, he warned, if Russia suffers yet another major economic crisis in the near future, before its current, still horrendous economic and social problems have been alleviated. Current expressions of hostility against the Catholic Church and other Western-based religious institutions in Russia have been widely reported and still appear to be on a small scale. But Kalugin, now a professor at the Center for Counterintelligence and Security Studies in Alexandria, Va., told an audience in Washington's University Club earlier this month that if Russia's still fragile economic and political stability were to collapse again, the virulent, ultra-nationalist extremist forces involved in such activities could take over the entire vast, nuclear-armed nation. "If Russia plunges again into poverty and hopelessness, this intolerance will become another resource for terrorism (against the entire Western World)," he said. At the moment, no one in the Bush administration takes such concerns seriously. There is a widespread consensus that Russia's leaders recognize they must cooperate with the United States in their own interests on a slew of major economic and strategic interests, and there is no sense that Putin may either unexpectedly change direction or be toppled and replaced by someone who will. And as long as Russia's economy remains relatively stable, even at its current low level, that may well be the case. But as Vogel noted, the wretched economic and social problems of post-communist Russia have not been solved and still fester. And as Shevtsova pointed out, no stable democratic structure of strong institutions and public confidence has yet been built to ensure continued freedom. Therefore, if the apparently small groups of which Kalugin warned could seize power or gain significant support in the army, then the behavior of one of the world's two most heavily armed thermonuclear nations could become dangerously threatening and unpredictable with stunning suddenness. Those scenarios do not appear imminent at the moment. But as these warnings indicate, they are by no means impossible either. ******* #2 Moscow Times March 22, 2002 Russia Is World's No. 1 Oil Producer By Anna Raff Staff Writer Russia has beat out Saudi Arabia to become the world's biggest oil producer -- for the month of February, at least. According to estimates compiled by the Paris-based International Energy Agency, Russia pumped 7 million barrels per day last month compared to Saudi Arabia's 6.9 million barrels per day. Such an upset in the rankings hasn't been seen since the 1980s, when the Soviet Union led the world in oil production. While the plunge and recovery in oil production mirrors the country's economic health since 1990, Russia's possession of the top spot may be short-lived. And oil production isn't exactly what gets politicians excited: Most oil companies get the bulk of their revenue from exports, not domestic sales. "While production is important, it's the exports that we look at," said Timerbulat Karimov, an oil analyst at the Aton brokerage. "And a month-to-month change doesn't really mean much, because oil production also varies according to seasonal swings." Russia and Saudi Arabia were producing at the same levels in January before Russia surged ahead. Last month, the United States came in third after Saudi Arabia with 5.8 million bpd. Iran and China followed with 3.3 million bpd each. In February 2001, the rankings were the same except for the No. 1 and No. 2 spots. At that time, Saudi Arabia pumped 7.9 million bpd against Russia's 6.5 million. Saudi Arabia has led the Organization of the Petroleum Exporting Countries, of which Russia is not a member, in cutting its oil output to stabilize world oil prices. Prices had dropped as a result of the Sept. 11 attacks and the doubt the attacks cast over a speedy recovery from the global recession. If it wanted to, Saudi Arabia could increase its oil flow by up to 50 percent with the turn of a valve. Russia's oil industry, on the other hand, is working at full capacity. "Saudi Arabia can step up output if it wants to, while Russia can step it up only if it continues investing," said Stephen O'Sullivan, head of research at United Financial Group. "Investment requires profits and cash flow, elements which are under threat." On Tuesday, the Russian government decided to extend export curbs until the oil price strengthens. An initial agreement to cut exports was struck last year and came into effect from Jan. 1. Oil prices have already risen 27 percent during the past two months, and the benchmark Brent blend was trading at $24.66 at midday Thursday. "International prices remain very firm, and the market has clearly priced in Russia's adherence to its quotas," O'Sullivan said. But production numbers don't tell the whole story. While Saudi Arabia exports almost all the oil it produces, more than half of Russian oil stays in the country, mainly because state pipeline monopoly Transneft has a limited capacity that has not grown as fast as the nation's production. This has caused a glut on the domestic market, where crude sells for a mere $4.25 per barrel. While Russia pumps more oil than its Arabian rival, it exports half as much -- 3 million bpd compared to Saudi Arabia's 6 million. But if exports of refined petroleum products are taken into account, Russia beats out Norway to become the world's No. 2 exporter behind Saudi Arabia, according to the U.S. Energy Department. With a possible war brewing in the Middle East, some officials from the United States -- the world's largest oil consumer -- are evaluating the possibility of importing crude oil from Russia if supplies from OPEC countries are cut off. Transportation costs currently make such an arrangement unfeasible, but U.S. Commerce Secretary Donald Evans has voiced the possibility of tankers carrying oil from the Sakhalin-1 offshore fields to the United States' Pacific coast. That is, once oil production at Sakhalin-1 -- a consortium led by ExxonMobil -- gets started. "The production numbers are weird if they're true," said a U.S. Energy Department official who wished to remain anonymous. "But that's not a big deal. Where Russia is going is a big deal." ******* #3 Majority of Russians support U.S. chicken ban MOSCOW, Mar 21, 2002 (AP WorldStream via COMTEX) -- A vast majority of Russians support their government's current ban on poultry imports from the United States, according to a recent nationwide survey. The Public Opinion Foundation poll found that 96 percent of Russians are aware of the government's ban and 79 percent approve of it, based on a poll of 1,500 people across the country. The poll claimed a margin of error of 3.6 percentage points. But Russians appear split on the reason for the ban: 35 percent said it was to help the domestic chicken industry, 34 percent said it was to keep inferior U.S. chicken off the Russian market, and 12 percent said it was retaliation for new U.S. steel tariffs. One percent said the ban was revenge for Russia's treatment at the Salt Lake City Winter Olympics. Russia imposed the chicken ban earlier this month, citing concerns about sanitary conditions at U.S. plants and the use of