October 21, 1999    
This Date's Issues: 3575   3576

Johnson's Russia List
#3575
21 October 1999
davidjohnson@erols.com


[Note from David Johnson:
1. Victor Kalashnikov: Corruption.
2. Itar-Tass: Living Standards Below Minimum Subsistence Level -Speaker.
3. Reuters: INTERVIEW - Grieving Gorbachev dreams of Raisa.
4. Bloomberg: Gorbachev to Support Primakov and Luzhkov in December Elections.
5. Interfax: RUSSIAN DEPUTY PM RULES OUT SPENDING IMF MONEY ON CHECHEN WAR.
6. AP: Tension Grows Between Russian Soldiers, Chechen Civilians.
7. Moscow Times EDITORIAL: Yabloko Is More Equal Than Others.
8. Moskovsky Komsomolets: MILLIONS FOR POOR ZYUGANOV.
9. International Herald Tribune: World Bank's Michael Carter responds toMarshall Goldman.
10. International Herald Tribune: William Pfaff, In Russia, Too, There's No Good Economics Without History.
11. Ajay Goyal: Re Jeff Luebbe: response to Ajay Goyal in #3568.
12. Journal of Commerce: Steven Solnick, Russia's assets had already been looted.
13. Testimony of Strobe Talbott: RUSSIA: ITS CURRENT TROUBLES AND ITS 
ON-GOING TRANSFORMATION.] 


*******


#1
Date: Wed, 20 Oct 1999
From: machinegun@glasnet.ru (Victor Kalashnikov) 
Subject: Corruption


Doing business on Russia


It is not my habit to advice others on how to spend their own 
money, reputation or intellectual abilities. Yet, the 
contribution by JayTel1@aol.com (Jeff Luebbe) Date: Sun, 
17 Oct 1999, Subject: response to Ajay Goyal in #3568 - 
prompts to some reflections.


Mr. Luebbe is quite correct in identifying the essence of the 
so-called Russian democratic or right-wing parties, or 
movements, or whatsoever: "The figures of the right are 
more concerned about their personal images and political 
careers than about any party with which they might 
associate. The parties are merely vehicles for their 
influence, when leaders should act as vehicles for their 
party's influence". What are the reasons for that kind of 
"personality cults" of Russian democratic or right-wing 
activists? And - why are they so far distanced from real 
developments in this country? 


Here's one of the explanations. The newest pro-Western 
'democratic' elite in Russia has predominantly been 
constructed through foreign grants, or through various 
international 'programs', 'projects' and so on. Manifestation 
of alleged ideological commitments has always been crucial 
for obtaining financial or technical support - in parallel with 
ability to play joint games together with project coordinators. 
What kind of games?


It's well known that the bulk of funds allocated to support 
'democracy' or 'market reforms' in Russia has been 
appropriated by foreign organisers (foundations or official 
sponsors) themselves. They were hence eager to find out a 
team in Russia ready to show certain activism and to present 
final reports in a politically correct tongue. All that served as 
a justification for purchases, reimbursements and fees 
effected somewhere else. The luckiest among foreign 
foundations were those who managed to ally themselves to 
well-established 'democratic' groups in Russia. The funds 
would flow smoothly enough then. No matter what relevance 
those activists really had for the country.


A propos: a number of such projects has directly been 
placed - with the best knowledge of sponsors themselves - 
into hands of acting KGB officers (oh, you didn't know?). 
Maybe, this had been regarded as a more reliable form of 
investment. Or, some balances of interests had been 
established through this. But who can question anyone's 
right to dispose over his own money (reputation, intellect)? I 
only think that the funds allocation would have been handled 
differently in Poland or Estonia. 

I repeat: I don't talk about business in proper terms. 
Business in Russia is generally based on cooperation 
between KGB (FSB, SVR) and criminal groups anywhere. 
When you have invested into Menatep or Yukos, then you - in 
your full authority, indeed, - have invested into FSB and 
Russian banditism (you didn't know it either?). What I'm 
talking about is making money out from political slogans: 
"fostering democracy in Russia" and so on. To my mind, it 
has been a kind of corruption similar to the one of promoting 
Russian bond market. The investigation must be still 
underway in the US. 


What do I suggest? If you have some money - reputation etc. 
- overdrafts, do invest it into a maternity hospital in, say, 
Tambov. But be aware that young mothers or newly-born 
babies will not necessary be available for testimonies on 
development of civic society in this country. 


*******


#2
Living Standards Below Minimum Subsistence Level -Speaker.


MOSCOW, October 20 (Itar-Tass) - "The living standards of 57 percent of the 
population of Russia are below the minimum subsistence level, unemployment 
rates under the standards of the International Organization of Labor have 
reached 14.2 percent, and the average life expectancy does not exceed 61.7 
years," Duma Speaker Gennady Seleznyov declared on Wednesday, commenting on 
an appeal to join the world-wide movement against poverty launched under the 
UN auspices. 


Seleznyov noted in his statement that the attention drawn by the world 
community to the problem of poverty is quite justified since this social 
problem has acquired a global character now, demanding adequate reaction on 
the international level. 


"Therefore, the State Duma gives priority to enactment of legislative acts 
aimed at giving support to the most socially vulnerable groups of the 
population and improvement of the living standards of all Russian citizens," 
Seleznyov declared. 


The State Duma supports the goals and tasks implemented in over 130 world 
countries in the framework of International Day for liquidation of poverty, 
Seleznyov said. 


