October 12, 1999    
This Date's Issues: 3557 3558

Johnson's Russia List
#3558
12 October 1999
davidjohnson@erols.com


[Note from David Johnson:
1. Reuters: Russia cannot afford great power status -Finland.
2. Bloomberg: Alexander Lebed on Russian President Yeltsin, Chechnya.
3. Reuters: Double agent Blake praises Russia's Primakov.
4. Boston Globe: Brian Whitmore, Link seen in lost assets, US bank probe. $15b from Russia allegedly involved.
5. The Globe and Mail (Canada): Geoffrey York, Russian army plays power game. Emboldened military weighs full-scale war in Chechnya as ailing Yeltsin remains in seclusion.
6. Bloomberg: Russia's Chechen War More About Politics Than Oil This Time.
7. Christian Science Monitor: Fred Weir, Putin's risks in Chechnya.
8. The Times (UK): Sergei Romanenko, Russia is apeing Nato's folly.
9. St. Petersburg Times: Jen Tracy, Babushkas Avoid Starvation By Street-Selling.
10. Michael B. Kagalenko: Reply to John Wilhelm/3555.
11. Jerry F. Hought: Re: 3555-Wilhelm/What Shock Therapy?
12. Reuters: IMF's Camdessus defends lending to Russia.]


******


#1
Russia cannot afford great power status -Finland
HELSINKI, Oct 12 (Reuters) - Russia's crumbling economy will sooner or later 
force Moscow to ditch aspirations of remaining a leading global power, 
Finnish Foreign Minister Tarja Halonen said on Tuesday. 


``Economic realities will compel Russia to abandon hopes of remaining a 
global great power and to be content with a role as an important European 
actor,'' Halonen said in a text of a speech to a meeting of European Union 
parliamentarians in Helsinki. 


``It is up to Russia herself to decide how she wants to avail herself of this 
opportunity.'' 


Finland is the current EU chairman and will next week host a Russia-EU summit 
at which Moscow is due to present its long-term European strategy. 


Halonen reiterated that the EU was keen to boost economic ties with Russia 
and bring it closer to the European fold through the Northern Dimension, a 
still only vaguely defined umbrella programme for regional development in 
northern Europe. 


The volume of Russia's trade with the union was bound to increase sharply 
when its neighbours in eastern Europe -- Estonia, Latvia, Lithuania and 
Poland -- join the bloc, she said. 


``As the EU enlarges, trade and other cooperation between it and Russia will 
be given added momentum,'' she said. 


``The Union currently accounts for just under 40 percent of Russia's foreign 
trade, but this share is expected to increase to a half with enlargement.'' 


Halonen said, however, the poor state of the Russian economy would not allow 
the EU and Russia to sign a planned free trade agreement any time soon. 


``The Russian economy will certainly not be ready for that in the next few 
years,'' she said. 


Russia also needs to make progress in its human rights record, Halonen said, 
pointing to Russia's offensive against Chechen rebels, which forced over 
100,000 civilians to flee their homes. 


``Respect for human rights is still not at the level to which Russia is 
committed as a member of the Council of Europe,'' she said. 


*******


#2
Alexander Lebed on Russian President Yeltsin, Chechnya: Comment

Moscow, Oct. 12 <A HREF="aol://4344:30.bloombrg.389091.602536905">(Bloomberg)
/A> -- Following are comments by Alexander Lebed, governor of Russia's 
Krasnoyarsk, on the health of the Russian president, the political situation 
in the country and the conflict in the southern republics of Chechnya and 
Dagestan, at a press conference in Moscow: 


On President Boris Yeltsin: 


``The president is sick.'' 


Because of the situation in the southern Russian republic of Chechnya, 
``there must be one person who can take decisions.'' 


Should Yeltsin resign? 


``If you look at his past behavior you know that Boris Yeltsin will never 
resign.'' 


On Lebed's own political ambitions: 


``I will not accept any appointments.'' 


On the situation in Chechnya: 


``Ethnic cleansing in Russia is a huge mistake. Everybody seems like a hero 
when they comment from the sidelines. There are people interested in 
splitting the south Caucasus from Russia and destabilizing the situation in 
Russia so that there will be an endless war, like there was in Afghanistan. 
It is possible to destroy militants but never a whole people.'' 


On the state of the Russian army; 


``A professional well trained force could have been made since the last war 
but instead we are fighting a war with 18-year-old boys.'' 


On resolving the war in Chechnya: 


``Basayev must be arrested. The militants should be destroyed. Economic and 
political methods'' should be used. 


On politics in Russia: ``If the campaign (for parliamentary elections in 
December) continues in the same vein, the elite will be so filthy in the eyes 
of the people, that they won't want to vote for anyone.'' 


*******


#3
Double agent Blake praises Russia's Primakov
By Denis Dyomkin

VLADIVOSTOK, Russia, Oct 12 (Reuters) - Former Soviet agent George Blake has 
pitched up in Russia's Far East for the first time since the local KGB 
recruited him half a century ago and is busy praising ex-spy chief Yevgeny 
Primakov, now a politician. 


Blake was a British intelligence officer who spied for the Soviet Union for 
10 years until unmasked in 1961. He escaped from prison in 1966 and fled to 
Moscow, where he still lives. 


``A legendary figure in the history of Anglo-Russian political 
relations...George Blake...is now acquainting himself with the Maritime 
Territory for the first time,'' a local administration official told Reuters. 


The Maritime Territory covers the south of Russia's Far East Pacific seaboard 
and its regional capital is Vladivostok. 


