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Title: Russian Roulette: Russia's Economy in Putin's Era

Author: Sam Vaknin

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Russian Roulette
Russia's Economy
In Putin's Era


1st EDITION



Sam Vaknin, Ph.D.


Editing and Design:
Lidija Rangelovska




Lidija Rangelovska
A Narcissus Publications Imprint, Skopje 2002

First published by United Press International - UPI
Not for Sale! Non-commercial edition.




(c) 2002 Copyright Lidija Rangelovska.
All rights reserved. This book, or any part thereof, may not be
used or reproduced in any manner without written permission
from:
Lidija Rangelovska  - write to:
palma@unet.com.mk or to
vaknin@link.com.mk


Visit the Author Archive of Dr. Sam Vaknin in "Central Europe
Review":
http://www.ce-review.org/authorarchives/vaknin_archive/vaknin_main.html

Visit "Balkanlands - World in Conflict and Transition":
http://www.balkanlands.com


ISBN: 9989-929-31-9

http://samvak.tripod.com/guide.html
http://economics.cjb.net
http://samvak.tripod.com/after.html
http://www.balkanlands.com

Created by:	LIDIJA RANGELOVSKA
REPUBLIC OF MACEDONIA





C O N T E N T S


I.	The Security Apparatus
II.	The Energy Sector
III.	Financial Services
IV.	The Russian Devolution - The Regions
V.	Agriculture
VI.	The Author
VII.	About "After the Rain"




The Security Apparatus



Shabtai Kalmanovich vanished from London in late 1980's. He
resurfaced in Israel to face trial for espionage. He was
convicted and spent years in an Israeli jail before being
repatriated to Russia. He was described by his captors as a
mastermind, in charge of an African KGB station.

In the early 1970's he even served as advisor (on Russian
immigration) to Israel's Iron Lady, Golda Meir. He then moved to
do flourishing business in Africa, in Botswana and then in
Sierra Leone, where his company, LIAT, owned the only bus
operator in Freetown. He traded diamonds, globetrotted
flamboyantly with an entourage of dozens of African chieftains
and their mistresses, and fraternized with the corrupt elite,
President Momoh included. In 1986-7 he even collaborated with
IPE, a London based outfit, rumored to have been owned by former
members of the Mossad and other paragons of the Israeli defense
establishment (including virtually all the Israelis implicated
in the ill-fated Iran-Contras affair).

Being a KGB officer was always a lucrative and liberating
proposition. Access to Western goods, travel to exotic
destinations, making new (and influential) friends, mastering
foreign languages, and doing some business on the side (often
with one's official "enemies" and unsupervised slush funds) -
were all standard perks even in the 1970's and 1980's. Thus,
when communism was replaced by criminal anarchy, KGB personnel
(as well as mobsters) were the best suited to act as
entrepreneurs in the new environment. They were well traveled,
well connected, well capitalized, polyglot, possessed of
management skills, disciplined, armed to the teeth, and
ruthless. Far from being sidetracked, the security services rode
the gravy train. But never more so than now.

January 2002. Putin's dour gaze pierces from every wall in every
office. His obese ministers often discover a sudden sycophantic
propensity for skiing (a favorite pastime of the athletic
President). The praise heaped on him by the servile media (Putin
made sure that no other kind of media survives) comes
uncomfortably close to a Central Asian personality cult. Yet,
Putin is not in control of the machinery that brought him to the
pinnacle of power, under-qualified as he was. This penumbral
apparatus revolves around two pivots: the increasingly fractured
and warlord controlled military and, ever more importantly, the
KGB's successors, mainly the FSB.

A. The Military

Two weeks ago, Russia announced yet another plan to reform its
bloated, inefficient, impoverished, demoralized and corrupt
military. Close to 200,000 troops are to go immediately and the
same number in the next 3 years. The draft is to be abolished
and the army professionalized. At its current size (officially,
1.2 million servicemen), the armed forces are severely under-
funded. Cases of hunger are not uncommon. Ill (and late) paid
soldiers sometimes beg for cigarettes, or food.

Conscripts, in what resembles slave labour, are "rented out" by
their commanders to economic enterprises (especially in the
provinces). A host of such "trading" companies owned by
bureaucrats in the Ministry of Defense was shut down last June
by the incoming Minister of Defense (Sergei Ivanov), a close pal
of Putin. But if restructuring is to proceed apace, the
successful absorption of former soldiers in the economy
(requiring pensions, housing, start up capital, employment) - if
necessary with the help of foreign capital - is bound to become
a priority sooner or later.

