idbits, November 1997 to February 1998

Standard & Poor's lowered its rating outlook for the Russian economy from neutral to negative. The revision in outlook bodes a downgrading of Russia's creditworthiness.

The new ruble is now 6.04 = $1.00. (February 1998).

Public and private wage arrears are now US$9.4 billion of which, according to officials $1 billion was paid in Dec. by the Government.

IMF standby credit totaling of US$ 153 million were granted to Ukraine in November and December. Foreign investors retreated from Ukrainian government debt securities. Yields on government T-bills rose to 44% in mid-December. The central bank also raised its Lombard rate from 37% to 45%.

The hryvnia fluctuated outside its official exchange rate band of 1.7-1.9 hryvnias to the dollar.

On January 8th the IMF relased $670 million to Russia suspended in November 1997. The money is part of a USD 10.2 billion EFF loan.

ISO 4217 standard code in the Swift international settlement system change for the Russian Ruble to; 643 RUB.

In the first half of 1997, income tax accounted for 5.4% of federal revenues.

1977 import by Russia $17.4 billion

Another bites the dust. On Monday (5 Jan), the Swedish forestry group AssiDoman announced it was ceasing pulp and paper production in Russia. The mill produces 80% of the paper sacks used in Russia and employs about 5,500 people. The Swedish company has been at odds with the Russians over the mill's old debts, timber rights, tax concessions and most recently, Russian shareholders that consistently refuse to provide working capital. They said that Russian bureaucracy and tax rules constituted major barriers to foreign investment in Russia.

Compensation on value lost on deposits during 1992-95. Is to be $100-$170 to about 6 million people born between age 78 and 81. less then 1% of actual losses.

Russia has been declared the most dangerous country for journalists for a second successive year. The federation's figures show 47 press staff killed in 1997

Life expectancy for men has plummeted - to 58 years from 69 in 1990, and event unpecedented in human history, and infant mortality is rising.

YELTSIN STILL CONSIDERING an unconstitutional THIRD TERM

January 16th Russian prime minister Viktor Chernomyrdin stripped first deputy prime ministers Anatoly Chubais, 42, and Boris Nemtsov, 38, of some of their responsibilities and took them for himself.

In November 1997 the State Statistics Committee said Russia imported goods and services worth USD 5.8 billion, up from USD 4.9 billion in November 1996.

Official Rusian unemployment in December was 9%, meaning that about 6.4 million people were out of work.

Oil companies Yukos and Sibneft announce merger plans. On Monday (19 Jan) Russia's second largest oil company Yukos and seventh largest Sibneft announced plans to merge. The new company, designated "Yuksi", would become Russia's largest oil company and account for about a fifth of Russia's crude oil production. In terms of global players, the new alliance would rank third after British Petroleum and Shell.

Russian excise taxes go up. Cigarettes will cost 22-33% more, while the tax on cars with big engines (over 2.5 litres) will double.

The official estimate of shadow economy output at 25% of GDP is far too low - the correct figure is above 50%

Officially, about a quarter of Russians live in poverty, 44% get by, 30% enjoy a good standard of living and about two percent are rich. Actually more than half live in poverty, 28% get by, 10% enjoy a good standard of living and 1% are very very rich.

Creditworthiness Rankings: Estonia rose from 63rd to 60th position, while Latvia dropped from 59th to 64th and Lithuania went from 62nd to 70th. Among CEECs, Slovenia now holds the strongest position, 37th. Next were the Czech Republic (44), Hungary (45) and Poland (48). Russia fell from 66th to 75th place.

Russian central bank limits Russian bank borrowing from abroad to four times their paid-in share capital, or 28% of assets.

President Yeltsin's promise to pay wage arrears has not been met.

The high volatility in Russian shares is expected to continue as long as concerns over the state of Asian markets persist. I recommend 'sell'

Estonia's largest bank, Hansapank, and Estonia's third largest bank, Hoiupank (Saving Bank) merged. Hansapank shareholders will own 63% Hoiupank's shareholders the remaining 37%. The new bank will be the largest Baltic bank and will have balance sheet assets of about EEK 20 billion (USD 1.4 billion).

GDP in Central and Eastern European Countries will rise by an average of 3.8% this year and 4.5% next year. Average inflation is expected to slow from an average of 53.8% last year to 15.4% this year.

