January 23, 2001   

This Date's Issues:   5044 • 5045 • 5046

Johnson's Russia List
#5045
23 January 2001
davidjohnson@erols.com

[Note from David Johnson:
1. Itar-Tass: SPS Faction in Duma Backs PRESIDENT'S Draft Law on Parties.
2. Interfax: Russian pro-Kremlin party against reversing privatization.
3. Itar-Tass: No Accords on Kaliningrad Made by Leaders of Russia, Germany.  
4. Reuters: Rights group says Russia still torturing Chechens.
5. Obshchaya Gazeta: 2001 ECONOMIC PROGNOSES: Neshchadin,Lisin,Tomchin, Khandruyev,Lisinenko.
6. Jamestown Foundation Monitor: POLITICAL ELITE CONTINUES TO MULL THE BORODIN ARREST.   
7. Moscow Times: Ariel Cohen, Coming Clean. (re money laundering)
8. Vlad Ivanenko: Eltsin's economic legacy.
9. Kennan Institute Meeting Report: Evolution of Center-Periphery Relations in the Russian Federation: From Yeltsin to Putin. (Emil Payin)
10. Program on New Approaches to Russian Security (PONARS) Mark Kramer, Why Soviet History Matters in Russia.]

*******

#1
SPS Faction in Duma Backs PRESIDENT'S Draft Law on Parties.

ST. PETERSBURG, January 22 (Itar-Tass) - The Union of Right- Wing Forces
(SPS) faction in the Russian State Duma lower house of parliament on the
whole backs up the presidential draft law on political parties, State Duma
deputy Grigory Tomchin said at Monday's session of the political club
attached to the St. Petersburg regional organisation of the Union of
Right-Wing Forces.

"There will be no principled objections. The SPS does not experience
apprehensions about a shortage of members both in the country as a whole and
in regions," Tomchin pointed out.

Amendments to the draft law, prepared by deputies of the SPS faction, concern
the issue of financing of parties.

The SPS believes that this item must be excluded from the wording of the law
as it gives the state the possibility to control parties to a certain extent.

According to Tomchin, a majority of factions in the State Duma adhere to a
similar view on this issue.

Another amendment concerns the way of liquidation of regional party
organisations.

The SPS considers that only the Supreme Court must have this right as this
issue concerns parties of the federal importance.

In view of the deputy, the law will not pass easily. After consultations with
colleagues he found out that about 500 amendments to the draft law are
expected on the whole.

But despite all the problems, Tomchin believes that by the mid-year the
country will live under a new law on political parties.

*******

#2
Russian pro-Kremlin party against reversing privatization
Interfax

Moscow, 22 January: A pro-Kremlin party announced today its plans to propose
a ban on revising the results of privatization programmes carried out in the
early and mid-1990s.

Duma deputies who are members of the Unity party said this during a meeting
with Russian President Vladimir Putin, the Unity faction leader Boris Gryzlov
told Interfax.

The Unity will propose a bill under which only lawsuits against post-1998
privatization projects would be accepted. This was a matter of "principle"
for the Unity, Gryzlov said.

"We believe that the results of privatization must not be revised because
this may strongly affect the investment climate in Russia.

"The budget alone won't feed the country. Both internal and foreign
investment must be attracted. If domestic investors put their money into
development of the Russian economy, foreign investors will follow suit."

*******

#3
No Accords on Kaliningrad Made by Leaders of Russia, Germany.

MOSCOW, January 23 (Itar-Tass) - President of the Russian Federation Vladimir
Putin and German Chancellor Gerhard Schroeder have not concluded agreements
on the "economic trusteeship" of the Kaliningrad Region.

This statement was made by press attache of the German Embassy in Moscow in a
live programme of the "Ekho Moskvy" (Echo of Moscow) radio station on Monday.

Germany, he stressed, has no claims to Kaliningrad, we have declined this
ides forever."

Thus he refuted reports by some British mass media, asserting that the
Federal Republic of Germany had been conducting secret talks with Russia on
the status of Kaliningrad.

Governor of the Kaliningrad Region Vladimir Yegorov has not received any
orders from President of the Russian Federation Vladimir Putin to grant the
most-favoured-nation treatment for German entrepreneurs on the territory of
the region.

This is stated in a report of the committee for press, information and public
relations of the regional administration, released on Monday.

The document was spread in connection with the publication in the Sunday
Times London newspaper under the headline "Germany conducts secret talks with
Russia on the return of Koenigsberg."

The article says, in particular, that Russia and Germany allegedly had talks
on the status of the Kaliningrad Region.

The gist of the negotiations, the newspaper notes, concerns a deal, which
envisages providing economic control over the former capital of East Prussia
-- Koenigsberg in exchange for writing off part of Russia's debt to Berlin.

"The Kaliningrad Region is and will always be part of the Russian territory,"
the governor stated.

Vladimir Yegorov regards the earlier spread information on stationing of
tactical nuclear weapons on the territory of the region as "absurd and worth
of an April 1 joke."

******

#4
Rights group says Russia still torturing Chechens
January 22, 2001
 
BRUSSELS, Belgium (Reuters) - Human Rights Watch accused Russia Monday of
continuing to flout basic human rights in its southern province of Chechnya
and urged the Council of Europe to take a tougher stance against Moscow.

The New York-based organization released an eight-page memorandum based on
nearly 100 interviews with Chechnya residents documenting arbitrary arrest,
torture, "disappearances" and extortion by Russian troops.

"No one should be fooled by Russian claims that the situation in Chechnya is
normal," said Holly Cartner, head of Human Rights Watch's Europe and Central
Asia division.

"Every minute of the day, people in Chechnya live in fear of being arrested
and tortured. There is nothing normal about that," Cartner said in a
statement released by the organization's Brussels office.