antibiotics in American chickens. U.S. officials say the poultry is safe, and the two sides have been holding high-level talks to try to break the impasse. U.S. chicken - known as "Bush legs" in Russia because the first Bush Administration sent them as humanitarian aid - has become the top American export to Russia, involving producers in 38 states. But Russia's poultry ban - and new U.S. tariffs on steel, one of Russia's major exports - have marred relations ahead of U.S. President George W. Bush's visit to Russia in May. Despite the poll results showing most Russians agree with the chicken ban, there are a few holdouts. In St. Petersburg, about 10 members of the pro-communist Labour Russia party demonstrated outside the American consulate Thursday, demanding an immediate resumption of U.S. chicken imports. They held signs that read "Bush legs fed all the poor of Russia," and "Bush legs, we want to eat you forever." ****** #4 St. Petersburg Times March 22, 2002 Why U.S. Chicken Bugs Russia By Alla Startseva and Vladimir Kovalyev STAFF WRITERS Vladimir Fisinin knows American chicken, and he says it's dangerous. As the vice president of the Russian Academy of Agricultural Sciences and the general director of the Inter-regional Scientific Center for Pedigree Poultry Farming, Fisinin has been studying chickens for decades. He dismisses accusations by Washington that Moscow's ban on U.S.-poultry imports, implemented March 10, is a tit-for-tat move for punitive U.S. tariffs on steel announced just a few days before. "I would like to point out," he said, "that American farmers are injecting the chickens they grow with antibiotics used to treat people. This is prohibited in Russia." The danger, according to Fisinin - and many other experts from around the world - is that antibiotics such as penicillin, chlortetracyclin and erythromycin, which are commonly used to treat human maladies, are used by U.S. poultry farmers in staggeringly large dosages and accumulate in the meat they produce. Ingesting this meat then reduces the immune system of the person eating it and increases the likelihood of an allergic reaction. "It is dangerous, especially for children and old people," he said. The European Union - no stranger to health issues regarding meat - banned U.S.-poultry imports in 1998. China did the same, as did several other nations, including Ukraine in January. U.S. officials and poultry farmers insist they have the highest health standards in the world and the antibiotics they use disappear by the time the chicken is eaten. However, even within the United States a growing number of prominent health organizations, scientists, politicians and consumer rights groups are calling for a ban, or at least a restriction, on what they say is the dangerous overuse of antibiotics. The routine use of antibiotics has become so prevalent, they argue, that it is helping to create new super strains of harmful or fatal drug-resistant diseases. Some 70 percent, or 9 million kilograms, of all antibiotics used in the United States every year are administered to healthy chickens and other animals to make them grow bigger and compensate for unhygienic conditions, according to KAW, a U.S. coalition dedicated to eliminating the inappropriate use of antibiotics in farm animals. Identifying it as a major cause of antibiotic resistance among people, the American Medical Association, the American Public Health Association and numerous other leading health organizations have called for a sharp reduction in the agricultural use of antibiotics. According to a study in the prestigious New England Journal of Medicine that was published in October, one in three samples of supermarket poultry was contaminated with salmonella and, of the 13 strains found, 83 percent were resistant to at least one antibiotic, while 53 percent were resistant to at least three. For Russia, the quality of U.S. chicken is a national health issue. Beginning in 1989, under former President George Bush, the United States began exporting enormous quantities of chicken to Russia which came to be called Bush legs. Thirteen years later, U.S.-poultry exporters earn $600 million a year here and account for two-thirds of the market. "The ban on U.S. poultry should have been implemented a long time ago," said Ivan Vasilenko, a leading chemist and the deputy head of the State Scientific Center for Antibiotics. "All over the world, antibiotics must be separated into those that are for animal use and those that are for human use," he said. People who are allergic to a certain kind of antibiotic could suffer an allergic reaction if they eat meat from a chicken injected with that antibiotic, Vasilenko said. But the real danger, he said, is that, when chickens are fed with antibiotics, bugs form in their flesh that are resistant to that antibiotic. "It is sometimes impossible to treat a person infected in this way, as the only known medicine against a disease that carries the bug is an antibiotic to which the bug has resistance," Vasilenko said. Tatyana Guseva, an allergist at the Institute of Allergology and Clinical Immunology, said that even minute amounts of antibiotics ingested from eating chicken can be harmful. "An overdose of antibiotics might occur when a patient is treated with antibiotics that neither the doctor nor the patient knew was already in his body. This could happen from ingesting food containing antibiotics," she said. What worries specialists like Guseva and Vasilenko is that no one knows exactly what the health consequences in Russia have been from eating the meat of chicken treated with antibiotics because no one has ever had the money to do a proper study of the issue. Indeed, this in one of the main debating points of the visiting 12-member team of U.S. trade, health and agriculture officials currently negotiating with their Russian counterparts in an effort to lift the ban. "The Russian government was asked: 'Did you find any antibiotics in our chicken?' And they said: 'We can't afford to find it out,'" a source close to the U.S. delegation said Tuesday. "Russia uses antibiotics, too," he said. "If you don't monitor, how do you know they don't use it. Just because it's not approved it doesn't mean they don't use it. "In America, each facility has a state inspector. We monitor, we know the quality of our chicken. Russian farms are not monitored, most of them are not even clean," he added, with obvious frustration. An Agriculture Ministry spokesperson countered the accusation, saying that unlike the United States, where inspectors are on the payroll of producers, Russian producers are subject to spot-inspections several times a year. Last week, U.S. negotiators confirmed that their producers used antibiotics and dosages prohibited in Russia. Doses of tetracycline, for example, are 200 times the legal limit. They also admitted to using arsenic to make their chicken more aesthetically pleasing. ******* #5 The Guardian (UK) 21 March 2002 Tbilisi dispatch Georgia looks west to Washington Moscow mistakenly imagined that September 11 would give it a green light to eradicate Chechen 'terrorists' in Georgia By Ian Traynor Passing through the pretty but