"I've never felt as humiliated as I feel today," Ms. Nina Vorozhtsova, a school teacher from Khabarovsk region in Eastern Siberia, told Russian television last week. She has not been paid salary for eight months and her little daughter has no winter boots to wear to school. According to Mr. Mikhail Shmakov, chairman of the Russian Federation of Free Trade Unions, medical workers in 44 regions and teachers in 25 regions have not been paid back salaries. Russian teachers staged a day of nation-wide protest on Tuesday and trade unions plan more workers' protests next month. The overall wage backlog declined only marginally from 54 trillion roubles ($9.8 billion) in June 1997 to 50 trillion roubles in mid-January, the Russian trade union leader, Mr. Shmakov, said last week.

In order to pay off late wages to state employees the government practically stopped paying its bills to the military and industry. According to the Defence Minister, Marshall Igor Sergeyev, arrears in salaries, social benefits and food allowances in the Russian armed forces stood at 18.6 trillion roubles ($3.1 billion) in December. The government also owes 19 trillion roubles ($3.2 billion) to its contractors, particularly in the defence industry. This debt is contributing to a chain of non-payments in industry. Coal miners, for example, have not received wages for over five months, because their customers are unable to pay for coal because they have not been paid for their output.

Overdue debts of enterprises and companies continued to build up last year, reaching 700 trillion roubles ($127 billion) in December. This is more than twice the amount of money in circulation. The government will not be able to improve tax collection, which last year hardly reached 40% per cent of the budget estmate/. In the first half of January the state collected only 2 per cent of planned taxes, making IMF targets upn which further IMF loans to Russia are supposedly based, a sham.

The Constitutional Court's decided last month to repeal, under strong government pressure, a civil code provision which required factories to pay wages first and taxes afterwards. meaning the govenrment wants its taxes before wages. No one mentions that if wages were paid there would be no taxes owed, due to losses. "The court's decision means that some 100,000 enterprises will not be able to pay wages because they will have no cash left after paying taxes," says the trade union leader, Mr. Shmakov. "We expect a further growth in strike action this year." Walkouts in Russia snowballed from 200,000 men/hours in 1992 to 5.7 million men/hours last year. Russian businesses can owe taxes even if they do not earn a profit.

Former Soviet republics want to quit the Commonwealth of Independent States. Expect Turkmenistan, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan, to drop out.

Russia will reduce its armed forces to 1.2 million men in the next two years from current 1.7 million. Russia had 5 million in the 1980's Corruption is rife, and about 30 generals and admirals are facing criminal charges for graft.

Harvard's Priscilla McMillan and Suzanne Massie said, in an article in the Boston Globe on October 9th, 1997: 'The Russians are dying. The disastrous environmental situation and the dramatic decline since 1991 in the birth rate, women's health and male life expectancy are well known in the West.

The sooner we plan for economic stabiliation in Russia, the better chance we have of preventing one-sixth of the world's land surface, from becoming a drain on the world's resources as civilization's largest-ever disaster area.

Yeltsin may announce his resignation some time in early March to be effective April 1st. This would allow elections to take place in the summer.

Yeltsin's turned 67 on Feb 2, 1998.

Commander-in-chief of Strategic Rocket Forces Colonel-General Vladimir Yakovlev says the condition and maintenance of combat readiness in this service of the armed forces is inadequate.

Alexander Dzasokhov, a former member of the ruling Soviet politburo, has been elected president of Russia's North Ossetia region bordering Chechnya.

Russia has built the first module of an international space station that early next century will replace the aging Russian Mir, the world's only permanent space station today. The module will be shipped to the Baikonur Cosmodrome in Kazakhstan this week in preparation for launch in June.

The authorities in Tchaikovsky, a small town in the Urals, will stop at nothing to make bus passengers pay their way. Ticket inspectors have just been supplied with pocket-sized cannisters of a gas capable of causing temporary paralysis to prevent fare-dodgers from running away.

Russia is reborn, but lacks a moral nervous system.

Metropolitan Kyrill of Smolenskseems most likely to succceed Patriarch Aleksi II.

No one living in Russia can deny that there is a certain spirit to life that is absent in the West. Americans placing a high value on fair play and healthy competition. Russians have long been used to the subversion of any entrepreneurial spirit by oppressive authoritarian regimes that suppressed personal freedom. Russian managers have had little experience making judgements about ethical behavior. The depressed economic environment over the past decade have created a survival mentality in which ethical behavior has been conditioned out of the individual.