*******


#3
INTERVIEW - Grieving Gorbachev dreams of Raisa
By Martin Nesirky

MOSCOW, Oct 20 (Reuters) - Mikhail Gorbachev still dreams vividly about his 
wife Raisa and is finding it hard to get back down to work after her death. 


``Suddenly last night the phone rang,'' the 68-year-old former Soviet leader 
told Reuters in his first interview since Raisa's much-watched Moscow funeral 
last month. 


``I lifted the receiver and I heard 'Hi'. It was Raisa phoning. I said to 
her, 'Where are you calling from?' And then the conversation ended. I woke 
up.'' 


Gorbachev, moist-eyed and melancholy when speaking about his wife yet dynamic 
when he switches to other subjects, said his daughter Irina, a doctor, and 
her two daughters had moved into his dacha country house to support him. 


An aide said Irina was arranging for the dacha to be partly redecorated to 
give Gorbachev a boost. 


``They're great,'' Gorbachev said in the interview late on Tuesday. ``They 
know they need to help me. Of course they are suffering. We just can't 
believe she is no longer there. There's still the feeling she has gone away 
somewhere and will return.'' 


RAISA'S ILLNESS WAS CRUEL BUT LIFE GOES ON 


Raisa Gorbachev, whose elegance became an enduring symbol of the reforms her 
husband introduced in the late 1980s, died on September 20 in the German city 
of Muenster after a three-month battle with leukaemia. Their partnership 
broke the mould of programmatic Kremlin leaders and invisible Kremlin wives. 


Many were deeply moved by pictures of an inconsolable Gorbachev stroking his 
wife's face and hair before she was buried at Moscow's elite Novodevichy 
cemetery on September 23. 


``I understand everything, and generally I'm not a weak-willed person. But it 
all happened so unexpectedly. It is such a cruel illness,'' said Gorbachev, 
who spent weeks in Muenster at his wife's clinic bedside. 


``I've started working and I am working, but it is not so easy, if I'm 
honest,'' he said in the interview at his Gorbachev Foundation offices in 
northwest Moscow. ``But, well, I believe it is necessary to remember and 
work, work. Life goes on.'' 


NEXT STOP IS BERLIN FOR WALL ANNIVERSARY 


Work is one of Gorbachev's favourite words, oft repeated to crowds during 
tours of the Soviet Union as it emerged from years of stagnation. 


He is tackling a research project on globalisation and told a news conference 
on Wednesday he would be prepared to head a new Social Democratic party, a 
move that could mean he stands in December's parliamentary election. 


He will embark next month on a trip to Berlin to take part in celebrations 
marking the 10th anniversary of the fall of the Wall -- a dramatic event his 
own reforms helped bring about. 


There, he will meet former German chancellor Helmut Kohl and former U.S. 
president George Bush. 


``It was an expression of the will of the people, a desire that had to be 
met,'' said Gorbachev. ``In this case we got it right. It demanded huge 
courage.'' 


AMBASSADOR'S CALL TOLD HIM WALL WAS OPEN 


Gorbachev remains a hero abroad, particularly in Germany, but is unloved at 
home because of the hardships people suffered once his reforms started to 
bite. Yet there was a surprising wave of sympathy when Raisa died. 


Gorbachev said he heard about the Wall opening when the Soviet ambassador in 
East Berlin telephoned him, although he said he was not surprised given the 
exodus to the West of thousands of East Germans through Hungary and 
Czechoslovakia. 


``I said, tell our friends that I understand and believe they have done the 
right thing,'' the former Soviet leader said. ``For them it was important. 
What should they have done -- shoot? No, I think they did what was 
necessary.'' 


``I slept normally, I did not suffer hysterics. Not at all.'' 


******


#4
Gorbachev to Support Primakov and Luzhkov in December Elections

Moscow, Oct. 20 (Bloomberg)<
/A> - Former Soviet President Mikhail Gorbachev said he intends to support 
former Prime Minister Yevgeny Primakov and Moscow Mayor Yuri Luzhkov in the 
December parliamentary elections, Russian news agency Interfax reported. 
Asked whether Luzhkov's Fatherland movement reminded him of the Soviet 
Communist Party, he replied ``it has many different streams.'' Asked about 
the future of the Lenin mausoleum on Red Square and Vladimir Lenin's body, 
Gorbachev said, ``the will of Lenin's family and his wife Nadezhda Krupskaya 
should be fulfilled and the body buried,'' the agency reported. 


Gorbachev resigned in December 1991 as President of the Soviet Union, which 
at the same time collapsed. 


******


#5
RUSSIAN DEPUTY PM RULES OUT SPENDING IMF MONEY ON CHECHEN WAR


MOSCOW. Oct 20 (Interfax) - A senior Russian Cabinet member said on
Wednesday there were no technical means "by definition" could exist in
order to spend a loan Moscow is trying to obtain from the International
Monetary Fund on Russia's current military campaign in Chechnya.
The purpose of the loan is to refinance a debt Russia owes to the
IMF and it is impossible to put it to any other use, First Deputy Prime
Minister Viktor Khristenko told reporters. "No matter how advanced
Russian technologies are, this is impossible to do."
Nor can any World Bank loan be misused because all Russian spending
under World Bank-run programs is "subject to the control of the bank."
Khristenko is sure defense expenditure increases this and next year
as a result of the Chechen operation "will not undermine [Russia's]
negotiations with the IMF."


