Johnson's Russia List
#6573
26 November 2002
davidjohnson@erols.com
A CDI Project
www.cdi.org
[Contents:
DJ: VIRUS WARNING! There may be another round of phony messages
from "davidjohnson@erols.com" out there, containing fragments from
old JRL issues. This is likely the Bugbear virus. Don't open
attachments! The messages do NOT come from me. I do not use Outlook,
virus' favorite e-mail software.
1. Izvestia: MOST RUSSIANS WANT CENSORSHIP. THE LATEST OPINION POLLS
INDICATE.
2. Los Angeles Times: Robyn Dixon, Putin Criticizes Coverage but Vetoes
Legislation Limiting Press. Reportage during hostage crisis spurred bill,
which Kremlin probably helped pass.
3. RIA Novosti: ACCORDING TO VLADIMIR PUTIN, IT IS IMPORTANT TO STRIKE
BALANCE BETWEEN LIMITATION OF MASS MEDIA BROADCAST DURING OPERATIONS TO
RESCUE PEOPLE AND PROVIDING INFORMATION TO THE PUBLIC.
4. Moscow Times: Oleg Panfilov, Veto Is Kiss of Death.
5. Gazeta: IT'S ADVANTAGEOUS FOR PUTIN TO POSE AS A PROPONENT OF DEMOCRACY
AGAINST DUMA BACKGROUND. (interview with Andrei RYABOV)
6. Wall Street Journal editorial: The Putin Curve.
7. Dow Jones/AP: Putin Warns Military Chiefs To Keep Close Eye On Finances.
8. Christian Science Monitor: Fred Weir, Latvia gives Russians cold
shoulder.
A decade after the republic won independence, many of its Soviet-era
immigrants
remain outsiders.
9. Scott Atkinson: RE: 6571-Stephen Shenfield/JRL RESEARCH AND ANALYTICAL
SUPPLEMENT No. 13. (re protection money)
10. Nezavisimaya Gazeta: Nikolai Zlobin, NATO's Last Expansion.
In the next two decades the alliance will be "digesting" its new members.
11. Novye Izvestia: Marina Kalashnikova, NATO WILL BE FRIENDS WITH
POST-SOVIET
NOMENKLATURA...pending its destruction.
12. St. Petersburg Times: Picking Up and Passing On the Pieces of Russia's
Privatization. As the economy evolves into a more sophisticated beast,
mergers
and acquisitions have begun to replace the naked asset-grabbing that was the
hallmark of the Yeltsin era. Ben Aris reports on the country's third, and so
far quietest, redistribution of property.
13. South China Morning Post (Hong Kong): Fred Weir, Russian paranoia mires
China ties. Moscow is seeking to build a strategic partnership with Beijing.
But a refusal to liberalise - and an underlying domestic fear of the
Chinese -
is proving to be a barrier to good relation.
14. Reuters: Turkmens accuse Russia of role in assassination bid.
15. Luba Schwartzman: TV1 Review.]
*******
#1
Izvestia
November 25, 2002
MOST RUSSIANS WANT CENSORSHIP
THE LATEST OPINION POLLS INDICATE...
Author: Georgy Ilyuichev
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
RESULTS OF A SURVEY OF RUSSIAN OPINIONS ABOUT CENSORSHIP AND
CONTROL OF THE MEDIA, AS LEGISLATIVE BODIES SEND RESTRICTIVE
AMENDMENTS TO LAW ON THE MEDIA TO PRESIDENT FOR APPROVAL
Restrictive amendments to the law on the media adopted by both
houses of the parliament, the Federal Assembly backed up the will of
the majority but ignored an opinion of an even larger part of the
population. This conclusion is the only one to be drawn from results
of the nationwide opinion poll among 1,500 city dwellers and
villagers.
On the one hand, only every fifth participant or 22% spoke
against censorship. The opinion of supporters of uncensored media is
not as monolithic as it may appear: 16% do not know what censorship is
and 9% more do not know what to say on the subject.
At the same time, only every fourth Russian considers performance
of the media in coverage of crises and emergencies inadequate. Even
that part of society is not, however, consolidated. Sociologists say
that 47% of respondents consider restrictions for the media necessary,
and 44% think otherwise.
The higher the respondent's education level and income are, the
more critical he is with regard to the media. Analysts of the Public
Opinion Foundation have an explanation: liberal respondents stand for
self-restraint of journalists, not for state censorship. The majority
of respondents who think that it is journalists and not the
authorities who should decide what information should be imparted are
Russians with higher education (36%) and city dwellers (34%).
When the hostage drama in Moscow was unfolding, most respondents
were irritated by "decent journalists who got sensation fever and made
numerous mistakes." Respondents usually say that restrictions are
needed when journalists cover the work of secret services or cover
shocking or sexual episodes.
Participants of target groups also suggested the following
hierarchy of journalists (bottom to top): representatives of yellow
newspapers (respondents do not think they possess any moral concepts),
career journalists (who honestly report what the government has to
say), and finally decent journalists (who speak of things we would
have never discovered on our own).
Sociologists say that respondents expect objective information
particularly from the journalists working in the political sphere. All
target groups agree that information should be unbiased.
*******
#2
Los Angeles Times
November 26, 2002
Putin Criticizes Coverage but Vetoes Legislation Limiting Press
Reportage during hostage crisis spurred bill, which Kremlin probably helped
pass.
By Robyn Dixon, Times Staff Writer
MOSCOW -- Russian President Vladimir V. Putin, under fire over restrictions
on media freedom, sharply criticized some reporting on Moscow's recent
hostage crisis Monday but vetoed legislation that would have further
limited news coverage.
His move appeared to be an effort to stop a hail of criticism, not only
from human rights organizations that defend media freedom, but also from
pro-Kremlin media chiefs.
Although Putin vetoed the legislation, it is unlikely it could have even
passed both houses of parliament without initial support from the Kremlin.
Putin's move suggested that he had decided the controversy was hurting him
politically more than new legislation would help him.
The new regulations would have banned the airing of terrorists' statements
and outlawed reporting on technology, weapons, ammunition or explosives
used in anti-terrorist operations. They were introduced in parliament after
last month's crisis, in which Chechen rebels seized more than 700 hostages
at a Moscow theater. The hostages were rescued by special police, but 129
of them died, most from the effects of a gas used to incapacitate the rebels.
Putin's veto followed an incident earlier this month in Brussels in which
he attacked radical Islam and a journalist who questioned Russia's policy
on Chechnya.
Putin on Monday called in representatives of the major Russian media
outlets, from the most loyal to the most critical, to announce the veto.
He then launched a thinly veiled attack on NTV, a media group controlled by
the state-dominated Gazprom company. During the hostage crisis, NTV aired a
program showing hostages' relatives pleading for an end to the Chechen war
and footage of special forces moving in to storm the theater.
NTV has denied accusations that it aired the storming footage live. But in
his comments Putin accused a station, which he did not name, of going after
ratings and profits.
"Minutes before the storming, one of the television stations showed the
movement of special police squads, which could have led to terrible
tragedy," he said. "It was not a mistake on the part of individual
journalists. It was an attempt to push up ratings and capitalization and to
make money."
NTV has been under intense Kremlin pressure since the hostage crisis. But
last week, President Bush gave an exclusive interview in Washington to
Savik Shuster, the NTV anchorman whose program aired the comments of
distraught relatives during the crisis.
Political analyst Pavel I. Voshchanov, a columnist at the daily Tribuna,
said the Kremlin had made it clear to leaders in the Russian parliament
that the media had stepped out of line during the hostage crisis.
"The legislators, like good restaurant waiters, rushed to fulfill the
highest order and did it in record-breaking time, overdoing the thing quite
a bit and making the Kremlin look even worse, until the president
personally interfered and publicly saved the Russian mass media from his
own hook," Voshchanov said. "The whole thing was a pretty blunt and obvious
operetta farce directed by the Kremlin."
Putin's tactic was the kind used by authoritarian regimes, Voshchanov said.
"This latest PR action with the mass media law reminds me of some weird
mixture of Stalinism, Brezhnevism and the apogee of the Yeltsin rule, when
Boris Yeltsin could afford to say anything he wanted and then would turn it
upside down to make him look like a really democratic and wise father of
his people."
