DATE=9/4/1999
TYPE=ON THE LINE
TITLE=ON THE LINE: WHAT NEXT IN RUSSIA
NUMBER=1-00774
EDITOR=OFFICE OF POLICY - 619-0037
CONTENT=

Anncr:  On the Line - a discussion of United 
States policy and contemporary issues.  This week, 
"What Next in Russia?" Here is your host, Robert 
Reilly.

Host:   Hello and welcome to On the Line.
Russian President Boris Yeltsin recently fired his 
fourth prime minister in less than a year and a 
half. The political disarray has been accompanied 
by revelations of massive corruption among 
Russia's political and economic elites. Meanwhile, 
jockeying has begun for parliamentary elections in 
December and presidential elections next June.  
Through it all, fundamental reform remains 
elusive.

Joining me today to discuss the ongoing turmoil in 
Russia are three experts. Jonas Bernstein is a 
columnist for The Moscow Times and a Moscow-based 
analyst with the Jamestown Foundation. Paul Goble 
is communications director of Radio Free 
Europe/Radio Liberty and a specialist on former 
Soviet republics.  And Anders Aslund is senior 
associate at the Carnegie Endowment for 
International Peace and a former adviser to the 
Russian government. 

Jonas Bernstein, having recently been in Moscow, 
can you describe, much less explain, the political 
climate?

Bernstein: The political climate has, needless to 
say, heated up in the last few weeks, although the 
summers are usually the doldrums there. It was 
pretty heated up all summer, but particularly in 
the last few weeks because there has been the 
formation of a new political bloc. One is 
Fatherland headed by Moscow Mayor Yuri Luzhkov, 
which has now allied with a group of regional 
leaders under the name of All-Russia. And former 
prime Minster Yevgeny Primakov has joined them.  
So the political battle is now really shaping up 
between them and whomever the Kremlin decides they 
are going to put forward.  

Host:   Have they not already decided?

Bernstein: President Yeltsin did name the new 
Prime Minister Vladimir Putin as his heir 
apparent, but, given the amount of times he has 
shifted prime ministers, some people are waiting 
to see what is going to happen. This might not be 
the last prime minister before next year's 
elections.

Host:   Paul Goble, with all of these shifts that 
have taken place over the past year and a half in 
Russia, what are they in reaction to or in 
promotion of, or can one discern purposes such as 
those?

Goble:  I think it is very dangerous to try to 
give a single explanation for everything that has 
happened.  There are a number of actors at work. 
Clearly, Yeltsin is looking beyond his own term in 
office and trying to make sure that once he leaves 
office he does not go to prison, or his family 
either.  Second, there is obviously grave concern 
about where Russia is going.  Russia has had 
enormous economic and political difficulties, and 
Yeltsin has not found any solution that seems to 
work, and he keeps looking around. Third, while in 
established democracies election times tend to be 
a time when things quiet down in terms of decision 
making, in emerging democracies, as Russia is, 
what we see is the possibility that political 
alliances could lead to radical shifts as people 
try to position themselves either to advance their 
own political goals or to prevent others from the 
same thing.  So what we are seeing, I believe, is 
a certain amount of positioning to try to prevent 
or to advance particular goals, because the state 
is too weak to have an institutionalized inertia 
through an electoral period. 

Host:   Anders Aslund, what is your view?

Aslund: This is a time when we have a lot of very 
different things happening, and it is hard to say 
what will be considered important in one year's 
time. Is this a time when corruption is getting 
out of hand, or is this a time when corruption is 
being revealed?

Host: What is your answer, since that is one of 
the issues in the headlines with the Bank of New 
York and revelations of money laundering, capital 
flight, or whatever is taking place?

Aslund: My guess is that we are seeing a cleaning 
up, that all this knowledge has been there before, 
but now we are seeing it really coming to a 
crunch. Clearly some people will be ousted, 
probably quite a few people will be put into 
prison, at long last, for serous crimes. But that 
is only my guess. 