poor villages of Georgia beyond the capital, Tbilisi, it is common to be confronted by a statue of the most famous Georgian of them all - Josef Stalin. But in the office of the defence minister, David Tevzadze, pride of place on the wall goes to an imposing portrait of another international figure of Georgian roots - General John Shalikashvili, the former chairman of the US joint chiefs of staff. The contrast between the reverence for the Soviet despot and the hero worship of the US officer highlights the conflict between the small Caucasus republic's past and its future. This conflict between dependence on and domination by Moscow versus support from Washington is being played out right now as the global "war on terrorism" shifts to a certain extent to Georgia. In October 1999 then President Boris Yeltsin of Russia turned to President Eduard Shevardnadze of Georgia with a demand to be allowed to stage a Russian invasion of Chechnya from Georgian territory south of the secessionist republic. Russia's second war in Chechnya had just begun. But the Russians were told no. Exactly two years later, last October, Mr Shevardnadze went to the White House in Washington. When the Americans requested permission to deploy some 200 troops, the answer from Mr Shevardnadze was yes. "The Russians never offered us the same help as the Americans," explains the deputy foreign minister, Giorgi Burduli. "Joint operations with the Russians are completely unacceptable for us. The US presence here is a very important factor, a stabilising factor." There is little doubt that these days the Georgian elite prefers Shalikashvili to Stalin. For years Russia and America have been sparring over the strategic territory of Georgia. But September 11 has given that contest a jolt, with the Americans pushing on an open door in Georgia while the Russians are shut out. The result is a worsening relationship between the Russian and Georgian leaderships. President Vladimir Putin and Mr Shevardnadze appear to have a strong personal dislike for one another. The Russian security and military elites still cannot forgive Mr Shevardnadze for his permissiveness in facilitating the end of the Soviet Union when he was Mikhail Gorbachev's foreign minister. If Mr Shevardnadze is still remembered fondly in the west for his charm and liberalism, he is despised in Russia. But after 10 years as president, Mr Shevardnadze is nearing the end of his period in power, bequeathing a country in dire straits and a government that is notoriously corrupt and ineffective. Large swaths of Georgia are beyond Mr Shevardnadze's power and the Russians are adept at playing the game of divide and rule. The Pankisi gorge to the north-east - the focus of the US military attention - is run by Chechen warlords and gangsters. The breakaway Black Sea region of Abkhazia in the north-west is de facto independent, with Russia's open support. Ditto south Ossetia in the north. Adzharia to the south-west is autonomous. In short, Shevardadze presides haplessly over a shrunken realm. "The regions the central government can't control - Abkhazia, Ossetia, and Pankisi - that's the focus of the new programme [with the Americans]," says Mr Tevzadze, the defence minister. This is the kind of talk that alarms the Abkhaz secessionists and the Russians. Georgian partisans briefly kidnapped four Russian peacekeeping soldiers in Abkhazia this week, triggering furious denunciation of the Georgian government by Moscow, which may be losing the contest for influence with the Americans but which can still cause plenty of mischief. The Georgians are dependent on Russia for supplies of gas which are turned on and off as a political instrument. The leverage extends to strong Russian influence in Abkhazia and South Ossetia - both bordering Russia proper - with the Russian Duma or lower house threatening to legislate for incorporation of the regions into Russia when it gets particularly upset about Mr Shevardnadze, which is often. And in a move that is tantamount to non-recognition of Georgian sovereignty over its territory, the Russians imposed visa requirements on Georgians but exempted Abkhazia and South Ossetia from the rules. The Russians also still have almost 5,000 troops at three bases in Georgia. Tbilisi wants them out within three years. Moscow says it will take 14 years. "Russia is always trying to preserve its presence and influence in this country," says Mr Burduli. "But it does not have a clear policy on Georgia and the Caucasus." Terrorism has become the catchall excuse for all sides in this tense contest. The Americans maintain - as the Russians have for years - that there are Middle Eastern terrorists in the Pankisi Gorge. The Georgians are happy to let the Americans in to deal with that perceived problem, but then allege that Osama Bin Laden's associates are actually in Abkhazia, not Pankisi. Everyone fears that the Georgians will exploit the US military training and supplies to attack not Pankisi, but Abkhazia, although more sober minds in the Georgian government insist nothing will be done to impede the search for a diplomatic and political settlement in Abkhazia. "The American presence will not help the Russians make a deal with Georgia," says a senior European diplomat in Tbilisi. "The Georgian government wants to join Nato and is inviting in the Americans. Putin won't do a deal with it." Western diplomats in Tbilisi say the Abkhaz conflict can't be settled militarily and that it would be disastrous if the Georgian troops now being trained by the Americans ended up fighting Russian peacekeepers in Abkhazia. But if the Russians imagined that September 11 and the war in Afghanistan gave them a green light to eradicate Chechen "terrorists" on Georgian territory, the Americans have nipped that in the bud. Back in 1999, when Yeltsin was rebuffed by the Georgians, the Americans signalled that the Russia-Georgian border was "a red line" not to be crossed by the Russians. Despite the consensus between Washington and Moscow on fighting terrorism, the red line policy is still in place. ******* #6 Subject: HA: 6149-Bloomberg/Browder From: "Richard J. Thomas" <62401@62.fesco.ru> Date: Fri, 22 Mar 2002 In response to "Hermitage’s Browder Says Being An Activist Investor Pays in Russia By Pete Gallo, Editor March 20, 2002" in JRL 6149 and as the former head of research for a Western investment company that was active on the Russian share market from the early 1990s until 1998-9, I feel "due diligence"-bound to say to those who might be swept up in the next wave - BEWARE! Undervalued assets. Reforms and equity rallies. Bullish hedge funds whose managers warn that if volatility isn't your thing/gig/cup of tea, you "probably shouldn't be involved." Possible gold rushes. "Absurd" P/E ratios. Putin batting nine for nine. (In the dark days after August 1998, we used to talk about "bottom fishing" - anything to hook 'em in!) Where have I seen, heard and read this all before? And even... used it on clients - potential clients looking in and "poor suckers" (actually shrewd types, for the most part, with a bit of "give-it-a-shot" money to burn) who actually put their cash on the barrel head? If you're