July 27, 2001

This Date's Issues:   5367 • 5368

Johnson's Russia List
#5368
27 July 2001
davidjohnson@erols.com

[Note from David Johnson:
1. The Guardian (UK): No one knows what the war is about, or when it will end: Jonathan Steele in Chechnya. Putin's rejection of negotiations bodes ill for the future.
2. Moscow Times: Nabi Abdullaev and Yevgenia Borisova, String of NGO Workers Denied Visas.
3. Nezavisimaya Gazeta: GENEROSITY WILL PROVE TO BE EXPENSIVE FOR RUSSIA. (re debt)
4. pravda.ru: ACADEMICIAN SOBOLEV’S DISCOVERIES RAISE CONFUSION AMONG RUSSIAN SCIENTISTS.
5. BBC Monitoring: Russia says it made no concessions to USA during Moscow talks.
6. Rossiiskaya Gazeta: Viktor Kremenyuk, THREE VARIANTS OF SOLUTION OF ABM PROBLEM.
7. Business Week: Paul Starobin with Russell Working, Hybrid Capitalism at Work in Russia. A maverick governor tidies up debt-ridden businesses. (Victor Ishayev)
8. Washington Post: Don Evans, Time to Get Down to Business With Russia.
9. Transitions Online: Elena Chinyaeva, Russia Rising. Is Moscow a good partner or a loose canon?
10. Nezavisimaya Gazeta: Vladimir Tikhomirov, THE BUREAUCRACY LIKES THE STATE POWER HIERARCHY. Interview with political analyst Mikhail Krasnov. (re federal system)]

*******

#1
The Guardian (UK)
27 July 2001
No one knows what the war is about, or when it will end: Jonathan Steele in
Chechnya. Putin's rejection of negotiations bodes ill for the future
By Jonathan Steele (j.steele@guardian.co.uk)

Almost two years into Russia's second war on Chechnya no one in this
battle-scarred country can agree on why the Kremlin launched it. Boris
Yeltsin's first effort to tame the rebel republic ended in humiliation in
1996, and there was no reason to expect a new war to have more success.

According to the dominant theory, Russia's entry strategy was dictated
primarily by electoral concerns, but it is already more than a year since
Vladimir Putin won the presidency and any exit strategy seems non-existent.
There are only two ways wars end - in victory for one side or in
negotiations. In Chechnya, neither is in sight.

Putin's security chiefs tried to suggest victory when they announced in May
that Russian forces were leaving Chechnya, 'their essential mission
completed", but it took only a week before the Defence Ministry reversed the
order after barely 5,000 of the 80,000 troops had gone home. There has been
no more talk of withdrawals. As they thunder along Grozny's Lenin Street in
their armoured vehicles or cruise past in unmarked jeeps with gun barrels
pointing from the windows, Russian forces give anything but an impression of
relaxed conquerors.

Mines and sniper fire from Chechen guerrillas are producing a steady toll of
casualties, and heavy machine-gun fire can be heard in the capital, even
during daylight hours. It is hard to know which side is responsible, and
whether it is aimed fire or only designed to strike terror. The figures for
combat deaths are unclear since the Russians conceal the truth about the
Chechens' hit-and-run raids. Two recent helicopter crashes were put down to
accidents rather than enemy action. But the number of zinc coffins wending
their way back to Russian cities cannot be less than 10 a week and may be
double that.

As for talks with the Chechen fighters' leaders, Putin continues to reject
them even though latest polls show that 58% of Russians want peace
negotiations and only 34% support the war. There was excitement earlier this
month when Viktor Chernomyrdin, the Kremlin trouble-shooter who served as
Moscow's emissary to Belgrade in the final stage of Nato's bombing of
Yugoslavia, turned up in Ingushetia, Chechnya's neighbour. But the Ingush
president, Ruslan Aushev, who has good links with the rebel Chechen
leadership, denied that any serious attempts at dialogue were under way. 'The
Chechens have offered negotiations but the federal authorities are not
responding," he stated.

Putin is hoping that the Chechens whom he has installed in top jobs will
gradually lose their image as Moscow stooges. He has persuaded several dozen
village heads to work with the Russians. These men are in a terrible
position. On the eve of last weekend's summit in Genoa, the Russian president
told reporters that some 40 local administrators and imams had been
assassinated by Chechen gunmen. This showed, he explained, that not all
Chechens opposed the Russian presence and many were willing to take risks on
Moscow's behalf. The president did not add that most see their jobs as trying
to protect their communities from Russian terror.

After the latest search-and-sweeps by Russian troops through lowland
villages, in which hundreds of men were detained and beaten, several village
heads complained. So did Akhmad Kadyrov, the top Moscow-appointed Chechen
official. Russia's effort to win Chechen hearts and minds is not going well
if its purported allies feel the need to denounce the behaviour of Russian
troops. The current population of this sad but beautiful land is still
dwarfed by the number of refugees too afraid to come home.

In the interval between the two wars Chechnya was the scene of appalling
lawlessness and kidnaps. Most victims were other Chechens, though the seizure
and murder of Russians and foreigners got more publicity. The irony now is
that most kidnapping is done by Russian troops, usually the kontraktniki who
volunteer for service, knowing that roadblocks and passport searches provide
a legal cover for detaining people and taking blood money, in addition to
their official pay. In May, Russian commanders changed the rules, so that
kontraktniki no longer get paid for the length of time spent in Chechnya but
for the number of operations they take part in. Sweep-searches count, so the
sudden rise in their frequency seems to have financial rather than
battle-field causes.

Chechnya is Moscow's 'rogue state", comparable in the way it is demonised in
the Kremlin to Bush's dire portrayal of North Korea. But while Yeltsin, by
intervening to crush Chechnya's drive to independence, focussed on the word
'state" Putin concentrates on the word 'rogue". In a speech last autumn to
military commanders which he repeated in June, he said: 'It's not so
important to us what formal status the Chechen republic has. What is
important is that this territory never be used as a launching-pad for an
attack on Russia."

It would be nice if this was a hint that Russia could accept the republic's
self-determination. It looks more like a device to win western sympathy. A
few Chechens have studied Islam and had weapons training in Afghanistan and
Pakistan but the society remains too secular to justify Putin's claim that it
is a base for Osama bin Laden-style fundamentalism aimed at the whole of
Europe. Some of his staff take an even more extreme view. According to recent
interviews with Kremlin insiders by two respected western academics, Margot
Light and Stephen White*, they believe this Islamic fundamentalism, far from
being anathema to western governments, has western support as a device for
undermining Russia. They remember the west's backing for the most reactionary
Afghan Islamists during the Soviet war.