Local officials said regional governor Yevgeny Nazdratenko had invited Blake 
-- one of Britain's most infamous spies -- to visit. But one FSB domestic 
intelligence officer in Vladivostok told Reuters the trip was not connected 
with Nazdratenko. 


Blake has declined to speak to reporters during his visit. 


But local officials who have heard his discussions with FSB and regional 
leaders say they have been struck by the number of times he has praised 
Primakov and his role in ``establishing intelligence services and Russian 
statehood.'' 


BLAKE WAS RECRUITED BY VLADIVOSTOK KGB 


Primakov was prime minister from September 1998 until President Boris Yeltsin 
sacked him in May this year. He had earlier worked as foreign minister and as 
head of Russia's SVR foreign intelligence service. The FSB and SVR are two of 
the successor agencies of the Soviet-era KGB. 


Primakov is a prominent member of the Fatherland-All Russia political bloc 
set up by influential Moscow Mayor Yuri Luzhkov. The party, particularly with 
Primakov on board, is expected to do well in December's parliamentary 
election. 


An FSB official in Vladivostok said it was KGB agents from the local station 
who recruited Blake in the 1950s while he was a prisoner of war in Communist 
North Korea. 


``One huge victory for Maritime KGB agents was connected with the recruiting 
of one of the most valuable sources in the entire history of Soviet 
espionage,'' said the FSB official. ``George Blake was a senior figure at the 
heart of British intelligence.'' 


The official said one of the agents who recruited Blake, who is now in his 
70s, still worked as a consultant for the Vladivostok FSB. 


``It is not ruled out that Blake will meet his former controller,'' the 
official said. Another recruiter, Nikolai Loyenko, died in the 1980s and is 
buried in Vladivostok. 


An administration official said Blake was being accompanied in Vladivostok by 
SVR agents and was studying archives that ``could help him to write 
memoirs.'' 


Blake, who was sentenced to 42 years in jail in 1961 for betraying many 
British agents, has appealed to Britain's highest court to seek access to 
royalties from his 1990 autobiography, ``No Other Choice.'' 


*******


#4
Boston Globe
12 October 1999
[for personal use only]
Link seen in lost assets, US bank probe 
$15b from Russia allegedly involved
By Brian Whitmore, Globe Correspondent


MOSCOW - Ordinary Russians are painfully aware that while many of them lost 
their shirts in last year's financial meltdown here, the bankers they trusted 
with their money somehow emerged unscathed.


And now, because of a mushrooming money laundering scandal in the United 
States, many are getting ideas about just what may have happened to their 
lost life savings.


US investigators are looking into allegations that as much as $15 billion 
from Russia may have been laundered through the Bank of New York over the 
past year. The investigations have focused on whether these transactions were 
illegal.


But for some Russians, including Olga Andreyeva, 31, a single, working 
mother, this misses the point entirely.


Andreyeva had middle-class dreams for herself and her 7-year-old son, Daniel. 
Before Russia's financial collapse last August, she seemed to be doing 
everything right. Andreyeva, who runs a small employment agency, had a modest 
but steady income and was building a small nest egg for their future. She 
opened up a savings account at MOST-Bank, one of Russia's most reputable.


Then Russia abruptly defaulted on its treasury bills and devalued its 
currency, which lost 70 percent of its value within weeks.


The $4,000 Andreyeva had saved for her son's education evaporated overnight 
when MOST-Bank froze its depositors' accounts. Later, the bank offered a 
complex pay-back plan, offering bank-issued IOUs that only later would be 
converted into real money - in some cases, years later.


Advocacy groups here say that MOST-Bank has been by far the best in paying 
back depositors. Nevertheless, Andreyeva has yet to see any of her money and 
has all but given up hope that she ever will.


She is not alone.


Tens of thousands of Russian depositors lost more than $800 million when 
Russia's economy went belly-up last year. Lives were destroyed. Hopes and 
dreams were dashed.


The bankers, however, somehow landed on their feet. Some even prospered. 
Several simply changed their banks' name, kept their assets, and blew off 
their debts.


''I think the bankers knew what was going to happen and sent the money 
abroad,'' said Andreyeva. ''I take this as a learning experience. I will 
never put my money in a Russian bank again. I will put it in a US bank, since 
that is clearly what our Russian bankers are doing.''


Vasily Borisov, a spokesman for MOST-Bank, said that the bank was paying off 
all its depositors. He said that while the bank did have accounts abroad, 
they were all legal and that MOST-Bank had no connection to the scandal 
involving the Bank of New York.


The biggest debtor, a politically connected bank called SBS-Agro, owes more 
than $200 million to some 5.7 million depositors. 


Infuriated, some depositors here have taken desperate measures. In March, a 
66-year-old retired army colonel named Dmitry Setrakov tried to pull off an 
armed robbery at the downtown Moscow branch of a bank called Rossiisky Kredit 
to get the $20,000 that bank owed him. He was arrested. Rossiisky Kredit 
still owes depositors some $89 million.


''The banks definitely sent their money abroad. Of this I am certain,'' said 
Alexander Malyugin, 36, who runs a small swimwear company in Moscow.


The recent revelations suggest that such suspicions may be correct. They also 
suggest that ordinary people here have been systematically bilked by a small 
clique of well-connected bankers, tycoons and government bureaucrats.


US law enforcement officials announced the first indictments in the Bank of 
New York case last week. Three people - including a former Bank of New York 
employee - were charged Wednesday with illegally transferring $7 billion from 
Russia through the Bank of New York.


