Johnson's Russia List #6037 24 January 2002 davidjohnson@erols.com A CDI Project www.cdi.org [Note from David Johnson: 1. Moscow Times: Pavel Felgenhauer, U.S. Is a Demanding Spouse. 2. RIA Novosti: 60,000 POST-SOVIET GIRLS MISSING IN USA. 3. Reuters: Putin snipes at exiled tycoons in Russia media row. 4. Interfax: Russian arbitration head denies Putin's order to pull plug on TV6. 5. RFE/RL: Michael Lelyveld, Moscow Breaks Pledge To Curb Oil Production. 6. Boston Globe: Alex Beam, In the courts. (re Shleifer-Hay case) 7. Dmitri Glinski-Vassiliev: REAPING BENEFITS FROM THE "CLASH OF CIVILIZATIONS": RUSSIA'S RULING CLASS AMID GLOBAL CRISIS. 8. AP: Russians Investigate 9/11 Connection. 9. Reuters: Russia's choice--tariff rises or inflation targets. 10. RIA Novosti: DMITRY ROGOZIN ACCUSES EUROPEAN PARLIAMENTARIANS OF SUPPORT FOR POLITICAL EXTREMISTS IN CHECHNYA.] ****** #1 Moscow Times January 24, 2002 U.S. Is a Demanding Spouse By Pavel Felgenhauer The honeymoon in U.S.-Russian relations that began after the Sept. 11 attacks seems to be over. Tensions are growing in a number of areas: The Kremlin is being officially criticized for actions in Chechnya and for closing TV6; recent meetings on nuclear arms reductions and nonproliferation are reported to have been acrimonious, etc. General Yury Baluyevsky, who led a military delegation to Washington last week, told reporters that Moscow expects Washington to sign a formal treaty solidifying nuclear arms cuts, as agreed by George W. Bush and Vladimir Putin at a summit last November. Baluyevsky also stated that Moscow wants some new agreement to restrict the planned U.S. missile defense to replace the 1972 Anti-Ballistic Missile Treaty, which the United States recently scrapped. Putin has in turn recently expressed his concerns over U.S. plans to retain large stockpiles of warheads after the cutbacks and maybe also to keep some of the retired missiles in reserve. Washington has stated that the removed warheads may be once again loaded onto missiles if a threat reappears in the future. The Kremlin insists that the cuts should be irreversible. The Bush administration has stated it has no intention of signing a formal treaty on the proposed arms cuts. Washington has also indicated it does not want any follow-up treaty to the ABM. Actually, the U.S. military does not yet and may not know for years to come what form its planned missile defense will take and what interceptors, involving rockets or lasers, will be deployed. It's not known for sure whether interceptors will be deployed on land, sea or aircraft carriers. It has not yet been decided whether the missile defense will cover only U.S. territory or also its allies. It is impossible to put any restrictions on such a vague missile defense plan and Washington clearly has no intention of trying. Russian hopes will surely be frustrated and this could frost the emerging strategic relationship. This week, U.S. Assistant Secretary of State John Wolf came to Moscow to discuss nonproliferation, accompanied by a large delegation including officials from the Energy and Defense departments. The delegation met with Deputy Foreign Minister Georgy Mamedov and it was reported that the Russian side accused the United States of undermining nonproliferation by scrapping ABM, while the U.S. side reminded Moscow that it should stop nuclear technology transfers to Iran. Although, some members of Wolf's delegation say in private that the talks were not that bad at all. One U.S. official agreed with me that the U.S.-Russian honeymoon is over and that's good, because now it's time to get on with married life. The United States wants a serious long-term relationship with Russia and is working hard to make this happen. In marriage, one should not take the other party for granted, so now there is no place for complacency in U.S.-Russian relations. In particular, the U.S. sees the Russia-Iran connection as a very serious matter. In recent months, during the U.S.-led war in Afghanistan, it was not only Russia but also Iran that proved to be a very important U.S. ally. But the usefulness of the connection has faded and Afghanistan is beginning to promote tension instead of friendship. The common enemy (and with it the common cause) has been obliterated, and old enmities have reemerged. Now the United States says once again that Iran actively supports terrorism, aspires to acquisition of nukes and ballistic missiles, and is a negative influence on Middle East peace efforts. U.S. officials state clearly that U.S.-Russian relations cannot move forward while Russia is still closely involved with Iran. Apparently, Russia will not get any trade concessions or full WTO membership while it continues to trade nuclear technology and arms with Iran. If Putin is serious about having close relations with the West, he will have to sever relations with Iran, agree without much argument to anything Bush wants on arms control and missile defense, concede that the United States keeps agreements only as long as it believes them necessary, and accept U.S. troops in Central Asia and maybe soon on Russian territory. Otherwise, not only the honeymoon, but also the marriage will be over. It's not easy to be a U.S. ally, as the Europeans and Japanese know full well. Someone with experience, say British Prime Minister Tony Blair, should tell Putin what it takes to be an American mate. Pavel Felgenhauer is an independent defense analyst ******** #2 60,000 POST-SOVIET GIRLS MISSING IN USA MOSCOW, January 23. /RIA Novosti/ - Over 60,000 young women from post-Soviet countries--mainly Russians and Ukrainians--were reported missing in the USA over the last twelve months alone, Rebecca Brian, in charge of partner projects and vocational training on the Council for International Studies and Exchanges, said to a news conference in Moscow. In the contemporary world, slavery has taken the form of trade in women for sexual abuse. This dire evil concerns the whole world as a million to two are illegally taken abroad every year. The problem is more acute in post-Soviet countries than anywhere else as national economic plight and token earnings at home make women seek overseas employment and fall into underhand dealers' traps, said Ms. Brian. It is impossible to evaluate the number of women missing on such trips abroad. Though a majority leave Russia legally, only a few exceptionally lucky girls can get back home--others cannot afford the trip, or have been robbed of their papers, or are in fear of their life. The number of Russian and other East European girls who did not come back last year is roughly estimated at 175,000, said Maria Mokhova, manager of the Moscow-based independent care centre for victims of rape and sexual harassment, who was addressing the same news conference. ****** #3 ANALYSIS-Putin snipes at exiled tycoons in Russia media row By Richard Balmforth MOSCOW, Jan 23 (Reuters) - President Vladimir Putin appears determined to rid Russian television of the influence of powerful exiled tycoons -- even at the risk of damaging his diplomatic credentials with the West. But surer clues as to how far he intends to go down the road of media control will come only when the fate is finally settled of the abruptly silenced TV6 channel, analysts said. With Putin gunning for TV6 owner Boris Berezovsky, one-time political king-maker and now opponent-in-exile, Russia pulled the plug on his station on Tuesday, giving the Kremlin a monopoly on television for the first time since the Soviet era. TV6, which had improved its ratings recently, was cut off in mid-sentence at midnight on Monday after a court ruling that upheld a