Moscow certainly has genuine cause to fear western duplicity, when it comes
to Bush's plans to expand Nato even closer to the Russian border while
proclaiming Putin as his new-found friend. Moscow also sees a blatant effort,
begun under Clinton and still continuing, to carve out an American sphere of
influence in Armenia, Azerbaijan, Georgia and central Asia.

Putin's new talk of Russia joining Nato and thereby radically changing the
alliance may be designed to appeal to progressive Europeans, alarmed by Bush.
But he undermines his case by his failure to rein back the security
blockheads and mercenaries who are running his operations in the Caucasus,
and his refusal to countenance negotiations. The war in Chechnya is a
European issue, not because of fantasies about fundamentalism but because of
human rights abuses which are all too real.

*See The World Today, July 2001, published by the Royal Institute of
International Affairs.

*******

#2
Moscow Times
July 27, 2001
String of NGO Workers Denied Visas
By Nabi Abdullaev and Yevgenia Borisova
Staff Writers

Petra Prochazkova, a former Czech journalist who runs two orphanages in
Grozny, cannot get her visa renewed to get back into Russia. And she is not
the only one.

Several foreigners connected with nongovernmental organizations — some
active in Chechnya, others concerned with protecting the environment or
promoting democracy — have been denied Russian visas in the past year or
so. Most had been living in Russia for years.

The government's apparent reason for denying them visas is that it
considers their work a state security risk.

"I am asking for the visa for the fourth month running," Prochazkova said
in an e-mail message from Prague. "The Czech Foreign Ministry and President
[Vaclav] Havel try to resolve my problem, but no success so far."

Prochazkova, whose husband is a Russian citizen, had been living in Russia
for about 10 years and had reported extensively on both wars in Chechnya.
Last year, she quit journalism to provide a home for 50 Chechen children
who lost their parents.

She was expelled from Russia in February shortly after being questioned by
the Federal Security Service in Nazran, the capital of Ingushetia, U.S.
News and World Report said in its July 30 issue.

Since 1995, Chris Hunter from Britain has headed the Center for Peacemaking
and Community Development, a nongovernmental charity that runs schools for
Chechen refugee children and offers psychological counseling to children
traumatized by the war. He was not allowed to return to Russia after going
to Britain for a vacation in March.

"No explanations on the visa denial were given to me, and actually I don't
have firm reasons to seek political motives behind the authorities'
decision to keep me out of the country," he said by telephone this week.

In March 2000, Hunter was among the humanitarian workers and human rights
activists who signed an appeal accusing the Russian leadership of a
"consistent and systematic policy of genocide" in Chechnya.

Japanese Buddhist monk Jungsei Teresawa put his signature next to Hunter's.
Teresawa, who had been distributing food in Chechnya and Ingushetia since
1995, had his Russian visa denied in June 2000.

Teresawa spent 10 years in Russia, met Soviet leader Mikhail Gorbachev
several times, and was the only Buddhist monk to come to defend the White
House in Moscow in August 1991, according to a biography posted on
Sangha.Narod.ru, a Buddhist web site.

"And now my activities in Russia, which began with the birth of the new
country, have been stopped because somebody put my name on the FSB
'blacklist,'" Teresawa wrote in an open letter to President Vladimir Putin
in July 2000, which was posted on the web site.

Tobias M?nchmeyer, a German national with Greenpeace International, was
denied a visa to enter Russia in December 1999.

"I connect the denial of a visa for me with my professional activities as
an environmentalist who opposes nuclear contamination," M?nchmeyer said by
telephone.

M?nchmeyer sought explanations from the Foreign Ministry and in two Moscow
courts: the municipal court where the ministry is located and the city court.

"The judges referred to Article 27 of the federal law on the Russian
Federation's entry procedures. The article permits the denial of visas on
security motives. But how I can be a threat to Russia's security is what
the judges failed to explain," he said.

M?nchmeyer, who first came to Russia in 1991 as a graduate student, was
among the organizers of an environmental conference in Ukraine in 1995
dedicated to the 10th anniversary of the Chernobyl nuclear disaster.

In 1999, he took part in publicizing protocols between the Russian
government and a Swiss company that indicated Russia's intention to import
nuclear waste, which at that time was illegal.

"We showed everybody the strength of nongovernmental organizations and the
international solidarity of the environmentalists," M?nchmeyer said. "I
believe somebody above was scared, and my visa denial proves it."

He actually received his new visa on Dec. 28, 1999, in Berlin, but two days
later he got a call from the Russian Embassy asking him to come in because
of some bureaucratic problems. His visa was annulled.

M?nchmeyer also has been blacklisted in Ukraine, which he discovered when
he tried to visit his in-laws, U.S. News and World Report said.

His case and at least one other suggest renewed cooperation between the
secret services of former Soviet countries.

Pawel Kazaniecki, president of the Polish branch of the Washington-based
Institute for Democracy in Eastern Europe, was stopped at Sheremetyevo
Airport as he tried to enter Russia in January. His group has been working
in Belarus since 1994 providing assistance to nongovernmental organizations
and the independent press.

"Our organization had no activities in the Russian Federation, and my
visits to Russia were sporadic and rare. I don't understand the decision of
Russian authorities to grant me person non grata status," Kazaniecki wrote
in an open letter to the Russian ambassador in Warsaw, which was published
on the Human Rights Online web site.

His aide, Joanna Kowalska, said by telephone from Warsaw that he also had
trouble entering Belarus the last time. "He was repeatedly searched and had
his passport examined for a long time at the border," Kowalska said. "Since
that time he hasn't tried to visit Russia and Belarus — it just seems
useless."

After Kazaniecki was denied entry to Russia, the Memorial human rights
group circulated a statement saying the decision was backed by Russian, and
probably also Belarussian, secret services.

An official in the Foreign Ministry, speaking on condition of anonymity,
said decisions on visa denial are not made by the ministry.

"There is another organization in charge of that and you understand which
one," he said, going on to make clear he was referring to the FSB. The
official confirmed that CIS countries coordinate their visa decisions.