But the real scandal in this case, people here say, is not what was done 
illegally in New York, but what was apparently done legally in Russia.


Last July, one month before the financial meltdown, the International 
Monetary Fund loaned Russia $4.8 billion to prop up the country's shaky 
currency. According to officials here, some $3.9 billion from the loan was 
sold on the cheap to a handful of insider banks. Then, says Yury Skuratov, 
who was Russia's top prosecutor at the time, the banks spirited the dollars 
out of the country to safe foreign accounts - including to the Bank of New 
York.


If this is true, it suggests that Russia's top bankers - cynically known here 
as ''the oligarchs'' - had advance knowledge that a currency devaluation was 
coming and moved to protect themselves with the government's help, at the 
public's expense. It also means that American taxpayers - through the IMF - 
helped bail out Russia's wealthy bankers, who then turned around and stuck it 
to their depositors.


But it gets even worse.


In the months after the financial crash, the Russian Central Bank granted a 
total of $3.5 billion in low-interest ''stabilization loans'' to a handful of 
politically connected banks. Now, neither the Central Bank nor the Russian 
Finance Ministry can say exactly what happened to this money. It doesn't 
appear to have gone to the jilted depositors.


Press accounts, citing US investigators, have reported that as much as $4.2 
billion moved from Russia through shell companies to a single account at the 
Bank of New York between October 1998 and February 1999. Another $1 billion 
flowed on the same path from February to July.


Russian law-enforcement officials announced last week they would begin 
investigating banks for illegally transferring funds abroad. The public here, 
however, remains skeptical.


''We will never know were this money went,'' said Tatyana Vasilyeva, a 
20-year-old student who lost $1,500 when her bank, Inkombank, collapsed. ''In 
our country such things are ordinary. It is our destiny.''


In contrast to the image they like to present of themselves as self-made men, 
Russia's top bankers are in reality ''appointed billionaires,'' as several 
officials here have put it. Most of them have made and kept their fortunes 
due to special favors from cronies in government.


In the early 1990s, for example, the Russian government ''authorized'' a 
select few banks to service its budget funds, giving them instant liquidity.


Flush with cash, the anointed banks then speculated on currency and stocks, 
according to press accounts and watchdog organizations. The bankers made 
fortunes while the state salaries and pensions they were supposed to be 
processing went unpaid for months at a time.


Later, when the crown jewels of the Russian economy were privatized, 
everything from oil companies to television stations were sold off to these 
insiders - behind closed doors and for a song. The top bankers then turned 
their economic clout into political muscle. Soon these new Russian oligarchs 
were writing the rules that allowed so much money to leave the country - 
legally.


''It is depressing,'' said Andreyeva, at her employment agency. ''I realize 
that no matter how hard you work to win in life, nothing really depends on 
you.''


********


#5
The Globe and Mail (Canada)
12 October 1999
[for personal use only]
Russian army plays power game
ANALYSIS
Emboldened military weighs full-scale war in Chechnya
as ailing Yeltsin remains in seclusion.
GEOFFREY YORK
Moscow Bureau


Moscow -- The Russian military, enjoying its greatest influence over the 
Kremlin since the fall of the Soviet Union, is giving serious consideration 
to an attack on the capital of Chechnya, a move that could plunge Russia into 
a full-scale war.


Buoyed by support from the Russian media and public, the military has moved 
swiftly to exploit the anti-Chechen mood that has gripped the country in the 
wake of terrorist bombings last month.


President Boris Yeltsin, weakened by poor health and widespread unpopularity, 
appears to be losing control over his military commanders. For the first time 
since the Soviet collapse in 1991, the military now seems powerful enough to 
launch attacks without explicit orders from the Kremlin.


An estimated 20,000 Russian troops have already moved into Chechnya, 
capturing the northern third of the secessionist region and advancing to 
within 20 kilometres of the capital, Grozny, from where they were driven out 
at the end of the disastrous 1994-96 war.


Mr. Yeltsin has been in seclusion for the past few weeks, rarely appearing on 
television or speaking about the military moves in Chechnya. Rumours persist 
that he might need another heart operation. He was released from hospital 
yesterday after treatment for what was described as the flu, and immediately 
disappeared into a remote country retreat. 
Television footage showed him looking pale, muttering complaints about a 
Russian soccer defeat.


In the past, Mr. Yeltsin kept a tight rein on the military and the other 
so-called power ministries, including the interior ministry and the federal 
security service. But earlier this year the military began flexing its 
muscles and asserting its autonomy. In June, Russian troops swept into Kosovo 
to seize control of the Pristina airport before any Western peacekeepers 
could arrive -- and without the knowledge of Russian politicians.


With the President largely absent, Prime Minister Vladimir Putin has become 
the face of the government. The former KGB lieutenant-colonel, who strongly 
supports the military, has seen his popularity soar dramatically as the 
military began bombing and attacking Chechnya.


But it is unclear whether Mr. Putin exercises true control over the military, 
or whether he is merely following the commanders as they push their own 
agenda of winning revenge for their humiliating defeat in 1996.


Chechen President Aslan Maskhadov has repeatedly called for peace talks, but 
yesterday Moscow rejected the latest peace proposal. Instead, senior military 
commanders are hinting at a possible move to "liberate" Grozny from 
separatist Islamic rebels.


