Johnson's Russia List #6093 22 February 2002 davidjohnson@erols.com A CDI Project www.cdi.org [Note from David Johnson: 1. Reuters: Olympics-Russia in 'Cold War' fury over bias. 2. RIA Novosti: THE UNIPOLAR OLYMPIAD. 3. Reuters: Orthodox Russians rally against Vatican "poaching" 4. Jamestown Foundation Monitor: BEREZOVSKY HINTS PUTIN ORDERED 1999 TERRORIST BOMBINGS. 5. Reuters: Russian economy cheered on, with caveats. 6. The Russia Journal: Otto Latsis, The consumers know all. 7. Moscow Tribune: Stanislav Menshikov, PUTIN DISCIPLINES MINISTERS But will it help the economy? 8. Reuters: Weather, machinery may dash Russia grain hopes. 9. stratfor.com: United States Expands Anti-Terrorism War To Georgia. 10. The Russia Journal editorial: Oligarchs roaring back. 11. BBC: IKEA wows the Russians. 12. therussianissues.com: Friday Press Review. Will the Russian Olympic team leave Salt Lake City? 13. St. Petersburg Times: Country's Schools To Get PCs, Internet.] ****** #1 Olympics-Russia in 'Cold War' fury over bias By Tara FitzGerald MOSCOW, Feb 22 (Reuters) - Sports-mad Russians, led by their president, rose fiercely to the defence of their Winter Olympic team on Friday after the athletes threatened to pull out of the games in a Cold War-style face-off. The traditionally strong Russian team, feeling cheated of gold medals, has accused judges and officials in Salt Lake City of victimising its athletes, recalling the "us-and-them" style rivalry of the Soviet Union and the United States. In a nation that has avidly followed every twist and turn of the Games in the past two weeks, Russians across the board -- from teachers to taxi drivers -- were of one mind. "It makes me so angry I can't even talk about it," said Igor, a gym manager in a typical comment on the street. "If they can't win fairly, they'll win any way they can." State news agency RIA, in a sharp comment filled with anti-U.S. rhetoric reminiscent of Soviet-era dispatches, said Russia had "literally exploded with indignation." It accused the United States of appropriating the Olympic Games. President Vladimir Putin, normally careful to avoid diplomatic scenes and with a Moscow summit with U.S. President George W. Bush on the horizon, was unusually quick to jump into the fray and take a firmly populist line. The Kremlin leader, himself a sports enthusiast, said the Russian team had been "subjected...to unfair and biased judging." A black-belt judo expert and keen skier and swimmer, Putin lashed out at the new International Olympic Committee (IOC) leadership under Jacques Rogge, saying "excessive commercialisation" had played a role in the affair. He also accused Russian Olympic officials of being too passive in defence of their athletes. "Juan Antonio Samaranch has gone and Jacques Rogge has taken his place. Regrettably for the new leadership, the first time is bound to be a flop," he told reporters at the Kremlin. Putin added that he hoped the IOC leadership "will manage to solve these difficulties. I hope they are of a temporary character." Even the head of Russia's Orthodox Church, Patriarch Alexiy II, rushed to join the chorus of complaints. OLYMPICS IN THE DUMA The State Duma (lower house of parliament) hotly debated the perceived injustices and voted overwhelmingly in favour of boycotting the closing ceremony if no explanations or apologies were forthcoming from the IOC. The controversy was enough to make Russian nationalist bad boy and leading parliamentarian Vladimir Zhirinovsky put aside his new pro-American stance and revert to Uncle Sam-bashing. "The team must be recalled immediately, this evening," said Zhirinovsky. "We should spit in their faces -- the referees and those hosting the Games. This is merely a settling of accounts by criminal sports structures," he thundered in a table-thumping speech to parliament. But Russian IOC member Shamil Tarpishchev said it would be a "mistake" to pull the Russian team out before the end. "We should not take any hot-headed decisions," Tarpishchev told Reuters by telephone. "We must look at the situation calmly, and then take a decision." The Olympic dream started to turn sour early last week when a row erupted over the judging of the pairs figure skating. The Russians won gold, but after a public outcry and a protest by Canada, the second-placed Canadian pair were awarded duplicate golds. Russian patience snapped when a ruling on Thursday forced their hot-favourite women's 4x5 km cross-country relay team to pull out of the competition following "abnormalities" in some of their blood samples. Russia has won just five gold medals in the games so far. The heat will be turned up even further later on Friday when Russia and the United States square up to each other in an ice hockey semifinal. Always set to be a tough match, the "Cold War" face-off is likely to give the clash an added edge. Russia's biggest television channel, ORT, has taken the unusual step of broadcasting the game, starting at 2 a.m. Moscow time, live nationwide. ****** #2 THE UNIPOLAR OLYMPIAD MOSCOW, 22 February. /RIA NOvosti correspondent Anatoly Korolyov/. The last drop of humiliation - elimination of the Russian women team, the major gold medal contenders, before the start of the skiing relay race exhausted Russia's patience and it literally burst with indignation. Members of the government, parliamentarians, journalists and sportsmen - all raised angry protests in relation to the situation in Salt Lake City. The statement of President Vladimir Putin crowned "the tenth wave" of anger and disillusionment. The head of the Russian state "fully and wholly" shares indignation in the country in regards to biased decisions of the International Olympic Committee and referees. The world of sport knows a lot of examples of referees' mistakes but the present Olympiad is characterised both by the unprecedented number of referees's negligence cases and the scale of their consequences for sportsmen. Such things never happened at the last winter games in Nagano, nor at the summer games in Sydney. But even at that time observers were drawing attention to the excessive commercialization of the games as a threat to referees' objectiveness. But at the moment we are faced with the gravest Olympic movement crisis since 1980. And this crisis is also a political one as it was 20 years ago when in the midst of the Russian-American opposition sport turned out to become a hostage of political engagement. Already the first Olympic scandal in Salt Lake City when the gold medal of Russian figure skaters became "halved" by Canadians demonstrated that Russians were still considered as adversaries but not on sport grounds but on the fields of the "cold war". The Canadian pair followers failed to find arguments other than to declare the victory of the Russian sportsmen to be the result of a plot of "the Soviet bloc referees". The anti-Russian unprecedented campaign initiated in mass media of the USA and Canada, as it became clear now, marked the beginning of unprecedented referees' prejudice. Not only in Russia people speak about the complete violation of the Olympic spirit. Mass media of many countries are also seized with the same indignation. According to the Japanese agency Kyodo Tsusin, the Olympiad acquired a totally pro-American character. The Agency described that as "cultural imperialism". Sport became just another hostage of the unipolar world where an American perceives himself, automatically and legally, as the owner of the Olympic games, is considering them as his purely internal matter. Chairman of the International Olympic Committee Jacques Rogge in his letter to President Vladimir Putin ( an unprecedented step in the