Although no explanation for visa denial is usually given, the usual reason
is state security concerns, said Valentin Gefter, the head of Moscow's
Human Rights Institute. The other reasons allowed by law include a criminal
record or refusal to provide an HIV test certificate.

"Visa denials for certain groups, like human rights activists and
environmentalists, have become systemic. But I wouldn't connect them with
Putin; they started before his coming into power," Gefter said.

******

#3
Nezavisimaya Gazeta
July 27, 2001
GENEROSITY WILL PROVE TO BE EXPENSIVE FOR RUSSIA
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

Russian state officials have perfected the art of playing games
with the West. Russia made a bold move recently: it has decided to
forgive $572 million in debts owed to it by some of the world's
poorest nations. This was announced by presidential economic adviser
Andrei Illarionov. Members of the Paris Club of creditor nations,
Russia among them, have written off a total of $6.5 billion for the
poorest nations.

It's interesting to note that Russia, which itself owes money to
the Paris Club, wrote off more debts for the poorest nations than all
but three of the G-8 members: Japan, France, and Germany. To all
appearances, this generous move will prove expensive for Russia: in
terms of cancelled debts proportional to GDP (0.3%), it leads the G-8.

It can't be ruled out that this move is a broad hint to the West
that a reciprocal gesture would be very welcome - like writing off
some of Russia's Soviet-era debts.

Finance Minister Alexei Kudrin recently mentioned an insult to
Russia. He said: "We were misled by the promises of the Western
nations to approve restructuring of our foreign debts. Some might even
say that we were deceived."

However, this response seems very strange, since Kudrin has
repeatedly said that Russia needs no help from international financial
organizations, and may be able to survive the debt repayment peak in
2003 without restructuring. Moreover, the obvious failure of
negotiations with the Paris Club served as further confirmation that
no one ever promised Russia that its foreign debts would be
restructured.

Prime Minister Mikhail Kasianov was pushing hard for the plan to
offer Russia's major creditors the chance to convert their debts into
equity - but this hasn't been very successful either. Still, his
latest visit to Finland did show that persistence sometimes yields
results. Finland became just about the first country to show a
favorable response to Kasianov's plan. Maybe Finland's example will
inspire others among Russia's creditors to review their attitudes to
Russia's foreign debts.

******

#4
pravda.ru
July 26, 2001
PRAVDA.RU SPECIAL REPORT: ACADEMICIAN SOBOLEV’S DISCOVERIES RAISE CONFUSION AMONG RUSSIAN SCIENTISTS

Valerian Sobolev: There has been the new substance condition discovered,
the new class of materials, there has been the magnetic charge discovered,
the new energy source.

Sergey Kapitsa: This is either a mistake or deceit. If a student came to me
with the results of the laboratory work similar to what academician Sobolev
presented to us today, I would send that student back to do the work again.

Valerian Sobolev – the academician of the Russian Academy of Natural
Sciences gave a press-conference in Moscow. Right in the beginning of the
press-conference one of the journalists made a joke regarding the subject
of the meeting: “Only miracle will save Russia”. The people wanted the
miracle but it seems the hopes were not justified. Sobolev’s answers to
journalists’ questions did not give the clear picture of the discoveries
made by the group of scientists from Volgograd. Moreover, many of the
people present at the conference had an opinion that Sobolev’s amazing
discoveries were nothing more than profanation. Academician Sobolev told
the journalists that his scientific group was working for over 10 years -
the outcome of those works was those recent discoveries. Anyway, as it
turned out the results of the research had not been published anywhere in
the scientific literature which is bewildering. It is actually nonsense for
the research of the open character – no publication within 10 years. The
results of the work done by the group of scientists under Sobolev’s
direction have not been published now either. It was decided to inform
journalists about the discoveries first and foremost. The academician
himself says the results of his work are being prepared for publishing now.

Answering the question from PRAVDA.Ru correspondent why academician Sobolev
had to cause such a commotion in mass media before the materials were
published in the scientific literature, Sobolev admitted it was just PR.
The journalists were demonstrated the samples of substances in the new
condition. Most of all that substance resembled small quartz pieces. Like
academician said, the substance was ultrastrong, it could cut glass and
quartz. The substance also had the magnetic charge and besides it could
generate the electrostatic charge too. Sobolev advised there were some
experiments made to determine the charge on the surface of the substance.
The piece of the substance was totally discharged afterwards. Some time
after the previous potential was registered again. The substance with such
qualities was derived in the reactor with the help of the so-called
“depletion process” – judging by the words from Sobolev that process was
like electrolysis. Electrons come off the usual substance sample under the
2000 voltage and like it happens with electrolysis, the new substance with
unusual qualities is formed on the cathode. In the melting form this
substance generates the alternating magnetic field. Sobolev offers to build
the new electric power plants of new generation on the ground of that. The
sense is simple: conductors have to be placed in the generating field.
Academician added there were some experiments made in that direction; the
scientists received the current in milliampere and now they work with
amperes.

Answering the question from PRAVDA.Ru correspondent pertaining the
expediency to create such electric stations that will use the 2000 voltage,
Sobolev said that voltage was the starting one, to launch the process. The
process goes on by itself after. Unfortunately the academician did not
specify what supported the substance in the melting form if the starting
voltage was cut off soon. At any rate Valerian Sobolev said the
technological effectiveness of electric power stations based on that
principle was really high. No explanation followed.

Answering the question pertaining the energy sources of the fields which
generate the open substance, academician Sobolev said, the law about
conservation of energy was not broken. The perpetual motion machine has not
been created – the scientists are dealing with the magnetic charge
qualities, with the qualities of the magnetic field which interacts with
other fields – electric, electrostatic, gravitational taking their energy
to itself.

The academician was asked the following question: “So what goes away in
order to fill the new substance with energy?”. Sobolev replied other fields
go away, for instance the natural electrostatic potential of the Earth, the
gravitational field. These fields are transformed in the magnetic field of
the substance in the new condition. The balance restores gradually – when
the substance loses its charge.

Valery Rubakov – the academician of the Russian Academy of Natural Sciences
said at the press-conference that the entire matter was either a mistake or
deceit. “We were not demonstrated any real proof of those discoveries, this
question was not discussed at the physical department of the Russian
Academy of Sciences. I think the situation is incredible – when Sobolev’s
group of scientists has not published any material on the score. No need to
mention the results of such works should have been published.