Host:   One of the discouraging comments about 
Russia today is that it has become a kind of 
criminal state, that you cannot distinguish 
between the Mafia and the government, that 
corruption is endemic, that eighty percent of the 
businesses, according to the interior ministry, 
pay protection, and that there really are no clean 
hands left.  Is that an exaggeration, Jonas 
Bernstein, or is there a real reform party 
somewhere in Russia?

Bernstein: I think that is not an exaggeration, 
and I would also add that it is not a new story.  
I think that it is just that it is coming out now. 
There have never been really the slightest 
elements of what you would call the rule of law, 
of an independent judiciary, of protection of 
private property and private businesses, et 
cetera. And these features have really been 
present from the beginning. As a matter of fact, a 
number of the features went back prior to the 
collapse of the Soviet Union during the Gorbachev 
reform period. And I think that it is true to say 
that the corruption is endemic and rampant, but it 
has been for quite a long time. I think that just 
now we are starting to get more of an idea of what 
exactly has gone on.

Host:   Paul Goble?

Gobel:  I think Anders has it exactly right. I 
think that because finally people are talking 
about it. For a long time all of this information 
was available if you went to look for it, but it 
was not focused on by the Russian people or by the 
American government, let's be clear. There was a 
tendency to say, well these are just part of the 
growing pains of a shift from a Communist system 
to capitalism and democracy. And I think now there 
is a recognition that what has happened in Russia 
is not so simple as that.  There are some things 
that have gone very, very wrong. And I do hope 
that the next year will see a winnowing out of 
some of the people who are guilty. I fear, 
however, that whoever comes to power through the 
Duma elections later this year, or the 
presidential vote next summer, that the people who 
come to power are not going to have completely 
clean hands either. And it is going to be 
important to us as we go through the next twelve 
to eighteen months to try to be very careful in 
saying, yes, we have one set of a criminal element 
that has now been put behind bars or excluded from 
political life, but the reality is going to be 
that the who people are going to come are not 
going to have clean hands either and we are going 
to have to deal with them anyway.

Host:   There are estimates in terms of capital 
flight of from three hundred and sixty to three 
hundred and eighty billion dollars that has moved 
out of Russia since 1991. Maybe the figure is even 
higher. However, when the Duma passed recently a 
law against money laundering - in fact they passed 
it twice - Boris Yeltsin on both occasions vetoed 
it. What does this tell you about the political 
willingness within the political establishment to 
do something serious, when money laundering isn't 
even illegal?

Aslund: I do not know here exactly why Yeltsin 
vetoed it.  It might have been good; it might have 
been bad. But the fundamental problem is that you 
have far too much state intervention in Russia. We 
are talking about capital flight. Would you put 
your money into a Russian bank? I would not. Would 
you hold it at home? Not very pleasant, because if 
you have a few thousand dollars lying somewhere 
where somebody knows, you will have a burglary and 
you will lose the money.  The only safe way of 
keeping money for ordinary Russians is abroad. And 
this is the fundamental situation.

Goble:  I think that there are several things 
going on. One, individual Russians, that is 
certainly a rational calculation, but also a lot 
of the capital flight has been the result of value 
stripping of assets, of the oligarchs going in and 
selling off assets, and then exporting the 
capital.  The tragedy of Russia is that we do not 
have robber baron capitalism where the people are 
violating the law but building things.  We have 
what the World Bank has occasionally called robber 
capitalism, where the people who are the new 
owners, having acquired ownership by criminal 
means or at least corrupt means, are then value 
stripping, selling things off, degrading the 
country's economy and its prospects for the 
future, and shipping the assets in massive amounts 
abroad.