*******


#6
Tension Grows Between Russian Soldiers, Chechen Civilians
October 20, 1999


KALINOVSKAYA, Russia (AP) -- The residents of this sleepy Chechen village 
watched warily as the squat armored vehicles rolled along the main street, 
escorting two trucks with food -- a gift from the Russian army. 


"Why did you bring it here? We aren't hungry," scoffed one young man. 


The elders of Kalinovskaya, 15 miles northwest of the Chechen capital of 
Grozny, were more polite, thanking the Russians for the food. 


This is the other side of the Russian offensive intended to contain 
Chechnya's militants, and re-impose Moscow's rule over the breakaway republic 
in southern Russia. While the Russian military batters Chechen fighters with 
artillery and bombs, it also offers food and promises of aid to Chechens who 
don't resist. 


Russian forces say they want to avoid the heavy-handed tactics of the 1994-96 
Chechen war, when the civilian population often was treated harshly and 
Russia ended up suffering a major defeat. But there are few signs the new 
approach is working among a people who have regarded Russia as their 
traditional enemy for generations. 


Russian forces entered Chechnya on Sept. 30, quickly occupying the northern 
third of Chechnya up to the line of the Terek River. Now, the army is trying 
to win support in the villages of the occupied north. 


Russian commanders say they encourage regular contact with the village 
residents. The military's message is simple: don't support or shelter the 
Chechen militants. 


"We will provide fuel to help you gather the harvest," Lt. Gen. Valery 
Moskovchenko said during a trip this week to Kalinovskaya. "Be patient, in a 
short while we will also help you restore power and gas supply." 


Then, bluntly he outlined the alternative. 


"Don't get offended, but if a shot is fired from a house, we will destroy the 
house," Moskovchenko said. 


The general asked if the villagers had any complaints. An elderly woman 
angrily shouted: "Yes, I do have complaints. Would you stop firing over my 
house all the time! You don't let children sleep!" 


The village elders quickly hushed her up. 


A battery of Russian howitzers is located behind the village. It regularly 
shells suspected rebel positions on the opposite bank of the Terek River 


There have been no attacks on Russian troops near Kalinovskaya. But in some 
parts of the north, bands of militants have begun the same hit-and-run raids 
that decimated Russian supply lines during the 1994-96 war. 


In an attempt to minimize losses, Russian trucks are always accompanied by 
armored vehicles. Russian military posts dot the main highway running across 
northern Chechnya, but they are often several miles apart and isolated with 
just 30 soldiers in each. 


Russian commanders say their forces would stay out of the villages if the 
residents kept the rebels out. The troops periodically search for militants, 
usually with little result. 


In Kalinovskaya, a village of 5,500 people, some 100 Russian Interior 
Ministry troops searched for rebels for an hour this week, finding none. 


In Chervlyonnaya, a much bigger village 21 miles to the east, the Russians 
were more methodical. A sweep yielded at least three suspected rebel 
fighters, picked up because of recoil marks on their shoulders, which Russian 
officers said showed they had fired rifles. 


Despite the military's attempts at good relations, most Chechens regard the 
Russians with suspicion and even open hostility. 


When a photographer began taking pictures of soldiers giving out cookies to 
children in the village of Kurdyukovskaya, on the eastern border with 
Dagestan, a villager was furious. 


"You stop doing that, it's a provocation," he shouted. "You mustn't take 
pictures of them giving presents to our children." 


******


#7
Moscow Times
October 21, 1999 
EDITORIAL: Yabloko Is More Equal Than Others 


"We looked at the issues in the aggregate." - Central Elections Commission 
head Alexander Veshnyakov, explaining why the Yabloko party was registered 
for December elections last week even though its two leaders underreported 
their income. 


"It shows that all are equal before the law, including prime ministers and 
faction leaders." - Sergei Stepashin enthusing about the CEC's investigations 
of Yabloko. 


This is a society ruled by men and not laws. Leading politicians can be found 
in violation of the law - and then be let off the hook because they are too 
important and because "we looked at the issues in the aggregate." 


Yet only in Moscow could a politician handed a free pass solely because he is 
a former prime minister and his running mate the head of a parliamentary 
faction then go on to gush enthusiastically about how wonderful it is that we 
are all equal before the law. 


We at The Moscow Times more or less like Yabloko. It's about the only real 
democratic, capitalist party left, and while it may not be run by saints, 
there is strong reason to believe it is the only party in the nation not 
riddled through-and-through with corruption and graft. We'd like to see it 
dominate the next State Duma; maybe then we would finally see such long 
overdue projects as a reduced tax burden. 


It is a bit problematic to see Stepashin with this party: Yabloko sought 
President Boris Yeltsin's impeachment over the first war in Chechnya, and 
Stepashin - then as head of the FSK, as the KGB successor agency was then 
known - was one of a handful of people who orchestrated that bloody debacle. 
But then again, it's also a bit problematic to see Yabloko in such limp 
opposi tion to this war, which is perhaps even less logical or justifiable 
than the first was. 


We also accept the explanations offered by Grigory Yavlinsky and Stepashin 
over why each underreported his income - Yavlinsky by about $8,000 and 
Stepashin by about $1,300. They seem to be honest mistakes, and the sums 
involved seem minor. 


What is objectionable, however, is that the Central Elections Commission 
feels that it has the right to decide not what is a violation and what isn't 
- but which parties can make violations and which parties cannot. It is a 
significant omission that the CEC did not announce itself satisfied with 
Yabloko's explanations for the underreported incomes; it simply announced 
itself concerned with "the issues in the aggregate," and with Yabloko's 
stature. Wrong answer. 


