April 11, 2000    
This Date's Issues: 4450 • 4451 • 4452

Johnson's Russia List
#4452
11 August 2000
davidjohnson@erols.com


[Note from David Johnson:
1. Reuters: Nation mourns as Russia buries blast victims.
2. AFP: Moscow buries first dead from blast, investigators focus 
on Mafia link.
3. Jamestown Foundation Monitor: UNITY'S GRYZLOV PREDICTS NEW LAWS 
INCREASING POLICE POWERS. 
4. Nezavisimaya Gazeta: Ivan Rodin, RUSSIA'S SECRET SERVICES TO PLAY 
GREATER ROLE. Politicians of Almost All Hues Are Prepared to Support 
Emergency Measures.
5. UPI: Ariel Cohen, The Russian generals' war of self-destruction.
6. Izvestia: APPEAL BY VASILY AKSYONOV, BORIS BEREZOVSKY, SERGEI 
BODROV, STANISLAV GOVORUKHIN, OTTO LATSIS, YURI LYUBIMOV, OLEG 
MENSHIKOV, IGOR SHABDURASULOV AND ALEXANDER YAKOVLEV.
7. Financial Times (UK): The Soviet ghost in Russia's machine: 
Economic reform is threatened by over-optimistic fiscal forecasts and 
state-led industrial policy, argues Padma Desai.
8. AP: Russia Accuses British Mine Clearers.
9. Financial Times (UK): Gazprom's sweetheart reaps Arctic Russia's 
riches: A company of uncertain ownership has been very well treated by 
the gas monopoly. Charles Clover reports.
10. gazeta.ru: Chechen Businessmen Hunt Moscow Bomber.
11. Reuters: Mike Collett-White, C.Asian unrest shows region's 
vulnerability.]


******


#1
Nation mourns as Russia buries blast victims
By Peter Graff

MOSCOW, Aug 11 (Reuters) - Sveta Leonova was not at her mother's funeral on 
Friday where other relatives mourned a victim of this week's Moscow bomb 
blast. 


The 14-year-old ballet dancer was still in hospital with a shattered leg and 
the burns she sustained on her arms when she tried frantically to douse the 
flames that consumed her mother. 


No one has told her that her mother is dead. But, her grandfather told a 
mourner at the funeral, she knows. 


``She feels it.'' 


After the three-day mourning period traditional in Orthodox Christianity, 
Russia began laying to rest the eight people killed in the blast that tore 
through a crowded underpass on Tuesday and rattled a nation growing numb to 
violent death. 


The ceremonies were small and scattered, without the sort of official pomp 
that accompanied the public burials of soldiers killed in ambushes in 
Chechnya over the past few months. 


But the deaths have been met with nationwide grief perhaps even more profound 
than that which accompanied the deaths of nearly 300 in bomb attacks a year 
ago. 


The stories of the eight victims have been repeated over and over on 
television, along with the shockingly graphic images of blood-smeared wounded 
fleeing the tunnel and the bodies found among the blackened wreckage. 


The whole country knows of Olga Udalova, the 18-year-old journalist who was 
rushing to meet her boyfriend. He showed up 10 minutes late and was saved. 
She was killed in the blast. 


On buses and trams old women whisper sadly about the two visitors from the 
central Russian region of Udmurtia -- a man who died on Thursday in hospital 
and the one body burnt beyond recognition and still unidentified. And Sveta's 
mother, Marina. 


TELEVISION CAMERAS KEPT OUTSIDE 


The television cameras were kept outside the chapel at Vagankovskoye 
cemetery, where inside relatives and friends clutched sputtering candles and 
a small women's choir sang funeral hymns. 


The coffin was open, as Orthodox ritual expects, but the charred body was 
completely hidden under a white shroud. After the ceremony, mourners filed 
past and kissed the cloth over the dead woman's lips. 


Russian officials have blamed the blast on Chechen guerrillas, although 
investigators say they have not officially concluded whether it was a 
politically motivated strike or an unrelated act of gangland-style violence. 


At the funeral, mourners were in no mood to discuss politics. Anna 
Yakovlevna, a middle-aged woman attending the burial with a daughter who 
dances in a youth ballet troupe with young Sveta, wanted to talk only of the 
virtues of the dead. 


``They say you only speak well of the dead, but this woman was truly special. 
All the fine things you can say about somebody -- that she was clever and 
caring and kind,'' she said. 


``What a terrible tragedy this is,'' she sobbed. 


The public sorrow may only add to Russia's numbness, Yelena Shestopal, chief 
professor of political psychology at Moscow State University, told the weekly 
newspaper Vek. 


``We are losing our ability to feel danger because we have already lived so 
long in war,'' she said. ``We bury someone every day. Eight more dead and 
nearly a hundred burned -- horrible as this may sound -- will not overwhelm 
people with shock.'' 


******


#2
Moscow buries first dead from blast, investigators focus on Mafia link


MOSCOW, Aug 11 (AFP) - 
Moscow buried its first dead Friday from this week's bombing in the capital 
as a report surfaced that police think the blast may have been the work of a 
criminal gang rather than Chechen rebels, as initially suspected.


Eight died and nearly 100 were injured in a fiery explosion that tore Tuesday 
through a central Moscow underpass during evening rush hour.


Doctors warn the death toll may rise as 19 patients remained in serious to 
critical condition while Moscow hospitals were running short of donor blood 
needed to help their recovery.


In all 56 people were still receiving treatment in hospitals Friday as 
footage of burn victims wrapped up in bandages from head to toe and hooked up 
to life support systems dominated television news coverage for the third day.


In four separate somber ceremonies, families and friends buried the first 
victims whose identities were established from the blast.


And dozens of icons and candles adorned the soot-covered walls of the 
ill-fated underpass as friends grieved for the dead and injured, many venting 
their fury with separatist guerrillas whom the mayor of Moscow has blamed for 
the blast.