Russia has long denied Western allegations of wide-scale

and systematic human rights abuses in Chechnya, where it is fighting
separatist guerrillas it holds responsible for bomb attacks in Moscow and
other Russian cities.

But Moscow has also vowed to punish any troops found guilty of violating
human rights in Chechnya.

In its statement, Human Rights Watch said Russian forces often held detainees
on the flimsiest of motives in underground pits or oil tanks where they
subjected them to beatings and sometimes to electric shocks.

The troops seek bribes from the detainees' relatives in exchange for their
release, it said.

Many Chechens simply disappear in Russian custody, their bodies turning up in
unmarked graves weeks or months later, the statement said.

It urged the Council of Europe, the rights watchdog based in the French city
of Strasbourg, to refrain from approving voting rights for the Russian
delegation to the organization.

The group also called on member states of the council to take Russia to the
European Court of Human Rights over its handling of the situation in
Chechnya.

Russian troops are nominally in control of most of Chechnya after a 15-month
offensive but soldiers remain subject to ambush and officials say around
2,700 have died in the campaign.

President Vladimir Putin said Monday that Russia would withdraw some of its
troops from Chechnya and place operations there under the command of the FSB
domestic security service.

******

#5
2001 ECONOMIC PROGNOSES: Neshchadin, Lisin, Tomchin, Khandruyev, Lisinenko 

Obshchaya Gazeta
18 January 2001
[translation for personal use only]
Unattributed economic forum under the new rubric "Brainstorming":
"We Are on the Market.  Will We Avoid Upheavals?"

    Brainstorming is what one of the methods for
adopting decisions is called in management theory.   When managers face a
difficult problem, they gather everyone together and begin to sort
through all the possible ways to resolve it: from the most obvious to the
absurd.   Until the optimal version is found.   We are going to do
something similar every week under the Obshchaya Gazeta rubric of the
same name with the help of experts who are well known economists.
    To start we asked experts to give their macroeconomic prognosis for
2001 on four points: 1) the rate of economic growth; 2) the change in the
level of inflation; 3) the exchange rate of the ruble in relation to the
dollar; and 4) the dynamics in real personal income.

    Andrey Neshchadin, director of the Expert Institute of the Union of
Industrialists and Entrepreneurs:
    1.   There will be 3-4 percent growth.   In the process, however, the
growth by sectors will be irregular.   The petrochemical industry and
electrical power engineering will be among the leaders.   Machine
building and metal processing will be among the outsiders, unfortunately.
    2.   There is no reason to fear very high growth in prices.  
Inflation based on the year's results will come to 15-18 percent, no
more.   Largely it will be inflation of overhead because of higher prices
for energy media.
    3.   30-32 rubles [R] per dollar.
    4.   Income will stabilize, there is nowhere to expect to get growth
in it from.

    Viktor Lisin, chairman of the Board of Directors of the Novolipetsk
Metallurgy Combine:
    1.   To a significant extent, the macroeconomic indicators will
depend on the conditions of the world market, as well as the
predictability and manageability of domestic economic policy.   Taking
that into account, economic growth should come to 2-4 percent.
    2.   The rate of inflation will not change drastically, that is to
say, it will correspond to 18-20 percent, the same as last year's
results.
    3.   From R30 to R34 per dollar.
    4.   Growth in personal income is possible, but very negligible
growth.

    Grigoriy Tomchin, president of the All-Russia Association of
Enterprises That Are Private or Being Privatized:
    1.   There will be no recession, but growth will be difficult.   The
most important thing is to get away from dependence on oil prices.   If
some growth does in fact occur, it will be by some of the economy moving
from the "shadows" to the "light."
    2.   Budget-2001 sets inflation at 12 percent per year, but
realistically it will be 15 percent.
    3.   The dollar will be worth R30 to R32 by the end of the year.  
Actually the ruble should have begun to be worth less back in the middle
of last year.   We do not have a stable enough economy to keep the
exchange rate of the ruble stable.
    4.   Growth in income should surpass the rate of inflation, but not
by much.

    Aleksandr Khandruyev, first vice president of the Reforma foundation:
    1.   Given that prices for oil and a number of other raw material
goods that are the basic Russian exported items do not undergo
substantial fluctuations, growth in gross domestic product in 2001 may
come to 3-5 percent.
    2.   Russia can certainly reach a level of 12-14 percent annual
inflation.   However, the effect of factors which have a bad influence on
the consumer price index may increase.   First, higher tariffs for
electricity, gas, and other energy media are expected.   Secondly, the
increase in value of the euro in relation to the dollar will help raise
prices for imported goods.   But even taking that into account, inflation
can certainly be kept around 14-16 percent.
    3.   Bearing in mind that the Bank of Russia raised official gold
currency reserves to $28 billion, the scenario where the exchange rate of
the ruble will vary between R28 and R30 per dollar in the first six
months of 2001 is altogether likely.   In the second six months, if the
situation involving oil prices does not change dramatically, the exchange
rate may stay within the limits of R30 to R32 per dollar.
    4.   It is certainly possible to set the task of raising real
personal income by 2-3 percent without overloading the budget.

