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Edited by David Johnson
| ISSUE #24 | November 20, 1998 |
The CDI Russia Weekly is an e-mail newsletter that carries news and
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#1 US Commerce Department Census Bureau November 18, 1998 Marc Rubin (mrubin@census.gov) 301-457-1362
Poverty in Russia Explored in Census Bureau Brief People living in Russian households where householders are unemployed, female, under age 64 or never got beyond high school are more likely to be poor than counterparts who are employed, male, over 64 or went on to higher education, according to an analysis by the Commerce Department's Census Bureau of data collected by the Russian State Statistical Bureau, Goskomstat. According to Marc Rubin, author of the Census Brief, Russia's New Problem Poverty, CENBRF/98-5, [http://www.census.gov/prod/3/98pubs/cenbr985.pdf] a significant factor determining if one is poor in Russia is the availability of "transfer income," defined as disability allowances, pensions, private gifts, stipends for dependent children and unemployment benefits. "These income sources generally are not as available to younger workers, hence this group's much higher risk status," Rubin said. "In fact, 60 percent of poor households with householders between the ages of 18 and 54 had no such supplemental income." The Census Bureau study found that of the Russian demographic groups surveyed in 1992, people in households with: - unemployed householders were four times more likely to be poor than those with jobs; - female householders were 3.7 times more likely to be poor than those with male householders; - householders under 64 were 3.2 times more likely to be poor than those in households with elderly householders; - householders who have the equivalent of a high-school education or less were twice as likely to be poor than those with more schooling. Goskomstat conducted the longitudinal monitoring surveys in 1992, a year after the dissolution of the Soviet Union, and again in 1995. In both surveys, the Russian agency used World Bank-sanctioned household-income standards. As with all surveys, the data in the Russian surveys are subject to sampling variability and other sources of error. The Census Bureau pre-eminent collector and provider of timely, relevant and quality data about the people and economy of the United States. In more than 100 surveys annually and 20 censuses a decade, evolving from the first census in 1790, the Census Bureau provides official information about America's people, businesses, industries and institutions.
#2 Moscow Times November 19, 1998 Duma Drafts Bill to Ratify START II By Chloe Arnold Staff Writer
The State Duma is ready to debate ratification of the long-awaited START II nuclear disarmament treaty, speaker of the lower house Gennady Seleznyov said Wednesday. A parliamentary bill calling for ratification of the treaty has been drafted by lawmakers, was approved by Prime Minister Yevgeny Primakov and is unlikely to be snubbed by President Boris Yeltsin, Seleznyov said. He did not say when the treaty will be put to a vote, butDuma sources said it is likely to be put on the agenda for next month. The drafting of the bill marks the most significant progress yet toward ratifying the treaty, which has been languishing in the Duma for several years. The Communist and nationalist-dominated Duma has repeatedly refused to discuss START II in the past, claiming the treaty would put Russia at a strategic disadvantage compared to the United States. But analysts say that today's dire financial climate and the need to curry favor with Western governments and lending institutions have persuaded many lawmakers of the need to ratify the document. Deputies, however, insisted on including several conditions in the bill on ratification, in particular that the government immediately begin negotiating a START III disarmament treaty, which the Duma hopes will further reduce the United States' strategic advantage over Russia. "The problem of security must be viewed in a wide context," Seleznyov said. "Duma deputies and other state officials are aware of this." "The bill provides for funds needed to keep the remaining missiles combat -ready and calls for the speedy signing of START III, which would protect Russia's security," Interfax quoted Seleznyov as saying during a meeting with visiting Ukrainian Foreign Minister Boris Tarasyuk. Signed in 1993 by Yeltsin and then- U.S. President George Bush, the START II agreement bans all multiple-warhead intercontinental ballistic missiles by 2003 and cuts the number of single-warhead ICBMs on both sides to between 3,000 and 3,500. The U.S. Senate ratified the treaty in 1993, but the Duma has dragged its feet until now. The Russian government insists that it needs the treaty to maintain parity with the United States. While Washington keeps a massive nuclear arsenal, Moscow cannot afford to do so and its stockpile is shrinking as aging missiles are taken out of service and not replaced. At a briefing Wednesday, Duma Defense Committee chairman Roman Popkovich said deputies, too, are beginning to share the government's view. "The point of ratification is not just to bring down the ceiling, but to protect our national security," Popkovich said. "We must clearly realize that today it is not necessary to have stocks of 6,000 warheads." Popkovich said the Russian state could no longer afford to maintain as many nuclear arms as the United States and that ratifying the accord was therefore essential. "In order to maintain our nuclear missile potential, we will need 50 to 60 billion rubles [$3 billion to $3.5 billion] a year for the next seven years," he said. "The Duma approved an entire defense budget for this year of 82.5 billion rubles. So we have to decide whether or not this is feasible."
