Kommersant, August 25, 2001, p.2

Next year the government will start to help regions of the Russian Federation lagging behind in development. A Federal program of objectives to extend until 2010 has already been prepared. At the same time, however, only those regions which bring their laws into compliance with Federal laws will be able to receive money. The Deputy Minister for Economic Development and Trade, Muhamed Tsikanov gave details of the Federal plan of objectives, “Reduction of Differences in Socio-economic Development in the Regions of the Russian Federation, 2002-2010”, yesterday at a news conference at the news agency “Interfax”. The goal of this document, as was stated in the press release prepared by the Ministry, was to bring the backward regions closer to the most highly developed.

The government will not set itself the task of making all completely equal and, for example, help Tuva to catch up to Krasnoyarsk Region. As the Deputy Minister said, “That is impossible and nobody else in the world has ever succeeded in doing it.” It will only help poorly developed regions get themselves out of extreme poverty and maybe come a little bit closer on social statistical indicators and in personal incomes to the Russian average. Over the coming eight years the government plans to spend 66.323 billion rubles in 2001 prices: 18.2% of this sum will come from the Federal budget, 22.9% from regional budgets, and 58.4% from extra-budgetary funds. Up to 50% of all the program’s funds will go to the most backward regions. It is expected that the number of such regions will already have dropped by a quarter by the first stage of the program’s implementation.

Those receiving help will be selected on the results of a competition for projects put forward by regional governmental bodies. In these projects the regions have to explain credibly how they plan to improve the entrepreneurial and investment climate and develop private medicine and education. But even that is still not all. The government is not going to help the poor purely out of altruism. Only those regions which bring their laws into complete conformity with Russian laws will be able to count on financial assistance from the Federal center. “Where the willingness to do this exists, we will provide stimulus”, said Tsikanov.

Within the government, of course, it is understood that this method of economic stewardship of the regions is not perfect, since it is impossible to apply it to the donor regions not needing help. But if it is considered that there are about five times less of these in Russia than subsidized regions, it is possible that by 2010 the number of regions complying with federal laws will actually grow.


Izvestia, August 25, 2001, p. 4

The problem of Russo-Iranian arms trading long ago became one of the most important for those in American domestic politics and in relations between the USA and Russia. The “Iranian threat” card was first played during his election campaign by President George W. Bush, when he revealed the Gore-Chernomyrdin pact. It stipulated that Russia would stop supplying weapons to Iran from December 31, 1999. The issue became especially sensitive after Moscow informed Washington, four days before the presidential election, of its renunciation of the agreement and the start of fully-fledged cooperation in military technology with the “rogue state”.

They did not have to wait long for the American reaction. Undersecretary of State John Barker announced that in the event of new shipments of arms to Iran economic sanctions may be put into place against Moscow.

In turn Marshal Igor Sergeyev – Minister of Defence at the time – accused Washington by saying that the Americans themselves were supplying Iran with spare parts for military hardware and so there was no basis in any rebukes addressed towards Russia. The next act in the military-diplomatic struggle between the US and Russia was the arrival in Moscow in March of that year of Iranian President Hatami. In the course of the talks the Iranian side confirmed its keen interest in extensively upgrading its stock of military hardware dating from the late 1960s and early 1970s. About then, also for the first time, a framework agreement on cooperation in military technology was discussed.

The essence of the agreement is that Russia is bound to fulfil its earlier commitments for modernization of outdated hardware and will sell Iran new weapons systems. Among the latter particular attention is devoted from the Iranian side to the “Favorite” anti-aircraft missile systems C-300PMU-1 and C-300PMU-2, indispensable for the defense of nuclear power stations at Busher and other strategic targets. Iran is also interested in the air defense missile systems Buk M1 and Tor-M1. Apart from these, modernization of the MiG-29 and Su-27 aircraft, the supply of missile-launching and patrol boats and landing craft are also being discussed. A $100 million contract for the supply of 550 BMP-3 armoured personnel carriers is already completed and awaiting signing.

But, perhaps the most serious problems for the US would arise if Iran should buy two of the most modern Russian missile systems. These are the Yahont anti-ship ultrasonic winged missile and the Iskander-E air defense system. Their appearance in Iran would mean that Moscow had thrown down the gauntlet to Washington and Tel Aviv. This is because both systems carry strategic significance in relation to the Middle East – the presence in Iran of even one of these would mean that this country would reliably block the passage of tankers and military vessels through the straits of Hormuz – in essence gaining the “right of veto” over export of the lion’s share of Middle East oil. The decision about the supply of this kind of weaponry is such a serious issue that in Russia they prefer not to mention this problem at all, confining themselves to transparent hints directed to their American fellow negotiators in the bilateral consultations for the discussion of amendments to the 1972 ABM Treaty.