*******
#3
ACCORDING TO VLADIMIR PUTIN, IT IS IMPORTANT TO STRIKE BALANCE BETWEEN
LIMITATION OF MASS MEDIA BROADCAST DURING OPERATIONS TO RESCUE PEOPLE AND
PROVIDING INFORMATION TO THE PUBLIC
MOSCOW, 25 November. /RIA Novosti correspondent/. In the opinion of
Vladimir Putin, it is important to strike a balance between limitation of
mass media broadcast during specific time periods, during specific
operations aimed at rescuing people and provision of full information to
society regarding actions of the state in order, according to the
President, "for the state not to view itself as infallible." While speaking
on Monday night at a meeting in the Kremlin with representatives of mass
media the head of state, on the one hand, criticized depiction by certain
mass media of events related to seizure of hostages in the theatre center
on Dubrovka and, on the other hand, thanked "Russian mass media for
demonstration of their civil position, for professionalism and
self-control." According to Putin, he got acquainted with the appeal of
mass media to him to veto certain amendments to laws on mass media and on
the struggle against terrorism adopted by the two houses of the parliament,
the State Duma and the Federation Council. The President indicated that he
was not in agreement with everything in it. In particular, the head of
state quoted such a phrase from the appeal: "Certain actions of journalists
were incorrect, but they were mistakes, not intentional actions." Putin
stated that "he could not agree with that, let's not be cunning." The
President indicated that one of the TV channels just minutes before
storming of the building "showed movements of Special Forces units and that
might have resulted in a huge tragedy." The head of state considered that
not a mistake "but conscious ignoring of agreements with the Press Ministry
and instructions of leaders of the operative headquarters which operated in
strict observance of the law on the struggle against terrorism." In the
opinion of the President, it was done in order "to raise the channel's
rating, to increase its capitalization and, eventually, to earn money."
Putin reminded of his position that mass media independence would be
achieved only when they "became economically independent." "But not by any
means, not by blood of their citizens if they (certain mass media) consider
them their citizens," the President stated.
At the same time the President viewed certain comments in the appeal of
journalists as being fair: "Adoption of the amendments would result in
removal of mass media from objective description of events." In the opinion
of the head of state, these comments should be listened to. He stated that
"it would have been useful for legislators to specify and elaborate" rules
of conduct of journalists in emergency situations. Transparency of joint
operations of power structures and mass media was essential in such
situations. Putin stated that "major weapons of terrorists were not bullets
and grenades but blackmailing of citizens and the state." In the opinion of
the President, the best method of using blackmail was "to transform a
terrorist act into a public spectacle." The head of state stressed that
"one should not help them doing that." Putin reminded that in the days of
the terrorist act he requested politicians to show restraint and
responsibility. He pointed out that "the value of a journalist's word was
equally significant." The head of state attached particular significance to
mass media in the struggle against the ideology of terrorism. At the same
time he stressed that "no democratic power could exist without publicity
and transparency." In the opinion of the President, it would also be useful
for the journalist community to work out corporate behavior rules. He also
thought that the state and mass media should seek the balance and to move
in parallel along that road.
The President proposed to meeting participants to talk of how to better
organize mass media work, in particular, during extreme situations, without
limiting the freedom of speech. The head of state was of the opinion that
clear-cut regulations should be applied to extreme situations: who is to do
what.
The president stressed that "special services should rescue people, mass
media should inform on their activity, to speak the truth without
embellishments." In his opinion, the state could not "think that it was
infallible," Putin expressed gratitude to those journalists who objectively
assessed the state and authorities. The president indicated that thus they
"gave incentives to the authorities to operate more efficiently." But the
President reiterated that "everybody had to mind his own business."
According to him, "if magazines started rescuing and special services
-informing people" that would lead to a tragedy.
The head of state indicated that "it happened in Budenovsk" and everybody
knew "what it ended up with." He reminded that over 170 people died in
Budenovsk and all bandits slipped away."
*******
#4
Moscow Times
November 26, 2002
Veto Is Kiss of Death
By Oleg Panfilov
Oleg Panfilov, director of the Center for Journalism in Extreme Situations,
contributed this comment to The Moscow Times.
Following the Federation Council's passage of amendments to the law on the
mass media, the journalistic community found itself in a state of nervous
expectation. Journalist friends of mine started behaving like love-struck
teenagers, repeating over and again: "He loves me, he loves me not ... ."
Then finally on Monday, the object of their affections, President Vladimir
Putin, wielded his veto prerogative to strike down the amendments. In the
meantime, everyone seemed to have forgotten about article 29 of the
Constitution, enshrining freedom of speech, and about obligations
undertaken by Moscow when it joined the UN and the OSCE.
It is said that Vladimir Zhirinovsky often performs the role of an oracle.
More than two years ago at a press conference, on Feb. 10, 2000, he
expressed the opinion that the presidential election would be all over in
one round, after which a period of stagnation would set in. "All violent
conflicts on the territory of the Russian Federation will cease. Life will
become boring. And journalists won't have anything to write about any
more," the LDPR leader said.
Zhirinovsky's prophetic powers only let him down slightly: Putin did indeed
go to a first-round victory, after which a period resembling the political
stagnation of Soviet times set in, but "violent conflicts" persist, and
life has become dull largely because the state has been trying to "train"
journalists not to write about anything of any interest.
Last week, media industry leaders gathered in a fancy restaurant on
Tverskoi Bulvar to sign an appeal for presidential pardon. Paraphrased, the
petition ran something like this: Esteemed Vladimir Vladimirovich, please
impose a veto on the amendments, we acknowledge our mistakes, but we did
our best in covering "Nord Ost" ... .
Not long after this, rumors emerged that in fact the whole exercise had
been undertaken on the initiative of the Kremlin and Press Minister Mikhail
Lesin. A participant of the media bosses' meeting told me how Lesin phoned
the Kremlin and reported that: "Everything has been signed, everything is OK."
So what was the point of all the song and dance? It was probably another
show of strength by the authorities, and an attempt to reinforce the view
among the public that the mass media need to be kept under constant state
control; and to remind people that it is up to Putin to decide whether we
need a free press in Russia or not. It doesn't seem to have occurred to the
authorities that by doing this, Russia is moving closer to Belarus,
Kazakhstan, Uzbekistan and Azerbaijan, where independent media live in a
constant state of fear and dependence on the whims of the president.
The amendments to the law on the media would have been one more blow to a
genuinely democratic document. Indeed, this document is considered by
various Western experts to be exemplary, and one of the very few
achievements putting Russia on a civilized path of development.
Times have changed. Nowadays, journalists are reminded of all their sins --
from articles on state corruption, to coverage of the first Chechen war and
venomous articles about former KGB officers taking power. In 1997, the
Security Council put on the president's desk an "information security
doctrine." In 2000, the document was re-discovered, dusted off, some
additions made and it was handed to the new president, who signed it. It is
a strange document which has no legal force -- it is not a law, decree, or
resolution. However, it served as a signal for officials who had long been
itching to get their hands on the "dissolute" press.
And they were off. In Kirov, a criminal case has been opened against the
editor of the newspaper Vyatsky Observer for the publication of a joke
about the incumbent governor. In Belgorod, no less than two criminal cases
have been launched against a correspondent for Belgorodskaya Pravda and
regional legislature deputy for libel and the assault of 10 OMON officers
-- the journalist in question, Olga Kitova, is a little over 150
centimeters tall and weighs approximately 50 kilograms. The number of
criminal cases opened against journalists in the past two years exceeds the
five-year norm for Boris Yeltsin's period in office.
Initially, the squeeze was put on media outlets using the Tax Police,
health and safety inspectors, and the OMON. However, the main innovation of
recent times has been the organization of endless seminars and conferences
on the subject of information security. After all, Russia faces no other
major threat apart from "information" threats. Maybe the bureaucrats that
came up with this activity have no understanding that classified
information has to be protected to prevent it falling into the hands of
spies or other ill-wishers. However, for some reason the finger is always
pointed at the media.
Propaganda, which was so popular in Soviet times, has once again become the
main instrument of the authorities' "information" policy. Although, the
word propaganda has been replaced by the specious concept of a "unified
information space." And officials cherish their information security
doctrine, which states that the state's national interests include: "the
strengthening of state mass media outlets, and broadening the possibility
for these outlets to provide Russian and foreign citizens with reliable
information in a timely manner."
Journalists such as Andrei Babitsky and Anna Politkovskaya are obstacles to
the implementation of this doctrine. In the same way, Versia newspaper gets
in the way with its curious questions about the consequences of the
operation to free the "Nord Ost" hostages; as does Voronezh's Molodoi
Kommunar newspaper, where health inspectors found evidence that the office
building was maintained at a temperature two degrees above the norm; or
Voronezh Courier editor, Dmitry Dyakov, against whom several criminal cases
have been launched simultaneously; or the Perm newspaper, Zvezda, whose
office was subjected to an eight-hour search by the FSB. On Nov. 21, two
more newspapers -- Svobodnaya Gazeta in Balakovo, Saratov region, and
Segodnyashnaya Gazeta in Krasnoyarsk -- were searched.