shareholder's complaint that the station was bankrupt. The move raised a strong odour of Soviet-style media control, provoked criticism in the West and sounded alarm bells in liberal Russian political circles. The United States questioned the legality of the TV6 shutdown and said Putin could have stopped it if he had wanted. "For some time now, there's been a very strong appearance of political pressure in the judicial process against Russia's independent media, including in this case," State Department spokesman Richard Boucher said. "This is a huge leap backwards to the absolute supremacy of a single 'correct' point of view," said Grigory Yavlinsky, leader of Russia's liberal opposition. The shutdown followed last year's takeover of independent broadcaster NTV from magnate Vladimir Gusinsky -- also now in exile -- by the Kremlin-controlled natural gas monopoly Gazprom in a boardroom coup. The conviction of environmentalist journalist Grigory Pasko on treason charges and the publication of a slavishly uncritical biography of Putin have also evoked echoes of the Soviet era that ended formally a decade ago. TELEVISION - RUSSIA'S MOST POWERFUL MEDIUM Analysts said Putin, in spite of Kremlin denials, must have backed the TV6 action after a fight through the courts over the station's right to keep operating under its present management. They said he clearly aimed to end Berezovsky's influence in television, by far the most effective medium for conveying a political message to regions stretching across 11 time zones. "Putin wants to get Berezovsky out completely as a television entrepreneur. He does not have any other goal. He has no interest in this affair otherwise," said Andrei Ryabov of the Moscow-based Carnegie Endowment for International Peace. The 49-year-old Kremlin leader does not hide his contempt for Berezovsky, as well as fellow exile Gusinsky, and knows better than most the influence he can wield. It was Berezovsky's propaganda machine above all that took Putin, in 1999 an unknown ex-KGB spy, and created a widely idolised image of him that helped put him in the Kremlin. The two later quarrelled and Berezovsky left the country. Putin is eager to ensure that television is taken out of the hands of political actors as he looks to re-election in 2004. Analysts noted that no action had been undertaken against radio stations and newspapers -- potentially of lesser influence -- under Berezovsky's control. "Putin sees the threat (from television) as serious. TV6 has a lot of influence among intellectuals and attracts more and more young people," Ryabov said. "Putin is not afraid of criticism as such. But he's afraid that in an election campaign it could be used as a strong weapon by a consolidation of forces around Berezovsky." However, by pulling the plug on TV6, Russian authorities have silenced an alternative voice which has criticised policy in war-torn Chechnya and exposed alleged Kremlin corruption. Analysts say Kremlin policy on TV6 and the media will become clearer at the end of March when a tender will be held for the channel which the present TV6 team will be able to contest. Gazprom also says it will sell off NTV, and all eyes will be on the new owners. In image terms, the TV6 controversy falls awkwardly for Putin who has enjoyed remarkable popularity in the West because of his support for the U.S.-led anti-terrorism drive and who will host U.S. President George W. Bush in Moscow this year. ******* #4 Russian arbitration head denies Putin's order to pull plug on TV6 Interfax Moscow, 23 January: The chairman of the Russian Higher Arbitration Court, Veniamin Yakovlev, has categorically refuted statements that the Russian leadership exerted pressure on the court when it was considering the liquidation of TV6. Yakovlev made these comments to Interfax on media reports [saying] that Union of Right Forces (SPS) leader Boris Nemtsov had alleged that Yakovlev told him that he "had received an instruction from the president to shut down TV6 in order to get rid of a media outlet owned by Boris Berezovskiy." "This information absolutely does not correspond to reality, for I have not had either meetings or even conversations with Union of Right Forces leader Boris Nemtsov," he said. Statements that President [Vladimir] Putin has issued any instructions to the Higher Arbitration Court concerning the TV6 liquidation "are an invention," Yakovlev said. He noted that such influence is impossible and "has never taken place," either in this particular case or in any others, as this would be a flagrant violation of Russian law. "Such allegations are a matter of conscience for those who make them up," Yakovlev said. ******* #5 Russia: Moscow Breaks Pledge To Curb Oil Production By Michael Lelyveld Russian plans to boost oil production are breaking the government's pledge to the Organization of Petroleum Exporting Countries (OPEC) that it would cut output to keep prices from dropping. The oil cartel seems to have ignored warnings that Russia would not honor its promise and that it risked turning its price-setting power over to Moscow. Washington, 23 January 2002 (RFE/RL) -- Signs are increasing of a fundamental shift in the world oil market as a result of December's face-saving deal between Russia and OPEC. In late December, 10 OPEC nations agreed to slash production by 1.5 million barrels per day in exchange for a pledge by Russia and other non-OPEC states to take similar cuts. The goal was to keep ahead of plunging demand, which has pulled oil prices down below OPEC's target range of $22 to $28 per barrel. But in the three weeks since the new trims took effect, it has become clear that OPEC gave up quite a lot and got very little in return. Russian Prime Minister Mikhail Kasyanov brokered the deal that was supposed to reduce the country's exports of crude oil by 150,000 barrels per day. The promise formed the basis for commitments by non-OPEC producers to lower their exports by 462,500 barrels per day. The amount fell short of the 500,000 barrels that OPEC first sought, but with a crisis of confidence on oil prices, the cartel decided to look the other way. OPEC continued to avert its gaze as the Russian government encouraged a shift of the country's production into refined products like fuel oil, turning the export promise into a cosmetic cut. In January, the government sharply reduced its export tariff on fuel oil under new customs rules and completely lifted its quotas on fuel oil exports, citing a domestic glut. The final blow to the OPEC deal came in mid-January, when several Russian oil companies led by second-largest Yukos confirmed earlier plans for big increases in crude oil production in 2002. The result is likely to be a major loss in OPEC's market share and its power to manage world prices. The International Energy Agency recently said that OPEC's share of the world market has dropped to less than 32 percent, the lowest level since the mid-1980s. The Paris-based group said OPEC is unlikely to recapture its clout even if the world economy recovers because non-OPEC countries plan more expansions, the "Financial Times" reported. The "Middle East Economic Survey" reported recently that cheating by OPEC members led to production of 569,000 barrels per day over their assigned quotas in December, even before the new limits took effect. All signs now seem to point toward weaker prices and a rise in Russia's leverage, perhaps to levels not seen since Soviet days. In November, Russian President Vladimir Putin's economic adviser, Andrei Illarionov, called OPEC "a historically doomed organization" after it hinted it might wage a price war to make Russia comply