Johnson's Russia List #6053 3 February 2002 davidjohnson@erols.com A CDI Project www.cdi.org [Note from David Johnson: DJ: I'll give you one more chance to check in with me to confirm that you are reading JRL on the weekend. If you have not yet contacted me please do so now. My thanks to those who have already responded to my informal poll. 1. Reuters: U.S., Russia at odds over war on terrorism. 2. Indo-Asian News Service: Ivanov visit to revive Russia-India-China trilateral cooperation. 3. Reuters: FORUM-Russia signals may lift curbs on oil exports. 4. Itar-Tass: Stability in Russia ensures progress, minister tells economic forum. (Gref) 5. Los Angeles Times: John Daniszewski, Glowing Putin Book Rings Propaganda Bells. Culture: The author of a new biography on the Russian president denies that the Kremlin ordered positive spin. 6. The Russia Journal: Eduard Lozansky, A call for a coalition between two nations. 7. The Russia Journal: John Helmer, Kremlin and China face new Afghan decision. 8. The Times (UK): Michael Binyon, Russian in a hurry ignites oil revolution. (Mikhail Khodorkovsky) 9. New York Times: Sabrina Tavernise, Russia's Stock Market Comes of Age. 10. Eric Chenoweth: Re: Chechnya. 11. Richard Krickus: New book: The Kaliningrad Question. 12. The Jamestown Foundation PRISM: Andrei Kolganov, PUTIN'S POLICIES AND A DECADE OF ECONOMIC REFORM. 13. Washington Post: Jim Hoagland, Strategic Odd Couple.] ******* #1 U.S., Russia at odds over war on terrorism By John Chalmers MUNICH, Germany, Feb 3 (Reuters) - Russia laid bare its differences with the United States over the war on terrorism on Sunday, challenging President George W. Bush's attack on the "axis of evil" and accusing the West of double standards. The cracks emerged at a security conference in Munich over the weekend as Washington, ratcheting up its rhetoric against Iraq and Iran, signalled it could take pre-emptive action. U.S. Deputy Defense Secretary Paul Wolfowitz told the meeting on Saturday that countries tolerating terrorism would be held to account and referred to the State of the Union address last week in which Bush described Iraq, Iran and North Korea as an "axis of evil" seeking weapons of mass destruction. But Russia, which has better relations with all three, insists the U.S.-led campaign against terrorism in Afghanistan must not be expanded to other countries and has been increasingly irritated by the American sabre-rattling. Russian Defence Minister Sergei Ivanov, in a blunt rebuff, told Wolfowitz and the other delegates on Sunday there was no evidence that Iran had connections with terrorist organisations. And he said Russia had its own list of "rogue states," naming U.S. ally Saudi Arabia, which Moscow says helps fund Chechen separatists fighting its own troops: "Not many people in the West like the fact that we have some commercial ties with the countries which you describe as rogue states," Ivanov said. "Well, we don't like...some of your allies like Saudi Arabia or Gulf states who give finance to terrorist organisations." A Russian deal to build Iran a nuclear power station has been a regular target of criticism from Washington. "DOUBLE STANDARDS" Ivanov also accused the West of "double standards" for failing to condemn the Chechens as "terrorists" with the same vigour as they pursue Osama bin Laden and his al Qaeda network. He warned that disagreements over who was counted a terrorist could undermine the U.S.-led coalition Russia has joined against the Islamists that the United States blames for the September 11 attacks on New York and Washington. "What is our greatest concern today is the existence till the present time of double political standards with regard to separatism, religious extremism and fanaticism," Ivanov said. Analysts say some U.S. policymakers, notably the hawkish Wolfowitz, may want to exploit the political momentum at home generated by outrage over the attacks to strike a decisive blow against Iraqi President Saddam Hussein. But Wolfowitz told reporters on Saturday that his comments did not mean the United States was about to strike Iraq. The security conference came ahead of a meeting in Rome on Monday between NATO allies and Russia to discuss terrorism. The 19 countries of the alliance -- spurred by Moscow's help in the war on terrorism, especially in providing intelligence -- agreed in December to establish a forum "at 20" in which Russia could have a full say in some security issues. But with Bush's taking the war on terrorism to Afghanistan virtually alone, doubts about NATO's continued relevance since the collapse of the Soviet Union are being voiced again. NATO Secretary General George Robertson, in a now familiar refrain, argued that the Western defence alliance still had a central role in dealing with the new, post-Cold War threats. "Even superpowers need allies and coalitions to provide bases, fuel, airspace and forces. And they need mechanisms and experience to integrate these forces into a single coherent military capability," he told the Munich conference. However, he said NATO must evolve, and one of the biggest challenges was the modernisation of European and Canadian forces to ensure a fair sharing of the burden with the United States. APPEAL FOR CASH Appealing to European finance ministers, Robertson noted that Europe struggled to maintain its 50,000 peacekeeping troops in the Balkans and said hardly any country could deploy effective forces in significant numbers beyond its borders. "American critics of Europe's military incapability are right," he said. "So if we are to ensure that the United States moves neither towards unilateralism or isolationism, all the non-U.S. allies -- Europeans and Canadians -- must show a new willingness to develop effective crisis management capability." The NATO chief also urged Washington to ease "unnecessary restrictions" on foreigners acquiring American technology or face problems forming military coalitions with European forces. ******* #2 Ivanov visit to revive Russia-India-China trilateral cooperation By P. Jayaram Indo-Asian News Service New Delhi, Feb 2 (IANS) Russian Foreign Minister Igor Ivanov will seek to revive the concept of trilateral cooperation between Russia, India and China during a day-long visit here Sunday, according to informed sources. The concept was first mooted by former Russian prime minister Yevgeny Primakov who suggested a Russia-India-China "strategic triangle" during a visit here in 1999. New Delhi and Beijing were both lukewarm to the idea at that time, fearing it would be viewed as a military bloc against the United States, the world's lone superpower. Russia has indicated its keenness to revive the concept in the post-September 11 scenario and the war against terrorism in Afghanistan that has led to a U.S. military presence to the neighbourhood of Russia, India and China. Now it goes by the new title of "trilateral cooperation" and will be high on Ivanov's agenda during his visit, during which he would hold talks with his counterpart Jaswant Singh and Defence Minister George Fernandes. India, which has developed a vigorous relationship with the U.S. since 1999, says it is "open" to the Russian proposal. "Our relations with Russia are excellent and are improving with China. We are open to suggestions about (trilateral) cooperation," a senior external affairs ministry official said Saturday. He said the initiative for Ivanov's visit had come from Moscow. Sources in the ministry said the subject had been under discussion at the unofficial level among academics and think tanks in the three countries. It had also been "touched upon" during Chinese Premier Zhu Rongji's visit to India in January. All three countries were concerned about terrorism and energy security, the sources said. India and Russia are planning to set up a group of officials to discuss energy security, while one such group already exists between Russia and China. "We are not just looking at political and strategic issues but also at economic issues, including science and technology and bio-technology," the sources said. Ivanov is carrying a message for Prime Minister Atal Bihari Vajpayee from President Vladimir Putin. However, he would not however be calling on Vajpayee due to the prime minister's prior engagements. Officials said India and Russia, which have "excellent relations," marked