Gogol once wrote that Russians had a great instinct for charity. They form a charitable organization, fantically devote themselves to a worthy cause, and collect a considerable sum of money. Then they throw a huge party on behalf of the organization which all but bankrupts the charity; the group's last official act, he wrote, is usually to bicker over which eligible relative receives the remaining five rubles.

The Investor Protection Fund, a World Bank-sponsored program of the Federal Securities Commission, receives 2% of all privatization for purposes of making restitution to defrauded investors in Russia like those of MMM. The fund received $35.5 million at the end of last year as its part of the $1.8 bllion Svyazinvest deal. Now the government wants that money for the state budget and it says that the Fund's history suggests that the money might be better off in someone else's hands. The State Accounting Chamber, refers to the fund as the ultimate Russian charity party with Americans at the head of the table instead of Russians.

During in the first eighteen months of the Funds existence defrauded investors were not paid anything and the revenues received from privatization sat happily in a private, American-run mutual fund, and $5 million of World Bank salary money was voraciously eaten by Russian and Western Fund employees. "eXile" reported that Pallada, the mutual fund that had the privilege of managing Fund money, had won its contract without a tender. Pallada's director, Beth Hebert, is the live in girlfriend of Jonathan Hay, a co-founder of the Institute for a Law-Based Economy, a think tank through which the World Bank money passed on its way to the Fund.

One thing in the Chamber report that may have gotten Yeltsin's attention was that the Fund director, Yevgeny Kovrov, officially earned twice as much as Yeltsin himself, 9720 million rubles a month as compared to 10 million rubles.

The World Bank, then, was asking Russia to borrow money to pay state workers high salaries to do absolutely nothing a very strange policy given the Bank's stated goal of downsizing bulky state industries and promoting market liberalization. But that wasn't all the Bank was doing. Having already approved $4 million in assistance to Hay's ILBE, it helped provide the financial base, and in some cases the start-up cash, for a small clique of friends, mainly Westerners, to make profitable careers in private business through service of the Fund.

If the Bank knew all along whom it was entrusting to handle its $31 million, that's reason enough to explain why its development programs don't work hardly anywhere in the world. If it doesn't have enough sense to hire people who know how to cover up conflicts of interest, it can't expect to manage economies. And the Hay/ILBE axis, particularly with regard to the Fund, was incredibly inept at hiding its misuse of funds and conflicts of interest.

The Wall Street Journal has already reported that Hay's ILBE investment wing, ILBE-Consulting, had a 1.96% stake in Pallada, and that Hay and the wife of ILBE-Consulting director Mikhail Volkov were both part of the FSC advisory committee which made Pallada the first registered Russian mutual fund, despite applications from much better-capitalized organizations like Pioneer Group and Credit Suisse.=20

The amazing thing about all of these small-time shenanigans, absurdly sloppy paper trails, and open conflicts of interest is that, despite the Accounting Chamber's report and the "measures" instituted by Vasiliyev, Hebert, First Russia et al still stand to become enormously rich off the Investor Protection Fund.

"If the Svyazinvest money stays in there, and the money from Rosneft and VNK [Eastern Oil Company] comes through, then we'll be talking about trillions of rubles under management at Pallada," said Nikulishev.

Although this story is a sad one, if taken from a defrauded investor's point of view, there is one very happy angle to it the apparently endless love and reciprocity in the Hay-Hebert relationship. Jonathan Hay may have been ousted from HIID after he was caught investing in Russian securities, but his career didn't end there.

Notable quote - Steve Banks

As one who lived and studied in chicago under Mayor Daley, I'm very amused by Luzhkov's PR . Once again American intellectuals and particularly at Harvard, whose faculty seems to be inordinately susceptible to seduction and corruption by Russian politicians, have found their Rusisan white swan. In 1996 it was Lebed, last year it was Nemtsov and this year its Luzhkov. I have no doubt that Luzhkov is a man of ability and gets things doen. Of course if 85% of the GNP of Russia passed through Moscow on my watch I'd make sure things got done too especially if I ruled, not as Mayor Daley but as a Tsar. If our kremlinologists, amateur and professional, took the trouble to read how Luzhkov governs Moscow, it would be clear to them that Moscow is his Votchina, he rules like a patrimonial Tsar much as Richard Pipes described it in English in his classic Russia Under the old Regime. Russian readers, of course have a plethora of sources that they can read. In short Luzhkov owns Moscow, and takes a legal or illegal (and in Russian conditions there is no real difference) position on everything going on there. And the 85% figure is Luzhkov's as told to American officials. So let's not have more fluff along the lines of Anders Aslund's valentine to Chubais in the Weekly Standard. The fact that there may be a large and growing private sector does not, under historic Russian conditions connote capitalism or liberalism, or even private control (as anyone who read Capital should know ownership and control are not the same. I hardly control Merrill Lynch even if my IRA is there or if I own stocks there) Unfortunately much of the analysis here is capitalism=3Dliberalism=3Ddemocracy and the only alternative is Lenin or maybe Franco or Pinochet or worse. This is intellectualy corrupting and obscures how closely much (by no means all) of Russian politics and economics resembles the pre-1914 period.