Russian troops have also begun moving south of the Terek River, past the 
natural boundary that had previously marked their furthest advance into 
Chechnya. Military leaders say they now control the Nadterechny region in 
western Chechnya, although the Chechens dispute the claim.


Analysts say the Russian troops will have to begin their assault on Grozny 
within the next few days if they hope to capture the city before the arrival 
of winter weather.


"The coming days will be decisive in whether the military will push Putin 
into an attack on Grozny," said Andrei Piontkovsky, director of the Centre 
for Strategic Studies in Moscow.


"The military is obsessed with the idea of revenge. The generals pay lip 
service to the politicians, but they are pushing to finish the job of 
crushing the Chechens. Presidential power is much weaker now. Yeltsin is 
irrelevant."


Another analyst, Alexander Konovalov, said there has been a noticeable shift 
in power from Mr. Yeltsin to the military and to the hawkish Mr. Putin.


While the Kremlin insists that Mr. Yeltsin has given his approval to all of 
the Chechnya military moves, it is Mr. Putin who is constantly on Russian 
television screens, associating himself with the bombing and the troop 
movements. "Putin plays the key role," Mr. Konovalov said. "The No. 1 figure 
is Putin."


The Russian media has begun to debate the question of who controls the 
"nuclear briefcase" -- control of the Russian nuclear arsenal, which is 
traditionally the most prestigious attribute of presidential power.


The Moscow newspaper Sevodnya suggested on the weekend that Russia's 
authorities had been figuratively "beheaded" by the absence of the President 
and any other overseeing powers. The Security Council, which is supposed to 
co-ordinate Russian policy on security matters, has not even held a meeting 
during the current crisis, it noted.


One of the country's most influential television commentators, Yevgeny 
Kiselyov, raised the same question in his widely watched show on Sunday 
night. "Who is running this country?" he asked. He speculated that Russia is 
now controlled by a "collective Rasputin" -- a gang of Kremlin insiders who 
play the same role as Grigory Rasputin, the bizarre religious figure who 
became the power behind the throne of the last Russian czar.


The tough-talking Mr. Putin, virtually unknown when he was appointed in 
August, is now running a strong third in opinion polls for the presidential 
race. He has leaped to 15 per cent from 2 per cent in the presidential polls, 
and his pugnacious attacks on Chechnya have won approval from more than 50 
per cent of respondents.


Mr. Putin has travelled to the Caucasus region, supported the bombing of 
Chechen targets and issued tough threats to "rub out" the Chechen separatists.


He has also promised an extra $1-billion (U.S.) in funds for the Russian 
military. He has tightened his control of Russian media coverage of the 
latest Chechnya conflict, to discourage any negative reporting. And he has 
released new military doctrines that, for the first time since the Soviet 
collapse, give broad hints that Russia's enemies are likely to originate in 
the West.


The increasing influence of the Russian military can be traced back to the 
Western bombing of Serbia during the Kosovo conflict, which triggered a 
massive anti-Western backlash in Russia. "This gave a lot of cards to the 
military," Mr. Konovalov said. "It changed so many minds, and it changed the 
military's plans."


*******


#6
Russia's Chechen War More About Politics Than Oil This Time

Moscow, Oct. 12 <(Bloomberg)<
/A> -- When Russia first went to war in Chechnya in 1994, one reason was to 
ensure control of a transit route for Caspian oil. Five years and more than 
80,000 lives later, the pipeline has proven unnecessary. Yet the fighting has 
resumed. 


The pipeline, which runs through Chechnya to the Russian port of 
Novorossiysk, was considered worth fighting for because of expectations the 
Caspian Sea region would yield an oil bonanza that would bring profits to 
producers and transit states alike. 


Now that pipeline has been closed and an alternative route built that 
bypasses both Chechnya and Russia en route to the port of Supsa in Georgia. 
BP Amoco Plc and other oil companies in the region say that pipeline should 
be sufficient because the Caspian doesn't have as much oil as previously 
thought. 


``The problem of oil transit triggered the war in 1994,'' said Nikolai 
Petrov, an analyst at the Carnegie Foundation in Moscow. ``Now, the 
significance of the oil argument looks questionable.'' 


A more important reason, said Petrov, is the government's need to win some 
battles ahead of December parliamentary elections and next year's 
presidential election. 


After two years of war, from 1994 to 1996, and three years of uneasy peace, 
Russia closed the Novorossiysk pipeline this summer after it was repeatedly 
sabotaged and the oil stolen. Now, Russian troops again are fighting in 
Chechnya, in an attempt to destroy Islamic militant groups that invaded the 
neighboring republic of Dagestan. Russia also accuses Chechen rebels of 
planting bombs in several Russian cities last month that killed more than 300 
people. 


Russian troops have taken control of Chechnya's northern plains and continue 
shelling the southern, mountainous region that has been the rebels' 
traditional stronghold. More than 100,000 refugees have fled Chechnya since 
the bombing and shelling started. 


Justification 


Russian officials continue to mention the pipeline as a justification for the 
war, along with the fighting in Dagestan and the terrorist bombings in Moscow 
and elsewhere. 


Last week, Fuel and Energy Minister Viktor Kalyuzhny said the government is 
planning to build a new stretch of the now-closed Novorossiysk pipeline to 
bypass Chechnya through Dagestan. 


That plan isn't likely to get much support, however, because Dagestan itself 
has been the scene of recent fighting and because of the lower estimates of 
the Caspian's potential oil reserves. 