by similarity of views on most international issues, would also discuss a common stand on Afghanistan, the U.S. military presence in Central Asia - a matter of concern to Moscow - and India-Pakistan relations in the context of their current border tension. Ivanov's visit would be back-to-back with that by another senior Russian leader, Deputy Prime Minister Ilya Klebanov, who arrives here on February 5 on a three-day visit to co-chair with Finance Minister Yashwant Sinha the Indo-Russian Inter-Governmental Commission (IRIGC) on cooperation in various fields, including trade. Klebanov, who is also the co-chairman of the IRIGC on military-technical cooperation with Defence Minister George Fernandes, is expected to discuss a whole range of issues relating to defence cooperation and supplies, officials said. Ivanov's visit comes close on the heels of a visit here by U.S. Secretary of State Colin Powell and British Prime Minister Tony Blair last month. ****** #3 FORUM-Russia signals may lift curbs on oil exports NEW YORK, Feb 2 (Reuters) - Russia signaled on Saturday it was unlikely to stick much longer to voluntary curbs on its oil exports, saying it had no formal commitments to the OPEC group of oil exporters to keep a lid on its shipments. "We don't have any kinds of commitments or agreements, we are just consulting with (OPEC)," Russian Prime Minister Mikhail Kasyanov told the World Economic Forum in New York. "We're to a certain extent coordinating (with OPEC)." Russia, the world's second biggest crude oil exporter, had agreed to cut exports of crude oil by five percent, or 150,000 barrels per day, in the first three months of the year. Russia's cooperation with OPEC was key to the cartel's own decision to cut supply from Jan. 1 to counter a steep drop in oil prices on the back of a global economic slowdown. Oil prices have fallen 30 percent since the Sept. 11 attacks on the United States, as a mild U.S. winter and a depressed world economy stifled fuel consumption. OPEC agreed to cut production by 1.5 million barrels per day from Jan. 1, and persuaded five nonaligned rivals, including Russia, Mexico and Norway, to cut a total of nearly 500,000 bpd more. The drop in Russian exports has seen a flood of oil in its refineries and pipelines, forcing domestic prices sharply lower and causing a sharp drop in revenues for the Russian government. To ease the domestic glut, Russia on Thursday moved to reduce export duties on fuel oil Kasyanov said Russia would decide on its new energy strategy soon. "One of the targets will be to increase Russia's presence on the energy markets," he said, but added that would depend on a recovery in the U.S. and European economies. "We view the current period as temporary, and we're expecting the European and U.S. economies to grow," which would in turn raise demand for Russian oil exports, he said. Top OPEC officials said on Friday the cartel was unlikely to make further cuts in production at its next meeting in March and could even raise output as early as June depending upon the strength of an expected global economic recovery. ****** #4 Stability in Russia ensures progress, minister tells economic forum Itar-Tass New York, 2 February: Progress in Russian reforms and the country's economic development outlook have by tradition drawn tangible attention at the World Economic Forum in New York. On Friday [1 February], there was a special seminar on Russia, with reports made by the Minister of Economic Development and Trade German Gref, Russian presidential economics adviser Andrey Illarionov and Federation Council international affairs committee chairman Mikhail Margelov. Gref said stability was crucial to economic progress in any country and stressed that the Putin presidency had given Russia that stability. "Russia is faced with a variety of problems, but we have no intention of abandoning the road we have followed so far. Economic stability will take us a while to achieve, but it is quite obvious that the country has developed a new mentality, predictability and pragmatism. In turn, we expect of our partners the same predictability, pragmatism and understanding," Gref said... In general, discussions on Russia at the current session of the World Economic Form are devoid of dramatism. The situation in Russia no longer alarms or scares Western politicians or investors. "That Russia is talked about to an ever smaller extent is only normal. We have been gradually drifting towards the mainstream trend the normal countries follow," presidential economics adviser Andrey Illarionov said. Source: ITAR-TASS news agency, Moscow, in English 1038 gmt 2 Feb 02 ****** #5 Los Angeles Times February 3, 2002 Glowing Putin Book Rings Propaganda Bells Culture: The author of a new biography on the Russian president denies that the Kremlin ordered positive spin. By JOHN DANISZEWSKI, TIMES STAFF WRITER MOSCOW -- From its family tree covering seven generations to its accounts of precocious athletic prowess, the new biography "Vladimir Putin: A Life History" is raising eyebrows here for appearing to bring back the Soviet tradition of writing paeans to the nation's leader. "I have not read anything like that about anyone since I read about Vladimir Lenin in school," said a thirtysomething professional, adding that in the book Russia's current president is "treated like God, basically." "The Putin book and the ones about Lenin are identical," said Yuri P. Shchekochikhin, a deputy in the lower house of parliament, "in that they create an image of a person totally devoid of all human shortcomings, who is never afraid and who impresses those around them--from the time they are in the crib." The biography, written by Oleg Blotsky, a trained propagandist and former military journalist, makes the case that Putin was heroic leadership material from his youth in a cramped communal apartment in St. Petersburg, then known as Leningrad. Putin, an only child, grew up virtuous, disciplined and tough enough to take down opponents bigger than himself. But despite the 309-page volume's fawning praise and saccharine reminiscences, something of a more human Putin peeks through. Russia's future president comes across in its pages as a bit of a loner, who rarely joined the crowd or stood out in the classroom and for some reason was not invited to join the Communist Party's equivalent of the Boy Scouts, the Young Pioneers. In fact, the skinny youth born in 1952 seems more like James Dean, fighting his way up from the mean concrete "jungles." Chechen rebels and wayward oligarchs take note: During boyhood, Putin often found himself in schoolyard brawls, and everyone seems to recall that he was good with his fists. According to Blotsky's sources, Putin was so adept at fighting that, though small in stature, he once decked two loudmouthed drunks minutes after they stepped from a tram. Another time he attacked someone playing tag because the larger kid was chasing Putin's friend. And his judo coach compares the Russian president's moves to those of a snow leopard. "Vovka has never allowed any scumbag or cheeky fellow to bully and pick on people and get away with it," childhood friend Nikolay Alekhov recalls in the book, using Putin's nickname in those days. Putin acknowledged being unruly in his early years. "I was brought up in the yard [outside housing complexes]. Living in the yard was like living in the jungle. Very similar!" he recalled. "School is some kind of a structured society where clear-cut norms of behavior exist. But when a person is brought up in the jungle, then for a while one continues to live by the law of the jungle." He fought frequently, he admitted in an interview with the author, and his schoolyard battles taught him two lessons important in later life: "You must be ready to retaliate immediately for any offense against you" and "to win any fight you must go to the end, and fight as if it is your last, decisive battle." Blotsky's book is the first major biography of Russia's enigmatic leader, and it reads at times like a parody of propaganda from another era. At least that is what critics hope it is--and not a sign that the bad old days are coming back. "If I were the president, I would never allow such a book to be published," said Pavel I. Voshchanov, a onetime spokesman for former President Boris N. Yeltsin who is now a newspaper