Investigators have so far cautioned that they have no clear evidence linking 
Chechens to the explosion. Separatist President Aslan Maskhadov and his top 
field commanders all deny any involvement in the blast.


Their denials are significant because the rebels had for weeks threatened to 
expand their bomb and mining warfare -- to which they have reverted to on the 
battlefields of Chechnya -- to Russian territory.


On Friday, the first major report surfaced that police may also now believe 
that the explosion has no link to Chechnya, but was rather a settling of 
scores in Russia's crime world.


The Kommersant business daily, not citing any sources directly, wrote on its 
front page that police were examining the theory that the bomb attack 
followed a battle between criminal groups for control of lucrative kiosks in 
the central-Moscow underpass.


The newspaper added that the investigation was being headed by the deputy 
head of the economic crimes department at the Moscow prosecutor's office, 
Vladimir Idkin.


Investigators had initially zeroed in on a car that drove away at great speed 
from the underpass entrance moments before the explosion.


It has since been revealed that the car belonged to a Moscow police officer, 
who is now being questioned.


Kommersant said that each retail point in the underpass yielded a revenue of 
at least 10,000 dollars (euros) a month.


However, investigator Idkin told Interfax on Friday that the criminal theory 
was not his main line of inquiry for now.


*******


#3
Jamestown Foundation Monitor
August 11, 2000


UNITY'S GRYZLOV PREDICTS NEW LAWS INCREASING POLICE POWERS. While the 
perpetrators of and motives for the August 8 bombing of a pedestrian 
underpass in central Moscow have yet to be established, comments from top 
officials and other leading politicians suggest the incident may further 
strengthen the hand of Russia's special services. In the wake of the 
bombing, for example, Deputy Prime Minister Aleksei Kudrin announced that 
he and Prime Minister Mikhail Kasyanov had discussed "a number of decisions 
which will guarantee security in the Russian Federation." Meanwhile, Boris 
Gryzlov, who heads the pro-Kremlin Unity party's faction in the State Duma, 
said that parliamentarians were expecting to receive draft legislation that 
would "spell out a whole series of rights for the law enforcement 
structures" and would be aimed at "strengthening order in the country." 
While Gryzlov did not give specifics about what such legislation might 
entail or who would initiate it, the initiators of such draft laws would 
likely be either President Vladimir Putin and/or the other security service 
veterans among his immediate subordinates, like Security Council Secretary 
Sergei Ivanov and Federal Security Service (FSB) Director Nikolai Patrushev.


A newspaper today quoted unnamed parliamentarians as saying that that the 
new legislation would be aimed above all at amending the law which spells 
out the powers of the FSB, Interior Ministry and other law enforcement 
agencies. The paper quoted Duma sources as saying that the FSB and Interior 
Ministry might be given a freer hand in investigating terrorism and 
organized crime activities. Such a move would receive support not only from 
Unity and other pro-Putin factions in the State Duma, but also from the 
Communist Party of the Russian Federation (KPRF). Indeed, KPRF leader 
Gennady Zyuganov said yesterday he would back any tough measures in the 
fight against crime and terrorism. Zyuganov said he had a two-hour meeting 
with Putin on August 9 (Nezavismaya gazeta, August 11). It should be noted 
that some people feel that Russia's special services already have too much 
power: Indeed, back in 1995, human rights activists and others expressed 
misgivings over the then-new law governing the FSB, warning that it gave 
the security service powers far beyond those enjoyed by security agencies 
in democratic countries.


Meanwhile, in another sign of the political mood in the wake of the Pushkin 
Square bombing, Gennady Raikov, leader of the pro-Putin People's Deputy 
faction in the State Duma, called for rescinding the moratorium on the 
death penalty for serious crimes. "Explosions are already thundering in the 
center of Moscow," Raikov said. "Order needs to be restored." Russia put a 
moratorium on the death penalty in order to meet the conditions for 
membership in the Council of Europe (Izvestia, August 11).


*******


#4
Nezavisimaya Gazeta
August 11, 2000
[translation from RIA Novosti for personal use only]
RUSSIA'S SECRET SERVICES TO PLAY GREATER ROLE
Politicians of Almost All Hues Are Prepared to Support 
Emergency Measures 
By Ivan RODIN