Professor Sergey Kapitsa supported academician Rubakov’s position. “There
was no diagram, schedule, scientific data presented at the
press-conference. We just saw 3 pieces of some material, it was said this
was the substance in the new condition which was capable of generating the
electrostatic charge. As a matter of fact that substance looks like the
known electret – the material which “remembers” the electrostatic charge.
Academician Sobolev talks about the use of power of various fields. This is
not clear either. The power of the gravitational field is negative at all.
I would be very careful about this “discovery”.

Dmitry Lyskov

*******

#5
BBC Monitoring
Russia says it made no concessions to USA during Moscow talks
Source: Russia TV, Moscow, in Russian 0700 gmt 27 Jul 01

[Presenter] Some media comments on the talks conducted by US National
Security Advisor Condoleezza Rice in Moscow suggest that the Russian side has
made certain concessions to the USA as regards the anti-missile defence
issue.

We asked Russian Foreign Ministry spokesman Aleksandr Yakovenko to comment on
these statements. He is live on air. Hello, Aleksandr Vladimirovich. How
would you comment on reports that Russia has agreed to start moving towards
dumping the ABM treaty.

[Yakovenko] Good day. I would first of all like to say that such statements
do not correspond to reality whatsoever. Russian President Vladimir
Vladimirovich Putin reiterated our position on the ABM treaty at the end of
the talks with the US president, Mr Bush, in Genoa. This position is
well-known. We have not heard any new elements or arguments from Mrs
Condoleezza Rice in Moscow that would make us change our position.

As regards strategic offensive weapons, I think that an important result of
our meeting in Genoa was the agreement between the two presidents, which was
publicly announced, to reduce strategic offensive weapons, jointly and
radically. Russian proposals on this matter are well-known. Vladimir
Vladimirovich Putin made them as early as last year - in November last year.
We proposed reducing strategic offensive weapons down to 1,500 nuclear
warheads. These reductions should be conducted under a strict control. By the
way, our countries have a mechanism of such control. It is described in the
START-1 and START-2 treaties.

I would also like to add that, according to an agreement achieved in Genoa,
offensive and defensive systems should be considered together.

[Presenter] So when will consultations with the American side on this issues
start?

[Yakovenko] During our talks with Condoleezza Rice in Moscow, we achieved an
agreement that working groups from defence and foreign ministries of the two
countries should begin consultations already this August.

[Presenter] Thank you, Aleksandr Vladimirovich.

*******

#6
Rossiiskaya Gazeta
July 27, 2001
[translation from RIA Novosti for personal use only]
THREE VARIANTS OF SOLUTION OF ABM PROBLEM

The visit of the US President's national security adviser
Condoleezza Rice to Moscow was capped with her meeting with
President of Russia Vladimir Putin on July 26.

Deputy director of the Institute of the USA and Canada
Viktor KREMENYUK comments on the results of her Moscow talks.

- Of course, there were no reasons to expect any real
agreements as a result of the visit because this is only the
beginning of the talk but not its end. But problems and
approaches have already been formulated, and some moves will be
made to translate them into life.

I see three variants of solution of the problem of the
1972 ABM Treaty. First, unilateral withdrawal of Washington
from the Treaty. This variant is not ruled out, though George
Bush is beginning to understand that the price of it may prove
to be high enough inside the country, and in relations with the
allies, and in relations with Russia and China. Second, joint
renunciation of the Treaty, and, third, correction of the
Treaty with due account for the positions of both sides.

At the consultations and talks the USA will now do its
best to push through the variant which is the optimal for it -
to try to convince Russia that the Treaty was signed in a
different epoch and that it is ostensibly necessary to give
thought to how to forget it and to turn it into something else.

To be sure, bilateral renunciation would cause sharp
reaction of the other nuclear countries, since they also must
enter the dialogue at a certain stage. They must close their
ranks with a view to preventing further proliferation of
nuclear weapons. In other words, if our countries gave up the
Treaty for some reasons they would thereby create a very bad
situation.

True, the consequences of such a step are less dangerous
to the Americans than to us. They bank on their technological
superiority. Even if half of the world comes out against them
they will withstand it because they have money and everything
else. It will be bad to us, since we have nothing but debts and
unpaid bills. That is why we should behave cautiously and
adhere to the variant of correction.

We should keep in mind that, though the Treaty of 1972 has
played its historic role, it should be preserved, even if in a
modified form. The point is that it became the basis of a whole
system of agreements which made it possible to limit and then
to reduce the amount of strategic arms, to create an atmosphere
of confidence and cooperation between the two countries, and to
stop the cold war.

Preservation of the Treaty is not simply a tribute of
respect to the past but the understanding of the fact that the
system of agreements which was set up on the basis of the
Treaty and with due account for it has, despite everything, not
only played its role in the past years. It can be of use in the
future, too, because we have not yet reached the level of
nuclear disarmament. We are still in for the START-3 and for
the inclusion of the other members of the nuclear club in the
process of agreed-upon cuts of mass-destruction weapons. For
this reason, it would be wrong to renounce now the whole system
of accords which were signed in the 1980s and at the beginning
of the 1990s, and to start everything from scratch.

The interview was taken by Yuri YERSHOV.

*******

#7
Business Week
August 6, 2001
Hybrid Capitalism at Work in Russia (int'l edition)
A maverick governor tidies up debt-ridden businesses
By Paul Starobin, with Russell Working in Khabarovsk

Vostokrybprom, a fish-processing company based in Khabarovsk near
Russia's Pacific coast, nearly foundered after it was privatized in the
early 1990s. A rogue director commandeered its fleet, diverted revenues
into his pocket, and stopped paying wages to the workers, who responded
with a hunger strike. Then the rascal fled to New Zealand, just ahead of
outraged creditors.

It's a sadly familiar tale for post-Soviet Russia. But the denouement is
hardly what you would expect. Vostokrybprom didn't collapse and turn to
rust. Instead, a rescuer appeared in the person of Governor Victor Ishayev,
a former shipyard welder who's the political boss of this remote Far East
province bordering on China. Vostokrybprom owed millions of rubles to the
Khabarovsk government. So as holder of the debt, the local regime forced
the company into bankruptcy and took possession of a majority of its
shares. Ishayev then found a friendly local bank to reorganize
Vostokrybprom under new management and with fresh credit.

