January 26, 2001   

This Date's Issues:   5051 • 5052 • 5053

Johnson's Russia List
#5053
26 January 2001
davidjohnson@erols.com

[Note from David Johnson:
1. Financial Times (UK): Astrid Wendlandt, Governor feels the heat as power goes off in Siberia: A deep freeze and electricity shortages have led to street protests in Russia's far east.
2. Wall Street Journal editorial: A Lesson in Law.
3. Robert Bruce Ware: Media Challenge Results/Who Bombed the Apartment
Blocks?
4. Nezavisimaya Gazeta: WHAT RUSSIANS SAY ABOUT THE RESULTS OF 2000 AND THEIR HOPES FOR 2001. Russians Are More or Less Pleased by the Results of Last Year But Expect All the Good Things to Happen This Year. (poll)
5. Eric Kraus: On the barricades: Renegotiating the Paris Club.] 

*******

#1
Financial Times (UK)
January 26, 2001
Governor feels the heat as power goes off in Siberia: A deep freeze and
electricity shortages have led to street protests in Russia's far east.
By ASTRID WENDLANDT

Demands for the resignation of Governor Yevgeny Nazdratenko, and street
protests against his inability to solve the region's crippling energy
crisis, have become daily events in Russia's far eastern Siberian region of
Primorye.

The crisis has claimed 12 lives in Vladivostok, the region's capital, since
Sunday alone. Three have died of cold, nine from fires caused by defective
heating systems. The winter is the coldest in 50 years. Power shortages are
paralysing the local economy.

This week hundreds of freezing residents have taken to the streets,
picketing Vladivostok's main highway and attempting to block the
trans-Siberian Railway, Russia's key national transport link.

"They will not stop protesting until the local administration gives them
heat and electricity," said Sergey Solovyov, a local parliamentary deputy.
"There is ice in their flats, they live in darkness most of the time -
these are inhuman conditions."

Primorye, a region of 2.1m people on Russia's south Pacific rim, has
suffered long and widespread power cuts. Two cities north of the region's
capital Vladivostok have declared a state of emergency. According to
official estimates, more than 16,000 people in Primorye live with little or
no heat.

"I have to lay my daughter on the kitchen floor with the oven door open to
keep her warm at night," said Valentina Kondratiuk, a supermarket cleaner
in Vladivostok.

Last week, President Vladimir Putin ordered his government to take action
to solve the crisis, track down those "personally responsible" for it and
punish them severely. Attempts to blame the crisis on "extreme weather"
would "not be taken seriously", said Mr Putin.

What the Kremlin does about the crisis is widely perceived by the local
population as a test of Mr Putin's ability to reach out to the provinces
and restore law and order. Having lost confidence in the governor's pledge
to solve the crisis, many are looking to Mr Putin for help. "If Putin does
nothing, other governors will act like Mr Nazdratenko, leave heating
problems unsolved and doctors and professors' salaries unpaid," said Mr
Solovyov. "Unruliness will spread like gangrene."

Moscow has sent Primorye an extra Dollars 16m to help cope with the energy
crisis. UES, the electricity monopoly, has been given Dollars 10m to buy
more fuel for power stations.

The finance ministry says the region is already one of Russia's biggest
recipients of federal subsidies. For many desperate and angry citizens, the
solution is to remove their governor from power. "The region's
administration is indifferent to our fate," says Svetlana Prokhorova, 58, a
pensioner whose building has been without heat for five years. "They
(regional officials) promise, they promise and do nothing to help - they
should leave."

Mr Nazdratenko, governor of the region for seven years, has been accused by
politicians and businessmen of violating federal, budgetary and electoral
laws. He has denied any wrongdoing.

"There have been so many audits of my administration by the government,
what could these accusations consist of exactly?" said the governor in an
interview in his ballroom-sized office.

The governor has disowned responsibility for the energy crisis and blamed
Moscow for not providing enough financial support. "This government money
does not help," he said glancing at a map of the region in his office. "Do
you know how expensive it is to bring coal down to Primorye? The cost of
transport is three times higher than the value of the coal itself."

Deputies from the region's parliament attempted to impeach Mr Nazdratenko
last week for the second time in a month but fell short of the two-thirds
majority needed.

"In the end," said Mr Solovyov, "it really depends on the president's
political will to remove Mr Nazdratenko from office."

On February 1, legislation will come into effect which will empower Mr
Putin unilaterally to remove any governor found guilty of violating federal
laws. The reform is an important plank of Mr Putin's policy to strengthen
control over the regions.

******

#2
Wall Street Journal
January 26, 2001
Editorial
A Lesson in Law

Vladimir Putin spoke famously about creating a "dictatorship of the law," but
as every Russian knows, the law in Russia is applied with a great deal of
selectivity and high-level interpretation. So it is perhaps not surprising to
hear Russian politicians and commentators suggest that the arrest of Kremlin
insider Pavel Borodin in New York last week was some sort of a U.S. political
plot rather than a plain-vanilla legal matter.

Mr. Borodin was the Yeltsin confidant and former state property manager who
brought then-KGB Colonel Vladimir Putin to Moscow from St. Petersburg, thus
putting him on track for the Kremlin. He was arrested on a Swiss warrant by
FBI officials at JFK International airport last week and now awaits further
proceedings from a single room in a Brooklyn prison.

While President Putin himself has been careful not to fling accusations at
the new Administration, plenty of functionaries have been willing to do that
for him. Mr. Borodin's arrest is seen in Russia as some sort of elaborate
trap and a sign that the new Administration is hostile to Russia.

Even a cursory look at the Borodin case betrays the absurdity of that
proposition. The Swiss prosecutor's office has wanted for some time to nab
Mr. Borodin for questioning in connection with its investigation of a Swiss
company called Mabatex, which received a lucrative contract from the Russian
property office in the 1990s for Kremlin renovations. The Swiss want to know
whether there were possible kickbacks and money laundering involved. The U.S.
has an extradition treaty with Switzerland and the FBI was acting on its
obligation under that treaty.