with its demands. On 10 January, Illarionov predicted that oil prices would fall to $10 per barrel, saying, "none of the price-fixing agreements can resist the markets," the Prime-TASS news agency reported. The Russian government may step in before prices sink that far, but in the meantime Russian oil companies seem determined to show their new strength. Yukos recently announced it would raise its 2002 output by 17 to 20 percent. That increase alone could equal well over 200,000 barrels per day. Sibneft, the fifth-biggest Russian producer, is set to add over 100,000 barrels per day this year. Even state-owned Rosneft has announced plans for 12 percent annual increases. Only Russia's leading oil company, LUKoil, has voiced dismay over the broken promise to OPEC. The "Financial Times" quoted LUKoil Vice President Leonid Fedun as saying that domestic prices have dropped by two-thirds in two weeks and may approach $5 per barrel. The biggest question may be why oil traders believed in the OPEC deal for so long in the face of Russia's apparent intention to flaunt it from the start. The industry newsletter "Petroleum Argus" recently wrote, "Russia, in time-honored fashion, is clearly not going to do what OPEC seems to be expecting of it." "The only surprise in all this is the fact that OPEC does not appear to have noticed what is going on, or rather it appears to have chosen not to notice," it added. Following the new OPEC limit on 1 January, the cartel's basket of crudes rose briefly to a high of $19.64 per barrel on 4 January. Since then, the prices have steadily softened, settling at $17.21 on 18 January, the official Iranian news agency IRNA reported. Russia's pledge to cut exports for the first quarter might not support prices even if it were kept. Since much of the market is based on future deliveries, any artificial restraint may only lead to more exports and lower prices later on. OPEC seems to be relying on forecasts of an economic recovery to absorb the excess oil. But ample inventories, combined with a mild U.S. winter and Russia's rise in output, may leave the cartel on thin ice, particularly if recovery is delayed. After its disastrous deal with Russia, OPEC can hardly afford another one, making it unlikely that its members will soon agree to reduce production again. ******* #6 Boston Globe January 15, 2002 In the courts By Alex Beam (beam@globe.com) There's a bit of sticky wicket looming for Harvard president Lawrence Summers down at the federal courthouse. The $120 million ''false claims'' case US v. Harvard et al. is lurching forward, and Summers, in his role as an ex-Treasury Department official, is getting caught up in it. The suit is informally known as the Shleifer-Hay case; it was filed in the fall of 2000, before Harvard chose Summers as president. The government is accusing Harvard economics professor Andrei Shleifer and former Harvard employee Jonathan Hay, and their wives, of improperly enriching themselves in Moscow. At the same time, it's alleged, they were controlling tens of millions of taxpayers' dollars flowing to Russia through Harvard's now-defunct Institute for International Development. In addition to the four individuals, the university is also a named defendant. It's LawyerFest 2002 down there, with government attorneys facing down mouthpieces from Harvard; Goodwin, Procter; Skadden Arps; Nutter, McClennen & Fish; and several other firms. An attempt at mediation by retired judge David Mazzone failed, and the defendants are now completing their bids for summary judgment. Assuming they fail - dangerous to assume! - the case will go to trial. Government lawyers have introduced ''the status of Lawrence Summers, Harvard's president, as an issue of concern'' in the case. Summers is not only the titular head of Harvard, but his name also appears on the individual defendants' witness list. He was a close personal friend of Shleifer's (he was the professor's thesis adviser at MIT) and a vocal proponent of the privatization work that landed Shleifer & Co. in the soup. Janine Wedel, author of the expose ''Collision and Collusion: The Strange Case of Western Aid to Eastern Europe'' (how very unsurprising that this book is sold out in Harvard Square), notes that, while at the Treasury, Summers actively supported $40.4 million worth of no-bid government grants for Harvard's IID programs in Russia. ''Approving such a large sum of money as a noncompetitive amendment to a much smaller award was highly unusual,'' Wedel told me. In court papers, the university revealed that ''President Summers has retained separate representation from Harvard and is currently in communication with both counsel for the government and counsel for defendants.'' Summers's new lawyer is Thomas Kiley, most recently noted for defending state Representative Kevin Fitzgerald in the bizarre ''bag lady'' case. In that suit, Kiley's client agreed to return a portion of a small fortune left to him by a mentally ill street person. Kiley says that Harvard will be paying his legal fees. ******* #7 REAPING BENEFITS FROM THE "CLASH OF CIVILIZATIONS": RUSSIA'S RULING CLASS AMID GLOBAL CRISIS By Dmitri Glinski-Vassiliev (dmitriglinski@yahoo.com) At first glance, Russia's potential impact on the global system, as regards advanced economic indicators, is virtually negligible. After a decade of plundering and devastation on a continental scale, previously unseen among industrial countries (initiated by the "shock therapy" policies of former president Boris Yeltsin and his team of economic reformers led by Yegor Gaidar and Anatoly Chubais), Russia is not a significant player in the world market for industrial goods, not to speak of the "new economy" - the two fields immediately affected by the currently spreading recession. As of now, it produces 1.6% of world GDP and its share of global export is 1.4%. Russia's total market capitalization is reported to be $50 bln., compared to $130 bln. of Johnson & Johnson. The capitalization of all Russian banks taken together is less than that of Chase Manhattan alone. Its recent splash of economic growth resulted from the drastic devaluation of the rouble as a consequence of the financial collapse and debt default in August 1998, plus the nearly 300 percent rise in the price of oil in the international markets since then. And, in spite of these favorable circumstances, the rate of GDP growth in Russia has been steadily declining (from almost 11% in the third quarter of 1999 when the growth began, to 8.3% in 2000 and somewhat above 5% in 2001). While upbeat forecasts envision 3.5% growth for 2002, evidence suggests that, in fact, it apparently grounded to a halt in the last months of 2001. However, such raw economic data are no more than one determinant of the role that Russia may assume among the various actors given the potential upheaval in the world system. In the event of a crisis unfolding in the context of the post-modern "virtual reality", it would be shaped by power politics and propaganda at least as much as by "objective" economic developments. As will be argued further in this paper, it is in this regard that Russia - or, for the sake of accuracy, its ruling class - is likely to play a pivotal role in the escalation and "management" of a would-be global crisis. The Kremlin's recent emergence as the United States' and NATO's foremost geopolitical ally in the ill-defined anti-terrorist struggle potentially pitting the West against an increasing number of developing nations is the most visible sign of this potential role - but only one in a series. The economic underpinning of this role is Russia's tectonic shift in the international