It took the government over three years to turn things around, but
Vostokrybprom is once again a wage- and tax-paying concern. It had sales of
$15 million in 2000 and pumped 35% back into the company in the form of
capital investments. Its fleet hauls in 50,000 tons annually of Pacific
crab, herring, and other fish. Now Ishayev's administration is negotiating
to sell its 51% stake to Russian or Japanese investors to raise fresh
capital needed for new equipment. ``Governor Ishayev knows what he is
doing; the moment a child is standing on his feet, you allow him to become
independent,'' says Konstantin Voloshenko, Vostokrybprom's boss.

So proceeds one of Russia's most intriguing experiments, a search for a
Third Way between the Soviet-style command economy and those laissez-faire
policies that have achieved such disappointing results. ``We are saying the
state should help to build a market economy,'' says Ishayev, ``because the
market does not create itself.'' An attentive President Vladimir V. Putin
is urging the 53-year-old Ishayev to keep going. And fellow governors are
watching with interest, too. ``We have to construct a new kind of
partnership between government, business, and the people,'' says Duma
Deputy Sergei Glazyev, a policy guru who's counseling Ishayev.

TAX BOON. Khabarovsk, seven time zones east of Moscow with a population of
1.5 million, has provided other opportunities for its entrepreneurial
governor. His administration has taken control of some two dozen struggling
companies, found new strategic investors for nearly a quarter of them, and
is eyeing a half-dozen more or so enterprises for possible takeover. In one
such case, Ishayev's team reorganized a gold mine and turned it over to
commodities giant Sibneft in return for investments that so far reach $20
million. The mine has more than doubled production and is paying $9 million
of its $45 million annual sales to the local government in taxes.

It's not what Adam Smith would recognize as pure capitalism. But by
putting companies back into temporary government custody, Ishayev is giving
them needed breathing room. Consider Amur-Cable, a wiremaker privatized in
1993 and acquired by Ishayev's administration two years ago. The company,
now with 820 workers, annual sales of $14 million, and aftertax profits of
$1.4 million, has adopted international standards of quality control,
started paying bonuses to the most productive workers, and permitted
divisions to operate as profit centers. ``Don't misunderstand, we are not
against markets,'' says Oleg G. Burov, the plant's 44-year-old commercial
director. ``But to develop a new economy, a country still needs state
direction. After that, the state can retreat.''

Presiding over this policy laboratory is a seasoned politician, elected
in 2000 to a third four-year term. Ishayev grew up in these parts, and
after starting out as a teenage welder took on a succession of factory
management jobs at the behest of the ruling Communist Party bosses. Now a
political independent, Ishayev says he has no interest in returning to
Soviet measures, notwithstanding the Lenin bas-relief that still graces the
foyer of his office building.

Policies similar to Ishayev's are being pursued in the Yaroslavl, Nizhny
Novgorod, and Tula regions in central Russia. But Ishayev's team has it
down practically to a science. There's a line item in the $17 million
regional budget for the government's acquisition of debt-ridden companies.
Dalkombank, the Far East's biggest financial institution, is 25% owned by
Ishayev's administration. When Ishayev acquires control of a company, the
bank typically assists in straightening out the books, arranging loans, and
scouting for a buyer. ``I don't know what to call this model, but it is
being implemented successfully,'' says Dalkombank President Andrei
Shlyakhovoy, a 41-year-old economist.

No matter what the model is called, Ishayev clearly took a page from
China's playbook. For the past two decades, the Chinese government has
actively developed state enterprises into for-profit businesses, often with
spectacular results, although with some failures, too. Across the Amur
River from Khabarovsk, in China's Heilongjiang province, the economy is
booming. Capital city Harbin sports glitzy modern hotels, sleek public
buses, and restaurants that lure passersby with colorful displays of live
fish, clams, and crabs. By contrast, downtown Khabarovsk--the capital city
and the region share the name--is a desolate landscape of unrenovated
Soviet-era buildings, cracked sidewalks, and dilapidated buses. With little
cash in circulation, barter is popular. Drugmaker Dalkhimpharm pays
foreign-equipment suppliers as well as local repairmen with crates of
medications.

POLITICAL TEMPTATIONS. And yet, conditions have improved. After shrinking
by two-thirds, industrial production in the region has risen 10% since
1996. Khabarovsk's manufacturers benefited from the devaluation of the
ruble, but credit belongs too with Ishayev's interventionism. The
consequences of a policy vacuum can be seen in neighboring Primorskye Krai,
which is blessed with more natural resources. After the collapse of the
Soviet Union, corrupt politicians and business gangsters looted key
enterprises, plunging the capital, Vladivostok, into a nightmare of
lawlessness and power outages.

Not that there aren't dangers to the Ishayev approach. It could turn
into a jobs-protection program, keeping companies from launching necessary
restructurings. And although Ishayev's regime seems to have avoided this
pitfall so far, there is always the temptation to sell deprivatized
companies to political cronies.
Free-market purists in Russia tend to decry such interventions as the
beginning of a new communism. Yet sometimes the best formulas come not from
the policy wonks but from the men and women who must tackle real problems
in real places. Khabarovsk's progress is fragile. But its model may yet
prove the bridge between a bankrupt system and a functioning economy.

*******

#8
Washington Post
July 27, 2001
Time to Get Down to Business With Russia
By Don Evans
The writer is U.S. secretary of commerce.

MOSCOW -- A new chapter in the U.S.-Russian relationship opened yesterday as
a senior team of Bush administration officials began two days of talks here
aimed at cementing our economic ties for the long term.

To be sure, the top priority for the relationship is developing a new
strategic framework for peace, as both presidents Bush and Putin confirmed on
Sunday at the G-8 meetings in Genoa. That also is why Condoleezza Rice,
President Bush's national security adviser, is joining Treasury Secretary
Paul O'Neill and me here.

But to further our relationship, as President Bush has suggested, it is
important to get more American and Russian businesses involved in our
bilateral discussions. Thus, we are supporting an initiative of the business
communities in both countries to create an American-Russian Business
Dialogue, which will provide a valuable means to improve communications
between the business communities of the two countries and present a business
perspective to the two governments. In response to this initiative, we are
announcing today that the president has asked me to lead a business mission
of American business owners to Russia in the fall.