#3 US Officials Cited on Ties With Russia Rossiyskaya Gazeta 17 November 1998 [government daily newspaper] Article by Vyacheslav Goncharov under the "What People Are Talking About" rubric: "The West Accepts Russia. The Way It Is"
In recent days, taking their cue from Secretary of State Madeleine Albright, people in the United States have started talking of a new "realism" in relations with Moscow and, more specifically, of assessments of the anticrisis measures being taken by Yevgeniy Primakov's team. Albright declared literally the following: "We cannot say with certainty that Russia will soon emerge from this period of difficulties. Recently we have heard a lot of talk about printing money, indexing wages, introducing control over prices and the movement of capital, and reinstating state management of various sectors of the economy. We can only ask: Do certain members of Primakov's team understand the rudiments of world economics?" It has to be said that official Washington was quick to react to these words by its "iron lady" and softened them. ITAR-TASS reported that James Rubin, official spokesman for the U.S. Department of State, at once addressed two briefings -- at the foreign policy department itself and at the USIA Foreign Press Center. The press secretary was asked to comment on Madeleine Albright's aforementioned speech. Asked by the ITAR-TASS correspondent what, in fact, was new about this, Rubin replied: "Nothing at all." "It seems to me," he continued, "that people are frequently inclined to go too much into nuances. We have always recognized the dangers that would attend Russia's inability to advance in its democratic or economic development. We have always said that it is extremely important economically for Russia to formulate an economic plan which inspires confidence and meets a number of simple criteria." In particular, according to the diplomat, Washington "fears" that a sharp intensification of state regulation of the economy in Russia "will not create favorable conditions for growth and capital investment." "In short, what is new is the decisions proceeding from Moscow, which create alarm -- perfectly valid alarm," the U.S. State Department spokesman went on to declare. "We would prefer, as before, to speak of our readiness to support the economic reform plan provided that this plan envisages containing the budget deficit, stabilizing the exchange rate, combating inflation, restructuring the banking sector, restoring the payments system, and finding ways to resolve the problem of commitments to private creditors in the spirit of cooperation." "Insofar as Russia partially tackled all this in the past, we supported various (aid) packages via the IMF," Rubin recalled. According to him, this support was given "only when the IMF succeeded in drawing up a plan that inspired confidence." The U.S. diplomat categorically disagreed that the U.S. approach to relations with Russia has now become closer to the "U.S.-Soviet" model. "This is absolutely not the case," he declared. "We have very effective relations with the Russians. This does not mean that we agree with each other on everything, but we do our utmost to settle the disagreements that arise." America is prepared to support a "viable economic program" on the part of the Russian Government, Lawrence Summers, U.S. first deputy treasury secretary, also declared, so ITAR-TASS reported. This was the case before, he said, and this will be the case in the future. But "we cannot wish for change more than the country itself," the high-ranking U.S. officialemphasized. To this it should be added that Summers was delivering a speech on ways to overcome the international financial crisis at a conference of a sectoral association of U.S. industrialists. "The situation in Russia is complex," he said. "Right from the start of the transformations the market reformers were forced to race to lay the foundations of an efficient market economy. At the same time they found themselves squeezed between the forces of the oligarchy and of 'friendly capitalism' on the one hand and the most retrograde elements of the Duma on the other." The U.S. specialist does not rule out the possibility that even under these conditions the reform process could have developed quite successfully but for the dramatic combination of circumstances, including the steep fall in oil prices and the start of the crisis in East Asia. But now, particularly after the August events, "the new government of Prime Minister Primakov will have to move forward while simultaneously resolving the problems created by that failure," Lawrence Summers believes. He declared that the United States is ready to support the Russian people in the coming months, citing as an example "the agreement reached last week on emergency food supplies." Even given the "colossal scale" of possible support from the international community, however, only Russia itself can decide its future, he summed up. Despite all the recent events in Russia, the World Bank's strategy in respect of Moscow remains unchanged. World Bank President James Wolfensohn spoke of this 10 November. He told an ITAR-TASS correspondent on the eve of his visit to Moscow: "Our policy of helping Russia in its economic efforts remains just as it has been hitherto. In