Johnson's Russia List
#6578
29 November 2002
davidjohnson@erols.com
A CDI Project
www.cdi.org

[Contents:
  1. Nezavisimaya Gazeta: WHY PUTIN'S POPULARITY IS RISING. Why Russians
value their national leader. Specialists discuss the phenomenon of Putin's
approval rating.
  2. Moscow Times: Andrei Zolotov Jr., Polls Show People Like Putin, Not His
Policies.
  3. Reuters: Russian media boss seeks moral code, not censors.
  4. Interfax: Russians' view of China is positive - poll.
  5. Beth Knobel: Fund for Svetlana Gubereva.
  6. Moscow Tribune: Stanislav Menshikov, WAS SADDAM SOLD DOWN THE RIVER?
Strategic Triangle in Eurasia.
  7. Kennan Institute event summary: Natasha's Dance: A Cultural History of
Russia. (Orlando Figes)
  8. Reuters: Russian tycoons may be mystery UES buyers-brokers.
  9. Asia Times: Michael Reynolds, Chechnya: A criminal offense.
  10. Moscow Times letters re Heated Economic Debate: Jacques Sapir and
Jim Nail. (re Aslund, Ruhl&Schweitzer, and Stiglitz)
  11. Foreign Affairs: Daniel Treisman, Russia Renewed?]

********

#1
Nezavisimaya Gazeta
November 29, 2002
WHY PUTIN'S POPULARITY IS RISING
Why Russians value their national leader
Specialists discuss the phenomenon of Putin's approval rating
Author: Anatoly Kostyukov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
PRESIDENT VLADIMIR PUTIN'S APPROVAL RATING SOARED AGAIN IN OCTOBER.
IT SHOWED A 6% RISE WITHIN A SINGLE MONTH, SETTING A NEW RECORD FOR
THE PERIOD SINCE PUTIN TOOK OFFICE. AT THE SAME TIME, MANY POLL
RESPONDENTS SEEM TO DISAPPROVE OF HOW PUTIN IS HANDLING SPECIFIC
ISSUES.

PRESIDENT VLADIMIR PUTIN'S APPROVAL RATING SOARED AGAIN IN OCTOBER.
ACCORDING TO THE NATIONAL PUBLIC OPINION RESEARCH CENTER (VTSIOM), 83%
OF RESPONDENTS APPROVE OF HOW PUTIN HAS BEEN DOING HIS JOB. THE RATING
SHOWED A 6% RISE WITHIN A SINGLE MONTH, SETTING A NEW RECORD FOR THE
PERIOD SINCE PUTIN TOOK OFFICE.

AT THE SAME TIME, ONLY A THIRD OF RESPONDENTS LIKE THE WAY PUTIN HAS
BEEN TRYING "TO IMPROVE THE ECONOMY AND RAISE LIVING STANDARDS", WHILE
62% CONSIDER HIS EFFORTS A FAILURE. AND 47% OF RESPONDENTS ARE
SATISFIED WITH HOW THE PRESIDENT "IS RESTORING ORDER IN RUSSIA". ALSO,
40% OF RESPONDENTS DO NOT VIEW THE PRESIDENT AS A RELIABLE GUARANTOR
OF DEMOCRACY AND POLITICAL LIBERTIES. PUTIN'S EFFORTS IN THE SPHERE OF
"PEACE SETTLEMENT IN CHECHNYA" ARE VIEWED AS DISASTROUSLY INEFFECTIVE
BY 74%.

SO WHY DO RUSSIANS VALUE THEIR PRESIDENT IN GENERAL, IF HE ANNOYS THEM
SO MUCH IN THE PARTICULARS? WE APPROACHED THREE SPECIALISTS FOR
EXPLANATIONS.

They are: Alexander Oslon, Public Opinion Foundation Director; Leonid
Sedov of VTsIOM; and Alexander Rar, Director of Russia and CIS
Programs for the Foreign Policy Council of Germany.
     Question: Should we consider an approval rating above 80% as
normal? Couldn't this be a result of some flaws in polling methods, or
a sign that something is wrong with public opinion?
     Alexander Oslon: Firstly, the term "rating" needs to be
clarified. It is necessary to look at the questions respondents are
asked. In this particular case, the question was: "Do you approve of
President Putin's activities in general?" Even if respondents answer
in the affirmative, this does not mean they approve of absolutely all
his actions.
     We use a different method from the one used by VTsIOM. We always
ask respondents to give Putin a "grade", like the grades used in
secondary schools. The current sum of positive grades (from
"excellent" to "satisfactory") is 88%. But everything is different
when we ask respondents whom they would be prepared to vote for in the
next presidential election: Putin regularly polls between 51% and 54%.
What I mean is that nothing out of the ordinary has happened to the
president's rating.
     Leonid Sedov: From the Western point of view, 83% is rather too
high a figure. That much is undeniable. Particularly since recognition
of Putin's successes in certain spheres is nowhere near that level. I
don't think the matter concerns any flaws in how opinion polls are
organized or conducted. I'd sooner say that Russian society has
traditionally relied on the national leader. The "Tsar complex" is too
strong with us. On the other hand, Putin finds himself in a situation
when opposition trends in Russia are considerable, even though we do
not really have anyone in this country who is capable of taking
advantage of such attitudes.
     Alexander Rar: The president probably owes it to his image-
makers. They created the image of a young, dynamic, and strong leader.
I don't think Russian citizens express approval of Putin's activities
because they are afraid to speak the truth. In my view, the factor of
fear is not as significant these days as it was back in the 1990s.
     Question: How long do you think Putin will remain "the president
of hopes" and the leader of public expectations?
     Alexander Oslon: The current attitude towards the president took
shape in early 2000, and nothing indicates that it is about to change.
Firstly, his real actions do not provide grounds for any such changes.
Secondly, there are no alternatives to Putin.
     Leonid Sedov: If you ask me, Putin will retain a high rating
right up until the next presidential election. I attribute this to the
lack of alternatives or a formidable and properly organized
opposition. That could change if another leader comes forward -
someone the people will look at and say that unlike Putin, he will
restore order, raise real incomes, and put an end to the war in
Chechnya.
     Alexander Rar: A high rating is something that benefits Putin. It
should not be exaggerated, however, because everything may yet change
before the presidential election. Putin must prevent any deterioration
and retain stability. That's what counts as far as he is concerned.

******

#2
Moscow Times
November 29, 2002
Polls Show People Like Putin, Not His Policies
By Andrei Zolotov Jr.
Staff Writer

Likely as a result of national consolidation in the aftermath of the
hostage crisis in Moscow, President Vladimir Putin's job approval rating
jumped to an all-time high of 83 percent in November, one of the country's
leading pollsters said.

The All-Russian Center for Public Opinion Research, or VTsIOM, said that a
poll conducted among a representative sample of 1,600 Russians on Nov.
22-25 showed that Putin's rating grew this month by six percentage points
from a steady 77 percent in September and October.

The percentage of those who disapprove of Putin's performance dropped from
an average of 20 during the past five months to an all-time low of 15 percent.

The poll's margin of error is 3.8 percent.

At the same time, when asked about specific aspects of Putin's domestic
policies, Russians were more critical of their president. Only 33 percent
consider Putin's handling of the economy and citizens' welfare a success,
while 62 percent consider it a failure to various degrees.

Only 18 percent said Putin had been successful in "routing the rebels in
Chechnya," and 73 percent, up from 67 percent in March, said he had failed.
A question about Putin's success in finding a political settlement in
Chechnya brought similar results.

Putin's foreign policy won much more support. The percentage of people
polled who considered his foreign policy a success grew to 71 percent from
57 percent in March.

VTsIOM director Yury Levada said the jump in Putin's approval rating is a
result of the Oct. 23-26 hostage crisis.

"It is mainly connected to the Dubrovka emergency situation -- which still
remains because nothing has been explained, because people are expecting
other dangers," Levada said in a telephone interview Thursday.

"It is similar to what Americans call rallying around the flag, only in our
country the president acts as a national symbol."

Leaders' approval ratings typically increase when a country feels itself in
danger or under attack, as U.S. President George Bush's experienced after
the attacks of Sept. 11, 2001.

Levada said he also senses a growing desire for revenge.

While at the beginning of the year about two-thirds of respondents said the
Chechnya conflict should be phased out through negotiations, in November
more people (48 percent) argued for a continuation of the war than for
talks (43 percent).

"Putin clearly appears as a winner in the war against terror," pro-Kremlin
political analyst Sergei Markov said. During the crisis, Putin performed
the role of the nation's military leader well, but he has not yet shown
himself to be a successful economic manager.

"He has not raised living standards, he has not created conditions for
small and medium-size businesses," Markov said.

That is why Putin's "abnormally high" rating is likely to decrease when and
if issues such as housing sector reform or the fight against corruption
take priority in people's minds, Markov said.

"If he is successful, his rating is bound to decrease," he said. "That will
mean that the country is becoming normal."

*******

#3
Russian media boss seeks moral code, not censors
By Oliver Bullough

MOSCOW, Nov 28 (Reuters) - A top Russian media boss said on Thursday a
"moral code" to ensure journalists upheld state interests when reporting
terror-related incidents was preferable to a bill restricting press conduct
at such time.