history of the Olympic games) continues to stubbornly report that the "referees' rulings were absolutely fair". Thus the pro-American International Olympic Committee does not intend to take notice of the anti-Russian spirit of referees' rulings in relation to obvious victories of Russian Olympians in women's freestyle, in single figure skating or bad refereeing in the hockey game with the Czechs. Similarly not only sportsmen from Russia are pressured, though on a much smaller scale. But in contrast with the inert reaction of Russian officials, the South Korean team already brought an action against the biased referees' ruling in relation to Kim Dong-Sung who was the first to cross the finish line and "interfered" with the American sportsman. Another problem of contemporary sport became turned upside down in Salt Lake City: the doping problem. The present "doping terror" in accordance with the proper political rules is presented as "concern for sportsmen's health". But such concern had already led to another double standards absurdity. Famous biathlonist Viktor Mamatov, head of the Russian delegation, stated that 90 percent of sportsmen who won in Salt Lake City were listed among asthmatics! And consequently, had the official authorization to use before the start special medications which significantly increase the muscle mass. This is legitimatized doping. Nevertheless protests of the Russian side were left unattended by the International Olympic committee. Many finals of the Olympiad are still coming but its main conclusion is already evident: sport of high achievements is on the verge of the "cold war" and the Olympic movement is on the eve of collapse. ****** #3 Orthodox Russians rally against Vatican "poaching" By Clara Ferreira-Marques MOSCOW, Feb 22 (Reuters) - Hundreds of Russian Orthodox believers waving banners and icons protested outside the Vatican mission in Moscow on Friday against what they called the Catholic Church's practice of "poaching believers." Orthodox Patriarch Alexiy II says a planned Vatican reorganisation in Russia -- creating four dioceses for its million-strong flock -- would lead to Catholic priests carrying out aggressive missionary work, luring away Orthodox believers. "Not that many Catholics live in Russia today, therefore the upgrading of the status of Catholic institutions... is of an apparently missionary nature," the patriarch was quoted by Interfax news agency as saying on Friday. Alexiy called the move "unfriendly" and said the decision had been taken without consulting the Orthodox Church. The row deals a further blow to attempts to heal the 1,000-year rift betweeen the two churches, and makes a visit by the frail Pope John Paul II -- who has long expressed his wish to visit Russia -- an ever less likely prospect. Waving hand-painted placards saying "No to the Pope" and "Defend Holy Russia from the New Aggressors," the crowd chanted prayers and cheered speakers who called for an end to "the lowering of Russian pride." One banner floating above the crowd showed a Russian hero basking in victory after pushing back a thin, bearded aggressor surrounded by winged devils. "They have killed their religion, and now they want to convert our Orthodox people," one elderly protester wrapped in a flowered Russian headscarf said. Valery Galchenko, of the left-leaning People's Deputy Party who organised the demonstration, told Itar-Tass news agency the protest was to defend the Russian identity. "It is a question of national defence when, at a time when religious feeling is being revived, a foreign ideology is introduced," he told the agency. "We are against the expansion of the Catholic Church." FREEDOM OF RELIGION Father Tomasz Grysa at the Holy See's mission in Moscow said the protest showed a lack of respect for the freedom of religion enshrined in Russian law. "This protest was not against the Holy See but against Russian citizens who are Catholic believers," he told Reuters. "We are very sorry that the (organisers of the protest) cannot see that living next door to them are people with the same rights, including the right to normal priests, normal bishops." The Russian Orthodox Church has long accused Catholics of using their new-found freedom in the former Soviet Union to poach believers. A visit to Ukraine last June by the Polish-born Pope, an anti-Communist activist during the Soviet era, aroused disapproval by the patriarchy, who said they should have been consulted on a visit to their "canonical territory." ****** #4 Jamestown Foundation Monitor February 22, 2002 BEREZOVSKY HINTS PUTIN ORDERED 1999 TERRORIST BOMBINGS. Boris Berezovsky has once again said that at the end of February he will make public evidence that the September 1999 bombings of apartment buildings in Moscow, which killed hundreds of people, were carried out by Russia's special services, not, as the Russian authorities have claimed, by Chechen terrorists. The opposition oligarch's latest comments, made in separate interviews published yesterday in France's Le Figaro newspaper and Switzerland's Facts magazine, are his most radical yet since late last year, when he first threatened to reveal evidence of the alleged role of the Federal Security Service (FSB) in those incidents. Berezovsky concurred with Le Figaro's characterization that his fight with President Vladimir Putin is "to the death." He even repeated his old allegation that the FSB leadership ordered his murder in 1997, hinting that there could be an attempt on his life now and saying he had taken "precautionary measures to keep safe the information I want to make public." And while the tycoon repeated his comment from earlier interviews that he has no proof that Putin--who in September 1999 was prime minister and had earlier been FSB director--was personally involved in the apartment building bombings, Berezovsky, for the first time, strongly implied that this was the case. He dismissed out of hand the idea that Nikolai Patrushev, who was FSB director at the time of the bombings (and remains so), then Interior Minister Vladimir Rushailo or then President Boris Yeltsin could have ordered such terrorist attacks. Such a decision, Berezovsky said, could have been taken only by someone with sufficient "will," adding that the recent decision to end the broadcasts of TV-6 (which Berezovsky majority owns) showed that Putin possesses "a strong will." Asked if he had any other suspects in mind for the 1999 blasts, Berezovsky answered simply: "No" (Le Figaro, February 21 [from the Russian translation by Inosmi.ru]). In an interview with the New York Times earlier this month, Berezovsky said he had no proof that Putin was personally involved in the bombings but said he had "facts" showing that Patrushev, who is a long-time Putin associate, and other FSB officials were involved in the apartment building bombings (see the Monitor, February 7). In his interview with Facts, the Swiss magazine, Berezovsky repeated the comment he made to the New York Times last month that his proof of an FSB role in the apartment building bombings "is at least as good as what the United States has against Osama bin Laden." In addition, he specified for the first time the kind of evidence he claims to have, saying it includes both "documents and videotapes." Asked what kind of reaction he expected his revelations to elicit, Berezovsky said that while he understood "the danger for Russia when the people find out... that bandits are among those who run the country," he also feared the Russian people were "not ready for" and thus would "not accept" the truth. The tycoon said that if the international community accepts his proof as genuine, "the situation