recent years we have developed good contacts with the Russian Government." At the same time the World Bank president pointed out that one of the purposes of his trip to Russia stemmed from a desire to understand just how Yevgeniy Primakov, the new chairman of the Russian Federation Government, and the members of his team intend to resolve the problems facing thecountry. "We are trying very, very hard to give the Russian Government aid in what are, for it, the most sensitive spheres," James Wolfensohn continued. "We believe that we already have real aims in the social sphere -- as regards unemployment, health care, food provision, and structural transformations." On flying into Moscow last Friday and meeting with Yevgeniy Primakov's cabinet, James Wolfensohn repeated the same statements: The World Bank intends to continue helping Russia. "The difficulties which Russia is experiencing are temporary. Russia possesses mighty economic, scientific, and technical resources but, most importantly, its people have tremendous moral potential, and so the difficulties will definitely be overcome" -- this was stated last week by PRC President Jiang Zemin. Finnish Prime Minister Paavo Lipponen, who visited Moscow, voiced satisfaction with the fact that the economic situation in Russia is starting to stabilize. Truly, the Western mind cannot understand Russia. "Primakov is not to be envied," Mitteldeutsche Zeitung wrote recently. "The burden was shifted onto him by his talentless predecessors, who failed even to create an effective taxation system. Now it is far harder to take the essential yet painful measures in the economy...."But Russia has no other path today.
#4 Russia: Military Experiencing Recurrent Financial Crises By Jan de Weydenthal
Prague, 18 November 1998 (RFE/RL) -- Russia's armed forces are in disarray. Demoralized, depleted and money-strapped, they are a shadow of the mighty military machine that helped crush the Nazi onslaught more than 50 years ago, secured Soviet control over much of Central Europe and made the USSR a superpower. A downturn was perhaps inevitable, given the break-up of the Soviet Union, the retreat from Central Europe, and humiliating defeats in Afghanistan and Chechnya. But it has been worsened by the collapse of the Russian economy and the apparent inability or unwillingness of the political and institutional leadership to introduce meaningful reforms within the military itself. In recent years, the military has experienced recurrent financial crises and a steep budgetary decline. The situation has deteriorated further since Russia's economic crisis worsened in August. According to a report published in a recent (November) issue of the "Strategic Comments", a publication of the British International Institute of Strategic Studies (IISS), the Russian army is facing severe food shortages. The government has failed to provide funds to pay for food, the report says, and the usual suppliers have refused to ship even the basic food products without advance payment. This has forced large numbers of soldiers --"even from elite formations around Moscow"-- to work on former collective farms for food. The report further says that by the end of August, the government debt for unpaid military wages rose to 16,000 million rubles from about 12,000 million rubles in April. In recent weeks the government started to pay the back wages, but this is being done largely by printing more money. The inevitable inflation is certain to erode the value of these payments. The recent economic downturn has also affected attempts at reform. Before the onset of the country's latest financial crisis, it appeared that the military leadership had finally embarked on an effective change, following years of almost total inertia. According to a document signed by President Boris Yeltsin in August, the changes envisaged the maintenance of only 10 battle-ready ground divisions -- the USSR had about 200. They also stipulated a new division of functions and responsibilities between different forces as well as a streamlining of command structures. The economic collapse made the implementation of those changes doubtful, as there is clearly no money for them. The IISS report says problems are also compounded by apparently widespread corruption within the ranks, particularly at higher echelons. The report says that large numbers of officers, including top commanders, have been "rewarded by the regime with (other) official jobs and have engaged in corruption and the theft of military property to cushion themselves against economic hardship." The report goes on to say that one particularly important trend is "the growing de facto alliance between local military commanders and regional political bosses." The long-term political implications of this development are not clear, but they are certain to complicate any move toward streamlining, modernizing and reforming the military as a whole. Indeed, it seems most likely that the situation of the national armed forces will continue to decay. On the other hand, this regionalization of the armed forces --even if rooted in frequently corrupt practices-- may also serve to make more difficult the preparation of any possible centralized military coup d'etat or the emergence of a military- based dictatorship.