President Vladimir Putin vetoed on Monday amendments to a longstanding
media law passed by parliament in response to last month's deadly Moscow
theatre siege, which would have imposed tough restrictions on reporting
such attacks.

He asked parliament to have another look at the legislation.

Konstantin Ernst, general director of First Channel television and a close
Putin ally, said the current law needed amending because Russia had changed
since former President Boris Yeltsin defined press rights a decade ago.

Critics of the old law say its provisions were made too liberal as Russia
emerged from seven decades of communist rule.

But Ernst said attempts to draft a new bill should concentrate on
regulating the finances and structure of the media, without challenging the
news journalists produce.

"Journalists need a moral code to help them understand what (stories) could
cause harm," he told Reuters after presenting an alternative bill drafted
by a committee of media bosses and lawyers that ruled out any censorship.

Ernst made the presentation at a local think tank with reporters and
members of the upper house present.

He said the government needed a code of practice to ensure transparency and
to persuade the media to cooperate on withholding sensitive information.

"The media have to understand their responsibilities, but the state has to
give out all available information to stop journalists from trying to find
it from other sources," he said.

Authorities criticised some media outlets for reporting information that
could have helped the Chechen rebels holding some 700 hostages in a Moscow
theatre last month, including what they said was live footage of security
forces about to storm the building.

The allegations helped speed passage of amendments to the media law
approved under Putin's predecessor Yeltsin.

The new rules would have barred dissemination of information seen as
hampering anti-terrorist operations, endangering lives and remarks judged
as propaganda. They also would have prevented the media from publishing
information about technology, arms, ammunition and explosives used in
anti-terrorist operations.

The last clause could have hampered coverage of the use of an anaesthetic
that incapacitated rebels who had seized 800 spectators but also killed all
but two of 129 hostages who died.

The government was slammed by international observers for not disclosing
which gas was used. Doctors said that knowledge could have saved lives.

Putin vetoed the changes after he agreed with media chiefs who said they
would harm public scrutiny of the government.

The president has been sensitive to media coverage since coming to power
three years ago.

Critics have accused him of condoning business and legal moves which
effectively neutered two independent television channels that were often
critical of the government. Putin accused media of often serving business
interests.

*******

#4
Russians' view of China is positive - poll

MOSCOW. Nov 28 (Interfax) - Most Russians (42%) have a positive view of
China. This opinion prevails among communism sympathizers, senior citizens
(aged over 50), and respondents with a higher education.
   Speaking negatively of China were 12% of those polled, quite a few in
the Far East (29%).
   Some 36% of respondents say the image of that country is neutral, a view
dominant among young Russians (48%).
   The statistics were published on Thursday by the Public Opinion
Foundation following a poll carried out among 1,500 people across Russia on
November 23.
   Comparing Russia with its eastern neighbor, respondents, as a rule, note
that China is developing more successfully. Nevertheless, one-fifth of
those interviewed believe Russia is developing more successfully. Thirteen
percent of those questioned could not answer.
   Although Russians more often regard China as developing more
successfully, Russia, in their opinion, is exerting more influence in the
world today (73%). Sharing this view more than others are President
Vladimir Putin's supporters and the youth. Only 11% of respondents regard
China as more influential, and among them are quite a few supporters of
communist leader Gennady Zyuganov.
   Among areas where Russia fares better than China, respondents mentioned
the military-industrial sector most often (14%). This compares with 13%
saying that Russia is superior in heavy and mining industries, as well as
agriculture.
   Seven percent believe that Russia has made spectacular gains in the
exploration of space and in the aviation industry. Some say that Russia is
better developed in science and high technologies (4%).
   Some respondents believe that the people of Russia are more educated and
lead in culture (3%).
   At the same time, 49%, according to the poll's results, most often
recognize China's lead in economics and various industries. Twelve percent
speak about its achievements in trade.
   Some poll participants believe China has done better than Russia in
science (3%) and in culture (1%). In addition, respondents note that in
China "people are better off" (2%), "the birth rate is higher" (1%), and
the political system is better (2%). Some 7% of those polled give China the
lead over Russia in all fields.

*******

#5
From: "Dr. Beth Knobel" 
Subject: Fund for Svetlana Gubereva
Date: Thu, 28 Nov 2002
Dear David:

I wonder if you might announce on JRL the creation of a fund to help
Svetlana Gubereva, the Kazakh woman who lost her American finance and
daughter during the theater raid last month.

The fund has a web site at www.svetlanafund.org

In case anyone is not familiar with the situation, Svetlana was engaged to
Sandy Booker, the lone American to have died in the raid.  On the morning
of the hostage taking, Sveta and her 13 year-old daughter Sasha had just
received visas to travel with Sandy to the United States.  They bought
tickets to see Nord Ost on a lark to celebrate, and of course that date
ended in tragedy.

Svetlana's dream is to spend Christmas with the Booker family and to see
some acquaintances in the U.S.  The family does not have the money to bring
her over, so some of Svetlana's friends in the US created a fund to help
her travel to the US and to get on her feet fiancially afterwards (the
amount of compensation the Russian government will be giving is minimal,
and there's no telling when it will actually be paid out.)

The fund is in the process of registration as a bonafide charitable
organization and i believe that contributions will be tax-deductible.
People can donate at the web site on-line by credit card or by check.  The
fund is also looking for any non-monetary contributions--perhaps someone
might donate a plane ticket or use frequent flier miles for one.

I was lucky enough to interview Svetlana, and found her to be a really
lovely woman and remarkably composed given the horrific circumstances of
the hostage taking.  This is a very special woman in a very special
situation, and I hope that other readers of JRL will help reach out to her.
 Again, the address: www.svetlanafund.org.

********

#6
Moscow Tribune
November 29, 2002
WAS SADDAM SOLD DOWN THE RIVER?
Strategic Triangle in Eurasia
By Stanislav Menshikov

At their recent summit, George W. Bush and Vladimir Putin made a joint
statement calling on Iraq to fully comply with UN Security Council
resolution 1441 or face serious consequences. Some commentators took it to
mean that Russia has finally sided with the US intention to "disarm Iraq by
military force" and change the regime in Baghdad. This is not, of course,
what actually happened. Putin reiterated his position that violations of the
resolution should be reported to the Security Council, which has the sole
right to decide whether the use of force is permissible. The resolution
itself says the same.

However, there are hints in the media that the two leaders might have
stricken a secret deal which gives Moscow's de facto OK for US unilateral
action in exchange for Washington's guarantees to honour Russian economic
and financial contracts with Iraq after Saddam Hussein is deposed. Again,
there is no evidence that such an understanding was reached, and it is
highly unlikely that that is at all possible.

The only basis for such speculation is Bush's statement made in an interview
to Russian NTV Television on the eve of the summit: "We fully realise that
Russia has economic interests in Iraq, as do other countries. Of course,
these interests will be taken into account". But this exceedingly vague
statement does not bind Bush to anything concrete. "Other countries" may
include the US itself who would love to take over control of the country's
oil and throw the Russians out.

There is no indication that Bush discussed the issue with Putin. Their joint
declaration on energy bears no reference to Iraq. Moreover, US officials in
Washington when pressed to explain what Bush actually meant said that "there
are too many variables in Iraq's future and it is not up to Washington to
parcel out Iraqi resources". They have also questioned whether the Russian
deals with Iraq could be considered "legitimate". Obviously, nothing so
flimsy could be used as a basis for discussion at the summit.

Nevertheless it has been claimed that Putin would be agreeable to selling
Saddam down the river if he had strong promises from Bush that Russian
companies would fare well under a new Iraqi regime and that $8 billion in
Iraqi debts would somehow be repaid. One US newspaper drew an analogy with
Mikhail Gorbachev who in late 1990 supported UN resolutions endorsing the
use of "all necessary means" to end Iraq's occupation of Kuwait. In return,
Bush-senior promised "political and economic support for Gorbachev who was
struggling to hold the Soviet Union together".

That, of course, was a one-sided arrangement. Bush-senior got what he wanted
but did very little to help Gorbachev prevent the breakdown of the USSR. In
1991, the US supported Yeltsin against Gorbachev. Putin as a pragmatist
would hardly trust a vague statement amounting to very little if nothing.

As we indicated in previous columns, Russia's interest in a non-military
solution in Iraq is primarily geopolitical, not economic or financial. Iraq
has for decades been a friendly state on the southern perimeter of Russia
and so has Iran. Moscow wants it to remain that way. For various reasons it
is supported by France, but also China and India, the two largest nations in
Eurasia. Moscow would hardly want to forego that natural common interest for
an uncertain financial kickback from the US.

George W. Bush is mistaken when he takes Vladimir Putin for a weak partner
that has to agree to anything the US president demands. Putin's tactics are
to avoid confrontation with America on issues where he is not certain he can
win. Yet, Russian diplomacy was able to stop US frontal attack on the UN and
to slow down the inertia towards a unilateral military assault on Iraq. Bush
did not like Russia's opposition but he had to swallow it.