    Igor Lisinenko, State Duma deputy:
    1.   The time of nice surprises for the Russian economy this year is
over.   The rise in gross domestic product is unlikely to be more than 4
percent.   This figure will be reached if we follow the optimal economic
policy, notably if structural reforms are started.
    2.   Inflation will exceed the indicators included in the budget.  
Higher prices and tariffs for the output of the natural monopolies will
have an effect.   Moreover, the economy continues to suffer from
"indigestion": it is unable to "digest" the present surplus money in
circulation and convert it into useful energy for growth.   So real
inflation in 2001 will be at least 15 percent under an optimistic
scenario, and in the event of mistakes in economic policy--it will exceed
last year's indicator.
    3.   The exchange rate of the dollar will exceed the R30 included in
the budget.   Most likely this will occur in the second half of the year,
when the combination of external reasons (the decline in world prices for
raw materials and pressure from creditors) and internal reasons (the
inflation potential and complications in the state's financial status)
will force the Central Bank to somewhat revise the rate at which it
strengths the ruble.
    4.   Real personal income will most likely stabilize roughly at the
level achieved at the end of 2000.   Personal income in Russia's
conditions depends on the "price" of money.   When the country can get
hard currency relatively easily and the budget is in good condition,
income has a chance to rise, as it did last year.   In 2001 money will
get "more expensive," and personal income will be unlikely to rise
markedly.

    Commentary by the Department of Economics:
    By no means did all the experts we contacted agree to give their
prognosis.   After all, the figures (and we specially selected only the
estimated indicators) can easily be checked in a year.   And if they
differ from reality, a blow to one's reputation is assured.   So the
courage of those who agreed to make their prognoses public deserves great
respect.   But in themselves these prognoses are fairly moderate.   Most
of our respondents believe that life in the year that has started, if it
is in fact worse than the extremely optimistic budget-2001 prescribes, it
will not be by much.   Judging from the responses, no crises or forces
majeures are expected very soon.   There is only one small hitch: that
these prognoses come true.

******

#6
Jamestown Foundation Monitor
January 22, 2001

POLITICAL ELITE CONTINUES TO MULL THE BORODIN ARREST. The detention of
Pavel Borodin, the Russia-Belarus union state secretary and former Kremlin
property manager, continues to be a major focus of attention in Moscow.
Borodin was arrested last week at New York's JFK International Airport in
answer to a Swiss warrant, and remains in jail in Brooklyn while the U.S.
authorities consider the Swiss authorities' request that he be extradited.
The Swiss want to interrogate Borodin about allegations that he and members
of his family received more than US$25 million in kickbacks from the Swiss
engineering firm Mercata Trading in return for lucrative contracts to
renovate Russian government buildings, including the Grand Kremlin Palace
(see the Monitor, January 18-19).

Gleb Pavlovsky, the controversial political consultant and Kremlin adviser,
posted a long analysis of the Borodin situation on his website, which
boiled down to telling President Vladimir Putin that he should under no
circumstances bow to pressure from either Switzerland or the United States
concerning Borodin. Pavlovsky savaged members of Russia's political elite
for their reactions to Borodin's arrest, accusing them of being inadequate
to the task of protecting Russia's national interests and sovereignty.
Pavlovsky, for example, wrote that a comment by Irina Khakamada, a member
of the Union of Right-Wing Forces and State Duma vice speaker, that Borodin
should not have forgotten his diplomatic passport, showed Khakamada to be
"an experienced international adventurist" rather than a right-wing
politician (Strana.ru, January 19). Khakamada said last week that she saw
no political motives behind Borodin's detention. Like Pavlovsky, members of
the Yeltsin-era "national patriotic" opposition have used the Borodin case
as a pretext for attacking Western interference in Russia's internal
affairs and, more generally, what they see as a New World Order dominated
by Washington.

In contrast to Pavlovsky, Putin's own position vis-a-vis Borodin's arrest
is ambiguous. Indeed, Yevgeny Kiselev, host of Itogi, the Sunday evening
news analysis program on Media-Most's NTV television, yesterday made much
of the fact that Putin had not yet commented on Borodin's detention.
According to Kiselev, the arrest has put the Russian head of state in a
quandary. If, on the one hand, Putin were to come out and protest Borodin's
arrest--as did Foreign Minister Igor Ivanov officially immediately after
the detention--this might be seen as a signal from the head of state that,
as Kiselev put it, corruption in Russia is "inviolable." If, on the other
hand, Putin continues to remain silent about Borodin's arrest, he might not
only face criticism for having allowed Russia to be humiliated, but,
perhaps more importantly, he might be seen by members of the Russian
elite--many of whom have been involved in corruption--as being ready to
sell them out. What is more, Borodin, in asking both the Russian and

Belarusian leadership to act as quickly as possible to secure his release,
may have been sending a signal of his own to the political leadership of
both countries, Kiselev noted, boiling down to the following: "Either you
get me out of here, or I'll give you all up, I'll tell everything about
you." Putin, it should be noted, previously worked as Borodin's deputy in
the Kremlin property department.

Putin's silence, however, may be the right strategy from the point of view
of mass public opinion. A poll commissioned by Itogi and carried out by the
All Russian Center for the Study of Public Opinion (VTsIOM), found that 47
percent of those polled were upset by Borodin's arrest, 33 percent were
indifferent to it and 20 percent had heard nothing about it. Asked why they
thought Borodin had been detained, 38 percent said it was the result of the
"lawful desire of the Swiss prosecutor's office to deal with a corruption
scandal," 14 percent said it was "a political provocation against the union
of Russian and Belarus that had come into being" while 31 percent said it
was hard to answer. Asked whether a Russian official accused in the West of
corruption had the right to hold a top post, 70 percent answered no, 13
percent said yes and 18 percent did not give an answer. Asked how Putin
should react to the Borodin scandal, 54 percent said he should remain above
the fray and not get involved, 27 percent said he should get involved and
demand Borodin's freedom and 19 percent could not answer.

VTsIOM carried out the poll over the weekend among 1,600 Russian in
eighty-three towns and villages around Russia (NTV, January 21).

******

#7
Moscow Times
January 23, 2001
Coming Clean
By Ariel Cohen
Ariel Cohen is a research fellow at the Heritage Foundation in Washington.
He contributed this comment to The Moscow Times.