The really strange thing is that most journalists have remained silent. We
monitored regional press publications and were surprised at how little
commentary there was on the amendments to the media law. How come? Is no
one interested in the future of the media? Or has the state machine already
suppressed all dissident thoughts?
In my view, the explanation is pretty simple: Mikhail Gorbachev gave us
glasnost, Putin has taken it away. And all this happened without the
participation of journalists themselves, without a fight and without mass
demands that our freedom be returned to us. The amendments to the law on
mass media were passed in their second reading on Oct. 23, during the first
half of the day. The "Nord Ost" hostage-taking occurred on the evening of
the same day. It's a strange coincidence is it not?
********
#5
Gazeta
No. 219
November 26, 2002
[translation from RIA Novosti for personal use only]
IT'S ADVANTAGEOUS FOR PUTIN TO POSE AS A PROPONENT OF
DEMOCRACY AGAINST DUMA BACKGROUND
Andrei RYABOV, a member of the Carnegie Foundation's
academic council, comments on President Putin's decision to
veto the amendments to the law on media in an interview with
Gazeta's analyst Olga REDICHKINA.
Question: President Putin vetoed the amendments to the law
on mass media. Does that mean that he decided to avoid
"tightening the screws"?
Answer: Strict "anti-terrorist" amendments to the law on
mass media were essentially a result of a strong emotional
reaction to the hostage-taking crisis. One way or another,
those events affected all of us, including both political
players and decision-makers. After the situation had
stabilized, it's become clear that some measures were
exaggerated. The fact that a select group of media managers got
a "green light" from the Press Ministry before appealing to the
President not to sign the law in its present form shows that
the Ministry itself ultimately is not interested in that stuff.
With those amendments any sensible instruments coordinating
media coverage are not necessary - the relationship between
mass media and the government returns to a vertical structure
reminiscent of the CPSU Central Committee era.
Mikhail Lesin understands very well that such an arrangement
will significantly diminish his importance.
Question: Does that mean that Putin turns out to be a
better democrat than his entourage?
Answer: It's hard to say what's going on around the
President. The fact that initially the leaders of centrist
parties had also been invited to attend the meeting and later
those invitations had been cancelled indicates that,
apparently, the interests of various groups of influence
differ. As for Putin, he is personally not interested in
tightening controls over mass media for a variety of reasons.
First of all, mass media is already extremely loyal to him.
Secondly, his present move might serve as a proof of his
respect for the freedom of speech, which is a big "plus" on the
international arena.
Besides, the proposed restrictions do not bring any significant
political dividends. The restrictions are good only when there
is a possibility for a political trade-off, but at this time
there is nothing to bargain for.
Question: In addition, the emotions around the crisis have
calmed down significantly.
Answer: That's true - the emotional storm has faded and
now the authorities are trying to distance themselves from
overzealous deputies. Besides, the plea was made by the top
managers of rather loyal and constructive mass media, which
could hardly be regarded as opposition.
Question: What causes the State Duma and the Federation
Council to act according to "hold and not let go" principle?
Answer: Both chambers of Russian Parliament share a common
trait - they follow the events and respond to them simply
reflecting public opinion. For example, they had put Denmark
into "axis of evil" category. Nowadays, Putin has already met
with Danish Premier Rasmussen again, but they are still
refusing to drink Danish beer and buy "LEGO" toys for Russian
kids. Their attempts to make "major politics", while taking the
existing state of affairs as a basis for their actions, clearly
speak of the lack of political culture, of a certain
provinciality. The president overtook them by several steps.
It's advantageous for him to portray himself as a wise
politician, a proponent of democracy in contrast with the State
Duma, which is simply reflecting public opinion.
*******
#6
Wall Street Journal
November 26, 2002
Editorial
The Putin Curve
We don't usually tout Russia as a model of economic enlightenment. But with
the tax-cutting debate in full cry here in Amerika, it's a good time to
review Russia's recent tax revolution. We hope President Putin's "very
frank" discussions with President Bush last Friday included talk of tax
reform.
The Russian reforms began in earnest at the start of 2001, when Mr. Putin
introduced a 13% flat tax on individual income, replacing a convoluted
system that had a marginal rate of 30%. Then came a cut in the tax on
corporate profits by nearly one-third to 24%, the closing of a large number
of tax loopholes for companies, and the simplification and reduction in
social security levies.
What happened next is illustrated in the nearby chart. Tax revenues
immediately began heading north, as citizens decided it was easier to pay
taxes than go to the trouble of avoiding them. This was a classic Laffer
Curve result -- an enlarged tax base and a surge in tax revenues.
Before Mr. Putin's reforms, the post-Soviet tax system had been marked by
fluctuating tax rates -- all high -- and a Byzantine tax code, the
interpretation of which was left to poorly paid bureaucrats who relied on
"gifts" for favorable rulings to supplement their incomes.
The International Monetary Fund didn't help matters by opposing lower tax
rates and counseling tougher enforcement. Enforcement being something
Russian officials do instinctively, armed tax troops set out raiding
corporate offices and tearing through files. Most individuals who earned
above-average wages (roughly more than $200 a month) asked for and received
the bulk of their income under the table.
Shorn of revenues, the government cut "offset" deals with Russia's
corporations, writing off taxes in exchange for fuel, electricity and other
commodities. The system and its enforcement led to spiraling evasion and
gray market activity.
After the 1998 crash, the IMF hightailed it out of Moscow and thereafter
remained mercifully on the sidelines. With the loss of outside help, sheer
economic necessity forced Moscow to take a revolutionary approach to
taxation. At the stroke of a pen, Mr. Putin decriminalized practically an
entire society of tax cheats. He made complying with the law an affordable
alternative to cheating.
Russia's corporate tax cuts have not had as dramatic an effect on revenue
as the flat tax, in part because the closing of numerous tax allowances has
meant a steep increase in the effective tax rate for many companies. While
the changes make corporate taxation fairer, there is a clear need to reduce
rates further, something the government has been talking about.
Rising tax revenues also reflect the recent growth of the Russian economy,
which is attributable in part to a run-up in world oil prices. But that
isn't the whole story. The tax reforms have provided a solid basis for
economic growth and investment. As important, they have signaled to Russian
individuals and businesses that the government is serious about creating
incentives to productive work and risk-taking.
As flat-tax advocate Steve Forbes likes to say, taxes are a fee charged on
productive endeavor, particularly successful endeavor. Tax cuts lower the
cost of labor and risk-taking. In the nature of things, corporations pass
on taxes to consumers or, failing that, reduce investment or the rewards to
shareholders and employees. Whether or not tax cuts boost revenues, they
always free up the productive resources of the economy.
So far, Mr. Putin has demonstrated a better understanding of this
relationship than many in Washington. Another tax going on the Russian
scrap heap is the "road user" tax. At about 1% of corporate revenues (not
profits), the tax was highly regressive, a disincentive to investment that
pushed a lot of business into the black market. Economic Development and
Trade Minister German Gref sounded like a supply-sider when he said that
the elimination of the road user tax is "the first step to stimulating
economic growth."
Russia's tax reform remains a work in progress. A new transportation tax
and increases in the gasoline excise tax and the land tax next year are a
return to the IMF playbook. Russia's overall tax burden remains far too
high, especially for a poor country. It is one piece of a need for further
broad economic reforms.
Still, Russia's government is on much sounder footing now than it has been
at any time since the fall of the Soviet Union. The economy grew 9% in 2000
and 5% in 2001 and is expected to expand by more than 4% this year. The
Moscow stock exchange has been galloping while other exchanges have groaned.
The Russian example shows that this is precisely the right time for tax
reforms to spur economic growth in the U.S. Opponents complain, as always,
that tax rate cuts will shatter governmental budgets. What's the Russian
word for baloney?
*******
#7
Putin Warns Military Chiefs To Keep Close Eye On Finances
November 26, 2002
DOW JONES NEWSWIRES
MOSCOW (AP)--Russian President Vladimir Putin on Tuesday ordered the
military top brass to prevent the siphoning-off of government funds, while
his defense minister acknowledged that only a fraction of the nation's
conventional forces were combat-ready.
Putin admitted that military wages remain low despite the Cabinet's
decision this year to double them and promised to continue raising
servicemen's salaries. At the same time, he sternly warned the Defense
Ministry to keep a closer eye on its finances.
"It's your responsibility to end abuses and make all the spending fully
transparent," Putin said in a speech to top generals, parts of which were
broadcast on Russian television. "Regrettably, quite often the Defense
Ministry itself doesn't know where the government money is going."