commentator. "This is a typical Soviet throwback--neither a novel nor a biography but some kind of a servile panegyric done in the worst Soviet traditions." Blotsky, who has covered the fighting in Chechnya for the Moscow daily Izvestia, said he gained access to Putin through presidential aide Sergei Yastrzhembsky, the spokesman for Russia's military campaign in the separatist republic. Blotsky is a graduate in special propaganda from the Moscow Military Foreign Languages Institute and has worked for several newspapers. Blotsky says the book was his idea, driven by how little was known about Putin when he became president two years ago. At a news conference last month, Blotsky said that the book will be the first of three parts and that he is planning to start work on the second volume, which will be titled "The Road to Power." He is hoping that Yeltsin will cooperate in describing how he made Putin his protege and successor. Blotsky denies any suggestion that the Kremlin ordered him to write a flattering biography. He also said it was only because of his passing acquaintance with Yastrzhembsky that he was able to get the first of "five or six" interviews with Putin--plus meetings with Putin's wife, Ludmila. Blotsky said he once talked with the first lady for eight hours straight. Voshchanov, for one, was skeptical of Blotsky's claim that the book was not the Kremlin's idea. "I don't see how this book could appear without the consent of the president," Voshchanov said. But Alexander Gavrilov, editor of the weekly Knizhnoye Obozreniye, or Book Review, said he found merit in the work, though he did not believe everything in it. "It is a good biography written by an honest journalist who likes President Putin and doesn't conceal it. Some critics may say that it is too servile, but I won't agree," Gavrilov said. "But the problem is that if you ask a school principal about Putin's school performance and his conduct, how can you expect him to say that Putin got bad grades and was a hooligan? Of course the principal will say that he was the conscience of the school and only beat up the bad kids." The book is divided into 35 "stories," most of them recollections about Putin and influential people in his life, written in simple, credulous language. Putin does seem to have been highly disciplined. After having received average grades at a high school specializing in chemistry, he earned entry into the elite St. Petersburg University knowing that a law degree would make him attractive to his future employer, the KGB. In the entrance exams, Blotsky reports, Putin earned a B in literary composition and an A in all other subjects. The book also sheds light on how joining the spy agency became Putin's ambition when he was still a teenager. Blotsky suggests that Putin was under the spell of a popular 1965 novel, "Shield and Sword," glamorizing a fictional KGB agent, Alexander Belov. Like Belov, Putin would study chemistry and German, and stand out as methodical, athletic and a paragon of self-control. Even though he admired the book, Gavrilov said parts of it defy credibility, such as the incident in which an anonymous student pops up and recalls in detail what happened when Putin received a birthday present from the teacher four decades ago. "When you read such episodes, you just can't help feeling that they have been made up," Gavrilov concluded. Sergei L. Loiko and Alexei V. Kuznetsov of The Times' Moscow Bureau contributed to this report. ****** #6 The Russia Journal February 1-7, 2002 A call for a coalition between two nations By Eduard Lozansky / Letter from Washington Moscow and Washington are once again engaged in a battle of words that many observers have been quick to interpret as a turn for the worse in U.S.-Russian relations. The subjects of debate haven’t changed – the United States doesn’t approve of Russia’s policy in Chechnya and with the authorities’ incursions on civic freedoms, including freedom of speech. Russia, meanwhile, likes neither the unilateral U.S. withdrawal from the Anti-Ballistic Missile Treaty nor the White House’s attempts to meddle in Russian court proceedings. I wouldn’t start over-dramatizing, however. This flare-up of words is most likely just a sign that our relations are back on their normal track after the euphoria of the last three to four months, which saw a vast number of articles and all kinds of declarations about Russia’s about-face towards the West, its turn to the European home and strategic partnership with the United States. This euphoria was reminiscent of the romantic hopes held by the dreamers of the early ‘90s for a swift transition to democracy, the rule of law and a market economy. But processes like these take decades and require concerted effort by the whole of society. We have to learn to be patient. Creating a genuine Russian-U.S. alliance will take a lot of time and will be possible only if both countries can find enough active people willing to work seriously towards this aim. We could easily lose the opportunity to bring Russia and the United States closer together if we don’t carry out systematic work to integrate our respective economic, political and military interests. Presidents George W. Bush and Vladimir Putin have clearly stated their support for the idea of a partnership and alliance, but in both countries there are powerful opponents of the idea, and it won’t be easy to overcome their resistance. But, as mathematicians like to say, if you’ve set the objective correctly, you are already halfway towards its solution. Former U.S. President Ronald Reagan, for example, called the Soviet Union the "Evil Empire" and set himself the seemingly impossible aim of casting communism onto the dust heap of world history. We all remember what a fuss this caused. The Western press and many Sovietologists called Reagan an uneducated cowboy who was pushing the world toward nuclear war. Soviet propaganda also did its utmost to discredit Reagan. But, despite all these outbursts and the warnings of his advisers, Reagan achieved his aim, pouring trillions of dollars into the U.S. and NATO military machines and bringing communism down within a relatively short time. With ideological opposition now a thing of the past, the outlook for a Russian-American alliance is a lot more favorable today. What comes to the fore now are economic and geopolitical problems that must be resolved through negotiations that take into account the interests of both countries. I will not list all these problems, as they are sufficiently well-known. But if we leave them entirely in the hands of politicians, we will not get very far. It is a rare bureaucrat who is capable of making bold and original decisions instead of being more concerned with protecting himself from risk and keeping a firm grip on his cushy jobs. This is why we need a powerful and independent public organization – let’s call it the Russian-American Alliance – that will develop new ideas, bring them to the attention of the U.S. Congress and government, as well as Russia’s State Duma and the Kremlin, work with the media, publish newspapers and magazines, hold conferences, etc. This organization must bring together U.S. and Russian political and military experts, journalists, professional lobbyists, etc. It should create an institute to train young specialists, set up a scientific-research center, organize graduate studies, a publishing house, and so forth. Who will finance all this is a separate question, but it is a realistic idea. There is always plenty of opposition coming from Moscow to this or that aspect of U.S. policy, but these various statements sound more like the complaints of offended school pupils and often simply get ignored. If Russia is genuinely interested in a real alliance with the United States and the West, it has to leave behind the complaints, learn how to lobby its interests and attempt to have some serious influence on the Congress and on U.S. public opinion. (Eduard Lozansky is president of the American University in Moscow and publisher of The Russia Journal’s U.S. edition.) ******* #7 The Russia Journal February 1-7, 2002 Kremlin and China face new Afghan decision By JOHN HELMER President Vladimir Putin and his ministers have been watching for months to see what role China decides to play in Afghanistan, sources in Moscow have told The Russia