Much harder to explain is Mr. Borodin's own behavior. He was not traveling on
his diplomatic passport or under a diplomatic visa, though he surely knew he
was wanted by Swiss authorities and taking a risk by using a tourist visa.
Perhaps he thought he was protected because he had an invitation to an
inaugural event wangled by a Florida contributor to the Bush campaign. When
the Bush camp heard of the arrest, they revoked the invitation and returned
the contributor's money.

Russia's own investigations into the Mabetex case, it should be noted, have
taken a different course. Yuri Skuratov, the intrepid Russian prosecutor who
vigorously pursued the allegations, was fired in 1999. And last month, the
Russian prosecutor's office closed that file, concluding that "there was no
case to answer." The official who made the decision, Ruslan Tamaev, was
reportedly promoted immediately afterward.

Bush Administration officials quietly assured other Russians present at
inaugural activities (such as Boris Gryzlov, the head of the reformist Unity
faction in the State Duma) that the Borodin arrest is purely a legal matter.
That is as it should be. Americans know that their legal system isn't
perfect, but trust that it largely lives up to its claim to be blind. Close
friends of Bill Clinton have gone to jail for crimes they have committed; and
the ex-President himself opted to settle up last week rather than face
prosecution for perjury.

The day when the same independence can be shown in the Russian judiciary
appears, sadly, to be a long ways off. If it ever arrives, we'll know that
Russia has taken a vital step toward normalcy.

*******

#3
From: "Robert Bruce Ware" <rware@stlnet.com>
Subject: Media Challenge Results/Who Bombed the Apartment Blocks?
Date: Thu, 25 Jan 2001

Who Bombed the Apartment Blocks? 

Somewhere in Russia lies the answer to a dark mystery that has complicated
US/Russian relations and  diminished international security.  On night of
September 4, 1999, an  apartment building exploded in Buynaksk, a city in
the Russian Republic of Dagestan. Sixty-four people died and hundreds more
were injured. In rapid succession, two more apartment blocks exploded in
Moscow, followed by a fourth in the city of Volgadonsk. Altogether about
300 people were murdered in their sleep. The terror that spread through
Russia during that September helped to motivate the invasion of Chechnya at
the end of that month. Who was responsible for the deaths?  

Many Russians blamed Islamic militants based in Dagestan and Chechens.
Dagestan borders Chechnya, with which it has close ethnic, religious and
historical ties. The Buynaksk blast occurred during a six-week period in
which  Dagestan was under attack from Islamic militants based in Chechnya.
Buynaksk itself was close to an enclave of Islamic militants in Dagestan,
who previously had raided a Russian military garrison there, and with whom
the Russian military was at that time engaged in battle. On the day after
the blast, Chechnya-based  militants launched a second invasion. After
Russian troops entered Chechnya that October they found materials used in
the apartment blasts in a lab in the  Chechen town of Uras Martan. The CIA
suggested connections between the blasts and Usama Bin Laden, who has
provided support for the Chechen militants. 

But others suspect that Russian security services blew up the apartments in
order to galvanize popular support for the invasion of Chechnya. They point
to the fact that the bombsites were quickly cleared even though evidence
thereby was destroyed. Even more suspicious was an incident that occurred
in the Russian  city of Ryazan. There a bomb was discovered in the basement
of an apartment block and traced to offices of the FSB, successor
organization to the KGB. Few were impressed when the FSB claimed that it
was part of a training exercise.

Speculation that the bombs were the work of the FSB, and that they may have
been part of a larger government conspiracy to precipitate a second war in
Chechnya have been popular in the Western media. Virtually every major
Western daily has repeated theories of government conspiracy and many have
contended that there is no evidence connecting the blasts with Chechnya.

There was less attention when six of the nine suspects in the Buynaksk
blast were arrested on September 20, 2000 in Azerbaijan. They are father
and son Zainutdinovs, AbdulkadyrAbdulkadyrov, Magomed Magomedov, one of the
Salikhov  brothers, the other being on the federal and international wanted
lists, and Musa Abdusamedov. All are Daghestanis and followers of
Wahhabism, a radical Islamic sect. 

The trial of these six in the Supreme Court of Dagestan opened on November
30, 2000. The Dagestani prosecutor is charging that the blast was
masterminded by Chechen warlord Shamil Basayev and Arab-born Emir al
Khattab. The judges  initially expected to gather testimony 600 victims and
witnesses of the blast. However, in a land where justice traditionally
takes the form of vendetta few of these witnesses have testified. 

The elder Zainutdinov has admitted that he transported the explosives used
in the Buynaksk blast from Chechnya in a truck. He claims that the
explosives were hidden beneath a load of watermelons and that he was an
unwitting accomplice. While the trial has not been completed, and
Zainutdinovs testimony is far from  conclusive, the fact that the
explosives came from Chechnya tends to shift attention away the FSB, at
least in the case of the first blast.

Thus far the most surprising thing about the trial is that it has never
been mentioned anywhere in the Western media. Never. In fact, while the
trial has  been in progress, several major American dailies have carried
stories speculating that the FSB was responsible for the apartment blasts
without ever mentioning that hard evidence on the topic was being presented
at a trial in  Dagestan. 

Fifteen days after the start of the trial, when it had not been mentioned
in any Western publication, I wrote to JRL to issue a media challenge. I
emphasized the significance of the trial and urged its coverage by Western
correspondents  in Russia. 

In response to my challenge, I heard from a French telejournalist. He had
been to Dagestan in 1997 and understood the significance of the trial, but
was unable to return. I also heard from the Moscow correspondent of a major
American daily who wrote to acccept the challenge. His upcoming  series on
Dagestan deserves attention. 

