Johnson's Russia List #5159

Johnson's Russia List

#5159
19 March 2001
davidjohnson@erols.com

[Note from David Johnson:
1. Bloomberg: Russian Feb Industrial Output Rises at Lowest Rate Since 1998.
2. Moscow Times editorial: World Can Help Russia In Chechnya.
3. Novye Izvestia: CHECHNYA: USE THE CARROT, NOT THE STICK. (poll)
4. New York Times letter: Marshall Goldman, Make Russia Pay Up.
5. Moscow Times: Simon Saradzhyan, Despite Setbacks, Communists Remain Strong.
6. Vek: Andrei Ryabov, A REHEARSAL FOR PRESIDENTIAL ELECTIONS. The recent no-confidence vote crisis seems to have left no mark.
7. The Wall Street Journal Europe: Janine Wedel, Who Taught Crony Capitalism to Russia?
8. Hindustan Times: Fred Weir, Russian military system haunted by graft.
9. www.fednews.ru: PODROBNOSTI RTR PROGRAM, INTERVIEW WITH MINISTER OF ECONOMIC DEVELOPMENT AND TRADE GERMAN GREF. ("about ways of removing bureaucratic barriers standing in the way of entrepreneurship")
10. Reuters: Mir end leaves Russian space programme in doubt.
11. Reuters: Bringing Gusinsky to Moscow said risky for Kremlin.
12. Novoye Vremya: Tatiana Kamosa, YOUNG REGIONAL LEADERS. The new form of privatization in Russia is political privatization.]

*******

#1
Russian Feb Industrial Output Rises at Lowest Rate Since 1998

Moscow, March 19 (Bloomberg) -- Russia's industrial output rose in February
at the slowest annual pace since the 1998 financial crisis as production of
building materials, wood products and nonferrous metals declined, the state
statistics committee said.

February output rose at 0.8 percent from a year ago, after rising 5.3
percent in January from the same month a year ago and 2.5 percent in
December on an annual basis, the State Statistics Committee said. While
concerned at the decrease in output growth, economists said they expect
annual output growth to rebound in March, possibly accelerating to as high
as 7.5 percent expansion.

``We are concerned about this slowdown: this slowdown is much worse than we
thought,'' said Goohoon Kwon, chief strategist at ABN Amro in London.
``Most of the slowdown appears to have come from construction materials and
engineering. We expect a slight rebound in March yet still below 4 percent
year-on-year and probably 3 percent year-on-year.''

Russia's industrial output rose 9 percent last year from 1999, and 6.5
percent in the fourth quarter from the same period a year before.
Industrial output growth grew at 11.9 percent in the first quarter of 2000,
compared with the same period the year before.

Growth over the past two years was fuelled by high prices for oil, gas and
metals that make up half Russia's exports and the effects of the 1998
devaluation, which stimulated domestic producers by making imports more
expensive.

These producers are now facing increased competition from imports because
the ruble has risen against the dollar when allowing for Russia's higher
inflation rate.

Ferrous metal output fell 4 percent from the same period last year, while
wood products fell by 2.3 percent and building materials by 2.5 percent.

Electrical energy output rose by 3 percent, while nonferrous metal output
rose by 3.5 percent and chemical production rose by 3.8 percent in February
from the same month last year. The largest percentage increase was in
microbiology, which increased 13.8 percent in February from the same month
the year before.

*******

#2
Moscow Times
March 19, 2001
World Can Help Russia In Chechnya
Editorial

Russia, it would seem, has dodged a bullet with the resolution of this
weekend's hijacking, which, although it left three people dead, could have
been far worse. The incident, unfortunately, underscores what a quagmire
Chechnya has become for Russia (and, increasingly, for the world) as well
as the fact that there is no satisfactory resolution in sight.

President Vladimir Putin responded to the incident by asserting that "the
tragedy reminded us all - Russia and the international community - who the
Russian army was facing in its counter-terrorist operation .".

Apparently, Putin means to say that the military is struggling against
unreasoning, crazed terrorists with no respect for human life.

However, the incident really shows that a decade of lawlessness and war has
spawned desperation and hatred that can flare up at any time in
unpredictable ways.

Moreover, Putin's comments strongly imply that the present military
operation cannot end the violence and terror. He admitted that some rebels
"are hiding in caves striking us from behind" and claimed that others "have
based themselves abroad and are trying to organize hostile actions from the
territories of other states." The country seems fated to an interminable
grinding daily horror punctuated by periodic discoveries of mass graves and
occasional hijackings or apartment-block bombings.

Escaping this nightmare will demand bold, fresh leadership such as we have
not yet seen from Putin on any issue. Any hope of resolution requires that
the government admit its attempt to resolve the conflict militarily has led
to the present dead-end.

Furthermore, Putin must acknowledge that by now the situation has evolved
far beyond Russia's ability to resolve it alone. As long as Chechnya is
considered a purely "internal matter," it will remain an open wound sapping
the country's morale, resources and international prestige.

When the Kursk submarine sank last August, Putin was criticized for not
reacting quickly enough. In this instance, he seems to have - cosmetically,
at least - learned his lesson. He immediately cut his skiing short and set
up a special crisis team.

But Russia was also criticized then for being stubbornly reluctant to
accept foreign help. Perhaps this is the real comparative lesson that the
hijacking could teach Putin.

Perhaps now is the time to declare that Chechnya is a global issue and to
ask the international community to create a mediation process and an
assistance mechanism that might break the stalemate. In such a situation, a
bold leader would not be too proud to ask for help.