Journal. But Chinese reluctance to support the United States’ military campaign is now pushing Russian policy-makers into re-evaluating the results of the three-month campaign. "The Chinese have been correct in not playing an overt role in Afghanistan," said Dmitry Yevstafiev, an expert on Central Asian security at the PIR Center, an independent security-studies group in Moscow. Reflecting the ongoing debate inside the Kremlin over Russian interests in Afghanistan and Central Asia, Yevstafiev said, "The Russians made a mistake of involving themselves too directly with the Northern Alliance." Yevstafiev said following the Sept. 11 events, Russian officials were hoping to work out a cooperative and consensual approach with Beijing with the help of the Shanghai Six, which includes Russia, China and the Central Asian states of Kazakstan, Tajikistan, Uzbekistan and Kyrgyzstan. Speaking in Washington on Sept. 27, Foreign Minister Igor Ivanov told The Russia Journal the Kremlin favored "close coordination between all the democratic states in this area." "The approach will be continued during the meeting in Shanghai and Putin’s first official visit to the United States in mid-November," he added. According to Yevstafiev, Putin then decided to give greater emphasis to supporting the U.S. and Western European military campaign in Afghanistan. On the other hand, China – according to the view in Moscow – decided to be more cautious. In September, China faced a choice, Yevstafiev said. As the United States increasingly based its Afghan operations in India, China could increase its involvement through direct relations with the Afghan opposition to the Taliban, the Northern Alliance. It could cooperate with the Americans. Or it could work through the Shanghai Six." According to Yevstafiev, Russian officials expected to see an increase in Chinese deliveries of munitions and rockets to the Northern Alliance forces. He said that both China and Russia had been supplying Soviet-era equipment and ordnance to the Northern Alliance prior to the September events. The deliveries have been conducted through commercial channels and regional middlemen. A Kremlin source told The Russia Journal the Russian arms shipped included the portable and mobile anti-aircraft missile and artillery systems Igla and Shilka, as well as anti-tank weapons and transport helicopters. "The aim is to create the capacity to match the firepower and mobility of the Talibs," the source said. Yevstafiev said the Northern Alliance has "definitely received ground-to-ground arms from China in the past." However, since September, as U.S.-financed Russian deliveries accelerated, Yevstafiev claims there has been no evidence of Chinese arms shipments. "It didn’t happen," he said. Now Russian policy-makers must reassess the outcome of the military campaign to determine the impact on Russian interests in Central Asia, Yevstafiev said. "The Taliban and al-Qaida leadership have vanished. It’s one thing if they have gone south to Asia or Africa. It’s quite another if they have moved north into Kyrgyzstan, Tajikistan or Uzbekistan." Russian policy-makers who favor a closer alliance with China are reportedly concerned that the Western campaign in Afghanistan could promote an upsurge of trouble in the Central Asian republics. China’s concern is similar, Yevstafiev said. "For weeks, the Russian approach emphasized the Western orientation. Now the policy is changing slightly. Chinese involvement will grow if there is a spread of fundamentalism to the Central Asian republics. Russia’s orientation to China would intensify accordingly." ******* #8 The Times (UK) February 2, 2002 Russian in a hurry ignites oil revolution BY MICHAEL BINYON The influence of Mikhail Khodorkovsky is fuelling a boom to revive the former Soviet economy ALMOST every day he makes the headlines. On Tuesday he announced that Yukos, Russia’s second biggest oil company, had bought 49 per cent of Slovakia’s state oil pipeline. Last week it snapped up its first oilfield in Kazakhstan. Two weeks ago he announced a controlling interest in one of Russia’s leading supermarket chains. A few days later he announced a merger with a smaller oil rival to consolidate his growing empire. Last autumn he came to the rescue of Kvaerner, the AngloNorwegian engineering giant. Mikhail Khodorkovsky, in his trademark open-necked shirt, jeans and leather jacket, is the Sir Richard Branson of Russia — a man whose own image and daring have made his company one of the most talked about in the country. Oil is the lifeblood of Russia, and Russia’s oil companies have suddenly become big players on the world stage. Their earnings determine whether President Putin’s Government can pay its wages or push for economic reform. Their decision whether or not to join Opec in cutting production will make or break the cartel, either forcing the price of oil up or letting it fall further. Their vast investments inside Russia are fuelling the boom that is at last turning around the lumbering economy. Yukos is the Avis of the Russian oil giants, and likes to think that it, too, tries harder. Unlike Lukoil, the huge conglomerate that inherited the bulk of the old state oil company and many of its seasoned directors, Yukos is an impudent upstart. The foreign multinationals prowling round the carcass of the old Soviet oil industry during the chaotic days of privatisation in the mid-1990s found themselves up against a man whose soft-spoken manner and rimless glasses hid a prodigious energy and ambition. Khodorkovsky came to oil via banking, seizing his chance to consolidate his holdings. He became a byword for the freewheeling tycoons of the Yeltsin era. That era is rapidly coming to an end. Now Khodorkovsky is held up as an example of the new breed of businessmen who may yet succeed in instilling a culture of honest dealing and transparency into Russia. He is the archetype of the new, sober, responsible industrialist on whom Putin’s hopes for an end to Russia’s oligarchic culture rest. Already Western commentators are talking of the “Khodorkovsky effect” — the transformation of cowboy outfits into efficient and competitive organisations. Efficiency is the keyword. Yukos is run with streamlined Western discipline. Top executives, including the financial director and the head of press relations, have been imported from the West. The workforce is young — Khodorkovsky himself is only 38 — and motivated. Salaries are high. Corporate culture is strong. Aggression is valued above subservience, and dynamism above tranquillity. There is a distinctly unRussian feel to the place; the corporate headquarters in Central Moscow appear bleakly Soviet outside, but inside all is clean, computerised and tasteful. Khodorkovsky’s own office, unlike those of other Russian bosses, is austere. Yukos produces between 2 and 3 per cent of Russia’s gross domestic product. Khodorkovsky is now estimated to be the richest man in Russia, worth about $2.4 billion (£1.7 billion), and Yukos invests millions each day in exploration, refining and marketing. He wants to know, every day, how much is spent on what. What does not pay has to be changed. Like Branson, however, Khodorkovsky is also acutely aware of the importance of image. He is personally accessible (I have met him four times) and tackles the awkward questions — political intrigues are still never far from big business in Russia — head-on at press conferences here and abroad. More importantly, he believes that Yukos and other big companies must accept responsibility for fostering a post-Soviet industrial culture. This starts at company level. Yukos has spent millions on housing and benefits for its workers, built sports facilities in the frontier settlements in Siberia’s marshy oilfields and sponsors, in the manner of Japanese companies, games, festivals, courses and training centres where the corporate green-and-yellow logo is prominent. Intriguingly, however, Yukos is now beginning to take on projects that are distinctly American in their corporate patronage and distinctly Russian in their social scope. Khodorkovsky is emerging abroad as a patron of the arts, contributing the lion’s share of the money to set up the Hermitage Rooms at Somerset House and inaugurating a £10 million “Open Russia foundation” in London next December to promote understanding between