division of labor - from producing industrial goods and manufacturing tools for the developing world to being largely an exporter of natural resources. In this capacity, Russia is competing primarily with the OPEC (Organization of Petroleum Exporting Countries) for the share of Western oil markets, and with such countries as Turkey and Georgia for the Western financing of transportation routes. Russia now provides 10% of global oil sales and is its second-largest individual trader, after Saudi Arabia. Raw commodities now make about 85% of Russia's total exports, while Russia imports those higher value-added goods it previously produced for itself. This fundamental structural change - coupled with the fervent ideological loyalty of most of Russia's ruling class to the present unipolar world order and key elements of the "Washington Consensus" - appears to be the defining element of Russia's overall weight, far above its "objective" share of the global economy. It is also a crucial determinant of its ruling elite's motivations and behavior that are geared to the goal of legitimizing its oppressive rule inside the country by becoming one of the major and most valuable bulwarks of the international status quo. The "Saudization" of the Russian Economy Over the past twelve years or so, the size of Russia's economy declined, by various estimates, by 50 to 80%, and the institutional foundations of its relative self-sufficiency as the core of a cluster of the so-called "Second World" countries that had been largely isolated from the U.S.-dominated part of the global economy was completely dismantled. Two successive hyperinflations already in the course of the "reforms" wiped out the savings of the urban middle class while making the Soviet-era poor far poorer. The government's wholesale withdrawal from the big industry, coupled with free-wheeling and often legally untenable privatization of whole industries for next to nothing by government-affiliated tycoons (in association with the criminal underworld, on the one side, and a number of Western consultants, on the other), along with the collapse of the social safety net, have thrown Russia decades back in its economic and social development. In the words of a leading and one of the most compassionate Russia-watchers in American academia, Stephen Cohen, this amounted not only to a deindustrialization, but also to a virtual "demodernization" of the country. Meanwhile, the legislature critical of shock therapy was dispersed by artillery fire, and its successors were thorougly tamed by the "executive" (which warrants quotation marks becase, in fact, it never acquiesced to a genuine separation of powers). And a Western-style "free market" that is supposedly based on the entrepreneurship of autonomous small and medium-sized producers, never took hold in Russia, whose economic space remained tightly controlled by crony capitalists and criminal syndicates. Nevertheless, for most of the decade a number of mainstream Western media, academics, and government officials acted as cheerleaders for Russia's experiment in "market democracy", despite the overwhelming evidence of degeneration and decay in this country. The benefit that some Western actors drew from Russia's miracle-in-reverse was as much economic and military-strategic, as it was ideological: the self-dismantling of the only system that, however imperfectly, offered an alternative to the world capitalist order and some promise of legitimacy for the dissenters within this order, in the West as well as in the East. The resulting triumphalist mood among Western big business and Cold Warriors found its prevalent ideological expression in the conservative brand of neo-Hegelian teleology, trumpeting, in the words of Francis Fukuyama, "the end of history". This new framework imposed on the political discourse hardly concealed the understandable desire of the present-day winners to rationalize and perpetuate the status quo. As for Russia itself, it has, mutatis mutandis, reverted to its niche in the international economic order that it had occupied in the early 20th century (viewed by some in our days as "the first wave of globalization"): the niche of a semi-peripheral and "semi-capitalist" economy. One major difference between then and now is, of course, that as a result of a series of coercive "modernizations", from the Bolshevik to the neo-liberal, Russia's agriculture is in shatters and Russia is no more a leading exporter of grain that it was in 1913. On the contrary, in the years before the 1998 rouble crash it yielded more than 50% of its internal market to foreign foodstuff. The other difference is conditioned by the emergence of oil as one of the driving factors of contemporary global economy: since the waning years of the Soviet Union, Russia played an increasingly visible role on the international oil markets - which, in their turn, repeatedly produced dramatic effects upon the state of its budget revenues and hard currency reserves. Thus, the decline of oil prices in 1986 (allegedly assisted by some strategists of the Reagan Administration in collusion with Saudi Arabia) played a defining role in derailing Mikhail Gorbachev's initial program of acceleration of industrial development and forced him to dismantle, one by one, the basic elements of Soviet order and military might. In a similar way, the upward trend in oil price from 1999 on - following an agreement between Russian Prime Minister Yevgeny Primakov with the leaders of OPEC on cutting oil sales, with the tacit understanding of the West that this was better than an irreversible breakdown of Russia - was instrumental in stabilizing its post-reform politico-economic and social order and in the consolidation of Russia's ruling class. (After the left-leaning Primakov was pushed out by Yeltsin and his extended "family", allied with the export lobby and domestic security services, they entrusted the management of this order to their hand-picked Prime Minister and then President of Russia Vladimir Putin.) It is in this context of the commodities-driven economy that one can speak of the "Saudization" of Russia - while keeping in mind that the super-profits of the Russian "sheikhs", unlike in Saudi Arabia, have not trickled down to the lower strata of society to buy them low-cost education and health care. The latter is hardly surprising, given that 92% of the sources of the natural rent have been privatized. Their owners - typically the offspring of senior officials of the Soviet Communist Party apparatus and intelligence agencies - exhibit neither much affection for their country, nor reasons to fear an uprising by an exhausted and disoriented population. There is no pressure on them to channel their profits into higher value-added industries, research and development in high-tech, or the nurturing of the nation's human capital. Indeed, with capital outflow from the Russian economy totaling, by various estimates, $ 20-25 bln. per year - which implies the expatriation of about a half of the national savings - there is insufficient investment in maintaining and developing the productive capacities of the raw materials sector itself. And the Russian government displays an ideologically stubborn resistance to the very idea of nationalizing or even properly taxing some of the mega-profits of oil and gas baronies - which account for two thirds of the national income, while supplying only 20 percent of the tax revenues. Against the opinion of Russia's most authoritative economists, it taxes natural rent much more sparingly than wages and value-added production of the manufacturing industries. Thus, the