Bush's story (told to Putin) that an expanding NATO is good for Russia is
another example of how much he underestimates his Kremlin vis-a-vis. Putin's
reply was too polite to many Russians' taste. But it is simply a sign that
the NATO expansion into the Baltics has been discounted at least some time
ago. More important is what happens next. Putin's meeting with Lukashenko of
Belarus shows that he is not prepared to dispose of that ally right now.
Putin has also given Kuchma of Ukraine moral support in his current
confrontation with the US. Chances are that he will use other means to keep
these countries out of NATO.

Very significantly, Putin is travelling to China and India in early
December. After talks in Beijing, he will fly directly to New Delhi. Russia'
s bilateral relations with both nations are friendly and, among other
things, based on long-term sales of Russian-made armaments. The idea of
building up a Strategic Triangle, once promoted by Evgeny Primakov, might
start becoming a reality under Putin. If that happens, it would be a very
sensitive response to NATO expansion. Eventually, it could also help turn
the scales in Eurasian and global geopolitics.

******

#7
Kennan Institute
event summary
Natasha's Dance: A Cultural History of Russia
November 1, 2002

In a recent book launch at the Kennan Institute, Orlando Figes, Professor of
History at Birbeck College introduced and discussed his new book, Natasha's
Dance: A Cultural History of Russia. Using the famous scene of Natasha
dancing from Leo Tolstoy's War and Peace as an introduction, Figes explained
that he wanted to explore the way in which music, art, and literature became
"entangled with custom and social belief in the apprehension and artistic
articulation of what we call national identity." The interaction of Russia's
two worlds, aristocratic society and rural village life, had major influence
on the national consciousness and all of the major forms of art during the
19th century. However, Figes noted that Russia is too complex, too big and
too divided politically and socially for a national culture to be a part of
national identity. According to Figes, "artistic myths" about the Russian
culture were influential in shaping political ideas that helped organize
Russian society.

Figes noted that Russian cultural masterpieces such as War and Peace were not
merely works of art, but also "laboratories in which the artists proposed new
ideas and commentaries on Russian society." Throughout his research he found
the overarching theme of Russia itself, as artists attempted to explain the
country's history, destiny and "spiritual essence." Figes explained that
Russian cultural history is unique because "the country's artistic energy
was wholly given to the task of grasping the idea of its nationality." Figes
stated that nowhere else has the artist been so burdened with the task of
national leadership and because of this nowhere has the artist been more
feared or persecuted by the state. He noted that because Russian artists were
alienated from official Russia by their politics and peasant Russia by their
education, they attempted to create a national identity through literature
and art.

According to Figes, at the heart of many of the greatest works of Russian art
is the central question of what it means to be Russian. Questions about the
Russian identity were illuminated in debates over whether Russian belonged in
Europe or Asia, Petersburg or Moscow, or in the Tsar's Palace or the muddy
villages of rural Russia. Symbolized by Natasha's dancing scene in War and
Peace, Figes stated that this natural tension not only preoccupied Russian
artists, but was also the driving force behind the Russian cultural
renaissance of the 19th and early 20th centuries. He noted that from the
beginning of the 18th century on, Russian aristocracy "immersed itself in the
culture of the West," building European palaces, adopting foreign manners,
reading foreign books and even speaking Western languages (French and
English). However, Russian artists like Tolstoy were keenly aware of the
unique nature of the native culture and looked for common threads in
language, religion, or customs that might bind the elites with the Russian
peasantry.

Figes concluded by saying that Russia's history is too complex and divided
for a single national culture to be a part of a national identity. According
to Figes, Russian culture, like most cultures, has been imported or borrowed
from abroad and adapted in various ways. Figes suggested that it is more
important to look at the "artistic myths" of Russian culture because "they
were not just constructions of a national identity, but they played a crucial
role in shaping the allegiances of Russia's politics, as well as the
developing the notions of self in the most elevated forms of personal and
national identity." He noted that in order to truly understand the Russian
national identity, one must look at behavioral norms and customs reflected in
as many different art forms as possible.

*******

#8
Russian tycoons may be mystery UES buyers-brokers
By Samantha Shields

MOSCOW, Nov 28 (Reuters) - Market players believe two of Russia's most
powerful tycoons may be buying up a big chunk of the country's national
power grid, Unified Energy System, despite their strong denials.

Six traders and analysts, all of whom spoke on condition of anonymity, said
Oleg Deripaska and Roman Abramovich may be accumulating UES stock, possibly
to secure a cheap electricity supply for the world's second biggest
aluminium producer, Russian Aluminium.

RusAl is 50-50 owned by Basic Element, Deripaska's company, and core
shareholders of Russia's fifth biggest oil firm, Sibneft, in which
Abramovich holds over 40 percent.

"I think it's a group of five or six industrial groups, the largest of
which is Russian Aluminium," said one source with a Moscow brokerage.

Market regulations do not require a shareholder publicly to declare a stake
in a company unless it rises above 20 percent.

All agreed that what was happening was more akin to a Western-style stake
buildup in the open market than to the asset seizures that were a feature
of Russian capitalism in the 1990s.

"It's a group including Deripaska and Abramovich," another source said.
Basic Element denied the rumours.

"This information is not right," said Andrei Kocherov, a spokesman for the
company.

A Sibneft spokesman said there was no connection between Sibneft and UES.

CONTROL OF RESTRUCTURING

Traded volumes on Moscow's rouble-denominated MICEX exchange suggest the
investor could have bought at least 15 percent of the utility, making it by
far the single largest private shareholder, traders said.

Traders said volumes on MICEX and the RTS in November were 80 percent up on
the previous three-month period, although the said these had been three
quiet months.

The gains in volume have been accompanied by a significant ramp-up in UES'
share price. The shares were trading at $0.1221 just before Thursday's
close up 1.67 percent on the day and a jump of over 50 percent from
September levels.

The Russian Trading System (RTS) benchmark index has risen just six percent
over the same period.

Fifteen percent of voting shares, if held by a single investor group, could
be enough to win at least one or two seats on the UES board.

Some analysts believe the buyers want to lay their hands on a cheap source
of electricity at a time when the entire industry is being restructured.

"The reasons are quite simple: they want to control the restructuring
process and before they started to buy shares they were outsiders in the
reform process," the brokerage source added.

Others say the buyers may simply have spotted an opportunity to buy into a
prime cash-generating business on the cheap and to make money in the long
term by ensuring it is run profitably.

UES has government backing for a plan to spin off its power plants from its
grid monopoly, then re-consolidate them into free standing generating
companies.

When it is broken up, current shareholders, including the government, are
due to receive a proportional allocation of stakes in the newly independent
grid and generating companies.

The grid is to remain in state hands while generators could be privatised.
The government owns 52 percent of UES with the balance held by private
investors.

PRIVATE SHAREHOLDER

"There are different reasons for them to get involved -- to secure the
assets that supply their business, to hedge against future electricity
price increases or even just to make a good financial investment," a source
with another brokerage said.

Another course of action would be for the group to collect shares, then
swap them for assets at a later stage.

"They could be targeting assets and planning a later swap," a separate
source with an investment bank said.

"Any Western investor could do exactly the same thing in any company,"
another banking source said.

Whatever the plan, the group is unlikely to declare its hand before 2004.
"They'll only make themselves public once the reforms are given the green
light by parliament and the president," the first source said.

*******

#9
Asia Times
November 28, 2002
Chechnya: A criminal offense
By Michael Reynolds

War in Chechnya again briefly seized the world's attention this past month
when some 50 terrorists seized a Moscow theater and took its audience of
over 700 hostage. They delivered an ultimatum: immediately withdraw Russian
forces from Chechnya or see the hostages killed. Russia refused to
entertain this demand and deployed its special forces. The knockout gas
that the Russians used killed scores of innocent hostages. International
media attention immediately subjected the Russian government to its fullest
scrutiny, while swinging away from the perpetrators and their role in
starting and exacerbating the underlying conflict. This is very
unfortunate, because a closer look at the hostage-takers, their origins,
and their motives tells volumes about this poorly understood conflict.

Western pundits assume that the hooded men and women who seized the theater
did so in direct reaction to Russian brutality, that they are products of
the savage war Moscow has waged since 1999 against independence-minded
Chechnya. While there is no question that the atrocities and barbarism
committed by the Russian forces in Chechnya have radicalized and alienated
a large part of Chechen society, the terrorists in the Moscow theater were
not products of Moscow's policies. Those who carried out the theater attack
were radicalized criminals before the Russian invasion of 1999, and they
carried out their operation in conjunction with self-styled masterminds of
jihad residing abroad.

The leader of the hostage-taking was Movsar Baraev, a 22-year-old Chechen
who gained prominence when he stepped forward to take his notorious uncle
Arbi Baraev's place as a gang leader when the latter was killed on June 23,
2001. Arbi Baraev's odious renown sprang not from any notable exploits in
the first Chechen war of 1994-96, a war in which many Chechens fought in
self-defense and for a legitimate claim to self-determination, but rather
from his perverse cruelty and criminal activities in the post-war period of
Chechnya's de-facto independence between 1996 and 1999.

