March 16, 2001 

This Date's Issues:   5155

Johnson's Russia List
#5155
16 March 2001
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Budget Cut for Russia Nuke Program.
2. AFP: Putin flies back to Moscow after bloody end to Saudi hijack crisis.
3. The Economist (UK): Muddle in Moscow. President Vladimir Putin's biggest achievement in Russia has been political stability. Intrigues- or at any rate confusion-now put that in doubt.
4. The Economist (UK): Russia's disputed transition. No other way. (Review of THE TRAGEDY OF RUSSIA'S REFORMS: MARKET BOLSHEVISM AGAINST DEMOCRACY by Peter Reddaway and Dmitri Glinski)
5. Moscow Times: Boris Kagarlitsky, Give Me the Visa Already!
6. BBC Monitoring: Baltic states fear Russian-US secret deal - Russian newspaper.
7. Financial Times (UK): Astrid Wendlandt, IMF silent over Russian probe ALLEGED LOAN MISAPPROPRIATION.
8. Kommersant: Yelena Tregubova, BORIS YELTSIN REVIVES. The first Russian president aims to return to politics.
9. Segodnya: Milana Davydova, ACCELERATED FLIGHT. Capital flight from Russia doubled in 2000. Oil companies lead the way in buying assets abroad - where it's safer.
10. Vedomosti: Vitaly Portnikov, EQUIDISTANCE. Tycoons who please the Kremlin are permitted to have money and influence.
11. Reuters: Russia creates cautious investor optimism.
12. Interfax: FORMER RUSSIAN DEFENSE MINISTER SAYS HE OPPOSED HASTY
DEPLOYMENT OF TROOPS TO CHECHNYA IN DECEMBER 1994. (Pavel Grachyov)
13. Moscow Times: Nikolai Dobryukha, Spy vs. Counter Spy. Conversations With a Former KGB Chief. (Vladimir Semichastny)]

*******

#1
Budget Cut for Russia Nuke Program
March 13, 2001
By H. JOSEF HEBERT

WASHINGTON (AP) - A program to help Russia safeguard its nuclear materials is
facing deep budget cuts by the Bush administration, although a bipartisan
commission recently called these efforts essential to protecting U.S.
national security.

President Bush's proposed fiscal 2002 budget, now being put together, would
cut spending for Russia nuclear nonproliferation activities by more than $72
million, government and private sources who have seen the numbers said
Thursday.

The Energy Department had planned to increase the program, which the Clinton
administration had earmarked for a 50 percent increase to $1.2 billion for
the fiscal year that will begin Oct. 1.

The final funding levels will be set in Congress, where some lawmakers
already were expressing concern.

``Dramatic cuts to these programs ... may cripple our efforts to secure
nuclear material in Russia and ensure that Russia's nuclear physicists are
gainfully employed in non-defense related industries,'' Rep. Ellen Tauscher,
D-Calif., wrote to Condoleezza Rice, the president's national security
adviser.

Tauscher is a member of the House Armed Services Committee.

The cuts were ordered by the White House, despite several attempts by Energy
Secretary Spence Abraham to obtain more money, said the sources, who spoke on
condition of anonymity.

In January, a bipartisan commission issued a report calling the risk of theft
of Russian nuclear materials ``the most urgent unmet national security
threat'' facing the United States and urged sharp increases in spending for
the Russia nonproliferation programs.

The Energy Department initiatives targeted by budget cutters include programs
aimed at enhancing security at Russia's nuclear weapons facilities, providing
help to economically strapped Russian nuclear scientists and helping Russia
convert weapons-grade plutonium to less threatening materials.

While changes may still be made in the funding levels before President Bush
sends his final fiscal 2002 budget to Congress, several attempts by the
department to get additional money have been rebuffed by the White House
Office of Management and Budget, the sources said.

``This budget signals a retreat from a decade worth of work with Russia to
secure nuclear weapons expertise and materials,'' said William Hoehn of the
Russian American Nuclear Security Advisory Council, a nonproliferation
advocacy group.

According to the latest DOE budget document, programs to increase security at
Russia nuclear facilities would be cut by $31 million to about $170 million.
The Energy Department had sought an increase to $225 million.

A program aimed at finding jobs and getting economic assistance to Russian
nuclear scientists would be cut by $20 million to about $7 million, according
to the sources.

Bush will ask for more money to dispose of Russia's excess plutonium stocks,
but the amount falls far short of the proposed doubling of the $226 million
program that the Clinton administration had proposed, the sources said.

The bipartisan commission included experts in nuclear nonproliferation and
national security and was chaired by former GOP Senate Majority Leader Howard
Baker and former Democratic White House counsel Lloyd Cutler.

Others on the panel included Former Sen. Sam Nunn of Georgia and former Rep.
Lee Hamilton, both Democrats and widely respected experts on national
security and nuclear nonproliferation.

Their report, requested by the Energy Department, concluded that the risks of
Russian nuclear materials being obtained by terrorists or hostile states is
significant and real.

The report urged stepped up spending for programs to help Russia safeguard
these materials and help Russia's atomic scientists, some of whom are facing
dire economic times in the post-Cold War era, find jobs.

It said $30 billion is needed over the next 10 years to do the job, adding
that such spending would be a prudent investment in U.S. and world security.

*******

#2
Putin flies back to Moscow after bloody end to Saudi hijack crisis

MOSCOW, March 16 (AFP) -
President Vladimir Putin rushed back to Moscow Friday after Saudi security
forces stormed a hijacked Russian plane in the city of Medina, in a bloody
end to the two-day hostage crisis.

Moscow immediately demanded that the suspected Chechen hijackers be handed
over to the Russian authorities, while it emerged that the hostage-takers
had killed a stewardess by slitting her throat.

Two other people, a hijacker and a Turkish passenger, died in the operation
to rescue the more than 100 people held captive by the three armed men, who
seized the Moscow-bound plane shortly after take-off from Istanbul.

Five others were wounded, four Turks and a Russian, during the assault,
which had the Russian authorities' green light, Kremlin officials told AFP.

Putin, who had remained on a skiing vacation in Siberia after the hostage
drama began, cut short his holiday to return to the Russian capital, where
the freed passengers were expected to arrive early Saturday.

The deputy director of Moscow's Vnukovo airport, Anatoly Olkovsky, was
quoted as saying by Interfax that the passengers could fly in by 9:00 am
Moscow time (0600 GMT).