#5 RFE/RL NEWSLINE Vol 2, No. 224, Part I, 19 November 1998
RUSSIANS EARNING LESS... Incomes adjusted for inflation and tax dropped 26.9 percent in October, compared with the same month the previous year, Interfax reported on 18 November. Real wages plunged 34.9 percent. Meanwhile, unemployment reached 11.5 percent at the end of October, a 4.7 percent increase compared with the same month last year, according to estimates of the State Statistics Committee, ITAR-TASS reported on 18 November. "Nezavisimaya gazeta--Krug zhizni" reported in its November issue that 70 percent of Russia's unemployed are women and that only 12 percent of Russian women, who are "among the world's best educated," can afford major medical assistance. JAC ...AND EATING POORLY. While experts continue to debate whether food aid from the EU and U.S. is necessary to avert hunger, there appears to be some agreement that Russians are eating less well owing to the economic crisis. Gennadii Romanenko, head of Russia's Academy of Agricultural Sciences, told Interfax on 18 November that poor families will have to switch to less nutritious diets based primarily on potatoes, cabbage, and carrots and forego milk and meat. At the other end of the economic spectrum, "Vechernaya Moskva" reported on 17 November that less than 2 percent of the capital's residents now go to restaurants, almost half of which have closed. JAC
#6 Jamestown Foundation Monitor November 19, 1998
MASLYUKOV KEEPS UP PRESSURE OVER ARMS EXPORTS. Russian First Deputy Prime Minister Yuri Maslyukov yesterday stepped up his criticism of the Russian state arms trade company Rosvooruzhenie and repeated his call for a change in the company's leadership. In remarks to reporters, Maslyukov described Rosvooruzhenie's performance as "unsatisfactory." He also claimed, vaguely, that the company's "economic indicators" for the first ten months of this year were some 40 percent "below plan"--a reference presumably to charges that the company's revenues have dropped by 40 percent this year compared to 1997. Maslyukov did not name his preferred candidate for the post of Rosvooruzhenie director (Itar-Tass, November 8; Russian agencies, RTR, November 18). Rosvooruzhenie, which enjoys a virtual monopoly on the sale of Russian military hardware abroad, is currently headed by Yevgeny Ananev. Maslyukov, a communist with long ties to the country's Soviet-era defense enterprise directors, is reportedly hoping to weaken Rosvooruzhenie's control over Russian arms exports and to win correspondingly greater autonomy for defense enterprises to peddle their wares abroad. Maslyukov would also reportedly like to place his press secretary, Anton Surikov, in the Rosvooruzhenie director's post (Vremya MN, October 13; Tribuna, October 20). Maslyukov took a major step toward increasing his influence over arms export policy when he was named chairman of a newly created government commission tasked with overseeing Russian arms sales abroad (see the Monitor, October 28). But at least one respected observer of Russia's defense establishment believes that Maslyukov is unlikely to consolidate his authority over the country's arms exporters. Pavel Felgengauer, defense correspondent for the daily newspaper "Segodnya," pointed out earlier this month that Maslyukov's commission has yet to be assigned any real powers. Felgengauer also says that the presidential administration is disinclined to allow Maslyukov to acquire too much authority in this area. He argues, finally, that Russia's financial crunch has harmed the operations of defense enterprises, and that Maslyukov would be better advised to seek resolution of this very real problem than to further politicize--and personalize--the issue of Russian arms sales (Segodnya, November 11). The stakes in the ongoing political battle for control over arms export policy are considerable. Aside from the export of such natural resources as oil and gas, arms sales are one of the few areas in which Russian companies can earn hard currency revenues abroad. Rosvooruzhenie had hoped to export approximately US$3.5 billion this year--about US$1 billion more than in 1997--and much of the current debate is directed at whether the company is on line to meet that projection. But the marketing of Russian arms and the distribution of revenues earned from them is important not only to Russia's cash-starved defense enterprises. The manner in which the Russian government regulates and controls its foreign arms sales is important to the West as well. Washington has worked closely over the past year with Moscow in an effort to improve Russian arms export controls. It is unclear whether the more decentralized system of arms exporting which Maslyukov appears to be advocating would further those efforts.