Efforts to reform the demoralized and underfunded Russian military have
been a top priority for Putin, but the Kremlin's plan to gradually phase
out the unpopular draft and form a slimmed-down, contract military has met
stiff resistance from the top brass.
Defense Minister Sergei Ivanov gave a somber assessment of the armed
forces' capability.
"The strategic nuclear forces provide guaranteed nuclear deterrence from
aggression against Russia at a minimum sufficient level," Ivanov said,
according to the Interfax-Military News Agency. "Only some general-purpose
formations and units are capable of fulfilling their tasks in full."
He said that the armed forces were to have 1.126 million servicemen by
year's end, down from 1.274 million troops as of Jan. 1 - a 12% cut.
The military currently has about 130,000 contract soldiers, according to
official data. Ivanov said last week that it would have 166,000 more
volunteers by the end of 2007, when the core of the ground forces - 92
units of the Land Troops, Airborne Forces and Marines - would become fully
staffed by contract soldiers.
At the same time, Ivanov has appeared to backtrack on the Kremlin's plan to
completely abandon the draft, saying last week that "conscription will
remain forever," although the length of compulsory service will be cut.
Every Russian man aged 18-27 is required to serve two years in the
military, but only about 11% of young men eligible for draft are actually
called up. The rest avoid the draft through college deferments, health
exemptions, bribes and hiding.
*******
#8
Christian Science Monitor
November 26, 2002
Latvia gives Russians cold shoulder
A decade after the republic won independence, many of its Soviet-era
immigrants remain outsiders.
By Fred Weir | Special to The Christian Science Monitor
RIGA, LATVIA – Alena Gausche carries an "Alien Passport," possibly the
oddest official document in existence. Issued by the Latvian government, it
affirms that the bearer is not a citizen of Latvia.
Ms. Gausche is among more than half a million Russian speakers - nearly a
quarter of this tiny former Soviet republic's population - who have spent
most of their lives here and do not plan to leave, yet still have not
become citizens. They cannot vote, run for public office, or hold a
state-sector job.
The citizenship issue, along with Latvia's tough single-language law, has
roiled relations with neighboring Russia, drawn charges that Latvia is
using strong-arm tactics to assimilate its minorities, and divided the
country's politics along ethnic lines.
Pressured by Western governments, Latvia in 1998 eased its formerly
draconian citizenship law enough to satisfy many critics. Last week, Latvia
was invited to join the Western military alliance NATO, and the Baltic
state hopes to be admitted into the European Union in a couple of years.
Yet most agree that Russian speakers here remain in an abnormal situation.
"What we have here is a conflict of two just causes," says Grigory
Krupnikov, general secretary of the New Era Party, which won the most votes
in last month's general election. "Latvia was occupied by another state for
half a century, and we had the right to restore our independence. On the
other hand, we know most of these people are not individually guilty. It's
not a normal situation by European standards, but Latvia is not a normal
country given our history."
Laws require most public information, street signs, broadcasting and all
state services to be in Latvian only. "We didn't want to make another
Brighton Beach here," says the legislation's main author, Dzintars Abikis,
referring to New York's colorful Russian quarter. "We have eliminated the
bilingual situation here, and it would be unpleasant for Latvians to bring
it back."
Higher education is in Latvian only, and use of Russian in secondary
schools will be halted in 2004. Mr. Abikis, of the centrist Peoples' Party,
acknowledges that the country's language policies will be a problem when it
comes to joining the EU, but defends the measures: "Latvian is the language
of a small people, and we had to make sure it would survive."
When Latvia broke free from the USSR a decade ago, it offered documents
immediately to all who had been citizens of independent Latvia before it
was swallowed up by the Soviet Union in 1939, and their descendants. But
hundreds of thousands of Soviet-era immigrants, mainly Russian-speaking
factory workers and their Latvian-born children, were left in legal limbo.
Latvia's neighbor, Lithuania, simply gave citizenship to its permanent
residents and now finds itself on a faster track to EU membership. The
third Baltic state, Estonia, has moved more swiftly than Latvia to grant
municipal voting rights and other concessions to its noncitizens.
Many Latvians resent Moscow's occasional efforts to stir up noncitizens
against NATO membership and integration with the West. In 1998 Moscow Mayor
Yuri Luzhkov even compared the Latvian government to Pol Pot's genocidal
regime in Cambodia after Riga police broke up a rally of mainly Russian
pensioners.
"As long as the Latvian elite chooses confrontation and segregation to bar
Russians from political life and the economy this will remain a serious
problem in our relations," says Vyacheslav Igrunov, a liberal deputy of the
Russian State Duma.
Car salesman Igor Orlov, a fluent Latvian speaker, says obtaining his
citizenship in 1993 was "a most unpleasant experience" in which officials
seemed to think the goal was to discourage Russians.
Nikolaj Neilands, a leader of the left-wing Harmony Party whose family has
been Latvian for centuries, says he examined the citizenship test used in
the mid-1990s and found many questions impossible. "There was a primitive
brand of nationalism behind this. It was designed to make the Russian
population feel unwelcome here."
Officials say that procedures have been liberalized since 1998, and that
the main problem is noncitizens who lack motivation. "Any noncitizen can
apply for citizenship, and it is not difficult to obtain," says Janis
Kahanovics, deputy head of Latvia's naturalization board.
One reason for Latvia's foot-dragging may be political. The Party for Human
Rights, which speaks for the Russian minority, is already the
second-largest force in Latvia's parliament. "Many Latvians fear that if
you gave all noncitizens the vote, there would be a reorientation of policy
toward the East," says Nils Muiznieks, Latvia's new minister of
integration. "There is also the concern that if they had more political
influence, Russian would receive the status of a state language and that
would remove any incentive for them to learn Latvian," he says.
Amid all these considerations, the fact remains that many noncitizens seem
uninterested in changing their status. "Some feel offended, and think it
unjust that they must apply for citizenship," while ethnic Latvians were
simply granted it a decade ago, says Mr. Krupnikov. Many young men may be
avoiding Latvia's compulsory military service. Others may have business or
family interests in the East and prefer the visa-free entry Russia offers
noncitizens to the hassles of traveling to the former USSR on a Latvian
passport.
Some just haven't made up their minds. "I may go to university in Russia,
in which case it's better to remain a noncitizen," says student Maria
Chemm. "Or, I could decide to study in Paris, and then it would be better
to have a Latvian passport."
Ms. Gausche, a Belarussian who married a Latvian in 1959, says citizenship
is not her biggest concern. "My only real problem is that my pension is
just 55 Lats (about $90) per month," she says, adding, "My Latvian
neighbor's pension is the same as mine. She and I get along fine, and the
question of citizenship never comes up."
*******
#9
From: "Scott Atkinson"
Subject: RE: 6571-Stephen Shenfield/JRL RESEARCH AND ANALYTICAL SUPPLEMENT
No. 13
Date: Mon, 25 Nov 2002
I read with interest Galina's Gradoselskaia's entry on protection money.
This is indeed a difficult subject to research and yet an understanding of
its role in the operations of varied Russian businesses is quite
important--indeed, as she notes, the entrepreneur who pays all tribute and
taxes in full will go bankrupt. One could make the case that the
small-business Russian entrepreneur goes through a form of business school
that truly gives him or her a test of capitalist mettle by fire and the
sword: he or she must watch the classic market indicators and position
goods and services accordingly like any entrepreneur, but must
simultaneously also figure out the next move (figuratively, sometimes
literally) to stay one step ahead of, or accomodate, a predatory krysha or
Tax Inspectorate office. Many small operations, despite conducting
profitable business, have been punitively shut down for being unable to
pacify one or the other. Notably, many kryshi entered business ventures
that they had no prior experience with because they were attempting to
collect for protection "services"; the firms they took over could not afford
(or refused) to pay them any longer, and the krysha simply took over. Such
practices seemed to me to most affect small and medium-sized businesses, but
even the largest enterprises were not always immune.
In my experience, based chiefly on conducting business in the marine
industry of the Russian Far East in the 90s, a real krysha has ties to the
government--and, indeed, not uncommonly shares information with it;
similarly, personnel in one may work for the other, later on--even the same
day!