******


#8
Russia Today press summaries
Moskovsky Komsomolets
October 20, 1999
MILLIONS FOR POOR ZYUGANOV


Compared to Luzhkov, Primakov, and Yakovlev, the top three politicians on the 
federal list of the CPRF are not rich. But compared to the living standards 
of ordinary Russian citizens they are rather wealthy. In 1998 Gennady 
Zyuganov earned 124,154 rubles (or $12,415 based on the exchange rate of 10 
rubles to the dollar). He also listed his flat of 150 square meters on his 
income declaration. Duma Speaker Seleznev proved to be a bit richer than his 
superior. His income in 1998 was 290,489 rubles (about $30,000). In addition, 
he owns 0.13 hectares of land, a summer cottage measuring 150 square meters, 
a flat, and a shed and garage as well. Tula Governor Starodubtsev earned 
131,039 rubles ($13,103).


The leader of Yabloko earned more than the first three members of the CPRF 
combined. His deputy's salary, lectures at Harvard and the French Free 
Economic University, and royalties paid by "Foreign Affairs" and the Center 
for Political and Economic Research brought him 953,250 rubles ($95,300). 
Taking into consideration the fact that he forgot to list about 80,000 
rubles, it is possible to call him a millionaire. Stepashin received 92,344 
rubles ($9,234) from the Ministry of Justice and the Ministry of the Interior.


******


#9
International Herald Tribune
October 21, 1999
LETTERS TO THE EDITOR
World Bank Replies


Regarding ''Stop Turning a Blind Eye to Russian Money Mischief'' (Opinion, 
Oct. 15) by Marshall I. Goldman: 
Mr. Goldman questions the statement by James Wolfensohn, the World Bank 
president, that there has been no misuse of the bank's loans to Russia. 


He cites allegations that the $500 million (not $600 million as stated by Mr. 
Goldman) 1996 Coal Sector Adjustment Loan disappeared with little evident 
restructuring. While those allegations were indeed made in 1998, they were 
based on a misunderstanding of how World Bank adjustment loans are disbursed. 


In this particular case, the loan supported policy reforms in the coal 
sector, including a restructuring of government coal subsidies to address 
social problems. The money itself was made available to the government for 
its general budgetary expenditures. It was not, as popularly assumed, tied to 
the government's coal subsidy expenditures.


The World Bank does monitor the government's coal subsidy management system 
and in early 1997 expressed concern regarding the potential for misuse or 
misdirection of these subsidies. As a result, then First Deputy Prime 
Minister Anatoli Chubais commissioned an audit of restructuring subsidies, 
which found that roughly $60 million (about 3 percent of total coal subsidies 
in 1996) had in fact been misdirected to other social purposes. These 
irregularities were subsequently corrected and those responsible held 
accountable. 


Equally importantly, public scrutiny of the subsidy management system 
prompted the government to take additional steps to improve transparency and 
accountability in the subsidy management system.


The World Bank takes allegations of corruption very seriously and monitors 
developments in Russia especially carefully. However, unfounded allegations 
of the kind put forward by Mr. Goldman do more to create erroneous 
impressions than to focus attention on one of the many difficult governance 
problemsin Russia.


MICHAEL CARTER.
Moscow.
The writer is director for Russia of the World Bank.


******


#10
International Herald Tribune
October 21, 1999
[for personal use only]
In Russia, Too, There's No Good Economics Without History
By William Pfaff Los Angeles Times Syndicate, International Herald Tribune


PRAGUE - ''History is bunk,'' a great American, Henry Ford, once said. Some 
contemporary economists have also been inclined to say this because they 
believe that the economy has objective existence, ruled by laws of invincible 
and universal validity, indifferent to history or culture.


The Harvard economist Jeffrey Sachs told a Forum 2000 conference convoked by 
Vaclav Havel in Prague last week that he is tired of hearing history invoked 
to explain what happened to the former Communist countries he advised. 
Geography, Mr. Sachs said, is more important than history in explaining what 
went wrong in Russia.


He said that Russia carried out ''pseudo-reforms'' while the West provided 
''pseudo-assistance.'' He washed his hands of Russia in January 1994 because 
of this, he said. He is now concerned with debt relief and aid for poor 
countries.


I remain an unrepentant ''history'' man. The difference between what has 
happened in Central Europe since communism ended and what has occurred in 
Russia is that the Europeans simply closed a 50-year parenthesis in their 
histories and have resumed being what they were before, while Russia 
confronted a void.


This was foreseeable. Russia had no relevant history to resume. It had to 
make what it could of a chaotic internal situation and what Western advisers 
told it to do.


The former Gorbachev adviser Georgi Arbatov was asked a few days ago what 
lies in Russia's immediate future. He replied, ''Nothing good.''


Before World War II, what today are the Czech and Slovak republics, together 
with Hungary and Poland, had close cultural as well as economic ties to 
Western Europe. They were relatively advanced economies, with important 
industrial sectors and sophisticated business enterprises and banks.


Russia in 1917 possessed a sophisticated and Westernized intelligentsia, and 
a rapidly developing but still small industrial base, but otherwise it 
remained an essentially medieval peasant nation with non-Western cultural 
roots. Seventy years passed. The intelligentsia were murdered by the 
Bolsheviks, who destroyed the nation's links with the West in the course of 
an autarkic pursuit of an ideologically defined utopia.


There was invasion and a titanic struggle with Nazi Germany. Then the Cold 
War competition with the United States was a challenge the Soviets obviously 
could not win.