According to recent media reports, Russian companies allegedly controlled
by Boris Berezovsky and Roman Abramovich were responsible for laundering up
to $7.2 billion in Russian "funny money" mostly through German banks over
the past four years. It is not yet clear whether the scheme involved "just"
tax evasion or more serious criminally related money-laundering activity.

This scandal, if confirmed, involves the venerable Westdeutsche Landesbank,
known as WestLB, and a slew of other German financial institutions.
Outwardly, this case is reminiscent of other money-laundering schemes such
as those involving the Bank of New York and Citigroup. All of them involve
moving large sums of money between Caribbean offshore locations such as the
British Virgin Islands or even more exotic places like Nauru and Western
Samoa.

So far it seems that the Germans are attempting to play down the scandal in
view of the close relationship between Chancellor Gerhard Schr?der and
President Vladimir Putin and considering Putin's close ties with Abramovich
and (until recently) Berezovsky. However, the European Union and
Organization for Economic Cooperation and Development have put strong
pressure on the Caribbean tax havens in recent months not just to crack
down on offshore banking - the leading industry on many islands - but also
to get rid of "harmful" (i.e. low or nonexistent) tax regimes that lure
Westerners to save for retirement and invest tax free under the tropical sun.

In the United States, the Government Accounting Office, Congress' financial
watchdog, has been investigating Citigroup and the Commercial Bank of San
Francisco. The GAO has alleged that the banks allowed $800 million and $600
million, respectively, to flow through their accounts from suspicious East
European and Russian sources. The funds were later wired abroad to tax havens.

Both banks are accused of violating industry standards
("know-your-customer" rules), and the GAO has raised suspicions of outright
money laundering. For their part, the banks have acknowledged that
"know-your-customer" rules may have been violated. However, they have not
responded to money-laundering accusations because the GAO, not being a
prosecutorial agency, cannot formally charge them with a crime. Only a
federal prosecutor has the authority to bring indictments in
money-laundering cases. The investigation may soon be handed over to the
FBI however.

Money laundering and ignoring "know-your-customer" rules are different
violations. Scott Horton, partner in charge of Russia and the CIS at the
New York law firm of Patterson, Belknap, Webb and Tyler, said the rules are
based on Federal Reserve regulations and on those of the Office of the
Comptroller at the Department of Treasury. "Still, they fell short of a
federal crime," said Horton.

Money laundering, on the other hand, is a crime in which proceeds from
criminal activities - often cash - are "laundered" through the banking
system until they look legal. Often these funds are proceeds from drug
trafficking, illegal gambling and arms dealing. Money from the East comes
in two varieties: outright "dirty" money and funds that are sent to the
West in order to evade taxes.

In many jurisdictions, tax evasion in a foreign land is not a crime.
However, moneys that came to the United States as a result of systematic
defrauding of foreign tax authorities may qualify as money laundering,
especially if the tax evasion was a criminal offense under local laws in
the country of origin.

Horton, however, argues that it is crucial to keep the American financial
system clean. The integrity of banking institutions is fundamental for a
healthy economy and, therefore, there is a strong U.S. public interest
behind efforts to fight this crime.

Several venerable banks, including the Bank of New York and Republic Bank
of New York, were at the center of a much larger scandal in the fall of
1999, in which transactions in excess of $6 billion were uncovered. The
transfer originated in Russia and involved some 10,000 transactions since
October 1998. The federal investigation - involving the FBI, the New York
Federal Reserve Board, the New York Banking Commission and the British law
enforcement and national security agencies - is still going on. Some key
former employees of the Bank of New York admitted violating banking rules
and have cooperated with the prosecution.

This investigation has parallels overseas. Swiss federal authorities are
investigating hundreds of millions of dollars in Swiss bank accounts, some
of them allegedly embezzled funds from Russian state companies and bribes
taken by Russian officials on the highest level. Moreover, the Bank of New
York scandal may have involved the diversion of international financial
assistance to Russia by highly placed officials in the administration of
former President Boris Yeltsin. As the details of this scandal are
revealed, they pose difficult questions about the policy pursued toward
Russia by both the Clinton administration and the International Monetary
Fund. It has cast a spotlight on the lax standards in disbursing financial
aid to the opaque economies of post-communist and developing countries.

Swiss authorities have complained repeatedly that the Clinton
administration did not assist their investigations of alleged Russian money
laundering. Now that a new administration - one that claims to be
"practical" and "pragmatic" - has come to power in Washington, we may hope
for something better. The Bush administration and the 107th Congress must
aggressively investigate this pervasive and unsavory practice, which
cripples the Russian economy and defrauds the Russian people.

******

#8
Date: Mon, 22 Jan 2001
From: Vlad Ivanenko <vivanenk@julian.uwo.ca>
Subject: Eltsin's economic legacy

Dear David:
Please, consider the appended contribution (around 8.5 KB) for a
publication at your list.  I would be interested to hear suggestions if
further work on the topic would be interesting for readers.
Thank you,
Vlad Ivanenko, Dept. of Economics
Univ. of Western Ontario

As the Eltsin era ended both for Russia and the US, it is time for
economic historians to step in and to assess this period without danger of
touching a politically sensitive issue. It is often said that, for all his
faults, Eltsin accomplished at least one major task - he dismantled the
Soviet command economy. Is it so?

Since there is a disagreement on what constitutes the command economy, it
is necessary to clarify the subject. Usually, the term means an economy
where the state owns all property except what it allows to keep in private
possession. This concept is opposed to a market economy where private
ownership is the rule and the state runs what it is allowed to manage.

I argue that
a) The concept of Soviet command economy that is described above is based
on misperception of the modern market;
b) The more appealing definition of the command economy lies in price and
output controls;
c) These elements of the Soviet economic system survived under Eltsin.