for the Russian government will become very unpleasant." He added, however, that the West might not accept it, given that Russia has become "an important ally in the fight against terrorism" (Facts, February 21 [from the Russian translation by Inopressa.ru]). The FSB, of course, has dismissed Berezovsky's allegations out of hand. Last month Patrushev said that his agency has documentary evidence that the tycoon had financed Chechen rebel groups and would pass this information on to foreign governments, presumably to pave the way for the tycoon's extradition. The Prosecutor General's Office subsequently charged Berezovsky under a criminal statute that bans creating and leading "illegal armed formations." Berezovsky admits having passed funds to Chechen rebel leaders in 1997, when he was serving as deputy secretary of the Security Council, but said this was part of official Russian government policy (see the Monitor, January 25, February 1). ******* #5 Russian economy cheered on, with caveats By Jonathan Thatcher MOSCOW, Feb 22 (Reuters) - Russia said on Friday it was confident its economy would start growing again after a difficult few months and won ringing endorsement of its policies from ratings agency Standard and Poor's. The agency's upgrade of Russia's outlook to positive from stable praised "genuine potential for improving the economy's structure." Deputy Economic Development and Trade Minister Arkady Dvorkovich was quoted by Interfax news agency as saying the negative trend in the economy was largely over. But a top economist, former Deputy Finance Minister Oleg Vyugin, warned that if the economy remained excessively reliant on oil and natural resource exports, economic growth would halve this year. Russia's economy made a robust recovery from its near collapse in 1998 but began to stumble towards the end of last year as prices for oil -- on which it still heavily depends -- slid, with almost zero growth. The Finance Ministry announced on Thursday that prudent management of its massive foreign debt -- around $134 billion -- had cut servicing costs by at least $4 billion for next year. BREATHING ROOM Because of this, Russia appears to have bought itself some breathing room in what threatened to be an agonisingly tight year financially and S&P in Friday's upgrade praised Russia for its commitment to servicing its debt. After booming on a wave of high oil prices in 1999 and 2000, the economy slowed to five percent growth last year. Industrial output, a locomotive of growth, also slowed by more than half from nearly 12 percent in 2000. The government has predicted economic growth of around four percent this year, although some analysts have worried the slowdown could be more serious. Dvorkovich rejected worries of a manufacturing stagnation, which some analysts have warned might be brewing. He predicted industrial output growth would speed up to three percent in February after 2.2 percent in January and 2.6 percent in December 2001. In addition, inflation should slip to just 1.5 percent in February, down from a three-year high of 3.1 percent last month. In March it should be under one percent, he added. The government has predicted economic growth of around four percent this year, although some analysts have worried the slowdown could be more serious. RUNNING OUT OF STEAM In a report published on Thursday, former minister Vyugin, now chief economist with Troika Dialog investment bank, said the economic model Russia has been using to pull up its economy could be running out of steam. The model puts heavy stress on exports of natural resources, reliance on existing industry to satisfy domestic demand and protectionsim in the form of artificially low energy prices, labour costs and rouble exchange rate. Sticking to this will lead to "growth of just 2-3 percent, a lack of efficiency, creeping inflation, a gradual weakening of the balance of payments and a necessity to devalue the real rouble exchange rate," the report said. Vyugin urged the government to move on three key areas: - adjust tax laws to redistribute cashflows to the manufacturers from raw material producers - demolish administrative restraints on small and medium businesses - reform the banking system. "Lower taxes look to be an essential prerequisite for stimulating economic activity," the Troika Dialog report said. "However, for these to be effective, the business sector will need to be set free of administrative barriers created by numerous and uncontrollable bureaucrats in the regions," it added. ****** #6 The Russia Journal February 22-28, 2002 The consumers know all By OTTO LATSIS There’s a well-known saying that says statistics know it all. But statistics know only what was and what is. Consumers, on the other hand, turn out to know what will be, too. At least, this is what comes out of a study of the Consumer Sentiment Index (CSI). This index was first developed in the United States in the 1940s for commercial purposes, but it turned out to have broader uses as a forecasting tool. This is also true of Russia, where the index has been measured since 1993. The recent slowdown in the economy shows just how useful this index can be. Growth rates began to slow in the fourth quarter of 2001, and statistics for January 2002 show a continuation of the trend, with industrial output up by only 2 percent as compared to 5 percent last year. In October to December 2001, there was virtually no growth for each month compared with the preceding one. Statistics reflected this stagnation only in January, when the fourth quarter of 2001 was over, but CSI results collected by the CSI Foundation using public-opinion surveys show that consumers noticed it in November. The CSI reached a record high in the nine years it has been used in Russia in September 2001, when it peaked at 95.5. The index is calculated using a ratio of positive and negative answers to five basic questions – change in the respondent’s material situation in the last year, expected change over the coming year, hopes for economic development over the coming year, over the coming five years and assessment of conditions for making large purchases. So as not to have a negative value, 100 is then added to the figure obtained. In other words, the most pessimistic result possible is zero and the most optimistic is 200, with a result of 100 being neutral. In the United States, the index had been at more than 100 for many years in a row but, after the Sept. 11 tragedy, it fell to around 80. In Russia, the index has never yet hit the 100 mark. When measurement began in 1993, it was close to 60 and then rose gradually with various fluctuations. After the August 1998 crisis, it dropped to just over 40 but, from the beginning of 1999, it made a fast and almost unbroken increase. When it hit 95.5 in Sept. 2001, the hope was that it would soon cross the 100 barrier between an overall negative and an overall positive outlook. But, in November, it slipped back to 91.7. Analysts had to wait for the January figure to see whether this drop signaled a negative trend. The January result – 94.2 – looks at first glance like an increase, bringing the index close to its Sept. 2001 level. But there are seasonal factors to be taken into account in the January figure. People have more money in January because they receive end-of-year premiums in December. If these seasonal factors are excluded from the January CSI figure, the result is not an increase, but rather a slight decrease – essentially, a stagnation situation. Consumer mood and doubts reacted to economic events that statistics only later brought to light. Thousands of people detect thousands of small signs that even the