But this may be too late and too little - the much truncated and
disorientated armed forces have been "privatized" and
commandeered for personal gain by regional bosses in cahoots
with the command structure and with organized crime. Ex-soldiers
feature prominently in extortion, protection, and other anti-
private sector rackets.

The war in Chechnya is another long standing pecuniary bonanza -
and a vested interest of many generals. Senior Russian Interior
Ministry field commanders trade (often in partnership with
Chechen "rebels") in stolen petroleum products, food, and
munitions.

Putin is trying to reverse these pernicious trends by enlisting
the (rank and file) army (one of his natural constituencies) in
his battles against secessionist Chechens, influential
oligarchs, venal governors, and bureaucrats beyond redemption.

As well as the army, the defense industry - with its 2 million
employees - is also being brutally disabused of its centralist-
nationalistic ideals.

Orders placed with Russia's defense manufacturers by the
destitute Russian armed forces are down to a trickle. Though the
procurement budget was increased by 50% last year, to c. $2.2
billion (or 4% of the USA's) and further increased this year to
79 billion rubles ($2.7 billion) -  whatever money is available
goes towards R&D, arms modernization, and maintaining the
inflated nuclear arsenal and the personal gear of front line
soldiers in the interminable Chechen war. The Russian daily
"Kommersant" quotes Former Armed Forces weapons chief, General
Anatoly Sitnov, as claiming that  $16 billion should be
allocated for arms purchases if all the existing needs are to be
satisfied.

Having lost their major domestic client (defense constituted 75%
of Russian industrial production at one time) - exports of
Russian arms have soared to more than $4.4 billion annually (not
including "sensitive" materiel). Old markets in the likes of
Iran, Iraq, Syria, Algeria, Eritrea, Ethiopia, China, India, and
Libya have revived. Decision makers in Latin America and East
Asia (including Malaysia and Vietnam) are being avidly courted.
Bribes change hands, off-shore accounts are open and shut,
export proceeds mysteriously evaporate. Many a Russian are
wealthier due to this export cornucopia.

The reputation of Russia's weapons manufacturers is dismal (no
spare parts, after sales service, maintenance, or quality
control).  But Russian weapons (often Cold War surplus) come
cheap and the list of Russian firms and institutions blacklisted
by the USA for selling weapons (from handguns to missile
equipped destroyers) to "rogue states" grows by the day. Less
than one quarter of 2500 defense-related firms are subject to
(the amorphous and inapt) Russian Federal supervision.
Gradually, Russia's most advanced weaponry is being made
available through these outfits.

Close to 4000 R&D programs and defense conversion projects (many
financed by the West) have failed abysmally to transform
Russia's "military-industrial complex". Following a much derided
"privatization" (in which the state lost control over hundreds
of defense firms to assorted autochthonous tycoons and foreign
manufacturers) - the enterprises are still being abused and
looted by politicians on all levels, including the regional and
provincial ones. The Russian Federation, for instance, has
controlling stakes in only 7 of c. 250 privatized air defense
contractors. Manufacturing and R&D co-operation with Ukraine and
other former Soviet republics is on the ascendant, often flying
in the face of official policies and national security.

Despite the surge in exports, overproduction of unwanted goods
leads to persistent accumulation of inventory. Even so, capacity
utilization is said to be 25% in many factories. Lack of
maintenance renders many plant facilities obsolete and non-
competitive. The Russian government's new emphasis on R&D is
wise - Russia must replenish its catalog with hi-tech gadgets if
it wishes to continue to export to prime clients. Still, the
Russian Duma's prescription of a return to state ownership,
central planning, and subsidies, if implemented, is likely to
prove to be the coup de grace rather than a graceful coup.





B. The FSB (the main successor to the KGB)

Note:

The KGB was succeeded by a host of agencies. The FSB inherited
its internal security directorates. The SVR inherited the KGB's
foreign intelligence directorates.

With the ascendance of the Vladimir Putin and his coterie (all
former KGB or FSB officers), the security services revealed
their hand - they are in control of Russia and always have been.
They number now twice as many as the KGB at its apex. Only a few
days ago, the FSB had indirectly made known its enduring
objections to a long mooted (and government approved) railway
reform (a purely economic matter). President Putin made December
20 (the day the murderous Checka, the KGB's ancestor, was
established in 1917) a national holiday.

But the most significant tectonic shift has been the implosion
of the unholy alliance between Russian organized crime and its
security forces. The Russian mob served as the KGB's long arm
until 1998. The KGB often recruited and trained criminals (a
task it took over from the Interior Ministry, the MVD). "Former"
(reserve) and active agents joined international or domestic
racketeering gangs, sometimes as their leaders.