notion of semi-periphery that was used above refers to Russia's virtual split between the few highly profitable or highly advanced industries that would potentially make it a respectable partner of the world system's "Core" - versus most of the economy that is stagnating or decaying even as vast export earnings keep replenishing government coffers and foreign bank accounts of wealthy Russians. Around 80% of profits and investment in the Russian economy as a whole are accounted for by enterprises linked to the commodities sectors. And, as implied by the above-made distinction, Russia's technologically advanced industries - developed in the past mostly for military purposes - are not among those highly profitable, at least in comparison with the extraction of raw materials. In the absense of government investment and strategic industrial policies, as argued for by Russia's senior economists, these previously advanced modern industries are cash-starved, suffering from the haemorrhage of qualified personnel, and destined to slip ever futher into the bottom part of Russia's "dual economy". The conditions described here at the moment foreclose the possibility of Russia's upward move on the ladder of the international division of labor, as experienced by the previously semi-peripheral economies of East Asia between 1950s and 1980s, or as is currently undergone by India. In the long term, this leaves a choice between stagnation and further decline - thus making Russia's present position in the system perhaps the most precarious and unstable among the nations of the semi-periphery. Having seemingly escaped from "the horrors of totalitarianism" by reverting to its pre-revolutionary "golden past", Russia may find itself again "the weakest link in the chain" of the global order - the image that defined its prospects a century ago. The "Super-Structure": The Strengthening of a Privatized State The use of the term "super-structure" - once the trademark of conventional Marxism denoting the political and ideological realm as allegedly fully determined by the economic interests of the hegemonic class - sounds oddly apposite with regard to the present-day Russian government: the elite perceives the function of the state as designed to service the domestic and foreign interests of the big money. Generally speaking, "post-communist" Russia lives in a perverted quasi-Marxist reality where, as the popular saying goes, everything that Marx promised about socialism failed, but everything he said about capitalism - especially its primitive stage of development - happens to be true. The country is run by an authoritarian super-presidency whose constitutional and factual authority increasingly approximates that of the Russian Tsar on the eve of the 1917 Revolution. The rest of the "super-structure" is subsumed by Ken Jowitt's description of semi-peripheralism that he used with regard to late imperial Russia: "1) a moral and psychological chasm between the oligarchic, bureaucratic elite and the lower classes; 2) mechanical transfer of liberal institutional facades from the West; 3) external power as an ideological-cultural referent and patron for the local elite." The economic demodernization has been fully matched by the progressing demodernization of institutional design and political culture. Thus, early Yeltsin years saw the abolition of legislative oversight and independent control mechanisms that existed in the twilight of the Soviet period; their new surrogate was a relative pluralism of the media resulting from the political rivalry of financial tycoons and providing some leeway for the self-expression by independent political forces. Even this, however, has been eliminated by President Putin, under the false pretext of struggle against the "oligarchs". It is often heard in the West that the capturing of government institutions by "oligarchical" interests, known as the "privatization of the state", was a Yeltsin-era phenomenon that is now fading due to the "strengthening of the power vertical" announced by President Putin and his "equidistance" from corporate interests. From a Russian perspective, this is a propaganda that is breathtakingly at odds with reality: the privileged position of the Yeltsin-era corporate giants in setting the parameters of economic policy has remained intact. The extent of the privatization of government institutions across the country has been manifested by a series of gubernatorial elections in the Siberian areas particularly rich in natural resources (Chukotka, Taimyr, Evenkiya, Yakutia) where Moscow-based zillionaires trading in oil and diamonds sailed through electoral contests against phony rivals. Their outright purchase of votes by hand-outs of money and goods left Moscow totally unperturbed. And the standard fees paid by other tycoons to regional authorities for being appointed as their representatives to the upper chamber of the federal parliament are no secret for the Moscow political establishment. The few business magnates that have actually lost their clout under Putin were those that had acted as public political entrepreneurs, allying themselves with non-establishment players and thus violating the requirement of a monolithic "consolidation" of Russia's ruling class vis-a-vis the rest of society. The only one of them who was stripped of his assets and thoroughly silenced - Vladimir Gusinsky -was not, strictly speaking, an "oligarch", as he already had no political leverage with the government: his real "guilt" was to provide some media support to the liberal-democratic and left-leaning part of the Yeltsin-era establishment that was eventually to be defeated by Putin. The elimination of financially independent political entrepreneurs from the stage was conditioned as much by the security interests of the regime as by those foreign businesses that the government expected to invest in Russia and that were loudly complaining about the reign of "instability" and "chaos". The satisfaction presently displayed by some business-oriented Western media about the flattening of Russia's political landscape attests to the ideological militancy of the top-down globalization whose standard-bearers do not tolerate as much political pluralism in peripheral societies as they do in their home countries. The Resurgence and Limits of Market Fundamentalism While political developments in Russia are under tight control by intelligence and security agencies, the economic policies of the government are overwhelmingly determined by the interests of the raw materials exporters and the so-called natural monopolies, notably in the energy sector. Their unwillingness to invest in their own country in spite of the dilapidated condition of their own industry accounts for the schizophrenic twist in government priorities: they are geared toward wooing foreign investment in the economy while at the same time allowing domestic capital to flow freely out of the country. While the former is supposed to be achieved through an accelerated accession to WTO and the driving down of tax rates and labor costs in a competitive "race to the bottom", the latter implies further liberalization of the currency regime. As noted earlier, the Putin presidency has thrived upon the favorable external conditions and the legacy of the consolidation of elites around the idea of restoring a strong and sovereign state. This consolidation was achieved in the brief period of the Primakov premiership, when the shady privatizers of the state and radical market reformers of the shock therapy brand were on the retreat. Replenished state coffers due to the devalued rouble, increased export earnings