******

#3
Novye Izvestia
March 17, 2001
CHECHNYA: USE THE CARROT, NOT THE STICK
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
     Opinion polls indicate that 56% of respondents believe it is
necessary for the federal government to gain the trust of the people
of Chechnya in order to normalize the situation there. Only 29%
believe that the situation can be normalized by keeping the people of
Chechnya in a state of fear.
     This poll was done by the Public Opinion Foundation on March 10,
with 1,500 respondents from urban and rural areas across Russia.
     The pollsters conclude that most respondents consider the
"carrot" will eventually be more effective than the "stick" in
resolving the problem of Chechnya.
     The same poll showed that 45% of respondents believe media
reports about some federal soldiers releasing captive guerrillas in
exchange for money; and 37% do not believe this. Meanwhile, the
majority of respondents (64%) do not believe that federal soldiers
detain civilians with the aim of making them pay for their release.

*******

#4
New York Times
March 19, 2001
Letter
Make Russia Pay Up

To the Editor:

Anatol Lieven and Celeste Wallander (Op-Ed, March 14) propose that if
Russia forgives the money owed to it by Ukraine, Georgia and some of its
other neighbors, the West should forgive the $48 billion Russia owes us.
This would be a serious mistake. As long as Russia's neighbors sense that
they can continue to use Russia's natural gas and oil without having to
pay, they will not feel it is necessary to find alternative energy sources
or to conserve.

The same goes for the Russians. It is true that most of the $48 billion is
Soviet-era debt, but last year their hard currency reserves hit almost $30
billion and their trade surplus was close to $50 billion. If they are able
to avoid paying their bills now when they can afford it, they will assume
that they will always be able to get away with it, and avoid addressing
their tax collection and capital flight problems.

MARSHALL I. GOLDMAN
Cambridge, Mass., March 14, 2001
The writer is associate director of the Davis Center for Russian Studies,
Harvard University, and a professor of Russian economics at Wellesley
College.

*******

#5
Moscow Times
March 19, 2001
Despite Setbacks, Communists Remain Strong
By Simon Saradzhyan
Staff Writer

Communist leader Gennady Zyuganov's botched effort to pass a vote of no
confidence in the government may cost his comrades some key posts in the
State Duma, but his party will remain a formidable force for years to come.

The Communists' motion to declare no confidence in the Cabinet failed
Wednesday with only 127 votes out of the required 226.

The motion, which was supported by the Communists' allies, the Agrarians,
lost steam after the pro-Kremlin Unity faction backtracked on an earlier
announcement that it would call the Communists' bluff and throw its support
behind the motion.

In response to the no-confidence initiative, the Unity-allied People's
Deputy faction threatened to call for a vote to wrest control of several
key committees from the Communists.

People's Deputy leader Gennady Raikov told the Kommersant newspaper that,
by turning against the government, the Communists had violated the
power-sharing agreement they had reached with pro-Kremlin forces early last
year after parliamentary elections.

Vladimir Averchenko, Raikov's deputy and first deputy speaker of the Duma,
told Kommersant last week that - if the vote took place - the Communists
could lose their 11 committee chairmanships and the speaker's seat
currently occupied by Gennady Seleznyov.

Yevgeny Volk of the Heritage Foundation said Unity and People's Deputy
could muster the 226 votes necessary to strip the Communists of some posts,
if they secure the support of other factions, such as Fatherland-All Russia
and the Union of Right Forces.

The loss of key chairs, Volk said, would definitely decrease the
Communists' political clout, which has already been damaged by their
"collaborationist leanings" vis-a-vis the Kremlin.

Both Fatherland-All Russia and the Union of Right Forces, as well as the
Yabloko faction, got sidelined in January 2000 when the Communists and
Unity clinched a behind-the-scenes deal to divvy up most of the Duma
committees.

Had last week's no-confidence motion been passed twice within three months,
President Vladimir Putin would have had to choose between sacking his
government and disbanding the Duma. Many observers said he had been much
more likely to choose the latter and speculated on whether or not new
elections would weaken the Communists, the Duma's biggest faction.

Andrei Ryabov of the Moscow Carnegie Center agreed with Volk that the
Communists' leadership has largely become integrated into the
Kremlin-dominated political elite and avoids criticizing Putin, whose
popularity rating continues to hover over 50 percent.

In fact, the no-confidence motion was the Communists' first attempt to
seriously challenge the Kremlin since Putin came to power 14 months ago.
The Communists have been struggling to find cause for criticism, as the
social welfare benefits they have traditionally demanded, such as federal
subsidies and pensions, have been allocated steadily or even increased,
Ryabov and Volk said.

Volk said by telephone Friday that the Communists would probably win fewer
seats in new elections, as their aged electorate continues to shrink.

But Ryabov disagreed, saying the Communists would continue to enjoy the
support of up to 30 percent of voters. Theories that their popularity will
wane for "demographic reasons" - such as their supporters' old age - have
turned out to be groundless, Ryabov said.

"This phenomena has yet to be studied thoroughly . but their electorate has
started to regenerate," he said.

Nationwide opinion polls by the All-Russia Center of Public Opinion
Research indicate that the Communists' popularity has been rather stable.
According to the polls, 35 percent of voters would have cast their ballots
for the Communists if elections had been held in February, against 33
percent in May.

But, while the party itself will remain popular, Ryabov said, its leader
Zyuganov clearly lacks charisma and may be forced to step down in favor of
a better "sparring partner" for Putin in the next presidential poll.

********

#6
Vek
No. 11, March 2001
A REHEARSAL FOR PRESIDENTIAL ELECTIONS
The recent no-confidence vote crisis seems to have left no mark
Author: Andrei Ryabov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
THE RECENT SCANDAL OVER THE DUMA'S MOTION OF NO CONFIDENCE IN THE CABINET HAS NOT HAD ANY MAJOR POLITICAL CONSEQUENCES. HOWEVER, THIS EXPERIENCE MAY BE USEFUL IN THE FUTURE. IF THE CABINET EVER BECOMES INDEPENDENT, IF A PRESIDENTIAL RIVAL FOR PUTIN EMERGES - THE KREMLIN COULD RESORT TO DRASTIC MEASURES.