After 1986 (and more so after 1991), many KGB members were moved
from its bloated First (SVR) and Third Directorates to its
Economic Department. They were instructed to dabble in business
and banking (sometimes in joint ventures with foreigners).
Inevitably, they crossed paths - and then collaborated - with
the Russian mafia which, like the FSB, owns shares in privatized
firms, residential property, banks, and money laundering
facilities.

The co-operation with crime lords against corrupt (read: unco-
operative) bureaucrats became institutional and all-pervasive
under Yeltsin. The KGB is alleged to have spun off a series of
"ghost" departments to deal with global drug dealing, weapons
smuggling and sales, white slavery, money counterfeiting, and
nuclear material.

In a desperate effort at self-preservation, other KGB
departments are said to have conducted the illicit sales of raw
materials (including tons of precious metals) for hard currency,
and the laundering of the proceeds through financial
institutions in the West (in Cyprus, Israel, Greece, the USA,
Switzerland, and Austria). Specially established corporate
shells and "banks" were used to launder money, mainly on behalf
of the party nomenklatura. All said, the emerging KGB-crime
cartel has been estimated to own or control c. 40% of Russian
GDP as early as 1994, having absconded with c. $100 billion of
state assets.

Under the dual pretexts of "crime busting" and "fighting
terrorism", the Interior Ministry and FSB used this period to
construct massive, parallel, armies - better equipped and better
trained than the official one.

Many genuinely retired KGB personnel found work as programmers,
entrepreneurs, and computer engineers in the Russian private
sector (and, later, in the West) - often financed by the KGB
itself. The KGB thus came to spawn and dominate the nascent
Information Technology and telecommunications industries in
Russia. Add to this former (but on reserve duty) KGB personnel
in banks, hi-tech corporations, security firms, consultancies,
and media in the West as well as in joint ventures with foreign
firms in Russia - and the security services' latter day role
(and next big fount of revenue) becomes clear: industrial and
economic espionage. Russian scholars are already ordered (as of
last May) to submit written reports about all their encounters
with foreign colleagues.

This is where the FSB began to part ways with crime, albeit
hitherto only haltingly.

The FSB has established itself both within Russian power
structures and in business. What it needs now more than money
and clout - are respectability and the access it brings to
Western capital markets, intellectual property (proprietary
technology), and management. Having co-opted criminal
organizations for its own purposes (and having acted criminally
themselves) - the alphabet soup of security agencies now wish to
consolidate their gains and transform themselves into
legitimate, globe-spanning, business concerns. The robbers' most
fervent wish is to become barons. Their erstwhile, less exalted,
criminal friends are on the way. Expect a bloodbath, a genuine
mafia gangland war over territory and spoils. The result is by
no means guaranteed.

Return



The Energy Sector



The pension fund of the Russian oil giant, Lukoil, a minority
shareholder in TV-6 (owned by a discredited and self-exiled
Yeltsin-era oligarch, Boris Berezovsky), this week forced the
closure of this television station on legal grounds. Gazprom
(Russia's natural gas monopoly) has done the same to another
television station, NTV, last year (and then proceeded to
expropriate it from its owner, Vladimir Gusinsky).

Gazprom is forced to sell natural gas to Russian consumers at
10% the world price and to turn a blind eye to debts owed it by
Kremlin favorites.

Both Lukoil and Gazprom are, therefore, used by the Kremlin as
instruments of domestic policy.

But Russian energy companies are also used as instruments of
foreign policy.

A few examples:

Russia has resumed oil drilling and exploration in war ravaged
Chechnya. About 230 million rubles have been transferred to the
federal Ministry of Energy. A new refinery is in the works.

Russia lately signed a production agreement to develop oilfields
in central Sudan in return for Sudanese arms purchases.

Armenia owes Itera, a Florida based, Gazprom related, oil
concern, $35 million. Itera has agreed to postpone its planned
reduction in gas supplies to the struggling republic to February
11.

Last month, President Putin called for the establishment of a
"Eurasian alliance of gas producers" - probably to counter
growing American presence, both economic and military, in
Central Asia and the much disputed oil rich Caspian basin. The
countries of Central Asia have done their best to construct
alternative oil pipelines (through China, Turkey, or Iran) in
order to reduce their dependence on Russian oil transportation
infrastructure. These efforts largely failed (a new $4 billion
pipeline from Kazakhstan to the Black Sea through Russian
territory has just been inaugurated) and Russia is now on a
charm offensive.

Its PR efforts are characteristically coupled with extortion.
Gazprom owns the pipelines. Russia exports 7 trillion cubic feet
of gas a year - six times the combined output of all other
regional producers put together. Gazprom actually competes with
its own clients, the pipelines' users, in export markets. It is
owed money by all these countries and is not above leveraging it
to political or economic gain.