most perceptive analysts can’t see on their own. Someone lost his or her job or got a new one, someone had wages delayed or was paid debts owed, someone got a pension increase or saw the rates rise – all these small things together have an impact on the overall assessment. The CSI Foundation analysts gave a contradictory forecast based on the January figure. On the one hand, there’s an obvious drop in consumption. This means consumer demand will be lower over the next three to four months. If the domestic market contracts at the same time as export earnings decrease, the result is, if not stagnation, then at least a slowdown in growth. But at the same time, the most optimistic answer to the five questions used by the CSI concerned prospects for economic development over the coming year. This could herald an upturn in the economy in the second half of the year. There are also some specific recommendations for business. The CSI analysts note that consumption is highest among young and middle-aged people and among people with high or middle incomes. These groups place more emphasis on a good’s quality rather than its price. If Russian manufacturers and retailers can draw the right conclusions from these facts, it will make it easier for businesses to overcome their economic difficulties. Incidentally, the U.S. Treasury and U.S. specialists helped launch CSI measurement in Russia, but the studies are now carried out entirely by Russian specialists using Russian money. It isn’t always easy to get this money – the state doesn’t give a ruble – but the business community provides financial support. ***** #7 Moscow Tribune February 22, 2002 PUTIN DISCIPLINES MINISTERS But will it help the economy? By Stanislav Menshikov Recently Vladimir Putin took to task his key ministers for not reacting adequately to danger signals in the economy. National product and industrial output are stagnating since last autumn, inflation suddenly flared up in January. The president's philippics were shown on national television so that the public at large would have no doubt as to who was to blame. Some economists, including the president's own adviser, are forecasting a recession if policies do not change. At least one private economist is warning about dire consequences for the presidential elections coming in 2004. However, Putin himself discounted predictions of an impending catastrophe. "Seasonal fluctuations", as he called them, were no cause for panic. His recipe for overcoming economic disturbances was "tightening discipline", a phrase reminiscent of the late Yuri Andropov and quite befitting a former secret police official. To the ministers present the phrase meant that they were simply not doing their job and could easily loose it. One of them (Ilya Klebanov) was indeed demoted, perhaps to demonstrate how genuine was the president's displeasure. While Putin is partly right about seasonal factors, the main reason for the current economic slowdown is stagnating capital investment. This is due to deeper problems than short-term fluctuations. About half of all industrial investment is centred in export-oriented industries - oil, gas and metals. At least a quarter of total national investment is made by two natural monopolies - electric power and transportation. The main consumer industries - food, textiles, clothing, footwear, etc. - account for only 6 percent of the total. That explains current stagnation. While output and investment in consumer industries are still rising fast, their share in total investment is too small to affect the overall picture. Exports industries and the natural monopolies are hesitant to pursue the investment boom of the past three tears. Overproduction in the world and domestic markets explains stagnant investment in oil. In addition, the reluctance of the government to satisfy natural monopolies' demands for steep rises in tariffs tends to restrict investment in electricity systems, gas and railways. The government has added to problems by eliminating deductions for investment purposes from the companies' tax bill on profits. This change went into effect on January 1, 2002, effectively raising the tax rate for businesses with large investment outlays. It also negatively affected smaller companies in industries working mainly for the domestic market. These serious problems cannot be resolved by merely "tightening discipline". Take, for instance, the oil situation. There is a striking difference between the long-term perspective and the immediate prospects in the months ahead. In the long haul, the main issue is to find the break-even point between the need to earn hard currency, the realistic export potential, and the opportunity cost of increasing limited oil reserves. In the immediate future, the benefits of stabilising world prices are predominant and should be weighed against geopolitical realities of dealing with the United States. Increasing oil exports in the long-term is not inconsistent with reducing them in the short-term. Oil companies should plan their investment adjusting to both realities. They should avoid exclusively following short-term market fluctuations because this helps destabilise the macro economy. The other day Alexey Kudrin, the Finance Minister, said he was satisfied with prices for exported Russian oil, which for the last month and a half have averaged $18.6 per barrel. That is in line with the scenario, under which the federal budget in 2002 would be exactly balanced. It is largely the result of the joint decision of Russia,OPEC and other exporters to reduce supply to the market for as long as the world economic slump continues. Meaning that the decision to participate in the stabilising scheme was absolutely correct as far as Russia was concerned. Now, Mikhail Khodorkovsky of the "Yukos" oil concern boasts that he can work with an oil price as low as $8. Perhaps, his company can, but Russia's federal budget cannot. National interests should take precedence over interests of individual businesses. As to geopolitical considerations, one should bear in mind that $18.6 is not an exorbitant price for such a rich country as the US to pay even in a recession. After all, this has also been the average price of oil for the last 12 years. If Russia agrees to supply more oil to the US, as recently suggested, it will insist on a price that is close to that average or better. The other immediate big concern is finding a way to bolster capital investment in the natural monopolies by taking a closer look at their cost structure. Particularly important is to trace their so-called "investment components" and depreciation allowances to see exactly how this money is spent. It may well be that it is spent for things having nothing to do with maintaining, expanding and modernising capital stock. To put it shortly, ministers should be persuaded to look more carefully into the substance of economic problems and to find effective solutions. As to the oligopolies and monopolies of Russian Big Business, they should need more disciplining, too. ****** #8 Weather, machinery may dash Russia grain hopes By Aleksandras Budrys MOSCOW, Feb 22 (Reuters) - Russia's farmers may have enough seed and fuel this year as they plan for another big grain crop, but they could yet be foiled by the weather and a shortage of machinery, analysts said on Friday. "The situation created on the eve of the (spring) sowing campaign is favourable from the point of view of seeds and fuel supplies," said Andrei Sizov of the SovEcon farm consultancy. "The worry is the shortage of machinery and the weather conditions." Russian harvests have gone in boom and bust cycles since the fall of the Soviet