Gradoselskaia's points on the risks, which she reports are diminishing, of
rejecting protection when offered, are of interest. It is important to add
here that there are risks to both sides in the initial interaction--the
krysha approaching the firm is also at risk if they press the case, when the
enterprise already has existing protection. Although veterans in the rules
of the game would argue that this should never happen if the krysha has
already done its homework, the reality is that such encounters have
sometimes resulted in the legendary razborki--("rumbles", i.e., the violent
clash of the incumbent krysha against the interloping one). I heard an
unforgettable story of a young "sportsmen" who lost his life in Vladivostok
seven years ago in just such an encounter (it must be said that he was the
interloper). In American colloquial, you can't "dis" someone that way and
expect to just walk away; indeed, there is reputation at stake, and in the
krysha rules of the game, building an image of power goes hand-in-hand with
real shows of power.
Lastly, part of the reason why rejection of krysha protection may not result
in punishment for the firm is that the firm may, up front, report that it
already has protection, thank you. The firm in such cases usually escapes
unscathed, but the krysha that applied will usually punish the firm, if it
is determined that the firm lied and is thus unprotected.
*******
#10
Nezavisimaya Gazeta
November 22, 2002
NATO's Last Expansion
In the next two decades the alliance will be "digesting" its new members.
by Nikolai Zlobin
Director of Russian and Asian Programs, the Center for Defense Information
NATO's expansion is its final one in the foreseeable future. It is
approaching the limits of growth, both in the number of its members and in
its geographic expanse. And since the same can be said about the European
Union's expansion, one thing becomes obvious: Europe has already finished
defining itself geographically. Those countries that are now on the list of
candidates will, of course, be admitted. But all the other candidates
knocking on NATO's door will have to wait a long time. In the next two
decades the alliance will be busy "digesting" its new members.
NATO's expansion had been planned even before the "terrorist era." Last
week's Prague summit was initially planned as an "expansionary" meeting.
But, as it turned out, that is no longer the main priority. The most
important thing now is creating a European reaction force, designed to
combat terrorist threats and their places of origin.
Yet the new candidates are entering the alliance with their old goals and
agendas. For them, as for the "older" European members, it is not a given
that NATO should transform itself into an exclusively, or even
overwhelmingly, an instrument for fighting terrorism and the regimes that
support it (upon which the US insists.) Because if this happens, questions
arise: how should the alliance's structures and functions - military,
political, diplomatic - change as a result. And will NATO be able to remain
what it has been over the past 50 years - an instrument for ensuring
Europe's stability and security while protecting it from outside threats.
Moreover, NATO has historically dealt with controls over nuclear
installations, mainly in regards to the Soviet Union. Today, however, the
main danger of WMD proliferation does not come from Europe. The alliance is
facing an important question: how to reposition itself on that issue as well.
The third question concerns NATO's technological abilities. Today no one is
concerned with defending the Czech republic from Russian tanks. The
reorientation of the alliance toward the struggle against international
terrorism demands a thorough retrofitting of its armed forces, which
presupposes entirely new military allocations. And
neither European leaders nor European masses are ready to militarize Europe.
There are no answers to this bundle of questions and this, I believe, may
lead to a future split. The candidate countries intend to enter NATO with
the false assumption that the alliance will remain the same way it has been
in the past.
The potential for conflict is already being examined. On the issue of
expanding the "antiterrorist front" there is greater divergence between
national and NATO agendas. Or, to be precise, the NATO agenda that America
wants Europeans to follow. The threat of a serious split within NATO
increases when it comes to Iraq, North Korea, etc. NATO has never
formulated a position on these issues. But now, it seems, it will have to.
Theoretically, to stay abreast of modern politics, the alliance really must
turn into an instrument - even an institution - of combating "the greatest
danger to modern civilization", as George Bush defines terrorism. But then
the classic version of NATO will have to be nixed, with all the attendant
consequences.
Why does America even need the alliance? Is it not becoming a cumbersome
burden for the United States? America needs the alliance because it is the
main mechanism for American presence on the continent. The US is interested
in NATO, with all its faults and weaknesses, as an instrument of their
institutional representation in Europe.
NATO is the EU plus America. Americans today would consider it unwise to
leave Europe "alone with the EU". They draw on historical precedents:
Europe, with its mass contradictions, has twice before plunged into the
quagmire of world war when it was left alone.
Speaking of NATO limits on expansion, we cannot forget about Asia. The fact
that China doe not protest NATO's eastward expansion, and is seeking
contacts with the alliance, is very significant. With the conclusion of the
pact between Russia and NATO (the so-called "twenty"), the alliance's
structure moves to the Chinese border. And this creates problems for both
Peking and Brussels. On one side, the alliance must now take into account
the events on the Russian-Chinese border, a fact that its members are
unprepared for, either intellectually or conceptually, since NATO has never
left the boundaries of Europe. On the other side, Peking must take a pause
now as well. The modernization of Chinese agriculture not only objectively
pushes Peking, economically and technologically, into the Western embrace,
but with the same objectiveness demands corresponding political and
military guarantees from China, including guarantees on the Chinese borders.
The biggest source of headaches for everyone is the Middle East. This is
the vacuum zone that lacks functioning structures for ensuring security.
Americans cannot help but be worried about that. But the US has few choices
in creating such structures, nor is it currently up to the task. On the
other hand, the "Shaghai Six" did not prove itself capable in this matter
either.
So what can America and other countries do to eliminate that vacuum? The
only solution is to create and strengthen national armed forces. The lack
of modern armies makes this region unpredictable. So the majority of the
Americans' financial, organizational and intellectual efforts go not toward
creating international security structures, but toward strengthening of
national armies and borders.
Neither China nor Russia can help these armies financially or
technologically. That's why everything rests on America. America will take
up this task, and will attempt to take NATO along. Moreover, all these
countries are interested in nonproliferation of nuclear weapons and other
forms of WMD via Middle East borders. This means that there needs to be a
creation of engineering infrastructure, and the strengthening of
intelligence agencies and border patrols.
*******
#11
Novye Izvestia
November 26, 2002
NATO WILL BE FRIENDS WITH POST-SOVIET NOMENKLATURA
...pending its destruction
Author: Marina Kalashnikova
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
NATO ANNOUNCED ITS OWN GLOBALIZATION AT THE PRAGUE SUMMIT - THE
INTENTION TO EXPAND BEYOND ITS TRADITIONAL ZONE OF RESPONSIBILITY, THE
CONTOURS OF THE NEXT WAVE OF EXPANSION HAVE BEEN SPECIFIED: ALBANIA,
MACEDONIA, AND CROATIA. THE CAUCASUS AND CENTRAL ASIA ARE
"STRATEGICALLY IMPORTANT REGIONS".
NATO is advancing into post-Soviet republics
NATO announced its own globalization at the Prague summit - the
intention to expand beyond its traditional zone of responsibility,
forming units capable of operating anywhere in the world. It was
announced that the Alliance would probably enter Afghanistan, Iraq,
and so on. Such tasks require proper infrastructure in various regions
of the world, and a global military presence as well.
The contours of the next wave of expansion have been specified:
Albania, Macedonia, and Croatia are potential candidates.
The Caucasus and Central Asia are "strategically important
regions". Local governments are urged to energetically cooperate with
NATO structures. This cooperation is needed to bring their national
armies closer to NATO standards and to fortify civil society in these
countries. A Western diplomat said off the record that Central Asian
republics should become "new frontiers" of the Alliance over the next
10-15 years.
CIS leaders are enthusiastic about the idea. President Nursultan
Nazarbayev of Kazakhstan announced at the meeting of the Council of
Euroatlantic Partnership that "the plague of the 21st century,
terrorism, cannot be successfully handled without global cooperation
under the NATO aegis." Nazarbayev also emphasized "the special role
played by the bloc in implementation of the UN resolution on a
nuclear-free zone in Central Asia." Some experts suspect that apart
from everything else, such a zone could invalidate the plans the
Russian General Staff has drafted for the region. President Islam
Karimov of Uzbekistan thanked NATO for assistance with military
reforms and fortification of Uzbekistan's borders. "Friendly relations
with NATO will help Uzbekistan and all Central Asian republics to
handle the threats of international terrorism and drug trafficking,"
he said.
President Eduard Shevardnadze of Georgia demanded special
attention. He officially reiterated Tbilisi's intention to join NATO
and added that Georgia's road to membership in the Alliance "looks
shorter now than before." Shevardnadze considers that an invitation to
join NATO may be sent to Georgia before 2005.
A seasoned politician, Shevardnadze did not mince words on the
subject of actual motives of the new "senior partner". It was probably
the first time he openly stated that the Black Sea was becoming a
sphere of NATO interests. Moreover, the West needs the Caucasus - and
particularly Georgia - in light of its far-reaching plans with regard
to oil transit and settlement in the markets of the Caucasus and
Central Asia. "The Caucasus is becoming a vanguard of the civilization
that respects liberty and humanism in the broad sense as its basic
values," Shevardnadze said.