Companies are witnessing the ``pricking of the balloon'' in the Caspian 
region, said Stephen O'Sullivan, head of research at United Financial Group 
in Moscow. ``The reality is setting in now: the Caspian is not a new Middle 
East.'' 


Short of Expectations 


A BP Amoco-led group of 11 international oil companies is the only one 
currently pumping oil off Azerbaijan's shore in the Caspian Sea. A Pennzoil 
Corp.-led group and another BP Amoco-led one stopped operations there earlier 
this year, having failed to discover commercial amounts of oil, and Atlantic 
Richfield Co. withdrew from yet another project last month. 


``Now it's clear that Caspian oil deposits aren't as big as it was thought,'' 
said Russian Deputy Fuel and Energy Minister Valery Garipov. ``It may be just 
over 6 billion barrels -- but definitely not the 12 billion that we used to 
hear about.'' 


A few months ago, another group led by BP Amoco struck gas -- not oil -- in 
the Caspian Sea. 


Initially, the Russian government's plan was to subdue Chechnya and secure 
deliveries to Novorossiysk, clearing the way for the main pipeline to go 
along the same route, an option opposed by the U.S., Turkey and Azerbaijan, 
which want the new pipeline to terminate at the Mediterranean port of Ceyhan, 
Turkey. 


Both options are opposed by BP Amoco, the most active Western oil company in 
the region, and potentially the biggest customer for any new pipeline. BP 
Amoco maintains the current output of oil doesn't justify building the $2.4 
billion pipeline at all. 


``Presently, there's enough oil to expand the Supsa pipeline, and definitely 
not enough oil to support several pipelines,'' O'Sullivan said. 


BP Amoco's Plans 


Expanding the Supsa pipeline is exactly what BP Amoco said it's planning to 
do. BP Amoco Associate President David Woodward said that's the company's 
plan because the Ceyhan route would need as much as 8 billion barrels of oil 
to justify the costs. 


The reality is that the war in Chechnya has little to do with oil or 
pipelines, said Carnegie's Petrov. The war is really about the December 
parliamentary elections and next year's presidential election, Petrov says. 


``Even in 1994, there was also the need for a small victorious war as 
elections approached, as well as fear of the separatist fever'' in addition 
to the concerns about the pipeline, he said. ``Now, it's election time again. 
This small war may also provide for establishing a semi-police regime, to 
prevent the power from falling into hands that the Kremlin sees as wrong.'' 


*******


#7
Christian Science Monitor
12 October 1999
Putin's risks in Chechnya
By Fred Weir , Special to The Christian Science Monitor


Russia's war against breakaway Chechnya is escalating amid worries that 
Moscow hawks may be seeking to launch a knockout blow against political 
opponents at home as well as the rebels in Chechnya. 


For the past week, Moscow has been rife with rumors that Army generals hoping 
to avenge their 1996 defeat at the hands of Chechen guerrillas, allied with 
tough-talking Prime Minister Vladimir Putin, may have sidelined President 
Boris Yeltsin and are preparing to plunge into full-scale war in the 
turbulent Caucasus. That speculation reached a climax over the weekend when 
Mr. Yeltsin was hospitalized for what the Kremlin described as "flu." By 
yesterday, however, the Russian leader was recuperating at his country home. 


"These rumors about Yeltsin passing his powers are just an attempt to drive a 
wedge between the president and the government," his deputy chief of staff 
told journalists. The situation is strongly reminiscent of the 1994-96 war to 
crush Chechnya's independence drive, when Yeltsin frequently disappeared and 
left subordinates to take the heat for risky military decisions. 


He may once again deliberately be distancing himself from a war that is 
threatening to spin out of control. Over the past two weeks, Russian forces 
have occupied the northern plains of Chechnya. Most experts believe the plan 
is to create a pro-Moscow regime in this "liberated territory," which is 
about a third of the republic, and wait for the government of Chechen 
President Aslan Makhadov to crack. 


Despite heavy fighting over the weekend, Russian losses remain relatively 
low. Chechnya has been hammered by the steady bombing of its roads, airports, 
and economic infrastructure. Observers report that civilian targets are also 
being hit, despite Russian claims to the contrary. 


Russian military leaders may now be thinking of making a lunge for the 
capital. "If the Chechen people ask us to liberate Grozny, we will do it," 
Defense Minister Igor Sergeyev said Sunday night. In the previous war, Grozny 
was a key battleground where Russian troops suffered huge losses. 


Analysts say Yeltsin's illness may be a sign that an assault is about to 
begin. 


For Mr. Putin, his anointed successor, it is a make-or-break moment. 
Parliamentary elections are slated for Dec. 19, with a presidential contest 
six months later. Since the new Chechen war began, Putin's rating as a 
presidential candidate has shot up from 2 to 12 percent, according to the 
independent Vox Populi polling agency. 


"Putin is manipulating the situation for his own political purposes, and so 
far it's working splendidly," says Martin Shakkum, director of the Reforma 
Foundation, a Moscow think tank. But Mr. Shakkum adds, "Putin has one huge 
vulnerability. Yeltsin can fire him any time. All it takes is one bad step." 


*******


#8
The Times (UK)
October 12 1999
[for personal use only]
OPINION 
>From their own correspondent: Sergei Romanenko writing in Moskovskie Novosti 
Russia is apeing Nato's folly 


In recent weeks there has been much discussion of the similarity between 
Russia's operations in Chechnya and Nato's war against Yugoslavia. Foreign 
specialists have said that Moscow was using the same methods which between 
March and June it denounced as barbaric. In fact, Moscow has not one but two 
teachers in this matter. We are trying to imitate Slobodan MiloÛevic's aims 
and Nato's methods. 