Despite his repeated denials, few people doubt that Luzhkov will run for president in 2000.

Yeltsin recently urged the Duma to abolish the proportional representation system whereby half of Duma deputies are currently elected Zyuganov said that Yeltsin's proposal to elect all Duma deputies would "turn the Duma into a corporation of mafia clans."

Russia has moved from second place down to seventh in the world in sea products' output. National fishing boat construction declined from sixth to 20th position in the world, the volume of export unaccounted for, according to experts, exceeded $2.5 billion.

Rusia is estimated to have $30 billion in illegal export of classified expertise.

In Moscow there is a police regime that terrorizes anyone without a full set of local registration papers. Most of Russia is locked in deep economic depression, so Moscow, have become magnets for millions of Rusian citizens who dream of a better life. there are at least 1.5-million who lack proper papers. Russia's 1993 constitution enshrined freedom of movement as a basic right for all citizens. That law is being ignored. Moscow police conducted 1.4-million spot passport checks in the streets and 1.3-million apartment searches during the first 6 months of 1997, and caught 737,561 people without proper residence papers. Most were handed steep fines, but about 20,000 of those arrested were subsequently deported from Moscow. The subjection of citizens to such barbaric and corrupt treatment makes a mockery of Russia's claim to be a free, rule-of-law country.

from Comments by: Dan Schneider, a prosecutor with the U.S.Department of Justice There is an overarching problem of lack of respect from the public, the prosecutors, and, to a lesser degree, from defense attorneys for the judicial process. There has not been a single instance where a judge has found a law unconstitutional. The problem of bribery and corruption in the Russian judicial process continues to be a problem. There also is a tremendous problem with pretrial detention Some defendants are detained for as long as 18 months and this problem is becoming worse; conditions are horrendous. In 1991, 151,000 persons were in pretrial detention in Russia. But by 1996, the figure was 295,000. Russian judges lack contempt power to enforce their decisions and there is no Marshall's service.

There "are 12,000 organized crime groups operating in Russia of which 50 are operating in the U.S.

RUSSIA'S POPULATION DECREASED EACH OF THE PAST TWO YEARS BY MORE THAN 400-THOUSAND PEOPLE. IN MOSCOW, DEATHS OUTNUMBERED BIRTHS BY A RATIO OF ALMOST TWO TO ONE. Russia's population will be down to 141 muillion by 2010.

Svyazinvest Telecom was privatized last year. The Audit Chamber and a special commission report, says the sale was illegal because Russian anti-monopoly legislation forbids the establishment of companies that large. The two off-shore companies that were the bidders were created not long before the auction, one owned by Renaissance Capital, which is close to Vladimir Potanin's empire of UNEXIM Group, Most Bank and Alpha Bank. Russian legislation forbids the banks to own more than 10 percent of stock in privatized companies The Cyprus-based Mustcom consortium, led by Uneximbank, won the auction with a bid of $1.875 billion.

About $400 billion-and-counting has been plundered of Russian property through the western-led "privatization," assisted by the local "reformers;"

Deputy Prime Minister Anatoly Chubais has estimated that propping up agriculture in various ways, such as through loans that are never repaid, costs the Kremlin $20 billion a year, nearly 5% of Russia's gross domestic product.

Poet, Alina Vitukhnovskaya, 24, is in prison facing an apparently trumped-up charge of selling drugs. She believes she was arrested because the FSB, the KGB's successor, wants her to provide compromising information about the children of leading Muscovites for use against their parents. She spent a year in an overcrowded remand prison, where she slept on the floor, but was released after it emerged that the FSB had forged the identity of one witness and beaten two others into testifying against her. She was rearrested on the same charges in October. She'll be dead when they are finished with her.

There may be a vast new oil field in north east Siberia as large as the major Alaskan fields. British firms, including Shell and BP believe they will lead the development of the region, which could hold up to 10bn barrels of oil, worth an estimated $4bn to $8bn.