Lukoil is heavily invested in exploration for new oil fields in
Iraq, Algeria, Sudan, and Libya.





Russian debts to the Czech Republic, worth $2.5 billion in face
value, have just been bought by UES, the Russian electricity
monopoly, for a fraction of their value and through an offshore
intermediary. UES then transferred the notes to the Russian
government against the writing off of $1.35 billion in UES debts
to the federal budget. The Russians claim that Paris Club rules
have ruled out a direct transaction between Russia (a member of
the Club) and the Czech Republic (not a member).

In the last decade, Russia has been transformed from an
industrial and military power into a developing country with an
overwhelming dependence on a single category of commodities:
energy products. Russia's energy monopolies - whether state
owned or private - serve as potent long arms of the Kremlin and
the security services and implement their policies faithfully.

The Kremlin (and, indirectly, the security services) maintain a
tight grip over the energy sector by selectively applying
Russia's tangle of hopelessly arcane laws. In the last week
alone, the Prosecutor General's office charged the president and
vice president of Sibur (a Gazprom subsidiary) with
embezzlement. They are currently being detained for "abuse of
office".

Another oil giant, Yukos, was forced to disclose documents
regarding its (real) ownership structure and activities to the
State Property Fund in connection with an investigation
regarding asset stripping through a series of offshore entities
and a Siberian subsidiary.

Intermittently, questions are raised about the curious
relationship between Gazprom's directors and Itera, upon which
they shower contracts with Gazprom and what amounts to multi-
million dollar gifts (in the from of ridiculously priced Gazprom
assets) incessantly.

Gazprom is now run by a Putin political appointee, its former
chairman, the oligarch Vyakhirev, ousted in a Kremlin-instigated
boardroom coup.

Foreign (including portfolio) investors seem to be happy.
Putin's pervasive micromanagement of the energy titans assures
them of (relative) stability and predictability and of a
reformist, businesslike, mindset. Following a phase of shameless
robbery by their new owners, Russian oil firms now seem to be
leading Russia - albeit haltingly - into a new age of good
governance, respect for property rights, efficacious management,
and access to Western capital markets.

The patently dubious UES foray into sovereign debt speculation,
for instance, drew surprisingly little criticism from foreign
shareholders and board members. "Capital Group", an
international portfolio manager, is rumored to have invested
close to $700 million in accumulating 10% of Lukoil, probably
for some of its clients. Sibneft has successfully floated a $250
million Eurobond (redeemable in 2007 with a lenient coupon of
11.5%). The issue was oversubscribed.





The (probably temporary) warming of Russia's relationship with
the USA and Russia's acceptance (however belated and reluctant)
of its technological and financial dependence on the West - have
transformed the Russian market into an attractive target.
Commercial activity is more focused and often channeled through
American diplomatic missions.

The U.S. Consul General in Vladivostok and the Senior Commercial
Officer in Moscow have announced that they will "lead an oil and
gas equipment and services and related construction sectors
trade mission to Sakhalin, Russia from March 11-13, 2002." The
oil and gas fields in Sakhalin attract 25% of all FDI in Russia
and more than $35 billion in additional investments is expected.
Other regions of interest are the Arctic and Eastern Siberia.
Americans compete here with Japanese, Korean, Royal Dutch/Shell,
French, and Canadian firms, among others. Even oil
multinationals scorched in Russia's pre-Putin incarnation - like
British Petroleum which lost $200 million in Sidanco in 11
months in 1997-8 - are back.





Takeovers of major Russian players (with their proven reserves)
by foreign oil firms are in the pipeline. Russian firms are
seriously undervalued - their shares being priced at one third
to one tenth their Western counterparts'. Some Russian oil firms
(like Yukos and Sibneft) have growth rates among the highest and
production costs among the lowest in the industry. The boards of
the likes of Lukoil are packed with American fund managers and
British investment bankers. The forthcoming liberalization of
the natural gas market (the outcome of an oft-heralded and much
needed Gazprom divestiture) is a major opportunity for new -
possibly foreign - players.

This gold rush is the result of Russia's prominence as an oil
producer, second only to Saudi Arabia. Russia dumps on the world
markets c. 4.5 million barrels daily (about 10% of the global
trade in oil). It is the world's largest exporter of natural gas
(and has the largest known natural gas reserves). It is also the
world's second largest energy consumer. In 1992, it produced 8
million bpd and consumed half as much. In 2001, it produced 7
million bpd and consumed 2 million bpd.