Officially, Belgrade is not expressing a position on the events in Chechnya. 
However, subconsciously, it cannot fail to compare the situation in the 
Caucasus and in the Balkans, often drawing conclusions which are unfavourable 
to its "great Slavic brother". 


The Belgrade daily, Vreme, says the Kremlin is copying Nato's operation 
against Yugoslavia. The newspaper Nin believes that Russia did not support 
Serbia because she needed to finish off her own business in Chechnya, that 
the Kremlin did not raise serious objections to the Nato operation in Kosovo 
and that Nato is now therefore not seriously objecting to the operation in 
Chechnya. 


The newspaper concludes that big countries are allowed to pursue their own 
interests while smaller ones, including Serbia, cannot count on false 
friends. 


In the US, our generals' attempts to copy Nato - from showing videos at their 
briefings to the so-called precision strikes - elicits irony. The State 
Department spokesman, James Rubin, has said that any comparison between the 
activities of the Russian Army and Nato's operation is groundless. From his 
point of view, Nato bombed Yugoslavia in order to try to stop MiloÛevic from 
carrying out ethnic cleansing, whereas in Chechnya there is no leader 
controlling the rebels upon whom it would be possible to exert compulsion. 


The argument is far from indisputable. Many observers consider that Nato's 
bombing campaign only worsened the humanitarian catastrophe in Kosovo. Not 
one of the problems of Kosovo and Yugoslavia has been solved. The threat of 
war in Montenegro has not receded and the possibility of a change of power in 
Serbia "on the Romanian model" persists. In Kosovo an ethnically pure 
Albanian state is being created by forces whose ideas are far from democracy 
and tolerance. The Serbian authorities have left their refugees to the mercy 
of fate. 


Something similar happened in Chechnya as a result of the 1994-96 war. 
Russians were forced to abandon the republic and Moscow made it clear that it 
did not care. There is also a parallel in that the subsequent aggravation of 
the conflicts in other borderland areas has led to violations of human rights 
in the country as a whole: the entire Russian press is now writing about the 
registration of all travellers to Moscow. 


The Yugoslav experience shows that the national question in Russia cannot be 
solved by ethnic cleansing nor by opposing anti-state terror with state 
terror, that democracy cannot be established with bombs, and that the fight 
against terrorism cannot be left to untrained citizens like the 
paramilitaries in Croatia, Bosnia and Kosovo. 


www.mn.ru 


*******


#9
St. Petersburg Times
October 12, 1999
Babushkas Avoid Starvation By Street-Selling
By Jen Tracy
STAFF WRITER


Some of this country's truest capitalists may be the most die-hard supporters 
of the communists: the elderly, with their street vending and other 
entrepreneurial ways of earning a few extra bucks as they strive to 
supplement their meager pensions.


In Moscow and St. Petersburg this colorful and desperate sub-economy is a 
common sight. In places like pedestrian underpasses or near railways 
stations, the pensioners are hard at work, trading in cigarettes, newspapers, 
plastic bags, wildflowers, mushrooms, pickles, kittens and puppies.


It is this entrepreneurship that keeps Russia's pensioners above water 
financially and sometimes even earns them up to five times their government 
pensions of 300 rubles to 500 rubles per month ($12-$19).


Pensioners' mini-businesses depend largely on goods produced by their own 
resourcefulness. Some of the most popular of these items in both Moscow and 
St. Petersburg seem to be kittens and puppies, which are bred at home and 
sell for 250 rubles to 500 rubles depending on the breed, and hand-crafted 
goods like handmade pot holders, knitted socks, mittens and sweaters and 
various folk art works, which vary in price from 15 rubles to 150 rubles. 
Dachas or summer cottages contribute a lot to the sub-economy of the elderly, 
opening up possibilities to grow and sell fresh vegetables and pickles.


Though it may not seem likely that this form of economic subsistence could 
bring in much money, these entrepreneurial pensioners are much better off 
than those who rely strictly on their state pensions or even those who have 
regular full-time jobs.


Pensioner-vendors interviewed were unwilling to divulge exactly how much they 
earn at their street-side trade, but hours of watching revealed that it's no 
small sum in light of the average pension or salary in Russia. Over a span of 
two hours, a two-woman team of pensioners in the underpass of the Gostiny 
Dvor metro on St. Petersburg's Nevsky Prospect sold three kittens at 500 
rubles a piece. In essence, each of them approximately doubled their monthly 
pensions in two hours. But this business is also hit and miss and according 
to the pair, who refused to give their names, the winter is unsympathetic to 
their market and few people buy their shivering kittens then.


But street vending is no easy job. Seventy-two-year-old Lyudmila has to lug 
her boxes of wildflowers and bags of knitted caps from her home to the metro 
every morning and then stands on her feet well into the evening hours. 
"Sometimes I sell everything I have," she said, "and the walk back is so much 
easier. But many times I've sold almost nothing and had to carry all of this 
back home with me. It's very tiring."


When asked whether she makes enough money to live on by street vending, she 
said, "I wouldn't go through all this trouble and work if I didn't."


Though regular employment is perhaps a more stable way to supplement meager 
pensions, wages are extremely low and, like pensions, can sometimes go unpaid 
for months.


The most common job for pensioners is to work as an attendant in a museum, 
theater or cemetery. These jobs are easy and the environments are often 
pleasant. According to the press center at St. Petersburg's Russian Museum, 
the employed pensioners there earn 345 rubles per month - about the same 
amount as their pensions - and work five days a week, eight hours a day.