     The crisis between the Duma and Cabinet, which emerged out of
nowhere, has burst like a soap bubble. None of its participants have
gained anything.
     However, nothing can pass entirely without consequences. What
looks like someone's clumsy political game may prove to be a rehearsal
for a more important event in the future.
     The recent political intrigue was a failure because the president
did not want the situation to be exacerbated.
     Russian political experience shows that the layout of forces in
the field of the Kremlin, the Cabinet, and Parliament depends on the
logic of the battle for the presidency. It is too early to start an
election campaign right now - but soon it will be just the right time.
Boris Yeltsin gained enormously from the fact that the Communists won
the 1995 parliamentary elections. If the Duma had been more moderate,
it would have been much more difficult for Yeltsin to prove that he
was the best candidate nominated by liberal political forces in 1996.
     The Duma is not "red" these days. However, even among non-
Communist deputies there are no leaders capable of becoming Putin's
rival. The only hypothetical exception may be Boris Nemtsov, if he
stops attacking the Cabinet on any imaginable pretext, and get some
considerable financial backing. Thus, as long as the Duma is unable to
nominate a serious alternative candidate, it is absolutely harmless
for the executive branch, even if it actually starts rejecting
reforms.
     If the Duma obstructs reforms, this may also benefit the
president, since the actual positive results of liberal reforms will
not be ripe by the next presidential election. And if the results of
reforms prove to be somewhat different from those planned, the
executive branch will always be able to lay the blame on the
recalcitrant Duma.
     Thus, the government will only seek to dissolve the Duma if the
Duma finds a strong rival for Putin. It is difficult to say when this
might happen, if it happens at all. As for the Communists, they are
ideal rivals for the Kremlin.
     The same principle may be applied to the Cabinet. Yeltsin
dismissed the Chernomyrdin Cabinet when it had actually become a power
center independent of the Kremlin. At that time, prime minister Viktor
Chernomyrdin was generally viewed as a likely presidential candidate
from the "government party."
     The Cabinet is too heavily dependent on the Kremlin at present.
However, it may become stronger and more autonomous at some stage.
This prediction is extremely popular among certain political circles.
When the Cabinet becomes independent, the Presidential Administration
will have to seek a pretext for dismissing it. But these are just
speculations based on Russia's political experience. Meanwhile, the
situation is not changing. Only the techniques for launching
parliamentary and governmental crises will be studied by specialists.
They may be very useful some day.
(Translated by Kirill Frolov)

*******

#7
The Wall Street Journal Europe
March 19, 2001
Who Taught Crony Capitalism to Russia?
By Janine R. Wedel (jwedel@pitt.edu)
Ms. Wedel, author of "Collision and Collusion: The Strange Case of Western
Aid to Eastern Europe," is associate professor in the Graduate School of
Public and International Affairs at the University of Pittsburgh.

After the breakup of the Soviet Union, the United States had an opportunity
to build a new political and economic relationship with Russia. Instead,
the most promising rapprochement of the past century became a debacle. This
is a cautionary tale of what went wrong and what policy makers should learn
from one of America's greatest foreign policy blunders.

The story takes off early in the Clinton administration, when the U.S.
Agency for International Development (USAID) -- responsible for overseeing
U.S. foreign aid -- decided to funnel much of its economic assistance to
Russia through Harvard University's Harvard Institute for International
Development.

That the United States essentially put one of its most important
foreign-policy initiatives in the hands of a private entity is largely
unprecedented. U.S. federal regulations would seem to prohibit the
delegation of such an "inherently governmental function" as the conduct of
foreign relations. Thanks to Harvard's associates in the Clinton
administration, the Institute's requests for funding largely bypassed the
normal public bidding process for foreign-aid awards. "Foreign policy
considerations" was the justification. Soon, the Institute was dispensing
U.S. aid to and wielding influence in Russia.

Eventually, the Harvard group managed virtually the entire Russian economic
aid portfolio -- at least $350 million -- in addition to the $40 million it
received directly. Congress requested a General Accounting Office
investigation in 1996 in response to growing complaints about Harvard
projects and personnel. The GAO concluded that the Harvard Institute was
given "substantial control of the U.S. assistance program." (The institute
was later dissolved by Harvard University amid a U.S. Department of Justice
investigation.)

'Extremely Rare'

All this was "highly unusual," said Louis H. Zanardi, who led the GAO
investigation of Harvard's activities in Russia and Ukraine. Such waivers
for foreign-policy considerations are "extremely rare," noted Steve Dean,
the now retired division chief then responsible for Eastern Europe and the
former Soviet states in USAID's procurement office. Phil Rodokanakis,
former senior agent investigating the allegations for USAID's Office of the
Inspector General, says "The excuse always was, 'those [Harvard] guys we
need them; they're the experts.'"

It is alleged that key Harvard players sometimes obstructed reform
initiatives that originated outside their own group. As Mr. Zanardi
observed: The Harvard people were motivated "to keep power within their own
structure."

When USAID awarded Stanford University a contract to work with Russia's
Federal Commission on Securities, the Russian commission's top man turned
down Stanford's help. Harvard University economics professor Andre Shleifer
explained that the man already "had a group of people he was working with,"
i.e. Harvard. USAID later awarded funds to Harvard for the same project
that Stanford was to have carried out.

In GAO bureaucratese, USAID's management and oversight of Harvard was
"lax." Mr. Rodokanakis puts it more plainly: USAID's oversight over Harvard
was "minimal to nonexistent. Harvard was doing whatever it wanted."

The Harvard group worked directly with a small group of Russian insiders,
the so-called "Chubais Clan," named after Anatoly Chubais, an aide to
Russian President Boris Yeltsin through much of the 1990s. U.S. Treasury
Secretary Lawrence H. Summers, a key architect of U.S. economic policy
toward Russia since 1993, dubbed the Chubais "reformers" a "dream team."