Apart from the political aspect of cooperation with Iran, Moscow is also pursuing economic interests. According to assessments on the Iranian side, Teheran is prepared to spend in the order of $7 billion in Russia on purchases of weapons and military hardware in the next few years. In Washington it has long been understood that the confrontation with Teheran damages above all the economic interests of the US. Riding this wave, Russia was able to capture the Iranian market in non-military nuclear energy; and Ukraine is building factories for the production of civilian aircraft. Here a “cave-in” has also been planned in the weapons direction. Having set up relations with Russian defense industry enterprises, Iran will become dependent on Russia for its weapons for many years to come. And in this situation, the US will not find any place in the market.


Izvestia, August 25, 2001, p. 4 EV

“I am not going to sum up the results of the Moscow International Air Show,” said Mikhail Dmitriev, chairman of the committee on military-technical cooperation with foreign states, at the start of his news conference. Obviously sensing the confusion of the journalists – the Moscow International Air Show had been announced as being the theme of the meeting – he added in justification: “The show was organized by Rosoboroneksport (Russian Defense Exports). In a week’s time they are planning to hold a news conference for this purpose, so it is simply not suitable for me to comment in any way…”

The news conference was the first meeting with the press for committee chairman and Deputy Defense Minister Dmitriev in the year since his appointment to this post. And so for the remission of his “sins” Dmitriev agreed to answer practically any questions concerning Russian cooperation with foreign states in military technology.

Dmitriev confirmed with satisfaction a significant rise in the export of arms and military hardware. In his words, if this continues, in the next 10 years our country will be able not only to maintain its position in the world armaments market with yearly revenues of $US 3.5 – 4 billion, but also – if a number of fundamental issues in the field of arms exports are resolved – to reach the $4 – 4.5 billion mark. That will occur, according to Dmitriev, by means of the entry of Russian defense manufacturers into some arms and military hardware markets previously unoccupied by our exporters.

And how will receipts be influenced by the growth in the number of exporters foreseen by the program for reforming the defense industry? It was expected that 36 future arms companies will receive the right to independent foreign trade activity, thus reducing the role of the leading arms exporter – the state-owned company Rosoboroneksport. Dmitriev doesn’t think that such a right should be granted automatically. In any case, according to him, you could only talk about independent external economic activity of private companies (which, as experts consider, may seriously upset the balance of arms exports) after their founding.

For the time being the signing of a framework agreement on cooperation in military technology with Iran will become one of the most important new directions in this field – the document is already with the government of the country, waiting on agreement. Asked whether this cooperation might not damage Russia’s foreign policy position, Dmitriev stressed that the agreement on cooperation with Iran does not contravene any international treaties and so could not threaten any other governments. Russia has already signed a similar agreement with Libya. In both cases the sale of modern defense systems is being discussed, but the main focus is on upgrades of hardware supplied earlier.


Izvestia, August 25, 2001, p. 4 EV

Yesterday Foreign Minister Igor Ivanov, cutting short a holiday for an unplanned meeting with Undersecretary of State John Bolton, expressed the hope that “an understanding between Russia and the United States will be reached in the area of offensive and defensive strategic weapons, which, as the presidents of both countries have stipulated, should be examined together strictly as a whole.” The meeting between Ivanov and Bolton lasted just over half an hour.

Igor Ivanov did not speak to journalists – John Bolton took the rap on his behalf, underlining again that Washington was not setting any deadlines for Moscow for softening its position in relation to US plans for the development of a national missile defense system. Apart from that, when questions became more insistent, the diplomat suddenly remembered that it was time for him to view the sights of the Kremlin. By that time, President Bush, in a speech at a college in Texas, had already confirmed that “the President of Russia, Mr Putin, has been informed of our intention to withdraw from the framework of the ABM Treaty.” Bush did not say anything about November or any possible deadline, but let it be understood that the United States will leave the Treaty whenever it considers this suitable.

By all indications the Ivanov-Bolton meeting was just another fruitless stage of the consultations on issues of strategic stability, which will not in any way develop into negotiations. Andrei Kokoshin, a former Security Council council who is now a Duma member, gave one of the many commentaries on the results of the meeting: “The Americans will keep seeking a possibility of reaching agreement with Moscow until the very last moment.” However, the well-informed parliamentarian did not even allow himself the liberty of any remark about how his confidence was based on the results of previous consultations.