The trial may prove to be pivotal or it may prove to be a sham. We would
never have known if someone had not gone to have a look. It is remarkable
that even after the challenge was issued only a single Western  reporter
was prepared to cover the story. The fact that many Western  publications
perpetuated speculations of a Russian government conspiracy without ever
mentioning this trial is reason for serious  concern. 

Indeed, the significance of the Dagestan story extends beyond the trial,
since the Dagestanis are Caucasian Muslims who generally have supported the
 Russian military campaign in Chechnya. It is important that Dagestans
story should be told in the West. The fact that so few have been willing to
tell it, and the fact that this has contributed to acrimonious
misunderstanding among  powerful nations, makes the trial all the more
deserving of attention.

******

#4
Nezavisimaya Gazeta
January 11, 2001
[translation from RIA Novosti for personal use only]
WHAT RUSSIANS SAY ABOUT THE RESULTS OF 2000 AND THEIR HOPES FOR 2001
Russians Are More or Less Pleased by the Results of Last
Year But Expect All the Good Things to Happen This Year
Mikhail GORSHKOV, RNISiNP director-general

     The last year of the 20th century passed into history.
What did it mean for Russians? What pleased and what pained
them the most? What are their hopes for the new year? The
findings of the sociological survey, which the Russian
Independent Institute of Social and Nationality Problems, or
RNISiNP, conducted late last December, provide answers to these
and some other questions. The stratified random sample of 1,750
people throughout all of the country's territorial-economic
districts and the cities of Moscow and St. Petersburg covered a
cross-section of eleven socio-professional groups of the
population - workers in industry, mines and construction sites,
professionals in science and technology, professionals in the
humanities (professors and teachers of higher and vocational
schools), sub-professionals, and workers in trade, services,
transport and communications, white-collar workers, small and
middle businessmen, army and Interior Ministry servicemen,
rural people, urban pensioners, higher school students and the
jobless. The poll was conducted in 58 settlements in proportion
to the population of super-large cities, regional and district
centers and villages. The average error of the poll data is
plus or minus 3 to four percent.
    
              Joys and Sorrows of Russians in 2000
    
     At first glance, the proportion of Russians who positively
appraised the results of the past year for them (and their
families) does not seem to be rather big - 26.3%. However, many
more people appraised the results of the year negatively on the
whole (71.6%). To get the correct idea of the trend of either
the growth or reduction of the proportion of optimists and
pessimists the data obtained in the December 2000 survey should
be compared with the findings of similar surveys conducted in
previous years.
(See Table 1.)
     A comparison of the data in Table 1 suggests several
conclusions. First, the proportion of Russians who appraised
the results of 2000 as very successful for them was very close
to the findings for 1996-1997, that is, before the financial
collapse.
Second, the proportion of respondents who appraised these
results as "generally good" for them (and their families) was
the highest in the past five years and 50% higher than in 1999.
Third, half of Russians continued to appraise the past year as
"difficult." Fourth, the proportion of respondents who
appraised the results of the year as "bad" reduced by 33.4%,
compared with 1999, and was the lowest in the past five years.
     It must be said that the percentage of Russians who were
pleased with the results of the year for them personally (and
their families) was the highest among small and middle
businessmen and higher school students and rather high among
intellectuals in the humanities, white-collar workers and
servicemen. By and large, the ratio between optimists and
pessimists in different socio-professional groups was
practically the same as in the previous four or five years,
except that in 2000 most of the optimists were among
intellectuals in the humanities, workers in trade and services
and - strange as this might seem - the jobless.
     The picture of appraisals by Russians of the results of
the past year for Russia as a whole is different at the same
time.
The numbers from Table 2 show that no more than 10% of
respondents appraised them as positive, whereas the absolute
majority - 83.4% - called them negative. The findings of the
December 2000 poll also confirmed the trend to a more critical
appraisal of the results of the year for Russia as a whole,
compared with how Russians assess these results with regard to
themselves and their families. This was largely due to the
continued psychological influence of the Kursk submarine
tragedy on mass consciousness, among other reasons.
     The above said is confirmed by the answers respondents
gave to the question about the most painful event of the year.
The most frequent answers were: growing prices (54%), the
sinking of the Kursk (50%) and protracted hostilities in
Chechnya (40%).
Other frequent answers were: a rise in the rent (17%),
different personal sorrows (12%) and the terrorist act in
Moscow's Pushkin Square (7.5%). The highest percentages of
those displeased with growing prices were among residents of
regional and district centers and rural residents, as well as
people who are older than 30 years. The reaction to the death
of the Kursk remained the sharpest in the end of the year among
those who are older than 40 years.
     There were many events (processes) which pleased Russians
last year. The indisputable leader in "the most positive events
of the past year" was Boris Yeltsin's resignation from the post
of President of the Russian Federation (55%). The other most
frequent answers were: a recurring rise in pensions (30%),
election of Vladimir Putin as President of Russia (25%) and the
success of the Russian team at the Sydney Olympic Games (21%).
Quite a few Russians were pleased with a stable exchange rate
of the ruble (16%), Zhores Alferov's Nobel Prize award (15%)
and different personal achievements (13%).
     The majority of respondents in regional and district
centers and villages and respondents who are older than 40
years were satisfied with Yeltsin's resignation. Though less
than half of respondents in Moscow and St. Petersburg said they
were pleased by Yeltsin's resignation, the percentage of such
answers was, nonetheless, also rather high in these cities. The
highest percentage of Russians who were pleased by Putin's
election as President and by a rise in pensions was in the
countryside, first and foremost.
     Some people may be surprised to know that the level of the
appraisal of Putin's election as a very important event of the
year was rather low. However, this was rather natural as the
negative attitude of part of the population to Yeltsin's
presidency casts a shade on Putin's good initiatives preventing
their adequate perception.
     Nonetheless, mass reaction "to Putin" promptly works as
soon as the issue at hand is the choice of "the Man of the Year
2000 in Russia." The answers to this open-ended question
offered about 300 names of famous politicians and public and
cultural personalities (though more than 40% did not wish to
pick out anyone in particular). President Putin was mentioned
more frequently than anyone else (23%) and Nobel Prize winner
Alferov was the runner-up (12%).
     More than 1% of respondents named Gennady Zyuganov (2.2%),
Aleksandr Solzhenitsyn (1.6%), Sergey Shoigu (1.4%), Yevgeny
Primakov (1.1%), and Yury Luzhkov and Vladimir Shamanov (1%
each).
     The above data can be interpreted differently. But one
circumstance must be emphasized. It is the fledgling
consolidation of social sentiments. This is borne out by the
fact that sorrows of social importance were above personal
sorrows last year and Russians were pleased more by the events
and processes connected with the renovation of society and the
growth of the country's prestige than by their personal
achievements. By and large, the findings of the December 2000
survey by the RNISiNP confirm and further highlight the trend
to the consolidation and stabilization of society's
psychological resource, which manifested itself last autumn.
The question is whether this trend is buttressed up
economically.
    