During those years, Baraev, barely in his mid-20s, made a name for himself
with sadistic cruelty. Working together with a mix of political radicals
and common criminals under the guise of religion, Arbi Baraev played a
leading role in a kidnapping industry and slave trade that claimed
thousands of people from Chechnya and surrounding areas, such as the Muslim
Republic of Dagestan. To command greater ransoms, Baraev and his gang would
videotape torture of their victims and then deliver the videocassettes of
burning, dismemberment, and other depravity to the victims' families.
Baraev was widely suspected of having kidnapped and beheaded four telecom
workers from England and New Zealand, an atrocity that ruined Chechnya's
efforts to bring in vital foreign investment and expertise and sealed it to
all outside influences but those of violent radicalism and crime. Baraev's
reputation for rabid savagery was no creation of Russian propaganda.
Chechens and Dagestanis who knew Baraev and had fought alongside him
against the Russians in 1999 and 2000 confirmed to me his debased cruelty.

Arbi Baraev was not a free agent. He maintained close working ties with the
one-time acting Chechen president and current Chechen envoy to the Middle
East, Zelimkhan Yandarbiev, the Dagestani religious radical Bagauddin
Magomedov, and the Qatar-based Chechen information minister Movladi Udugov,
all of whom espoused a crude and violent brand of Islamic extremism
commonly labeled Wahhabism in the region. They very publicly espoused the
goal of forcibly uniting the whole of the North Caucasus under Islamic rule
by first driving out the Russians and then undermining and eliminating all
alternative centers of power. They used Chechnya to run a ferocious but
lucrative kidnapping industry and to establish camps to recruit and train
young militants. An independent Chechnya was, for them, only a means to
this end.

In August 1999 this group, under the military leadership of the Chechen
warlord Shamil Basaev and a Saudi-born warlord named Hattab, sought to
realize their ambition by launching an invasion "to liberate" the
neighboring Muslim republic of Dagestan. The invasion failed, however, when
the Dagestani people took up arms against not the Russians, but against the
jihadis. Backed by popular Dagestani militias, the Russians drove the
forces of Basaev and Hattab back into Chechnya, and then launched a
counter-invasion into Chechnya that fall.

To be sure, the criminality of these self-styled "Islamic" warriors
represents a gross perversion of the Islamic ideal of a warrior. Heroes of
Islam such as Saladdin, Suleiman the Magnificent, or the North Caucasus'
own Sheikh Shamil, were revered not merely for their courage on the
battlefield but also for chivalrous conduct and their virtue as leaders off
the battlefield. But the link between criminality and radical political
Islam in the North Caucasus is no coincidence. Violent Islamists understand
that criminals, with their willingness to defy authority and intimidate
those around them, provide excellent cadres for the spread of radical
Islam, which is concerned not so much with souls so much as with the
subversion of all power other than its own. For its part, violent political
Islam provides criminals with a cover and rationale for their predation.

Movsar Baraev inherited more than his uncle's position as a criminal gang
leader; he also inherited his ties to the world of global terrorism.
Russian forces had identified Movsar as a conduit for funds from foreign
terrorist organizations, and had targeted him for destruction a year ago.
Russian President Vladimir Putin's claim that the seizure of the theater
was organized in terrorist centers abroad met with derision in some
sections of the Western press, yet there is no question that the attack
was, if not planned and hatched abroad, closely coordinated with centers
abroad.

Immediately upon Baraev's seizure of the theater, Udugov, securely located
far away from Moscow and Chechnya in the Gulf Arab state of Qatar,
contacted the BBC and other media outlets to provide details about the
hostage takers and their demands. Next, Udugov supplied the Arab television
station Al Jazeera with videotape that showed the female hostage-takers
reciting their willingness to die. The female terrorists' careful choice of
words and clothing - black chadors - unambiguously highlighted Islamic
extremism as the operation's ideological orientation and was calculated to
appeal to that ideology's patrons.

Chechnya has occupied a very prominent place in the mythology of violent
Islamic extremism because the Chechens' victory in 1994-96 provides a rare
example of the triumph of Muslim arms on a modern battlefield. By laying
claim to the Chechen struggle as their own, extremists can burnish the
image of their movement as successful and powerful, and thereby boost their
fundraising efforts.

Meanwhile Yandarbiev, also located in the Middle East where he has been
raising funds for the past three years, contacted Russian consular
officials in Qatar to offer his services as a mediator. Three years of war
have ground down the rebels' numbers to slightly over 1,000, and they have
proven incapable of mounting any large-scale operations. As the war in
Chechnya sputters on into its fourth year, there is, contrary to most
second-hand accounts from outside, no indication that the rebels will be
able to compel the Russian army to withdraw by force of arms.

The rebels' only hope would be to pull off something extraordinary, such as
a repeat of Shamil Basaev's seizure of a hospital in the town of Budennovsk
in 1995, an event that forced the Russian government to agree to the
ceasefire that enabled the Chechens to triumph the following year. In
short, the clique that plagued the North Caucasus with kidnappings and
violence and deliberately plunged Chechnya into war in 1999 now sought
again to exploit the sufferings of the Chechen people with a terrorist act
in order to insert itself as a negotiating partner for Moscow.

Speculation about the precise extent of Chechen President Aslan Maskhadov's
knowledge of or complicity in the terrorist seizure is rife, but
irrelevant. While Maskhadov's stance toward the extremists has over the
years wavered from cautious accommodation to hostility and back, just this
past summer Maskhadov held a very public reconciliation with the
extremists, re-appointing Basaev, Udugov and Yandarbiev to positions in his
government. By these acts of reappointment, Maskhadov identified himself
with them and accepted responsibility for their acts, good or bad.
Maskhadov eliminated himself as a potential negotiating partner for Moscow,
and no number of post facto disavowals and declarations can change this.

But if the rebels lack any prospects for driving out the Russian army, so
too is there little probability of a decisive victory by the Russian army,
whose deplorable behavior has so often proven to be the radical Islamists'
best ally. The majority of the Chechen population is weary and exhausted
after nearly 10 years of political chaos, war and radicalism, and would
welcome a peace that offered them dignity and a future. The only
alternative at this point to an endless war is an initiative led by
prominent pro-Moscow Chechen businessmen and leaders to accelerate the
introduction of new a constitution and organs of self-government in
Chechnya, starting with a popular referendum. Putin has met the initiative
with favor, but whether it can be implemented remains to be seen.

Chechnya's jihadis, and especially their foreign backers, however, can be
expected to do everything they can to sabotage such a resolution. Peaceful
resolution of the conflict in Chechnya will deal a great blow to the image
of radical Islam as an irresistible force.

Not every Chechen fighter is a terrorist, and far too many Russian soldiers
have proven themselves the equals of terrorists. But peace in Chechnya and
the North Caucasus will remain impossible until those like Movsar Baraev
and his backers are first sidelined. If the West hopes to contribute to
peace in the region, it needs to understand this fact.

*******

#10
Moscow Times
November 27, 2002
letters
Heated Economic Debate

Letter In response to "How Russia Was Won," a comment by Anders Aslund on
Nov. 21, and "Reforms on Autopilot?" a comment by Christof Ruhl and Julian
Schweitzer on Nov. 15.
Jacques Sapir
Professor of Economics
School of Advanced Studies in Social Sciences
Paris
Editor,
Coming after the very interesting paper written by Christof Ruhl and Julian
Schweitzer, Anders Aslund's contribution shows how thinking about the past
influences our understanding of the present and future.

Generally speaking, I agree with Ruhl and Schweitzer: Russian growth is not
on autopilot and the most recent economic data, if not hopeless, is not
encouraging. The probability that Russia will experience economic
stagnation next year is quite real. To understand why, however, involves
not rewriting history -- an area in which Aslund has achieved unprecedented
levels of excellence.

If we look back to before the 1998 financial crisis, the exchange rate
issue is pretty much in evidence. But not for Aslund. He writes that Russia
never had a current account deficit. Well, with all the money pouring in
from the IMF and speculators mesmerized by GKO yields, what a surprise and
what a discovery. A true revolution in economics.

It never occurred to Aslund that trade balance and the volume of imports
were the true indicators of an overvalued exchange rate. And Russia's trade
surplus declined fast from 1995 onwards, when imports were rocketing. As a
matter of fact, imports would have been even greater but for the depression
which dramatically reduced people's incomes.

If growth came so fast on the heels of the 1998 crisis, it was not because
of reform-minded policies but because of the sharp devaluation. The
economic policies of then Prime Minister Yevgeny Primakov helped too.

Remember that in the mid-90s, internal energy prices had been, more or
less, raised to world market levels. Primakov and his deputy prime minister
in charge of the economy, Yury Maslyukov (a Communist, horresco referens),
let internal energy prices fall in relative value. Aslund seems not to
remember that this government also raised export taxes on raw materials,
which had previously been dismantled under IMF pressure. Such taxes have
been instrumental in helping the Russian government to stabilize its budget
policy.

Economic growth has been a fact since spring 1999 -- that is well before
the much-vaunted tax reform and other reforms which seem so important to
Aslund. Actually, when one looks at disaggregated data, there was growth as
early as November 1998 in some industrial sectors.