Mr. Summers -- who has just been named president of Harvard University --
had deep-rooted ties to the principals of Harvard's Russia project. Mr.
Shleifer, the Harvard project director, was a protege of Mr. Summers. The
two have numerous joint publications and received at least one foundation
grant together. Mr. Summers' blurb endorsing "Privatizing Russia," a book
partly written by Mr. Shleifer, declares: "[t]he authors did remarkable
things in Russia."

Remarkable turns out to be an understatement. The administration bolstered
the Chubais Clan's standing as Russia's chief broker with Western
governments and international financial institutions; the Clan helped
manage hundreds of millions of dollars in Western aid and loans. This
virtual blank check hindered the development of a legal and regulatory
backbone for Russia's nascent market economy.

The Chubais Clan, with help from Harvard, presided over a network of
USAID-funded and created organizations, set up to conduct economic reforms.
These funds may have contributed to the Clan's political and financial
base, according to USAID-paid consultants and information obtained from the
Chamber of Accounts, Russia's equivalent of the GAO. While formally
private, these organizations often acted like government agencies, thereby
helping to stunt the growth of a truly democratic state.

The donors' flagship organization was the Moscow-based Russian
Privatization Center. Mr. Chubais served as chairman of the board; Mr.
Shleifer served on the board of directors. Center documents state that
Harvard University was both a "founder" and a "Full Member." Although
nongovernmental, the center helped carry out government macroeconomic
policy and negotiated loans with international financial institutions on
behalf of the Russian government.

The center received some $45 million from USAID and hundreds of millions of
dollars more in grants from other Western countries, the World Bank and the
European Bank for Reconstruction and Development. Another Harvard-Chubais
run organization, the Institute for a Law-Based Economy, was funded by
USAID and the World Bank. The Harvard Institute was supposed to help pass
laws through the Russian legislature. Instead, the Harvard-Chubais team
concentrated on writing presidential decrees and shunned other market
reformers. The ILBE's Russian directors were caught removing $500,000 worth
of U.S. office equipment from the organization's Moscow office in August
1997. The equipment was later returned.

USAID's and Harvard's sponsorship of these dubious organizations encouraged
an opaque and unaccountable system -- precisely when donors and
international financial institutions should have been demanding
transparency, property rights, the sanctity of contracts and other safeguards.

U.S.-sponsored "reforms" of the 1990s left many Russians worse off. Many
Russians blame the Western aid and advice they have received. E. Wayne
Merry, a former senior political officer with the U.S. Embassy, explains:
"The effort to build the new socialist man, scientific socialism, had left
people feeling completely alienated from their authorities. One of the
most-popular slogans was 'No More Experiments.' . . . And unfortunately,
what they got in the 1990s was another series of experiments, where many of
the scientists conducting the experiments were not even Russians, but were
people sitting in the offices in Washington."

By promoting Harvard and the media-savvy Chubais reformers and excluding
other potential Russian allies, the United States may have inadvertently
encouraged anti-Western, antireform elements, who can point with glee to
the absence of real benefits to Russia. In one poll, only 3.7% of
respondents felt that the West was "trying to help."

Using their Positions

This past fall, the U.S. government filed a $120 million suit against
Harvard University, the Harvard project's two principals -- Mr. Shleifer
and Harvard's on-site director, Jonathan Hay -- and their wives. The suit
alleges that the two principals "were using their positions, inside
information and influence, as well as USAID-funded resources, to advance
their own personal business interests and investments and those of their
wives and friends." All the defendants have denied the allegations in the
U.S. government's case.

It can be argued that USAID was negligent in oversight; it wasn't until
1997 -- after so much damage had been done -- that the agency's inspector
general began to investigate.

But bringing to account a few officials and a few of Harvard's best and
brightest will treat the symptoms, not the disease. The underlying problem
is the U.S. government's decision to permit foreign policy to be conducted
through an unaccountable nongovernmental entity that, in turn, provided
legitimacy for a group of self-interested insiders from both sides. Under
the guise of economic reform and in the name of democracy, the Clinton
administration exported a form of politics that resembled the informal and
powerful patronage networks that once ran the Soviet Union.

It is self-defeating when the means of reform instead mirror and reinforce
the very clannish and opaque political culture that the U.S. purports to
reform. Such behavior breeds cynicism on the part of the recipients of
American assistance about democracy, law, and the U.S.

The only way to cure this creeping cynicism is to hold institutions
accountable, not just people. The U.S. Congress needs to ask hard questions
of USAID. Given the debacle in Russia, what else don't we know?

*******

#8
Hindustan Times
March 18, 2001
Russian military system haunted by graft
BY FRED WEIR

CORRUPTION HAS flourished in Russia's military export system for the past
10 years, with billions of dollars in earnings simply disappearing into
thin air, say experts.

"Bribe-taking, graft, kickbacks and outright fraud have been commonplace in
military procurement and export, though the new Kremlin leadership is
starting to crack down on it," says Alexander Zhilin, a defence expert with
the Institute of Applied Social Sciences in Moscow.

"People will not talk about specific cases, because that can be quite
dangerous to your health," he says.

According to the Berlin-based organisation Transparency International,
which tracks global corruption, Russia is numbered among the 10 most
corrupt countries in the world for every year of the past decade.

Russia earned about $3 billion annually in foreign weapons sales during the
1990s, mostly through large-scale deals with its two principal customers,
India and China.

But most of the profits disappeared through a complex system of middlemen,
lobbyists and consultants, says Dmitri Trenin, a security analyst with the
Carnegie Endowment in Moscow.

He says that during the presidency of Boris Yeltsin, who resigned at the
end of 1999, there were vast abuses in the arms export system. "A lot of
money ended up in private hands, while factories and design bureaus often
didn't receive what was owed to them".

The worst case yet to come to light involved a completely fraudulent
contract to build a squadron of MiG-29 aircraft for the Indian Air Force in
1997. In fact, India had never ordered the planes.

All the necessary paperwork to obtain a Russian Government credit of $237
million to begin production of the fighters at Moscow's MiG-MAPO factory
was completed, and signed by a Deputy Finance Minister.