There were 162 passengers and 12 crew aboard the jet when it was
commandeered by Chechens demanding an end to Russia's crackdown in their
breakaway republic.

The crisis came as an embarrassment for the Russian leader, who built his
popularity by launching the war in Chechnya, where Russia sent troops
nearly 18 months ago to reestablish its rule.

The military intervention was initially supported by Russians, but recent
indications suggest that public opinion is tiring of the drawn-out
campaign, which even official sources say has cost the lives of some 2,800
troops.

The hostage crisis dominated all news headlines while Russian television
regularly broadcast a Vnukovo Airlines telephone hotline for relatives to
obtain information about their loved ones.

Putin had been on holiday at Khakasia, Siberia, since Monday.

His decision to return to Moscow contrasts with his tardy response to the
Kursk submarine disaster last August, when he opted to remain on holiday at
Sochi, on the Black Sea, after he was informed of the tragedy in the
Barents Sea.

Television images of a tanned Putin on holiday, while far to the north the
submarine's 118 crewmen were dead or dying on the sea floor, were badly
received by the media, the seamen's families and many politicians.

Meanwhile, a top Russian security official who headed a special hijack
crisis unit said that negotiations with Saudi authorities were under way
for the hostage-takers to be sent to Moscow to stand trial.

Russia was offering to send two planes to Saudi Arabia, one to transport
the Russian hostages and the other to fetch the hijackers, said the deputy
head of the FSB (ex-KGB) security services, Vladimir Pronichev.

Breakaway Chechen President Aslan Maskhadov's spokesman for his part
repeated denials that pro-independence rebels were involved in the hijacking.

"The Chechen leadership is in no way involved in the hijacking of the
Russian plane. For us this act is absolutely unacceptable as our position
is that civilians must not suffer," Maskhadov's spokesman, Mairbek
Vachagayev, told Moscow Echo radio.

It was "the act of one individual and the Chechen leadership bears no
responsibility for it," he added.

Former Chechen minister for state security Aslanbek Arsayev, who fought the
Russians in the first 1994-96 Chechen war and was wounded, was one of three
hijackers, a Chechen source in Jordan told AFP.

The other two were his brother Supian Arsayev and Supian's son, said
Jordanian-born Fariza Atfayeva, who identifies herself as a Chechen "envoy".

*******

#3
The Economist (UK)
March 17-23, 2001
Muddle in Moscow
MOSCOW
President Vladimir Putin's biggest achievement in Russia has been political
stability. Intrigues-or at any rate confusion-now put that in doubt

WHEN a government faces a no-confidence vote in parliament backed by its
own supposed supporters, something odd is afoot. When, a few days later,
those same law makers change their mind, it looks even odder. And when the
president of the country decides that this is just the time to take a short
holiday, then you have a choice between a bunch of baroque conspiracy
theories-or the conclusion that Russia's political leadership is losing its
grip.

The background to the story is that the gloss is wearing off Vladimir
Putin's presidency. It is not just that reform has bogged down, that
economic growth is fizzling out, and that the Chechen war is dragging on
unwinnably; the Kremlin's own authority also seems to be fraying.

Regional chieftains and tycoons, whose self-important antics plagued the
Kremlin under Boris Yeltsin, are less visible these days, but still
uncomfortably powerful. The most striking example came recently, after the
Kremlin forced the resignation of Yevgeny Nazdratenko, the notoriously
thuggish governor of the ill-run Maritime Territory in Russia's far east.
Kremlin officials had denounced his incompetence, which left the
energy-rich region freezing through the winter. Many Russians hoped his
next stop would be prison. But instead, inexplicably, he gained a lucrative
new job in charge of the country's fisheries. Russians quipped that the
next few months would see a nationwide shortage of fish.

In a country where wisecracks are a significant political barometer, it is
telling that jokes, mostly lewd, are now surfacing about the president's
personal failings, chiefly indecisiveness. Russia's opinion polls still
show Mr Putin as very popular. But they are not completely trustworthy-and
in any case his standing is artificially bolstered by a servile state-run
television. It could prove brittle. Last month, the previously docile
Communist Party said it would propose a no-confidence vote in the
government. For a tame opposition that enjoys some of the juiciest
positions in the lower house of parliament, the Duma, that was very
unusual. Still more startling was that the main pro-presidential party,
Unity, then said it would back the move.

The reason, supposedly, was to embarrass the Communists. Under Russia's
constitution, a no-confidence vote can eventually lead to new elections.
Unity said that it would gain seats from the Communists and other
opposition parties. Many of Unity's own deputies complained about the move.
So did Mr Putin. The party obediently changed its mind. The no-confidence
vote, on March 14th, failed dismally.

What is going on? There are plenty of theories. The simplest is that Unity
is a shambles, with a weak, inexperienced leadership that got out of line
with both the Kremlin and its own parliamentarians. That fits the facts:
the party was hurriedly assembled and is short of talent. Many of its
deputies would hate to give up their lucrative positions early. But it
gives an unsettling impression of amateurishness. Why did Mr Putin's fixers
let the whole mess develop?

An alternative is that Unity was indeed acting on behalf of the
presidential administration-or of a clique within it. Perhaps the aim was
to prop up the prime minister, Mikhail Kasyanov, who enjoys only luke-warm
support from the president. To sack the prime minister now, after the vote
was lost, would look like a feeble concession to the Communists.

There are also signs that some nervous souls in the Kremlin would like
early parliamentary elections now, while Mr Putin's popularity is still
high, rather than waiting for those due in 2003 when the authorities may be
less popular-and when Mr Putin, presumably, will be running for a second
presidential term in 2004.

Less popular the authorities may indeed deserve to be. Since the bold tax
cuts of last summer, there has been much waffle about big changes to come,
but little sign of them in practice.

Bureaucrats are proving the main obstacle to reform. This month government
ministries shot down an attempt to reform the licensing of businesses, a
notorious source of corruption. A new legal framework for foreign energy
and mining companies, which could attract many billions of dollars of
investment, and has the personal backing of both the president and the
prime minister, is far behind schedule. Another crucial reform is that of
Russia's fearsome and unaccountable prosecutors. The Kremlin has hastily
backed away from this too.