One effect of the Pushkin Square blast on August 8 has so 
far been that Russian politicians are again talking about 
giving greater clout to the secret services and law enforcement 
bodies, arguing that without such a boost they will not be able 
efficiently to solve such crimes and, most important of all, 
confidently to prevent them.
Vladimir Putin, for example, mentioned several 
"appropriate measures" in response, while Deputy Prime Minister 
Alexei Kudrin, citing his conversation with Mikhail Kasyanov, 
mentioned a "series of decisions that would ensure the Russian 
Federation's security." As for Boris Gryzlov, head of the 
Duma's Unity faction, he said that according to his knowledge, 
the Duma would soon get bills "detailing some of the rights of 
law enforcement bodies" and aimed at "strengthening law and 
order in the country." 
Mr Gryzlov would not go into detail, noting only that when 
the documents he mentioned got into lawmakers' hands, then it 
would be time and occasion to discuss their novel features. Nor 
could he say who is going to initiate "this detailing." But, as 
is easy to guess, the one to propose legislative initiatives 
giving more clout to power and law enforcement bodies is most 
likely to be the Russian government. Incidentally, it was 
perhaps these initiatives which were meant by Mr Kudrin when he 
said that the Prime Minister was to sign some decisions soon. 
It is not ruled out, however, that their initiator, to give 
more weight to the proposals of the executive branch (read, the 
law enforcement bodies themselves), may prove to be Putin 
himself. He, as a matter of fact, almost demonstratively 
displays his respect for power structures in public - one needs 
to recall the conferences he holds at the beginning of every 
working week. 
And although it is not inconceivable that the interest 
triggered by the blast in increasing the powers and augmenting 
the functions of law enforcement services is populist and 
politicians are deliberately saying what should appeal to a 
scared and angered citizenry, one still needs to see what may 
be changed in Russian legislation concerning power structures. 
The first thing to note is that each of these structures acts, 
first, on the basis of its own trademark law, and, second, has 
a general law to rely on - on criminal investigations. As this 
NG correspondent found out in interviews with a number of 
deputies concerned with law enforcement legislation, the 
documents cited by the head of the Duma's Unity faction will 
most likely be used to correct this particular law, because it 
spells out the powers of the FSB and the Interior Ministry and 
a number of other structures. Duma watchers believe that these 
two services may well be granted the rights to carry out 
abbreviated investigatory procedures if they are connected with 
terrorism and organised crime cases.
Besides, the interviewees did not rule out that it would 
be quite natural if yet another basic law comes in for a 
review, one that relates to the main theme discussed in the 
past few days. It is a recently adopted law on combating 
terrorism, which, for example, is already being used as a legal 
basis for conducting the counter-terrorist operation in the 
North Caucasus. What is more, experts feel, it is used in a 
very broad interpretation. As an example, they cite that part 
of the law which treats as the zone of such operations a 
separate building or its part, or a strictly confined area 
around such buildings, but not as one or even several 
constituent members of the Russian Federation. Yet according to 
the law against terrorism it is within this confined territory 
that police and security bodies are given such powers which in 
principle breach the many civilian rights and freedoms that are 
rigidly recorded in the country's constitution. 
The amendments to the law on combating terrorism, which 
give legal backing to its broader interpretation made de facto 
by authorities, thus may become one more item on the list of 
initiatives mentioned by Gryzlov. Incidentally, the experts who 
made such predictions are at the same time sure that in the 
Duma all legislative proposals aimed at enlarging the powers of 
power structures will get full backing. Even without reading 
any papers, support for them was voiced by the pro-government 
Unity and People's Deputy factions, the latter's leader even 
said that his colleagues would press the lower house also to 
lift the moratorium on the death penalty. But words of approval 
are uttered not only by confirmed supporters of Vladimir Putin.
Russian Communist leader Gennady Zyuganov yesterday, for 
example, said that the Communist Duma faction would support any 
tough measures aimed at combating crime and terrorism. It will 
be noticed that on August 9 Zyuganov said he had two hours of 
talks with the President. 
Probings of Communist sentiments suggest any conclusions 
and links with all sorts of rumours - for example, even to such 
an implausible one as resignation of the Mikhail Kasyanov 
government. By the way, this rumour is also related to the 
currently fashionable topic of increasing the role of secret 
services and law enforcers because it has the flip side - 
Security Council Secretary Sergei Ivanov is tipped as a 
successor to Mr Kasyanov. It will be noted that his 
hypothetical appointment would be highly logical: a state with 
strong law enforcement bodies needs a head of government with 
appropriate qualifications, especially since it already has a 
president with such a background.

*******


#5
UPI
The Russian generals' war of self-destruction
By ARIEL COHEN
(Ariel Cohen, Ph.D. is a Research Fellow at the Heritage Foundation in
Washington DC, and author of Russian Imperialism: Development and Crisis
(Praeger, 1998)


WASHINGTON, Aug.10 (UPI) - President Vladimir Putin and the Security
Council of Russia revisit Friday the long and very public feud between
Defense Minister Marshal Igor Sergeyev and four star Army Gen. Anatoly
Kvashnin, Chief of the General Staff of the Russian Armed Forces..


At the heart of the conflict is a fight over the future of the Russian
military and the present reality of dwindling budgets.


Sergeyev, 62 is the first former commander of Russia's mighty Strategic
Rocket Forces (SRF) commander ever to become defense minister. He wants to
focus Russia's scarce financial resources to preserve and modernize the
nation's immense nuclear arsenal.


But Gen. Kvashnin, 54, a land forces commander, advocates deep cuts in the
nuclear arsenal and the diversion of those funds to a conventional build-up.


Sergeyev challenged Kvashnin last year when he suggested to then-President
Boris Yeltsin to consolidate all Russian nuclear forces, including missiles,
submarines and bombers, in one service.


That move would have allowed Sergeyev to circumvent Gen. Kvashnin and the
Army General Staff altogether, making the new force subordinate directly to
the president of Russia in his capacity as commander-in-chief.


Sergeyev proposed his own protégé, Gen. Vladimir Yakovlev, currently the
commander of the Strategic Rocket Forces (SRF), as the boss of the new
entity.


But Gen. Kvashnin retaliated last month sending a proposal to President
Vladimir Putin to cut the Strategic Nuclear Forces by 75 percent - or a
factor of four - from 6,000 warheads to only 1,500.


Gen. Kvashnin wanted to eliminate the SRF altogether, merging it into the
Air Force.


Such a force structure would be acceptable under a possible future
Strategic Arms Reduction Treaty (START- 3) between Russia and the United
States. And Russia, Gen. Kvashnin argued, would still have enough warheads
to serve as a credible deterrent for Russia.


Gen. Kvashnin also argued that a three-service force structure would save
the Russian military billions of rubles that he would then use for a
conventional build-up.


He also accused Defense Minister Sergeyev of destroying the Russian
military power by allocating between 50 and 80 percent of the military
budget to his favorite service - the SRF.


Sergeyev responded by letting it be known that he considered Gen.
Kvashnin's June 1999 operation in Kosovo which the Russian paratroopers
seized control of Pristina airport in Kosovo without coordination with NATO
to be a dangerous and irresponsible adventure which may have lead to a
nuclear war - despite his own anti-American rhetoric at the time of the
Kosovo conflict.