going to sink money into Russian corporate equity you should do it only indirectly and in a way that gives you a clear and reliable exit. With your pants and shirt intact. And recourse, real recourse. (In Russia? Don't make me laugh.) Not on the basis of sweet words from the mouths of those who hope to make money from your entry and your "buyer did not beware sufficiently - goes with the territory - upbeat on asset plays" exit. Fighting about repatriation of profits, minority shareholders' rights, transparency of financial statements, questionable redistribution of corporate property, etc, etc. ... Not things I'd want to waste any more time on. Be very careful about what exactly it is your broker/consultant/advisor is selling you when you invest in Russia. One of your problems will be - you will know some but far from all of the questions that should be asked. Seats on the boards of directors? I've represented foreign shareholders on the boards of many companies and I know firsthand and that this generally guarantees you, the investor hoping to reap "astonishing" capital gains on the difference between "real and current market" value of shares, little more than pain and suffering. Pain and suffering and significant financial loss. And only modest influence over corporate governance, even if you own an outright majority of shares. A few lucky folks have indeed escaped with super-profits - they're the ones the brokers/investment companies go on about in their marketing materials - but most foreign investors in Russia just get screwed. (Ask Kenneth Dart.) Not their $500,000+ pa advisors. They don't get screwed. They draw salaries and collect their bonuses. If the money doesn't matter to you, why are you an investor? Think about it, and decide. Investors, it is often said, have short memories. This, if true, is foolish, at best. If you really want to make a go of it, roll up your sleeves and get involved directly. Either as a trader whose work ends at the moment his stuff crosses the border into Russian territory (the Russian partner having transferred the agreed-upon portion of the contract price in advance to your account), or as a venture partner who has a reliable presence on the ground here every day Otherwise, turn your back to the cutter and ask to be fleeced. Best regards, Richard Thomas Far Eastern Shipping Company Vladivostok ******* #7 Financial Times (UK) 22 March 2002 LETTERS TO THE EDITOR: Putin as a leader stands well beside his contemporaries From Prof Georgy Skorov. Sir, Thank you for an interesting article about Russia ("Putin plays a weak hand well", March 18). Generally, success or failure of a policy depends primarily on its purpose, its meeting a real need, compatibility with the interests of others and the way it is implemented. It is difficult to see "a repeated humiliation (that Vladimir Putin) suffered at the hands of western powers" in the US presence in former Soviet Central Asia or Georgia. That perfectly suits Russian interests, and Mr Putin can only enjoy the Americans pulling the chestnuts out of the fire for themselves and for him. Nor do I see any humiliation in the US's withdrawal from the Anti-Ballistic Missile Treaty as long as Russia has a perfect response to it. As to European security and Nato, the west would do better to decide first what it wants before talking publicly about it. I am not a supporter of Mr Putin. Nor am I part of the Russian majority who feel for him an irrational enchantment. I am not an admirer of the KGB; it never looked to me like a school of democracy. However, what matters in politics is not personal preferences or the origin of a leader and the personality of his sponsor. The only criterion is the policy itself and its outcome. From that point of view I must confess that I was wrong. Mr Putin, quite unexpectedly, turned out to be a man who acted in Russia's national interest both at home and abroad. One does not need to agree with all his policies or his methods to acknowledge that he has not committed any significant mistakes so far. As to minor ones, he makes them occasionally but tries to correct them as soon as he can. To any objective observer this is a sign of wisdom. On that score Mr Putin stands well in comparison with any contemporary leader on both sides of the Atlantic. Mr Putin does not need to play off the US and Europe against each other. It would be a serious mistake to ally with only one of them. He needs both to achieve what he wants. All he must do is keep on doing what he does; that is, putting Russia's interest first and paying due respect to the interests of Europe and the US. Georgy Skorov, 75004 Paris, France ******* #8 The Economist (UK) March 23-29, 2002 Russia's central bank Mr Rouble quits Viktor Gerashchenko's replacement must surely be an improvement on "the worst central banker in history" THE single biggest obstacle to the development of a proper banking system in Russia was probably Viktor Gerashchenko, a wily Soviet-era relic whose second term as head of the central bank ended abruptly on March 16th. His first stint there, in the early 1990s, was marked by financial illiteracy and inflation. Jeffrey Sachs, an American economist, dubbed him "the worst central banker in history". Now, this dinosaur's departure marks an important step on the slow evolutionary path of Russia's financial system. In past years the central bank has become a byword for pedantic but ineffective regulation, burdening the law-abiding with pointless paperwork and turning a blind eye to the atrocious behaviour of the well-connected. Its other activities have been equally startling. It runs a web of foreign subsidiaries whose purpose is often murky. One of these, based in Jersey, was an energetic speculator in Russian government debt, until Russia's financial crash of 1998. The debt market was run, conveniently, by the bank itself. The bank lied to the International Monetary Fund about the size of its reserves, earning a rare public wigging. Not all of this happened on Mr Gerashchenko's watch, but he showed no enthusiasm for transparency before or since. One of the biggest financial mysteries in Russia is the size and nature of the bank's precious-metals stockpile. Internal housekeeping is just as idiosyncratic. The bank employs 80,000 people, highly paid and mostly underworked. America's Federal Reserve system, by contrast, has about 23,000 (albeit for a narrower range of tasks). Unlike its foreign counterparts, Russia's central bank runs businesses, including a large property empire. There is a big pension fund, managed on misty but generous principles. Taking over all this is a junior finance minister called Sergei Ignatiev. The main claim to fame of this reassuringly colourless figure is that he is widely regarded as honest—a rare distinction among Russia's elite. Mr Ignatiev's shabby suits, old-fashioned glasses, and austere tastes have left a lasting impression on outsiders who have dealt with him. Yevgenia Albats, an investigative journalist now living in America, recalls: "He is a very, very honest guy. I kept asking why he didn't take bribes. His answer was: `I just cannot. I will feel bad." Mr Ignatiev faces three