While the handful of really reform-minded ministers has so far proved to be
disorganised and ineffective, other bits of the Russian state are getting
on with what they do best: looting and bullying. The overlap between
government and business remains large and murky. The security services'
grip is strengthening. Grigory Yavlinsky, leader of Yabloko, a tiny liberal
party, says the Kremlin is creating a "bureaucratic police state".

The best news, in a way, is the resistance of vested interests to the
proposed reforms: it at least shows that they are seen as some sort of
threat. But to overcome that resistance will require a lot of presidential
clout-which is not apparent.

So far, Mr Putin has listened hard, but wavered when it comes to decisions.
Sometimes he favours his liberal advisers. The next minute he is closeted
with the hard men in uniform, or is being swayed by the many denizens of
the Kremlin left over from the Yeltsin era. He spends an extraordinary
amount of time talking to foreign leaders: this year's tally includes
leading politicians or government officials from Azerbaijan, Austria,
Belarus, Britain, Finland, Germany, Iran, Israel, Latvia, Moldova, NATO,
the Netherlands, Nigeria, Slovakia, Slovenia, South Korea, Ukraine and
Vietnam. But at home, rather than get involved in the current kerfuffle, Mr
Putin went on holiday, to a mountain resort in Siberia. Aides said he was
working on an important speech.

*******

#4
The Economist (UK)
March 17-23, 2001
Book review
Russia's disputed transition
No other way

THE TRAGEDY OF RUSSIA'S REFORMS: MARKET BOLSHEVISM AGAINST DEMOCRACY.
By Peter Reddaway and Dmitri Glinski.
United States Institute of Peace Press; 766 pages; $55 ($29.95 paperback).
Distributed in Britain by Plymbridge; £21.50

CONCLUDING their vast philippic against free-market reforms in Russia,
Peter Reddaway and Dmitri Glinski ask, in the words of an early
20th-century poet, Maximilian Voloshin, whether it
Might be our destiny to live out
Europe's latest dream
So that we can divert it
>From its perilous paths?

Their answer is yes. Russia in the 20th century, they say, has shown the
outside world "the dehumanising extremes of two different Utopian visions
based on economic determinism and designed for global use." The first was
bureaucratic state bolshevism, comprising a command economy and one-party
rule; the second is "market bolshevism", which, in their view, has
destroyed Russia's industrial base (built at great sacrifice over decades),
triggered alarming demographic trends and created a risk of "irreversible
criminalisation and privatisation of the Russian state".

This book is the latest, and weightiest, contribution to a burgeoning
literature of blame from America. It follows Janine Wedel's "Collision and
Collusion" (1998), Stephen Cohen's "Failed Crusade" (2000) and numerous
essays, the most powerful of which came in 1999 from Joseph Stiglitz, then
chief economist of the World Bank, who argued that what the reformers had
done was to create "incentives for asset stripping", not for productive
capitalism. The outrage of this school over the imposition of a shock
therapy perceived as cruelly inappropriate is so pronounced that many of
its members have no hesitation in coupling reforms aimed at democratising
and marketising Russia as equivalent in their evil effects to the
imposition and rule of communism on the Soviet Union.

The volume is a detailed, sometimes day-by-day chronicle, which Mr
Glinski's active acquaintance with the democratic movement of the 1980s and
1990s does much to enrich. Part of Mr Reddaway's hatred of what he sees as
the rape of Russia is that it has been perpetrated or encouraged by foreign
economists who knew nothing of its history, customs and people-he is
steeped in all of these-but who had instead had an off-the-shelf,
one-size-fits-all, free-market nostrum for its transformation.

There is much, as Mr Stiglitz demonstrated, that can be and is being said
by way of criticism of the management, timing and consistency of the
reform. Above all-it is a major strand of the critique by Messrs Reddaway
and Glinski-the Clinton administration micromanaged its Russian counterpart
in an ultimately self-defeating way, dizzy as the former was with the heady
effect of pulling strings in the government of a superpower which had been
a global adversary for three generations.

But the great flaw of all such criticisms is their lack of engagement with
the real nature of the Soviet collapse. The way in which communism ended
left the country without an economic system, without a solid base for power
and without a civil society. It might in theory have been better to adopt a
Chinese model of party-led economic liberalisation. But that chance had
gone by 1988 at the latest, as the general secretary of the Communist
Party, Mikhail Gorbachev, set about destroying this one network of power.

Again, it might have been better had Russia opted for a hell-for-leather
liberalisation after 1991 instead of the muddled and corrupt compromises
which in fact transpired. But the power of the various industrial,
political and criminal lobbies was too great. Any third alternative,
including what Messrs Reddaway and Glinski take to be missed opportunities
for a democratically controlled economic transformation, would have had to
confront the same intractable fact that the purpose of the old system had
comprehensively vanished and with it the collective will for change. That
Russia has failed to transform itself into a stable and democratic market
economy is already clear. That this failure is dangerous is becoming
plainer. That there was another way which the professors knew of and no one
else could see is, as the Scottish judgment goes, not proven.

*******

#5
Moscow Times
March 16, 2001
Give Me the Visa Already!
By Boris Kagarlitsky

A few years ago I was invited to a conference in Hannover, Germany, which
happened to be scheduled for the period of my son's school vacation. So I
decided to take him along. The conference organizers didn't object and
efficiently wrote out the necessary invitation. When I handed in my
documents at the German Embassy, the polite consular officer told me that
everything was in order and that I could pick up my visa on the following day.

Imagine, then, my surprise when I noticed as I was walking out of the
building the next afternoon that the visa had only my name on it. I pushed
my way back up to the visa counter and asked for an explanation from the
sturdy woman peering out at me from the tiny window. "Children should be in
school, not traveling abroad," she lectured me dryly.

"But it is vacation," I heard myself saying defensively.

"Fine, but we object anyway. The child will merely distract you from your
work. You'll be worried about him instead of focusing on the conference."

Now that was too much. I mentioned that it seemed to me that the matter of
how I might or might not divide my attention was beyond the competence of
the German Embassy, which set off a rather protracted discussion on a
variety of pedagogical topics. Hard to believe, but I somehow convinced her
that I was right. "If you're so sure that this trip will be good for your
son, then let him go," she spat. Within a few minutes, I had a new visa
made out for both of us.