Reading Aslund, one might think that growth began only after summer 2000,
which is the very moment when the trend began to falter. Remember, too,
that in spring 1999, Aslund's beloved IMF predicted a GDP fall of 7 percent
for the year. The actual outcome is well known: growth of 5.4 percent, i.e.
the IMF was off by 12.4 percent.

Facts are not Aslund's and his friends' forte; and not very surprising by
the way. Acknowledging that growth came so much earlier would have
downgraded the relevance of much of the "Gref reforms," which Aslund is so
fond of. A lot of liberal reforms have been implemented since spring 2001
and sure enough, growth is disappearing.

To be fair, the Russian economy is going cold not just because of these
reforms but because the government has let the exchange rate climb much too
fast. Again and again, the exchange rate and the internal energy price
variable emerge as the key issues.

The truth is that the 1998 devaluation greatly boosted internal producers'
competitiveness. A comparison of the imports from September 1998 to August
1999 with those from September 1997 to August 1998, shows that imports
decreased by nearly 50 percent, or a total yearly amount of $35 billion. In
other words, the demand for locally-produced goods was considerably boosted
even if total internal demand fell. Implementation of capital flow
regulations significantly reduced capital flight. Profits accumulated
through devaluation and low energy and utilities prices were then unable to
leave the country and were thus available for investment projects.

Between 1999 and 2001, exports only account for about one-fifth of overall
economic growth. This is significantly less than what most foreign
observers expected.

However, after April 2000, the real exchange rate increased in two years by
33 percent. By summer 2001, the economy was again slowly going off track.
The combination of strong exports returns and a too liberal exchange market
organization led to a creeping real ruble overvaluation, which led to a
progressive increase in imports. That sounded the death knell for the
sustainable growth scenario and investment, but also industrial production
growth rates declined sharply in 2002.

For all the impressive growth of the past three years, the country has
still not crawled out of its depression hole. Even if the 4 percent growth
target for 2002 is achieved -- which is highly questionable -- Russia's GDP
would then just reach 75 percent of its 1991 level.

Even more disturbing is the fact that investment is still quite low as
percentage of GDP. Even at the rebound apex, 2000 to 2001, investments
never reached the required level, hovering around 14.5 percent of GDP.
Between 1950 and 1970, Western European countries had figures above 20
percent and Japan consistently over 25 percent.

Another highly disturbing point is the fact that the federal authorities
reduced to a considerable extent their investment contribution after the
1998 crash. With social and economic asymmetries across regions increasing
rapidly (the gap between the poorest and the wealthiest region is now 1 to
23), such a policy raises a large number of highly sensitive economic and
political issues.

Russia's current growth slowdown is spectacular and would have been much
worse but for the re-evaluation of the euro against the U.S. dollar in a
context where most imported consumer goods come from the euro zone. Any
euro to U.S. dollar re-evaluation means a devaluation of the ruble to euro
exchange rate. But for this process, industrial growth would have halted
early in the fall of this year. With a euro to dollar exchange rate now
stable at one to one, stagnation is to be expected by mid-2003 and the
trade balance should deteriorate fast. Russia looks as if a new round of
the Dutch disease is about to hit.

We are, then, far from the convoluted explanations of the past and present
given by Anders Aslund; and Ruhl and Schweitzer are right when they warn
about coming economic problems. Growth is not on autopilot and cannot be
without due attention given to exchange rate control.

However, Aslund seems happy to stick to his virtual economic reality.

----

Stellar Stiglitz Marred
In response to "Rewriting History," a comment by Joseph Stiglitz on Nov. 27.
Jim Nail
Pharos Financial Group
Moscow
Editor,
The Moscow Times has been fortunate in its op-ed contributors this week,
receiving an article from Joe Stiglitz, the Nobel-winning economist and
former chief economist of the World Bank, in rebuttal to a piece by Anders
Aslund, one of the original Western observers of perestroika.
Unfortunately, Stiglitz's rebuttal is marred by a number of inaccuracies,
to put it mildly.

The problem, and the reason for clarification, is not that a famous
economist has made a few mistakes, or even that he may have twisted a few
facts in the heat of a debate. The problem is that a star of Stiglitz's
magnitude inevitably pulls lesser intellects into its orbit. There is a
real possibility for his errors of fact and judgment to find their way into
policy.

The distortions start at the beginning of his article, when Stiglitz claims
that Russian GDP is currently still 30 percent below its pre-reform level
in 1991. This point, which is not true, has already found its way into
another article -- in The Moscow Times -- the very next day, followed by
the attributive phrase, "economists say."

Yet if one thinks about this statistic for even a moment, it must obviously
be a distortion. All of us who can remember 1991 in Russia know what a year
that was: Fuel shortages caused aircraft to be grounded at random airfields
throughout the country; there was no food, no shoes, no clothing in the
shops, no gasoline at the gas stations, no parts for the few cars on the
road. The authorities were warning that they would be unable to heat the
city of Moscow during the winter. Sugar was rationed. Lines in front of the
stores were many hours long. The West was sending humanitarian aid. Even
casual recollection shows that Stiglitz must have got hold of a cooked
statistic.

The way the GDP statistic gets cooked is very simple. Prices in the Soviet
Union in 1991 were set by decree rather than by supply and demand. Thus the
sum total of all goods and services produced, multiplied by their prices,
gave a meaningless statistic, not comparable to today's GDP. An economist
of Stiglitz's stature knows this perfectly well. But readers may not.

Similarly, Stiglitz claims that investment today is a mere 10 percent of
its 1990 level, arguing that it must therefore be inadequate to sustain
growth. Again, he knows better. First of all, like GDP, the 1990
measurement is based on state-set prices, as well as on wildly unrealistic
official exchange rates and other misinformation. The black-market exchange
rate in 1990, many will recall, was 10 times the official rate.

Second, in 1990, a very large percentage of the output of Soviet investment
goods was devoted to the military -- no less than 80 percent of all
machine-building throughout the 1980s, according to later studies. Does
Stiglitz really believe today's investment levels should be compared with
that? Third, in the late Soviet period the country had the equivalent of
years of GDP locked up in dolgostroi, i.e., essentially permanent
unfinished construction projects, some of monstrous proportions. Yet
ultimately the Soviet Union collapsed because it was unable to provide real
economic growth. Stiglitz, of all people, should know the absurdity of
benchmarking today's investment volumes to this.

From this inauspicious beginning, Stiglitz's article moves on to further
distortions.

He claims, for instance, that the IMF did not want Russia to devalue in
1998, when in fact it was the Russians who did not want to devalue. The
strong ruble was the most visible and popular accomplishment of reform. By
1997, some 80 percent of all imports were consumer goods, of which Russian
households were starved. It was clear that devaluation would curtail this,
expropriating the real purchasing power of household savings. Naturally,
the Russian political elite wished to avoid this. But Stiglitz appears to
have forgotten the context, just as I have forgotten his pro-devaluation
stance at the time. I cannot for the life of me remember him recommending
devaluation, although he was in a very public role and claims that was his
view.

Stiglitz then adopts a strange debating posture, when he pretends to think
that "those like Aslund and the IMF" attribute Russia's post-crisis growth
to land reform, banking reform, judicial reform and tax reform. Only
Stiglitz, according to Stiglitz, understands that recent growth has
resulted mostly from the twin blessings of (a) ruble devaluation and (b)
high commodity export prices.

The audacity of this is stunning. I believe that every literate adult in
Russia and every economist looking at Russia understands the terms of trade
factors he mentions. Certainly, it is obvious that judicial reform, bank
reform, etc., could not have sparked growth prior to their own
implementation. Rather, these crucial reforms are hoped to provide the soil
for growth once the direct external stimuli run down.

Strangely, Stiglitz actually denies that the 1998 collapse was a wake-up
call for Russian policy-makers. He is terribly wrong to try to decouple the
crash from the improved policies that followed the crash. Prior to 1998,
the Russian fiscal deficit was regularly 7 to 8 percent of GDP. If that had
continued after debt funding disappeared in 1998, it could only have been
through the printing presses. Thus, there could have been no recovery and
Russia would have fallen into hyperinflationary chaos once again, as it had
earlier in the decade. Thanks to Russian policy-makers' refusal to ratchet
up fiscal expenditures to match inflation, the chaos was unable to resume.

At various points in his article, Stiglitz alludes to alternative reform
policies that could have been pursued. Apparently he believes that a more
cautious approach relying on heavier regulation would have been more
effective. As he explains, this would have meant postponing privatization,
restructuring enterprises through state intervention, and, above all, a
restrictive policy toward capital flows. Although clearly mistakes were
made in Russian reform, some of them nearly fatal, this vision was not the
answer. Postponing privatization would have given communist revanchism a
serious chance. Restructuring enterprises through state intervention would
have been an incompetent, corrupt, never-ending sham. And as to capital
controls, they have existed all along. The real challenge remains, as it
has been all along, to motivate investment, not to coerce it. Russia has
had its share of the latter already.