But primarily, Marshal Sergeyev appeared to be angry that Gen. Kvashnin
had kept him in the dark about the operation, a prominent Moscow military
analyst who requested anonymity, has told United Press International.


Russia failed to deploy large paratroop detachments of up to 10,000 men in
the operation as Gen. Kvashnin had initially planned, because Hungary,
Romania and Bulgaria denied the overflight and land transit rights to the
Russian army.


It is possible that neither Sergeyev nor Kvashnin will politically survive
the row, and that President Putin will be forced to appoint a new Defense
Minister and a new Chief of General Staff.


The ever-cautious Putin refuses to openly take sides, but he seems to
increasingly support his General Staff's analysis, backed by Gen. Kvashnin.


This maintains that most of the military threats to Russia are
conventional, driven by ethnic conflicts, and often low intensity in nature.
Russia's southern and eastern tiers, predominantly populated by Moslems, are
primary sources for these threats.


In early July, the Russian media broadcast a public reprimand by Putin to
Marshal Sergeyev and Interior Minister Vladimir Rushailo, both Yeltsin
appointees.


Putin took them to task for the high casualties in Chechnya. "Many of the
losses could have been avoided in Chechnya with better discipline,
professionalism and responsibility," he said.


Also in July, Putin approved the dismissal of seven top generals - all of
them Sergeyev supporters, including the head of the military procurement
department at the Ministry of Defense, Anatoly Sitnov.


Sitnov reportedly ran afoul of the powerful Minister of Military Industry
and Vice Premier Ilya Yuzhanov, one of Putin's allies from the president's
native city of St. Petersburg. The military procurement department controls
the multi-billion dollar orders of the large and decaying Russian
military-industrial complex.


While Sergeyev is losing his comrades-in-arms, Gen. Kvashnin is gaining
influence. Putin recently promoted him to membership in the all-powerful
Security Council -- a secretive body with overall responsibility for
Russia's national security.


Three of Gen. Kvashnin's subordinates from the so-called "Chechen group"
of top brass, Generals Victor Kazantsev, Vladimir Shamanov and Gennady
Troshev, have gained Putin's support -- and important positions.


Gen. Kazantsev became a presidential envoy with responsibility for the
whole of the Northern Caucasus. These envoys -- also known in Russia as
"governors-general" or viceroys, have broad authority over the
administration, finance and security of large districts, some of which are
bigger than France or Germany.


Shamanov is likely to be promoted to command a large military district.


Gen. Gennady Troshev, former commander of the 58th Army in Chechnya and
First Deputy Commander of the Caucasus Military District, was promoted in
April to the post of commander of the United Federal Group of Forces in
Northern Caucasus -- the regional CNC.


Other general officers who are mentioned as Kremlin protégés include
Admiral Yegorov, commander of the Baltic Fleet, who is tipped to run for
governor of the strategic exclave of Kaliningrad (former Prussian
Königsberg), wedged between Poland and Lithuania. Still other generals may
contest for the gubernatorial elections in Voronezh and Volgograd.


Putin appears to be going out of his way to curry favor with the military,
to which he "owes" his triumphal election. From among Russia's 1.2 million
soldiers, 80 percent voted for Putin in the March 27 presidential elections.
This could not have been achieved without the strong support and cooperation
of the generals.


It is not yet certain whether Putin will decide to side with only one
faction or play one faction against the other, as did his predecessor,
President Yeltsin.


Moscow insiders have informed United Press International that Putin may
play Defense Minister Sergeyev 's nuclear forces faction against the
"ground-crawlers" the land forces disciples of Gen. Kvashnin.


The sources also said that Putin may try and play off even his own
supporters in the military by balancing them against the increasingly
powerful secret police, the Federal Security Service (FSB), which
constitutes one of the most powerful factions in the Kremlin administration.


Putin himself headed the FSB in his meteoric ascent to become first prime
minister and then president over the past year.


But in the end, all this maneuvering cannot conceal the fundamental
weakness of the Russian state and its relatively small military budget:
between $4 and $6 billion, over which the post-Soviet Russian generals are
fighting their bureaucratic wars.


******


#6
TITLE: APPEAL BY VASILY AKSYONOV, BORIS BEREZOVSKY, SERGEI BODROV,
STANISLAV GOVORUKHIN, OTTO LATSIS, YURI LYUBIMOV, OLEG 
MENSHIKOV, IGOR SHABDURASULOV AND ALEXANDER YAKOVLEV
(IZVESTIA DAILY, P. 1, AUGUST 9, 2000)
SOURCE: FEDERAL NEWS SERVICE