Tbilisi's determination is probably attributable to the fact that
President George W. Bush personally promised Shevardnadze to support
the intention to join NATO. Washington already allocated $64 million
for modernization of the Georgian army and its training for counter-
terrorism operations. The American-Georgian program is under way.
Last but not least, Ukraine found itself at the center of
attention. Despite the recent scandal over the sale of Kolchuga radars
to Iraq, Kiev achieved a great deal. The NATO-Ukraine council endorsed
the "individual plan of action" and a program for the year. Kiev
pledged to facilitate military reforms and bring it political and
legislative systems, as well as its economy, closer to Western
standards. Foreign Minister of Ukraine Anatoly Zlenko says that "this
is a new format of our relations with NATO." Asked about Ukraine's
chances of leaving Russia behind in this sphere, Zlenko replied,
"Every country sets its own tasks. If Russia intends to operate within
the Russia-NATO council, we develop our relations with NATO in a
different manner. We aim to join the Alliance."
NATO leaders' intentions to facilitate cooperation with CIS
countries including authoritarian regimes of the CIS were the talk of
the day in the corridors of the summit and in the media. A spokesman
for the London-based Helsinki Group was quoted as saying that the West
demonstrated in Prague its readiness to cooperate even with those
post-communist rulers who were no better than Lukashenko. The
explanation is simple: it is these people who have the power in the
former Soviet Union. Pro-Western democrats in these countries lack
influence - because of the unpopularity of the reforms imposed on
these countries by the West itself.
Some Western diplomats admitted that NATO was aware of the
problem and even had a solution to it. The solution would be gradual.
Demands on new NATO members differ from demands on candidates for
membership and old members. The Prague summit itself may be viewed as
a catalyst of future replacement of regimes in Belarus and Ukraine.
The United States is facilitating reforms in Central Asia. It
places emphasis on democratic reforms, free media, and a new
generation of democratic leaders. As for Russia, the US Congress
adopted a special law on development of democracy recently. It
supports nongovernmental organizations and civil society. The Kremlin
is still busy building all sorts of hierarchies, and does not
acknowledge initiatives of this sort. The Foreign Ministry merely let
its displeasure be known.
*******
#12
St. Petersburg Times
November 26, 2002
Picking Up and Passing On the Pieces of Russia's Privatization
As the economy evolves into a more sophisticated beast, mergers and
acquisitions have begun to replace the naked asset-grabbing that was the
hallmark of the Yeltsin era. Ben Aris reports on the country's third, and
so far quietest, redistribution of property.
Neither a candy nor a rapper, M&A is all the rage in corporate circles, as
savvy tycoons and entrepreneurs are increasingly snapping up and expanding
their corporate castles out of the industrial Legos left scattered about
after the the first wave of privatizations a decade ago.
M&A, or mergers and acquisitions, have quickly become the driving force of
the country's third, and so far least controversial, redistribution of
property.
The process began two years after the 1998 default and devaluation, when
Oleg Deripaska's Siberian Aluminum - now known as Base Element, or BasEl -
bought the PAZ bus factory, and it reached maturity earlier this month with
Mobile TeleSystem's purchase of Ukraine Mobile Communications, or UMC, for
just under $200 million. UMC is the second-largest cellular operator in a
country of 50 million people, and the deal was Russia's biggest
cross-border telecoms acquisition.
PICKING UP THE PIECES
The privatization process of the early 1990s was a crude affair, but it
created myriad investment opportunities that only recently became worth
pursuing.
The problem the government faced was that, with the absence of a working
free market, there was no one to buy the newly independent companies.
Instead, every single factory, bakery and kiosk was made into an
independent legal entity, and most were given to employees and managers via
privatization vouchers.
In the years that followed, powerful business people grabbed the few assets
that were actually making money - mostly raw-material producers - and the
rest were left to wallow in economic misery.
The devaluation of the ruble completely changed the playing field for
investors. Assuming that the country is finally settled on the road to
recovery, thanks to rising consumer spending and corporate profits, whole
new classes of assets have become attractive.
It wasn't just the rich and powerful who saw and capitalized on the
possibilities. While the likes of the International Monetary Fund and
investment bankers were predicting doom and depression for Russia - the IMF
said that the economy would contract by 8 percent in 1999, when it actually
grew 5 percent - oligarchs and entrepreneurs went on a shopping spree,
unable to resist the bargains.
"[In 1998], good companies could be bought at rock-bottom prices. They were
cheap, not because their equipment was obsolete - although it is old - but
because most of these companies were in a difficult financial condition and
it took little money to buy them," said Dmitry Sokolsky, the head of
Zenit's investment-banking group.
Factories that are worth millions today were snapped up for as little as
$60,000, Sokolsky said. Now, according to M&A specialists, nine out of 10
deals are relatively small, involving only a few million dollars and no banks.
CLOSING THE DEAL
"Most of these deals are made between the two principles sitting in a room
with a bottle of vodka and thrashing out the details," said Lucas Wilson,
head of corporate finance at UBS Warburg. "They had no need of a bank,
which would probably just get in the way."
With more businesses chasing fewer choice acquisition targets, prices are
rising to the point where those that simply bought businesses at the end of
the 1990s because they were cheap are now thinking about selling them.
For example, MTS and the other mobile-phone companies have been snapping up
regional operators over the past year. MTS paid $350 per subscriber to take
over Kuban-GSM at the start of the year, but $705 per subscriber for its
most recent acquisition, Dontelecom.
"Real M&A started over the last 18 months," said Vladimir Rashevsky,
chairperson of MDM-Bank. "Russia's business people have seen the example of
a few companies like [No. 2 oil producer] Yukos and [leading dairy
producer] Wimm-Bill-Dann increase their value by several times and want to
do the same."
Now, businesses are concentrating more on their long-term strategies, and a
round of selling is under way as major groups begin focusing on specific
areas of interest.
"No one was interested in the agricultural sector a year ago, but then
Agros began buying dairy and milk plants, as did Millhouse Capital," said
Alexei Panferov, head of MDM's investment banking operation. "They went
into this business thinking about how they could get out again, and the
business plans are thought right through to eventual IPOs."
Agros is the recently spun off agricultural arm of Vladimir Potanin's
conglomerate Interros, which controls, among other companies, metals giant
Norilsk Nickel. And the new company wasted no time embarking on an
acquisition binge.
Millhouse Capital, Roman Abramovich's holding that includes Sibneft, the
country's fifth-largest oil company, has done the same, setting up an
agriculture and food-processing subsidiary called Planeta Management.
Typically, the parent company gives the subsidiary a big dollop of seed
capital and then leaves it to fend for itself.
Planeta and MDM recently cut the first leveraged takeover deal - where a
bank both organizes an acquisition and lends the money to complete it - for
a large meat-processing plant in Irkutsk. According to bankers, Planeta
didn't have enough money to do the deal on its own but couldn't tap Sibneft
directly for the balance.
"Millhouse gave Planeta some money to get it going, but management is not
going to use all its resources on a noncore business. Planeta's management
have to run their business on their own," Panferov said.
COMPARTMENTALIZATION
This compartmentalization of different businesses in a group is new. In the
past, a big business would deliberately confuse the structure of its
businesses to make it easier to disguise cash flows and move cash offshore.
Now, however, the trend is for subsidiaries to prove that they are
profitable in their own right; there is little cross-subsidization within
groups once the initial capital has been committed.
"Interros is looking much more focused than it did a few years ago," said
Steve Jennings, president of Renaissance Capital. "It is being realistic.
These companies can only manage a few things well. The small and relatively
inexperienced teams can only cope with so much. They still have core assets
that need a lot of restructuring."
There are other processes pushing this tendency forward. Banks used to be
at the heart of major financial-industrial groups, but are no longer the
cash cows they were in the 1990s. Industrial groups' banks are increasingly
doing real banking business, while the separate industrial parts are
receiving investments to make them more profitable.
And the owners of the real cash cow in the group - Sibneft in Planeta's
case, Norilsk Nickel for Interros - are trying to boost the company's share
price; portfolio investors prefer to see noncore businesses kept separate.
"The industrial groups are now buying assets in different sectors -
chemical, pulp, timber or agriculture - and pulling together something that
can reach critical mass or take advantage of the economies of scale," said
Alfa Bank chief executive Alexander Knaster.
"It remains to be proved if these groups will add value or not, but they
are doing the basic things - putting in decent management and imposing some
financial discipline."
What differentiates these deals from the asset-grabbing fest of the Yeltsin
era is that, for the most part, companies have to buy shares in their
acquisition targets on the open market at market prices. None of these
acquisitions will make money from day one, as an oil company or a metal
producer can be expected to do. They all need investment and restructuring.