Boris Berezovsky, one of Russia's richest men and a former deputy secretary of that country's Security Council. Still refers to the communally owned property of the citizends of the Soviet Union as State property and says it hasn't been misappropriated About 1% of Russia's citizens now own Russia. he further says Large financial-industrial groups must hasten to create a middle class and reduce the number of the poor "so they don't hang us".

Crime is up, but crime "reports' are down in Moscow because citizens are unwilling to report them to corrupt and heavy-handed Police. There is a fall in overt street gangsterism in Moscow and St Petersburg which reflect nothing more than an end to gang turf wars, now that borders, pecking orders and authority have been established. Instead, as the increasing toll of (unsolved) assassinations of senior business, media and political figures shows, they can focus on their real aim: accumulating money and political power.

Russia's cash-starved air force has come up with some novel ways to raise funds, including renting out aircraft hangars and offering private treatment at military clinics.

AFTER THE 1999 PARLIAMENTARY ELECTIONS THE REGIONAL ELITES WILL TELL THE CENTRE WHICH POWERS THEY WILL ENJOY THEMSELVES, AND WHICH THEY WILL DELEGATE TO THE CENTRE - BORIS BEREZOVSKY

Russia is more likely to use nuclear weapons today with its conventional forces deteriorated. Russia still has on high alert 3,000 nuclear warheads ready to fire at the U.S. on short notice.

Cash-starved embalmers looking after Vladimir Lenin's mummified body have resorted to preserving the corpses of wealthy Russians killed in gangland wars in a bid to make ends meet.

In 1998 Russia will increase the import of poultry meat, as well as butter because Russian production can meet only sixty per cent of the need.

The steel and concrete "sarcophagus" covering the Chernobyl power plant's fourth reactor, which blew up in 1986 and contaminated large parts of Europe, is weakening and could be close to collapse, officials at the plant warned yesterday.

A $140 million townhouse development is being built in Moscow] for wealthy people. Its called Pokrovsky Hills. There is no government ownership.ines International is the developer. Financing purpotedly comes from U.S. pension funds and private investors. prices start at $500,000. Rents start at $78,000 anually.

In Russian pretrial detention centers, many inmates insist that they no longer care about proving their innocence. "At first, all I wanted was a fair trial," Pyotr Kuznetsov, 51, said in a dank and stinking cell of Matrosskaya Tishina, one of Moscow's largest and most infamous detention centers. He said he had been arrested, and brutally beaten, for stealing less than $5 and had already spent 10 months behind bars awaiting trial. His lice-ridden 18th century cell, built for 30, currently warehouses more than 100 men. The inmates share beds, sleeping in three shifts.

Human rights abuses abound in prison. Tuberculosis is spreading wildly. with rates in prisons are anywhere from 20 to 60 times as high as in the rest of the population, which has a TB death rate 24 times that of the United States. 50 percent of Russian prisoners are infected. Close to 300,000 people awaiting trial are now in jail. Unprotected from the TB epidemic and other infectious diseases, many detainees end up spending two, three and even four years awaiting their day in court in cells as packed as a rush-hour subway car.

A law was passed last year increasing the amount of space to which a prisoner is entitled from 27 square feet to 43 square feet. In the United States, by comparison, prisoners are supposed to be allotted 80 square feet. But the reality of places like Matrosskaya Tishina is that prisoners fight over less than a square foot.

Less than 1 percent of all criminal trial cases on Russia end in an acquittal. Acquittal require a judge do more work. 1% receive bail.

There are 45.8 doctors and 112.7 medium-grade medical workers per every 10,000 of the Russian population. Uneven distribution gives mMoscow 80 , Kurgan Region 27, polar districts 10. Russia's medical personnel keeps dwindling at a rate of 1% percent per year. 8.7 per cent of all rural hospitals and 17 percent of all rural outpatient clinics don't have any doctors at all.

Valerii Streletskii, the former head of the department on high-level corruption in the Presidential Security Service (SBP), says efforts by law enforcement agencies to curb high-level corruption are routinely obstructed, leaving the press as the "only means" of publicizing corruption cases.

Russia's grain harvest was 88.5 million metric tons in 1997, The government is planning to export 10 million tons of grain. 12 million metric tons of grain were lost in Russia in 1997 because farmers lacked equipment to bring in the harvest. That will increase in 1998. Expect Russians to import four.

Information herein is compiled and edited from a variety of sources including The Bank of Finland, JRL List, Russian and European and American newspapers.

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