Later I discovered that it was even more complicated getting a U.S. visa
for my son. I read a spectacular document on the embassy wall, which is a
classic example of the bureaucratic style known as "Catch-22." It opened
with a long list of documents and permissions that might be requested of
anyone applying for a visa. Then came a line that said more or less: "The
absence of any of these documents may serve as grounds for denial of a
visa, but having them all does not guarantee receiving one."

Two trips to the embassy ended in failure. Already having a long-term U.S.
visa in my own passport turned out to be more of an obstacle than a help
when it came to applying for my son. "We are already admitting you," they
seemed to think. "What do you want to take your son for?"

As I tried to explain that it was summer vacation and that my wife works,
the young man behind the little window interrupted me, "Can you prove that
you and your son are not planning to abandon your wife and remain in the
United States?" As it turns out, I couldn't prove this.

My sufferings only came to an end after I made a practice of telling every
American I met at various receptions the whole story, embellished with a
threat of legal action. At first, that threat backfired. One young man
said, "You have a lawyer? That means you must be planning to stay in America!"

Later, though, they started reacting differently. I asked a friend who is a
Moscow representative of a fairly prestigious American law firm to call the
consular department for an explanation. She was told that children should
stay at home with their mothers. "Are you saying that you are opposed to
equal rights for women?" my friend countered. And before I knew it, my
son's visa was in hand.

This all happened in the early '90s. Since that time, by all accounts, the
situation at the U.S. Embassy has gotten much worse. And at most European
embassies. Once the Cold War mentalities were shed, the embassies began
using Russian personnel to handle visa applications. While this had some
advantages, the appearance of Russian bureaucrats created many new problems.

In the Austrian Embassy, I was shocked by how perfectly they had recreated
the atmosphere of a typical Soviet office. Visitors are met by a
stern-looking man who obviously worked in the Soviet government. While
waiting, visitors try to guess at his previous life: a guard in a prison camp?

In my case, getting an Austrian visa took an entire week, during which I
had to stop by the embassy every day, as if going to work. Each time I
learned that the darling ladies behind the little window had mixed up
something or forgotten some essential detail. "Please, we need one more
document ...". To be fair, though, they did sometimes let me come back the
next day without waiting in line. In the end, they gave me a much longer
visa than I wanted - and much more expensive - but I took it and counted
myself lucky.

In the mail this week, I found an invitation to a conference in Prague. It
begins again.

Boris Kagarlitsky is a Moscow-based sociologist.

******

#6
BBC Monitoring
Baltic states fear Russian-US secret deal - Russian newspaper
Text of report by Baltic news agency BNS

Kaliningrad, 16 March: The Baltic states are afraid of becoming victims of
an underhand deal between Moscow and Washington, [the Russian newspaper]
Komsomolskaya pravda Kaliningrad supplement says in its commentary citing
some previous reports by Austrian Die Presse.

The newspaper suggests that "American security experts have already worked
out a plan, according to which Russia will agree to NMD deployment in
exchange for Baltic countries no-admittance to NATO".

"The non-existent [Russian tactical nuclear] weapons in Kaliningrad Region"
could become an important argument in this case. "So, Americans could have
invented the story in order to justify themselves in the eyes of Latvia,
Lithuania and Estonia," Komsomolskaya pravda [Kaliningrad supplement]
suggests.

Denmark, that is an ardent supporter of NATO expansion in the Baltic area,
as the newspaper believes, can also play an important role in this affair.

"Copenhagen has a very efficient tool of influence on the United States.
Thule Air Base in Greenland is an NMD key element. The giant ice-covered
island belongs to Denmark, so Danish government's permission is needed to
have the base modernized," newspaper says.

******

#7
Financial Times (UK)
16 March 2001
IMF silent over Russian probe ALLEGED LOAN MISAPPROPRIATION
By ASTRID WENDLANDT

Swiss prosecutors investigating the alleged misappropriation of Dollars
4.8bn lent to Russia by the International Monetary Fund during the
financial meltdown of 1998 face a wall of silence from the fund, which has
denied them access to crucial information for their inquiry.

Laurent Kasper-Ansermet, investigating judge in Geneva, officially asked
the IMF two months ago for a list of Russian banks that received a portion
of the loan in 1998. Mr Kasper-Ansermet says he needs this information to
determine whether the banks used the funds to prop up the rouble as
intended by the IMF or whether they diverted them to offshore accounts via
Swiss banks.

"It is possible the roubles were purchased with funds that already existed
- using reserves from the central bank," said Mr Kasper-

Ansermet.

He has received testimonies supporting his suspicions that the money may
have been diverted "to benefit third parties" via Switzerland, and "was not
used to serve the goals of the IMF".

The IMF has repeatedly said it was satisfied the money had been well spent
after an audit was conducted by PwC,the international accounting firm, into
money transfers between the Federal Reserve Bank of New York, the Russian
central bank and several Russian banks.

The IMF said the audit showed no misuse of the funds. An IMF spokesperson
said yesterday: "We were willing to meet (Mr Kasper- Ansermet's) request of
last year for the list of banks but were unable to do so because of our own
confidentiality agreement with PwC. We asked PwC for permission to provide
this information but PwC did not wish us to release it."

The audit was commissioned by the Russian central bank at the request of
the IMF.

Swiss judicial authorities argue the audit was not thorough enough. "The
PwC report does not answer every one of my questions," says Mr
Kasper-Ansermet.

The audit, a copy of which was obtained by the Financial Times, clearly
states that it "did not attempt to verify the completeness or accuracy of
(the) information", on which it is based.

But the IMF is not the only organisation which appears to be unwilling to
co-operate fully with Swiss authorities.

On September 6 last year, Mr Kasper-Ansermet sent an "urgent" request to
Vasily Kolmogorov, Russia's deputy general prosecutor, asking him to obtain
information from Viktor Gerashchenko, chairman of the Russian central bank,
"which would help determine whether the IMF tranche of Dollars 4.8bn was
spent to support the rouble".

Diplomatic notes have been sent to Moscow several times to remind the
Russian central bank of the request, but the judge has yet to receive a
reply from Moscow.