I'm eager to bring this group to Russia to look for new business
opportunities. For all American enterprises, with particular emphasis on
small and medium businesses, conditions within Russia and abroad have become
more favorable for Russia's integration into the international economy.
Surging global flows of goods and services, capital and people, ideas and
technology are opening new opportunities for economic growth and social
advancement. With the proper policies, Russia can tap into this global
economy.

To its credit, Russia has achieved a degree of macroeconomic stability and
has adopted a more responsible approach to its international debt
obligations. It has taken important steps in establishing institutions
necessary for a market economy. Much more needs to be done, of course, but a
more favorable economic environment, a talented economic reform team and a
cooperative working relationship between the Duma and President Putin have
improved the prospects for further reform.

I believe we have a window of opportunity to build the U.S.-Russian economic
relationship as recent market reforms by the Duma and President Putin take
hold, including reductions in business and personal taxes and a law allowing
joint energy production deals with foreign companies.

America is already Russia's number one foreign investor with more than $5
billion in direct investments -- one-third of the total -- and $10 billion in
two-way trade of goods and services. But these numbers are only a small
fraction of what they could be, considering the hundreds of billions of
dollars in capital flows and trade with our other European partners. We can
do better.

Clearly, there are big challenges when doing business in Russia. For one,
Russia needs to do more to build a better environment of trust at all levels.
It is my strong belief that trust is the fundamental basis for our future
success. Trade missions are a good start, but new business opportunities
don't translate into much if people don't trust the system enough to take
advantage of them.

There must be courts, laws and regulations that are transparent -- a due
process system one can trust -- to attract foreign investors or create new
businesses and new jobs. And ethical business practices and good corporate
governance are vital.

The U.S. Department of Commerce has been working with Russia on many of these
issues, developing codes of conduct and streamlining customs procedures. But
much more needs to be done.

I hope the Business Dialogue can help build mutual knowledge and
understanding between members of the American and Russian business
communities. Participants in the dialogue can seek consensus on the
development of institutions that must underlie trust in business relations,
such as good business practices and corporate governance and effective
commercial dispute resolution mechanisms.

We are also working with Moscow as Russia seeks membership in the rules-based
World Trade Organization. This is important, because WTO accession would
reinforce economic reform and rule-of- law initiatives in Russia's domestic
economy. WTO membership would also strengthen Russia's links to the global
economy. Of course, any WTO accession package will need to meet the
appropriate commercial test, but the United States is prepared to continue to
work with Russia toward this important goal.

Trade and economic reform are, of course, about more than material wealth.
They're a moral imperative, as President Bush says. They're about advancing
democratic values and political stability, human freedom and social
responsibility. The key to Russia's economic future is to unlock the
potential of the Russian people, and this can be accomplished by
strengthening the institutions that underpin democracy and the market economy.

********

#9
Transitions Online
www.tol.cz
Russia Rising
26 July 2001
Is Moscow a good partner or a loose canon?
by Elena Chinyaeva
Elena Chinyaeva is a columnist for Kommersant-Vlast and a regular
contributor to TOL.

MOSCOW, Russia--It is July and Moscow has been suffering through a heat
wave. Political life is near the boiling point. For the second consecutive
year, the State Duma, Russia’s lower house of parliament, has postponed its
summer vacation to approve a batch of legislation that is to be the basis
for long-expected structural reforms.

This latest bout of reformism is supposed to make Russia what the West has
long wanted it to be--a stable, liberal economy with predictable policy. In
mid-July, the international agency Fitch upgraded the rating of Russian
foreign debt to “positive,” thus recognizing Russia as one of the most
promising among the developing markets. Not a bad achievement to be able to
boast about at the G-8 summit in Genoa, but the closer Russia comes to
following Western recipes for success, the less susceptible it is becoming
to Western influence.

This year, the Duma has been especially active, lending support to the
government in undertaking reforms of the tax code, pension and judicial
systems, and employment and communal service codes. The Duma has also
approved anti-money laundering legislation and legislation providing
measures against corruption. During its 14 July session, the Duma approved,
in the second reading, one of the most controversial pieces of
legislation--the land code. Together with a law allowing Russia to import
foreign spent nuclear fuel for reprocessing, those two bits of legislation
made large splashes in the public realm--though, emotions around both
issues were flying disproportionately high in relation to the immediate
significance of the legislation, since it changed little in the current
agricultural and atomic industries.

The law on importing and reprocessing foreign nuclear waste--presented, not
without success, as an attempt to turn Russia into a nuclear dump--was
supported by a powerful nuclear lobby and approved by the Duma despite loud
protests. President Vladimir Putin then signed off on the bill on 11 July,
after parliament approved it in a final reading on 6 June. The bill gives
Russia the chance to claim a share of the world fuel reprocessing market,
which promises some $1 billion in revenues per year over the next few years.

However, it means no immediate gains for the Russian economy, as the market
is highly competitive and shared by just a few select countries, including
the United States, Britain, and France. And as of now, there is no queue of
potential clients waiting with baited breath for Russia’s borders to be
opened up, and the United States has already voiced its dissatisfaction
over Russia’s intention to join the club. But the legislation should be
viewed from the perspective of providing support for the further
development of an atomic industry stalled after the Chernobyl disaster
induced nuclear paranoia worldwide. In fact, in his recent declarations
regarding the need to diversify energy sources and cut down on imported
power, U.S. President George W. Bush has already identified atomic energy
as an important factor.

LAND HO!

The land code has had a similar effect on Russian political life. Approved
by the Duma in the second reading, it sparked much opposition from the
Communist faction, which staged a scuffle in the house when it decried the
legislation as an attempt “to deprive the people of land.”

But there was really no point in stirring up so much political emotion.
Anticipating the difficulty of land reform, the president has proposed to
divide the bill into several chunks: one for woodlands, one for arable
land, and one for non-arable land. Only the last was approved by the Duma.
Under that section of the bill, owners of industrial enterprises were
granted the right to purchase the land on which their businesses are
situated--except for foreigners in near-border areas that the government
will determine at a later date.

It is an important piece of legislation, especially since the difficulty in
defining property rights has been one of the key factors keeping investors
from being more active in Russia. Particularly acute has been the problem
in Moscow with municipal authorities using their power to grant permission
to rent land under private enterprises as a means to manipulate business
owners.