Czechoslovakia had been the industrial center of the Habsburg Empire and 
remained one of the world's leading arms and industrial producers throughout 
World War II and during the Cold War.


After 1989, it suffered an extravagant conversion to Thatcherism, during 
which then Prime Minister Vaclav Klaus even issued demands upon how the 
European Union must change in order to earn Czechoslovakia's membership.


Mr. Klaus's unregulated voucher capitalism came to a bad end, and cooler 
heads prevailed. The Czech Republic, having been divorced by Slovakia, today 
remains in economic difficulty, with feeble growth and incomplete reforms. It 
was severely criticized in a European Union review of prospective members 
published last week. But what this really means is that the Czech Republic 
has become just another democracy, with the troubles that go along with that.


>From 1994 to 1996, the Central European and Baltic countries all applied for 
EU membership. The Europeans decided eventually to admit Hungary, Poland and 
the Czech Republic as a group, but set stringent terms. Other candidates were 
told to wait.


This was widely taken as the cold shoulder, and many in the region decided 
that their future as U.S. allies in NATO was more promising than as 
suppliants of a Western Europe that didn't seem to want them in its club.


Now the European Commission has changed course. It announced on Oct. 13 that 
it plans to admit 12 new members and will deal with all candidates according 
to the ''regatta'' principle of individual passages across a finishing line 
of ''realistic'' reforms.


There will be individual negotiations for EU membership, with applicants 
advancing ''on merit.'' This promises to help restore some of the enthusiasm 
that the Eastern and Central Europeans formerly had for ''Europe.''


Romania's first post-Communist minister of culture, Andrei Plesu, called the 
European Community (as it then was) ''a dream, a utopia.'' The dream evoked 
no urgent response from the West Europeans, other than in newly unified 
Germany, and perhaps not even there.


It was a dangerous development. Recent history has much to suggest about the 
consequences of estrangement between the two Europes - as between Europe and 
Russia.


The European Union's new attention to expansion is welcome and prudent. On 
the other hand, it does something that no one has dared mention. It settles 
the question of whether ''Europe'' in the future will be an integral union, a 
European ''superstate,'' or an intimate association of sovereign nations. It 
will, at best, be the latter.


*******


#11
Date: Wed, 20 Oct 1999 
From: "Ajay Goyal" <sanjay@cytanet.com.cy> 
Subject: Jeff Luebbe: response to Ajay Goyal in #3568..


In response to Jeff Luebbe, I can only agree with his views.


The ideas and ideals of a free market, transparent & civil society need to
be articulated in Russian context. Russians have come to see capitalism and
free market as crime and robbery.
No one in the right wing has the moral and political authority to propose a
choice to Russia and Russians. Had there been a political movement, above
the power & asset grabbing of past few years--in my view--a large majority
of Russians would have voted for such party.The absence of such a platform
and disillusionment with some individuals has meant fear and suspicion of
free market principles. The right leaning Russian vote is divided and
confused.


Democrats have shown to preoccupied with pursuit of same privileges that
whole communist apparatus used to clamour.


My whole point is that if they wish to lead, they must gather mass support
and lead mass political movements. Back door entry into white house through
network of relationships will not only discredit them personally, it will
set back the whole idea of reform in Russia by many more years. It will also
reverse the gains made over the previous decade. A revolutionary reversal of
private capital into state hands may not be necessary; smooth and savvy
apparatchiks like Primakov and Luzhkov will see to that. The fear and
disillusionment of population will be used to he hilt and re-distribution of
wealth, establishment of state monopolies will slowly creep in through
perfectly democratic means. A friendly Duma and a weak, unreformed judiciary
will ply that line.


The opposition from some 'white oligarchs' ( of Yeltsin era) against 'red
oligarchs' (of Brezhnev years) will not be able to defend private capital.
Only a strong popular movement can do that. Sadly, 'democrats' and
'reformers' have been unable to form and lead any such movements.


What remains to be seen is whether, eventually, these 'reformers' will go
for grass-roots politics and stand up for their ideas and principles or
simply cling to their elitist privileges and wait for another Yeltsin to
come save them.


*******


#12
Date: Wed, 20 Oct 1999
From: "Steven Solnick" <sls27@columbia.edu> 
Subject: Journal of Commerce Op-Ed, 10/19


Journal of Commerce
October 19, 1999
Russia's assets had already been looted
by Steven L. Solnick
Steven L. Solnick is Associate Professor of Political Science at Columbia
University and author of Stealing the State: Control and Collapse in Soviet
Institutions (Harvard University Press).


Last month's Congressional hearings on Russian money laundering climaxed a
new phase of breast-beating about America's role in post-Soviet Russia. Like
Casablanca's Captain Renault, Congressmen have taken turns claiming to be
""shocked, shocked'' at the scale of money laundering in Russia. The IMF
again interrupted loan disbursements. And the scandal has rekindled the "who
lost Russia" debate in the West.


In most accounts, the money-laundering scandal is held up as evidence that
President Yeltsin's economic policies of 1992-98 were ineffective and
corrupt. A particular target of criticism has been the Russian privatization
program, masterminded by Anatolii Chubais with the extensive support of
Western legal and economic advisors.


By designing a corrupt transfer of state assets into a few privileged hands,
critics claim, Western advisors served as midwives to the birth of a
kleptocracy in Russia. This wrongheaded and cynical economic program made
the subsequent large-scale corruption and capital flight inevitable.