Parlamentskaya Gazeta, August 25, 2001, p. 3

However you look at it, August is generally quiet and peaceful on the political front. The blissful vacation period. All arguments, speeches, and events are postponed until autumn. This autumn promises to be quite interesting.

For one thing, the social-democrats are making another attempt to unite, thus diluting the August idyll with a bit of action. Mikhail Gorbachev and Konstantin Titov, leaders of the Russian United Social-Democratic Party and the Russian Party of Social Democrats, intend to create the United Social-Democratic Party of Russia (USDPR). A draft party charter and the basic points of the party platform have already been prepared. At its next meeting in early September, the organizing committee is meant to approve these documents. The unification congress will be held in November. A 100-member party directorate, a 17-member political council, and a secretariat will be elected. The USDPR will have no single leader as such, only co-leaders. Of course, they are already in place: Gorbachev and Titov.

What lies behind this move? Of course, first and foremost there’s the need to bring the party ranks into compliance with the new law on political parties. And both leaders understand that they simply can’t gain the status of a federal organization on their own – but together, it’s quite feasible. True, the leaders differ somewhat in their estimates of future party membership numbers. Gorbachev thinks the USDPR will have 12-14,000 members; while Titov gives the figure of 18-20,000.

But the membership numbers are not the key issue here. What really counts is how successful this unification attempt will be. Contemporary social-democrats – and all who consider themselves social-democrats – have been trying to do this for a long time. And what is the result? No substantial progress. Will this present attempt be successful? After all, the political forces which have expressed a wish to join the USDPR are probably only familiar to political scientists. For example, how many ordinary citizens are aware of such movements as the Rodina Anti-Crime Commonwealth, or the Assembly of Popular-Democratic Forces, or the Russian Youth Congress, or others which now wish to join the USDPR? Few people on the street have ever heard of them.

Actually, more and more people are saying they don’t like any of Russia’s existing political forces. There is evidence of this in July poll results from the National Public Opinion Research Center (VTsIOM). In June 2000, 32% of respondents said they didn’t like any of the political parties; in July this year, the figure had risen to 41%. And democrats are losing support fastest of all. Strangely enough, they started to lose support right after declaring their intention to unite and taking steps to do so – like the Union of Right Forces congress and the meeting of all democratic parties. The loss of support is substantial. In April 2000, around 25% of respondents favored the democratic parties; but by June this year, the figure was less than half of that. Actually, this doesn’t only apply to the democrats. It also affects Fatherland and Unity – parties which will certainly set up a centrist union, even if they don’t merge completely. And if they were contesting elections as a bloc, in July this year only 8% of respondents would have “definitely” voted for them, with another 21% “maybe” voting for them.

Of course, all the above is based on opinion polls, which are never entirely reliable. But on the other hand, Gorbachev has declared that the ideology of the USDPR will be based on general social-democratic principles, which have been tried and tested over 100 years: liberty, justice, solidarity. Gorbachev also noted that the influence of the times we live in should be taken into account – which means integrating liberal and socialist values. In other words, the USDPR founders intend to work with both the right and the left – bearing in mind that they have virtually no voter support base of their own at present: their potential voters are scattered all over the place, left and right. Saddest of all, social-democratic ideas still haven’t taken root in Russia; they’re not doing very well at all.

Still, it’s a start. As they say, it can’t hurt to try. As long as there’s some result. Maybe this time around, the prestige of such politicians as Mikhail Gorbachev and Konstantin Titov will play a role: maybe they will be able to grow a red rose, and, gripping its thorny stem in their fists, take the flower to the people who will support them. A rose is the symbol of the social-democrats.


The draft budget for 2002, already approved by the Cabinet, will soon be submitted to the lower house of parliament. We approached some political analysts and economists, asking them the following questions: How will the Cabinet’s draft budget fare in the Duma? What will the draft budget look like when it reaches the Federation Council? Will a conciliation commission be required to resolve all differences between all interested parties? And to what extent are the budget figures realistic?

In my view, major battles in the Duma are unlikely; the draft budget will probably be passed more or less painlessly. The only issue likely to draw some serious criticism is that of additional revenues, since this involves the question of Duma participation in the distribution of resources. They won’t just hand over these rights to the Cabinet. I don’t think the rest of the budget will elicit strong resistance, since on a number of points this budget is actually revolutionary – in the positive sense of the word. But there will definitely be some debate about additional revenues – however, this is a technical point, which certainly can be resolved.

It’s too early to predict the stand the Federation Council will take; although I don’t rule out that there will be some resistance there, since the budget rights of the regions are being substantially reduced. Whether the Cabinet can avoid having to set up a conciliation commission – that will depend on how effective negotiations are, and in what form the budget reaches the Federation Council.