              Forward to the 1997 Level!
    
     According to the findings of the survey, the average
monthly income per member of the family was 1,303 rubles, or
approximately $47, last year. The corresponding number for
public-sector employees was 1,145 rubles and for private-sector
employees 2,575 rubles, or 2.2 times higher. It also follows
from the answers of respondents that the average monthly income
per member of the family was 2,324 rubles in Moscow and St.
Petersburg, 1,487 rubles in regional centers, 1,111 rubles in
district centers and 802 rubles in the countryside.
     In order to see the dynamics of changes in the incomes of
different social groups of the population let us compare
corresponding findings (which follow from self-evaluation by
respondents) of the surveys conducted in the most favorable
year 1997 and in 2000. For the record: the average monthly
income per member of the family was $100 in 1997 and $31 in
1999.
     Survey data vividly show that last year the average
monthly per capita income of all the socio-professional groups,
excepting rural people, exceeded the 1999 level but was still a
long cry from the 1997 level. The group of businessmen was the
closest to the restoration of the pre-default financial
positions.
     Nonetheless, positive dynamics of the growth of the
average monthly incomes of Russians is obvious. Did this affect
any of the macro-psychological indicators? The answer should be
in the affirmative, as poll data strongly suggest. This had the
strongest impact on mass appraisals of the situation in the
country in the end of last year.
     As can be easily seen in Table 3, the percentage of people
who appraised the situation in the country as normal rose
three-fold in December 2000, compared with December 1999, and
the percentage of those who appraised it as catastrophic
reduced by 33.4% and was the lowest since 1997 and in the past
ten years.
The proportion of respondents who appraised the situation as
normal was the highest among representatives of the
cross-section covering small and middle businessmen and
professionals in science and technology, and of those who
appraised it as catastrophic - among the jobless, higher school
students and urban pensioners.
     It should be borne in mind that the mass evaluation of the
situation in the country has subjective roots. But this is
precisely what makes such an evaluation so interesting, as it
sort of reflects the lowest and the highest degree of the
population's concern about the state of affairs in society and
positive and negative changes in the material standards of
people. It is important in this context to understand whether a
slightly less harsh appraisal of the situation by the public at
large has told on the way people include themselves in one or
another income group.
     As is seen in Table 4, in December 2000 the proportion of
Russians living beyond poverty line was the smallest in the
past two years. At the same time, the proportion of people who
include themselves in the low-incomed category practically
grew, while the proportion of those who regard themselves as
middle- and high-incomed practically did not change.
     The average monthly income per member of family of people
who include themselves in the high-incomed category was $300 in
the end of last year, compared with $260 in the end of 1999.
The corresponding numbers for the middle-incomed were $72 and
$50 and for the low-incomed $40 and $27, respectively. The
average monthly income of people living beyond poverty line was
$27 and $17, respectively. The above data show that the average
monthly incomes of all the groups rose last year. However,
income growth was insufficient to exceed inflation growth in
the same period of time. Hence the practically unchanging
character in which people include themselves in one or another
income group.
     It follows from the survey findings, which appear in Table
5, that the growth of average monthly incomes only helped to
ease the negative consequences of inflation but did not allow
Russians to fulfill what is regarded as perfectly normal plans
in life last year. These data vividly show which of their plans
respondents were able to realize and which they were unable to
fulfill. (To make the picture all the more clear the findings
for 1999 also appear in the Table.)
     Last year the most widely spread needs were a higher wage,
better-quality nutrition, new clothes and footwear, necessary
health treatment and better housing conditions. But not all of
these needs were satisfied. Special estimates show that the
majority of people who had certain plans in mind were able to
get jobs, buy clothes and footwear and ensure good education
for their children. Only a third and even less of respondents
were able to satisfy their other needs, if they had any. Thus,
only one in six could buy luxury furniture, one in ten to spend
holidays abroad and one in five to spend holidays in a
health-building establishment or a holiday home in Russia.
     A comparison of survey findings in 2000 and 1999 shows
that last year's more reachable achievements were a rise in
wages (monthly incomes) and improvements in nutrition quality.
The same was partly true of the possibility to get a job. But
correlation between the "planned" and the "implemented"
practically did not change with regard to the other indicators.
     The above said stands to explain a rather lukewarm
attitude of the population to all the talk about the beginning
of economic growth in Russia. Only 2.2% of Russians said that
they felt such a growth in full measure (these were mostly
entrepreneurs) and 18.8% that they felt it in a very small
measure. Half of the population (52.4%) did not feel any
economic growth. What is more, in the opinion of 18%, the
situation "grew even worse". So, it turns out that the earlier
observed trend of a less harsh mass appraisal of the situation
has mostly socio-political and psychological roots than any
economic ground (though this component is present in such an
appraisal). This means that the noticeable reduction of social
tension was achieved thanks to the assertion of political
stability, renewal of the country's political leadership and
enhancement of the international prestige of Russia.
     It is obvious, however, that a real qualitative
transformation of society cannot be ensured by political means
alone no matter how significant they might be. Interaction of
socio-psychological and political factors is important but
clearly insufficient for the success of reforms. The above
findings of public opinion polls and the findings of the author
which were published in Nezavisimaya Gazeta earlier point to
one and the same thing, namely: Russian reforms will continue
"to slip" until we ensure organic interaction (and, ideally,
the unity) of socio-psychological and economic factors in the
process of society's transformation. Prerequisites for this are
available now. The findings of the surveys conducted by the
RNISiNP point to the mobilization of the mass psychological
resource and possibility of its involvement in economic
reforms. It is important to see to it that this resource and
this possibility be used correctly.
    