and initial anti-corruption measures allowed, first, to pay outstanding wages and pensions, and then to raise them (not, of course, in comparison to pre-reform levels, but relative to nearly worthless and irregular salaries of recent years). This relative increase in the population's purchasing power, coupled with the prohibitive price of foreign goods, expanded domestic demand for Russian products and personal consumption, which helped fuel further growth in the real economy. It was increasingly possible that this internally-generated growth would gradually supplant export earnings as the prime mover of the Russian economy. However, the political climate of fear in the country (generated by the new president's reliance upon the intelligence agencies and mysterious apartment explosions in major cities that accompanied Putin's ascendancy to power) and continuing stabilization of living standards under Putin enabled the cartel of economic elites to marginalize all those political forces that were disloyal to the radical market orthodoxy. The elements of neo-Keynesian expansionary policies pursued by Primakov and his leftovers in the government were cast aside. By now, the widely resented initiators and strategists of Russia's double collapse of 1991-92 and 1998 are back in the driving seat. In the first days of 2002, a Moscow weekly generally loyal to the government confirmed, for those who still doubted, that "Gaidar's economic program is being [implemented] ... although the authorities prefer not to talk about it [for] obvious reasons." The only economic "pluralism" currently tolerated in the mainstream is between the ideologists of the "undistilled" free market preaching total government withdrawal from the economy and the rejection of the IMF conditionalities as "interfering with the market" (this current is exemplified by the President's adviser Andrei Illarionov) and the old-"young" privatizers accustomed to using and abusing Western aid, along with government property and coffers (the "St.Petersburg gang", headed by electricity monopoly CEO and right-wing politician Anatoly Chubais along with his government proxy, deputy prime minister Alexey Kudrin). As mentioned above, the hegemonic interests of the commodities sector have defined the priorities of government economic policy. The landmarks of this policy over the past two years included: further liberalization of currency regime; the adoption of the flat tax rate of 13% that is unheard of in other European countries and was a losing proposition even in the U.S. presidential campaign of 2000; the enactment of a draconian labor code virtually eliminating independent unions; and the drive toward accelerated entry into WTO. Lax and selective currency regime characterized most of the Yeltsin era. As a result of this, as well as of the lack of a credible banking system capable of - and willing to - channel savings to productive use rather than speculation and offshore ventures, capital export throughout the decade exceeded the overall amount of foreign aid flowing into Russia. With the resumption of growth, capital outflow has been eating up at the country's impressive savings rate - 37% GDP - roughly half of which is expatriated to foreign bank accounts. But if in the 1990s legal chaos and lack of enforcement in this area was typically justified by institutional breakdown, under the new president, capital leakage, continuing in spite of the "strengthening of the state", has been rationalized by the logic of market fundamentalism. Thus, presidential adviser Illarionov believes that letting "excess" petrodollars out of the country actually works as an anti-inflationary policy. They should be allowed to leave through liberal capital controls and early repayment of foreign debt, rather than invested in the country. This curious approach was somewhat discredited by the fact that, in spite of the massive capital outflow and debt repayments, inflation in 2001 ended up above its 18% target (which may explain Illarionov's recent attempts at positioning himself as an independent critic of the government and denying any responsibility for its economic policies). The labor code adopted in December 2001 in spite of a prolonged resistance by the unions and misgivings on the part of even business-friendly liberals, is another typical manifestation of market fundamentalism Russian-style. To cite just a few examples: it legalizes payments in kind, which may constitute up to 20% of the wage amount; it sanctions the collection of personal information about employees from outside sources and transmission of such data to third parties; it eliminates the rights of alternative unions that comprise less than a half of employees of a given company, thus effectively handing out a monopoly on the representation of labor interests to official Soviet-era union (Federation of Independent Unions of Russia) that had been thoroughly tamed by decades of political repression and is virtually under the control of the government. This latter provision puts in a legal limbo such long-existing professional associations as the national union of air traffic controllers that are now denied the right to strike under the pretext that they constitute a minority in every airport taken as a single enterprise. Meanwhile, the new code strips workers' representatives chosen to negotiate with the management of their immunity from being fired in the course of negotiations. Under the new code, the system of short-term contracts is being spread throughout the economy, including university professors who in Russia were traditionally rewarded for their miserable pay by mostly unlimited tenure. And the employers are given broad authority as regards extending working hours as well as shifting the time of holidays and vacations, in the latter case from one year to another. It is worth noting that even before the adoption of this code the Economist's Intelligence Unit ranked Russia among the ten cheapest countries as measured by the cost of its labor. So far, however, these drastic measures have not payed off. Foreign direct investment is still meager, even in comparison to other East European countries. As noted above, inflation did not stay within the expected target. The campaign of "strengthening the state" and "building up the power vertical" did not succeed in reducing the amount of corruption, an area where Russia still ranks the second most expensive country with regard to bribe-taking, right after Indonesia. According to none other but Andrei Illarionov, the scale of corruption under Putin is actually higher than under his predecessor. Growth figures have been less and less impressive, especially against the background of Russia's immediate neighbors, some of which fared better without adopting as radical free market policies as Russia did. Thus, Kazakhstan recorded growth of 10% GDP, and Ukraine 7% GDP in the year 2001. And in November 2001, after a month of stagnation, Russia's GDP apparently declined - from 857 bn to 820.7 bn roubles. The only indicator with an unquestionably robust performance has been Russia's bubbling stock market of some $2 bln. that grew at a whopping rate of 60%. This puts it in a dubious company with Zimbabwe - a decidedly peripheral country whose stock market also remained suspiciously immune from world recession. The fragility of this economic stabilization has been an obvious source of worries both for the elements of Russia's ruling class capable of thinking in longer terms and for the Western missionaries of market fundamentalism with tremendous ideological as well as material stakes in the success of the Putin