Nezavisimaya Gazeta, August 25, 2001, p. 3

Over the past few years, a kind of traditional ritual has evolved in the distribution of roles between the Cabinet and the Duma. The Cabinet basically aims to lower budget revenue forecasts and inflation forecasts, thus ensuring that there are some additional revenues. This means actual tax receipts are higher than predicted in the budget. And if inflation ends up being higher than predicted, tax receipts rise still further. This gives the Cabinet some extra room for maneuver. The Duma’s aims are different: it is a center of lobbying, with a vast number of economic pressure groups. The Duma seeks to increase budget spending, primarily by looking for extra sources of revenue. The gameplay has become standardized over the past few years; both sides determine their roles and functions ahead of time, which is why the budget includes some distorted estimates right from the start. This provides enough clearance for obtaining the required number of votes for the budget to pass, by accepting the proposals of various factions and individual members of parliament. Naturally, the same will happen this year: both sides will perform the ritual dances, and as a result the budget will be passed.

In a sense, it is an advantage for the Cabinet to raise the wages of public sector employees, since this acts as a stimulus for inflation and increased budget revenues.

Furthermore, it’s become the custom to specify a range for oil prices. Predicting oil prices is essentially a thankless task; if they do start to change, the changes will be much greater than the range specified by the Cabinet. And if economic problems should arise in the West, with reduced demand for energy resources, then oil prices will change much more radically than predicted in the budget forecasts.


Nezavisimaya Gazeta, August 25, 2001, p. 2

Arms export figures for 2001 are on target, and the flow of hard currency into Russia this year exceeds that of last year. This was announced yesterday by Mikhail Dmitriev, chairman of the committee on military-technical cooperation with foreign states. At the same time, he stressed that this involves the implementation of contracts signed in previous years.

Dmitriev did not announce any exact figures, and refused to comment on recent reports about the activities of Rosoboroneksport. (see “Nezavisimaya Gazeta” No. 150, August 16, 2001)

Dmitriev said the priority for arms exports is geographic expansion of cooperation. Russia’s priorities include China, India, Greece, Algeria, Malaysia, Vietnam, and South Korea. Apparently, Iran will soon be on this list as well. Dmitriev said that a framework agreement on military-technical cooperation would soon be signed with Iran, which would set out in legal terms the extent of cooperation in this sphere. Dmitriev said this would be followed by setting up an inter-governmental Russian-Iranian commission on military-technical cooperation, then signing contracts for upgrades to existing military hardware and deliveries of new “defense-oriented” arms.

Dmitriev said that planned defense sector reforms should have no substantial impact on the system of military-technical cooperation. He confirmed that the directors of some defense enterprises are promoting the idea of giving the newly-formed holding companies the right to engage in foreign trade independently. However, according to Dmitriev, this will not be automatically granted. The new vertically-integrated companies will only be allowed to make individual decisions on supplying spare parts and post-contract servicing of military hardware.

Thus, the committee on military-technical cooperation with foreign states – which is formally part of the Defense Ministry, but actually controlled by the Kremlin – has sent a message to the ideologues of defense sector reforms: their policies will not be implemented automatically. Further evidence of this can be found in Dmitriev’s position on one of the hottest topics in arms sales and the defense sector. The Cabinet still hasn’t decided who will be in charge of implementing the contract signed this summer for the delivery of a second batch of Su-30MK fighter jets to China (and hence who will be distributing the money). This role is being contested by Sukhoi Aviation and the enterprise producing the fighters – the Komsomolsk-on-Amur Aviation Production Union. Dmitriev said that the decision on who will implement the contract will be made very soon, and “it would be more logical to abide by the system used in the past, under which finance flows were directed through the enterprise”.


Nezavisimaya Gazeta, August 25, 2001, p. 2

A case involving counterfeit treasury bonds from a US bank is being investigated in Hungary, in strictest secrecy. The counterfeit bonds were confiscated from a Russian citizen last week. Budapest police report that the total value of the bonds was $300 million.

Police detained the Russian citizen at the Intercontinental Hotel in central Budapest (further details remain undisclosed in the interests of the investigation). He was found to be carrying three short-term US treasury bonds worth $100 million each; these were confiscated. The police soon arrested two of his collaborators: a Hungarian citizen and a resident of Germany.

Police believe that those detained are only a small part of an organized crime group which planned to profit from the counterfeit bonds. According to Russian finance specialists, this is possible, in principle, if the counterfeits are sold via a chain of several banks. The catch is that short-term treasury bonds worth such a large amount are only used in inter-bank operations.