******

#8
Kommersant
March 16, 2001
BORIS YELTSIN REVIVES
The first Russian president aims to return to politics
Author: Yelena Tregubova
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
BORIS YELTSIN HAS PLANS TO ESTABLISH A CLUB OF ELDER STATESMEN. A
SCHEDULE FOR INTERNATIONAL MEETINGS WILL BE PREPARED IN THE NEAR
FUTURE, THOUGH YELTSIN'S STATE OF HEALTH MAY BE A PROBLEM. IF THE PLAN GOES AHEAD, IT COULD ACTUALLY BE USEFUL IN BUILDING BRIDGES BETWEEN MOSCOW AND THE BUSH ADMINISTRATION.

VLADIMIR SHEVCHENKO, CHIEF OF PROTOCOL FOR BORIS YELTSIN, SAYS THE
FIRST RUSSIAN PRESIDENT INTENDS TO IMPLEMENT HIS IDEA OF ESTABLISHING A CLUB OF ELDER STATESMEN. A SCHEDULE FOR INTERNATIONAL MEETINGS WILL BE PREPARED IN THE NEAR FUTURE, SHEVCHENKO SAYS.

While no longer president, Yeltsin remains true to his nature -
with all that it implies. This means his traditional cycle, first and
foremost - an illness, followed by a burst of activity.
The idea of such a club first appeared in Yeltsin's book
"Presidential Marathon". Officials close to him assured everyone that
numerous foreign tours, meetings in Russia, and energetic work on the
special foundation would follow.
All these grandiose plans haven't been implemented as yet. In
retirement, Yeltsin has only made a single trip to Germany (where the
book was launched) and had one meeting with his old friend Helmut
Kohl.
Perhaps lengthy foreign tours are ruled out by Yeltsin's poor
health. On the other hand, it is reasonable to assume that those close
to Yeltsin, well aware of his fondness for springing some unexpected
improvisation on the world, have deliberately prevented the planned
trips.
In any case, it seems that Russia's top pensioner is now being
revived for political activity. Hashimoto of Japan and George H. W.
Bush are prepared to meet with Yeltsin. Meanwhile, President Bush is
avoiding a meeting with Putin, Yeltsin's successor. As Russian-
American relations rapidly deteriorate, Yeltsin may soon turn out to
be the only bridge between them.

*******

#9
Segodnya
March 16, 2001
ACCELERATED FLIGHT
Capital flight from Russia doubled in 2000
Oil companies lead the way in buying assets abroad - where it's
safer
Author: Milana Davydova
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
RUSSIAN COMPANIES, BOTH PRIVATE AND STATE-CONTROLLED, PREFER FOREIGN MARKETS TO THE DOMESTIC MARKET. RISKS REMAIN DISPROPORTIONATELY HIGH IN RUSSIA. ALL THIS IS DRIVING RUSSIAN COMPANIES INTO EUROPE, WHERE THE BUSINESS ENVIRONMENT IS MORE STABLE, AND THERE IS LESS RED TAPE.

Capital withdrawal from Russia is increasing despite the
government's assurances. The Yunikom auditing company says Russia's
economy loses $20-25 billion a year. The official data released by the
State Statistics Committee indicates that Russian companies invested
$15.154 billion in property abroad in 2000, against $8.38 billion the
year before. Vladimir Potanin of Interros, after a meeting with the
president, presented this factor as a criterion for how effectively
the state is working with business.
Capital flees Russia for the same old reason. It doesn't feel
secure in Russia. It requires guarantees of safety. "The Taxes and
Duties Ministry set up a special structure to handle major tax-payers.
This and similar government initiatives are persuading companies to
buy assets abroad," says Viktor Vekselberg of the Tyumen Oil Company.
Oil prices are falling, but oil companies still have money. The
government's decision to lower oil export duties from 48 to 22 euro a
ton will leave almost $500 million in the companies' coffers. When
asked what would happen to this money, oil companies sneer and start
talking of the need for investment in new oil deposits. However,
experience shows that they usually invest in European markets.
Take LUKoil, for example. It has already bought the Getty Oil
company with its 1,300 gas stations in the United States; and it is
completing its purchase of the Austrian Avanti (700 gas stations in
Europe). According to our sources, LUKoil is also thinking of buying
two refineries in the United States and another in the Czech Republic.
Assets abroad bring in stable revenue. There are no oil export
restrictions in the West. There are no red tape intricacies there. The
major advantage is diversification of risks there. Risks remain
disproportionately high in Russia. All this is driving Russian
companies to the European markets. The YUKOS oil company, for example,
is considering buying a network of gas stations in Hungary, which will
pave its way into Yugoslavia.
State-controlled companies are following suit. The Slavneft oil
company, for example, has a joint venture with the Belgians. In 2000,
its turnover exceeded $1.3 billion.

*******

#10
Vedomosti
March 16, 2001
EQUIDISTANCE
Tycoons who please the Kremlin are permitted to have money and
influence
Author: Vitaly Portnikov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
DESPITE PRESIDENT PUTIN'S PROMISE TO REMOVE ALL TYCOONS FROM THE
CORRIDORS OF POWER, SOME OLIGARCHS HAVE UNPRECEDENTED INFLUENCE WITH
THE KREMLIN. PUTIN'S APPROACH IS DIFFERENT, BUT SO FAR THERE IS NO
SIGN THAT ALL TYCOONS ARE AT AN EQUAL DISTANCE; FOR EXAMPLE, OLEG
DERIPASKA AND ROMAN ABRAMOVICH ARE IN FAVOR.