Let us discuss first the dichotomy of plan versus market. The concept of
free market was defined at the time when common laws governing property
rights were the norm. The common law has a peculiar feature of being
quasi-constitutional: as a precedent is created, it preserves its
relevance for a long period of time. Thus, the boundaries of what
constituted property were constantly expanded and ownership was secure for
time to come. In such environment a Soviet plan - which is essentially a
set of economic orders issued by the government - is considered to be a
direct infringement of property rights and is viewed as being opposite to
the market.

However, the growth of modern corporation changed the Western economic
environment. Ownership stopped being personal in many quarters of life and
subsequently became disintegrated into a bundle of rights belonging to
many claimants. The state altered its status and became confiscatory in a
piecemeal fashion. At first it got the right to regulate protecting
"public interests", then imposed corporate income tax (that was virtually
unknown a hundred years ago), and finally assumed public management of
some enterprises.

The Soviet economy started from a different point but moved in the same
direction. Property was largely nationalized in the Soviet Russia but the
state gradually yielded its rights to individuals. There was a good reason
to do this. A large corporation requires a decentralized teamwork in order
to operate efficiently. If an owner claims to be the sole possessor on the
created value, the rest of insiders appropriates a part by exploiting
their knowledge of ambiguities. To mitigate that principal-agent problem,
the owner has to design schemes that tie up individual compensation of his
agents to general performance. Thus, what was initially indisputable state
property becomes a bundle of rights laboriously assigned to many. This was
the path that the Soviet Union moved along converging closer to modern
markets in its last years.

Therefore, the distinction of modern market from command economy cannot be
found in the different structure of nominal property rights. Both
economies were in the situation where the state and a multitude of
individual agents competed for effective ownership while nominal rights
were losing their importance. The classification of economies on the basis
of nominal ownership was misleading and early advocates of Russian
privatization learned it very soon.

If the public ownership structure cannot serve as a distinctive feature of
the command system, let us consider alternative characteristics. The most
appropriate candidates are price and output controls that were integral
parts of the Soviet economy.

The USSR faced immense problems deciding on how to control production.
While many thousands of "strategic" goods were duly standardized making
the monitoring of their physical output to be practical, the production of
the rest was based upon its monetary value. This brought about the problem
of valuation. In a hypothetical market the competitive bidding of buyers
and sellers brings about the efficient valuation of the product. The
Soviet authorities experimented with the idea by setting wholesale fairs
where "non-strategic" goods changed hands through negotiations but, in
general, it resorted to some sort of the rate-of return valuation. In
practice, the price authority reviewed a "business plan" where the
producer explained his expenses, checked its consistency, added a markup,
and came up with the price that was reported at wholesale price lists.
Taxation was subsidiary to the process of price setting and mostly changed
the markup. (It should be noted that since taxes were not biting, firms
tolerated high nominal rates and the state provided generous subsidies
that counterweighted a large part of tax revenue. This distorted nature of
taxation revealed itself prominently as the monetary reform of 1992 turned
the former accounting creations into real financial assets.)

Some might argue that the aforementioned controls are not uniquely
Russian. Such controls were commonplace during the WWII in many Western
countries. As recently as in 1974 the US government mused about imposing
price control and rationing of gasoline. Even the peculiar Soviet tax on
"free profit residual" finds its counterpart in the Canadian WWI tax on
"profiteers". Apparently, this is degree that matters. But if we agree
that price and output controls were much more ubiquitous in the USSR than
in the West, let us consider what happened with them during the Eltsin
epoch.

In the end of 1991, the Eltsin government freed prices and drastically
deregulated trade. At the time this event was celebrated as a major
breakthrough for the Russian economy that moved decisively towards free
market.

What was left outside of consideration was Russian market structure. It is
possible to show (and there are academic papers in this respect) that
oligopolistic industries do require price regulation to produce
efficiently. The last result is at odds with neoclassical theory but it is
correct as long as the price ceiling is high enough to prevent shortages.

Market-power indices for Russian sectors in 1990s are not readily
available but, judging by actual performance, it is plausible to assume
that many markets were oligopolistic. Inflation was high and the
supply-demand mechanism seemingly did not work to contain price growth.
The intuitive recognition of this situation (plus sheer inertia of
provincial bureaucracies) brought about local resistance to plans to scrap
price controls. Plans were gradually reversed in 1992 and the scope of
price controls expanded since then.

Up to the moment price controls technically cover the following markets:
- electric and thermal energy, fuels provided for private consumption;
- railroad transportation, passenger transportation by all means, and
services provided in airports;
- construction funded out of budget (but in reality the prices set by the
Ministry of Construction serves as benchmarks in private negotiations);
- residential housing maintenance and communal services including
utilities;
- trade margins on many products that are locally determined to be
socially important;
- health, education, and cultural services.

Apart from price control there are output controls (albeit in a new
disguise of mandatory trade channels) such as
- balance plans for oil companies to deliver a specific amount of products
to domestic industrial consumers;
- informal plans for agricultural producers to sell a share of their
product within the locality.

Somewhat unrelated to the previous discussion but an interesting fact is
that the Soviet tax system stayed almost the same up to 1996 (the
introduction of VAT in 1992 was the sole exception). The acceptance of the
second part of the Tax Code in 2000 is a major change and it is incorrect
to say that the new administration did nothing to promote economic reform.

We conclude with the following observations. It would be incorrect to
state that the Russian economy has not evolved during the period. However,
it is also wrong to say that Eltsin initiated a significant economic
reform. Instead,

1. Eltsin attempted to accelerate the process of economic co-integration
with the West but the emphasis on privatization proved to be misleading.
2. His administration continued the process of price and output
deregulation that started before.
3. Eltsin decentralized control functions but the command system appeared
to be supported on the grass root level.