By beginning their story in 1992, however, opponents of Yeltsin and his
Western advisors have delivered a wrongheaded and cynical critique. Many of
the firms that engaged in massive capital flight in the 1990s were actually
born in the 1980s during the orgy of money laundering that brought about the
collapse of the Soviet Union.


Soviet enterprises were expert at hiding financial flows from prying eyes,
since this talent was essential for fulfilling the unrealistic plan targets
that defined Soviet managerial objectives.


One particularly lucrative scheme exploited the difference between two kinds
of "money" in the Soviet economy: cash (i.e., rubles) and credit accounts.
Under the Soviet system, cash and credit flows were strictly segregated,
meaning in practice that an enterprise was prohibited from using its capital
accounts to pay wages. This made central planning easier to enforce, since
bank accounts were more easily monitored than cash transactions.


Starting in 1987, however, certain organizations were granted special
permission to turn non-cash credits into cash. Among these groups were
business cooperatives created under the auspices of the Komsomol, the Young
Communist League of the Soviet Union. They were given the right to use some
of the Komsomol's vast financial resources to hire young engineers and
inventors under a sort of Soviet Junior Achievement program known by the
acronym NTTM.


The NTTM program created a loophole that led to the creation of a number of
so-called "Komsomol banks." These banks were able to turn tightly controlled
Komsomol budget funds into easily circulated rubles. Later in the 1980s, as
these firms grew in sophistication, they were able to contract with other
enterprises that lacked their financial flexibility and turned those
enterprises' budgetary assets into cash as well.



In short, NTTMs practiced money laundering Soviet style, taking state bank
accounts and turning them into private cash.


Communist Party, KGB, trade union and other organizations all exploited
similar loopholes to move Soviet government assets out of Soviet government
accounts. These activities were no more legitimate in the Soviet context
than later asset-stripping in the Yeltsin years.


Contemporary Russian firms launder money abroad to keep it from parties with
strong claims on it: tax authorities, shareholders and creditors. Similarly,
Soviet managers laundered money through Komsomol banks and similar schemes
in order to liberate the state assets they were meant to be administering as
public servants.


The mad scramble to steal the assets of the Soviet state had another
consequence, even more insidious than the creation of a banking system with
little interest in investment banking: The government apparatus Russia
inherited from the Soviet Union was already dangerously anemic even before
it launched its abortive attempt at neo-liberal reform.


Russia's failure to regulate the new market institutions that emerged in the
early 1990s was thus only partly a failure of policy or foresight. It was
also a direct consequence of how those new market institutions emerged in
the chaos of the Soviet collapse.


The Russian state was ill-equipped to regulate the banking system because
much of the state had been looted to create the banking system. Thus,
banking as money laundering pre-dates Yeltsin's attempts at liberalization,
and it pre-dates his ill-considered privatization program. Just as
significantly, it pre-dates the arrival of Western economic and legal
consultants in Moscow in the early 1990s.


Before we ask "who lost Russia," we must consider whether it was stolen
before Western advisors arrived.


*******


#13
Department of State
RUSSIA: ITS CURRENT TROUBLES AND ITS ON-GOING TRANSFORMATION 


TESTIMONY OF STROBE TALBOTT, DEPUTY SECRETARY OF STATE
BEFORE THE HOUSE INTERNATIONAL RELATIONS COMMITTEE
Washington, D.C.
October 19, 1999


Thank you, Mr. Chairman, for the chance to discuss with you and your
colleagues on the Committee developments in Russia and U.S. policy
toward that country. You have chosen a good time for this hearing.
Russia is much on our minds these days, and rightly so. Not for the
first time, and probably not for the last, the Russian people are
undergoing what many of them call "a time of troubles."


The trouble that has received the most attention of late is the
fighting in the North Caucasus. Before that crisis erupted, our
attention was focused on a spate of allegations and revelations about
large-scale financial malfeasance, including charges of money
laundering through American banks.


These two issues are both, in the first instance, challenges to the
leaders and people of Russia. But they are also a challenge to us and
to our principal foreign partners. That is because it is in our
interests that Russia be fully integrated into the community of
democracies of which we are a part. That can happen only if Russia
manages its affairs -- including its struggle against terrorism,
ethnic conflict, political extremism, crime and corruption -- in a way
that meets international standards and that enables us and others to
help.


In that regard, let me make several points about the current conflict
in the North Caucasus. Chechnya, Dagestan, Ingushetia -- these are all
republics on the territory of the Russian Federation. We recognize
Russia's international boundaries and its obligation to protect all of
its citizens against separatism and attacks on lawful authorities. We
also acknowledge that the current outbreak of violence began when
insurgents, based in Chechnya, launched an offensive in Dagestan.
Russia has also been rocked by lethal bombings of apartment buildings
deep in the Russian heartland, including in Moscow itself. The
Russians are still investigating these tragic events, and we hope that
the culprits are brought to justice.


In our dealings with the Russian government of late -- particularly
Secretary Albright's various communications with Foreign Minister
Ivanov, as recently as this past weekend -- we have stressed all these
points.


But we have raised a number of concerns as well: first, that a spread
of violence in the region will be contrary to everyone's interests
except those who rely on violence as a means to their political ends,
including separatism; second, that Russia's last war in Chechnya -- in
1994-1996 -- demonstrated that there cannot be a purely military
solution to the problem there, and that there must be a vigorous and
conscientious effort to engage regional leaders in a political
dialogue; third, that all parties should avoid indiscriminate or
disproportionate use of force that would harm innocent civilians;
fourth, that Russia's significant progress toward developing civil
society, inclusive democracy and rule of law will be in jeopardy if it
permits a backlash against citizens because of their ethnicity or
religion; and fifth, that in defending its own territory, Russia
should take special care to respect the independence and security
concerns of neighboring states, especially Georgia and Azerbaijan. We
will continue to press these points publicly and privately,
bilaterally and multilaterally.