#7 Media Chief Urges U.S. to Follow Media Situation in Russia
Moscow, Nov 14 (Interfax)--Igor Malashenko, the first deputy chairman of the Media-Most holding, told Interfax that when visiting the United States this month he urged his counterparts to follow developments regarding Russia's media. What is happening to media in Russia is a litmus test showing whether the country is becoming part of the international community and developing democratic reforms or whether it is moving in the opposite direction, he said. "I hope the whole world will follow what is happening to Russia's media," Malashenko said. He said he had decided to visit the United States because, "unfortunately, the position of the West and the U.S. elite still influences presidential elections in Russia. The Americans do not have a clear picture of what has been happening and is happening in Russia," Malashenko said. In some cases this leads to "fundamental errors" on the part of the U.S. Administration, he said. Malashenko visited Washington D.C. and New York, where he met with First Deputy Secretary of State Strobe Talbott, U.S. advisers on Russia, the editors of The Washington Post, Newsweek, ABC News, Fox News and U.S. News & World Report. He also visited the local Councils on International Relations, the Carnegie Endowment and the Washington Strategic Research center. Many informal meetings were also arranged as part of Malashenko's visit to the United States. "I told representatives of the U.S. elite that if they do not understand the processes taking place in Russia or what should be done they should not do anything at all," he said. "I told them they have the right to support any presidential candidate or deny their support, but this should not be done by accident. They should not create the illusion of their support for one or another candidate." The U.S. elite are now less informed of developments in Russia than they were a couple of years ago, Malashenko said. "America is absorbed by its own affairs, and it is showing little interest in what is happening in the rest of the world. "The U.S. Administration currently believes that reforms in Russia are continuing despite the present difficulties and the United States should provide possible assistance," Malashenko said. "I just hope that this will be done proceeding from more accurate information and a better understanding of what the consequences might be."
#8 Commission Assesses Humanitarian Aid Rossiyskaya Gazeta 13 November 1998 [government newspaper] Article by Irina Nevinnaya: "Who Will Get Humanitarian Aid?"
A special government commission headed by Vice Premier Valentina Matviyenko has started work. Its task is to distribute the humanitarian freight entering the country. The vice premier's stance is a tough one: Aid should get to those for whom it is intended. Once again, as in the hard years of 1991 and 1992, we are starting to receive humanitarian aid. I remember very well how throughout the winter then I cooked kasha for my children using American dried milk: At school each child was issued with two packets of one kilogram each. It was almost impossible to buy milk in the Moscow stores that winter. Thank god we survived the winter. But I also remember something else: The food emblazoned with the blue star-strewn emblem of the European Union intended for distribution free of charge for some reason found its way into the commercial stores that had just started appearing. And it was offered to customers at far from "humane" prices. There is no denying that many scandalous situations arose at the time.Perhaps it is for that reason and, most importantly, considering the ability in our country to steal everything without leaving a trace that the legitimate question arises: What will happen to humanitarian aid this time? Will the support intended for the weakest and most socially unprotected not become a source of enrichment for a narrow circle of"initiates?" That is why the work of the special government commission for the distribution of humanitarian aide led by Vice Premier Valentina Matviyenko is generating such keen interest. Aid is entering our country by many routes. Treaties are concluded at government level and there is direct action by regions, twinned cities, and the broad ties in the world community among public and charitable organizations. But news of any freight, from wherever it may come and whoever the addressee, must reach and naturally does reach the commission. It is here that 17 representatives of virtually all interested structures -- from the Customs Committee and the Tax Service to the Ministry of Labor and Social Development -- examine all the freight entering our country as humanitarian aid and decide whether or not to recognize it as such. After that the freight which has been deemed to be humanitarian aid is exempted from the payment of customs duty and is dispatched to the recipient. If questions and doubts arise, the decision is deferred. There is some freight that the commission does not recommend be deemed humanitarian aid and in that case the recipient must pay the customs service in full, swelling the state's meager coffers. At the last session, on Tuesday, there was an examination of a list of 29 freight consignments which have entered Russia from Germany, the United States, Finland, Austria, France, and other countries. There were no doubts regarding a Mercedes Benz ambulance fitted with the most modern medical equipment designed for the Tsentralnyy Rayon hospital in Kalininsk city, Saratov Oblast. The scrupulous Germans (the vehicle is a gift from the German Red Cross) indicated in the documents not only its cost (about 10,000 ECU) but also the vehicle chassis number, its engine capacity, and even the year it was manufactured. A mixed consignment had arrived from the