******

#11
Foreign Affairs
November/December 2002
Russia Renewed?
by Daniel Treisman
Daniel Treisman is Associate Professor of Political Science at the
University of California, Los Angeles. He is the author of After the
Deluge: Regional Crises and Political Consolidation in Russia.

SUMMARY
Most observers think Vladimir Putin is remaking Russia. In fact, although
the faces may have changed, Putin's Russia is more like Yeltsin's than is
generally recognized. Oligarchs still reign, war in Chechnya rages on, and
most of Putin's innovations are superficial. Meanwhile, most of what is new
in Russia--the growing economy and Putin's popularity--owes little to the
president's policies.

ANOTHER COUNTRY

Is Vladimir Putin remaking Russia? To many observers, the answer is
obvious. The country seems to have changed radically in the last few years.
Under its energetic and sober young president, Russia's political system
and economy appear finally to have stabilized. Dramatic reforms, including
changes to the country's tax code, judiciary, and federal structure, have
sailed through the parliament with hardly an amendment. Firmly pro-Western
in its bias, Moscow is now racing to join NATO and the World Trade
Organization and has volunteered to assist the fight against international
terrorism. The economy has enjoyed three years of growth and a stock market
boom so impressive that even those foreign investors who fled the country
after the 1998 financial crisis are now creeping back. Commentators no
longer complain about anarchy and stagnation; instead, they worry that
Putin will go too far in his quest for order, crushing the fragile shoots
of democracy in the process.

Long gone, it seems, are the chaotic years of Boris Yeltsin's stewardship,
when crises were a way of life. The economy lurched from one meltdown to
the next, as prices soared and the GDP plummeted. Widespread corruption
stifled small businesses. A few unscrupulous oligarchs concentrated much of
the country's capital in their hands and seemed to dangle Russia's leaders
from golden strings. Provincial governors threatened and bargained with the
Kremlin while exploiting their regions like feudal fiefdoms. An aggressive,
obstructionist Duma (Russia's lower house of parliament) dominated by
Communists blocked any attempt at reform. And all the while Yeltsin,
alternately indecisive and headstrong, cultivated competing clans of
courtiers, each with its own commercial interests.

That all changed on January 1, 2000, when Yeltsin stepped down and
appointed Putin acting president. At least, so goes the popular version of
events. In this view, Putin (confirmed in office by an election that March)
personally put an end to the disorder that flourished under his
predecessor. The new president tamed both oligarchs and regional barons and
began replacing corruption with a "dictatorship of law." Economic reforms
inspired local entrepreneurs, sparking a rapid recovery. In parliament, the
Communists lost control to a centrist, pro-Putin coalition. And the Russian
public fell in love with its tough and decisive new commander in chief.

There is certainly some truth to this account. But it also contains a large
dose of political mythology. The fact is that Putin's Russia, although it
sports a glossy new coat of paint, remains Yeltsin's Russia underneath -- a
truth with both good and bad consequences. The good news is that Yeltsin's
Russia was never quite as terrible as people thought. The bad news,
however, is that Putin's Russia is rather less stable and reformed than its
supporters believe. On close examination, much that looks new and different
in Russia today turns out to be neither. At the same time, the genuinely
novel features -- namely, robust economic growth and a popular president --
owe more to the high price of oil and other unpredictable economic factors
than to Putin's policies or any actual reforms.

ALL IN THE FAMILY

One of the most important of Putin's declared goals on coming to office was
to break the power of the oligarchs, whom many Russians had come to view as
the country's real rulers. During the late 1990s, a handful of tycoons had
seemed to dominate Russian politics. At the heart of this system was the
"family": a murky clique of Yeltsin associates and government officials who
spanned the allied worlds of big business and political power. Putin
promised to "eliminate the oligarchs as a class" and to hold all
businessmen at "an equal distance." His background as an outsider from St.
Petersburg, plus his tough reputation as a former officer of the FSB (the
successor to the KGB), led many Russians to hope that the new president
would follow through on such promises.

Two and a half years later, however, the "family" remains as strong as
ever. The chief of staff Putin inherited from Yeltsin, Aleksandr Voloshin,
acts as the kingpin for this clique, and the prime minister, Mikhail
Kasyanov, is seen as defending the clan's economic interests. It is true
that the "family" now faces challenges from a newer, "St. Petersburg" clan
-- an odd combination of FSB officers and liberal economists from the
northern city. But the latter group has not wrenched control of the
economic bureaucracy from the Muscovites. Putin, rather than reducing the
power of such clans as promised, has maneuvered between them in a manner
reminiscent of Yeltsin. Some minor reforms have occurred -- for instance,
Putin managed to inject a new team of executives into the giant,
semiprivatized gas monopoly, Gazprom, and has slowed the disappearance of
state assets elsewhere. Former Railways Minister Nikolai Aksenenko, a
leading member of the Moscow "family," has been persuaded to resign. But
the pace of change is glacial.

Although Putin promised to hold the oligarchs at "an equal distance from
power," for some the distance clearly remains more equal than for others. A
couple of tycoons have been exiled as far away as London or the French
Riviera. But other new faces have emerged to fill their places. Oleg
Deripaska of Russian Aluminum and Sergei Pugachev of Mezhprombank enjoy the
privilege of long, private conferences with the president. Other oligarchs
visit him in a group, under the leadership of their chief lobbyist, Arkady
Volsky. And several major corporations -- Alfagroup, for instance -- have
even managed to place former employees on the presidential staff.

Meanwhile, in purely economic terms, the role of big business in Russia is
growing, not shrinking. Capital is even more concentrated today than it was
a few years ago. In 1997, Russia's top ten companies accounted for 57
percent of the country's total net profits. In 2000, however -- the last
year for which figures were available -- their share reached 61 percent.
Simultaneously, the number of small enterprises is falling; it dropped by
48,000 in Putin's first two years. According to Pavel Teplukhin, an
investment consultant, those small firms that survive face major barriers
to growth. As a result, Teplukhin says, Russia's economy today consists
mostly of "a few financial-industrial groups and hundreds of thousands of
kiosks."

Indeed, the biggest difference between the late Yeltsin period and today is
simply that the oligarchs no longer brag about their influence or try to
manipulate politics in a public way. This does not mean their influence has
diminished, however; it has merely become institutionalized. Spheres of
interest have been divided between the large corporate groups, and the war
of all against all is largely over. Instead of fighting for resources in
the political arena, the tycoons now lobby for them quietly at the top of
the bureaucratic pyramid. Meanwhile, oligarchs are increasingly buying
power at the regional level. Major businessmen have had themselves elected
governor in the Chukotka, Taimir, and Evenki regions; others have won
appointments to the new upper house of parliament (representing the regions
of Tuva, Mordovia, Penza, Bryansk, and Taimir, for instance). Even when
oligarchs do not run for office themselves, gubernatorial elections have
often become contests between competing business teams and their chosen
candidates.

In part, the smoother public relationship that exists today between
Russia's big businesses and its politicians reflects a spontaneous
alignment of underlying interests. Paradoxically, the stabilization of
oligarchical capitalism has given the oligarchs a longer-term perspective.
Having acquired massive, undervalued state resources, the tycoons now have
more to gain from cleaning up corporate governance and attracting foreign
investors than from squabbling over the few still-unappropriated crumbs of
Russia's patrimony. Two years ago, for example, the oil company Yukos
adopted transparent financial reporting and began paying regular dividends.
Its stock market valuation soared from less than $1 billion to more than
$10 billion, turning its chief executive, Mikhail Khodorkovsky -- who has a
reported personal stake in the business of $6.9 billion -- into one of
Russia's richest individuals. This trend also helps explain why other
businesses are now pushing for liberal economic legislation. The ideas for
tax reform, for example, might have come from Putin and his economic
advisers. But the government was pushed by business lobbyists in the Duma
to lower tax rates on corporate profits even further than it had planned.

FEUDERALISM

Another supposed change effected by Putin relates to Russia's government
structure. Putin has enacted five reforms that some claim amount to a
revolution in Russian federalism. He has consolidated the country's 89
regions into seven administrative districts, each under a presidentially
appointed prefect. He has pressed regional legislatures to reconcile their
laws and constitutions with federal law. He has pushed through legislation
authorizing him to ask a court to remove regional governors who repeatedly
violate federal laws or the constitution. He has changed the system for
appointing the federal parliament's upper house; instead of regional
governors and legislative speakers serving ex officio, governors and
legislatures now appoint representatives. Finally, Putin has overseen
reforms of the tax system that have shrunk the regions' share of revenues.

Although together these reforms did reinvigorate the central government,
the individual measures have had considerably less effect than was
expected. Putin's seven presidential prefects were given unclear powers and
few resources, and they face resistance from the federal ministries whose
regional employees they supposedly coordinate. Although Putin's
representatives may be able to intimidate weaker governors, stronger ones
ignore them or exploit them for lobbying the capital. According to the
pro-Kremlin newspaper Argumenti i Fakti, the president of Tatarstan,
Mintimer Shaimiev, treats Putin's representative as he would a waiter:
"First he listens attentively, then he orders his favorite dish."