Nonetheless, it is still a relatively small part of the whole impending
land reform puzzle--the approved section of the law on non-arable land
represents only a small portion of the land in Russia. And the main battle,
over the private ownership of arable land, lies ahead.

Much more important has been the legislature defining the framework of
fundamental reforms, of which the tax reform has been one of the most
significant. With a flat income tax of 13 percent, a consolidated social
tax, lowered turnover tax and customs duties, and--the Duma’s latest
summertime feat--a 24 percent profit tax, the Russian tax system is
emerging as one of the most liberal in Europe. And that is not the end of
it: For next year, the reduction of the consolidated social tax from 35.6
percent to 30 percent and a reduction in the value added tax is also planned.

SLEEPLESS NIGHTS IN THE DUMA

Meanwhile, a number of other reforms are underway. The three biggest
monsters of the Soviet economy--the gas, railway, and electricity
monopolies--are to be reformed to create competitive markets. Despite loud
opposition, the framework of those reforms have been approved and only the
details remain to be sorted out. Rem Vyakhirev--a Yeltsin-era oligarch--was
seemingly immovable as the head of the world’s largest gas company,
Gazprom. However, when his contract was coming to a close earlier this
spring, Putin used the government’s stake in the company to vote to demote
Vyakhirev. The Gazprom head had been scandalized with corruption charges
and gross management inefficiency in the gas giant that has been dubbed the
“state within the state.” A little-known outsider, Alexei Miller, was
chosen to replace him. Miller was one of Putin’s former colleagues from his
days at the St. Petersburg mayor’s office.

The army is also scheduled for a makeover, with the appointment of another
Putin ally, retired intelligence general and former Security Council head
Sergei Ivanov, who is to oversee military reductions. Ivanov announced
during a recent visit to the Black Sea Fleet that the fleet would also
undergo partial reductions. Many changes have also been seen since the
Cabinet reshuffle that promoted Lyubov Kudelina to deputy defense minister
in charge of overseeing the military’s budget.

The pension system is likewise targeted for reform, with plans designed to
relieve the state budget. Under new legislation, employees will be
obligated to contribute part of the incomes to a special pension fund, much
like social security in the United States.

The most-debated reform of all, judicial reform has now been approved in
the first reading with its stated goal of modernization. The reform means
that courts will takeover some significant tasks from the powerful
Prosecutor General’s Office, including the issuing of warrants for search,
seizure, and arrest; prolongation of pre-trial detention, access to private
information such as bank account information, and the seizure of any
materials from offices and homes. In all, there are 18 points of reform,
and through the passage of the legislation, courts are expected to become
truly independent and acquire a higher social status.

Finally, the beginning of communal service reform has been announced.
Considering that Soviet-built social infrastructure is crumbling--a fact
that meant blackouts and freezing in many areas last winter--reform is
extremely important. Instead of being subsidized by the state, the
industry--which has in fact been another state monopoly--is expected to
become the supplier of services. The most difficult part of the reforms
will be the fact that services will no longer be free, and subsidies will
exist only for the poorest citizens.

REFORM SCHOOL

Russia has long been trying to achieve a level of reform that would be
deemed “proper” by the West--and particularly by Western lending
institutions, such as the IMF and the World Bank. And finally these Western
mentors can be somewhat satisfied. But the deeper the satisfaction, the
less influence these bodies will have over Russian policymakers.

At the beginning of the year, the government tested the waters by delaying
payments on foreign debt. An international scandal was the result. Since
then, Russia has taken care to declare a strict policy to follow repayment
schedules and to abstain from further borrowing--a policy that has reduced
means of economic influence on Russia.

Meanwhile, Russia has continued to assert itself on the international stage
as well. Putin has made his strong opposition to the American plans to
build a National Missile Defense (NMD) system known, and he has threatened
to deploy multiple warheads on Russian missiles. Also, on 15 July, Putin
and Chinese President Jiang Zemin signed a 20-year treaty on friendship and
cooperation in Moscow--a unique document, as China has never had such a
treaty with Russia or any other country. International commentators have
already assessed the situation as being anti-American in character.

Thus, Putin has two important points in his favor in the wake of the G-8
summit: Economically and politically, Russia is getting stronger. Maybe the
ultimate questions is whether it will integrate into the developed world or
be a loose canon.

*******

#10
Nezavisimaya Gazeta
July 27, 2001
THE BUREAUCRACY LIKES THE STATE POWER HIERARCHY
Interview with political analyst Mikhail Krasnov
Author: Vladimir Tikhomirov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
MIKHAIL KRASNOV, A FORMER ADVISER TO PRESIDENT YELTSIN, SEES A
THREAT IN THE KREMLIN'S CENTRALIZING TENDENCIES. HE DISCUSSES THE
ORIGINS OF RUSSIA'S FEDERATIVE SYSTEM, A DECADE AGO WHEN THE FEDERAL GOVERNMENT HAD NO ALTERNATIVE - IT WASN'T STRONG ENOUGH. BUT THE DANGER NOW IS THAT IT COULD BECOME TOO STRONG.

Disputes continue to rage around the commission on distributing
powers between the federal government and the regions, which is
chaired by Dmitrii Kozak, deputy head of the presidential
administration. Some regional leaders have already announced that they
are cancelling their bilateral agreements with Moscow; others view the
distribution of powers negotiations as a matter of the regions having
a constitutional right to defend their own interests. We present some
comments on this situation from Dr. Mikhail Krasnov, former adviser to
President Yeltsin, who was directly involved in drafting the
Constitution and the concept of bilateral agreement relations.

Question: In your view, what lay behind the transformation of
Russia into a state based on "agreements"?

Mikhail Krasnov: The primary, basic reason was the weakness of
the state. This began back in the perestroika days, when the CPSU's
omnipotence faltered and all the republic leaders started putting
pressure on Mikhail Gorbachev and the Central Committee, demanding
sovereignty. It was proposed to sign a new Union agreement, the so-
called New Ogarev (Novo-Ogarevskii) agreement, which would grant more
independence to the republics of the USSR. We all know the outcome.
The coup attempt of August 19, 1991 was largely aimed at stopping the
New Ogarev talks. However, similar processes were starting in the
Russian Federation. Yeltsin found himself in the same position as
Gorbachev. All the autonomous ethnic formations wanted more
independence. It was around that time that Yelstin uttered his famous
phrase: "Take as much sovereignty as you can swallow." The president
decided on this course of action, being aware of the likely outcome of
any delay in reaching a compromise in a process of this nature. The
federal government simply wasn't strong enough to resist these trends.
Moreover, Yeltsin couldn't fight on two fronts - in the conflict with
the Supreme Soviet, headed by Ruslan Khasbulatov at the time, Yeltsin
needed either the support or the neutrality of the regions.