city of Katzenelbogen: detergents, toys, babies' feeding bottles, school requisites, and bed linen. It was all addressed to the administration of Karachev City in Bryansk Oblast to be handed to the medical association, schools, and kindergartens and the social aid center. The commission's decision included the comment: They must report back.The American "Global Operations and Development" charitable organization has dispatched three consignments of freight (medical items and equipment worth about $25,000) to Novosibirsk for the state highways clinical hospital, the children's amalgamated hospital in Serov, Sverdlovsk Oblast, and the Tsentralnyy Rayon hospital in Toropets, Tver Oblast. No disputes or differences arose over this freight and it was merely decided that the receipt of the medical equipment should be agreed with the Ministry of Health while the Sverdlovsk recipients must in addition first report back on previously received aid. But the decision regarding food worth about $10,000 sent from New Jersey for the public organizations of Sverdlovsk Oblast and Yekaterinburg was deferred until the plan for the distribution of the aid had beendetailed. Film for hothouses sent by the Lower Saxony Ministry of Food for an Ivanovo Oblast state farm and a consignment of Austrian instruments for processing timber addressed to a Yakutsk state construction enterprise to repair the housing of people who had suffered from the catastrophic flooding last spring were not recognized as humanitarian aid. The reasoning guiding the commission is simple: If the freight could be used for commercial purposes it should not be deemed to be humanitarian. In my opinion you cannot call this decision unquestionable. I remember the complaints by the chairman of a Kaluga Oblast collective farm whom I met a couple of years ago during a field trip. He described how for several months now he had been unable to get through customs some freight sent as a gift to his collective farm from Switzerland. At some international "rally" of leading capitalist agricultural producers he had happened to make the acquaintance of the president of a Swiss firm supplying manufacturing equipment and this man decided to make a generous gesture. It was a case of a small cheese making plant. The chairman said that its installation would immediately resolve the milk sale problem for his farm. And who would lose out if an enterprise producing what is almost real Swiss cheese were to appear near Kaluga? But getting the "gift" out of customs cost more than the collective farm earned in a year. I do not know whether the chairman somehow managed to work it out and resolve the problem. But I have not encountered any Kaluga Swiss cheese in the cities near Moscow or in the capital, alas. Perhaps if the question of swelling the budget with customs duty is such a harsh one there would be some point in seeking options -- for instance something along the lines of "customs leasing" or "customs credit" whereby equipment is released from customs on credit and its recipient pays the state later, gradually, as he builds up production and sales? If the slightest chance appears of not simply maintaining some kind of existence with foreign aid (be it medicine, food, or second-hand clothing and shoes) but also of laying the foundations for the possibility of eventually providing ourselves with everything we need for ourselves, then everything must be done to make use of that chance.
#9 Kennan Institute--Washington DC The Successes and Failures of Capitalism Russian-Style Presentation by Thane Gustafson NEWS/Meeting Report By Jodi Koehn
Capitalism Russian-style is a sharply distorted economy directed toward commodities export--which in the present circumstances is both a source of difficulty and a source of stabilization, remarked Thane Gustafson, Director at Cambridge Energy Research Associates and Professor of Government at Georgetown University, at a Kennan Institute lecture on 5 October 1998. According to Gustafson, there are three main approaches to the question of "what is Capitalism Russian-style?" The first is the composition of output and the balance among sectors. The old imbalance--the over-emphasis of manufacturing and defense goods production and the atrophy of the tertiary and consumer sector--has been replaced by an overdeveloped export- oriented commodities sector resulting in a new tertiary sector of services, particularly in the area of finance. Second, it is important to examine the degree of penetration into the market economy. In Russia, there has been incomplete penetration of money, western standards of law, and private property accompanied by continued dependence on the state and an epidemic of non-payments. This has led to a "virtual economy" or the portion of the economy not penetrated by the money economy. The virtual economy has resulted in a system of barter exchange as a way to avoid adapting to the market economy and acts as a defense against a predatory state with an impossible tax regime. To some extent, every Russian enterprise has one foot in the virtual economy. Third, is the degree of Russia's success in building needed private and state institutions. Russia has failed in both market-building and state-building, Gustafson remarked. On the market side, there is a lack of intermediating institutions in capital markets and institutions to support shareholders' rights and corporate governance. The state's failure to protect property rights and contracts and create a sound monetary and fiscal system is accompanied by incomplete privatization and lack of agricultural reform. The result is a country overwhelmingly dependent on imported goods. The failure of state-building is more serious, Gustafson argued, and the recent crisis is a good illustration. Recent government