Russia and the West with educational grants and student exchanges. He has also promised Kofi Annan to support the United Nations Secretary-General’s “Global Compact” initiative on protecting cultures and the environment. At home he has set up a modern equivalent of the old Pioneer camps, so typical of Soviet days. “Newlandia” opened five years ago and has taken 200,000 children, or “navigators” with American-style sweatshirts and baseball caps, to the shores of a reservoir for fresh air, fun and youth leadership courses. More central to Russia’s new orientation westwards is the network of Internet training centres that Yukos now operates at 18 sites across Russia. The aim is to make young Russians, even in the remote snowbound provinces, as skilled in Internet navigation as their Western contemporaries. What does Yukos gain from such patronage? Good public relations, of course, and approval in the Kremlin. But the philosophy is more long-term. “We want to close the gap between Russia and Moscow, and Moscow and big business. We want to train a generation that will succeed us.” Khodorkovsky also sees a growing role for the new Union of Russian Employers, the grouping of the top industrialists who now lobby like any Western employers’ federation. They want a say, for example, in industrial policy, rail tariffs, taxes, bureaucracy and all those areas that were once the sole preserve of the Kremlin. On taxes — now down to a flat 13 per cent — Khodorkovsky, a frequent visitor to the Kremlin, has already won a notable victory. His next target is the reform of the bureaucracy, especially the law enforcement agencies that are still Soviet in conception and corrupt in practice. “They see themselves still as the defenders of the Government’s interest. Today society also comprises individuals and private companies. They have rights too.” It is hard to think that a man so driven, so insistent on the details, has time for the bigger political picture. Most of his time is spent scheming the company’s expansion; diversification into other energy sectors such as gas and electricity generation is the priority, and cautious expansion abroad may follow later. Khodorkovsky has a well-defined vision of Yukos as an integrated energy company, breaking the electricity monopoly and spreading into byproducts and distribution. It will mean a lot of fighting, skilled lawyers and political clout to take on the entrenched monopolies and bureaucratic lethargy. However, Khodorkovsky already has the image of a Russian in a hurry. His rivals, at home and abroad, would do well to note that Russia can change faster than many people supposed. ******* #9 New York Times February 3, 2002 Russia's Stock Market Comes of Age By SABRINA TAVERNISE MOSCOW -- Russia's young stock market has been more a casino than a place to invest since its inception seven years ago. Last year, the market's performance was second only to China's, but in 1998, it was the worst-performing emerging market in the world. But as Russia enters its fourth consecutive year of economic growth and the private sector bubbles to life, analysts are saying this market may be ready for investors, not just gamblers. "This place has been a speculation, sometimes opportune and sometimes dreadful," said Bernard Sucher, a managing director at the investment bank Troika Dialog, who moved to Russia in 1993 after nine years on Wall Street. "I've refused to use the word investment for most of the time I've been here. But now Russia is threatening to become a capital market." For the individual American investor, the options are still limited. The easiest way into the market is through a mutual fund listed in the United States. Eight funds at least partly dedicated to Russia are traded on the New York Stock Exchange, according to Lipper Inc. Of these, two are closed-end funds. In addition, shares of four Russian companies — the telephone companies, Vimpel-Communications, Mobile TeleSystems and Rostelecom (news/quote); and the oil company Tatneft (news/quote) — can be bought as American depository receipts on the New York exchange. More than 50 other companies trade over-the-counter as American depository receipts, according to the Bank of New York (news/quote). Offshore funds, not covered by American regulations, offer higher-risk investments, including bets against the market. A boom in Russia's oil industry has propelled the market. The main stock exchange is the Russian Trading System, known by its abbreviation, R.T.S. It has quadrupled in value since it hit a low in 1998, the year the government defaulted on its domestic debts. Bond prices have risen even more. Despite an 80 percent jump in the value of the Russian market last year, stocks are still relatively cheap, said Peter Boone, head of research at Brunswick UBS Warburg, an investment bank in Moscow and a subsidiary of UBS Warburg. This is partly because the market fell so far in 1998: The R.T.S. index fell 96 percent from October 1997 to October 1998, and has yet to climb back to its level of fall 1997. The riskiness of investing in Russia, Mr. Boone said, has also kept valuations down. "Russia is still the cheapest of all the major emerging markets," Mr. Boone said. "In 1999 there were a lot of people who absolutely didn't want to talk about Russia and met you out of friendship more than anything else. Now Russia is the flavor of the day." In past years, Russian stocks traded in tandem far more than shares in developed markets. Recently, some companies have begun to break out of the market's overall trading pattern, making stock-picking important, said Sylvie Armand-Delille, director of international sales at Nikoil, a brokerage firm based in Moscow. For example, while shares of Yukos Oil, Russia's second-largest oil company, rose 191 percent last year — in part because of a campaign to improve relations with investors — Lukoil, the largest oil company, was a relative laggard, with an increase of 32 percent. Lukoil trailed the market at least in part because it was slow to release internationally audited versions of its financial accounts. Poor treatment of minority shareholders was common in the 1990's, when new capitalists were grabbing assets from the government. Since then, big shareholders, their fortunes in hand, have begun repairing relations with investors, especially as they try to access international markets. Yukos has sold a bond issue internationally, while Lukoil is seeking a stock listing in London. Russia's stock market is small. Only about 10 stocks are traded actively, out of 235 companies listed, and the average daily volumes on the R.T.S. range from $15 million to $50 million, with another $400 million traded abroad and on another Russian exchange that trades only in rubles. That limits choices for Russia-dedicated mutual funds, which typically stick to the most liquid stocks, like oil companies and mobile phone operators. The Pilgrim Russia Fund was the best performing United States-based emerging market mutual fund over the last three years, with an annual return of 56 percent a year, Lipper reported. The fund was managed by Troika Dialog until early in 2001, when ING Barings, which bought it the year before, brought in its own managers. "Few other markets have as much going for them as the Russian market," said Samuel Oubadia, senior investment manager at ING Investment Management in the Netherlands. This was not always the case. Despite last year's performance, the fund was the worst in its category in 1998, when the Russian stock market collapsed after the government defaulted on its debts. About 40 percent of the fund's assets are held in oil companies, led by Surgutneftegaz, Russia's third-biggest oil company. Other large holdings include Norilsk Nickel, the giant metal producer, at 5.2 percent of assets at the end of last year, and Vimpelcom, the mobile phone company, at 4.1 percent. Wealthier individuals may be interested in offshore funds, which are not regulated by American authorities. The $425 million Hermitage Fund, registered in the Channel Islands, requires a minimum $1 million investment for Americans. It returned an average 71.94 percent each year over the last three years, but lost 92.9 percent in the year ended October 1998. Investors have streamed into Russia's stock and bond markets before, with disastrous results. In 