Other pensioners resort to more difficult cleaning work, attending to public 
toilets or working for state or private institutions - jobs that pay anywhere 
from 300 rubles to 700 rubles per month. Oktyabrina, an elderly woman who 
refused to give her last name or age, works as a cleaner for the Barrikada 
movie cinema and restaurant in St. Petersburg and earns a monthly salary of 
700 rubles. Though no figures were available for cleaning wages in state 
institutions, they are believed to be as low as 300 rubles a month.


But Russia's elderly population has come up with other ways of making money. 
Real estate, for example. Some struggling pensioners rent out rooms in their 
apartments, while others choose to move in with friends or relatives and rent 
out their apartments. In St. Petersburg, this earns them between $20 and $70 
a month for a room and $100 to $400 for an apartment per month. In Moscow, 
the earnings can be two to three times higher.


Retired professors and teachers, particularly those with foreign language 
backgrounds, can supplement their pensions by giving private language lessons 
- most commonly English or German - long after they retire from their 
institutions. This is one of the more lucrative ways to supplement pensions 
and earns retired professors up to $300 per month.


But the elderly sub-economy has its darker side, too.


St. Petersburg's Vesyoly Posyolok, or Happy Village, is allegedly home to one 
of Europe's largest drug markets and pensioners are accused of being the 
market's main drug peddlers. For about 30 rubles a hit, elderly women sell a 
homemade narcotic called kisliy - a combination of vinegar and depressants in 
a syringe - using the sale of cheap clothing and vegetables as front 
operation.


And, in Moscow, the Federal Security Service, or FSB, has reported several 
incidences of elderly men and women pushing drugs on the streets. In one 
instance, The Moscow Times reported that elderly women were pretending to 
sell hand-knitted hats, inside which were narcotic prescription drugs much 
stronger than those widely available in drugstores or normally prescribed by 
doctors.


A trip to the local drugstore, too, can often provide pensioners with 
opportunities for under-the-counter deals. An elderly woman roams one of St. 
Petersburg's larger drugstores, pretending to shop, and follows customers 
around, offering them a variety of strong prescription drugs as well as 
illegal narcotics from her purse.


Whatever form of capitalism the elderly choose to supplement their pensions, 
they're competing with a younger, fitter businesspeople - and survival, at 
all costs, is their only option.


******


#10
From: "Michael B. Kagalenko" <mkagalen@coe.neu.edu>
Subject: Reply to John Wilhelm (PhD)
Date: Mon, 11 Oct 1999 


John Wilhelm (PhD) argues in JRL Issue 3555 that the "shock therapy"
wasn't really tried in Russia the way it should have been, and hopes
it will be attempted again. I think I speak for many Russians when
I mention to John Wilhelm (PhD) the saying "Fool me once - shame on you;
fool me twice - shame on me."


To prove his point about beneficial effects of "shock therapy," John
Wilhelm (PhD) brings up the example of Poland, where allegedly the "shock
therapy" was a great success. Unfortunately for Mr. Wilhelm(PhD)'s
thesis, this canard has been refuted on JRL. Dr Kolodko, the former
finance minister of Poland, wrote that Poland strated economic recovery
only after abandoning the "shock therapy," and despite of it. In fact,
we seem to go through this subject annually here.


******


#11
Date: Mon, 11 Oct 1999 
From: "Jerry F. Hough" <jhough@duke.edu>
Subject: Re: 3555-Wilhelm/What Shock Therapy?


John Wilheim is absolutely right about the confusion over the 
term "shock therapy." The term is usually defined in "hydraulic" 
terms--money supply, subsidies, etc. The fact of the matter is that 
from his speech calling for "correctives" in mid-January 1992, Yeltsin 
followed a conscious policy of social support of consumption in the big 
cities. All of the talk about the government following a tight credit 
policy and being undercut by the Central Bank and then the Congress in April 
1992, all the talk about autonomous inter-enterprise loans and regions 
autonomously creating money, about the more rural regions receiving more 
subsidies that the big cities did not reflect reality. Gaidar was not the 
government: Yeltsin was president and prime minister. The 
non-monetary economy, which was enormous from the beginning, was 
centrally directed first through the ministerial concerns and branch 
banks and then through the governors and their young obkom secretaries 
("bankers" like Brevnov and Kiriyenko). The best book on Soviet economic 
reform is Mikhail Bernstam's on the banking system. It is a shame he does
not 
participate on these pages, for he has long had the deepest insight into 
what is going on institutionally. Indeed, he was writing the right kind 
of articles in the scholarly Russian economic journals. 


The great monetary shock therapy came in the budgetary 
expenditures. The IMF forced the Russian government to put its 
subsidies off-budget and the rent-seeking economists in the government 
wanted to put them in the form of loans so they could bankrupt the plant 
owners and seize their property. But in the realm of official 
government spending--e.g., on public health--there was a real shock 
"therapy," and it killed millions of Russians.


But shock therapy has an institutional meaning as well as a monetary 
one. It involved the utter destruction of old institutions in the naive 
belief that new ones would be created to replace them. Everyone should read
the first chapter of Andrei Shleifer's The Grabbing Hand. Around p. 1l, it
is very explicit on the rationale of policy. It is essentially Marxist: a 
state in a society without a propertied class is inherently predatory toward
the economy (this is Marx's Asiatic mode of production, discussed in 
Wittfogel); the only way that government will protect property rights is
that if it is forced to by the owners of the means of production; 
therefore, (and here he is absolutely explicit in his criticism of main line
American economists), it is wrong to think that property rights can be
protected by government until there is a propertied class to which government
becomes subordinated; therefore, privatization must occur before any
institutional steps are taken to protect capitalist development. 