      Putin and Petrodollars As Basis for Stability

     By the end of last year the social and political situation
was developing in a way when the Russian President personally
and the high price of oil in the world were, in the opinion of
the public, the foundation of stability and even a certain
change for the better. Suffice it to say that 45% named Putin,
35% - the Russian people as a whole and 23% - the part of our
population who had learned to live in market conditions as the
main "motor" of our country's progress. Respondents appraised
as rather "so-so" the role of the government, entrepreneurs,
political parties, the mass media (Sic.!) and scientists and
professionals in our development. Mass media can continue
wondering about the reasons for the high approval rating of
Putin but the core of the matter is very simple. Practically
half of the country's population regard him as the basic active
force at present.
     Concerning petrodollars, the situation is quite clear for
many Russians. Anyway, 40% (the highest percentage) of
respondents think that precisely thanks to the high prices of
oil in the world market Russia was able to ensure a more or
less favorable economic situation last year. At the same time,
in their opinion, the federal government, local authorities,
entrepreneurs and attracted investments had a very small role
to play in economic stabilization.
     We will not discuss the real role of the economic
institutes at this stage of the country's development. This is
a subject for economists. The subject of President Putin or, to
be more exact, his image in the eyes of the public last year,
should be continued, in particular, because our survey produced
quite a few interesting findings.
     To begin with, no less than two-thirds of Russians
positively appraise President Putin's activities, and this
appraisal was stable and high throughout the year, as can be
seen in Table 6. What is more, the number of respondents who
have difficulty in answering the corresponding question of the
survey continues to reduce. The positive appraisal of Putin's
activities as President dominates in all the age groups, all
social groups and in all of the country's territorial-economic
districts. This trend is also characteristic of representatives
of the main parties and political movements, though the biggest
number of those who do not approve of his activities belong to
Yabloko. It is indicative that more than half of the country's
population (53%) do not seen any semblance between Putin and
any of the previous Russian leaders. This only emphasizes his
own style of activity. When appraising Putin's strongest
(correct) and weakest (mistaken) steps last year, respondents
regarded Putin as a personality who happens to be the President
of their country. As many as 57% named such of his steps as
hikes in pensions and the wages of public-sector employees. A
large proportion of Russians (39%) named the ousting of
oligarchs from big-time politics. A smaller but also quite
impressive proportion of respondents (26%) positively appraised
the steadfast implementation of the anti-terrorist operation in
Chechnya, restriction of the power of governors and presidents
of national republics (18%), further steps to Russian-Belarus
integration (17%), and his foreign visits and meetings with the
leading politicians of the world (15%).
     Emotions ran over the rim in the end of last year in
connection with the adoption of the country's new national
symbols, in particular, its anthem. The findings of our survey
show that the majority of Russians supported the position of
their President on this matter. (See Table 7.) At the same
time, the list of what were, in the opinion of the public,
President Putin's mistaken steps looks quite impressive. As was
to be expected, the majority of Russians (56%) disapproved of
his unsuccessful actions with regard to the operation to save
Kursk crew. Surprising as this might seem, the same percentage
of respondents (from 31% to 33%) disapproved of the protraction
of hostilities in Chechnya. The equalization of the rich and
the poor in taxation, preservation of Yeltsin's stooges in his
inner circle and his support for the law on guarantees for
ex-presidents of Russia.
     Our findings show at the same time that Russians are
rather tolerant of what they call "mistaken" steps by the
President. If the new presidential elections were held in the
end of last December, the majority (from 53% to 55%) would
again elect Putin.
     Putin is the indisputable leader in a popular trust rating
with 63%. There is a long stretch between him and his
runners-up - Sergey Shoigu (41%), Yevgeny Primakov (31%), Aman
Tuleyev (30%) and Gennady Zyuganov and Mikhail Kasyanov (22%
each).
    