I would be happy to pursue these points further with you this morning.
But before doing so, let me suggest an overall context for our
discussion: First and foremost, our policy must advance the
national-security interest of the United States -- both in the
short-term and the long-term. The test we must apply -- day in and day
out, year in and year out, from one Administration to the next -- is
whether the American people are safer as a result of our policy. This
Administration's Russia policy meets that test.


I'll start with the most basic respect in which that is true: our
physical safety and our military security. When the Administration
came into office, there were roughly 10,000 intercontinental nuclear
weapons in four states of the former Soviet Union; most were aimed at
the United States. Today, there are about half as many -- some 5,000;
they're only in Russia; none are targeted at us; and we're discussing
significant further reductions in overall numbers and further steps to
diminish the nuclear threat in all its aspects.


That task will be tougher in the weeks and months ahead as a result of
the Senate's rejection of the Comprehensive Test Ban Treaty. But we
will press ahead. The President has declared that the U.S. will
continue to refrain from nuclear testing. We've called on Russia,
along with China, France, Britain and other countries, to do the same.
This Administration remains committed to the ratification of this
treaty. CTBT is critical to protecting the American people from the
dangers of nuclear war. Even as we continue to build a consensus of
support for the treaty here at home, we will be working to strengthen
the one that already exists abroad.


There are other vital issues on our agenda with Russia -- issues
literally of war and peace that Secretary Albright has discussed with
you in the past: peace in the Middle East, in the Balkans, in the
Gulf.


And then there is the issue of Russia's nature as a state and role in
the world, which will have a lot to do with what sort of 21st century
awaits us.


For a decade now, Russia has been undergoing an extraordinary
transformation. In fact, it is undergoing three transformations, in
one: from a dictatorship to an open society; from a command economy to
a free market; and from a totalitarian empire and ideological rival
toward becoming what many Russians call -- and aspire to -- a "normal,
modern state," integrated into the international community of which we
are a part. We've been helping keep that process going.


Just as one example, the Freedom Support Act and other programs have
helped Russia make dramatic improvements in the development of an
independent media, protection of human rights and religious freedom.
All of us are realistic about the difficulties. Russia's
transformation has encountered plenty of obstacles, none greater and
more challenging than the crucial need to create the laws and
institutions that are necessary to fighting crime and corruption in an
open society and market economy.


Still, the transformation continues, and so must our commitment to
stay engaged. While there are no easy answers and no quick answers to
what ails the Russian body politic today, there is one over-arching
principle that is fundamental to creating the forces for change that
will drive the scourge of corruption out of Russian society, and that
is democracy.


If the Russian people and the leaders they choose can stay on the
course of constitutional rule and electoral democracy, not only will
they be better off, but so will we. That's the hard-headed essence of
why we must continue to support them in coping with the difficulties
they face, notably including those that are in the headlines today.
Indeed, one way to look at today's troubles in Russia is as part of
the legacy of an evil past and a result of an incomplete but ongoing
transition to a better future. The solution to those troubles is for
them to keep moving forward, and for us to support them as they do so.


Since the Cold War ended, the United States has, as Secretary Albright
pointed out in her speech last month at the Carnegie Endowment for
International Peace, pursued two basic goals in our relations with
Russia. The first is to increase our security by reducing Cold War
arsenals, stopping proliferation and encouraging stability and
integration in Europe. The second is to support Russia's effort to
transform its political, economic and social institutions. Both of
these goals are very much works in progress.


In the years since Russia helped bring the Soviet system to an end,
our work with that nation has helped secure some breakthroughs that
are clearly in the national interest. First, the Soviet Union
dissolved in a largely peaceful fashion with its nuclear weapons in
secure hands, an outcome that was not fore-ordained. Imagine the chaos
the world would face if the Soviet Union, and its nuclear arsenal, had
come apart in the same way Yugoslavia has. First the Bush
Administration and then the Clinton Administration worked assiduously
to ensure that such a nightmare did not come to pass.


Second, Russia helped dismantle the apparatus of the Soviet system and
has rejected the forcible reformation of the Soviet Union or the
creation of a new totalitarian super-state. It has no practical option
to turn back the clock.


Third, the people of Russia, and their leaders, have embraced
democracy and have held a series of free and fair elections at the
national and local levels, followed by a stable transition of offices
and power, and more broadly, are assembling the building blocks of a
civil society based on public participation. When I travel to Moscow,
as I do with some frequency, I'm always struck by the preoccupation of
virtually everyone I meet with the upcoming parliamentary and
presidential elections. For the first time in their history, Russian
citizens are now voters; they can register their grievances and
express their aspirations through the ballot box -- or, for that
matter, on a soap box. Their grievances prominently include disgust
with corruption; their aspirations prominently include good
governance, honest governance -- and peace on their territory and on
the borders.


Fourth, Russia has made important strides toward replacing central
planning with the infrastructure and institutions of a market economy.


Fifth, Russia is more inclined than ever before to working with the
U.S. and other nations of the international community on common
challenges. Even when we disagree with Russia, Russia's willingness to
engage with the international community has been essential to finding
common solutions.