Russia has c. 50 billion oil barrels in proven reserves but
decrepit exploration and extraction equipment, and a crumbling
oil transport infrastructure is in need of total replacement.
More than 5% of oil produced in Russia is stolen by tapping the
leaking pipelines. An unknown quantity is lost in oil spills and
leakage. Transneft, the state's oil pipelines monopoly, is
committed to an ambitious plan to construct new export pipelines
to the Baltic and to China. The market potential for Western
equipment manufacturers, building contractors, and oil firms is
evidently there.

But this serendipity may be a curse in disguise. Russia is
chronically suffering from an oil glut induced by over-
production, excess refining capacity, and subsidized domestic
prices (oil sold inside Russia costs one third to one half the
world price). Russian oil companies are planning to increase
production even further. Rosneft, the eighth largest, plans to
double its crude output. Yukos (Russia's second largest oil
firm) intends to increase output by 20% this year. Surgut will
raise its production by 14%.

Last week, Russia halved export duties on fuel oil. Export
duties on lighter energy products, including gas, were cut in
January. As opposed to previous years, no new export quotas were
set. Clearly, Russia is worried about its surplus and wishes to
amortize it through enhanced exports.





Russia also squandered its oil windfall and used it to postpone
the much needed restructuring of other sectors in the economy -
notably the wasteful industrial sector and the corrupt and
archaic financial system. Even the much vaunted plans to break
apart the venal and inefficient natural gas and electricity
monopolies and to come up with a new production sharing regime
have gone nowhere (though some pipeline capacity has been made
available to Gazprom's competitors).

Both Russia's tax revenues and its export proceeds (and hence
its foreign exchange reserves and its ability to service its
monstrous and oft-rescheduled $158 billion in foreign debt) are
heavily dependent on income from the sale of energy products in
global markets. More than 40% of all its tax intake is energy-
related (compared to double this figure in Saudi Arabia).
Gazprom alone accounts for 25% of all federal tax revenues.
Almost 40% of Russia's exports are energy products as are 13% of
its GDP. Domestically refined oil is also smuggled and otherwise
sold unofficially, "off the books".

But, as opposed to Saudi Arabia's or Venezuela's, Russia's
budget is based on a far more realistic price range of $14-18
per barrel. Hence Russia's frequent clashes with OPEC (of which
it is not a member) and its decision to cut oil production by
only 150,000 bpd in the first quarter of 2002 (having increased
it by more than 400,000 bpd in 2001). It cannot afford a larger
cut and it can increase its production to compensate for almost
any price drop.





Russia's energy minister told the Federation Council, Russia's
upper house of parliament, that Russia "should switch from
cutting oil output to boosting it considerably to dominate world
markets and push out Arab competitors". The Prime Minister told
the US-Russia Business Council that Russia should "increase oil
production and its presence in the international marketplace."

It may even be that Russia is spoiling for a bloodbath which it
hopes to survive as a near monopoly in the energy markets.
Russia already supplies more than 25% of all natural gas
consumed by Europe and is building or considering to construct
pipelines to Turkey, China, and Ukraine. Russia also has sizable
coal and electricity exports, mainly to CIS and NIS countries.
Should it succeed in its quest to dramatically increase its
market share, it will be in the position to tackle the USA and
the EU as an equal, a major foreign policy priority of both
Putin and all his predecessors alike.

Return



Financial Services



An expatriate relocation Web site, settler-international.com,
has this to say about Russian banks: "Do not open a bank account
in a Russian bank : you might not see your deposit again."
Russia's Central Bank, aware of the dismal lack of
professionalism, the venality, and the criminal predilections of
Russian "bankers" (and their Western accomplices) - is offering
"complementary vocational training" in the framework of its
Banking School. It is somewhat ironic that the institution
suspected of abusing billions of US dollars in IMF funds by
"parking" them in obscure off-shore havens - seeks to better the
corrupt banking system in Russia.

I. The Banks

On paper, Russia has more than 1,300 banks. Yet, with the
exception of the 20-odd (two new ones were added last year)
state-owned (and, implicitly, state-guaranteed) outfits - e.g.,
the mammoth Sberbank (the savings bank, 61% owned by the Central
Bank) - very few provide minimal services, such as corporate
finance and retail banking. The surviving part of the private
banking sector ("Alfa Bank", "MDM Bank") is composed of dwarfish
entities with limited offerings. They are unable to compete with
the statal behemoths in a market tilted in the latters' favor by
both regulation and habit.





The Agency for the Reconstruction of Credit Organizations (ARCO)
- established after the seismic shock of 1998 - did little to
restructure the sector and did nothing to prevent asset
stripping. More than one third of the banks are insolvent - but
were never bankrupted. The presence of a few foreign banks and
the emergence of non-bank financing (e.g., insurance) are rays
of hope in an otherwise soporific scene.