main tasks. The easiest, for the time being, is macroeconomic. Mr Gerashchenko's main success was to keep the rouble stable against the dollar, in nominal terms (see chart). That stability was probably the single biggest benefit of the past three years. High oil prices and a big devaluation in 1998 have generated a huge trade surplus. This is falling slowly as the underlying uncompetitiveness of Russian industry re-emerges, but it is not an immediate problem for the central bank. Inflation is declining. A more active monetary policy, focusing on interest rates rather than on bullying the currency markets, would be a step forward. The second task is to manage the bank better. Mr Ignatiev's job will be to replace the bank's crude clout, and reputation for greed, with a new respect for it as an independent institution. That will mean working with the government on reform, while retaining independence on day-to-day decisions. No state institution in Russia has so far managed that. Trickiest of all is reforming the banking system. The lack of financial intermediation is probably Russia's single biggest economic weakness. Russian banks tend to be small, badly run, and do little deposit-taking and lending. Many are no more than treasury departments for large companies, for channelling money offshore. Some are heavily involved in organised crime. Most Russians keep their savings in hard cash. Lifting exchange controls would be a tonic for the bank and the economy too: they fail to prevent capital flight of over$10 billion a year and are rich soil for corruption. Mr Ignatiev says he wants them removed, but slowly. Sorting all this out will be difficult. Bad banks must be closed: that means taking on some of the nastiest people in Russia. Confronting powerful criminals is possible these days, at least if you have Kremlin backing. It is already under way in the energy industry, where some notorious figures are facing jail terms. But it will be nerve-wracking and time-consuming. At the same time, honest banks need more flexible and sensible rules. Making electronically stored data legally acceptable would be a start; so would simply changing the rules on how cash is handled in a bank branch. The biggest challenge of all is Sberbank, the state-owned behemoth that holds the majority of the country's savings. Its size and de facto state guarantee heavily distort the market. Some reform has started in the past year or so. Regional political bosses are no longer allowed to use its branches as their personal piggy-bank. But at some point it will need to be split up. So far Mr Ignatiev has sounded cautious. However well he fills the new job, the central bank alone cannot change things much. A proper financial system sits on an intricate foundation of established institutions and habits—functioning courts, for example, or credible accounting—almost all of which Russia still lacks. The changes in banking, as in other things, will not be sweeping or speedy. But at least the central bank should no longer actively hinder them. That is a welcome change. ****** #9 Komsomolskaya Pravda March 22, 2002 IS THE RUBLE FACING THE THREAT OF ANOTHER DEFAULT? Forecasts from some leading economic analysts Author: not indicated [from WPS Monitoring Agency, www.wps.ru/e_index.html] INFLATION SOARED IN JANUARY. IN FEBRUARY, FOR THE FIRST TIME IN RECENT MONTHS, THERE WAS A FAILURE TO MEET TAX REVENUE TARGETS. ANDREI ILLARIONOV, THE PRESIDENT'S ECONOMIC ADVISOR, BLAMES AN OVERLY-STRONG RUBLE. MANY EXPECT THE RUBLE TO FALL AND CONSUMER PRICES TO RISE IN THE REMAINDER OF 2002. Inflation soared in January. In February, for the first time in recent months, there was a failure to meet tax revenue targets. Andrei Illarionov, the president's economic advisor, blames an overly-strong ruble. What's more, Viktor Gerashchenko, who has steered the ruble exchange rate for the past eight years, has just resigned as head of the Central Bank. Could this be a signal for another devaluation of the ruble? Questions for the experts: 1. Will the government carry out another devaluation of the ruble? 2. What will the exchange rate be by the end of 2002? 3. What will this year's inflation rate be? 4. Which goods and services will show the greatest price rises? Yevgeniy Yasin, research advisor at the Higher School of Economics and former Economics Minister: 1. There will be no drastic collapse of the ruble, as in 1998. Recently the ruble has been gradually weakening, at less than the rate of inflation. In my view, this kind of government policy is correct, for the present. As for Viktor Gerashchenko's resignation from the Central Bank, the following factors should be taken into consideration. The ruble is a mirror, reflecting the economic situation. Under no circumstances should it be the subject of state policy or depend on anyone's resignation. 2. As we can see already, the budget figure - an average exchange rate of 31.50 rubles to the dollar - will be exceeded before December. Most likely, the rate will be 32-33 rubles to the dollar by the end of 2002. 3. Inflation will be somewhat higher than the government assumed. In my evaluation, the average growth of consumer prices will be 16% over the course of the year. 4. The products and services of the natural monopolies - electricity, gas, transport - will probably become more expensive. However, the government is reining in the appetites of the monopolists. Mikhail Zadornov, deputy chairman of the Duma Budget Committee, former Finance Minister: 1. Any rumors that the ruble might soon be devalued become urgent only if the prices for Russia's oil fall lower than $15 a barrel. The situation on the oil market is normal thus far; so it makes no sense to speak of a ruble devaluation. 2. At the moment there are grounds to assume that Russian oil will be at $18.50 a barrel, and the exchange rate will be about 31.50 rubles to the dollar, by July 1. Subsequent events depend on oil prices and the state of Russia's budget. 3. In my opinion, the most realistic inflation forecast is 16%, at least. 4. It is obvious that housing and utilities will record the greatest rise, because the regions are facing a dilemma now: either to cut off subsidies for housing and utilities, or not to pay wages to state-sector employees. Most likely, they will choose the first option. Andrei Belousov, head of Center for Macroeconomic Analysis and Short-Term Forecasting: 1. I think the government's plans do not include a ruble devaluation, since this would ruin the macroeconomic policy the government has carried out over the past two years, and would do much more harm than good. Exports of raw materials are unlikely to grow: global oil and metal markets are already saturated. However, real incomes will inevitably fall. Consumers will buy less, and this factor will become a new obstacle to growth in domestic industry. Moreover, there are no real reasons now for a devaluation of the ruble. Despite declining oil prices, Russia's monthly exports are around $2-3 billion higher than imports. That amount of hard currency revenue is enough to keep the ruble from falling for at least a year. 2. The most likely exchange rate is 33-34 rubles to the dollar. If capital flight from Russia increases, as it did in the fourth quarter of 2001, the exchange rate may reach 35 rubles to the dollar. 