These days, absolutely everyone is predicting that Vladimir
Gusinsky will lose control of Media-Most and the NTV network. How can
his position compare to that of Boris Berezovsky, who almost lost
control of TV-6 - but is now forming its board of directors?
Berezovsky is thinking all the while about which other companies his
media empire should include. How does Gusinsky compare with Oleg
Deripaska, who cannot even afford a simple vacation in the Khakassian
mountains? The Russian media reports that Deripaska's holiday home
there is currently occupied by President Putin and his retinue of
state officials. But at least Deripaska has his favorite business to
attend to, while Roman Abramovich is deprived of this consolation.
Recently elected as governor of Chukotka, he needs to focus on the
numerous problems of one of Russia's most problematic regions. Given
all this, the impression is that Gusinsky is the only lucky guy among
them.
Seriously, enough time has passed since Putin's famous promise
that all Russian oligarchs would be kept at an equal distance from the
corridors of power. At present, they are at various distances from the
federal government. Even with all the disadvantages of Yeltsin's rule,
all the illegitimate ways in which initial fortunes were made, there
was something Western in the government's attitude toward oligarchs.
But these days, there is something definitely Eastern about it. Only
those whom the regime finds personally pleasing are permitted to have
money and influence. All the rest are handled by the Prosecutor
General's Office.
In Yeltsin's Russia, the president was a kind of deity - who met
with Russian business leaders infrequently, more for fun than anything
else. At the same time, virtually all of them had their own pipelines
into the Kremlin and levers of influence. These days, Putin meets with
business leaders even less frequently than his predecessor. For Putin,
all business leaders are just members of the Russian Union of
Industrialists and Entrepreneurs, the colleagues of veteran Arkady
Volsky. For most business leaders, however, these infrequent meetings
are virtually the only opportunity of confiding their problems to the
president. At the same time, some business leaders have influence with
the Kremlin that greatly exceeds the influence of oligarchs under
Yeltsin. The latest events related to the vote of no confidence in the
Cabinet show that these people are even prepared to stage a national
political crisis to promote their own interests.
For these palace oligarchs, the president is not a deity. He is
their lobbyist.

*******

#11
Russia creates cautious investor optimism
By Daniel Bases

NEW YORK, March 16 (Reuters) - Russia's investment outlook, while still
considered risky, has been helped most by the relative political stability of
President Vladimir Putin's government, officials, analysts and investors said
on Thursday.

"Putin's main achievement over the past year is a big enhancement in the area
of political stability and predictability," Sergei Kiriyenko, a former Prime
Minister of Russia, told investors and analysts at a Russian investment
conference in New York.

"There are no revolutions, no major scandals. Slowly but surely progress is
being made," said Kiriyenko, who now serves as Putin's representative for the
Volga region, one of the seven newly appointed envoys to oversee Russia's 89
provinces.

On Wednesday the government of Putin's Prime Minister, Mikhail Kasyanov,
survived the first no-confidence vote in the lower house of Parliament since
coming to power 14 months ago.

During that time, Putin has had to deal with the Kursk nuclear submarine
accident that cost 118 sailors' lives and a 17-month long military campaign
in Chechnya to end that republic's independence bid. The conflict has served
as a major source of support for Putin within Russia.

Kiriyenko, who was sacked by former President Boris Yeltsin in the wake of
the August 1998 financial crisis, highlighted the positive developments such
as a reformed tax system and a 17 percent increase in Russian domestic
investments last year.

"That was perhaps the single most significant figure to come out of this
conference," said Christopher Granville, political analyst and strategist
with Russia's United Financial Group, who estimated the increase equaled $60
billion.

"If you are more secure that the government isn't going to strip you of
assets, it becomes in your own self interest to invest in your own business.
I think it is the only explanation for this surge in investment. You can't
explain simply by the fact of high oil prices," said Granville.

CAPITAL FLIGHT

While the rise in domestic investment was seen as a positive development, one
which answers critics who charge that Russia first needs to invest in itself
before others do, the figure is undercut by the amount of capital that
continues to leave the country.

"You have capital flight that is equal to 10 percent of gross domestic
product (GDP) and foreign direct investment that is half of Chile," said
Marcelo Selowsky, chief economist at the World Bank.

Foreign direct investment (FDI) in the Russian economy rose to $4.43 billion
in 2000 from $4.26 billion the previous year.

"What is positive about Russia? It has a very good fiscal situation. It has a
very good balance of payments situation. But very few people want to invest
in Russia," he said.

In 2000, Russia's GDP grew 7.7 percent, inflation fell and the country went
from a budget deficit to a surplus. In 2001 GDP is forecast to grow between
four and five percent.

Despite this good news, nagging questions over corporate governance,
nightmare memories of the 1998 financial crisis, and a failure to restructure
a bloated banking system were cited most by conference participants as major
reasons why investors are reluctant to make direct investments in Russia.

The companies making presentations went out of their way to profess their
respect for stakeholders, but the low levels of FDI indicate it will take a
lot more convincing.

"Prejudice still exists against the companies over the past problems with how
corporations treated investors, but it is getting better," said Michael
Ionata, a private investor who says he has several million dollars invested
in the country.

One former Russian government minister turned investment banker, who spoke on
condition of anonymity, countered: "the past 10 years were so complex, but I
still don't think Russian companies are appreciating the benefits of foreign
ownership. Give them what they want, transparency."

"They (Russian companies) realize that share prices can give you more wealth
than asset stripping," added Michael Calvey, managing partner of Baring
Vostok Capital Partners.

INSULATION FROM GLOBAL SLOWDOWN

While Russia's economic growth is expected to decline in 2001, a forecasted
decline in the average price of oil to the low $20 range is not expected to
destroy the progress of 2000.

"Russia is riding piggyback on OPEC's production decisions, so a cut only
helps keep prices rich, leaving them relatively insulated." said Ionata.

The low value applied to Russian businesses could also turn out to be
insulation against a slowdown.

"Even if profits do go down it won't matter as much because we are so far
(below) real valuations," explained Granville.