But the money disappeared through a maze of bank accounts, and was never
recovered.

"Because of the secret nature of the deals, and the huge amounts of money
involved, arms sales have been the area where Russia's top officials have
traditionally made some profit for themselves," says Mr Zhilin.

Russian weapons are considered far better than Western weapons of the same
types as they are of comparable technological level and are much cheaper.

Russia and India last year concluded several billion dollars worth of
contracts for new arms. These include $1.3 billion for 40 advanced Sukhoi
Su-30 MKI fighter aircraft, up to $2 billion to refit the Admiral Gorshkov
aircraft carrier and equip it with MiG 29 K fighters, and hundreds of
millions of dollars to purchase 310 new T-90 battle tanks.

No one has alleged kickbacks or corruption in any of these deals, and
experts say controls have been tougher since ex-KGB officer Vladimir Putin
came to power a year ago.

*******

#9
TITLE: INTERVIEW WITH MINISTER OF ECONOMIC DEVELOPMENT AND TRADE GERMAN GREF
[PODROBNOSTI RTR PROGRAM, 23:40, MARCH 15, 2001]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)

     Anchor: We will be speaking tonight about ways of removing
bureaucratic barriers standing in the way of entrepreneurship. This
is such a big problem that the government spent almost the whole of
today discussing it. Minister of Economic Development and Trade
German Gref is now in the Podrobnosti studio.
     Good evening, German Oskarovich. My first question. In our
country you can open your business only if you get a permission
from the state, usually in the form of a license. Getting a license
is a challenging experience. You have to make the round of various
offices, talks to officials and so on. How can this road be made
simpler and shorter for those who want to start some business of
their own?

     Gref: The debate of this question was completed at the
government's meeting today. Today the government finally made up
its mind on the adoption of the first package of laws concerning
the debureaucratization of the economy, that is removal of barriers
standing in the way of entrepreneurship.
     Today government approved the last draft law in the first
package, the law on licensing separate types of activity. The
essence is as follows: under present legislation some 500 types of
activity require a license while under the new draft law this
number is cut to less than 100.

     Q: We tried to get the precise figure. We found that on the
local level some 1,500 types of activity also require licenses.

     A: You know, in the past laws and regulations on licensing
were adopted on three levels -- parliament, ministries and agencies
and the Federation Council. If we lump everything together, you are
right, we will discover that some 2,000 types of activity had to be
licensed.
     Today we have introduced a legislative restriction on the
number of licensed activities.

     Q: What will be licensed?

     A: A hundred different types of activity and that is all.

     Q: In what spheres of activity a license is not needed?
Fishing, production of building materials, what?

     A: It would be logical to answer your question in accordance
with the old law. But in accordance with the new law I will only
say for what activities licensing is mandatory. There are clear-cut
criteria of such mandatory licensing. This applies to activities
connected with danger to health, activities involving possible
violation of the rights and legally protected interests of an
indefinite number of citizens. In other words, some hazardous types
of production, explosives, output of commodities that are not
allowed to be sold freely -- weapons, medical preparations and so
on.

     Q: In other words, everything that is not prohibited is
allowed.

     A: Exactly so.

     Q: Is it true that now, if a businessman is suddenly subjected
to checks, if some license is demanded of him and it turns out that
there is no need for him to have a license, can he take the
inspectors to court and demand material compensation from them for
exceeding their authority?

     A: This is so. But this concerns the two other draft laws
which have already been signed by the head of the government and
sent to the State Duma. The draft law on the registration of legal
entities, on the procedure of the registration of legal entities
and the law on the protection of the rights of entrepreneurs when
they are subjected to checks by the state. The second law precisely
contains provisions that allow the businessman to go to court to
seek protection of his lawful interests and restrict the checking
activities of state bodies. A check can be carried out only once
every two years. I mean the regular activities of the checking
bodies.
     But if there are complaints or violations, then on the basis
of statements from citizens a check can be conducted out of turn.
But all the checking activities have been placed within the
framework of law. It says when, in what way and on the basis of
what documents checks can be carried out. And by what concrete
bodies.
     An end will be put to the practice when an inspector from any
government body can check at will whatever he wants, say, in a
kiosk.

     Q: German Oskarovich, privatization was also discussed today.
The State Duma has already said that it objects at present to any
privatization by government of big industrial enterprises. Has any
decision been made on this?

     A: Indeed, there is a ban on privatization imposed by Article
100 of the Law on the Budget. But today we discussed the draft of
a new law on privatization. In fact, this is demanded by the Duma.
The Duma has requested a modernization and perfection of the
procedure of privatization before privatization is resumed. At its
meeting today the government discussed the draft of the new law on
privatization. It fully meets present-day requirements.
     We hope that after it is adopted by the State Duma the process
of privatization will proceed in more civilized forms and be in
line with the spirit of the times.

     Q: So the government is planning the privatization of big
enterprises, is it?

     A: Yes, of course, but only after the adoption of this law.

     Q: Another question. There is a lot of talk now that a world
financial crisis is approaching. The stock markets are in trouble
in the United States. Yet Russia is counting on an influx of
investments. The world economy is closely hinged on the dollar.
Money changers in Russia, as we know, work mostly with dollars. How
can the situation in the United States affect Russia's economy,
will it affect the budget in any way?

     A: It definitely can have an impact on the budget. Everything
depends on the length of this crisis. It is not just a crisis of
the American economy. A decline, unfortunately, has taken place at
all stock exchanges, including European and Japanese. But so far
this decline is not a threat to us because oil prices remain within
the limits planned in our budget. It provides for an average world
price of 21 dollars per barrel. Today the price fell to 23 dollars.
These fluctuations so far are not impacting Russia's budget policy.
     The second moment. How is this crisis going to affect Russia?
Unfortunately, our stock market has not yet recovered from the
crisis of 1998. That is why we can hardly speak about any
catastrophic consequences for the Russian stock market. But, of
course, we are a part of the world financial system and, no doubt,
we will feel all the negative results of the present situation in
the world economy.