1997, heavy buying drove the Russian Trading System up 184 percent before a financial crisis in Asia dampened enthusiasm for emerging markets. Half a year later, Russia, without warning, defaulted on $40 billion in government bonds. While much has changed since then, the market is not yet mature and some fund managers are cautious. "Everyone talks about Russian oil companies, saying they are undervalued," said Oleg Biryulyov, a portfolio manager at J. P. Morgan Fleming Asset Management, which oversees a fund, registered in Dublin, with about $500 million in Russia. "Fine, I can accept this. But we need to remember that the Western companies have management resources and track records." Still, there is reason for optimism. In contrast to the unchecked borrowing and spending of the 1990's, the Russian government now pays its debts on time and runs budget surpluses. The economy is expanding — last year by 5.2 percent, this year by an expected 3.5 percent. The country is running a trade surplus of more than $50 billion. Chris Weafer, head of research at Troika Dialog, said that the turbulent politics of Boris N. Yeltsin had given way to the steady hand of President Vladimir V. Putin. "They have a plan several years ahead," Mr. Weafer said, "rather than just dealing week to week." Russia also has the beginnings of a bustling private sector. Supermarket chains have sprung up, advertisements flash from billboards and cafes line streets in Moscow, if not in many provincial cities. A corporate bond market has come alive in the last year. Oil companies carry less debt than three years ago, and they have reduced staff and modernized operations and drilling. "Russia is in better shape and is better posed for economic growth than it ever has been over the last 10 years," Christof Ruehl, the World Bank's economist in Russia, said. Still, it remains a risky place to invest. Corruption is rife in the government and the courts. And with gross domestic product at $302 billion — four-fifths the size of the Netherlands — Russia has a small economy. A distrust of banks has led many Russians to keep their savings under mattresses. "Ask the majority of the Russian population about their plans for 10 years down the road — no one will have an answer," Mr. Biryulyov said. "Ask the same question in any Western country and people will answer with far more certainty. That's a major difference. It's the same in the market." ******* #10 Date: Sat, 02 Feb 2002 From: Eric Chenoweth Subject: Re: Chechnya The debate surrounding Chechnya has fundamentally changed since September 11. Patrick Armstrong's intercession (JRL 6050) demonstrates the degree to which the U.S.'s desire for Russia's cooperation in the war on terrorism has turned attention away from Russia's war crimes against the Chechen people -- real, incontrovertible, and unrelenting terror -- to phantom menaces of Khattab and Bassayev or the supposed legions of Chechen fighters in Afghanistan. Those like Armstrong who happily point to NATO General Secretary Robinson's expression of newfound sympathy with Russia's "war against terrorism" in Chechnya continue to miss the point: namely, no matter what threat was posed by Khattab and Bassayev or the breakdown of law and order in Chechnya -- which, as evidenced by recent court cases, was certainly not as great as claimed by Russia -- there can be no justification for the massacre of civilians, the wanton pillage and destruction of property and farmland, the mass raping of women, the forced disappearance of Chechen men, or the wholesale destruction of cities, towns, and villages and the targeted liquidation of an entire cultural heritage. Contrary to the claim of a world arrayed against Russia for legitimately defending its interests, Russia has in fact received a special privilege in world affairs for her actions. Milosevic will not be exonerated in his war crimes by the KLA (as large a force as Khattab's and Bassayev's certainly); nor the Indonesian armed forces in East Timor because of armed guerillas. While the U.S. responds immediately to protests of errant bombs killing civilian loss of life or even of ill treatment of Al Qaeda prisoners, Russia sloughs off all world protest and continues without hesitation or remorse in its targetting of civilians and its mass kidnapping of men for ransom, many of whom are never seen again. Most observers and even journalists covering Chechnya have not spent much time there or if they have it has been on visits controlled by the Russian armed forces. But there are a number of courageous journalists who have reported directly from Chechnya for signifiant parts of the 2nd war. Without exception, those who have spent longer time in Chechnya investigating the war have demonstrated that the claims of a Wahabbi-dominated Chechnya are utterly false; that the idea Khattab and Bassayev have won over the population to their brand of extremism is without foundation; that most Chechens are moderate in religious and political beliefs; that there are many brave Chechens willing to defend themselves against the unrelenting, brutal force of the Russian army who are completely against Khattab and Bassayev and remain under the authority of President Maskhadov; and that notwithstanding Russia's terrible crimes in Chechnya, the political leadership of Chechnya is willing to negotiate an end to the war. If President Putin (and those supporting his war on Chechnya) were sincere in his claim to be fighting terrorism, he would take up the offer of Chechnya's political leadership to come to a reasonable settlement and focus any war on the extremists. But, in fact, the extremists were and continue to be Putin's best allies by providing justification for the real war being waged, the one being waged against Chechnya as a whole because its people desired to be free from Russian domination. So long as the world's attention is turned away, or its reaction muted, to Russia's terrror war in Chechnya, it will continue to take a harrowing toll on innocent life. ****** #11 From: Rvkrickus@aol.com (Richard J.Krickus) Date: Sat, 2 Feb 2002 18:51:30 EST Subject: New book: The Kaliningrad Question Rowman & Littlefield (Lanham, Maryland, 2002), rowmanlittlefield.com The Kaliningrad Question By Richard J. Krickus "Well researched and lucidly argued. This book is an important addition to the library about current events in Russia, especially in light of the very limited literature on the Kaliningrad issue." - Ilya Prizel, University of Pittsburgh The only comprehensive English-language study of Kaliningrad, this invaluable book explores the history and uncertain fate of the former East Prussia. When the USSR collapsed in 1991, Kaliningrad became a Russian exclave. As its neighbors turned to the West for investment and leadership, Kaliningrad's own source of income and stability - a massive military presence - was withdrawn. The 1998 economic crisis made the situation even more desperate, and by the end of the 1990s, Russia's westernmost oblast was deemed a "black hole" of social and economic decay, not the future Hong Kong once imagined. Today, with the eastward enlargement of the EU and NATO, many fear that Russia may remilitarize the region and possibly deploy nuclear weapons there. The U.S. government has expressed willingness to work with the EU and Russia to address the Kaliningrad question, but Moscow has remained wary of Washington's involvement in the exclave, in part due to the failure of the United States to recognize Kaliningrad as a de jure possession of Russia. Although some analysts believe U.S.