Host:   But that too is an old story. What, in the 
coming parliamentary campaign and perhaps the 
upcoming presidential campaign, is going to be 
addressed seriously by these coalitions that are 
in formation as we speak? For instance, you 
mentioned that Mayor Luzhkov of Moscow has aligned 
himself with Yevgeny Primakov and regional 
governors, and that the Yeltsin camp, whatever 
constitutes that today, is shaken up by the fact 
that there is a real political opposition. Are 
these groups just forming to divide what is left 
of a smaller pie, or is there a program for 
reform? Is there a program for creating a Russia 
where people would want to keep their money in the 
bank?

Bernstein: I am afraid that it is the former, that 
they are fighting over a dwindling pie. The 
problem with the issue of corruption in Russia is 
that, while it gets covered in the Russian press 
frequently, it is used by the media, which is 
increasingly controlled by these oligarchs and 
financial and industrial groups, as a weapon 
against their foes, the other oligarchs. The 
problem is that nothing ever gets done about it. 
It is used as a political weapon to attack your 
foe, but when it comes to the issue of really 
prosecuting people for these crimes, it happens 
very, very rarely. 

Host:   What does a candidate say in Russia today 
that will attract voter support in parliamentary 
elections? What sort of rhetoric are they using?

Goble:  They certainly have to address the problem 
of corruption because people are talking about it, 
and he has probably been accused of being corrupt 
himself. So he is going to lash back and say these 
people are even more corrupt than any of my people 
are. And while this may produce cynicism at one 
level, on the other hand I think it is terribly 
important that it is being talked about. I think 
we are watching the beginning of the creation of 
certain expectations that this behavior is wrong.  
While we all knew in the West, and while people 
who wanted to pay attention in Moscow knew about 
this old story five, six and seven years ago, the 
fact is that, when people are talking about it 
every day on television, every day in the 
newspapers, you are beginning to create 
expectations in the population that something will 
eventually be done. Will it happen as a result of 
this electoral cycle? I doubt very much. Will it 
create demands for something to be done in the 
next Duma or further afield? I'm almost certain it 
will.

Host:   Anders Aslund, Paul Goble already referred 
to the hope in the early days, in the early 90s, 
that even the people who were looting the Russian 
state would use the loot in a productive, creative 
way, instead of just shipping it out of the 
country, which is what they seem to have done. 
However, you have pointed out that since the ruble 
devaluation a year ago and the Russian default on 
their loans, the sky has not fallen and that 
actually the Russian economy may even have started 
to grow.  How could that have happened?

Aslund: If you look at the economic policy of the 
last year, it has barely existed. It has been 
totally passive. To the extent there has been 
economic policy, it has been keeping the budget 
under control because otherwise it was obvious 
that there would be a full-fledged economic 
catastrophe. But this has had, it seems right now, 
a positive effect on Russian enterprises. They 
have realized that they cannot get money from the 
government any longer and they cannot even hope 
for it. So they have all of a sudden, on a 
significant scale, started working for the market. 
And in Moscow today you can find a lot of decent, 
cheap restaurants that did not exist before. You 
can find decent Russian goods in the shops that 
did not get into Moscow before. And this is a 
positive sign.

Host:   And Russian imports have fallen by almost 
fifty percent, and they have a surplus in exports.

Aslund: Russia has a huge trade surplus. It was 
thirteen billion dollars during the first half of 
this year, and industrial production was actually 
up by thirteen percent in July. Part of this is 
because there was such a huge fall last year; part 
of it is because of a massive devaluation; and 
part of it is because of the higher oil price that 
benefits Russia. But there is also something more.  
We are seeing that the economy is changing 
qualitatively. We have all heard about the massive 
barter in Russia, that enterprises pay each other 
with goods rather than money. They are doing so 
ever less now, month by month. We have heard a lot 
that Russian enterprises do not pay each other. 
Now, all of a sudden, they have started doing so 
to a much greater extent. Recently there has been 
a petro crisis in agriculture. Why?  Because 
enterprises refuse to deliver petrol to the farms 
because they are notorious for not paying with 
money. So these are basically positive things we 
are seeing. Enterprises are fighting for money and 
they are providing what the market wants.