This difference has brought about a revolution in thinking: Managers are no
longer concerned with how much cash a company generates, but with the
return that can be earned on the money invested - the return on capital.
SHIFTING EMPHASIS
Return on capital has been an alien concept in Russia for most of the past
10 years, but there is nothing like spending your own money to make people
learn.
"The novelty of running a business is beginning to wear off," Jennings
said. "The owner/managers are more aware of being a shareholder and the
value that brings. There is an ongoing trend of bringing in professional
managers as the majority shareholders begin to step back from their
businesses. The emphasis is shifting from merely controlling a company to
adding value to it."
Banks are still playing a relatively small role in the current round of
M&A, as the bulk of the deals are small, while, at the other end of the
scale, the really big deals are still more about politics and government
connections than finding a fair price.
Knaster estimated that the fees that banks earn from M&A are between $50
million and $100 million a year, a tiny amount compared to those in more
developed countries. But banks are building up their M&A departments in
anticipation of bigger cross-border deals.
The big money will be earned when multinationals start buying local
producers as a simple way of breaking into the Russian market.
However, direct investment remains mired at about $4 billion per year, as
most are still sitting on the sidelines and leaving the play to the Russians.
Russian companies buying attractive assets in the "near abroad" are doing
almost all of the cross-border M&A, and Russia has been a net exporter of
capital for at least a year. MTS's purchase of UMC is typical of a Russian
M&A deal, and the $250 per subscriber it paid for UMC makes these assets
cheap even by domestic standards.
"Foreigners see Ukraine as a politically unstable and risky place to work -
much worse than Russia," said Viktor Frumkin, chairperson of Bridgetown, a
Russian food-processing company that is about to open a factory in Ukraine.
"But for the Russians, Ukraine is like another Russian region, except this
one has over 50 million people - a third of Russia's population."
Another oddity of the Russian M&A business is that there is very little 'M'
at all. The first attempt at a big merger quickly fell to pieces and
underscores the problems.
In 1997, oil companies Yukos and Sibneft tried to join forces and create
Yuksi, but the deal quickly disintegrated, as neither of the two owners
could agree who would step aside.
"Mergers are not part of the Russian corporate culture. In Europe, the
company's general manager can step down but, in Russia, it is almost
impossible for one of the owners to step aside," Sokolsky said. "When only
a few hands control big companies, then you can't say the company is
public, even though it has publicly traded shares. There are very few truly
public companies in Russia."
SMOOTH EXCEPTION
The most obvious exception has been the merger of 70-plus regional
fixed-line telecoms companies into seven super-regional holdings as part of
the ongoing overhaul of the industry. The process is due to finish by the
start of next year, and it has gone very smoothly.
"The [telecoms mergers] were made easier as there was a clear champion in
Svyazinvest, which helped in persuading the daughters [the regional
telecoms companies that make up Svyazinvest] and a few rogue shareholders,
as well as doing a lot of the analytical work," said Alexander Tolchinsky,
Alfa Bank's board member in charge of corporate finance. "It went very
smoothly, but everyone will benefit as these mergers have made the sector
vital again."
The emphasis on return on capital is a key change and will drive the
current redistribution of property toward more efficient market and better
corporate governance, since there is no point buying an attractive business
that can't be sold off.
The main danger is that too much economic power will be concentrated in the
hands of too few companies. But, at the moment, companies are simply
chasing profits, which is what they are supposed to do.
"In 10 years, the structure of the economy will be as if communism and
central planning never happened," Jennings said. "The changing shape of
Russian industry is the same as has happened in every other country, just
here it is changing five times faster."
*******
#13
South China Morning Post (Hong Kong)
November 26, 2002
Russian paranoia mires China ties
Moscow is seeking to build a strategic partnership with Beijing. But a
refusal to liberalise - and an underlying domestic fear of the Chinese - is
proving to be a barrier to good relations
By Fred Weir
Just beyond Moscow's Kievsky railway station is a sprawling illicit
marketplace for "shuttle traders", the itinerant arbitrageurs whose vast
annual imports do not show on official radar screens but arguably still
keep Russia's impoverished, post-Soviet consumer economy afloat. Most of
the flimsy coats, cheap tape players, rolls of linoleum, T-shirts, battery
operated toys and garish beach towels - even the fake adidas goods - on
display these days are clearly from China. So are a growing number of the
vendors who, like illegal immigrants everywhere, disappear if questions
move beyond the sale at hand. Russian police seldom enter here, and Moscow
officials pretend the place does not even exist.
The arrangements at Kievsky market neatly illustrate official Russia's
schizoid attitude towards its giant, economically booming Asian neighbour.
On one hand, Moscow has moved smartly to abolish Soviet-era hostilities and
build a "strategic partnership" with Beijing, which some Russian
policymakers hope could eventually become a strategic counterweight to US
global hegemony. Increased American activism on the global stage after the
September 11 attacks may have crushed that design by revealing that Moscow
and Beijing both regard relations with Washington as the top priority,
while those with each other are secondary. On the other hand, the Kremlin
refuses to liberalise visa, trade and immigration rules and thus stymies
the possibility of a real boom in grassroots commerce and labour exchange
between the two countries. In demographically challenged Russia, where the
population is rapidly ageing and whole regions are turning into wastelands,
the obvious solution lies just across the border in Asian countries teeming
with young workers and eager entrepreneurs.
"The Russian public has a deep, almost primeval, fear that China's millions
will swarm into our depopulated lands and take them over," said Viktor
Dyatolov, an expert with Irkutsk State University in central Siberia. "So,
while our leaders call for partnership, they take no practical steps to
acknowledge or regulate the real interchanges that are growing between
Russian and Chinese society."
Political dialogue initiated by former Soviet leader Mikhail Gorbachev in
the late 1980s has borne impressive fruit. The border disputes that saw
Soviet and Chinese forces wage savage warfare across the Ussuri River in
the 1960s have been quietly settled, and the two countries signed a
grand-sounding Good -Neighbourly Treaty of Friendship and Co-operation last
year. Official trade is also on the rise, peaking at more than US$ 10
billion (HK$ 78 billion) in 2001. Indeed, China is practically the world's
only willing customer for Russian nuclear technology, hydro equipment,
civilian airliners and other heavy-engineering goods. Along with India, it
buys more than 70 per cent of all Russian arms production, including
sophisticated weaponry like the Su-30 heavy fighter, the S-300 air defence
system and Sovremmeny-class destroyers. "Without China, a lot of Russia's
heavy industry would collapse," said Sergei Kazyonnov, an expert with the
Institute of National Security in Moscow. "We desperately need that market."
The Kremlin has even risked antagonising Russia's one million Buddhists to
placate Beijing, by twice denying a visa to the Dalai Lama in the past two
years. "We do not regard the Dalai Lama as an extremist, but we have to
take into account China's negative attitude to him as a political figure,"
said a Russian Foreign Ministry spokesman.
Yury Galenovich, a China expert with the Institute of Far Eastern Studies
in Moscow, said: "Russia's political sensitivity towards China is growing
stronger and this is part of a larger pattern of stabilised relations. The
shape of the future world is still unclear, but it almost certainly
includes a Russia-China partnership."
Since September 11, President Vladimir Putin has moved Russia on to a
pragmatic pro-Western track, signing on to the US-led anti-terror
coalition, acquiescing to American military bases in former-Soviet Central
Asia and even dropping objections to Nato expansion - finalised last week -
deep into the former Soviet sphere of influence. Despite the Kremlin's
westward leaning, Russia's "Asian school" of scholars and diplomats
continues to talk hopefully of building a "strategic triangle" between
Moscow, Delhi and Beijing. The concept was first expressed by Russia's
left-wing former prime minister Yevgeny Primakov during a visit to India in
1999. He saw a potential alliance that might block the march of US global
dominance.
One of Mr Primakov's ideas was to create a common security bloc, including
Russia, India and China, to set against an enlarging Nato on Russia's
western flank. The six-member Shanghai Co-operation Organisation (Russia,
China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) was officially
launched last year - and evolved from a group originally formed to
negotiate post -Soviet borders - but India has yet to join, and the group's
purpose may have shifted from US counterweight to budding partner of
American power in Asia.
"What we have seen since September 11 is that a new strategic triangle is
taking shape between Washington, Moscow and Beijing," said Mr Galenovich.
"When two of these countries hold a summit these days, the third is always
present in spirit. The Kremlin has understood that Russian policy must move
West and East at the same time."
It may be too soon to define the direction of post-Soviet Russia, which has
gone through several volatile phases over the past decade.