Union and the country had to accept food aid after the 1998 economic crisis. Since then output has improved, with last year's grain harvest hitting a recent high of 85 million tonnes. Sizov expected the total area to be sown this spring to match last year's 35 million hectares. The agriculture ministry has put the total area to be sown to spring grains at 33 million hectares, but analysts say official estimates ignore small private farms. Russia has already sown over 16 million of hectares to winter grains, up by nearly two million from last year, when they accounted for around 40 percent of the total harvest. Before the collapse of the Soviet Union, Russia harvested more than 100 million tonnes of grain. Its crop hit a 40-year low of 47.9 million tonnes in 1998, followed by a 1999 return of 54.7 million and 65.5 million in 2000. SEED STOCKS HIGH, QUALITY LOW Sizov said farmers had accumulated high stocks of seed after last year's harvest success. "But the yield potential of the seeds is relatively low, as well as their capacity to resist adverse weather," Sizov said. "This means that even if a larger area is sown, actual yields will depend a lot on the weather." Farmers were short only of maize seed after output fell 46 percent to 831,000 tonnes last year. Imports of maize seed from Ukraine, Moldova and Hungary had already started, but farmers would not be able to afford to sow large areas this year. "If last year Russia sowed 0.7 million hectares to maize, a drop from 0.85-1.0 million in previous years, this season the area is unlikely to rise over 0.8 million hectares," Sizov said. Analysts said fuel supply presented few problems as weak world oil prices were keeping domestic diesel and gasoline prices low. Andrei Chernyshov, head analyst at Inter-regional Trading System Zerno, said, "We don't have a full picture yet, but we can forecast fuel supplies at a level no lower than last year." Sizov said, "We don't expect machinery to stand idle for extended periods due to lack of fuel, as happened two or three years ago." And bank finance would be available as farmers had repaid all their loans after last year's good harvest. "The banks, seeing a lower risk, will be eager to provide new loans to producers," Sizov said. SHORTAGE OF MACHINERY But farmers are short of machinery. The agriculture ministry says Russia has only 50-55 percent of the machines it needs for the sowing and harvesting campaigns. "A lot of the tractors are obsolete, and need constant repair to stay in working condition," Sizov said. "And when two new tractors arrive, three old ones which can't be repaired drop out." Sizov said SovEcon estimated the total number of tractors available for this year's sowing campaign at 720,000, compared with 750,000 a year ago. Chernyshov said the number of tractors in working order was even lower at 557,000, down from last season's 569,000. Sizov said, "As frequently happens in May, cold weather may set in, causing a delay in sowing. "Then the campaign will have to proceed quickly and, given the shortage of tractors, the sown area may be lower than targeted." ****** #9 stratfor.com United States Expands Anti-Terrorism War To Georgia 22 February 2002 Summary Two U.S. aircraft landed Feb. 21 in Georgia, likely setting the stage for a new U.S.-led counterterrorism operation against al Qaeda and Chechen militants in the Pankisi Gorge. A U.S. military presence in Georgia -- in addition to the deployment in Afghanistan -- will dramatically weaken Russia's strategic positions along its southern borders and push Russian forces out of former Soviet states in the Caucasus and Central Asia. Analysis Two U.S. Air Force craft carrying about 40 U.S. military personnel landed Feb. 21 in Tbilisi, the capital of the former Soviet state of Georgia, sources from Georgia's Interior Ministry and elsewhere tell STRATFOR. According to the Feb. 21 edition of Russian newspaper Nezavisimoe Voennoye Obozrenie, the personnel include Special Forces troops, who specialize in counterterrorism operations, and Air Force logistics personnel normally based at Incirlik, Turkey. U.S. troops have never before been deployed to Georgia. The group's goal appears to be to prepare the ground for a new front in the U.S.-led anti-terrorism war -- this time in the Pankisi Gorge, a mountainous region that has been beyond the Georgian government's control for several years. According to U.S. and Russian government sources, dozens of al Qaeda fighters found refuge in the gorge along with several hundred allied Chechen militants, who also use the area as a regrouping and logistics base in their war against Russia. It appears that Washington is taking its fight against al Qaeda into Russia's back yard, much to Moscow's chagrin. The move comes barely a week after the United States' acting ambassador to Georgia selectively linked Russia's Chechen rebellion to Osama bin Laden. As STRATFOR wrote at the time, those comments appeared to pave the way either for Moscow to pursue Chechen militants based in Georgia with a free hand or else be forced to accept the humiliation of a U.S. deployment to the region -- Moscow's nightmare scenario. Although Russian President Vladimir Putin was quick to declare himself an ally in the war on terrorism, Washington has repeatedly put him on the spot by slowing rewards for Russia. The pressure on Putin is rising still, as the latest U.S. move will significantly change the balance of power in the Transcaucasus region. Tbilisi has consistently rejected any overtures from Moscow regarding joint Russian-Georgian -- or solely Russian -- operations against Islamic militants based in Georgian territory. Sensing growing U.S. support, Georgian President Eduard Shevardnadze, who has long sought a U.S. or NATO presence in his country to safeguard its independence from Russia, has adopted an increasingly bold tone with top Russian officials. For instance, when Russian Foreign Minister Igor Ivanov suggested that bin Laden could be hiding in the Pankisi Gorge, "a more than insulting answer from Shevardnadze followed, proposing to look for Osama in the house of Ivanov's mother," who was born and lived in Georgia, Russian daily Nezavisimaya Gazeta reported Feb. 20. Washington also has flatly rejected any proposals of a joint U.S.-Russian anti-terrorism operation in the Pankisi Gorge. Reuters quoted a senior U.S. official Feb. 20 as saying, "Washington's desire to combat followers of Osama bin Laden does not extend to enlisting Russian help to crush the militants accused of using Georgia's Pankisi Gorge as a conduit to the separatist conflict in mostly Muslim Chechnya." With the deployment of U.S. troops, it now appears the Bush administration opted to act alone instead. The U.S. military presence in Georgia is likely to follow the same pattern as the U.S. deployment to Central Asia. In that case, small forward-deployed groups of Air Force logistics and Special Forces personnel were secretly sent to prepare the ground for larger deployments, which are now present in Uzbekistan, Kyrgyzstan and Tajikistan. The presence of Special Forces in Georgia suggests that -- as in Afghanistan and the Philippines -- the U.S. military will train, direct and coordinate the Georgian army in its efforts to crush the Islamic militants' base in the Pankisi. The deployment of logistics personnel, meanwhile, indicates that more U.S. aircraft may be on their way to Georgia, where their mission most likely will be air transportation and air surveillance, rather than combat sorties over the Pankisi. Even that, however, will require some U.S. combat planes to guard non-combat aircraft. The use of unmanned aerial vehicles (UAVs), such