short-term borrowing has absorbed private capital which, in turn, lessened project investment. The Russian state also failed to build an orderly treasury system, requiring commercial banks to manage state revenues by default. When the private banking sector collapsed, government financial flows went down with it. However, Gustafson remarked, the role of banks in the movement of money in the Russian economy shows that these were not pseudo-banks and this was not a pretense market economy. The commercial banking system had penetrated, even into areas ordinarily handled in other countries by the government. Regarding the possibility of continuation of Capitalism Russian-style, Gustafson stipulated that the present system is the result of a halfway revolution, but a revolution nonetheless and, therefore, not easily undone. A return to a centrally planned economy would require an institutional structure, a structure for political power, and an ideological structure that was swept away. A weak government and complete lack of ideology are incapable of rebuilding what it took Lenin and Stalin twenty years to build, Gustafson argued. An economic worst case scenario, Gustafson stated, would be the continued and chronic inability of the central government to collect taxes and balance its budget. The consequences being continued high inflation and a growing exit of the private sector into the shadow economy. Serious investment in such an environment is impossible. This will lead to the eventual deterioration of the one remaining strong segment of the economy, the commodities export sector. Gustafson's political worst case scenario follows from the economic worst case. What has kept Russian democracy alive is the willingness of 60 percent of the voting population--mainly urban population and young voters-- to suspend disbelief and support the government. These are the people hit particularly hard by the crisis and are potentially dangerous if they take to the streets or support an authoritarian figure. There is a best case scenario in Russia, Gustafson concluded. The present crisis is a crisis of the central government, underneath which are popularly elected regional governments that, politically, are forces of stability. The commodities sector is another major source of stability. Russia must export and so far can continue to do so. It will be another five years or so before its export capacity begins to run seriously downhill. According to Gustafson, there are more subtle causes for optimism such as a build-up of skills and understanding about the realities of modern economies and little sign of radicalization of the population. There are no deep-seated ideologies at war with one another, no highly developed political movements ready to take advantage of them, and no strong personalities with the political charisma and organizational talent to take advantage of a wave of popular anger. For Gustafson, the greatest source of optimism is that "the Russian people still appear to be willing to wait a little longer." "Capitalism Russian-Style" sponsored by the Kennan Institute, was presented 5 October 1998 by Thane Gustafson, Director, Cambridge Energy Research Associates, and Professor, Department of Government, Georgetown University. Jodi Koehn is Program Specialist, Kennan Institute.
#10 Russia Today http://www.russiatoday.com Kiriyenko Speaks November 17, 1998
For nearly three months, former Prime Minister Sergei Kiriyenko has been the invisible man of Russian politics. Blamed by some for sparking the country's economic crisis, the 36-year-old has avoided media attention since Russian President Boris Yeltsin fired him just four months into his tenure at the height of Russia's financial chaos. Now, in an exclusive interview with Russia Today's Rod Pounsett, Kiriyenko answers his critics and offers his views on his future and that of Russia. Kiriyenko gave this interview shortly before he left Moscow for talks with top British politicians and business leaders in London last week. Russia Today: There is now widespread international concern about the situation in Russia. Many people fear Russia is retreating from reforms and will return once again to a centrally controlled economy that will isolate it from the rest of the developed world. How justified are these fears? Kiriyenko: I don't share the view that Russia is going back to a centrally controlled economy. Primakov's government was brought in to stabilize the political situation. This task required a certain course of action. In Russia maintaining political stability and managing the economy effectively can be quite separate. So I think it's too early to say which economic course Russia is on. But Primakov's government must soon chose which course it is going to take to fulfill the promises it has made. It must either implement the strict but unpopular measures, which I think are necessary to restore economic stability, or continue with wide ranging money emission, which will lead to hyperinflation and higher costs for stabilization in the future. Those are the choices. Not between a centrally controlled economy or a market economy. Russia Today: The International Monetary Fund and other support agencies have, however, now made it clear there will be no further help for Russia until it demonstrates it can implement policies that will correct the ailing economy and bring the country back on the road to reform. In your opinion, does the present government under Yevgeny Primakov have the skills, and indeed the will, to deliver such policy? Kiriyenko: The IMF's position is quite clear and understandable. As the creditor they quite correctly need to see how they will get a return on their money. Primakov's government, on the other hand, wants to restore the sick Russian economy. When considering the