     Anchor: Thank you.

     We had in our studio the Minister of Economic Development and
Trade of the Russian Federation German Gref.

*******

#10
Mir end leaves Russian space programme in doubt
By Karl Emerick Hanuska

MOSCOW, March 19 (Reuters) - The Mir orbiting space station's fiery plunge to
Earth this month ends an era for Russia's space programme, leaving it facing
an uncertain future.

Buffeted by financial crises, conflicting priorities and brain drain, Russian
space chiefs have in the last decade seen their once-proud programme crumble
to where it little resembles that which took man's first great leaps toward
the stars.

And now -- 40 years after stunning the West with Sputnik, the first satellite
in orbit, and Yuri Gagarin, the first man in space -- Russia faces the threat
of becoming just a footnote in the history of space exploration.

The problem is exemplified by the lost battle to save Mir, which will be
dumped into the Pacific Ocean around March 22, bringing Russia's independent
manned space programme to a virtual end.

President Vladimir Putin recently decried the state of the space programme,
warning its lethargy threatened the nation.

"Space for us is not only a matter of prestige...Space also means the very
latest technology, which is the basis of a competitive economy and the
country's security," he told a meeting of the influential Security Council.

"There is nothing to boast about either in the civilian or military spheres,"
he said, adding that lax discipline was as much to blame for problems as
anything else.

The main culprit is money, or the lack of it.

Gone are the free-spending days when the Soviet propaganda machine worked
hand-in-hand with industry to fuel a golden age of rocketry. Now each rouble
spent on space is hard won.

By 2000 budget money earmarked for space equalled only $114 million, compared
with the National Aeronautics and Space Administration's (NASA) budget of
$12.6 billion in the United States.

Funding was 0.14 percent of gross domestic product though the law says space
activities should get one percent of GDP.

This year financing is just 0.1 percent of GDP and officials are unsure of
what can be raised through outside sources.

TIGHTENING BELTS

Cash problems since the collapse of the Soviet Union have forced space
officials to tighten their belts repeatedly and ponder how much must be given
up before they have a programme they can afford.

The Buran space shuttle, Mir and a successor station -- to have been Russia's
11th -- all fell victim to money woes.

"We've not had a single government that failed to promise its support," said
Sergei Gorbunov, a spokesman for Rosaviakosmos, Russia's joint aviation and
space agency.

"But our budget is nowhere near meeting all our needs...so priorities must be
set. That means some things must be dropped."

Energiya, which built and operates Mir, agreed to give it up only after
failing to raise cash on all other fronts, ranging from plans to host space
tourists to being a movie location.

Once the pride of the nation, mishaps tarnished Mir's image in later years,
prompting criticism that it was distracting Russia from obligations to the
International Space Station.

Enerigya officials and many who visited Mir insisted its resources, including
billions of dollars of equipment, could have been used for years more if only
money had been found.

"Mir could have flown another 10 years, but we just don't have the money for
that," Leonid Gorshkov, a Mir designer, told a news conference in February.

"The question is whether or not Russia can at the same time service two
programmes. It is...not realistic," he said.

Funding problems saw Russia launch the ISS living quarters nearly two years
late, and only after NASA came to the rescue with a cash injection -- a move
now much criticised as the agency's budget is scrutinised by the new U.S.
administration.

Money troubles have at times been almost comical, such as when cosmonaut
Sergei Avdeyev was stranded on Mir for six extra months because there was no
money for a ship to collect him.

Funding problems have been blamed for more dire consequences such as a
near-fatal 1997 collision of a supply ship with Mir, seen as caused by a
computer-aided docking device being replaced with a manual system to save
money.

Rosavikosmos head Yuri Koptev has said that the state of Russia's satellites,
more than two thirds of which are well beyond planned lifetimes, jeopardised
its navigation systems.

He said military and meteorology satellites were also in dire straits,
threatening to leave those systems blind.

INJURED PRIDE

Although officials claim to be ready to dedicate their full attention to the
$95 billion ISS, reluctance to dump Mir showed their wariness of being part
of the 16 nation partnership.

NASA's vehement opposition to saving Mir and scepticism over attempts to do
so injured the pride of many Russians, ranging from cosmonauts to parliament,
and raised their ire.

NASA literature declaring the ISS will "maintain U.S. leadership in space"
has not helped either, provoking sentiment that the United States would keep
Russia out of space if it could.

Sergei Krikalyov, part of the first ISS crew, last year blasted Russia for
taking a back seat to NASA in the project and allowing it to take key
decisions with little Russian input.

"Some decisions in the project have been motivated not by technical but by
political motives," he said, reminding the West that the ISS was founded on
Russia's unparalleled experience with long-term space flights, chiefly aboard
Mir.

Russia continues to pursue many independent projects -- for example pinning
big hopes on developing money-spinning commercial satellite launches -- but
success has been marginal and does not meet the needs for a manned space
programme.

So most space officials echo the words of Putin who said: "I believe that
Russia's future lies in international cooperation in space" and on projects
like the ISS.

"This is the only practical option...Our leaders have seen the need for
Russia to fully integrate in international efforts on the ISS," Koptev said
in a television interview.

Gorshkov noted that criticism over NASA's budget and cuts in it now opened
the door for a larger Russian role in the ISS.

"This is a chance for us to show we can fulfil promises, that we are a good
partner. But it is up to us," Gorshkov said.

"I don't believe anyone knows for sure where the future of Russia's space
programme lies, but I think it must be the ISS."

Former cosmonaut Vladimir Titov said that given the great expense and effort
demanded to explore space, such cooperation would become the rule for all
countries with an eye on space.

"Russia's space programme has great potential but the only way for us to
develop it is with other nations," he said.