According to our sources, the detained Russian citizen had been living in Hungary for some time, engaged in business and finance. Partners describe him as “a solid entrepreneur”. He owns a company in Budapest, and has recently been acting as consultant to a Slovakian financial group.

It is unknown how long the Russian citizen will spend in a Hungarian jail. However, it’s already clear that he will remain there at least until results of tests on the bonds are released, which ought to confirm police suspicions of forgery. The Interior Ministry’s crime analysis directorate says “such tests could take a long time”. The multi-level protection against forgery used in the production of treasury bonds has recently ceased to be a barrier for most counterfeiters of this kind. Moreover, specialists say that “modern computer printing systems make it possible to produce a forgery of such quality that sometimes even the emitters themselves can’t tell the real bonds from counterfeit bonds”.


Nezavisimaya Gazeta, August 25, 2001, p. 1

Since the start of this year there has been talk of possible destabilization in western Georgia, and plans for an incursion by the Georgian army into Abkhazia. A newspaper article about a Georgian Defense Ministry plan for an incursion into Abkhazia drew a great deal of attention. Tbilisi has dismissed all these rumors as “nonsense”. A report from the Interfax news agency can probably also be placed in the category of speculation: it cites commanders of the Russian peacekeeping forces in the Georgia-Abkhazia conflict zone as saying that over 500 “Chechen guerrillas, some of whom are in the Pankesi gorge, are ready to cross into Abkhazian territory with support from Georgian armed formations”. Observers have differed in their commentary on this report. The two basic theories both say it’s a provocation – by either Moscow or Tbilisi.

It’s unclear how Chechen armed gangs (even if they are presently located in the Pankesi gorge) intend to cross all of northern Georgia to reach the Abkhazian border. Some commentators are virtually calling the notorious Chechen field commander Ruslan Gelayev “Shevarnadze’s man”. It’s also clear that the Chechens, who gave the Abkhazians so much help during battles with Georgia in the early 1990s, wouldn’t change their allegiances so drastically – even out of gratitude toward Tbilisi for giving them refuge in the Pankesi gorge. It has also been reported that partial mobilization of reservists has been started in Abkhazia; but it’s unclear what they might be afraid of. Even less likely is an alliance between Chechens and Georgians, given that the latter have repeatedly said: “We can’t provide refuge to Chechens who play football with the severed heads of our women!”

There is only one conclusion to be drawn from this: the Chechens are seeking to use Abkhazian territory for transit to the south or to the north. In other words, to go into hiding in Turkey; or, on the contrary, to cross Abkhazia and the mountains for a new offensive from the direction of Kabardino-Balkaria or Karachaevo-Cherkessia.

Given that the information which has sparked all this discussion allegedly came from Russian peacekeepers, we can only conclude that their commanders have once again decided to put some pressure on the Georgian president, at a time when Moscow has run out of ways to influence the government of Georgia. Nevertheless, it is reported that on Thursday Abkhazian prime minister Anri Dzhergenia had three phone conversations with President Eduard Shevardnadze of Georgia; Shevardnadze attempted to persuade Sukhumi that Georgia is taking steps to prevent an incursion by Chechen guerrillas and Georgian armed formations (possibly “partisans”) into Abkhazian territory. Apparently, Malkhaz Kakabadze, Georgian minister for special assignments, has arrived in Sukhumi for consultations.

However, the theory that disseminating these reports was to Russia’s advantage seems more credible in the light of Moscow’s attempts to retain its military base in Gudauta. It’s no secret that this Russian military base, which is being “pushed out” of Abkhazia along with the peacekeepers, has been the sole guarantee of peace between Tbilisi and Sukhumi. The appearance of these sensational reports seems very significant against the backdrop of increasingly frequent claims by Sukhumi that Georgian troops are gathering along Abkhazia’s borders, and that “a resumption of military action by Georgia” is inevitable in the near future…


Finansovaya Rossiia, No. 30, August 23-29, 2001, p. 2

ITK reports some unfavorable trends in foreign trade. Overall, it is still growing rapidly. In the first half of 2001, Russia’s foreign trade turnover amounted to $70.5 billion (10.5% more than in the same period of last year). But there is some cause for concern about the structure of foreign trade.

Exports rose only 6% compared with the same period of 2000, but imports increased by 24.3%.

Fuel and energy increased from 54.9% to 57.7% of exports to non-CIS countries. Coal exports increased the most, by 18%. While ferrous metals exports are falling, exports of iron ore are rising; while exports of gasoline and diesel fuel are falling, exports of crude oil are rising.

Exports of machinery and machine-building equipment have fallen by 8%.