*******

#12
FORMER RUSSIAN DEFENSE MINISTER SAYS HE OPPOSED HASTY DEPLOYMENT OF
TROOPS TO CHECHNYA IN DECEMBER 1994

MOSCOW. March 15 (Interfax) - Former Russian defense minister Pavel
Grachyov says he spoke out against the quick deployment of troops to
Chechnya in late November 1994.
Grachyov said at that session of the Russian Security Council he
had said that "it is unwise to send troops [to Chechnya], especially in
December. And if troops have to be sent, [it should be done] only in the
spring." The former defense minister says he then suggested "putting
economic pressure on Chechnya, then encircling Grozny and waiting for
the rebels to surrender."
In an interview published in the Thursday edition of Trud
newspaper, Grachyov said that the proposal to sent troops to Chechnya
had first been made by Nikolai Yegorov, "the nationalities minister,"
who was supported by then-prime minister Viktor Chernomyrdin and then-
security council secretary Yury Lobov.
The former defense minister said he had been accused of being a
coward for his stance on the deployment of troops to Chechnya.
"Chernomyrdin stood up immediately. I had not expected him to say such a
thing, since we had normal relations. He said 'Boris Nikolayevich
[Yeltsin], I consider the defense minister's report to be defeatist, the
minister does not know the situation and therefore is scared [] I
suggest that the defense minister be dismissed from his post for not
knowing the situation and for his cowardice,'" Grachyov said.
Recalling that meeting of the Russian Security Council, Grachyov
said he had "staked his all" because he realized that he would have "to
direct the sending of troops and therefore to answer for it."
The former defense minister said that after the Security Council
meeting Boris Yeltsin had asked him to prepare a plan for sending troops
to Chechnya within ten days. "And it was already an order, which was to
be fulfilled," Grachyov recalls.
Grachyov denied that a number of well-known generals - Boris
Gromov, Georgy Kondratyev and Eduard Vorobyov - had opposed the sending
of troops to Chechnya and had resigned for that reason. "Nobody
resigned. And only Boris Gromov openly opposed the sending of troops
from the very start, but he did not resign for a while either, he was
waiting," Grachyov said.
The former Russian defense minister criticized Eduard Vorobyov,
former first deputy commander-in-chief of the land forces (now a
deputy), who was responsible for military training of the army units
sent to Chechnya.
According to Grachyov, when he suggested that Vorobyov head up the
federal force, "General Vorobyov blushed and then, after being silent
for 15-20 seconds, suddenly said 'I refuse to command.' Grachyov said
"What do you mean? I am ordering you." According to Grachyov, Vorobyov's
answer was "The troops are not ready." According to Grachyov, his
[Grachyov's] reaction was as follows: "What do you mean? Have you been
deceiving me? Do you know what this means to you? Fifteen years in jail
or execution by shooting." The former defense minister also noted that
"he [Vorobyov] still speaks very clearly in the Duma, and everybody
thinks he is a very brave general."

*******

#13
Moscow Times
March 16, 2001
Spy vs. Counter Spy
Conversations With a Former KGB Chief
By Nikolai Dobryukha

Vladimir Semichastny was a KGB man to the end. A staunch critic of the
politics and morals of the new Russia, Semichastny headed the KGB from 1961
to 1967. Under his watch the Cold War turned chillier during the rise of the
Berlin Wall and the Cuban Missile Crisis.

"I have no regrets. I believe everything was done correctly," Semichastny
told NTV shortly before his death earlier this year at the age of 77.

It was also during Semichastny's tenure that the KGB arrested Oleg Penkovsky
â?" the Russian intelligence officer often credited in the United States and
Britain as being the most valuable double agent during the Cold War.

Penkovsky joined the Soviet army intelligence directorate, GRU, in 1949.
Shortly thereafter he became an intelligence officer, rising to the rank of
colonel by 1960. His job was to collect scientific and technical intelligence
on the West, but between 1961 and 1962 he passed information to the United
States and Britain on Soviet weapons technology â?" data that the United
States
found particularly valuable in identifying Soviet missile systems placed in
Cuba during the 1962 Cuban Missile Crisis.

Arrested by the Soviets in October 1962, Penkovsky was convicted of treason
and executed the following May.

The following is an excerpt from Semichastny's memoirs, compiled before his
death by Moscow writer Nikolai Dobryukha. During his conversation with
Dobryukha, Semichastny discusses his dealings with Penkovsky after the spy
was arrested in 1962 â?" at the height of the Cuban Missile Crisis.

Dobryukha:
Penkovsky was convicted of treason nearly 40 years ago, yet the affair
continues to raise interest today. Some say he was the most dangerous traitor
in the history of the Soviet Union who paid for his deeds with his life.
Other accounts say Penkovsky was a phony double agent set up to misinform the
West and that he is still alive today, living under a different name with a
different face. Still others say his body was burned after his conviction to
leave no trace of him. This was all happening while you were heading the KGB.
What can you tell us of the Penkovsky case?
Semichastny:
In reality, he didn't go anywhere. He was shot. All sorts of things have been
said about Penkovsky. Some claim he was the resident coordinator for all of
the West's intelligence activities in the Soviet Union. They even say the KGB
burned Penkovsky alive in a furnace. There are certainly a lot of fairy tales
about the KGB!

If you like I can tell you what happened after he had just been arrested. He
was working at the time in the Soviet army intelligence directorate. When
Penkovsky was arrested they brought him straight to me at Lubyanka. I wanted
to get a look at him so as to be sure that he was our man. They brought him
to my office and, as I recall, he sat at the far end of my long table. He
looked crestfallen and disheveled â?" like a pitiful mouse. And suddenly he
said to me, "Citizen chairman â?¦ I could offer you my services and work for
the state â?¦" He immediately started trying to come to an agreement with me.

I said to him: "First tell us what harm you have done to the state. What have
you told the Americans and the British?" He started muttering something, and
I said: "Keep in mind that we know more than what you are telling us now. Go
off to prison. When it all comes back to you in your cell and you decide to
tell us everything then let us know and we'll meet again."

As it happens, I didn't meet with him again. Our investigators were already
on his case. They had arrested Greville Wynne [the British businessman who
served as Penkovsky's link to British intelligence] and started playing with
him. One day, as if by accident, they lead Wynne along the corridor as
Penkovsky was approaching in the opposite direction so that both could see
that the other had been arrested. Of course, they had no idea how much the
other would reveal. This kind of psychological game made them easier to
handle during interrogations.

Dobryukha:
What were the consequences for his family after he was arrested? Did they
also suffer?
Semichastny:
No. In fact the opposite is true. After all we had broken into his apartment
earlier. We had already discovered the hiding place [in his apartment] where
he had a fake passport and several thousand rubles. Later I gave the order
that a large portion of this money should be left for his family. While
observing Penkovsky we became convinced that the other members of his family
(his mother, wife and two daughters) were respectable individuals who never
suspected his treachery.

In order to protect them we swiftly transferred his older daughter to a
different school and moved the family to a new area. But the family remained
intact. Later, it turns out, they changed their surname so that Penkovsky's
crimes did not haunt them. Penkovsky's wife, incidentally, wasn't just
anyone. She was the daughter of the head of the political department for the
Moscow military district. How about that!

Back to Penkovsky. He had been working as an aide to Artillery Marshal Sergei
Varentsov, commander of the Red Army Rocket Forces. He managed to worm his
way into the good graces of Varentsov's family, his wife and daughters. They
even trusted him with the keys to their dacha.