At the turn of the 21st century Russian society again faces a
choice between living in an authoritarian or a genuinely democratic
state. The choice is not as stark as in 1996 when the question at
issue was whether we would be back in the communist utopia or
continue along the path of liberal reform. But the choice now
before us will very soon exert a cardinal influence on the life of
each and everyone regardless of political views, wealth and social
status, age or ethnic affiliation.
The understandable and natural wish of our new President to
create an effective and responsible power thus stopping the process
of disintegration of the state prompts the traditional reflex of
"pull and not let go" to the ruling bureaucracy. The main
achievements of the past decade are under threat: the free press,
free enterprise and, most importantly, free thought and the spirit
of independence. Unless these trends are stopped, the logic of the
conflict between the authoritarian instinct of any power and the
democratic aspirations of society will lead to the dismantling of
the principal gains of recent times or to a paralysis of
administration. A tragedy of another generation will occur. 
The roots of this state of affairs lie in the fact that the
reforms of the past ten years focused on the economy whereas the
priorities of moral ideology and political philosophy have been
pushed into the background. Having concentrated on investments,
taxes, securities and stock markets, we have forgotten about such
attributes of constitutional rule of the people as limiting
official arbitrary rule, the separation of powers between the
branches of government, between the center and the regions, the
building of a system of checks and balances, the civil society and
federalism. 
Many of us subconsciously, and sometimes consciously, assume
that as long as there is a free market democracy would come
automatically. This view is rooted in the premise on the economic
basis and the ideological superstructure. In this connection it
would be useful to recall the sad historical experience of the
1920s when a "new economic policy" was launched in the absence of
civil freedoms. We know what it led to.
Logically, a "controlled democracy" inevitably transforms
itself into a new version of "democratic centralism" when the
intention to strengthen and broaden power is justified by economic
expediency. By embarking on that path society will inevitably enter
a vicious circle of action and counteraction which will eventually
force the authorities to choose between admitting their
incompetence or introducing a dictatorship.
Russian democracy is still young and too beholden to its
recent totalitarian past. A special feature of the current
situation is the weakness of social institutions which form the
basis of civil society. Our intelligentsia -- traditionally a
proponent of liberal values -- is unable to oppose the
authoritarian threat by itself as a result of the economic
upheavals of recent years. But during the past decade a new
generation of politically and economically active citizens has
arisen -- elected public politicians, independent journalists,
entrepreneurs and simply young independent people. It is against
them, above all, that the current authoritarian impulse of the
administrative and law-enforcement community is directed.
We think our concern is shared by many Russian citizens. We
propose to unite in order to create a new social and political
movement based on the ideas of freedom of conscience and faith,
freedom of the individual, the rule of law, respect of national
traditions, freedom of the mass media and immutability of private
property. To us the political and social structure of society comes
first and determines the efficiency of the economy. We see
guaranteed rights and freedoms of citizens and accountability of
power to society as an absolute value in its own right.
Decentralization of power is not a hindrance, but a support of a
strong state, it is not a consequence, but a necessary condition of
an effective market economy and free enterprise. We want to build
a civil society in Russia and not the authoritarian structure that
is taking shape today.
In Russia man has forever felt intimidated by power. The
democratic transformations of the past decade and the information
revolution are turning a growing number of citizens from silent
onlookers into independent members of society. The solidarity of
the intelligentsia, of the business people, of the free press and
all politically active citizens is the main resource for the
progressive movement of the country. Building genuinely
constitutional rule of the people and ensuring the conditions for
social justice is the main direction in which reform in Russia
should continue.


Vasily Aksyonov,
Boris Berezovsky,
Sergei Bodrov Jr.,
Stanislav Govorukhin,
Otto Latsis, 
Yuri Lyubimov,
Oleg Menshikov, 
Igor Shabdurasulov,
Alexander Yakovlev


******


#7
Financial Times (UK)
11 August 2000
[for personal use only] 
The Soviet ghost in Russia's machine: Economic reform is threatened by
over-optimistic fiscal forecasts and state-led industrial policy, argues
Padma Desai
The writer is the Harriman Professor of Comparative Economic Systems at
Columbia University. 


Vladimir Putin's brand of politics has raised concern. In particular,
critics say the Russian president's understandable desire to restore law
and order may undermine Russia's emerging democracy. 


By contrast, the government's new plan for economic reforms has met only
with approval. 


The plan, designed by German Gref, trade and economic development minister,
sets out targets for the next 10 years, including cutting annual inflation
to below 10 per cent by 2004 and increasing annual economic growth to 5 per
cent. Tony Blair, the British prime minister, recently gave it his full
endorsement. 


Yet the core of the plan is critically flawed in two ways. The plan's
recommendations on the important task of industrial restructuring are
anti-market and a reversion to old ways of managing the economy. Second,
its prescriptions for restoring the all too necessary fiscal balance on a
sustained basis are unrealistic. 


True, the plan addresses a number of problems, such as breaking up
monopolies and reforming the country's defence industry. But the central
plank of the plan's restructuring agenda is state-defined and state-led
industrial policy that discriminates - without serious rationale - among
sectors for differential treatment. 


Thus, between now and 2002, manufacturing of heavy machinery is targeted to
grow at up to 20 per cent a year, and its output will be selectively
assigned to upgrade mining, power generation and infrastructure. Between
2008 and 2010, the plan envisages developing the high-technology,
science-based sectors and turning them into big exporters. This last phase
will witness the "decline of state participation in the funding and support
of investment programmes and projects". 


The plan clearly envisages changing the industrial structure through a
sequential investment strategy. This will turn of necessity into an
invasive industrial policy. It would be better to establish largely uniform
rules - including incentives for foreign investment - allowing the markets
to define the incentives that shape industrial sequencing. In short, Mr
Gref and his planners have fallen prey to the mentality inherited from
earlier, Soviet times. 


The plan's fiscal policy is also radical and based on dangerously
optimistic estimates. The consolidated "primary" budget, which excludes
interest payments on debt, is currently in surplus. But the future is bleak. 


While government spending has fallen from 76 per cent of gross domestic
product in 1992 to between 37 and 38 per cent in 1999-2000, serious
weaknesses remain, such as the increase in the regional share of government
spending from 15 to 40 per cent. At the same time, spending commitments by
the regions have grown - ahead of receipts - partly thanks to federal
mandates that have not been matched by revenue allocations to the regions
from federal taxes. The Gref plan recognises this and projects a
consolidated budget deficit of at least 25 per cent of GDP for 2001-2004,
with spending at 62 per cent; and spending at 60 per cent with revenues at
a mere 35 per cent of GDP for 2005-2010, without new measures. 