             With a Hope for the Better
    
     Russians always stood out for a special feeling of
optimism, even in the time when there was not much ground for
it. They expressed a share of optimistic sentiments in all the
surveys conducted by the RNISiNP when asked about their hopes
in each new year. It is true that the proportion of optimists
has always been smaller than the proportion of pessimists (in
particular, in the past five years).
     A radical change occurred late last year. For the first
time in many years more Russians (51%) believed that the next
(2001) year would be quite successful or, at least, good for
them personally (for their families) than that the new year
would be difficult and even very bad (39%). On the eve of 1999
the ratio between optimists and pessimists was 24% to 56% and
on the eve of 2000 - 38% to 49%.
     It is true that the hopes of people for the better do not
always come true and sometimes bitter disappointments
eventually lie ahead. Thus, about 40% of Russians hoped that
2000 would be a successful (good) year but it really turned out
to be a good year for only 26%.
     All this notwithstanding, the obvious rise in optimistic
sentiments on the eve of this year is one more telltale sign of
a qualitative renewal of society's psychological state and one
more important signal to the authorities that they should find
a correct way to lean on and use such a spiritual-emotional
resource. This is all the more important as this year the
increased potential of hopes for the better has to do not only
with private (family) life but also with the affairs of the
country as a whole. The proportion of Russians who believed
that the new year would be favorable for Russia in general rose
from 6% on the eve of 1999 to 15% on the eve of 2000 and to a
quarter of the country's population on the eve of this year.
     It is difficult to say if the fact of humanity's entering
the new century and the new millennium has exercised influence
on the emotional state of people. However, survey findings
conclusively show that less than a third of Russians have the
feeling of anxiety when they think about the future, while half
of them feel hope and believe in the good things to happen.
    
          Table 1
          Dynamics of Appraisals by Russians of the Results of
1996 Through 2000 for Them and Their Families (in percentages
of the whole sample)
     
-----------------------------------------------------------
     Results of the year       1996   1997   1998   1999   2000
    
------------------------------------------------------------
     Very successful            1.2    1.1    0.8    0.6    1.0
     Generally good            21.3   23.4   14.8   17.2   25.3
     Sooner difficult          50.1   52.6   52.2   55.0   54.1
     Bad, very difficult       23.8   20.6   29.7   24.5   17.5
     Difficulty to answer       3.6    2.3    2.5    2.7    2.1
    
------------------------------------------------------------
    
            Table 2
      Dynamics of Appraisals by Russians of the Results
              of 1996-2000 for Russia as a Whole
        (in percentages of the whole sample)
   
------------------------------------------------------------
     Results of the year       1996   1997   1998  1999   2000
    
------------------------------------------------------------
     Very successful            0.3    0.4    0.2   0.2    0.3
     Generally good             3.7    8.3    1.9   3.2   10.3
     Sooner difficult          55.1   59.6   40.5  58.2   62.1
     Bad, very difficult       36.2   25.1   49.7  34.7   21.3
     Difficulty to answer       4.7    6.6    7.7   3.7    6.0
    
------------------------------------------------------------
    
           Table 3
             Dynamics of Appraisals by Russians
          of the Situation in the Country
             (in percentages of the whole sample)
    
-----------------------------------------------------------
     Appraisals           1997      1998       1999      2000
     of the             December   October   December  December
     situation
    
------------------------------------------------------------
     Normal                16          2         5        16
     Crisis                45         45        61        57
     Catastrophic          33         51        29        18
     Difficulty to answer   6          2         5         9
    
------------------------------------------------------------
    
             Table 4
     Changes in the Proportion of People with Different
             Incomes in the Composition of the Population
             (in percentages of the whole sample)
   
------------------------------------------------------------
     Income Groups        1998      1999       1999     2000
                          June    January    December  December
    
------------------------------------------------------------
     High-incomed          0.9      0.2         0.3       0.2
     Middle-incomed       34.3     19.7        25.4      23.7
     Low-incomed          54.5     55.5        56.2      62.0
     Below poverty line   10.3     20.6        18.1      14.1
    
------------------------------------------------------------
    
            Table 5
      Which of their plans Russians were able to realize
        and which they were unable to realize in 1999 and 2000
       (in percentages of the whole sample)
    
------------------------------------------------------------
        Plans                          2000           1999
                                     Yes   No       Yes   No
    
------------------------------------------------------------
     To improve housing
     conditions                       8.2  29.2      7.0  22.5
     To get a job                    16.2  14.1     10.5  13.0
     To get a wage rise              26.2  49.8     19.2  31.4
     To buy a car                     4.8  13.5      4.0  36.4
     To buy luxury furniture          3.4  17.0      2.3  40.7
     To get necessary health
     treatment                       14.2  39.7     14.1  39.4
     To spend holidays in a
     health-building establishment
     (or a holiday home) in Russia    7.4  30.2      6.4  52.5
     To spend holidays abroad         1.5  11.1      2.0  48.8
     To get a plot of land in
     the countryside                  3.5   6.7      2.1  28.2
     To ensure quality education
     for children                    15.7  18.2     12.9  23.4
     To buy new clothes and
     footwear                        45.0  37.1     41.4  33.4
     To improve the quality
     of nutrition                    27.8  46.2     12.8  34.2
    
------------------------------------------------------------
  Table 6
          Appraisals by Russians of the Activities of Putin
          as the Head of Government and President of Russia
                 (in percentages of the whole sample)
        
------------------------------------------------------------
     Appraisals             1999      1999      2000      2000
                          September  December   March   December
    
------------------------------------------------------------
     Positive              46.9       61.2       55.7     67.1
     Negative               4.6        7.1       10.1      9.3
     Difficulty to answer  48.5       31.7       34.2     23.6
    
------------------------------------------------------------
    
            Table 7
      Attitude of Russians to the New National Symbols
                 (in percentages of the whole sample)
    
------------------------------------------------------------
     Symbols of the Russian      Approve  Disapprove  Difficulty
     Federation                                       to answer
    
------------------------------------------------------------
     The music of the former
     USSR anthem to new lyrics
     as the new anthem              69.0      16.8       14.2
     The present tri-color flag
     as the national flag           68.6      15.1       16.3
     The present double-headed
     eagle as the new coat-of-arms  64.1      19.3       16.6
     The Red Banner as the
     official flag of the Armed
     Forces                         71.8      11.6       16.6
    
*******

#5
From: Eric Kraus <ekraus@nikoil.ru>
Subject: On the barricades: Renegotiating the Paris Club
Date: Fri, 26 Jan 2001

Eric Kraus, Chief Strategist, Nikoil Capital Markets
ekraus@nikoil.ru

On the barricades: Renegotiating the Paris Club

Summary

Our recent publications suggesting that Russia should force restructuring
of Paris Club debt, if necessary by technical default, have proved
controversial in the extreme. We are frankly delighted. Although we have
received several strong expressions of support for "Forget Paris," the
balance of responses has been critical, in a few case strongly so. We are
grateful to everyone who took the time to respond, and have replied
personally to numerous correspondents. Below, we will attempt to summarize
these criticisms and provide our responses.