Much of what the agent passed on to the Americans and the British originated
from Varentsov. He socialized, after all, with members of the military,
weapon designers and other individuals with high security clearance.
Penkovsky knew in detail about all of Varentsov's trips and where the rocket
forces were deployed. He passed all of this on to the West. Ultimately, even
the unsuspecting Varentsov suffered because of Penkovsky: He was demoted from
artillery marshal to the rank of major general.

When I first called Varentsov in for a talk he was outraged. But I told him:
"What do you mean? Do you think I personally decided to talk to you? Do you
think the Party isn't aware of the way you work, the way you spend your time?
Think about whom you've allowed to get close to you. Who is this type who has
been hanging around you all this time?" He nearly swore at me. Then I said:
"Here's the deal. Either I call in the stenographer and officially
interrogate you, or you can take my questions with you and bring me back full
answers to all of them!" He wilted immediately. And that was it!

Penkovsky, of course, had been looking for an opportunity to betray [his
country]. On several occasions he sent letters to the Americans and to the
Brits offering his services. As I recall, the Americans were initially wary.
But the British went for him. We started to notice him when he started to
establish a link with the British. Or, to be more accurate, we caught him
with a fleeting contact at GUM department store, by the fountain. That's
where our external observer got a fix on him. After that they followed him
and followed him. We stuck with him for about four months, shooting an entire
documentary film about Penkovsky. This film is still in the KGB archives, but
it will never be shown. It is forbidden to show secret documents. But I'll
mention one interesting moment in the film, when the wife of a secret agent
in the British Embassy is sitting in a public square. Penkovsky gives her
little girl, who is about 3 or 4 years old, a box of chocolates. The girl
runs to her mother with the box â?" which contains microfiche as well as
sweets. She was like a postman for the secret mail service.

Penkovsky also traveled abroad, to London and Paris, where the American and
British special services met and spoke with him at length. These negotiations
revealed his true, mercantile nature â?" his constant requests for money and
rank. Do you know, he was actually a colonel serving in three intelligence
agencies: ours, the Americans' and the British. He conceitedly believed that
the queen herself should grant him audience. In fact, he wanted to meet the
queen so much that the British had to introduce him to some lord or other in
order to cool him off. He asked for money â?" allegedly in order to give
presents to the necessary people. In reality, it was all for himself.

Dobryukha:
The West called Penkovsky their most valuable agent of the Cold War. Is it
true that he caused a great deal of harm to Soviet security?
Semichastny:
Of course not! He was certainly the greatest traitor of all our spies. And it
is true that we were forced to recall some 200 spies from overseas because
Penkovsky knew them personally, but this business of the Western secret
services turning Penkovsky into their "agent of the century" is nonsense.
They made it sound as if they had recruited one of the highest-ranking secret
officers of the Soviet Union. People talked about it for so long that they
made it sound as though â?" thanks to Penkovsky, who allegedly stole the
Soviet's secret formula for rocket fuel â?" a nuclear war was avoided.
Rubbish!
Nothing of the sort happened! All he did was use the library of the Soviet
intelligence directorate. They say that he took top-secret materials from
there and, after photographing them, sent them on to the West. You may ask,
what top-secret materials could they keep in a library, even in the
intelligence directorate? The fact was that the foreign secret services
exaggerated the success they had with their "super agent" in order to secure
additional financing for their activities.

How could he have sold Soviet rocket fuel secrets to the Americans? He could
not have gotten hold of this formula â?" even from Varentsov. He might have
been able to show where the rockets were deployed, the names and types, but
he couldn't have given the exact number and said exactly which rockets were
deployed where. He could only record their general location based on
Varentsov's working trips.

Of course, he also heard whatever Varentsov said when he was drunk at the
table. Whenever he topped off Varentsov's glass, his tape recorder was on.
But what could he have found in the library? There was nothing he could have
taken from there. Top-secret defense materials never went through the science
and technology committee. Secondly, if an employee â?" even a general â?"
showed
particular interest in a certain subject in the intelligence directorate
library they would have informed the authorities and established appropriate
surveillance for this kind of curiosity. The people working there are not,
after all, your typical librarians. This is the special service. Someone just
can't come along of his own accord and ask for something that goes unnoticed.
Even in ordinary libraries everything is recorded â?" all the more so in
special libraries. All the materials lent out are released under a special
license, the license is granted by special decree, the decree is part of a
specially developed plan, and so on. Of course deviations do occur, but as
soon as they take on a systematic character the state security structures are
notified immediately.

Furthermore, not a single sheet of paper will be given out â?" even to a
highly
placed official â?" until that person presents in writing why he needs it. At
least, that is the way the system is meant to work. This is the way it was
with Penkovsky. We filmed four, 30-minute-long films of his "research." I
even showed these films to Fidel Castro, who told his [security] minister:
"Watch and learn!" We gave Penkovsky some kind of junk to make the Americans'
heads spin. He passed it all on to them, and they took it for the real thing,
paying him handsomely. As a result, they poured money into unnecessary
countermeasures.

Dobryukha:
What about Penkovsky's arrest?
Semichastny:
Penkovsky was supposed to have gone abroad on several occasions, but we
stopped him under some pretense or other. We didn't arrest him because we
were waiting to catch Wynne [his British contact]. But Wynne didn't come to
Moscow. He did travel to Budapest, though. I immediately sent my plane there
with a team to capture him and bring him back here. Once we had Wynne,
Penkovsky was brought in.

Dobryukha:
Recently another book, "Espionage and the Cold War: Oleg Penkovsky and the
Cuban Missile Crisis," came out in the West, signaling that they still
consider him to have been a key agent.
Semichastny:
The Americans may have had their doubts about Penkovsky, but he never gave
them the opportunity to come to their senses. He had the gift of gab,
convincing his contacts in the West that he was on friendly footing with one
and all. That enabled him to milk even more money out of them. The Americans
and the British were stuck with him. And later, in order to cover up for this
almost comical situation they got themselves into â?" one that is
unforgivable
for such super powers â?" they had to posthumously dub Penkovsky their super
agent of the century.

But we really did have super agents â?" such as [the Soviet's double agent in
the British intelligence service Kim] Philby, and others they will only hear
about a hundred years from now. The main thing is that these spies can't be
compared to Penkovsky; he worked for money, while they worked for an idea.
Time will speak in defense of these spies who worked for an idea. They are
the real people â?" the ones who cannot be bought.

*******

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

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