reforms. The latter have reverted to their early Yeltsin-era practices of "talking up" Russia while closing their eyes to the repressive features of its new regime and impatiently dismissing its human rights critics as perpetual grumblers. As for Russia's rulers themselves and their allies in the extractive sector, they have been desperate to draw in U.S. investment while simultaneously looking for an increase of their share on foreign, primarily U.S. markets. "The issue of market expansion is the key for Russia's oil industry," announced Kremlin-connected "oiligarch" Mikhail Khodorkovsky, the head of the YUKOS company. It appears that some strategists of Russia's Big Oil and their political patrons have been increasingly looking toward extra-economic means to boost their attractiveness for the wealthiest buyers and undermine their immediate competitors from the Third World. From this point of view, the outbreak of terrorism that put major Western powers on the war footing and the aggravation of relations between the U.S. and the countries of OPEC could not have been more timely. The Clash of Civilizations and the New Energy Order As implied by the term itself, market fundamentalism in semi-peripheral countries is not so much a product of rational economic thinking as a blind creed that may perfectly coexist with economic illiteracy. As with every creed, its pathological manifestations are particularly characteristic of recent converts typically imbued with unrealistic expectations that their fervent devotion to the letter of the new gospel and evangelical militancy will bring them salvation in the immediate future. The basic feature of such a creed is intolerance to the unfaithful. Over the past decade, Russian elites eagerly paraded their intolerance with regard to the so-called "marginals", that is, parts of Russian society and economy that were slow to "marketize". These vast strata of "marginals" included Soviet-era intelligentsia (academics, teachers, engineers, physicians); workers of traditional manufacturing industries; pensioners; and rural dwellers. In the course of Russia's latest "revolution from above", intense hostility that is usually characteristic of the poor vis-a-vis the rich in typical revolutions from below, has run in the opposite direction. Yet this intolerance spread not only to those considered "maladaptive" but also to those that adapted to capitalism in a markedly different way. This refers first of all to ethnic and religious communities inside Russia that managed to avoid the extent of atomization experienced by ethnic Russian majority due to profound cultural differences that we will now leave aside. Of these non-Russian minorities, Muslims - or, more precisely, representatives of ethnic communities traditionally associate with Islam - have been by far the largest, comprising circa 20 million citizens. Trade competition with the Muslims, particularly Caucasians, and the resentment over their occasionally more efficient adaptation - or, perhaps, insulation - vis-a-vis the "wild market" fueled Islamophobia and racism inside Russia. Violent skinhead riots in Moscow of October 2001 are its latest evidence. At the elite level, this ethnic and cultural intolerance - intertwined with economic interests - was one of the prime movers of the two bloody and inconclusive wars conducted by the Kremlin in Chechnya. This unfriendliness was only aggravated by the evidence of generous support for the Russian Muslims coming from their better-off co-religionists from abroad. In the meantime, the processes of economic decay that were outlined above have confronted Russia with the Islamic world yet again, this time on the international oil market. Regardless of the purely religious and political dimensions of this relationship (including at times very real and threatening outbursts of ethnic and religious radicalism directed against Russia), the cultural intolerance of market fundamentalists apparently played an autonomous role in shaping the attitude of Russia's extractive elites toward their southern competitors. Wealthy Russians who spend their vacations in Abu Dhabi have often been struck by the Arabs' response to globalization that preserved national solidarity and provided for a relatively equitable redistribution of profits at the national level. The mindset that was accustomed to view Russia's southern neighbors as developing and backward experienced a cognitive dissonance when comparing the relative equilibrium of these societies with Russia's own social and moral breakdown in the course of the market reforms. Such a confluence of domestic and foreign experiences produced a view of the Muslim culture as deviant, cunning and fundamentally hostile to Russia. Belief in the impending "clash of civilizations" - a doctrine developed in Harvard by Samuel Huntington - has gained increasingly wider currency in Russia's ruling circles. Given their intensifying competition with OPEC, it is not surprising to see Russian oil executives displaying genuine interests in the geopolitical developments in the Middle East and the Gulf. And if thirty or forty years ago Soviet foreign policy establishment was generally favorable to Arab radicals and occasionally veered into anti-Semitism, the structurally different economic relationship of the present-day de-modernized Russia to the Arab world has produced opposite effects. Rampant anti-Arab sentiments among Russia's business executives were openly expressed well before the terrorist strikes in the U.S. Russia's Big Oil was clearly interested in the aggravation of regional conflicts that would further drive up commodity prices. Thus, in a typical article posted on the Russian internet channel RusEnergy.com, affiliated with YUKOS, titled: "Will Russia's Oil Be Enough If Israel Occupies Palestine?", its author Ivan Gribanov opined that "the occupation of Palestine [by Israel] and the wiping out of the bandits would bring a sense of relief to many opponents of Islamic terrorism." And, in another posting, the same author wrote with characteristic frankness that "Russia may draw considerable political and economic benefit from the clash of civilizations, if Moscow is skillful enough to use the international situation in its interests." As suggested above, the events of 9/11 in the U.S. and the ensuing anti-terrorist campaign that heightened Western apprehensions about the "Arab" oil was seen by many in the Russian commodity sector as a golden opportunity for mega-profits. President Putin acted perhaps as less than a fully accomplished diplomat when he echoed these feelings by announcing in the course of his September visit to Germany that Russia "stands ready to increase its oil exports in case of world conflicts." Meanwhile, such mouthpieces of commodities' barons as RusEnergy.com have risen the intensity of their Islamophobia to new heights. To sum up, outside observers would be mistaken to see President Putin's rapprochement with the West and his embrace of the anti-terrorist coalition as a result of progressive developments and a comprehensive "Westernization" of Russia, whatever this may mean. Quite the contrary, in economic terms it stems from Russia's slipping way backward in its development - to a stage where, rather than competing with the West, as before, over the markets for industrial goods and technologies in the developing world, it is competing with the OPEC over Western oil markets. And the intesity of racism that is percolating through the ranks of Russia's ruling class and is incomparable to the superficially instrumental anti-Americanism of the Soviet era testifies to the extent of this