-Russian cooperation in addressing the Kaliningrad question could promote greater harmony in their relationship, most Western policymakers know little about the region. Richard Krickus, a leading expert on Kaliningrad, fills a crucial gap by tracing its long history of unstable possession, critiquing Russian and Western policy, and mapping out possible futures of the oblast. The Kaliningrad Question will be an invaluable guide to understanding the region and the potential flash points of conflict associated with it. Table of Contents: · Introduction · Kaliningrad: A Historical Overview · Kaliningrad under Soviet and Russian Rule · Kaliningrad as a Flashpoint of Conflict · A More Positive Assessment · From a "Gateway" to a "Blackhole" in Europe · The EU and Kaliningrad · Moscow and Kaliningrad · The United States and Kaliningrad · Epilogue Richard J.Krickus is professor emeritus of political science at Mary Washington College. ******* #12 The Jamestown Foundation PRISM A monthly on the post-Soviet states January 2002 Volume VIII, Issue 1, Part 2 PUTIN'S POLICIES AND A DECADE OF ECONOMIC REFORM By A. I. Kolganov Andrei Kolganov is a doctor of economics and a senior research fellow at Moscow State University. Ten years have elapsed since the Russian government headed by Boris Yeltsin (then combining the roles of president and prime minister) embarked on its policy of so-called radical market reforms. With it came a fundamental change in the country's economic order, the dismantling of what remained of the planned economy and the triumph of market principles. But what has this radical change of direction done for the country and its people? The reforms, no matter how negatively their outcome is regarded, the reforms have also had some positive results. No policy can consist of undiluted errors and failures. On the economic front, the clear positives include the elimination of the debt economy and the restocking of retail outlets. These have made consumer choice possible and released the public from time-consuming shopping expeditions and queuing, and businesses from the need to 'track down' their resources. Economic criteria, rather than arbitrary whim, have begun to govern management decisionmaking. As far as market reforms are concerned, the continued evolution and consolidation of liberalizing trends in the business world, first seen in the years of Gorbachev's perestroika, should also be seen in a positive light. But this is the sum total of the positive. ECONOMIC DEVELOPMENT Ten years of "reform" have had a catastrophic effect on Russia's economy. Gross domestic product has shrunk by almost a half. The level of production investment has seen a four-fold fall, which has resulted in a progressive deterioration of the technical equipment base and production infrastructure. There has been a sharp drop in high-tech production--significantly further than the fall in production generally. Expenditure on research and development has been substantially cut. The proportion of the economy now accounted for by the fuel and raw materials sector has grown significantly and Russia has become even more heavily dependent on the export of oil and gas than was the case in the Soviet days. The population's earnings have shrunk substantially. Meanwhile, a new class of entrepreneurs have, after cutting the productivity and wages of their employees, then given themselves a huge increase. And this is no more than a brief sketch of the economic situation overall. If you take a more detailed look at the economy, sector by sector, the catalogue of maladies and misfortunes caused or aggravated by the reforms assumes colossal proportions. THE CASE FOR REFORM The pro-reform lobby usually raises two objections to counter these indisputable facts. First of all, while acknowledging that there have been some errors and omissions in the implementation of the reforms, they claim that the outcome has nevertheless been a healthier and more effective--market-based--economic mechanism, which brings in turn the prospect of healthier and more effective growth. Arguments of this kind still had some currency back in 1995-1996, but the financial crisis of 1998, and the three- year period of relatively rapid economic growth which followed, showed us just how healthy and effective the economic mechanism created for us by the reformers really was. The process of financial stabilization, which--we are assured by these same reformers--began in 1995, never could quite manage to generate an economic upturn. The financial crash of 1998 brought it to an end. This crash, and the concomitant introduction of some less liberally inclined politicians into the government (albeit though not for long--once they had secured an economic upturn, they were all thrown out, from Yevgeny Primakov downwards) did go some way towards improving the health of the economy. This, together with 1999's favorable state of the world's raw materials and fuel markets, created the conditions for rapid economic growth throughout the 1999-2001 period. It is fair enough to say, then, that the economic growth in these years occurred largely despite, or at least independently of, the radical market reform policy. Putin, however, swore to pursue that liberal path. He could not bring himself to deal with the big business interests associated with the policy, however. Thus the stockpile natural resources and capital assets from the Soviet period was expended in fairly short order. The government made no attempt to correct the problem, caused by narrowly self-centered and short-sighted behavior on the part of Russia's entrepreneurs. As a result, the opportunities that arose to resuscitate and modernize the Russian economy, which might have made for more stable economic growth, were squandered. Unfavorable economic indicators were already building up by the middle of 2000. By late 2000 and early 2001, growth was slowing and becoming unreliable. Expert assessments indicate that from 2002 onwards economic growth will be possible at an annual rate of at most 3.5-4 percent, interspersed with periods of zero growth and even decline. Second, the pro-reform lobby blames the failure to secure normal economic development on the heavy burden of the Soviet past. There is no denying that the Soviet economic system was not efficient, and has bequeathed us a multitude of extremely complex problems: the hypertrophied defense industry and the underdevelopment of the consumer sector, low technical standards in the civilian manufacturing industries, an investment famine. However, the question is whether the reforms implemented have eradicated these problems or aggravated them. The problem of the hypertrophied defense industry was resolved by almost completely destroying it, and at the same time civilian production at military plants also disintegrated. Already low industrial standards fell even further, in line with the deliberate cutting of expenditure on scientific research and development. The investment famine turned into an investment hole. A five-fold fall in the level of investment in fixed capital meant that not even the replacement of obsolescent equipment could be assured, while the country was witnessing an outward flow of US$10-12 billion per year, with the ten-year total for this capital flight, even in the most conservative estimates, exceeding US$200 billion. The problem of the underdeveloped consumer sector was resolved by importing consumer goods, the expenditure on which accounts for the lion's share of the country's earnings from the export of its natural resources. THE 2003 PROBLEM This term refers in fact to two distinct problems. The phrase "2003 problem" is used by some experts to refer to the problem of Russia's external debt payments, which are due to peak in 2003. But the high oil export earnings of 1999-2001 have in fact allowed the government to start paying off its debts ahead of schedule, which gives some hope that at least some easing of this problem may be possible--provided that oil prices fall no further. Other experts use the term "2003 problem" to mean the predicted withdrawal from service during 2003-2005 of fixed capital assets across a number of economic sectors as a result of physical deterioration. This problem will have the greatest effect on the energy sector, agriculture and the urban infrastructure (water, heating and electricity supplies), though the aging of fixed capital will put other sectors under very great strain too. Similar problems have built up in the sectors on which Russia's economy well-being currently hinges: Oil and gas production. Inadequate investment in exploration and the development of new deposits has produced a steady annual decline in oil extraction. Any serious economic upturn now will rapidly create a shortfall either of fuel or of resources available for export. Gas production is still stable, but experts predict that in ten to fifteen years it will cease to meet existing levels of demand. What do the authorities intend to do to deal with these approaching problems? ECONOMIC STRATEGY The biggest secret about Vladimir Putin's economic strategy