Host:   Jonas Bernstein, do you sense any of that 
having an impact on the life of the Russians in 
any daily way? What is their view of things? Are 
they more or less overcome by the repeated 
disappointments?

Bernstein: I certainly think that is true. In 
other words, you had the August '98 devaluation. 
You also had the October 1994 devaluation. They 
had monetary reforms going back into the Soviet 
period. They have been repeatedly, the way they 
feel it, ripped off by the government. You had the 
savings loss during the inflation in 1992-93. 
That's on the one hand. So I think the skepticism 
in the average Russian is as deep as you can 
possibly imagine. On the other hand, there is some 
talk by some people of the meritorious effect of 
the devaluation having stimulated some domestic 
growth and industry. But I would also note that 
some observers, like the Fitch I. B. C. credit 
agency, said they were not sure that this effect 
would not start to wear off, and that, given the 
capital flight, given the fact that there is very 
little foreign investment and that they estimated 
that one hundred and thirty billion dollars is 
offshore, it would not make a qualitative 
difference, a sort of a breakthrough in the 
economy. 

Host:   Paul Goble, where does this leave the 
International Monetary Fund, where does it leave 
U.S. policy?

Goble:  I think it is going to be very, very 
difficult to get much political support for the 
United States giving more money to the I.M.F. to 
give to Russia. It's simply going to be more 
difficult with the charges of corruption that are 
now getting so much play.

Host:    The American treasury secretary has 
recently said there should not be any more loans.

Goble:  One Russian official responded that he was 
not quite sure what the treasury secretary of the 
United States actually was going to be looking for 
in what he said, so we will have to see how that 
plays out. But politically, charges that the 
Russians have misused money in corrupt ways or 
siphoned it off to offshore banks is going to make 
it very difficult for the American contribution to 
go up. It may very well lead to expanded tension 
between the United States and Western Europe over 
what to do with respect to Russia. And I think you 
are going to see, as the electoral process goes on 
in Russia, some of the regional splits in Russia 
between Moscow, which has been doing relatively 
well and where you do see the market taking off, 
and much of the rest of the country, where you 
cannot describe that at all. And there are going 
to be a number of candidates who are going to be 
running for the Duma and perhaps a candidate 
running for president who will be calling 
attention to the fact that it is all very well --
what you see in Moscow -- but what is out in 
Vladivostok or Irkutsk is something very, very 
different. And there you are talking about people 
advocating greater state intervention precisely 
because there are so many disasters. That is going 
to get played back here too, and that is going to 
make it harder for the West to make a contribution 
through the I-M-F as well.

Host:   Right, but contributions through the I-M-F 
do not define the limits of U.S. policy. Looking 
back on this, do we conclude that American policy 
toward Russia has failed in a fundamental way, 
Anders Aslund?

Aslund: Frankly, I do not think that Russia was 
there to be lost for the U.S. I think that this is 
a massive exaggeration of how much the U.S. could 
influence Russia. To my mind, there was one time 
that the U.S. could have really made a difference, 
that was the first quarter of 1992. If the Bush 
administration had made a big support package for 
the real reformers in the Russian government, it 
could have made a difference. At the time, the 
Bush administration did not do a thing for Russia 
and that's when it was important. And what we have 
seen afterwards is quite a bit of U.S. remorse 
that the U.S. did not act when it was possible. 
And then the U.S. tried to do a little bit. It has 
never been very important, and I do not think it 
has been harmful. I do not think it has been very 
useful either. 

Host:   I'm afraid that's all the time we have 
this week. I would like to thank our guests -- 
Jonas Bernstein from the Jamestown Foundation; 
Paul Goble from Radio Free Europe/Radio Liberty; 
and Anders Aslund from the Carnegie Endowment for 
International Peace-- for joining me to discuss 
the ongoing turmoil in Russia.  This is Robert 
Reilly for On the Line. 



03-Sep-1999 11:01 AM EDT (03-Sep-1999 1501 UTC)
NNNN

Source: Voice of America
.