The idea of signing a Federative Agreement arose in 1992.
Basically, this was a political agreement - roughly speaking, the
regions had won some kind of place in the sun for themselves. In my
view, this was inevitable at that time. However, Tatarstan and
Chechnya didn't sign the Federative Agreement - and this endangered
the integrity of the Russian Federation. When an agreement on the
distribution of powers was signed with Tatarstan in 1994, this was a
major triumph. Strictly speaking, it was unconstitutional to some
degree, but it was politically useful in that it launched the process
of seeking compromise. Nationalist feelings were running hot in
Tatarstan at the time, but Mintimer Shaimiev managed to keep the
situation under control. The president of Tatarstan demonstrated his
wisdom and experience. By entering into an agreement with Moscow, he
weakened the Tatarstan nationalists and was able to say to his
opponents: See how much power I've managed to get from Moscow. By the
way, Djokhar Dudaev was offered a similar agreement - with even more
powers. But the government of Chechnya at that time was more radically
inclined, which eventually had unfortunate consequences.

Question: But what's the reason for the "parade of sovereignty"
among Russian regions, which also rushed to sign bilateral agreements
with the federal government?

Krasnov: Political behavior displays the same psychology as
individual behavior. Signing bilateral agreements became politically
fashionable in the lead-up to regional elections. Neither did Moscow
object to such agreements, especially since it was important to mark
off regions as loyal to the federal government.

But on the other hand, certain regions - like Primorye (the
Maritime territory) and the Sverdlovsk region - refused to sign
agreements, for similar psychological reasons: they were demonstrating
their opposition to Moscow. If you look at all 42 bilateral
agreements, you can see that they are essentially political
declarations, since regional leaders preferred to discuss specifics
with the Cabinet. The same can be said for the recent initiative by
several regional leaders from the Trans-Volga federal district, who
have said they are prepared to cancel their agreements. Having read
some "anti-agreement" signals from Moscow, they're just displaying
their loyalty.

Question: Did Yeltsin have any kind of plan for shaping
federative relations?

Krasnov: There was no plan as such. Of course, the president's
staff analysts were working on this area, but Yeltsin was a
personality-driven politician. He preferred to invite regional leaders
for a talk, and reach agreement informally. The same reason lay behind
this: the federal government lacked strength. Essentially, this was
why the Russian Federation took the form it did: based on a
combination of the Constitution and bilateral agreements. The
Constitution was written under the same conditions, stating that the
foundations of the Federation are both the Constitution and the
agreements; with the notorious Article 72, so vague about what the
federal government and the regional governments are meant to be
jointly responsible for. At the time, Moscow was simply unable to say
straight out: we're getting this, and you're getting that. So it was
decided to speak in terms of joint responsibility, for a start, and
the details of real distribution of power would be sorted out later.
But in the real world, attempts to sort this out proved unsuccessful,
which became a difficult problem and generated many other problems in
the budget process, eventually leading to delays in state-sector wages
and pensions, and heating shortages.

But on the other hand, there were some signs in the Yeltsin era
of the transformations now being implemented by the Putin
administration. A presidential decree state that presidential
representatives should coordinate the operation of various federal
government bodies in the regions: this was a prototype of the present
federal districts.

Question: How would you assess what the commission on
distributing powers between the federal government and the regions is
doing now?

Krasnov: Much of what the presidential administration proposes to
do is correct and timely. It's vital for Russia that its statehood
should be based on a law which lays down common rules for all. But I
fear that an ideology of centralization is at the heart of these
transformations. The federal authorities are more centralist than
federalist in their ways of thinking. That translates as: Let's bring
as much power to Moscow as possible.

Question: Why do you think so?

Krasnov: Take the use of the term "state power hierarchy"
(vertikal vlasti) for a start. This is a category from the days of the
command economy and its system of administration. Or "dictatorship of
the law" - another term which doesn't come from the arsenals of a
democracy. These are "muscle words", and the public likes them; but if
the state apparatus keeps repeating them over and over, it eventually
convinces itself that this is indeed the right way to go. I understand
why these terms have become necessary; this involves a temporary
transition to "hands-on management", due to the general disorder in
the system of government. But the bureaucracy loves all this, since
bosses would rather pick up the phone and issue orders than clearly
define their own responsibilities and those of their subordinates.

It would be much more effective for the state model to set out
areas of responsibility. It's precisely those centralizing tendencies
that lead to the break-up of a state. After all, centralism can't
exist for long, especially in such a huge, multicultural, multiethnic
nation. The problems of the Russian Far East differ from those of the
Kaliningrad region. I am in favor of decentralization - but it has to
be based on a clear understanding of areas of responsibility and
spheres of authority, with a mechanism of monitoring and
accountability. This should be the principle: let local governments do
all they can, let regional governments do all they can - and let
everything else be handled by the federal government.

We need to be completely confident that federal government bodies
are indeed under the full control of the federal government, without
their authorities running off to seek "advice" from regional leaders
all the time. Finally, we need a mechanism for making the state
accountable to its own citizens, and this should operate via
elections. But people need to understand that they are electing a
regional leader who has a clearly defined range of aims. This requires
candidates in regional elections to be members of a party, not
independent candidates. Then, at the next elections, people will
understand: this political force and its candidates - regional leaders
or mayors - is capable of keeping its promises, while this other
political force is not. What we have now isn't a political system,
it's a political jelly. That's why I am in favor of some elements of a
parliamentary republic, i.e. forming the Cabinet based on the outcome
of parliamentary elections. We presently have a non-party Cabinet -
and consequently, political clans and lack of clarity about the
overall course. And the president ends up being responsible for
everything. Why should it be this way? Let the Cabinet, as an
independent political entity, be equally accountable for the state of
the nation. Once we have this model in place, it will be time to
discuss federalism.

(Translated by Elena Leonova)

******

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