as Predators, to hunt down Islamists, also should not be excluded. The first-ever deployment of U.S. troops to Georgia has several implications, not only for the United States and Russia, but for Caucasian and Caspian countries that revolve in Moscow's orbit. For the United States, it means a big strategic victory. First, Washington is filling a gap in the already significant deployment of its forces in Eurasia. U.S. forces are now stretched from Norway and several other European countries neighboring Russia through Turkey, Georgia and three Central Asian states. This latest deployment only adds to the pressure on Russia's strategic position along its entire western and southern border. Second, the United States gains several important geographic advantages in Georgia. If, for example, Washington chooses to unleash its firepower against Baghdad, Georgia could provide an extra base for the U.S. Air Force to attack Iraq from the north. If Turkey, which has expressed opposition to such a war, should balk at allowing U.S. forces to use its territory to launch strikes, Shevardnadez would be more than willing to serve Washington in this and any other actions. And if U.S. relations with Russia turn confrontational again, American forces in Georgia -- backed by U.S. forces in neighboring Turkey and the Turkish army -- would seriously threaten the Russian army and major Russian strategic centers in the southern part of European Russia. Third, the U.S. troops in Georgia will control a western route for piping out Caspian oil and gas that Washington has long favored and promoted. In fact, the U.S. military presence will help ensure that a majority of oil and gas from the Caspian basin will go westward -- bypassing the United States' geopolitical rivals, Russia and China. Finally, the military presence in Georgia will increase pressure on neighboring Caspian states to accept U.S. involvement in their oil and gas exploitation areas if Washington so chooses. Azerbaijani President Heydar Aliev has asked Washington on many occasions to establish bases in his country. Kazakhstan President Nursultan Nazarbaev recently hinted he would not mind some sort of American military presence on his soil as well. For Moscow, however, the U.S. deployment to Georgia is a major geostrategic defeat and a significant potential threat, should U.S.-Russia relations turn sour. It appears that Russia is being driven out of the Transcaucasus region, where it has a critical national interest and its army has been present for more than 200 years. Adding to the humiliation, the U.S. forces in Georgia are likely to stay in Vaziani, a major base that Russia abandoned last year. Moscow attempted to save face by hastening its withdrawal from Georgia before U.S. forces arrived. Military sources in Russia told STRATFOR that Army Gen. Anatoly Kvashnin, general chief of staff, issued a secret directive Feb. 16 to liquidate the Group of Russian Forces in TransCaucasus (known by the Russian acronym GRVZ), a group that represents an operations-level formation equal to a front or group of armies in war. According to the directive, the GRVZ headquarters in Tbilisi and the Russian garrison there -- about 5,000 officers and soldiers -- would be fully disbanded and withdrawn by September 2002. Ironically, the Russian delegation negotiating the withdrawal of troops from Georgia was not informed about the directive and until this week insisted that Moscow needed 13 years to withdraw its forces from Tbilisi. Even Georgia agreed that the withdrawal should take place over three years. With the liquidation of the GRVZ headquarters and garrison in Tbilisi, remaining Russian army units in the Transcaucasus -- which comprises Georgia and Armenia -- will be essentially beheaded. Their combat potential will be drastically weakened, and they will and cease to exist as an integrated operational structure. The two remaining military bases in Georgia, the 12th base in Batumi and the 62nd in Akhalkalaki, will become subject to the North Caucasian Military District in Russia proper. These forces also face the prospect of quick withdrawal. Russian troops based in Armenia, at the 102nd Giumri base and Yerevan garrison, also would be completely cut off from the rest of their counterparts in Russia proper and thus much more vulnerable. This fact will not escape the attention of Armenia. Its traditional orientation toward Russia was weakened in 1999 after the pro-Russia prime minister was killed in the parliament building under circumstances that remain unclear. With Russian troops on Armenian soil weakened, the government is likely to drift further away from Moscow and more actively seek favors with Washington. In this way, the U.S. military presence in Georgia will drive Russia from the Transcausus and significantly change the geostrategic balance in the region in Washington's favor. Washington has persisted in pursuing a one-sided relationship with Russia, and its latest move will put Putin -- and his much-vaunted alliance with the West -- in a tight spot. The question remains how much farther Putin can give in to the United States without dramatically weakening his position at home. ****** #10 The Russia Journal February 22-28, 2002 Editorial Oligarchs roaring back As many as 300 of the most liberal and avidly anti-communist journalists who in the past actively supported the regime of former President Boris Yeltsin, his "reformers" and retinue of oligarchs are on the streets. And a dozen of Russia’s top industrialists, bankers and entrepreneurs are putting together a coalition to help them buy back the television frequency in a March auction. The journalists from now-bankrupt TV6 are working on nominal salaries of a ruble a month on radio station Ekho Moskvy. Those thrown out of newsmagazine Itogi have found work at recently launched magazines Yezhenedelny Zhurnal and Delovaya Khronika. The Ekho Moskvy staff as a class could also face the axe if the corporate raiders hired by Gazprom (read: the Kremlin) get their way. These raids on independent TV stations, radio and newspapers by oil giant LUKoil and Gazprom have many liberal politicians and Russia’s oligarchs, as well as a new breed of entrepreneurs, worried. Many of these journalists have been ideologically sympathetic to Yeltsin’s "democratization." Being so was a good career move for some that was also profitable back when the privatization and stripping of state assets were the fashion of the day. Many oligarchs, such as Vladimir Potanin, Boris Berezovsky, Pyotr Aven, Vladimir Gusinsky and Mikhail Khodorkovsky seized media assets to protect themselves and propagandize for the political regime that had been conniving in their stripping of state assets. Over the last few years, some of these media companies and journalists have played the role of political and corporate king-makers, as well as the contract assassins of many a company and reputation. Others were simply content putting out good TV programs. When the once-approved media networks of Gusinsky and Berezovsky – which had been given to them in return for their loyalty to the Yeltsin regime – threatened to turn on President Vladimir Putin and his political future, they were erased out of the scene. There isn’t much sympathy for either Gusinsky or Berezovsky among the other oligarchs. Concerned by prosecutorial actions and defending their assets, which could be taken back at any time by the justification that they were ill-gotten during the shady deal-making of the Yeltsin era, the oligarchs have distanced themselves from politics over the last two years. The oligarchs therefore seem to be testing the waters with the fourth estate to