"The same is true for all countries. Exploring space can no longer happen on
a national basis. It must take place on a planetary level...and Russia can be
no exception to that."

******

#11
Bringing Gusinsky to Moscow said risky for Kremlin
By Daniel Bases

HARRIMAN, N.Y., March 19 (Reuters) - Returning jailed Russian media mogul
Vladimir Gusinsky to Moscow from Spain would be a huge political risk for the
Kremlin, said Igor Malashenko, deputy chairman of Gusinsky's Media-Most
empire.

"It would be very stupid for the Russian government if they really wanted Mr.
Gusinsky back in Moscow because in Moscow he would present an enormous
political problem," Malashenko said in an interview this weekend with
Reuters.

Gusinsky has been arrested in Spain, where he is jailed while awaiting
extradition proceedings. Russia wants to prosecute him on fraud charges.

Malashenko was in New York to take part in a panel discussion on the Russian
press at the 24th Annual Arden House Conference on American-Russian
Relations, sponsored by Columbia and Harvard Universities.

"So the game plan is basically to increase this liability, to make it
prohibitively expensive. The level of damage should be unacceptable," said
Malashenko, who added that Gusinsky would know his fate by Wednesday, if not
earlier.

Gusinsky has said his prosecution and attacks on Media-Most, which controls
the leading independent television station NTV, are politically motivated and
stem from stories critical of the the war in Chechnya and coverage of the
sinking of the nuclear powered submarine Kursk.

In practical terms, the dispute has pitted Gusinsky against state-dominated
gas monopoly Gazprom, which says the magnate failed to meet debts of up to
$300 million.

The case is being held up as a litmus test for freedom of the press in Russia
under President Vladimir Putin.

In a separate interview, a member of Putin's Unity Party argued that
Gusinsky's arrest and prosecution was not politically motivated and that the
Western press was being manipulated.

"I am absolutely sure that the NTV case is 100 percent pure business. It is
not politics," said Mikhail Margelov, a member of the Russian Federation
Council or upper house of Parliament.

"Media-Most people were educated enough and intelligent enough to ... attract
international attention (by playing) the freedom-of-the-press ... card," said
Margelov.

THE GUSINSKY RIPPLE EFFECT

While Gusinsky's case is the most notable, there is concern, even among
Russian government officials, that it could lead to additional abuses against
regional media outlets that attract far less attention.

"The (Gusinsky) dispute is a business conflict, but the matter we are dealing
in is specific," said Dmitri Yakushkin, advisor to Putin's chief of
administration, Alexander Voloshin, who says he is not involved with the case
personally.

"The impression of a war against a journalism organization, especially as
professional and adequate as NTV was and is, can send a very bad signal,"
said Yakushkin, a former journalist who served as former President Boris
Yeltsin's spokesman.

Yakushkin said he would "be eager to see the people in power more attuned to
public opinion, to journalists, and to the constant defending of the
requirements of free speech."

Russia's Center for Journalism in Extreme Situations reported 54 journalists
beaten, stabbed or tear-gassed in 2000. By March 2001 the list grew by
fifteen more, said panelist Yoshiko Herrera, assistant professor of
government at Harvard.

In February, the U.S. State Department voiced concern about press freedom in
its annual human rights report, saying the situation in Russia had worsened
last year.

Academics are finding Cold War instincts awakened by the renewed tensions
concerning the flow of information.

"It is very troubling. But the situation as it develops pushes us into less
controversial topics for the moment," said Mark von Hagen, director of
Columbia's Harriman Institute, referring to a Military archive project he
consults on.

*******

#12
Novoye Vremya
No. 10, March 2001,
YOUNG REGIONAL LEADERS
The new form of privatization in Russia is political privatization
Author: Tatiana Kamosa
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
WHY DO YOUNG TYCOONS KHLOPONIN AND ABRAMOVICH NEED TO BECOME GOVERNORS OF ARCTIC REGIONS? BECAUSE THEY KNOW THAT OTHER ROADS TO HIGH POLITICS ARE CLOSED TO THEM. THEY ALSO NEED A STRONG POWER BASE IN THESE REGIONS IN ORDER TO ATTRACT INVESTMENT THERE WITHIN THE NEXT DECADE.