But these new measures would have to be draconian to shrink the massive
deficit from 25 per cent of GDP. Here, the Gref plan becomes a wish list.
"Profits from (state) assets and activities" will provide 3 per cent of
GDP. Another 4 per cent will come from net new borrowing. The remaining 18
per cent will be offset by slashing spending through reforms such as the
means-testing of welfare beneficiaries; by simplifying the tax arrangements
and broadening the tax base; by introducing reforms in federal-state tax
jurisdictions; and through tough measures such as cutting back on
subsidised natural gas supplies to users that have fallen behind with
payments. 


Can all this be done? It hardly seems possible. For example, in a country
that has inherited 156 types of federal benefit programme, distinguishing
236 categories of recipient, which encompass, at a minimum, nearly 45m
people, it is a tall order to achieve a significant fall in entitlement
expenditures. Unless the economy improves radically, cutting back on a
"welfare state", in which almost half the country's voters are
beneficiaries, raises obvious problems. These may be surmounted but it is a
high-risk, low- probability scenario. 


This is where the industrial strategy returns to the scene. It will be
almost impossible to balance the budget unless substantial revenues are
generated by a growing economy. This requires a big influx of foreign
investment with its complement of equity, technology and management. Yet
the Gref plan offers a Soviet approach to industrial policy, and hesitates
to implement a policy unreservedly aimed at attracting foreign investment. 


This hardly inspires confidence in the new Russian economics team. Unless
he is made aware of these harsh realities, Mr Putin will fail. 


******


#8
Russia Accuses British Mine Clearers
August 11, 2000
By ANGELA CHARLTON


MOSCOW (AP) - Russia is accusing a British nonprofit mine-clearing agency of 
spying on Russian forces in Chechnya and training rebels in the breakaway 
republic.


The agency, HALO Trust, denied any such activity and insisted its goals were 
humanitarian. HALO says it began clearing mines in Chechnya after the 1994-96 
war and had built up a staff of 150 Chechens. The agency said it was forced 
to stop its Chechnya activities after the latest war began last September.


The Federal Security Service, Russia's main intelligence service, said in a 
statement that HALO Trust workers gathered descriptions of Russian weapons 
from Chechen-held territory until last November for British secret services.


``Representatives of HALO collected intelligence of a military-political 
character, and with these aims maintained close contacts with Chechen leaders 
and ... established a many-pronged network of informers from the local 
population,'' the intelligence agency said.


The Federal Security Service said HALO had not only trained its Chechen staff 
to clear mines, but also to lay them.


It also said HALO Trust opened its office in Chechnya in 1997 with the help 
of Chechnya's President Aslan Maskhadov without permission of Russian 
authorities.


HALO Trust director Guy Willoughby denied the allegation Thursday in London, 
saying the group does not spy or support mine laying or any form of terrorist 
activity.


``We were running a standard humanitarian mine-clearing organization and the 
Russian authorities knew about it,'' he said.


``Our international role is to clear mines and unexploded ordnance including 
cluster bombs, and if in November our office asked the headquarters for 
technical information on unexploded ordnance, then, that is our job.''


Russian planes showered mines on Chechnya during the previous and current 
war, and have planted mines surrounding military installations. HALO said it 
recorded 296 mined areas in Chechnya after the 1994-96 war that it said were 
frightening refugees from returning home.


``We then stopped mine clearing when the Russians started the war again in 
Chechnya, but as that happened the Russians fired rockets into our mine 
fields and killed three of our de-miners, and four of our de-miners died in a 
Russian rocket attack,'' Willoughby said.


The Federal Security Service said HALO workers assigned to Georgia's 
separatist Abkhazia province started spying on Russia from Chechen territory 
in 1998. Chechnya borders the Caucasus Mountains nation of Georgia.


HALO also has offices in Cambodia, Afghanistan, Angola and Mozambique. The 
agency says its funding comes from the governments of Britain, Germany, the 
Netherlands, Ireland, Japan, Canada and also from private donations.


In an unrelated development, Russian troops clashed with Chechen rebels in 
the Russian region of Ingushetia, officials said Friday, in yet another sign 
that the military is unable to contain the insurgents.


A large rebel force was spotted in Ingushetia on Thursday. A battle erupted 
when a Russian battalion tried to intercept them near the village of Verkhny 
Alkin, Russian officials said.


The Russian government claims the rebels are a defeated force no longer 
capable of mounting serious operations. But the rebels mount daily attacks 
across Chechnya and are able to cross freely into neighboring republics such 
as Ingushetia, which adjoins Chechnya's western border.


In the clash in Ingushetia, the Russian force had to call in artillery and 
helicopter gunships to drive the rebels off, officials said. Six rebels were 
killed and at least 10 others were wounded in the clash, they said, though 
casualty reports from both sides have been unreliable.


******


#9
Financial Times (UK)
11 August 2000
[for personal use only]
Gazprom's sweetheart reaps Arctic Russia's riches: A company of uncertain
ownership has been very well treated by the gas monopoly. Charles Clover
reports:


The cheery sunshine of Jacksonville, Florida, is a world away from Russia's
Yamalo-Nenetsk region, where vast pre-historic caverns deep under the
frozen Arctic tundra store one-fifth of the world's known reserves of
natural gas. 


But if Yamalo-Nenetsk is the heart of Russia's gas industry, Jacksonville
is at least part of the wallet. A few Mercedes parked outside an office
block on a tree-lined side street are the only clue of the vast wealth
controlled within the offices of the Itera International Energy Corporation. 


Itera's ownership isa closely guarded secret. But it is one of a number of
companies in the close orbit of Gazprom, Russia's natural gas monopoly,
which is 38 per cent state-owned. Gazprom's 14,000km of pipelines and 43
compressor stations supply Europe with a quarter of its natural gas and
Russia's budget with about 25 per cent of its tax revenues. 


For years a number of small companies of uncertain ownership, Itera
included, have benefited from sweetheart deals with Gazprom worth billions
of dollars, receiving cheap gas, lucrative export contracts, Gazprom
shares, and control over world-class gas fields. 