If Russia is going to stay on the course we would hope in its foreign
policy, it must also continue its internal transformation in a
positive direction. International support is an essential part of
helping Russia take difficult steps to restructure itself. The
President, the Vice President, Secretary Albright and the rest of us
have always understood that Russia has been tearing down dysfunctional
Soviet structures, but it has only begun to put in place the
mechanisms of a modern state.


This is an enormous and time-consuming task. Russia, after a
millennium of autocracy and more than 70 years of communism, had
little or no historical memory of civil society, of a market economy
or the rule of law. The Soviet system itself was in many ways
institutionalized criminality. I first heard the phrase "kleptocracy"
used to describe the Soviet state. There are no "good old days" of
real law and order or legitimate private enterprise to which Russia
can return.


In short, crime and corruption are part of the grim legacy of the
Soviet Communist experience. The rampancy of that problem has impeded
Russia's own progress and impeded our ability to help Russia move
forward. Moreover, as Russia dismantled communism and sought to create
a new market economy, the weaknesses inherent in its new economic
institutions created vulnerabilities to corruption. That is why, in
his 1995 visit to Moscow, President Clinton called for, "a market
based on law, not lawlessness."


Yet, just as we cited these dangers, we were also engaged in finding
solutions. U.S. assistance, as well as that of multilateral bodies
such as the International Monetary Fund, have focused on building the
broader structures that will allow the democratic citizens of Russia
-- who have the most to lose from corruption -- to bring transparency
and accountability to both government and business dealings.


We have consistently emphasized the need for transparency and
accountability in our dealings with Russia, and in the dealings of the
international financial institutions working with Russia. When
problems have arisen, we have insisted on full and complete
investigations and will continue to do so. In instances where there
have been concerns about Russian practices, the IMF has tightened
controls, performed audits and reduced lending levels.


The IMF has conditioned further tranches on effective safeguards that
ensure lending will not be misappropriated, provide for a satisfactory
accounting of relevant Central Bank activities and reinforce genuine
broad-based implementation of reforms that go beyond simple
commitments. Both multilateral and bilateral support for Russia will,
be shaped by this kind of realism. A Russian interagency
law-enforcement team headed by Federal Security Service Deputy
Director Viktor Ivanov was in Washington last month to meet with
Justice, FBI, Treasury and State officials. By the way, while this
visit was primarily to deal with the Bank of New York case, the
Russian team also met with FBI Director Freeh and State Department
counter-terrorism officials to discuss the recent bombings in Russia
that have cost more lives than we here in this country lost in the
World Trade Center and Oklahoma City.


I'd like to turn briefly to the programs in Russia on which we spend
American taxpayers' money. We do so primarily to safeguard American
security. Let me emphasize that three-quarters of Freedom Support Act
assistance is spent on programs that do not involve the Russian
government, as part of our effort to help build grassroots support for
change. The U.S. government has worked to build relationships with
Russian law enforcement and judicial entities and helping them
increase their capabilities to operate in a professional and ethical
manner. We have also promoted the rule of law at the grassroots level
by working with non-governmental organizations, human rights
advocates, and independent media watchdogs, and by promoting ethical
business practices.


For example, USAID's Rule of Law Project, which was developed in
response to a presidential initiative that arose out of the 1993
Vancouver Summit, works with core Russian legal institutions on
judicial training, legal education reform and strengthening legal
non-governmental organizations. The project has assisted the
legislative drafting and the training of hundreds of judges from the
commercial courts.


In addition, several US law enforcement agencies have representatives
based in Moscow who are working directly with their Russian
counterparts on issues of mutual concern. There are three FBI attaches
in Moscow working on ongoing criminal investigations and prosecutions.
The U.S. Customs Service, DEA, U.S. Secret Service, DOJ and INS also
have representatives in Moscow.


Law enforcement agreements with Russia allow us to share information
on cases and cooperate on investigation, prosecution and prevention of
crime. The current Mutual Legal Assistance Agreement between the
United States and Russia allows each side to request information,
interviews and other background material to support investigations. In
June 1999, the U.S. and Russia signed a Mutual Legal Assistance Treaty
which, when ratified and brought into force, will replace the
Agreement. The Treaty will expand and strengthen the scope of
cooperation, facilitating investigation and prosecution of
transnational criminals.


In addition, in the recognition of the transnational dangers posed by
the increased crime in the NIS and Central Europe, the U.S. government
established the Anti-Crime Training and Technical Assistance Program.
An interagency effort administered by the State Department, this
effort is designed to help law enforcement officials develop new
techniques and systems to cope with crime while simultaneously
strengthening the rule, of law and respect for individual rights. A
major goal of this program is to develop partnerships between American
and New Independent States law enforcement agencies that will enable
them to combat organized crime and prevent organized crime in the New
Independent States from spreading in the U.S.


In conclusion, Mr. Chairman, Secretary Albright has asked me to use
this occasion to reiterate the case that she has made to you and your
colleagues for the resources we need in order to defend and advance
American interests. The current appropriation bill contains a 30
percent cut from the President's Freedom Support Act budget for
programs in Russia and the other New Independent States. That is one
of many reasons why the President has vetoed this bill. The funding
levels proposed by the Congress would force us to make unacceptable
trade-offs between our core economic and democracy programs and
programs that prevent the proliferation of weapons of mass
destruction. The President believes such cuts would be dangerously
short-sighted, because the purposes of this assistance -- from
building an independent media to promoting small businesses -- are
fundamentally in our interests.


The President and the Secretary see engagement with Russia as one of
many bipartisan goals that serve the long-term interests of the
American people.


*******