capabilities of the cabinet we have to recognize their first priority -- to achieve political stability. Which, as I've already said, is quite different from addressing the economic needs of society. But I think Yevgeny Primakov must soon make up his mind whether or not this cabinet can take concrete steps in the economic sphere, which will win the support of the IMF. Russia Today: Although you only had a brief period in office, will the experience and nature of your sudden departure have a lasting effect on your aspirations regarding the political arena? In other words, if asked, would you return to government or do you see another role for yourself on the political stage? Kiriyenko: It goes without saying that the experience of being prime minister has changed my opinions about the political and economic situation in Russia. Now I'm much more a politician than a manager, but my convictions and objectives remain the same. There are no unsolvable problems in Russia. That's why I think it's my duty to explain the real situation; the way forward to economic recovery and the role of the sate authorities, the business community and ordinary people in that process. I also think Russia's future depends on a new generation of effective managers, and that's also within my sphere of interests. Russia Today: There have been those within the Russian political arena who have suggested some of the blame for the sudden and dramatic deterioration of the economic situation after August 17 rests on your shoulders. In retrospect, is there anything you would have done differently, or not done at all? Kiriyenko: I expected criticism, it goes with the job. As for doing things differently? Well, maybe I could have used other tactics but, in my opinion, the strategy was unchangeable. Without a balanced budget you go straight into debt crisis. So, for me, the course of action was clear. There was no other way. Of course I wouldn't like to suggest the program we put forward was the only option. It could have included other tactical measures. Nevertheless I think our strategic direction was correct. If the country is on the threshold of a debt crisis you have only one way of solving the problem -- balance the state budget. Only when the country is seen to be self-sufficient, living within its means, can pay its expenses or cut them back and has a clear debt structure and policy for repayments can we expect financial stability. And only then will we obtain stabilization funds from the international financial organizations. My main objective was to set down a clear set of rules that could be understood by all participants in the market. The opinion exists that the current problems resulted from the rejection of our tough anti-crisis program. I don't think that opinion is correct. The debt crisis has been building up for years. Our anti-crisis program was only the first step, and was never designed to solve all the problems of the Russian economy. I repeat once more, the main purpose of our anti-crisis program was to create the terms and equal rules of the game so we could move toward a sound and civilized economic system. To achieve this objective we saw the need to make many changes and cuts to expenditure. The state authorities, particularly the Duma, couldn't take responsibility for these unpopular measures, although everyone understood and still understands there is no other way. Whatever the price and no matter how unpopular they may be, I am convinced these measures must be implemented sooner or later. And if it is later the cost for recovery will be even higher. Russia Today: Despite the humanitarian assistance that's been promised by the Americans and others, ordinary Russia people will almost certainly still have to face severe conditions this winter. How much risk is there of their anger boiling over? Kiriyenko: That depends on what realistic actions this present government is prepared to take. Russia Today: Do you believe the West has a significant role to play in Russia's future? Kiriyenko: Yes certainly. Russia's can't, and is not going to, act in isolation. But Russia must play the main role in its future. Russia Today: A number of those perceived to have been involved at the forefront of the reform movement in Russia have recently been saying some pretty harsh things about the country and its people. For instance, Alfred Kokh suggested the Russian people have only themselves to blame for the country's present malaise. Do you think such self-denigration is justified? Kiriyenko: It's very painful to hear that such people are so disappointed in their own country. It's also painful that some of the things they say are true. But, as I've said, there are no unsolvable problems in Russia. And if a person goes abroad and says his country has no future that's his problem. For my part, I'm going to stay in Russia and work for her. Russia Today: Much has been said about President Yeltsin's physical and mental ability to remain in office. Do you think it's time for him to step aside? Kiriyenko: No, I don't think so. Russia Today: Whether President Yeltsin stays or goes in the immediate future, the speculation will no doubt continue about who is to be his eventual successor. Of the names so far suggested who would you say has the greatest potential for this high office? Kiriyenko: I think today is too early to make such an analysis. Russian history is very dynamic and everything may change before we have to make that decision. Russia Today: Finally, what are you most looking forward to concerning your trip to London? Kiriyenko: Understanding! I hope my visit will help the British understand the real situation in Russia. I also hope to contribute to the development of our common interests and partnership.
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