First of all, in reply to the ad hominem arguments: No, we are not on the
payroll of the Russian government (not that we aren't always ready to
entertain offers?are you listening, Misha?). Likewise, we do not see our
role as that of "apologists" for Russia-on numerous occasions have been
bitingly critical of Russian policy, both internal and vis-a-vis foreign
entities; legitimate targets for scorn include banking reform, CBR policy,
justice, etc. On the other hand, we are indeed "talking our own books."
Everyone working in the Russia financial community  stands to gain if
Russia successfully restructures and thrives, and to lose if she continues
to lurch from crisis to crisis. We acknowledge that our sole criterion in
this matter is the risk-benefit analysis from a purely Russian
standpoint-Germany's (relatively healthy) balance of payments is Germany's
affair.

1. Russia agreed to assume Soviet debt. If she can renege on this, what
else can she renege on?
A number of correspondents point out, quite rightfully, that Russia freely
assumed the Soviet debt load.  She did, and like most of the economic
policy of the  early 1990s, it was a major blunder; August 1998 saw the
catastrophic conclusion of the IMF-sanctioned makeover of the Russian
economy. Any private company which erred that egregiously would face a
simple sanction: bankruptcy. Russia is neither the first nor the last
country to have gotten in over its head?since countries cannot go bankrupt,
they restructure.

2 Russia has badly mistreated foreign creditors.
Largely true. The 1998 GKO "voluntary rescheduling" was confiscatory.
Though a default was inevitable given the obviously unsustainable weight
and structure of the ruble debt, the modalities of the default resulted in
huge and largely unnecessary losses: monetary  for the investors, of
reputation and good-will for the Russian side. Similarly, the handling of
the ensuing banking crisis was - and remains - quite simply appalling.
On the other hand, following the melt-down Kasyanov laid down a clear
principal: no matter how onerous, foreign sovereign borrowing by the
Russian Federation would be serviced on time and in full, while Soviet debt
would be renegotiated in good faith. To date, not only have the Eurobonds
been serviced, but also, Russia has pumped out several billion dollars in
cash to the IMF, despite the fact that the fund has abandoned all support
for Russia, refusing to acknowledge any responsibility for the misguided
advice which greatly contributed to the meltdown.
The London Club deal, which allows a 35-37.5% write-down in face value
(~47% in NPV) was very much a standard Brady-type agreement, providing
reasonable relief for the debtor while still offering substantial
asset-recovery for the lenders. The demand that a similar degree of relief
be provided for the Paris Club (non-commercial) debt does not seem
unreasonable.

3 There is no guarantee that the money saved would be used for
infrastructure and social needs.
Again, a valid point. Nevertheless, money is fungible, and if 40% of all
Russian government expenditure were to be diverted to pay off the debts of
a bankrupt and defunct empire (the USSR) it would of course guarantee that
these funds would not be used where they are needed domestically.

4  Forget the rights and wrongs. Paying Paris Club debt would allow Russia
renewed access to debt capital markets.
Russia must pay a $1 bn amortization of the 2001 Eurobond this year. Paying
out $3.5 bn on Soviet debt in order to be able to borrow $1 bn at rates
above 15% seems counterintuitive, especially as the 2001 amortization can
easily be paid of from budgetary funds. Furthermore, as we predicted, the
prices of outstanding Russian Eurobonds surged in reaction to the news of a
technical default on Paris Club. A default on Soviet debt would mean that
more cash was available to pay Russian borrowings.
More fundamentally, though, perhaps renewed access to debt capital markets
is the last thing that Russia needs?as it is, the next generation of
Russians will be paying for the previous bout of sovereign borrowing until
the year 2028. It is questionable whether, given the inefficiency of the
Russia economy, borrowed funds could be put to uses which would generate
cashflows exceeding the cost of the borrowing. The morality of burdening
future generations with repayments for current consumption requires serious
examination.

5 The Russian government has been misleading and anarchic in its public
pronouncements.
We could not agree more; spin control has been wretched, even by local
standards. Virtually every major player, from Putin to Kasyanov, and a host
of others including Gref, Kudrin, Khristienko, and have been giving the
"official" word to the media. Alas, they are all totally contradictory.
Loose cannon par excellence Illarionov has outdone himself, virtually
accusing the government - to which he still belongs - of "hooliganism",
choosing the Western financial press as his forum.
Several of our local colleagues have interpreted this cacophony as a
negotiating technique, intended to confuse the opposition. If so, they have
succeeded beyond their wildest expectations - unfortunately, we are at a
loss to see what they could have gained from this confusion, other than to
totally discredit themselves. We always hesitate to attribute to conspiracy
what simple incompetence will explain, and think that the current confusion
is due to the team's failure to prepare contingency plans for possible
 stonewalling by the Paris Club and IMF, as well to the absence of the sort
of gag-rules which, in most other countries, are  imposed on government
officials during delicate negotiations.