     In early 2001, Norilsk Nickel CEO Alexander Khloponin, 35, and
Roman Abramovich, 34, officially the head of a Moscow branch office
but in fact the owner of the Siberian Aluminum company, became
regional leaders of the Taimyr (Dolgano-Nenetsk) and Chukotka
autonomous districts respectively. They are the youngest governors in
Russia. And they also seem to be the most apolitical people among
Russia's regional leaders.
     The PR campaigns of both young governors replicate the generic
features that are common for both - such as their age, business, and
their apolitical past. Everything is brought down to the simplest
questions: "Why?" and "Is that good or bad?" No one is asking the no
less interesting question: "What for?"
     The answer to the first question is absolutely clear: the young
"new Russian" executives "went to the regions" because they ran their
own companies so well that this was no longer a sufficient challenge
for their vast skills.
     The answer to the second question is even more boring, since both
the electorate and the media came to an amazingly simple conclusion:
of course, it is good that Abramovich and Khloponin have become
governors; since they are both rich already, they will not steal.
Besides, there is nothing to steal in Chukotka or Taimyr. Besides, the
new masters will probably share some of their wealth with the northern
regions. The election campaigns of both candidates clearly offered
some hope of this: Abramovich gave a sack of sugar to each family in
Chukotka, and sent some children off on a southern holiday by the sea;
Khloponin brought wheelchairs for the disabled and humanitarian aid to
Nenets settlements.
     When Alexander Khloponin took over at Norilsk Nickel, a company
which provides 1% of Russia's GDP and 4% of Russia's exports, its
debts to the federal budget and to creditors were 50% higher than its
annual profits; it had several months of wage arrears, while almost
50% of workers were redundant. By the time Khloponin decided to run
for governor, the company had no debts, and it had been extricated
from the crisis, although it still has not started to grow.
     By the time Abramovich decided to run for governor of Chukotka,
he owned the Sibneft oil company and 70% of all Russia's aluminum,
while the mines and industrial enterprises of the north were being
closed and dying off. Those workers who had the chance escaped to
central Russia. The rest were left destitute (local officials were an
exception, since they had all federal subsidies at their disposal).
Over the years of reforms, all the distant federal government had
managed to do was double the bureaucracy in the region, having added
to the local bureaucrats their colleagues from the federal structures.
There are now over 300 police officers for the 14,000 residents of the
capital of Chukotka; over thirty of them are colonels and lieutenant
colonels. In the similar town of Nome, Alaska, which is a few hundred
kilometers from Anadyr, there are only five police officers.
     These regions, lying in the darkness and cold of Arctic nights
and stagnation, were wild with joy over being remembered. And they
gratefully gave their votes to the first people who promised to build
a tunnel under the Bering Strait and to turn Taimyr into a "piece of
Europe".
     It's unethical to accuse the people of the north of being
unsophisticated in their electoral preferences at the dawn of a new
century; in the politics of the Arctic, the year is more like 1989 or
maybe 1991. A sack of sugar, just like glass beads in exchange for the
gold of the Incas, is an unmistakable sign of an invasion - the
arrival of a new era, new measures, and unimaginable change.
     And it's only just starting.
     There are not only background differences, but also business
differences between the refined financier Khloponin, who graduated
from a top university, then refused to work in the Paris branch of
Vneshekonombank in favor of participating in no less elite but much
more profitable upper reaches of the new Russian business world, and
Abramovich, a minor intermediary from Saratov.
     Khloponin, running no risks, started as ordinary clerk in large-
scale deals for bringing major Soviet banks and their assets into
private hands of Potanin and his patrons. Roman Abramovich was forced
to start from the bottom; running risks, he started with criminal
disappearances of whole trainloads of someone else's petrochemicals
from someone else's oil refineries. Nonetheless, by the mid-1990s,
both found themselves at the long-cherished line: the line that was
outlined by deposit auctions of the best state enterprises, such as
the Norilsk Nickel company or the Sibneft company. The Kremlin was
handing out these tasty morsels in exchange for support for Boris
Yeltsin in his second presidential campaign; the government was giving
out the tidbits in exchange for loans that could fill out the gaps in
drastically cut budgets; while top officials gave away their
enterprises for bribes. All the romantic fantasies people had about
market reforms were left behind at this threshold. After this, over
several years state capitalism in its current form was built in
Russia: whole industries have been given into the hands of
individuals, in accordance with a procedure which can only be called
legal at a great stretch. Against this background, both Khloponin and
Abramovich look like members of the same family. It seems both were
marked out by their bosses - Vladimir Potanin and Boris Berezovsky
respectively - during the deposit auctions times; and as time went on,
confidence grew. Khloponin received the jewel in the crown of
Potanin's empire; Abramovich came into possession of Sibneft and
Russian Aluminum, and surpassed his boss.
     Still, these two children of the same process - transferring
state assets into private hands by means of deposit auctions - have
flown out of the same nest and have risen to leading roles. By the
start of the new century, a great grief of privatization overwhelmed
Russia: there was nothing left to distribute other than by shooting or
redistribution. Since 1998 it has become impossible, because of
financial reasons, to get closer to state assets by bringing "our
people" to the top government circles (by the way, this is one more
reasons for Putin coming to power). Thus, the only possible thing to
do was to think of a new technique for laying siege to government; and
it has been decided to start from the beginning; or, to be more
precise, from the edge. For instance, from the far north. And new
techniques - for instance, from privatization of politics (continuing
the examples).
     According to Roman Abramovich's personal experience of relations
with the top authorities, there can be no more outright purchases: it
would be a very unsecure investment. Obviously, Abramovich, who was
long considered the personal cashier ("wallet") of Yeltsin's "Family",
decided that the status of courtier would no longer secure the same
stability and high business dividends. Actually, a reasonable
decision.
     Do the new northern governors have any government ambitions?
Probably. Or rather, definitely. However, the prior experience of both
"older comrades" and other young politicians clearly shows that they
are not expected at the front door of high politics. That is why they
needed other ways: Anadyr or Dudinka may turn to be the closest
entrance to government, even closer than the Duma or the Kremlin.
     The Russian Arctic regions, with their fantastic natural
resources of all imaginable kinds - from walrus tusks to platinum and
diamonds - are a set of unprofitable business projects at present.
First of all, because of the expense of communications and
infrastructure necessary for development of the regional resources.
But this is only for the time being.
     So far, both Taimyr and Chukotka are "virgin territory"; Russian
and global business interests have not got as far as the outskirts.
However, tomorrow the latter circumstance is very likely to change -
that is why it is so necessary to urgently change the former. In order
for investment to flow into these territories (whether Russian or
foreign), it is necessary to politically privatize them. Absolute
power is necessary. The power of the signature.
     In any case, in three years - or five or ten - these will be the
most attractive business projects. Both Khloponin and Abramovich will
be in their forties...
     Children of the deposit auctions, who have gained the Sibneft oil
company and Norilsk Nickel for nothing, have learned how to save costs
in "political" expenses as well. It is impossible to buy any official,
even the most minor, for a sack of sugar - unlike the electorate. So,
governing the north for the young tycoons is now not only a very
promising, but also an extremely profitable transaction. It is very
profitable to come to power themselves, rather than buying the
bureaucrats from Anadyr to Dudinka through all the chain up to the
Kremlin later. In these terms, the present benefits of gubernatorial
status (independence in making decisions, real immunity, and lobbying
opportunities) do not make the tycoon-governors dizzy, like their
political colleagues. Moreover, these privileges are rather a well-
calculated profit, a safety line, and an item in their business plan.
(Translated by Arina Yevtikhova)

*******