Despite the fact that most medium and large corporations in
Russia own licensed "banks" (really, outsourced treasury
operations) - more than 90% of corporate finance in 2000-2001
was in the form of equity finance, corporate bonds, and (mainly)
reinvested retained earnings. Some corporate bond issues are as
large as $100 million (with 18-months maturity) and the
corporate bond market may quintuple to $10 billion in a year or
two, reports "The Economist", quoting Renaissance Capital, a
Russian investment bank.

Still, that bank credits are not available to small and medium
enterprises retards growth, as Stanley Fischer pointed out in
his speech to the Higher School of Economics in Moscow, in June
2001, when he was still the First Deputy Managing Director of
the IMF. Last week, the OECD warned Russia that its economic
growth may suffer without reforms to the banking sector.





Russian banks are undercapitalized and poorly audited. Most of
them are exposed to one or two major borrowers, sectors, or
commodities. Margins have declined (though to a still high by
Western standards 14%). Costs have increased. The vast majority
of these fledglings have less than $1 million in capital. This
is because shareholders (and, for that matter, depositors) -
having been fleeced in the 1998 meltdown - are leery of throwing
good money after very bad. The golden opportunity to consolidate
and rationalize following the 1998 crisis was clearly missed.

The government's (frail) attempts to reform the sector by
overhauling bank supervision and by passing laws which deal with
anti-money laundering, deposit insurance, minimum capital and
bankruptcy regulations, and mandatory risk evaluation models -
did little to erase the memory of its collusion in the all-
pervasive, massive, and suspiciously orchestrated defaults of
1998-1999. Russia is notoriously strong on legislation and short
on its enforcement.

Moreover, the opaque, overly-bureaucratic, and oligarch-friendly
Central Bank is at loggerheads with would be reformers and gets
its way more often than not. It supports a minimum capital
requirement of less than $5 million. Government sources have
gone as high as $200 million. The government retaliates with
thinly-veiled threats in the form of inane proposals to replace
the Bank with newly-created "independent" institutions.





Viktor Gerashchenko - the current, old-school, Governor - is set
to leave on September 2002. He will likely be replaced by
someone more Kremlin-friendly. As long as the Kreml is the
bastion of reform, these are good news. But a weak Central Bank
will remove one of the last checks and balances in Russia.
Moreover, a hasty process of consolidation coupled with
draconian regulation may decimate private sector Russian banking
for good. This, perhaps, is what the Kremlin wants. After all,
he who controls the purse strings - rules Russia.

II. The Stock Exchange

The theory of financial markets calls for robust capital markets
where banks are lacking and dysfunctional. Equity financing and
corporate debt outstrip bank lending as sources of corporate
finance even in the West.

But Russia's stock market - the worst performer among emerging
markets in 1998, the best one in 2001 - is often cornered and
manipulated, prey to insider trading and worse. It is less
liquid that the Tel-Aviv Stock Exchange, though the market
capitalization of RTS, Russia's main marketplace, is up 430%
since 1998 (80% last year alone). Bonds climbed 500% in the same
period and a flourishing corporate bonds markets has erupted on
the scene. Many regard this surge as a speculative bubble
inflated by the high level of oil prices.





Others (mostly Western brokerage houses) swear that the market
is undervalued, having fallen by more than 90% in 1998. Russia
is different - they say - it is better managed, sports budget
and trade surpluses, is less indebted (and re-pays its debts on
time, for a change), and the economy is expanding. The same
pundits talked the RTS up 180% in 1997 only to see it shrivel in
an egregious case of Asian contagion. The connection between
Russia's macro and micro is less than straightforward.

Whatever the truth, investors are clearly more discriminating.
Both the New York Times and The Economist cite the example of
Yukos Oil (up 190%) versus Lukoil (up a mere 30%). The former is
investor friendly and publishes internationally audited
accounts. The latter has no investor relations to speak of and
is disclosure-averse. Still, both firms - as do a few pioneering
others - seek to access Western capital markets.

The intrepid investor can partake by purchasing mutual funds
dedicated, wholly or partially, to Russia - or by trading ADR's
of Russian firms on NYSE (10-20 times the US dollar volume of
the RTS). ADR's of smaller firms are traded OTC and, according
to the New York Times, one can short sell Russian securities
through offshore vehicles. The latter are also used to speculate
in the shares of defunct Russian firms ("shells") traded in the
West.





III. Debt Markets

Perhaps the best judges of Russia's officially minuscule economy
(smaller than the Netherlands' and less than three times
Israel's) - are the Russians. When the author of this article
suggested that Russia's 1998 chaos was serendipitous (in
"Argumenti i Fakti" dated October 28, 1998), he was derided by
Western analysts but supported by Russian ones. In hindsight,
the Russians were right. They may be right today as well when
they claim that Russia has never been better.