Putin's campaign to harmonize regional and federal laws and constitutions
has also mostly failed. Governors generally surrendered only those laws
they cared little about and kept the ones they liked. And some local
leaders -- Tuva's president, for instance -- used the opportunity to slip
in additional clauses strengthening their own power. In December 2001,
after 18 months of work, the Kremlin had to admit that 72 percent of
Bashkortostan's laws still violated federal ones -- even more than had at
the start of the process. Both Bashkortostan and Tatarstan, meanwhile, have
refused to withdraw their controversial claims to sovereignty.

Still other reforms, touted as revolutionary, look that way only with the
help of a little amnesia. Since February 2001, Putin has had the authority,
when supported by the courts, to fire recalcitrant governors. This
mechanism is hard to use, however, and Putin has so far chosen instead to
bribe uncooperative local leaders with federal jobs or other inducements to
leave office voluntarily. If that fails, other methods are employed: for
instance, one governor the Kremlin disliked was kept from running for
reelection on a technicality. Although some disputed his authority to do
so, Yeltsin was actually much more aggressive about firing troublesome
governors outright, including several -- such as Yuri Lodkin of Bryansk and
Aleksandr Surat of Amur -- who had been popularly elected. When regional
chiefs have left under Putin, their replacements have often been little
better than the originals. In both Primore and Sakha, the new governor came
from the old one's inner circle. In fact, since early 2000, in those
elections where the Kremlin expressed a clear preference, the candidate
Moscow opposed won about half the time -- a surprising fact, given that
Putin's choices were often also incumbents.

Another of Putin's supposedly revolutionary reforms related to the system
for choosing members of the upper house of parliament. But Putin was not
the first Russian president to change this system. Yeltsin did so twice, in
both 1993 and 1995. In fact, at one point, Yeltsin went so far as to have
members of the upper house popularly elected (this lasted only from 1993 to
1995). In comparison, Putin's move, which merely replaced the governors and
local legislative speakers in parliament with their chosen representatives,
seems quite marginal. Although the new senators have so far supported most
of Putin's initiatives, this allegiance reflects not institutional change
but a political deal between regional and central elites (see below), along
with Putin's current stratospheric popularity. Both the deal and the
popularity may not last.

The most dramatic change Putin has actually made to the country's federal
system is in the distribution of tax revenues. Subnational governments
received 61 percent of total state revenues in 1998, but only 48 percent in
2001. A variety of reforms have centralized revenue sources and lowered tax
rates largely at the regions' expense. Several factors made this change
possible politically. First, Putin's team has exploited its unprecedented
majority in the Duma and the interests of the poorer regions in a
tactically astute manner. Since most regions get more in central transfers
than they pay in taxes, they stood to gain if centralization increased
still further. Richer "donor" regions, of course, protested the change --
Moscow's mayor, Yuri Luzhkov, accused Putin of playing with the governors
as if they were "skittles" -- but they were outnumbered. Second, rapid
economic growth meant that even though the regions lost revenues as a share
of GDP, they gained in the aggregate in real terms. Total subnational
budget revenues, corrected for inflation, were 15 percent higher in 2001
than in 1998.

Even these fiscal changes were not as radical or stable as might appear,
however. Putin was actually completing a reform that had been conceived of
and partly implemented in earlier years. The key players -- Sergei
Shatalov, Viktor Khristenko, Aleksei Lavrov, Yegor Gaidar -- had sketched
out most aspects of the change as early as 1997-98. And critical elements
-- the creation of a federal treasury, reform of the system of federal
transfers -- had already been implemented.

Furthermore, the current centralization of Russia's resources may prove no
more than the temporary swing of a pendulum, similar to others that have
alternately swelled and shrunk the federal tax share since the 1990s.
Governors of donor regions, having lost revenues, now blame Moscow for its
failure to provide local services. Putin won political credit for wiping
out delays in paying pensions and public- sector wages. Now these are on
the rise again, however, sparking sporadic protests and strikes from
teachers and doctors. With parliamentary and presidential elections
scheduled for 2003 and 2004, the federal budget is already being stretched
thin -- in classic Yeltsin-era fashion -- to provide emergency aid to
delinquent regions lest money troubles dent Putin's ratings.

All of this notwithstanding, it is true that the tenor of relations between
Moscow and the governors has improved, far more than most observers --
myself included -- anticipated. But the current detente owes less to
central intimidation and institution-building than to backroom deal-making
of the Yeltsin variety. The governors' key priorities have been to stay in
power and keep their newfound personal wealth. Putin has granted them this,
at the expense of local democracy. To the dismay of his liberal supporters,
he lobbied hard for a law that now exempts most sitting governors from the
previous two-term limit, buying them the prospect of four -- or even eight
-- more years. He also permitted governors to serve as federal senators
after leaving office, thus acquiring political immunity. And by letting one
notorious former governor, Yevgeny Nazdratenko of Primore, retire to the
federal fisheries committee rather than to a prison cell, Putin has
signaled to other local leaders accused of corruption that if they stay
loyal all will be forgiven. Indeed, governors who play ball with Moscow
have been left a relatively free hand to pressure mayors, manipulate
elections, intimidate the local press, and collude with regional
businesses. As a result, although the balance of power has shifted somewhat
toward the center, in the words of Sergei Mitrokhin, deputy chairman of the
Duma's committee on local government, "the foundations of Yeltsin's
neo-feudal system remain."

DICTATORSHIP OF LAW?

In his annual address to parliament last April, Putin urged Russia's law
enforcement agencies to mount a "tough struggle against the racket,
administrative abuses, and corruption." His administration has shown an
intelligent understanding of corruption's causes and has passed legislation
to try to reduce it. Yet abuses seem to have become, if anything, more
widespread. General crime has also increased: 1.3 million more crimes were
registered in 1999-2001 than in the preceding three years. (This probably
does not reflect greater zeal in enforcement, since the ratio of
convictions to crimes registered went down slightly.) "Corruption is
great," says Kakha Bendookidze, the chief executive officer of United Heavy
Machinery (one of Russia's largest companies), "and so far the struggle
against it is not effective."

Why not? Several obstacles stand in the way. Most obviously, Russia's
system of oligarchical capitalism makes exposing and punishing senior
officials difficult. No major figures have actually been prosecuted.
Although highly placed bureaucrats are sometimes investigated and
threatened with charges, the selectiveness of such incidents makes them
look more like sorties in the covert struggle between clans than real
cleanup efforts. The administration's intimidation of the press is also
taking its toll: reports in the mass media of high-level corruption are now
extremely rare.

Another reason corruption in Russia has been hard to reduce is because of
the staggering number of agencies -- local, regional, and federal -- that
are authorized to inspect and regulate businesses. To open up shop, a
typical small retailer must first satisfy the licensing office, building
inspectorate, police, fire department, health inspectorate, tax inspectors,
tax police, trade inspectorate, labor inspectorate, consumer rights office,
weights and measures center, environmental protection committee, and
medical insurance fund. One entrepreneur recently told the newspaper Novie
Izvestia he had to visit 24 offices, pay nearly $5,000 in fees, replace the
bulbs of 35 street lamps, and resurface part of his street before he was
allowed to build a small addition to his cafe.

Putin has pushed legislation through parliament that, as of July 1 this
year, simplified business registration procedures. Since August 2001,
moreover, each agency has been limited to inspecting businesses at most
once every two years. However, an early study (by the Moscow Center for
Economic and Financial Research) suggests that conditions have worsened
since this rule was passed. The survey of 1,927 small and medium-size firms
from 20 regions found that the average number of inspections by health
officials rose from 0.95 in the first half of 2001 to 1.11 in the second,
and the average number of visits by fire inspectors rose from 1.06 to 1.28.
Since the law permits each inspection to last up to two months, the burden
these place on businesses is enormous. And however good federal legislation
is, it must often be enforced at the local or regional levels by precisely
those agents accused of extracting bribes.

The Kremlin has also tried to fight corruption and general crime through
judicial reform. On one hand, changes to the criminal procedural code have
made it harder for police and prosecutors to arrest suspects arbitrarily:
arrests must now be approved by a judge. Jury trials are to become more
widespread. On the other hand, judicial reforms have also left judges
slightly more dependent on the executive branch; instead of appointments
for life, about half of judges now serve shorter terms, and their immunity
from prosecution has been limited. The aim of this change was to end the
impunity of judges who sold their verdicts to business interests. But some
judges have apparently been so intimidated by these relatively minor
changes that they have started issuing questionable rulings in prosecutors'
favor.

EAST MEETS WEST

Many in both the West and Russia have applauded Putin for dramatically
reorienting Moscow's foreign policy. In the last two years, the president
quietly accepted the U.S. abrogation of the Anti-Ballistic Missile Treaty
and agreed with Washington to cut nuclear arsenals by two-thirds. He
deepened Russian participation in NATO and softened opposition to NATO
expansion into the Baltic. After September 11, Putin was quick to express
solidarity with the United States, and he raised no objection to the
temporary stationing of American troops in the former Soviet states of
Central Asia. Moscow has also actively sought admission to the WTO. Such
policies have won exuberant praise from Putin's supporters. In the words of
the well-known reformer Anatoli Chubais, interviewed recently in Moskovskie
Novosti, Putin has "turned Russian foreign policy around 180 degrees. ...
There may never have been a change on a similar scale in all the history of
Russian statehood."