see if they can play their role again. The announcement this week by a group of industrialists and bankers, led by suave and soft-spoken tycoon Oleg Kiselyov (no relation to TV6 director Yevgeny Kiselyov), that it would back the TV6 and NTV journalists in their bid to claim the airwaves in a March tender is significant. That the initiative has the backing of almost all the leading oligarchs suggests that none of them has the guts to stand up to the Kremlin by himself. More worrisome for the Kremlin, however, is the fact that they have been united by the most Machiavellian figure of Russian politics, UES chief Anatoly Chubais. Chubais criticized the government for creating a police state during a sushi feast with the Financial Times last week. Now, he is rallying the oligarchs with the message that they should have no fear of the Kremlin. That is only one version of events. The other one gaining ground in Moscow is that the Kremlin itself is encouraging the oligarchs to back a bid that would find employment for all the TV journalists. In this way, no single industrialist will have enough power to blackmail President Vladimir Putin when election time comes, and the Kremlin will be able to dominate them using the more amicable among them, like Oleg Deripaska and Vladimir Potanin. (These two already stabbed Kiselyov in the back when he tried to take over a powerful business union last year.) The last time the Russian oligarchs got together was in 1996 in Davos, when they buried their differences and got Boris Yeltsin reelected. It was Chubais who brought them together then, and it is he who is orchestrating the new media bid. These ominous signals could not be lost on Putin. The public and the media, in the meantime, are just happy at the prospect of some good programming returning to the idiot box and the journalists finding decent jobs again. ******* #11 BBC 22 February 2002 IKEA wows the Russians By James Schofield in Moscow From the outside, the crumbling soviet-era housing estates of Moscow look as drab and grey as ever. Yet booming sales at IKEA show that like people around the world, Muscovites are embracing the new cappuccino-Chic lifestyle embodied by the Swedish furniture giant. Sales in Russia topped $100m during the first year of operation alone in 2000, putting it among the company's top ten grossing stores worldwide. A second outlet has since opened and sales from both have doubled in the last 12 months, Lennart Dahlgren, Russia country manager for IKEA, said last week. Production plans But it's not just Russia's potentially huge market of aspiring consumers that the company is interested in. IKEA also hopes it will become a significant production centre and supplier of goods to its global network. Worldwide demand for IKEA merchandise roughly doubles every fours years, and maintaining supply volumes has become a serious challenge for the company. Rich in natural resources, Russia is well-placed to help satisfy the strong demand. The country boasts an estimated 25% of the world's hard wood reserves, is a major supplier of petroleum products for plastics, and is a leading world producer of aluminium. It also has developed textile and ceramic industries and dozens of mothballed soviet-era factories capable of producing in huge volumes. "Today we order $50m of furniture here from Russian factories. In the future want to buy at least ten times that amount," said Dahlgren. "People are surprised when I say it but Russian quality is far above many other countries." Red tape obstacles In April production is set to start at IKEA's first self-run Russian factory, near St. Petersburg. The facility cost about $15m and will employ 250 people. IKEA will open a third store in 2003 and has brought forward projects to complete two more outlets after that. IKEA also plans to build a giant $40m warehouse near Moscow. But business here has not all been plain sailing for Dahlgren. While production quality may have impressed him, punctuality has not. "I would say time quality management here is catastrophic," says Dahlgren who complains that few producers deliver on time. Punitive customs tariffs are another headache. Designed to protect Russia's low quality furniture industry from foreign competition, import duties run as high as 80%. Russia's notorious red-tape has also caused problems. Commenting on bureaucracy and corruption Dahlgren said "I would say I have been frustrated, yes, surprised, yes." "If you try to follow every step of the laws in this country nothing would be possible. So many laws here are contradictory, it's catch 22." But though confusing legislation can cause delays, support from local officials can smooth out most difficulties. "If you have a trusting relationship with authorities at local, regional or federal level then almost everything is very quickly possible here, more so than in many other countries in fact." Breakthrough And despite frequent cases of bureaucratic meddling, life for foreign business in Russia is becoming easier. "In the last two years there has been a major change for the better in terms of interference of bureaucracy in business," said Seppo Remes, Chairman of the European Business Club in Moscow. In the last year company registration has been streamlined and the number of officially required licences has been slashed from thousands to as little as 100. Changes to the law are only part of the reason for the improvements though. Remes believes that President Putin has made a clear effort to stamp out Russia's rampant bureaucratic corruption as part of his drive to rebuild the Russian economy. "There may still be those bureaucrats who want to interfere but they are increasingly afraid about punishment and the message seems to be passing through to the whole of society." There is however still a long way to go to liberalise the quagmire of officialdom suffocating business in Russia. Customs procedures for example remain extremely bureaucratic and corruption widespread. Rules to certify imported goods are often used simply to make money and promote local production rather than address legitimate concerns. During the recent 'foot and mouth' scare in the UK, for example, Russian authorities banned British fish imports even though fish cannot carry the disease. That, however, doesn't seem to be a concern for the thousands of Muscovites with their fashionable cappuccino sets in the capital's dreary tenement blocks. ****** #12 therussianissues.com February 22, 2002 Friday Press Review - February 22 Will the Russian Olympic team leave Salt Lake City? By Anna Bondarenko There are a number of attention-grabbing subjects in the leading Russian press this Friday. Papers mainly write about the possible American participation in a peace operation in the Pankisis Gorge and President Putin's productive meeting with the upper house of the Russian Parliament. Most interest is concentrated, however, on the Olympic hockey sensations that have happened over the last few days. In breaking news, Internet news outlets reported that the head of Russia's Olympic Committee Leonid Tyagachev announced that the Russian national team might leave Salt Lake City. In an interview with RTR television on February 21, the official said the reason for such a decision is "the no-rules treatment of the Russian team." The traditionally reserved and official Rossjiskaya Gazeta could not hide its admiration of the Belorussian hockey team's play against the Swedes. "Belarus' victory is sensational. Oleg Romanov, Andrei Kovalev, Vladimir Kopat, Dmitri Dudik and goalkeeper Andrei Mezin, who were known only to experts on Russia's hockey championship, have performed a miracle...