The ruble devaluation (which made Russian goods competitive) and
rising oil prices yielded a trade surplus of more than $50
billion last year. For the first time in its modern and
turbulent history, Russia was able to prepay both foreign (IMF)
and domestic debts (it redeemed state bonds ahead of maturity).
It is no longer the IMF's largest debtor. Its Central Bank
boasts  $40 billion in foreign exchange reserves. Exactly a year
ago, Russia tried to extort a partial debt write-off from its
creditors (as it has done numerous times in its post-Communist
decade). But Russia's oft-abused creditors and investors seem to
have surprisingly short memories and an unsurpassed capacity for
masochistic self-delusion.





Stratfor.com reports ("Russia Buys Financial Maneuverability"
dated January 31, 2002) that "Deutsche Bank Jan. 30 granted
Vneshekonombank a $100 million loan, the largest private loan to
a Russian bank since the 1998 ruble crisis. As Russia works to
reintegrate into the global financial network, the cost of
domestic borrowing should drop. That should spur a fresh wave of
domestically financed development, which is essential
considering Russia's dearth of foreign investment."

The strategic forecasting firm also predicts the emergence of a
thriving mortgage finance market (there is almost none now). One
of the reasons is a belated November 2001 pension reform which
allows the investment of retirement funds in debt instruments -
such as mortgages. A similar virtuous cycle transpired in
Kazakhstan. Last year the Central Bank allowed individuals to
invest up to $75,000 outside Russia.

IV. The Bandits

In August 1999, a year and four days after Moscow's $40 billion
default, the New York Times reported a $15 billion money
laundering operation which involved, inter alia, the Bank of New
York and Russia's first Representative to the IMF.

The Russian Central Bank invested billions of dollars (through
an offshore entity) in the infamous Russian GKO (dollar-
denominated bonds) market, thus helping to drive yields to a
vertiginous 290%.

Staff members and collaborators of the now dismantled brainchild
of Prof. Jeffrey Sachs, HIID (Harvard Institute of International
Development) - the architect of Russian "privatization" - were
caught in potentially criminal conflicts of interest.

Are we to believe that such gargantuan transgressions have been
transformed into new-found market discipline and virtuous
dealings?

Putin doesn't. Last year, riding the tidal wave of the fight
against terror, he formed the Financial Monitoring Committee
(KFM). Ostensibly, its role is to fight money laundering and
other financial crimes, aided by brand new laws and a small army
of trained and tenacious accountants under the aegis of the
Ministry of Finance.

Really, it is intended to circumvent irredeemably compromised
extant structures in the Ministry of Interior and the FSB and to
stem capital flight (if possible, by reversing the annual
hemorrhage of $15-20 billion). Non-cooperative banks may lose
their licenses. Banks have been transferring 5 daily Mb of
encoded reports regarding suspicious financial dealings (and all
transactions above 600,000 rubles - equal to $20,000) since
February 1 - when the KFM opened for business. So much for
Russian bank secrecy ("Did we really have it?" - mused President
Putin a few weeks ago).





Last month, Mikhail Fradkov, the Federal Tax Police Chief
confirmed to Interfax the financial sector's continued
involvement in bleeding Russia white: "...fly-by-night firms
usually play a key role in illegal money transfers abroad.
Fradkov recalled that 20 Moscow banks inspected by the tax
police alone transferred about $5 billion abroad through such
firms." ITAR-TASS, the Russian news agency, reports a drop of
60% in the cash flow of Russian banks since anti-money
laundering measures took effect, a fortnight ago.

V. The Foreign Exchange Market

Russians, the skeptics that they are, still keep most of their
savings (c. $40-50 billion) in foreign exchange (predominantly
US dollars), stuffed in mattresses and other exotic places.
Prices are often quoted in dollars and ATM's spew forth both
dollars and rubles. This predilection for the greenback was
aided greatly by the Central Bank's panicky advice (reported by
Moscow Times) to ditch all European currencies prior to January
1, 2002. The result is a cautious and hitherto minor
diversification to euros. Banks are reporting increased demand
for the new currency - a multiple of the demand for all former
European currencies combined. But this is still a drop in the
dollar ocean.





The exchange rate is determined by the Central Bank - by far the
decisive player in the thin and illiquid market. Lately, it has
opted for a creeping devaluation of the ruble, in line with
inflation. Foreign exchange is traded in eight exchanges across
Russia but many exporters sell their export earnings directly to
the Central Bank. Permits are required for all major foreign
exchange transactions, including currency repatriation by
foreign firms. Currency risk is absolute as a 1998 court ruling
rendered ruble forwards contracts useless ("unenforceable
bets").