6   Russia can afford to pay? and many other countries are heavily
indebted.
Russia is indeed running a large current account surplus. Unfortunately,
most of the revenues belong to the private sector, not to the government.
Although tax collection is currently improving and can be expected to
improve further, some one-third of total government expenditures already go
to the repayment of foreign debt.
Capital flight in condemnable, but we are not sure what, at least in the
short term, can be done about it, especially as the IMF and the current
international economic orthodoxy condemn all forms of capital controls. It
is striking that some of the same commentators who complain of a perceived
erosion of freedom under Putin see no contradiction in calling for the
Russian government to seize private cash flows in order to pay the Paris
Club.
Numerous developing countries have become over-indebted (indeed, it is
questionable whether, even after a restructuring, countries such as
Argentina will ever be able to prosper given their foreign debt loads). In
order to keep it current on the service and amortization of its debt,
Argentina, which has about one-fifth the population of Russia, has recently
been granted yet another IMF package, this time worth $38 bn dollars, i.e.
more than the total amount disbursed to Russia by the fund during the
entire 10 years of Russian reform. Turkey, Brazil, and Mexico have recently
received similarly large packages.
Mexico and Brazil, currently subject to rather less invective than Russia,
were in default on their sovereign borrowing for most of the 80s-in the end
they were granted very substantial debt relief.  We do not argue that
Russia should simply walk away from Soviet debt, but rather, that a
reasonable renegotiation along the lines of the London Club agreement is
necessary -demands for payment in full should be politely but firmly
refused.

7  What is being demanded of Russia is that she simply learn to live by the
same rules as everyone else.
Again, sovereign default is not a Russian invention. Dozens of countries
are in default to the Paris Club (indeed, there otherwise would be no Paris
Club!). If anyone seriously doubts that the current pressure on Russia is
political, due more to negative perceptions of Russia in the West than to
economic issues, consideration of the case of Ukraine will prove
instructive. The Ukrainian government went into default on Paris Club debt
in January 2000, simply informing the Club by letter of its intention not
to pay. Though they remain in default, as far as we know, there has been no
international pressure, no threats, no cut-off of bilateral financial
support, and virtually no press coverage.

8    If the going gets really tough, the West will certainly provide debt
relief.
We find the implications of this argument somewhat pernicious. In
discussions with our Russian colleagues we have frequently found ourselves
ridiculing their widely-held view that the West is seeking to reduce Russia
to the role of a Third-World colony, to be mined for her resources while
being maintained in economic bondage. A demand by the Western powers that
debt relief be granted only were Russia to be again reduced to penury would
require us to reconsider our view. Indeed, given of the hostility and
incomprehension recently displayed by certain foreign politicians, there
would certainly be a constituency in favor of taking advantage of any
opportunity to reduce Russia to total dependency.
Even in a benign political environment, making debt relief contingent upon
an economic crisis would put the fate of the Russian economy squarely in
the hands of foreign powers: were a hard landing in the US to provoke a
collapse in global commodity prices, Russia would find herself reduced to
begging for foreign support. It can hardly be expected that any sovereign
state would voluntarily accept this situation.

In conclusion,

The crux of the issue lies deep within the Slavic soul. Since the time of
Peter the Great - and despite occasional claims of spiritual superiority -
Russia has suffered from a feeling of inferiority vis-a-vis the West. More
recently, she suffered the sudden loss of Great Power status, a difficult
blow under any circumstances (viz: England, France), but especially when it
comes in a single catastrophic blow.

Thus, in the early 1990s, disastrously incompetent economic advice from
Western experts was eagerly accepted by the successive (and no less
incompetent) transition governments. The notion that Russia should assume
both the debt and the assets (largely worthless) of the Soviet Union
without requesting any debt relief was attractive in that  it implied that
Russia was an industrialized country which would quickly re-assume her
rightful place (which, ex the military sphere, she never actually occupied)
among the wold-class economies. Unlike her indebted Eastern European peers,
Russia was not granted any debt relief for the simple reason that she
requested none. Commercial debt was simply repackaged as Prins and IANs,
the only "Brady-type" deal ever to be done with a zero-percent haircut.
If - as we fear may be the case - Putin ignores Kasyanov's advice and
aligns himself with the kamikaze faction headed by his economic advisor
Illarionov, it would be in a misguided attempt to prove that Russia is a
"serious country." The fact that numerous other developing countries have
restructured their debt (including Mexico, Brazil, Argentina, Poland and
Bulgaria) without giving up the pretense of being "serious" appears to be
lost upon them. Indeed, for Russia to voluntarily assume service of the
entire Soviet debt burden would simply be to repeat the disastrous errors
and the hubris of the early 90s: wave a magic wand and suddenly Russia will
be transformed into an advanced industrial democracy.

Germany has threatened Russia with denial of full membership in the G8 if
she defaults on Paris Club. Frankly, we see neither any justification nor
any need for Russia to have a seat in the G8. There is nothing truly
fundamental distinguishing Russia from the advanced industrialized
economies: nothing save - at the very least - several decades of hard work,
high growth, global stability and a great deal of luck.

As Mr. Bush's recent statements have made abundantly clear, Russia will
sink or swim on her own merits. It would be foolish to count on the West to
provide meaningful assistance in the near term, except as it fits its own
interests (the East-West energy bridge, etc.).  For Russia to yield to
German pressure now would be giving hostages to fate. Until recently, given
our assumption that the Paris Club debt would never be paid in full, we
have repeatedly asserted that the Russian economy is immune even to a sharp
and prolonged decline in energy prices. If our view on Paris Club proves 
mistaken, we will have to acknowledge the existence of at least one
potential disaster scenario.

>From the investor's standpoint, the near-term effect of Russia resuming
full Paris Club debt payments would be negligible; indeed, provided that
energy prices remained high, even the 2003 debt hump could be manageable.
Nevertheless, the huge outflows required to service unrescheduled Paris
Club debt fully would render the entire economic edifice exquisitely
susceptible to any further pressure on the current account. In the event of
a sharp and prolonged decline in energy prices, Russia would find herself
drained of resources. Absent a large bail-out package from the West -
unlikely in light of current political trends - a repeat of the 1998
devaluation-default scenario could not be excluded.

*******

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