[Swede] Mats Sundin's efforts, were not enough to overtake the Belorussian 'amateurs'." Vigorously greeting Belarus' success, Russian press is bursting with cheers over the Russian team's triumphal game against the Czechs. "The Czechs have always been awkward rivals for Russians in hockey. The tragic and offensive result of the final game at the Nagano Olympics four years ago gave no rest to Russian professional and amateur hockey lovers dreaming of a re-match. That dream has come true: the Olympic throne in hockey is now free," Gazeta writes. Kommersant echoes the question that numerous Russian sport reporters had been posing in the weeks anticipating the Winter Olympics: "How are we going to beat the Czechs?!" On the eve of the quarter, final dozens of ideas were put forward. Only one proved to be right: the Russians simply had to play "Czech hockey," the daily writes. Izvestia seems to be puzzled by the inconsistency of the Russian team's play. "Russian players keep surprising us," the paper claims. "In every game out of the four, they played differently. Some surprises were pleasant and some were disappointing. In the quarter final game against the Czechs, it turned out to be more than just satisfying. The Russian team beat out the team that had been the best for the last four years; they took their revenge for the lost game in the 1998 Olympic final." However, because of the Russians' uneven play, Izvestia insists, it's hardly possible to predict the results of the Russia-US semifinal. Increasing fans' anxiety, Vremya Novostei devotes its article entirely to expectations related to the semifinals. "The Americans don't ask what sport is number one in the Olympics. By all means it is hockey. Any defeat of the American team would be taken as a national disgrace. It is not enough just to play. On their way to the top, they have to crush the strongest, the most titled and the most principal rivals. We don't have to clarify here that Russia is the only rival the Americans think of in this way." To prove its feelings about the Americans' intentions, the paper quotes Herb Brooks, the U.S. Olympic hockey team's head coach, as saying that Americans realize that the coming game will be looked at through the prism of 22 year-old events, meaning that everybody expects the Russians to attempt to take their revenge for the 1980 Olympics. The head coach believes, however, that it is the way the rest of the U.S. looks at the game. The hockey players, he highlights, should not pay too much attention to those aspirations and concentrate on the result of the approaching game. "Without a doubt, we will do everything possible and, if necessary, impossible so that the final score on the scoreboard... is in our favor," he says. Russia, in turn, the paper notes, has its own special attitude towards the "hockey gold." It's not for nothing that Vladimir Putin gave Viacheslav Fetisov a phone call ahead of the Russia-Czech Republic match. Vremya Novostei also notes that when Fetisov was elected head coach, the president promised to fly to the final game if Russia were to participate in it. So far so good and the players are optimistic. "We felt our strength," Nikolai Khabibulin, goalkeeper and the main hero of the game, commented on the match against the Czechs. "Now only first place will be good enough for us," he said. We all will wait for the game with great interest. There is no doubt that the result will be in the headlines for the whole weekend if the game actually takes place. When this review was about to be published it became known that the Russian National Olympic Committee had launched a protest against the IOC decision to disqualify Russia's top cross-country skier Larisa Lazutina from the 20-kilometer relay because of a slightly high level of hemoglobin found in a pre-race blood test. Russian representatives stated to Interfax that the team was not notified about the test's results on time and the team was not able to substitute Lazutina. Quoted by a number of online Russian media outlets, Russian Olympic Committee President Leonid Tyagachev said he told IOC President Jacques Rogge that his nation was "greatly unappreciated" at the Olympics. He called for an investigation into the various protests made by the Russian national team. Vitaly Smirnov, an IOC vice president from Russia, told NTV that the gold medal was definitely Russia's, but "they simply took it away." Following these statements, Russia threatened to pull out of the Winter Olympics, saying that the Russians wouldn't participate in the next hockey game or the 30k race if the IOC president didn't make a decision in 24 hours . ****** #13 St. Petersburg Times February 22, 2002 Country's Schools To Get PCs, Internet By Pavel Nefyodov VEDOMOSTI ITAR-TASS MOSCOW - If the Education Ministry has its way, by the autumn of this year, every child in every school in every village in the country will have access to a personal computer and the Internet. On Feb. 28, the ministry will announce an open tender to install the computers, the second part of a nationwide project that is part of the broader Children of Russia program under the aegis of President Vladimir Putin and the Education Ministry. The first stage, which came to a close earlier this year, saw the installation of more than 56,500 computers and 9,000 printers in 30,700 village schools in all seven federal districts. Now the rest of the country's schools are to be accommodated. Equipment will be purchased for 10,000 schools, Irina Kuznetsova, the director of the Children of Russia program, said last week at the Infobiznez-2002 conference in Moscow. The deliveries will include 90,000 computers and 6,000 to 8,000 pieces of additional equipment such as modems, printers and software. The equipment will carry a two-year guarantee. Unlike the first stage, when each school received only one or two computers, schools will receive enough to organize entire computer classes. Contracts with tender winners will be signed before May 20 and deliveries must be completed by October. Russian companies Kraftvei IVK, Krok and Dell Systems of the United States won the first tender to install computers. The project was financed with 1 billion rubles ($32.4 million) from the federal budget and 1 billion rubles from the regions. However, because of limited funds, Internet access will not be fully available, Kuznetsova said. The total budget for the project is around 2.5 billion rubles ($80 million) - 1 billion rubles from the federal budget, 750 million rubles ($24.3 million) from the regions and another 750 million from municipal budgets, sponsors and the schools themselves. Last year's participants learned a great deal from the first stage. "No one had encountered this kind of project in the past," said Alexei Kudryavtsev, general director of Kraftvei, which installed computers in the Far East and Siberia. Receiving the government funds was not a problem last year, he said, but participants should expect some delay. All of last year's participants acknowledged that they had problems servicing broken equipment - in particular because the schools did not know how to have it repaired. Some of the schoolteachers were ready to catch a plane and take their broken computer straight to Moscow, while others wrote letters complaining about the problems to the Education Ministry and the president. ******* Web page for CDI Russia Weekly: http://www.cdi.org/russia Archive for Johnson's Russia List: http://www.cdi.org/russia/johnson With support from the Carnegie Corporation of New York and the MacArthur Foundation A project of the Center for Defense Information (CDI) 1779 Massachusetts Ave. NW Washington DC 20036