Putin's warm embrace of the United States after September 11 was indeed a
masterful step, which did make him some enemies in the Russian elite. To
see Putin's foreign policy as radically new, however, requires both
hyperbole and forgetfulness. Putin is, after all, the third Kremlin leader
to be credited with "ending the Cold War." Without diminishing his
contributions, they surely pale beside Mikhail Gorbachev's initiatives on
arms control and acceptance of Eastern Europe's freedom, or Yeltsin's
peaceful recognition of the other Soviet republics' independence. Russia's
current course, in fact, looks less like a new departure than a return to
the early Yeltsin policy. Even in Yeltsin's later years, under the
combative Foreign Minister Yevgeny Primakov, Russia took some major steps
toward partnership with the West -- for instance, when it signed the
Russia-NATO Founding Act in 1997.

Nor has Putin's pro-Western course been quite as politically risky as has
sometimes been thought. As Putin himself has explained, closer ties to the
West reflect not just "the political philosophy of Russian leaders" but
Russia's "domestic situation and public opinion." Between May 1999 (after
the Kosovo crisis) and late September 2001, the percentage of Russian
survey respondents saying they felt "basically good" or "very good" about
the United States doubled from 32 to 70 percent (according to the Russian
Center for Public Opinion Research, VCIOM). And as of June 2002, the figure
had not dipped below 59 percent. Although some military and academic elites
have continued to grumble and public opinion becomes more ambivalent if one
probes deeper, the basic orientation of Putin's policy continues to be
popular.

WAR AND PRESS

In one obvious but tragic respect, Russia looks very much like it did seven
years ago. Similar to Yeltsin in 1995, Putin has found himself fighting an
unpopular and probably unwinnable war against Chechen guerrillas with no
end in sight. Popular backing for the operation in Chechnya peaked in March
2000 at 73 percent of survey respondents. As of June 2002, however, only 33
percent of Russians favored continuing the war, and 59 percent thought
Russia should begin peace negotiations. The Russian military admits that it
has lost 4,200 soldiers since 1999, and the real total may be even higher.

In another regard -- press freedom -- Putin's government has distinguished
itself from its predecessor. The Kremlin's heavy-handed approach toward
critical media outlets has shocked liberal opinion. Vladimir Gusinsky and
Boris Berezovsky, two oligarchs who controlled major television stations,
have been forced into exile and pressured into selling their media shares.
(The Kremlin denies any involvement and says the oligarchs fell afoul of
independent prosecutors and creditors.) The news team from Gusinsky's NTV
fled to Berezovsky's TV6, which then ran into financial problems itself. In
the end, TV6 was pried out of Berezovsky's hands, but the journalists were
allowed to stay. Meanwhile, the Gusinsky-funded newspaper Segodnya and the
magazine Itogi also suffered hostile takeovers. Although satire and sharp
criticism can still be found on small stations and in fringe publications,
Sergei Ivanenko, a member of the Duma's committee on information policy, is
probably right to say that in Russia today, "there is freedom of speech,
but not in prime time."

Still, the difference from the Yeltsin years can be exaggerated, and the
issues are more complicated than is sometimes understood. On the whole,
Yeltsin was undeniably more tolerant than is Putin of a media that often
criticized and ridiculed him. But at moments he also wavered. Putin's team
was not the first to rough up Gusinsky's employees; in fact, Yeltsin's
bodyguard, Aleksandr Korzhakov, raided the tycoon's offices in 1994 and
rubbed the security guards' faces in the snow. Then again, Putin has in the
end allowed Gusinsky's journalists to keep working. Yevgeny Kiselev, the
oligarch's erstwhile news anchor, is back on television, although he now
faces a new threat. This time, however, the danger is not state censorship;
his show, even in cosmopolitan Moscow, has earned low ratings.

Even Russia's ardent liberals sometimes feel a bit ambivalent about
defending Berezovsky's and Gusinsky's version of a "free" press. Both
tycoons won shares or frequencies from the state in nontransparent deals
and relied on large loans from state sources for operating expenses.
Indeed, they often seemed like adolescents who prize their independence
highly until the phone bill arrives. During election campaigns and
sometimes in between, the tycoons turned their TV stations into blatant
propaganda tools to push their own commercial or political interests. The
oligarchs' brazen claims to have gotten Yeltsin reelected in 1996 by
manipulating coverage -- and their demands to be rewarded -- helped to
discredit them in a way that simplified Putin's task. This does not, of
course, justify the state's attacks on press freedoms, but it does
illuminate the somewhat ambiguous context.

WHAT'S NEW?

Although the effectiveness and novelty of Putin's regime are often
exaggerated, some significant changes have occurred since Yeltsin resigned.
The most remarkable change, however, is not in Putin's policies but in his
popularity. For the first time in more than a decade, Russia has a leader
that the overwhelming majority of citizens support. Since October 1999,
Putin's approval rating has varied between 61 and 84 percent. This kind of
popularity helped secure the election of a Duma which, for the first time
since 1992, is not dominated by the Communists or other opposition forces.
And it facilitated the quick passage of legislation that had been blocked
for five years or more.

What explains Russia's love affair with its leader? Putin's ratings jumped
to their current level before voters knew almost anything about his
policies except that he intended to take a tough stand on Chechnya. The
initial leap, from 31 percent in August 1999 to 80 percent in November
1999, can be ascribed to public shock, since it came after terrorists
bombed apartment blocks in central Russian cities and Chechen guerrillas
invaded Dagestan. Putin's response -- sending in the army and promising to
"whack [the guerrillas] in the outhouse" -- captured the public mood
perfectly.

But the president's ratings have remained high even as the public has
deserted him on Chechnya and as his image of decisiveness has faded. Some
commentators now even speak of Putin's "Hamlet complex" or worry that he
may be falling into a "Gorbachev trap" as he maneuvers between the "family"
and his St. Petersburg proteges, unsure whether to side with economic
liberals or the security forces. In fact, Putin's very lack of clarity may
be a political asset, given the deep divisions in public opinion. Even
strong supporters describe him as something of a chameleon. According to
Chubais, Putin "has one fantastic characteristic -- after a conversation
with him everyone leaves convinced that now the president is on his side."

The sources of Putin's appeal are probably complex, but rapid growth in
living standards has surely played a part. Real wages and pensions have
risen steadily under his rule, and real wage arrears have dropped
dramatically. This points to the second major difference from the Yeltsin
era: for three years now, Russia has experienced rapid economic growth (5
percent in 1999, 9 percent in 2000, 5 percent in 2001, and 3.8 percent in
the first half of 2002). Although poverty and inequality remain high, the
upward trend has changed perceptions of the government markedly and given
the state budget breathing room. The upturn reflects a recovery from the
1998 financial crisis, the benefits of a sharply devalued exchange rate,
and rising oil prices. These effects have been exhausted, however, and
growth, now based more on consumer demand than on these other factors, is
slowing. A spike in oil prices caused by a war in the Middle East might
give Russia an additional boost, but failing this event, the need for
improvements in productivity will intensify.

Indeed, to the extent that Putin's popularity depends on continuing
economic improvement -- and political stability depends on his popularity
-- the current equilibrium looks vulnerable. With elections coming in 2003
and 2004, and $17 billion in debt payments due next year, Putin seems
understandably anxious about the economic indicators. In outbursts
reminiscent of Yeltsin, he recently berated the prime minister for offering
an estimate of 2003 growth that was insufficiently "ambitious," and he
scolded his ministers for letting wage arrears to teachers and doctors return.

A final difference from the Yeltsin years is more subtle. Despite the
continuing obstacles in the way of Russia's modernization, there is in
Moscow these days an unfamiliar whiff of optimism. Elites of all
persuasions seem to have confidence in the future. Businesspeople say that,
for the first time, they are planning years ahead, instead of day-to-day.
The Communists have been defeated, Russia's westward movement is
increasingly secure, and the present market economy -- whatever its defects
-- is here to stay. One-third of Russians now expect that their lives "will
become somewhat better" within a year, compared to just over one-eighth in
July 1998. This psychological breakthrough may turn out to be as important
in the end as objective continuities.

Even Putin's liberal political opponents say the words "reform" and
"democracy," discredited for years by the economic turmoil and corruption
of the 1990s, are coming back into fashion. Others speak of the gradual
emergence of a civil society. Although human rights campaigners are
genuinely alarmed by the security services' new assertiveness, they allow
themselves a dose of humor and irony. The veteran liberal activist Valeria
Novodvorskaya recently made a cameo appearance on a television sitcom about
a struggling radio station. The embarrassed station manager has to cancel
her interview because his bungling engineer has locked the door to the
recording studio and lost the key. "It's the FSB," Novodvorskaya insists,
"I'm 100 percent sure." When Putin's critics can make fun of their own
suspicions, something must be on the right track.

*******

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With support from the Carnegie Corporation of New York and
the MacArthur Foundation
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