historical rollback that has been experienced by Russia. If the anti-Westernism of the parts of the Soviet military-industrial complex was substantially moderated by the larger horizons of overall government policies, the present anti-Arab and anti-Islamic sentiment of Russia's oil salesmen is either completely accepted as a given or even occasionally fueled by government officials and government-affiliated media. In Russian history, international crises always reverberated not only through clashes of military forces and economic interests but - often more importantly and intensely - through ideological and cultural wars. Likewise, in our days, while Russia's decrepit and demoralized military does not represent a credible threat to anyone except, perhaps, to Russia itself, and the hegemonic corporate interests do not face any challenge to their dominance that would lead to a crisis, the ideological radicalization of Russia's ruling class that has run up against inherent constraints to its prosperity spells enough trouble to warrant a serious attention. Gradually turning into a self-fulfilling prophecy in the Russian elites' relations with various Muslim-populated states and Muslim ethnic groups within Russia, the clash of civilizations is threatening to become the most violent manifestation of the world-systemic crisis in the heart of Eurasia. Dmitri Glinski-Vassiliev is a Senior Associate at the Institute for World Economy and International Relations (IMEMO) of the Russian Academy of Sciences. Dr. Glinski-Vassiliev graduated with a B.A. from Moscow State University in 1994. He received an M.A. in political science from Ohio State University in 1995 and an M.A. in international relations from John Hopkins University, School of Advanced International Studies, in 2000. Glinski-Vassiliev received his Ph.D. from IMEMO in 2000. ******** #8 Russians Investigate 9/11 Connection January 23, 2002 MOSCOW (AP) - Russian intelligence agents are investigating claims by a trolley driver who said he was involved in the Sept. 11 attacks on the United States, a news report said Wednesday. The man, identified by the ITAR-Tass news agency as Furkat Ibragimov, a 32-year-old ethnic Tajik, apparently called several foreign embassies in Moscow after the attacks and said he represented an extremist Islamic organization close to the Taliban. The man allegedly claimed that he and the organization were responsible for the attacks, and warned that similar terrorist acts would follow, according to ITAR-Tass, which cited the Federal Security Service's office in the Ural Mountains city of Chelyabinsk where Ibragimov lives. Ibragimov was detained after several embassies requested an investigation. During questioning he allegedly admitted to making threatening phone calls, the report said. Psychiatrists deemed him mentally stable and he was released on condition he not leave the city. The Federal Security Service headquarters in Moscow, the main successor to the KGB, could not be reached for comment late Wednesday. ****** #9 Russia's choice--tariff rises or inflation targets By Julie Tolkacheva MOSCOW, Jan 23 (Reuters) - Russia risks higher inflation if it presses on with reforms which would let prices of utilities and railways rise this year. Analysts still expect it to go ahead with the tariff liberalisation, part of a restructuring of state-owned monopolies, including the railways, the world's biggest gas company Gazprom (GAZPPE.RTS)(GAZPq.L) and national power grid UES (EESR.RTS). The aim is to create internal power and railway markets and to provide for vital investment by eliminating the subsidies they now pay to the rest of the economy through selling on the domestic market at well below cost. But the government is under pressure from inflation, which was well above target last year, and from large industrial consumers, such as metals plants, whose operations will become more costly when utilities prices rise. "The government is facing a dilemma: whether to keep inflation within the budget plan, but then tariff increases should be postponed..." said Natalya Orlova, an analyst at Alfa-Bank. "Tariffs will be increased, there is no other way. Another question is how quickly it will happen," she said. Inflation was 18.6 percent in 2001, compared with original government forecasts of 12-14 percent, later revised upwards. This year, the government is aiming for inflation of 11-13 percent, although analysts expect it to be nearer 16 percent. January has seen price rises keep up their pace. Consumer price inflation was 1.2 percent between January 1 and 14 compared with 1.6 percent in the whole of December. The finance ministry expects inflation this month of 2.3 percent in month-on-month terms. The planned tariff rises have been set at a ceiling of 35 percent and are to be broken into two stages, February and July. But in a sign that introducing them will be difficult, the government last week postponed a planned 14 percent rise in tariffs, due to take effect from January 20. It blamed the delay on inflation. DELICATE COMPROMISE Analysts said January was traditionally a month of high inflation. "Higher tariffs do not have any negative impact on inflation in general, but a shift from January to another month is sensible... because the hike could have been inflationary in this particular month," said Alexei Moiseyev, a macroanalyst at Renaissance Capital. Yuliya Tseplyayeva, an economist at ING Barings, said the government was helping itself by breaking the tariff rises into two portions, but saw tricky times ahead. "A very delicate compromise has to be found. It is a very difficult task," she said. "This is a question of manoeuvering in a situation of low oil prices and when wishing to diminish the inflationary consequences." She agreed tariff rises were unavoidable, partly because of low international energy prices. For example Gazprom, which accounts for a fifth of budget revenues, was finding it harder to cover its losses on the domestic market from export revenues. ******* #10 DMITRY ROGOZIN ACCUSES EUROPEAN PARLIAMENTARIANS OF SUPPORT FOR POLITICAL EXTREMISTS IN CHECHNYA STRASBOURG, January 23, 2002. /from RIA Novosti correspondent Leonid Kokovich/. Dmitry Rogozin, the Head of the Russian delegation at the PACE session, the Chairman of the State Duma Committee for International Affairs, accused European parliamentarians of the support for political extremists in Chechnya. Commenting upon the report on the observation of human rights in Chechnya, Rogozin said that the September 11 tragic events in the USA "did not give any lessons to most parliamentarians who are still ready to support political extremists in Chechnya, making them fighters for freedom". "If we follow the logic of some European parliamentarians, the pilots-terrorists who high-jacked passenger airliners and attacked Washington and New York, were also fighters for freedom," said Rogozin. Pointing out that speakers on the Chechen problem at the PACE session insist on a political dialogue with Maskhadov, Rogozin reminded those present of the video tape with the record of meeting between Chechen leader and Osama bin Laden discovered in the USA. "Well, now Russia has to negotiate with the terrorist number one," Rogozin told the European parliamentarians. The head of the Russian parliamentary delegation called on the European parliamentarians to stop playing with political extremism. According to Rogozin, "Moscow is ready to conduct political dialogue with those Chechens who are striving for peace and prosperity, with the Chechen intellectuals and diaspora who left Chechnya after the 1991 military coup d'etat." *******