3. Inflation may fit the framework of the forecast: 12-14% over the course of this year. Factors for you to judge: last year inflation was 7.1% in the first quarter, while this year it is expected to be 5- 5.5%. If the government continues with its current fiscal policy, and the regions do not force up rates for housing and utilities, developments will most likely be as follows: in the second quarter the average growth in prices will be 2.5-3%, and 1% in the third quarter, and around 3-4% in the fourth quarter. 4. In this respect, the chargeable services will undoubtedly take the lead: their increase may amount to 25-30%. By the way, everything - housing rent, transport fares, health care and education will become more expensive. (Translated by Andrei Ryabochkin) ******* #10 Novaya Gazeta No. 20 March 2002 AKHMAD KADYROV: HAD I BEEN THE DICTATOR OF CHECHNYA An interview with Akhmad Kadyrov, head of the administration of Chechnya Author: Anna Politkovskaya [from WPS Monitoring Agency, www.wps.ru/e_index.html] AKHMAD KADYROV DISCUSSES THE CURRENT SITUATION IN CHECHNYA, AND GIVES HIS VIEWS ON WHAT THE FEDERAL GOVERNMENT, THE MILITARY, AND THE PEOPLE OF CHECHNYA OUGHT TO DO. HE BELIEVES THE WAR IN CHECHNYA WILL BE OVER SOON, MOST LIKELY BY AUTUMN THIS YEAR. Question: What do you think of the so-called peace talks between Kazantsev and Zakayev the Kremlin refers to every now and then? Akhmad Kadyrov: I have always objected to the idea. I told the president that it would avail us nothing and that only Maskhadov's side would benefit. That's exactly what happened. Question: And what are these benefits you are talking about? Akhmad Kadyrov: Maskhadov was given another chance at deceiving the people. When the talks began, he immediately released several addresses to the Chechen people - that Putin had allegedly understood pointlessness of the war, that "were it not for Kadyrov, the troops would have been withdrawn in January, but this bastard Kadyrov rushed to Putin to plead to leave the troops..." An influential field commander I know was ready to lay down the arms and disband his detachment shortly before the negotiations were announced. Guess what happened when he discovered that the talks were about to begin. He said, "No". Other field commanders also opted to wait and see what would happen. Had the troops been withdrawn after the negotiations, the people would have branded them traitors for the decision to lay down the arms. Question: What is the current state of affairs in these peace talks? Are they underway? Are they over? Akhmad Kadyrov: No talks are underway, and no are planned. Some meetings do take place because I know for a fact that all these mujahedin are kept on the short leash by secret services. I discuss surrender with several armed groups. Nineteen men laid down the arms and ceased the resistance in Gudermes not so long ago, the fact utterly dismissed by the media. Question: Do you remain in touch (perhaps, discuss the same thing) with field commanders like Basayev, Gelayev, or Khattab? Akhmad Kadyrov: Only with Gelayev. I sent my envoys to him on several occasions. They even travelled to Georgia. He is stalling for time. Gelayev always says he needs time to think it over. He is waiting too. Question: Your attitude to the so-called Pankisi gorge problem? Akhmad Kadyrov: I'm sorry for the noncombatants residing there. We will do everything to have refugees return from Georgia, Ingushetia, and even from Turkey. A spokesman for refugees in Turkey approached us not so long ago. As I see it, our refugees are completely abandoned there, no one helping them anymore, and they are prepared to return home on any conditions. As for the Pankisi gorge, this is what I can say. There are armed men there of course. I would not call them guerrillas, however, because guerrillas are those who are here, who are fighting. Over there, in Georgia, they are armed refugees. I would not call Gelayev a guerrilla, for example. He has not been a guerrilla for a long time now. Neither is Vaja Arsanov, Maskhadov's vice president, even though he is called a direction commander. General Aslanbek Arsayev is abroad, not a guerrilla either. Question: All right. How would you say the secret services should treat Arsanov, Gelayev, Arsayev? Akhmad Kadyrov: As criminals. They are criminals all right, otherwise they would not have been murdering the imams and village mayors. If a mayor is assassinated, how will the people get their pensions and other benefits? I might have understood this practice of assassinations had Maskhadov provided the people with everything necessary. In this case the people would not have been working for the existing regime. But Maskhadov has not been doing it. Question: Why do you think men like Khattab and Basayev, the most notorious field commanders, are still at large? Akhmad Kadyrov: Well, I have my suspicions which I would not disclose. As soon as these commanders are taken out, the war will be over. Some generals do not want that - they are too busy lining their pockets (businesses, oil, etc). I do not doubt that had the security structures wanted it, not a single oil truck would have been moving nowadays... I pin a lot of hopes on the latest Security Council meeting where all these problems were discussed. The president was fairly tough. Question: What do you mean? Akhmad Kadyrov: The president said that more trust in the Chechens themselves was needed because only the Chechens could restore order in Chechnya. One other factor was discussed by the Security Council. When a person disappears, no one tells the relatives what happened to him, and only the body is found later. Every such episode creates at least a dozen new guerrillas. That is why the number of guerrillas has not been going down. Question: The major problems of modern Chechnya are evaluated as the sweeping operations, inadequate and unjustified use of force against the population, looting, and tortures. How do you intend to fight the practice of sweeping operations which results in appearance of new guerrillas? Akhmad Kadyrov: Once again, I rely on the latest Security Council meeting and on the president. Why is that not a single general is ever responsible for whatever happens during the sweeping operations? I demanded from him. The president ordered no more sweeping operations. Unfortunately of course, this is not the first presidential order on Chechnya which is ignored... Question: Still, what can you do to put an end to the military's abuse of power in Chechnya? Akhmad Kadyrov: I'm helpless against the military. I asked the president for this sort of power but Kazantsev objected and acidly inquired what sort of powers Kadyrov wanted now. Was he going to become a dictator? That's what Kazantsev asked. Question: How did the president react? Akhmad Kadyrov: He said that Kadyrov was correct and that he needed broader powers. We will see now. Question: Do you think there should be one single leader in Chechnya? Akhmad Kadyrov: Yes, a single person should bear responsibility for