Disillusionment with Mr Putin's West-leaning policies is already setting
in, as Russia's elite counts the meagre returns from a year of co-operation
with the war on terrorism. "Russia has suffered a lot of disappointments
lately in its relations with the West," said Mr Kazyonnov. From the
aggressive eastward march of Nato, to bitter European criticism of the
Kremlin's war in Chechnya, to the refusal of the US Congress to repeal Cold
War laws that block free Russian access to the American market, many
Russians perceive relations with the West as a case of being asked to give
all and getting nothing in return. "Remember, Russia is a Eurasian country
that can never be completely digested into Europe," said Mr Kazyonnov. "No
attempt in our history to join the West has ever lasted long."
Other experts agree that there may be a strategic rapport between Russia
and China that is naturally unfavourable to the US world view. "There is no
doubt that both Moscow and Beijing work hardest on their separate relations
with Washington," said Tatiana Shaumian, director of the Centre for Indian
Studies in Moscow and a participant of the officially-sponsored Trilateral
Dialogue commission, which met in Beijing this month to explore avenues of
co-operation between India, China and Russia. "But when we compare notes
with our Chinese colleagues we always find a mutual disquiet about US
global ambitions, as well as a lot of common ground on world security and
strategic issues. There is no enthusiasm for anti-American alliances in any
of our countries, at least not right now, but there is considerable feeling
that Russia and China should co -ordinate our activities aimed at
moderating or redirecting some US policies."
Now return to the scene at Moscow's Kievsky market, where the Chinese
shuttle traders are a small but visible part of an underground community
that may number 200,000 in Moscow alone, along with the one million or more
immigrants spread across Siberia and Russia's Far East. "No one can say how
many Chinese are in Russia, or how deep their economic roots are, because
it is all based on illegal immigration and black market activity," said
Tatiana Poloskova, a specialist with the Russian Foreign Ministry's
Diplomatic Academy. Although the goods and labour provided by Chinese
immigrants are a boon to Russia's sputtering economy, the government seems
determined to keep a lid on the process.
"There is a growing ethnophobia in Russia, popular hysterics about a
Chinese takeover of our lands that are easily manipulated by politicians,"
said Professor Dyatolov. "As long as Russia has this domestic paranoia
about China, it's hard to see how state-to-state relations can develop in a
normal way."
******
#14
Turkmens accuse Russia of role in assassination bid
By Marat Gurt
ASHGABAT, Nov 26 (Reuters) - Turkmenistan on Tuesday accused Russia of
protecting the plotters of an assassination attempt on Turkmen President
Saparmurat Niyazov, but stopped short of blaming Moscow for arranging the
failed killing.
"This was ordered from abroad. I can't say that it was done from Russia,
but I can say absolutely officially that there are political activists in
Russia who protect the organisers and motivators," Niyazov's spokesman
Serdar Durdyev told a briefing.
A Russian Foreign Ministry spokesman declined comment.
Niyazov's motorcade was raked by machine gun fire on Monday morning,
although he later said he knew nothing about the attempt and was already at
work when he was told about it. No one was hurt in the attack.
Ties between Russia and the Central Asian former Soviet republic have been
strained and rumours first surfaced over a year ago that Moscow was backing
a coup against Niyazov, who was offered the presidency for life from his
compliant parliament in 1999.
Russia is frustrated by what it perceives as Niyazov's obstruction in
dividing the mineral wealth of the Caspian Sea, a huge resource base which
they share.
It is also unhappy with what it sees as his discrimination against ethnic
Russians and his perceived failure to defend adequately Turkmenistan's
border with Afghanistan, raising fears of refugees flooding into Central
Asia and beyond.
Niyazov, speaking on state television on Monday, said four former senior
officials were behind the attack: former Foreign Minister Boris
Shikhmuradov, former central banker Khudoiberdy Orazov, former Deputy
Agriculture Minister Sapar Yklymov, and Nurmukhammed Khanamov, a former
ambassador to Turkey.
Durdyev said on Tuesday Yklymov had organised the weapons used in the plot
while the others had financed him. He also singled out Orazov as enjoying
Moscow's backing.
NAKED TERROR
"There are interested politicians in Russia who protect Orazov. There exist
recordings of Orazov with one very high official in the Russian government
in which Orazov asks him to spirit him out of Turkmenistan. This actually
happened when Orazov left the country."
"These people have chosen the path of naked terror and violence against
Turkmenistan," he said.
Durdyev said 16 people had already been arrested, of whom four were ethnic
Georgians.
Shikhmuradov was one of Niyazov's closest aides from when Turkmenistan
achieved independence from the Soviet Union in 1991 as foreign minister for
eight years and then ambassador to China.
But when Shikhmuradov, a former Soviet diplomat educated in Moscow, was
recalled in October 2001, he fled instead to the Russian capital and
launched a blistering attack on Niyazov.
Analysts said at the time it was inconceivable he would speak out in Moscow
without at least tacit Russian backing, further fuelling speculation about
a coup.
Ashgabat's response was to issue an arrest warrant for Shikhmuradov on a
bewildering array of charges, including the theft of military jets worth
nearly $30 million. It is still seeking his extradition.
Niyazov, known as Turkmenbashi, or Leader of the Turkmen, and more commonly
as Turkmenbashi the Great, rules his country with absolute power and
encourages a bizarre personality cult.
Airports, cities, brands of perfume, even a meteorite are named after him,
his pictures and statues are everywhere, and in August parliament
overwhelmingly approved a proposal to rename all the months of the year
after himself, his mother, and an idiosyncratic spiritual book penned by
Turkmenbashi.
******
#15
TV1 Review
www.1tv.ru
Compiled by Luba Schwartzman (luba_sch@hotmail.com)
Research Analyst, Center for Defense Information, Moscow office
HEADLINES
Monday, November 25, 2002
- King Abdullah II of Jordan is in Moscow on a working visit. He will meet
with Russian President Vladimir Putin to discuss the situation in the Middle
East and in Iraq, as well as the prospects of bilateral cooperation between
Russia and Jordan.
- An assassination attempt against Turkmen President Saparmurat Niyazov took
place this morning. One policeman was injured. Niyazov was not hurt.
Turkmenbashi declared that the men who organized the attack are opposition
members currently in emigration, like former deputy prime minister and
foreign minister Boris Shikhmuradov.
- Law enforcement representatives have announced the names of some of the
people who were detained in connection with the Dubrovka theater hostage
situation. They include 30-year-old Khampash Sobraliev and 39-year-old
Arman Menkeev.
- Black Sea Fleet commanders reviewed the recent expedition to the
Mediterranean Sea.
- Compensations to the relatives of the passengers Tu-154 airplane, which
was shot down by a Ukrainian missile, were discussed in Kiev. By
international norms, the payment should be $20,000 per person.
- President Putin has vetoed the amendments to the law on the media approved
by the State Duma and the Federation Council and asked the leaders of the
two houses of the Russian parliament to create a coordination committee to
review these amendments.
- Aeroflot has cancelled flights to France because of the strikes by French
air-traffic controllers.
- A series of stamps with pictures of Russian Orthodox sites will be
published in Russia.
- President Putin met with key ministers to update them on the results of
his talks with the US President and to discuss the 2003 budget.
- President Putin met with the President of the Republic of Bashkiria,
Murtaza Rakhimov, to discuss the socio-economic situation and the results of
the Census in the republic.
- A new Scientific Award, "Global Energy", has been established in Moscow.
- Education Minister Vladimir Filipov declared that a new system of grades,
which will give more flexibility in grading, may be introduced as early as
in 2004.
- Presidential Aide Sergei Yastrzhembsky declared that it is unclear whether
Chechen emissary Akhmad Zakaev will be extradited to Russia.
- The Pyatigorsk Court has sentenced former commander of the Chechen
headquarters Said Magomedov to 16 years in prison.
- The Budget and Tax Committee of the State Duma has recommended
compensations to the workers of Nord-Ost.
- Accounting Chamber Chairman Sergei Stepashin received a black belt in
karate on his visit to Tokyo.
- President Putin met with Central Electoral Committee Chairman Aleksandr
Veshnyakov to discuss the laws concerning the Russian electoral system
currently in the State Duma. Putin also congratulated Veshnyakov on his
50th birthday.
- The first floating nuclear power plant will be constructed in
Severodvinsk.
- About 900 employees of the housing and utilities service are on strike in
the Kamchatka. Their main demand is the payment of back wages.
- A replica of Moscow's St. Basil's Cathedral will be built in Turkey.
- Elections in 7 of Krasnodar's 70 single-mandate districts were declared
invalid, because of low voter turnout.
******
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