*******

#9
Kennan Institute
Meeting Report
Evolution of Center-Periphery Relations
By Lauren Crabtree

"Evolution of Center-Periphery Relations in the Russian Federation: From
Yeltsin to Putin" (December 1, 2000) Lecture at the Kennan Institute of the
Woodrow Wilson International Center for Scholars, Washington, D.C.

In examining Yeltsin's and Putin's differing responses to
ethnic conflicts along Russia's periphery, Emil Payin,
Director, Center for Ethnopolitical and Regional Studies,
INDEM Foundation, Moscow and Galina Starovoitova
Fellow on Human Rights and Conflict Resolution at the
Kennan Institute proposed that we might glean a deeper
understanding of the varying directions that Russia has
embarked upon in the recent past. Payin was joined by
Michael Thumann, journalist, Die Ziet, Moscow Bureau,
and Public Policy Scholar, Woodrow Wilson Center at a
1 December 2000 lecture at the Kennan Institute.

Connecting Putin to Yeltsin's late rule allowed Payin to
deconstruct the myths of Putin as a representative of pragmatic
liberal reform. Payin responded to the myth that Putin brought
order and stabilization to relations between Moscow and the
regions, finding that the second Chechen War particularly
demonstrates a trend towards disintegration. While Yeltsin
managed to squelch growing discontent at the expense of
concessions to the republics, under Putin the situation has
worsened. The pressure Putin places on the leaders of the
republics revives their nationalist separatist strength.

As in any drawn out conflict in occupied territory, the
demoralization of the Russian army and dissat-isfaction of the
people is at hand, as both economic and social losses are
being felt. Another consequence is that Moscow's response to
Chechnya has exacerbated developing Russian policy towards
non-Russians. Putin's strategy is aggressive, contributing to the
rise of separatist sentiment among the republics. This strategy
fosters the growth of secret nationalistic movements, rather
than responding directly to Putin's policies.

As the Chechen war drags on, the rebels cease to fear the
army, and the perceived weakness may inspire other
nationalities to accelerate the breakup of Russia.

These strategies can lead to solidarity amongst all offended
nationalities, threatening the notion of a unified Russia. If the
Russian Federation had allowed Chechnya to succeed, Payin
stated, it might have prevented the ensuing "domino effect."
Instead, solidarity has formed among non-Russian nationalists
along religious and cultural lines. The potential for such
uprisings increases as the population changes along ethnic
lines. Russians are becoming the minority group, particularly in
much of the North Caucuses. It is estimated that Russians
could become minorities in the biggest republics of the Povolzh
region, Siberia and in the Far East.

Possible outcomes of the situation, noted Payin, are secession
along the border republics or, more seriously, the collapse of
the country entailing the formation of one or two new countries
in the heart of Russia. In order to curtail such a collapse, Payin
advocated a multi-cultural doctrine, wherein the leaders would
recognize the threat to the country and open representation in
the central government to non-Russians. This tactic, Payin
noted, is unlikely to bode well with the current leadership.

Payin concluded with murky optimism, that there is still time to
overcome the present course of Putin's administration, in the
process making way for new political powers of the liberal
democratic sense.

In response, Thumann agreed that Russia's multi-ethnic
character has always been a fundamental, yet often
underestimated, factor in Russian politics. Using the Sakha
region as a case study, Thumann explored Yeltsin's use of
concessions to stabilize rebellious republics and contrasted this
to Putin's more aggressive strategy of centralization.

Thumann credited Yeltsin with developing a "prudent though
economically inefficient mode to prevent regions and republics
from leaving the nation." Though critical of Moscow's motives
in launching the two offenses into Chechnya, Thumann
otherwise found that Yeltsin held the Russian Federation
together by peaceful means rather than by war. Yeltsin, for
example, granted the wealthy, yet far from independent, Sakha
region a commitment that "whatever they wish to give they
may give; whatever they wish to retain they may."

Using subsidies and tax breaks to accommodate the regions
most inclined to protest, argued Thumann, the central
government managed to diffuse a crisis before it could spread.
This policy of appeasement inhibited the formation of a
national ideology against which separatist movements could
have rallied.

In contrast to Yeltsin's strategy of concessions, Putin has
embarked upon the reverse strategy, naming Russia as a great
power to strengthen support from the people for his reform
policy. Thumann stated that many Russians were receptive to
this policy after the 1998 crisis, as centralization enhances
efficiency. Thumann credited the inception of this plan to
Yeltsin's second term. Thus far, Putin has reduced the role of
the Federal Council and eliminated the regions' leaders from
this council while adopting Yeltsin's abandoned plan to divide
Russia into districts with individual presidential representatives.
With the established policy of concession-making, Putin may
find resistance as he moves towards centralization.

Thumann concluded by pointing to Putin's predicament of
addressing the restructuring of the state as a whole, for doing
so ignores ethnic identities. Instead, he found that discussions
must be considered in terms of ethnicity in order to conceive
of a broad sense of accurate citizenship. Should Putin's
centralization efforts fail, substantial concessions to the
epublics will become inevitable.

Lauren Crabtree is fiscal assistant at the Kennan Institute.