everything. Including, before you ask, the security structures. Future Chechnya should be a presidential republic where everything is controlled by one man only. There will never be order in Chechnya otherwise. The republic needs a bona fide dictator. Question: All right, let's fancy you are a dictator already. The army mounts a sweeping operation in Argun? It's your move now. Akhmad Kadyrov: Had I been the dictator, there would have been no sweeping operations in Chechnya. I would not have bothered with armored vehicles etc. I'd have compiled information on who is a criminal and who is not quietly, without much noise, and visited the criminals in nighttime. This criminal would have never been seen afterwards. Three to five such incidents - and everyone would have got the message. This is how the NKVD operated in its time. Everyone knew it, and everyone was afraid. Question: What do you think of Maskhadov's future? Akhmad Kadyrov: He will never be a pauper, that much is clear. He will be found a pension and a place of residence somewhere. What's more, he himself knows it. Question: Who will find all that for him? The Russian Federation? Akhmad Kadyrov: Yes. In return for some concessions of course. Question: Like what? Akhmad Kadyrov: Like disowning what he doesn't have and has not had for some time already. The powers. In a formal manner. Like apologizing to the people. If he does all this, he will leave Chechnya and live a normal life somewhere. That's what I've been offering him. Question: What do you think it is going to happen? Akhmad Kadyrov: When Shamil is gone, Maskhadov will undergo a dramatic change. Like a werewolf. You will all be surprised yet. As for now, he fears Shamil. Question: How would you estimate losses in the second Chechen war? Akhmad Kadyrov: No one knows exact figures. All I know is that the second Chechen war took much more lives of the armed men than the first one. (According to field commanders, 2,740 armed men were killed in the first Chechen war. In this war, 1,200 lives were lost in Komsomolskoye alone.) As for losses sustained by noncombatants, no one has counted them. It will probably be done only when the war is over. Question: When do you think that will be? Akhmad Kadyrov: This year, I think. Before autumn. Question: How will we know it's happened? Akhmad Kadyrov: By the formal announcement that those cut- throats, Basayev and Khattab, are gone. ******* #11 Moscow Times March 22, 2002 No Modernization Without Representation By Vladimir Ryzhkov Vladimir Ryzhkov, an independent State Duma deputy, contributed this comment to The Moscow Times. Russia's experience with democracy has been fairly brief. All told, it has had a little more than two decades, from 1906 to 1917 and from 1989 to the present day. It would not be too much of an exaggeration to say that the fate of democracy and the fate of the parliament in this country have largely been one and the same. Just as it was almost a century ago, the State Duma is constantly in the thick of the political battle. It would be hard to characterize the achievements of the pre-revolutionary Dumas as particularly great. Indeed, only one of them served out its full term, two were quickly dissolved, and the fourth was engulfed in the flames of the Revolution. Weak and poorly organized, these parliaments tended to oscillate between reckless opposition to the imperial authorities and equally unthinking acquiescence in their wishes. The stubborn reluctance of Tsar Nicholas II to share power with the parliament, together with the parliament's inability to work constructively with the tsarist authorities, was the undoing both of the autocracy and of democracy. Compared with a century ago, the experience of the past decade has been considerably more successful. Despite all the difficulties, the parliament is much more firm on its feet and has achieved a great deal more in its relations with the executive branch. One could even say that its legislative successes have been outstanding. In the past decade it has passed a huge body of legislation -- more than 3,000 federal laws -- regulating the main areas of public life. Of course, some serious gaps remain, such as regulation of agricultural land sale. Moreover, the quality of many laws leaves much to be desired, and a considerable number of amendments are in order. However, it cannot be denied that a legislative base has been formed, and in this respect a contribution of historical importance has been made. Interestingly, the passage of this new body of legislation proceeded irrespective of the political composition of the parliament. The three Dumas of the post-Soviet period have differed significantly: The first (1993-95) was a motley and unstable collection of political forces in which no one had a clear majority; the second Duma (1995-99) was dominated by the Communist Party and made an attempt to impeach President Boris Yeltsin; and the third (1999-present) has finally given the Kremlin a stable majority. However, despite changing political complexions, a reliable system emerged whereby only those laws that found consensus among the executive branch (the president and his government), the Duma majority, and the regional elite (the Federation Council) became law. Of course, deputies introduce hundreds of their own bills, but only those that have these three "keys" have a chance of becoming law. Nevertheless, the fate of the parliamentary system is far from clear. The Duma has succeeded in consolidating its monopoly over legislative activities (in the early and mid-1990s federal laws had serious competition from presidential decrees). However, as before it remains de facto removed from the two other fundamentally important functions of the legislative branch: participation in government and parliamentary oversight of the executive branch. As was the case a century ago, the parliament finds itself in a paradoxical position in which even a party that wins a convincing election victory does not play any role in the formation of the government. The executive branch remains a hundred times stronger than the parliament and parliamentary parties, and this has serious consequences. First, if opposition parties have a majority in the Duma, then things tend to break down. A government that does not have political support in the Duma is forced to maneuver endlessly, losing time and energy, and cannot conduct any kind of consistent course. Second, if a "non-party" government enjoys a majority in the Duma -- as is currently the case -- this results in complete lack of oversight of the executive. It becomes possible to pass virtually any law in short order. However, the danger is that the quality of laws suffers and policy becomes bogged down in bitter and unprincipled turf battles between ministries and departments that effectively usurp the role of parties and public politicians. In addition, such a state of affairs inevitably provides fertile ground for corruption. Policy-making by the bureaucracy with the weak and indirect involvement of the parliament turns into a messy compromise between ministries and departments, devoid of any coherence. Furthermore, the executive branch is