is that he doesn't have one. Instead, he has a series of uncoordinated resolutions for the foreseeable future, chief of which is the mechanical pursuit of the existing "policy of reform." Programs for market restructuring rail transport and the UES Russia energy utility (that is, programs for the break-up and partial privatization of their unified management structures) have been announced as a means to reinvigorate the energy and rail transport sectors with fresh private initiatives and to attract private investment. So long as there is still a shortfall in generating capacity, however, new private energy companies will patently steer clear of implementing troublesome and expensive investment projects and opt instead to increase their electricity tariffs (as happened in California when a similar restructuring took place). As concerns the reforms proposed for the housing and utilities sector, for which plans to create a competitive market environment have also been announced, their prospects are even more obscure. All that can predicted with any degree of accuracy is that there will be a more than two-fold increase in the cost of communal services and rents, with the aim of covering fully the running costs of buildings and the provision of water, gas, electricity and heating. But there is no doubt as to whether any of the organizations servicing this housing sector will be restructured along market-based lines. They clearly won't. It is impossible to see any prospect of transforming the current monopolistic housing and utilities system into a system consisting of commercial companies competing each other. Furthermore, the current management system lacks any ordered cost accounting for the provision of specific services. There is no clear delineation of the powers and responsibilities falling to the various tiers of the system. Neither is there any strict definition of the system's obligations towards its customers--the residents. Is it possible to make this system work along market lines under such circumstances? Obviously not. Its reform will therefore have no effect on the black hole into which state funds are now disappearing. The only difference will be that once the reforms are implemented the hole will be swallowing up money belonging not to the state but to private citizens. And, as a result of rising tariffs, it will consume twice as much. That these reforms will do nothing to help modernize the urban infrastructure, which is now on its last legs, does not take much proving. Putin's team therefore has no answer to the central question of how to mobilize investment resources for the large-scale replacement of outdated fixed capital across the whole of Russia's economy. And the most deplorable thing is that they haven't even posed the question in this form. It is still possible, however, to be rich and get richer still even in an impoverished country with a crumbling economy. And Putin's first steps, whether successful or not, pose no threat to the prospects of further enrichment for big business. Quite the reverse, in fact. In this respect, Putin is indeed continuing Yeltsin's policy of reform. One has to wonder what will it take to persuade him to think seriously about the future of the rest of the Russian people. It is as if the Russian elite has convinced itself that the interests of the little man cannot possibly be relevant to big politics. And so long as this remains the case, big politics in Russia will remain as it has been for the last ten years. ******* #13 Washington Post February 3, 2002 Strategic Odd Couple By Jim Hoagland President Bush has scrapped the Anti-Ballistic Missile Treaty, put American troops into Central Asia along Russia's borders and signaled that the United States will push a vigorous new round of NATO expansion in November -- all in four months and all without provoking serious outcry from Moscow. Vladimir Putin's Russia is the bear that did not growl. In the sharpest paradox of current global politics, the personal relationship between Putin and Bush seems stronger today than it was before Sept. 11. On that infamous day, the Russian president was the first foreign leader to reach Bush. He used Cold War emergency communications links -- the hot line -- to notify the White House that Russia was canceling military exercises immediately. And Bush's subsequent decision to withdraw from the ABM Treaty to pursue unconstrained missile defense tests did not inflict the severe damage to U.S.-Russian relations foreseen by many in Europe and here. Bush and Putin moved much closer to a president-to-president agreement to extend the 1972 treaty for two additional years than has been previously disclosed. Russian officials now feel they may have erred in not doing more to accommodate Bush's position on testing to win an extension for the treaty last November. One collateral gain for the Russians in keeping in place the treaty they see as the cornerstone of strategic stability might have been to strengthen Secretary of State Colin Powell's hand in the policy debates that rage around Bush now. But in both their U.S. summit in November and the heads-up telephone call Bush made to Putin one week before his Dec. 13 ABM announcement, the Russian leader frankly told Bush that there would be no drama from Moscow. "It won't be the end of the relationship. But it will be a mistake," is the way one Russian official characterized Putin's consistent private message to Bush on ABM withdrawal through the fall of 2001. Putin's restrained reaction vindicates the Bush team's hard-nosed judgment that they could build a new relationship with Russia that was not centered on arms control. "Bush has understood that Putin is committed to stabilizing Russia and has accepted him as a genuine partner," German Chancellor Gerhard Schroeder said on a visit to Washington, in which he did not voice earlier criticisms of U.S. missile defense plans. Putin now faces grumbling over his conciliatory approach on missile defense, Central Asia and NATO from Russia's military and foreign affairs community. He has taken political arrows to the chest on strategic issues that boost Bush with his conservative base here. But there are now signs that the White House sees the huge political deficit Putin has been willing to run as ultimately unsustainable. Unlike Boris Yeltsin, Putin does not cloak his actions in sentimentality or the passions of the moment. The former KGB lieutenant colonel is a cold, calculating customer willing to make a virtue of Russia's weakness for the time being. He rides piggyback on American power, which is being dramatically and expensively extended into unfamiliar corners of the world on Bush's watch. But the Russian seemed to voice genuine shock and sympathy in his Sept. 11 hot line call to Bush, which was handled at the White House by national security adviser Condoleezza Rice. Rice quickly relayed Putin's message to an airborne Bush: While increasing the armed forces' general alert status, Putin said, he was ordering scheduled maneuvers canceled to avoid misunderstanding. The two leaders spoke directly, and emotionally, twice the following day, with Bush still voicing concern about possible attacks on the White House and his family, according to one account. Even though it ultimately fell short, Bush's willingness to have his aides work with the Russians on a draft agreement for a two-year extension of the ABM Treaty has also been important in stabilizing the strategic dialogue between Washington and Moscow. Deputy Foreign Minister Georgi Mamedov opened negotiations with Undersecretary of State John Bolton here last week on what both sides said was "a legally binding agreement" on strategic arms reductions that could be unveiled at the May 23 to 25 Bush-Putin summit in Russia. This is arms control by another name, and a timely tip of Bush's hat toward Putin. The Russian had rejected Bush's initial desire to proceed with informal "handshake" agreements on unilateral cuts rather than continue formal negotiations. Bush is instinctive while Putin is cerebral. But each strikes the other as decisive, frank and stubborn in his politics. These are not bad qualities for a strategic Odd Couple who should now move rapidly and forcefully to cut and reshape nuclear arsenals that can still obliterate human destiny within a few minutes. ******