Many analysts - and at least one official inquiry - believe that Itera and
these other companies in Gazprom's close orbit are owned by Gazprom's
management or their relatives. 


"Gazprom has evolved very naturally into a system for expropriating
colossal state resources, without breaking the law," says Yuri Boldyrev,
who has frequently investigated Gazprom as deputy head of Russia's state
accounting chamber (the official government auditor). 


A report by Moscow-based United Financial Group, a Gazprom shareholder,
says: "Itera has shot from nowhere to be a significant player in the
Russian gas market." The worry for investors is that this has been done on
the basis of assets that rightfully belong to Gazprom's shareholders. 


Created in 1988 out of the former gas ministry, Gazprom has achieved
unrivaled influence in the Kremlin, after Victor Chernomyrdin, its founder,
became prime minister from 1992-98. And under Rem Vyakhirev, the pugnacious
chairman who succeeded Mr Chernomyrdin as Gazprom's chief executive,
Gazprom increased its influence by financing the political campaigns of key
Russian politicians including Boris Yeltsin, Russia's for mer president. 


Gradually, however, the heady days of Russia's uncontrolled capitalism are
on the wane as Russia's new president, Vladimir Putin, who appears intent
on bringing Russia's powerful business barons to heel. In fact, Gazprom's
relations with Itera are at the centre of the controversy which could lead
to the downfall of Gazprom's powerful management as early as next March. 


Itera was created in 1992, and mainly exported gas from the central Asian
republic of Turkmenistan, via Russia, to Ukraine. Gradually, thanks to its
close links to Gazprom, it won larger and more lucrative contracts. 


In 1997 Gazprom, Itera and the governor of Yamalo-Nenetsk region, who at
that time sat on Gazprom's board, concluded an agreement to market gas, the
details of which are contained in the accounting chamber report. 


According to the deal, Gaz prom paid taxes to the regional budget of 66bn
cu m of gas (one-tenth of Russia's total production) valued at Rbs45
roubles (Dollars 1.92) per 1,000 cubic metres. At the order of the
governor, this gas was sold by the regional administration to Itera for the
same price. Itera then sold it abroad through an affiliate for, in some
cases, up to Dollars 80 per 1,000 cu m. 


Vladimir Martinenko, Itera's vice president, says the accounting report did
not take into account transport costs that Itera must pay Gazprom for
shipping the gas through its pipelines. These make the deals much less
profitable, he says. He also denies Itera is owned by Gazprom managers or
staff and says Itera planned to publish a list of shareholders and
financial statements in a matter of weeks. 


However, Sergei Glazer, head of research for Moscow-based Alfa Bank, says
he doubts whether Itera paid full third-party tariffs for the use of
Gazprom's pipelines. "The only argument for structuring this type of
transaction in this way is to obscure who the beneficiaries are," he says. 


Itera has also acquired shares in a number of Russian gas fields, whose
total reserves are roughly 3,000bn cu m -atenth of Gazprom's own reserves.
In a number of cases, Itera come into a field after Gazprom bankrupted a
field's independent operator by charging huge tariffs for access to its
pipelines. 


Gas traders say that Gazeksport, Gazprom's export arm which is headed by
Yuri Vyakhirev, son of Gazprom's chairman, even helps Itera market its gas
abroad. For example, Ukrainian gas traders who try to buy gas from
Gazeksport say they are referred to Itera. And Itera has quietly taken over
6-8 per cent of Gazprom's lucrative contracts in western Europe, which are
the only steady source of cash for Gazprom. 


With the arrival of Mr Putin in the Kremlin, Gazprom's independence from
government control is now in doubt, as is the fate of the Gazprom empire. 


Just over a month ago Mr Putin personally persuaded Mr Chernomyrdin to
resign as Gazprom's chairman. A week ago, the state accounting chamber
began an investigation into Gazprom's finances. 


Next year, when Mr Vyakhirev's contract runs out, the new chairman must be
elected by a majority board vote, and for the first time, Gazprom
management does not itself control a majority of the board. 


Stephen O'Sullivan, oil and gas analyst for the Moscow-based United
Financial Group, says he expects the management of Gazprom to change by
next March at the latest. 


"The era of being immune to government control is over," he says. "Gazprom
is finding that it must accept the new realities of living in Vladimir
Putin's Russia." 


*******


#10
gazeta.ru
August 11, 2000
Chechen Businessmen Hunt Moscow Bomber
On Thursday, Malik Saidullayev, the Chairman of the Chechen State Council
offered an award of $100 000 “ for conclusive information about the
terrorist act”. He also vowed to organize an independent investigation and
promised solve the Tuesday’s Pushkin Square bombing before the police and
the FSB. Gazeta.Ru asked Saidullayev for details. 
It turns out that Saidullayev has several reasons for offering a reward.
The first one is of a moral kind: “In Chechnya, we have faced various
blasts many times. I have been under fire myself, the so called terrorist
acts were in fact organised against me, my people were killed”, -
Saidullayev said. 


The second reason is that the Chechen politician does not believe in the
“Chechen hallmarks” of the tragedy: “When a block of 300 grams or of 1,5
kilograms of TNT explodes, there is practically no fire and kiosks cannot
catch fire from the blast. Sometimes they even use TNT to put out fires.
The majority of the people who survived the underground passage blast
suffered from burns. That means that some sort of a tank exploded, an
oxygen cylinder, or maybe a welding torch.” Saidullayev absolutely refuses
to believe that TNT was used in the blast. “Its power is enormous, people
would not have walked out of the passage ­ they would have been blown out
by the blast...” 


Saidullayev stated that: “If any Chechens have anything to do with the
incident then we will find him much quicker then the law enforcement
bodies. We have decided to offer the award to prove that”. 