unaccountable before society because there is no political force willing to take responsibility for the political course and holding millions of anonymous bureaucrats responsible for the results of their work is simply not possible. There continues to be a poor separation of political and administrative functions. A minister is part-politician, determining the state's line in his particular field, and part-administrator, involved in ongoing turf wars with rival departments and agencies. Moreover, nine times out of 10 it is not political but departmental interests that get the upper hand. In the absence of clear political leadership, the bureaucracy only permits those reforms that preserve its rights and privileges. That is how things were at the beginning of the 20th century and that is how they are now. During the democratic "revolution" of the early 1990s, the bureaucracy ceded -- with some reservations -- control of the legislative function. However, it has retained firmly in its grasp the right to govern without accountability or transparency. Society is too weakened and disorganized to insist on its participation through the parliament in the formation of the government and, through this and parliamentary oversight, to place the bureaucracy under its control. Things are further aggravated by the lack of real freedom of speech and the weakness of the judiciary. President Vladimir Putin's arrival in the Kremlin was marked by a further shift in the balance of power in favor of the executive. With a majority in the Duma and a loyal Federation Council (after its reform), the presidential administration and government have thoroughly subordinated the federal assembly to their will. In this respect, the third Duma is similar to the third pre-revolutionary Duma, which was sarcastically referred to as the "lackey Duma." Of course, the ambitious program of Economic Development and Trade Minister German Gref -- or rather what is left of it after numerous opponents from numerous departments had their say -- can easily be passed by both chambers of the parliament. The problem is that Gref was only able to save a rather small portion of his original program and has got stuck in the boggy swamp of bureaucratic inertia and sabotage. Duma parties, meanwhile, look on passively. Putin's plan to modernize the country by means of a strengthened and disciplined bureaucracy is unrealizable. In fact, it is a contradiction in terms. In the context of a weakened parliament, marginalized opposition, limited freedom of speech and weak and manipulable courts, modernization is not possible. Attempts to do so have already come up against the problems of corruption and the sabotage of those progressive laws that have been adopted. True modernization can only be achieved when society and the parliament, its main advocate, start to play a decisive role in policy-making and in governing the country. For this to happen, the government needs to be formed by the party or parties that win a parliamentary majority at elections. Ministers should be political figures, and in government there should be a clear separation between political and administrative functions (this should be the essence of the so-called administrative reform and not raising officials' salaries). Parliament needs to establish strict oversight over the executive. Unfortunately, the Audit Chamber has of late, on the contrary, been losing its parliamentary roots and drifting under the wing of the presidential administration. The optimal model for Russia could well be that of France's Fifth Republic, in which the majority in the National Assembly forms the government and the president is responsible mainly for defense, security and foreign policy issues. In any case, without strengthening the role of the parliament it will be almost impossible to resolve many of this country's chronic problems and to establish a stable and durable democratic system. ******* #12 U.S., Russia inch ahead in arms talks By John Zarocostas GENEVA, Switzerland, March 21 (UPI) -- Senior U.S. and Russian arms control negotiators edged forward in talks here Thursday to cut operationally deployed strategic nuclear warheads by 2012, a senior U.S. administration official said. "We are making progress," said the U.S. official, who spoke on condition of anonymity. "We're closing the gaps and trying to refine the differences." But, the official added, "We're not going to reach agreement here." Talks are aimed at codifying an arms reduction agreement last December between President George W. Bush and Russian President Vladimir Putin to cut their active strategic nuclear arsenal from current levels of around 6,000 warheads each, to between 1,700-2,200 by 2012. The two days of talks in Geneva between Georgie Mamedov, Russia's deputy foreign minister, and John Bolton, U.S. undersecretary of state for arms control and international security, were designed to "identify the remaining differences" before a meeting in April between U.S. Secretary of State Colin Powell and Russian Foreign Minister Igor Ivanov. There are hopes in both Washington and Moscow that Powell and Ivanov can craft a final deal that would be signed during President Bush's scheduled visit to Russia in May. Bush said on March 14 that he hoped to sign an agreement then. He said the U.S. was "glad" to talk about storage versus destruction, but he said "I think the most important thing, though, is verification, to make sure that whatever decision is made, there is open verification so as to develop trust." The final agreement is expected to be a "short and simple document of three to four pages," and will not have annual warhead reduction targets, the senior U.S. official said. However, arms control diplomats expect any final accord to include a monitoring mechanism, such as a joint commission or committee. In talks Thursday, which were held at the U.S. mission, the U.S. official said the United States had received a "Russian counter-proposal," and a briefing "on their (Russia's) nuclear posture," from the deputy chief of staff of the Russian armed forces, Uri Baluevskiy. In the talks, the two sides have differences over counting rules for inter-continental ballistic missiles, or ICBMs, on submarines, heavy bombers and other delivery systems. Another contentious issue is what happens to thousands of nuclear warheads if they're taken out of operational stocks. The Bush administration favors "downloaded" warheads to be stored, whereas the Russian contingent prefers warheads be destroyed after deactivation. However, in talks in Washington last week, Sergei Ivanov, Russia's defense minister, showed a "better understanding" on the downloaded warheads issue, the U.S. official said. He said he was hopeful Moscow would be flexible on the issue. According to senior diplomats close to Russia, Moscow will probably accept some partial solution -- possibly destroying some missiles and storing some. The same sources noted "it can only take a couple of hours to put together again a downloaded warhead." Another possible solution, the source said, would be to separate the warheads, but keep them in different sites far away from delivery systems. *******