Kommersant, July 27, 2002, p. 2

On July 26, President Vladimir Putin blamed the Cabinet for the fact that wage arrears have been growing since the beginning of the year. In the opinion of Deputy Prime Minister Valentina Matvienko, it is not the government but natural disasters that are to blame for the increase of wage arrears.

Wage arrears started to grow after the Cabinet issued a regulation on increasing salaries of state sector employees by 89% from December 1, 2001. Regional authorities had to admit that they couldn’t afford these payments. In winter, wage arrears to state sector employees totaled 22.7 billion rubles. Matvienko promised to help state sector workers and announced in winter that as of April 1, the situation surrounding wage arrears had considerably improved and wage arrears totaled only 2.25 billion rubles. However, the optimism of the deputy prime minister proved to be premature: Putin told her on July 26 that wage arrears had not decreased but increased. He noted that wage arrears total 2.9 billion rubles already and suggested that Matvienko account for the measures taken by the Cabinet. She admitted that in June alone, wage arrears increased by one billion rubles but shifted the blame on regional authorities. According to her, the Cabinet has allocated additional five billion rubles to regions for repayment of debts to state sector workers and submitted a draft law on allocating another 10 billion rubles to regions for the same purpose to the Duma.

To all appearances, the government has failed to control distribution of money from regional budgets on repayment of debts. Besides, the deputy prime minister blamed natural calamities for the increase of wage arrears, since the money meant for salaries of state sector employees was spent on elimination of the damage caused by fires and floods. However, the president was not satisfied with this explanation. He said after his conversation with Matvienko, “There is not much good in all this. People have gone on vacations, they need to have a rest, but on what money will they have it?”


Trud, July 27, 2002, p. 2

On July 19, employees of a commercial firm found an explosive device in their building in the center of Kharkiv, Ukraine. According to preliminary findings of experts, the device was made by a professional. On July 20, the local TV company ANT reported that a message had arrived at its office by e-mail, which stated that “a group of former counterintelligence officers of KGB of the USSR” were claiming responsibility for this attempted terrorist act. Similar letters were sent to many Ukrainian media, in which anonymous authors promised to conduct a series of terrorist acts aimed at “elimination of the most active embezzlers of state property and people engaged in subversive economic and spy activities in favor of foreign states, as well as corrupt employees of Ukrainian security agencies and special services.” The “group of former counterintelligence officers of KGB of the USSR” intends to send some compromising materials “on hundreds of businessmen and security officers” to media of Ukraine, Russia, and the EU. Sergei Gusarov, Chief of the Kharkiv Regional Department of the Ukrainian Interior Ministry tried to reassure the public and said that there are no reasons for panic. At the same time, he has stressed that the criminal case of the terrorists is investigated by the best employees of the city police department together with employees of the Ukrainian Security Council. According to the report of the press group of the Kharkiv Department of the Ukrainian Security Council, “according to preliminary data, employees of KGB in retirement have nothing to do with the incident…” While linguists and psychiatrists are working on the text of the message, the regional departments of the Security Council and Interior Ministry are trying to trace the initiator of the prevented terror act and the website from which the message was sent.


Izvestia (Moscow), July 27, 2002, p. 5

On July 26, Standard & Poor’s upgraded Russia’s rating from B+ to BB. In theory, upgrading of a country’s rating should lead to an increase of the price of the country’s debts and ratings of national companies. Standard & Poor’s has upgraded Russia’s long-term sovereign ratings on its liabilities in the national and foreign currencies. Short-term sovereign ratings on Russia’s liabilities in the national and foreign currencies are confirmed at the B level. The forecast of ratings has been changed from “positive” to “stable.” According to Helen Hussel, analyst of the agency, the “stable” forecast means expectation of a reasonable fiscal policy and the policy of regulating debts, as well as the further progress of reforms. Analyst of the company Renaissance-Capital Alexei Moiseev has explained that a rating is an encoded likelihood of a default. The larger the financial reserve is, the low the likelihood of a default should be. Simultaneously, the ratings of municipal issuers, Moscow and St. Petersburg, as well as oil and gas companies, are to be upgraded too. Analysts believe that these ratings will be upgraded as well, but this time, there is no increase of markets. Senior Analyst of NIKoil Alexei Kazakov has said, “About two weeks ago, a representative of Standard & Poor’s announced that Russia was on the BB- level by a number of indexes. Some investors might have expected the agency to increase Russia’s rating by one grade.”

Moiseev has said, “The absence of a positive reaction to the report of Standard & Poor’s is caused by the general negative situation. The situation in the US is very tense, and there is suspense in Brazil and Turkey.” Kazakov has added, “The market is declining, and according to our estimates, the peak of this decline will be next week.”


Rossiyskaya Gazeta, July 27, 2002, p. 8

Chief of the General Staff Anatoly Kvashnin has visited the Ulyanovsk 31st detached brigade of the airborne troops. Kvashnin said that this brigade is meant to be the location of an experiment in military recruitment and training. Hence, a training battalion has been organized here, in order to train conscripts according to a special six-month program. According to Kvashnin, this system will later be implemented nationwide.

Kvashnin also mentioned troop strength cuts. He confirmed that the total number of military personnel should be decreased to 1 million. These cuts will be implemented, and will include the strategic nuclear forces. Part of the military reforms involves providing military personnel with housing. According to Kvashnin, this problem should be resolved within the next seven to ten years.


Rossiyskaya Gazeta, July 27, 2002, p. 2

Deputy Prime Minister and Finance Minister AlexeI Kudrin made an unprecedented statement yesterday. He said that the government “will take measures” in order to settle a dispute with Noga, a company based in Switzerland. Kudrin noted that the debts to this company were the Soviet Union’s debts; he stressed that “we will follow our general principles for repaying Soviet debts”. In other words, Russia is going to use various restructuring schemes, as in relation to East Germany, for example.

Thus, after two years of this conflict with Noga, the Russian government has stated for the first time that it is prepared to repay the debt to Noga. There are only two questions left: how much, and when. This statement becomes more significant if we take into consideration the recent statements of some Russian state officials. They said that there were many other companies like Noga all over the world; and if Russia set a precedent, it would have to pay out a great amount of money to them.

Obviously, the difficulties associated with the British aviation expo in Farnborough have made Russia reconsider its position. For the first time since 1988, there were no Russian planes there. Russia was afraid that Noga would take action to seize Russian planes for the debt if they went to Britain. Evidently, the damage done to the Russian aviation industry by missing such expos is more important than the debt to Noga.


Rossiyskaya Gazeta, July 27, 2002, p. 2

Yesterday US Under-Secretary of Commerce Faryaar Shirzad gave Russia a lesson in reforming its economy. He said Washington “is concerned about Russia’s pricing system”. However, according to Shirzad, recent meetings, especially in the Russian Economic Development and Trade Ministry, have suggested to him that all the departments are showing “determination in the matter of the transition of energy tariffs to a market basis”. Demands to equalize fuel and energy prices in Russia are made very often, but they are unwelcome for Russian state officials and business executives alike. The Economic Development and Trade Ministry has not made any comment on Shirzad’s words as yet. At the same time, the US let it be understood that it clearly distinguishes between the formalities (granting Russia market economy status) and substance (protecting its markets). According to Shirzad, the US is not going to reconsider the 1996 agreement concerning imports of Russian uranium. This agreement restricts the rights of Russian suppliers, and it was concluded when Russia lacked market economy status. Economic Development Minister Herman Gref said that this agreement could be reconsidered; but Shirzad responded, “The fact that the US has granted Russia market economy status does not mean that we are going to abolish or change the agreement.”