*******

#10
Program on New Approaches to Russian Security
PONARS, 2001
Why Soviet History Matters in Russia
Mark Kramer
MARK KRAMER is the Director of the Harvard Project on Cold War Studies and a
Senior Associate at the Davis Center for Russian Studies, Harvard University.
January 2001
  
Very often when you read these documents you become scared.
But I become even more scared when I think there are
millions of people absolutely indifferent to this information.
-Aleksandr Yakovlev
Head of the commission investigating
the crimes and repressions of the Stalin era
January 2001
 
When the Soviet Union broke apart nine years ago, many observers hoped that
the new Russian government headed by Boris Yeltsin would disclose all the
records of the Soviet regime and face up to the horrific legacy of Communist
rule. Initially, Yeltsin seemed to embrace this goal, but by the time he left
office at the end of 1999 he had achieved only limited progress. Under his
successor, Vladimir Putin, hopes of a complete reckoning with the Soviet past
have diminished still further.
Putin has repeatedly said that he regrets the demise of the Soviet Union, and
he has brought back some of the trappings and symbols used by the Soviet
dictator Joseph Stalin, who established one of the most brutal and despotic
regimes that ever existed. Putin often speaks proudly of the Soviet KGB, the
notorious state security agency for which he worked in the 1970s and 1980s,
and he has appointed a large number of former KGB officials to senior posts
in his government.
 
Compared to all the other problems Russia now faces--a deteriorating
health-care system, adverse demographic trends, severe fuel shortages in the
Far East, and an endless war against Chechnya--the whitewashing of Soviet
history might seem of only minor significance. But in fact, this issue is
likely to be crucial for Russia's future. A failure to come to terms with the
Soviet past will undermine Russia's prospects for democracy.
 
The Necessity of Confronting the Past

The task of confronting unpleasant historical episodes is difficult for any
country, even the long-established democracies. The Germans had a term for
this process after World War II, Vergangenheitsbewältigung, but it was not
until the 1960s and afterward that most Germans truly acknowledged the
enormity of Nazi Germany's crimes. In France today, many citizens are still
reluctant to look closely at the Vichy period; in Austria many people still
pretend that their country was a victim of Nazi aggression; and in Japan
political leaders still frequently downplay the atrocities committed by
Japanese troops in China, Korea, and Manchuria in the 1930s and 1940s. In the
United States, too, many tragic aspects of history--the enslavement of
blacks, the campaigns against American Indians, and the internment of
Japanese-Americans at the start of World War II--have often been glossed
over.
 
Difficult as the process of historical reckoning may be for these Western
countries, it is even more onerous in Russia. Part of the problem is the
continued presence of officials who served in high-level posts in the
Communist Party, the government, and the security forces during the Soviet
period. These officials have been averse to harsh reassessments of the past
and have sought to prevent the release of sensitive documents that would cast
the Soviet regime's activities in a sinister light.
 
Germany after World War II had less of a problem in this respect, primarily
because the country was occupied by foreign troops after the defeat of the
Third Reich. The American, British, and French units that assumed
responsibility for the bulk of Germany in 1945 forced the Germans to face up
to what had happened. Admittedly, some senior Nazis were allowed to go
unpunished, and many scientists who had worked for Nazi Germany were
recruited into Western nuclear weapons and missile programs. Despite these
lapses, which were driven largely by Cold War pressures, the Western
occupying powers managed to establish a system of historical accountability
in postwar Germany that had a salutary effect.
 
The results of this process were vital in consolidating the democratic
foundations of the new Germany. The Nazi Party was permanently banned. The
acts of the Nazi regime were treated with the opprobrium and revulsion they
deserved. No German politician after 1945 could hope to get away with praise
of the Nazi regime. Nor would any German politician even think of proposing
that Adolf Hitler's remains or a statue of Hitler be displayed reverentially
in downtown Berlin.
 
How Russia Contends with its Soviet Past

In Russia, by contrast, no real stigma has been attached to the Soviet
regime. Because the Soviet Union collapsed in peacetime rather than in war,
no occupying forces have been present to facilitate a reckoning with the
Soviet past. The embalmed corpse of Vladimir Lenin, the founder of the Soviet
dictatorship who resorted to mass terror and ruthless violence whenever it
suited his fancy, still lies in Red Square in a tomb of honor. Many thousands
of Russians visit the tomb each year to pay homage. Large statues of Lenin
are still found in Moscow and other Russian cities.
 
The Communist Party, far from having been outlawed in Russia, is the
country's largest and best-organized political party. Yeltsin did briefly ban
the Soviet and Russian Communist Parties after the August 1991 coup attempt
in Moscow, but in 1992 he permitted the Communist Party to reestablish
itself. Even when the Communists led a violent effort to overthrow the
Russian government in October 1993, Yeltsin did not proscribe the party
again. Unlike most of the former Communist parties in Eastern Europe, which
have taken different names and adopted social democratic platforms, the
Communists in Russia still proudly regard themselves as Communists and heirs
of Lenin and Stalin. To make matters worse, many of the leading officials in
the Communist Party engage in viciously anti-Semitic diatribes.
 
Anyone who doubts that the Russian Communist Party remains beholden to Stalin
should peruse the comments of the party's leader, Gennady Zyuganov. In a
typical case in late 1999, Zyuganov celebrated what supposedly was the 120th
anniversary of Stalin's birth. (Actually, it was the 121st anniversary: we
now know that Stalin falsified the year of his birth, but evidently no one
has informed Zyuganov.) During the ceremony, Zyuganov lavished praise on
Stalin, describing him as the "greatest leader" in Russian history: "Stalin
came to power when the country was picking up the pieces, and when he left,
it was one of the greatest and most powerful states on the planet." Zyuganov
claimed that the demise of the Soviet regime "reduced Russia to the status of
a beggar pleading for crumbs in a churchyard."
 
Zyuganov's comments were broadcast repeatedly on Russian television, but no
prominent Russian politician except Grigory Yavlinksy saw fit to rebut them.
Putin, who was then still prime minister, criticized Yavlinsky but said
nothing about Zyuganov. Moreover, Putin himself, the day before Zyuganov's
remarks, took part in a ceremony at the Lubyanka, the infamous headquarters
of the former KGB, to mark the founding of the Soviet state security organs
in 1917, a holiday that is still celebrated in post-Soviet Russia. Putin used
the occasion to ensure that a bust and plaque commemorating Yuri Andropov,
the long-time head of the KGB who condoned severe repression at home and
aggressive policies abroad, would be restored to a place of honor. The bust
had been removed in late 1991.
 