When asked whose decision it was to offer the award and where the money
would come from, the businessman said: “The money is allocated by Chechens.
I was the initiator. I said guys, let us all chip in, and 10 people each
gave 10 thousand.” Saidullayev refused to name the contributors but said,
“they are not politicians, but people who have their own businesses and in
whose interests it is that there are no blasts at all and that no blasts
are associated with Chechens. 


Saidullayev was sceptical about the look-alike image of the suspected
terrorist issued by the investigators. “This is some sort of a fictional
King-Kong. The man who falls under such a description ­ 2 metres high,
shaved head, with a typically criminal mug ­ will be stopped and searched
even if he has just a wallet in his hands and is dressed only in his boxer
shorts”. The head of the Chechen state council admitted that nobody has yet
responded to the $100 000 appeal. But Saidullayev is hopeful that if any of
the Chechens is guilty, informers soon come forward. “We know everything
the Chechens do very soon through our contacts and channels. If it was some
sort of criminal repartition we will have information about criminals in
that case as well. 


There is one more thing Saidullayev intends to do in connection with the
blast. “We are filing a criminal suit against mister Zhirinovsky. We
understand that the State Duma needs a clown in the person of Zhirinovsky,
but we are against such clowns starting fights on Russia’s territory where
hundreds of nationalities live. He must be put in his place. The fact that
Zhirinovsky was born of a lawyer with no nationality does not mean that he
can insult the representatives of other nations”, Saidullayev said. 


Mila Kuzina 
******


#11
ANALYSIS-C.Asian unrest shows region's vulnerability
By Mike Collett-White

ALMATY, Aug 11 (Reuters) - Growing violence this week along the southern belt 
of oil-rich Central Asia has served as a stark reminder to leaders, diplomats 
and businesses that turbulence in the region is unlikely to disappear any 
time soon. 


A group of 30 to 40 armed rebels from Tajikistan clashed with government 
troops in the south of Kyrgyzstan earlier on Friday, just hours after Russian 
border guards repelled an attempt by up to 40 fighters to cross north from 
Afghanistan into Tajikistan. 


Uzbekistan, meanwhile, is fighting up to 100 rebels in the south, near its 
own frontier with war-torn Afghanistan. It says the group crossed from 
Tajikistan, a charge the Tajiks deny. 


It is the worst violence in the region since last August, when several 
hundred well-armed men poured into Kyrgyzstan from Tajikistan and held four 
Japanese geologists, and effectively the country itself, hostage for a tense 
two months. 


In February, 1999, Uzbek President Islam Karimov narrowly escaped death when 
a series of bombs went off in the capital Tashkent which he blamed on 
outlawed hardline Islamic opponents believed to be behind at least some of 
the latest clashes. 


``This kind of instability could go on and on -- I can't see it going away 
quickly,'' said David Lewis of Control Risks Group. 


``The more regional leaders suppress religion and opposition and the poorer 
people become, the worse the situation could get,'' he said in Kazakhstan's 
commercial hub of Almaty. 


AFGHANISTAN AT ROOT OF PROBLEM 


Western analysts and diplomats say that at the root of the problem lies 
Afghanistan, where the ruling Taleban militia is seen as at least happy to 
host rebel groups concentrating on Central Asia, if not to offer them more 
direct support. 


``These people would have nowhere to go if it wasn't for Afghanistan,'' said 
one Western political analyst. 


The Taleban for its part denies harbouring or exporting groups active in 
violence abroad. 


The key group in this week's attacks appears to be the Islamic Movement of 
Uzbekistan, also blamed for the August 1999 invasion in Kyrgyzstan and the 
February blasts in Tashkent, and which is believed to be based partly in 
Afghanistan. 


Led by the notorious commander Dzhuma Namangani, the group aims to oust 
Karimov, who has watched nervously as a broad Islamic revival takes root in 
the Fergana Valley region also enveloping parts of Kyrgyzstan and Tajikistan. 


This week's offensive may also be aimed at justifying funds which the 
movement may be getting from hardline Islamic networks overseas, analysts 
said. 


Last year's attack on Kyrgyzstan began in Tajikistan and was ultimately aimed 
at breaking through to the Uzbek part of the valley. It showed clearly how a 
relatively small band of fighters can undermine relations within the region. 


BUSINESS CONCERN RISING 


While the battles during the last few years have been concentrated mostly in 
the remote southern belt of the vast Central Asian area of 55 million people, 
the concern among big business is that one day it could hit them. 


Kazakhstan boasts some of the world's largest oil reserves and is a major 
metals producer, Turkmenistan is floating on huge gas fields and Uzbekistan 
is a big exporter of gold and cotton. 


For the firms who have already poured billions of dollars into the resource 
sectors and for those considering doing so, reports of clashes are worrying. 


``The interesting step would be if these people who are currently mainly 
focused on the Uzbek regime decide to move to a more trans-national campaign 
and target Western diplomats or Western companies,'' Lewis said. 


The Tashkent bombings, which killed at least 16, were a reminder that even 
the region's largest city is not safe. 


RUSSIA SEEKS TO EXPLOIT CONCERNS 


While widespread violence is widely believed to be a long way off, the five 
former Soviet Central Asian states are feeling their vulnerability more than 
ever since the break-up of the Soviet empire. 


Russian President Vladimir Putin has sought to exploit those concerns to 
reassert Moscow's control over its former territory with promises of military 
cooperation and political backing. 


He also has an eye on the Caspian's fabulous wealth in hydrocarbons, 
political and economic analysts say. 


Regional leaders have dealt with the crisis by seeking to crack down on 
opposition and religious groups, a policy which some say could backfire. 


That risk grows as long as resource wealth fails to translate into higher 
living standards for the masses, a large proportion of whom survive on 
miserly wages, analysts said. 


*******