God knows what people like Summers and Fischer were thinking. 
They come across as real simpletons. Fischer has some remarkable 
statements about how the property must be taken from the nomenklatura and 
managed by those with technical skills as if the nomenklatura were not 
the old managers with technical skills. He must have taken some of 
Boycko's rhetoric about a command society seriously and had no idea how 
the Soviet economy operated or the nature of the personnel policy of the 
Soviet system after 1935. Summers, like his relative (uncle, I think) Ken 
Arrow, was really cautious about privatization at first. Shleifer was
Summer's research assistant at Harvard, and no doubt his mentor was one of
mainline economists that he criticized. I suspect that the fish
rots at the top--that once their prince decided he didn't want to be
accused of 
having Communists (e.g., capitalists like Volsky) come to power on his 
watch, they bought onto the rhetoric and analysis of the rent-seekers like 
Shleifer, Chubais, and so forth, because it served the interests of the
prince as he perceived it and maintained themselves in power. But maybe 
if one knows nothing about a situation, one is simply driven to abstractions.


But Summers was also funding Mancur Olson's institute and Olson 
believed that the destruction of old institutions was always necessary. 
Perhaps Summers really was attracted to the argument and confused 
institutions in the sense of governmental institutions and institutions 
in the sense of laws, rules, etc, and did not see the connection between 
them. There are great books to be written on the intellectual history of
American policy in the 1990s and the relationship of the anarchistic 
philsophies of the 1960s to it.


The institutional shock therapy deserves the most severe 
criticism. Institutions must exist almost by definition, and obviously 
Yeltsin did create some--or rather largely retained the only Soviet ones 
under new names. The notion that old ones could be destroyed and that
optimal ones would automatically arise was bizarre. It contradicted the
Shleifer quasi-Marxist argument, for the Yeltsin state had all the grabbing
hand character he denounced as inherent in the state and that he should have 
expected. It contradicted all the work on the problems of collective action
thatunderlies economics and political science in recent decades. There is 
no reason to think that individuals (and despite the suspicions of 
others, even economists are human beings and therefore must have 
self-interest according to economic theory) will selflessly create a 
public good like well-functioning institutions. Neoclassical theory 
assumes that we should see the kind of rent-seeking in 
institution-building and the efforts to use the state to seize property that 
occurred. 


Clearly the implication of both the Marxist and the neoclassical
theory was that the West, which had an interest in nuclear stability, should
have concentrated its money on bribing Russians to build the 
collectively-desirable institutions that neither an early state nor the 
Russian economists had an interest in building. It needed to support 
the second-best because the best was not possible, but it abdicated all 
responsibility in the pious hope that all would work out well. Then it 
compounded its error by putting in unrestricted "budgetary support" money to
increase the rewards for grabbing hand behavior, by forcing budget expenses to
go off budget where they would be more subject to theft, and by supporting 
efforts to expropriate the property rights of the first capitalists--the 
insider-owners to whom property was given by Yeltsin in his October 1991 
speech. Indeed, when these insider-owners began acting as 
Shleifer said they should--lobbying government to protect their property 
rights--this suddenly became illegitimate and corrupt! They should be 
expropriated by the state in the name of Coase Theorem that says state 
involvement is not necessary! And this wins one the second most 
prestigeous award in economics--but maybe also time in a correctional 
institution where teaching will not interfere with further writing. 
It is a remarkable period.


******* 


#12
IMF's Camdessus defends lending to Russia


BERLIN, Oct 12 (Reuters) - International Monetary Fund Managing Director 
Michel Camdessus on Tuesday defended his institution's lending of lending 
billions of dollars to Russia. 


``We are convinced that our work over the last seven years has had a positive 
effect,'' Camdessus said in an advance copy of an interview in Wednesday's 
Die Welt newspaper. 


``Russia is not a hopeless case. If a country has no corruption, no 
structural problems and no inflation, then it doesn't need an IMF credit,'' 
Camdessus said. 


He admitted that Russian credit entailed ``a large risk.'' 


``We hope to get our money back. But we think it is better to take risk upon 
ourselves than to allow Russia to head into catastrophe alone,'' he said. 


A mission from the IMF is expected to travel to Msocow mid-November, the 
Prime-Tass news agency reported earlier, and is expected further to unlock a 
second $640 billion tranche to Russia at the end of the mission. 


The disbursement of the tranche, which Russia had expected to receive in 
September, was delayed as foreign partners have asked Russia for more 
transparency measures in addition to those outlined in the loan deal. 


There needed to be greater co-operation between private funds and the IMF and 
there could only be long-term stability if both the private sector and the 
public sector worked together, he said. 


``The private sector has to accept in the long term, that it is in the same 
boat when a country has a liquidity problem. The days are gone when banks 
could issue loans without taking on risk,'' he said. 


The global economy was on an upward trend, although there were some signs of 
concern in the U.S. economy, he said. 


``There is a consensus that the U.S. economy needs to cool down, without 
financial markets overreacting,'' he said. 


Japan and Europe were viewed as the engines for growth, he said. 


*******

Web page for CDI Russia Weekly:
http://www.cdi.org/russia