Putin's Role

Since becoming president, Putin has continued to gloss over many of the
unsavory aspects of Soviet rule. Although he acknowledges that certain
"tragic events" occurred in the past, he lauds the "monumental
accomplishments" of the Soviet regime, including the accomplishments of
Stalin. In early May 2000, Putin authorized the Russian Central Bank to issue
500 special silver coins bearing Stalin's portrait, ostensibly to commemorate
the Soviet Union's role in World War II. A few days later, at a ceremony
marking the 55th anniversary of the end of the war, Putin unveiled a plaque
honoring "Generalissimo Josif Vissarionovich Stalin" for his heroic
leadership. Putin also approved the setting up of a bust of Stalin at the
Poklonnaya Gora war memorial. Several months later, in December 2000, Putin
pushed for legislation to bring back the old Soviet national anthem, which
had been commissioned by Stalin in 1943 and replaced by Yeltsin in late 1991.
The anthem was formally restored as of January 2001, an event that Putin
marked with great solemnity. When Putin was asked in an interview how he
could justify the revival of such a blatant symbol of Soviet repression, he
conceded that "many people" associate the anthem with "the horrors of
Stalin's prison camps." But Putin vigorously disagreed with this view,
arguing that the anthem should instead be linked with the "many achievements
of the Soviet period in which people can take pride."
 
Putin's reasoning on this matter is peculiar. Suppose that German leaders
after 1945 had claimed that they were bringing back the swastika to remind
everyone of the "proud achievements" of the Nazi regime. Hitler, after all,
took a demoralized and economically desperate country and turned it into a
daunting military power in well under a decade. No doubt, if we were to look
hard enough we could find positive things that occurred in Germany from 1933
to 1945, but this would hardly warrant a revival of the swastika. The
atrocious evil of the Holocaust, as Germans are well aware, precludes any
notion of celebrating the Nazi regime's "accomplishments."
 
The same should apply to the Soviet regime. Although Putin would like to
focus exclusively on the allied victory in World War II and the Soviet space
program, none of this gets around the fact that the Soviet Communist Party
presided over one of the bloodiest and most abominable regimes in history.
The restoration of conspicuous symbols of the Stalinist regime inevitably
mitigates and blurs over the regime's monstrous crimes. The continued
celebration of Soviet holidays, particularly the "Day of the Security Organs"
on December 20, conveys appalling disregard for the millions who fell victim
to the Soviet security apparatus.
 
Rather than harkening back to the symbols and institutions of the Soviet
regime, the Russian government should be doing its best to overcome that
terrible legacy. Yeltsin had an opportunity early on to promote a thorough
historical accounting, but he squandered it. Although he allowed some of the
former Soviet archives to be partly opened, he limited the release of
documents and kept the most important archives tightly sealed. Yeltsin failed
to ensure the systematic removal of statues of Lenin and of other monuments
glorifying the Soviet regime, and he was unwilling to disband (or even scale
back) the sprawling state security organs, which were just as symbolic of
Soviet repression as the SS was of Nazi atrocities. Although the KGB was
reorganized in late 1991, the agency's repressive apparatus was preserved
essentially intact under the main successor organization in Russia, the
Federal Security Service (FSB), which regards itself as proudly carrying on
the KGB's work. The free rein given to the FSB was recently lauded by Nikolai
Patrushev, the man who succeeded Putin in mid-1999 as head of the security
agency. In an interview marking the Day of the Security Organs in December
2000, Patrushev claimed that the KGB "worked for the benefit of Russia and
for Russia's development, prosperity, and national interests," and he vowed
that the FSB would "preserve and multiply everything" that the KGB achieved.
 
Implications for Russia's Future

The lack of a thorough reckoning with the past has had deleterious effects on
the Russian population. Russians who proudly display portraits of Stalin on
the streets of Moscow or who lay flowers before statues of Lenin are never
chided for condoning mass murder. On the contrary, the admirers of Stalin can
now purchase silver coins with his image from the Russian government itself.
This may help explain why, in a poll conducted at the end of 2000, a
plurality of Russians chose Lenin and Stalin as the "greatest" figures of the
20th century. It is inconceivable that a plurality of Germans today would
think of Hitler in similar terms. It is also inconceivable that Germans today
would tolerate any suggestion of reviving the Hitler Youth. In Russia, by
contrast, there has been no outcry at all over recent attempts to revive the
Komsomol, the Communist youth organization that indoctrinated and prepared
millions of Soviet young people for service to Stalin's regime.
 
So long as the symbols and institutions of Soviet repression are still
flourishing in Russia, the prospects for democracy will be dim. The former
Communist countries that have done the most to encourage a thorough reckoning
with the Communist period have enjoyed much greater stability than the
countries that have gone about the process selectively or halfheartedly. Deep
and lasting democratization in the former East-bloc states has made the most
headway when the iniquities of the Communist period have been exposed to
public light.
 
Courageous groups in Russia like Memorial and the Democracy Foundation have
done invaluable work in documenting the extent of the Stalinist repressions,
but a full reckoning with the Soviet past must encompass the whole society.
The passing of generations will help, but the task of facing up to the
horrors of Soviet rule will also require integrity on the part of public
officials--officials who take no "pride" in the Soviet Union's "monumental
achievements" and are instead committed to overcoming the Leninist and
Stalinist legacy once and for all.
 
*******

CDI Russia Weekly:  http://www.cdi.org/russia

Johnson's Russia List Archive (under construction):  http://www.cdi.org/russia/johnson