VI. The International Financial Institutions (IFI's)

Of the World Bank's $12 billion allocated to 51 projects in
Russia since 1992, only $0.6 billion went to the financial
sector (compared to 8 times as much wasted on "Economic
Planning"). Its private sector arm, the International Finance
Corporation (IFC) refrained from lending to or investing in the
financial sector from March 1999 to June 2001. It has approved
(or is considering) six projects since then: a loan of $20
million to DeltaCredit, a smallish project and residential
finance, USAID backed, fund; a Russian pre-export financing
facility (with the German bank, WestLB); Two million US dollars
each to the Russian-owned Baltiskii Leasing and Center Invest (a
regional bank); $2.5 million to another regional bank (NBD) -
and a partial guarantee for a $15 million bond issued by Russian
Standard Bank. There is also $5 million loan to Probusiness
Bank.





Another active player is the EBRD. Having suffered a humiliating
deterioration in the quality of its Russian assets portfolio in
1998-2000, it is active there again. By midyear last year, it
had invested c. $300 million and lent another $700 million to
Russian banks, equity and mutual funds, insurance companies, and
pension funds. This amounts to almost 30% of its total
involvement in the Russian Federation. Judging by this
commitment, the EBRD - a bank - seems to be regarding the
Russian financial system as either an extremely attractive
investment - or a menace to Russia's future stability.

VII. So, What's Next?

No modern country, however self-deluded and backward, can
survive without a banking system. The Central Bank's pernicious
and overwhelming presence virtually guarantees a repeat of 1998.
Russia - like Japan - is living on time borrowed against its oil
collateral. Should oil prices wither - what remains of the
banking system may collapse, Russian securities will be dumped,
Russian debts "deferred". The Central Bank may emerge either
more strengthened by the devastation - or weakened to the point
of actual reform.





In the eventuality of a confluence between this financial
Armageddon and Russia's entry to the WTO - the crisis is bound
to become more ominous. Russia is on the verge of opening itself
to real competition from the West - including (perhaps
especially so) in the financial sector. It is revamping its law
books - but does not have the administrative mechanism it takes
to implement them. It has a rich tradition of obstructionism,
venality, political interference, and patronage.

Foreign competition is the equivalent of an economic crisis in a
country like Russia. Should this be coupled with domestic
financial mayhem - Russia may be transformed to the worse.
Expect interesting times ahead.

Return



The Russian Devolution

 The Regions



Russia's history is a chaotic battle between centrifugal and
centripetal forces - between its 50 oblasts (regions), 2 cities
(Moscow and St. Petersburg), 6 krais (territories), 21
republics, and 10 okrugs (departments) - and the often cash-
strapped and graft-ridden paternalistic center. The vast land
mass that is the Russian Federation (constituted officially in
1993) is a patchwork of fictitious homelands (the Jewish
oblast), rebellious republics (Chechnya), and disaffected
districts - all intermittently connected with decrepit lines of
transport and communications.

The republics - national homelands to Russia's numerous
minorities - have their own constitutions and elected presidents
(since 1991). Oblasts and krais are run by elected governors (a
novelty - governors have been appointed by Yeltsin until 1997).
They are patchy fiefdoms composed of autonomous okrugs. "The
Economist" observes that the okrugs (often populated with
members of an ethnic minority) are either very rich (e.g.,
Yamal-Nenets in Tyumen, with 53% of Russia's oil reserves) - or
very poor and, thus, dependent on Federal handouts.





In Russia it is often "Moscow proposes - but the governor
disposes" - but decades of central planning and industrial
policy encouraged capital accumulation is some regions while
ignoring others, thus irreversibly eroding any sense of residual
solidarity. In an IMF working paper ("Regional Disparities and
Transfer Policies in Russia" by Dabla-Norris and Weber), the
authors note that the ten wealthiest regions produce more than
40% of Russia's GDP (and contribute more than 50% of its tax
revenues) - thus heavily subsidizing their poorer brethren.
Output contracted by 90% in some regions - and only by 15% in
others. Moscow receives more than 20% of all federal funds -
with less than 7% of the population. In the Tuva republic -
three quarters of the denizens are poor - compared to less than
one fifth in Moscow. Moscow lavishes on each of its residents 30
times the amount per capita spent by the poorest region.

Nadezhda Bikalova of the IMF notes ("Intergovernmental Fiscal
Relations in Russia") that when the USSR imploded, the ratio of
budgetary income per person between the richest and the poorest
region was 11.6. It has since climbed to 30. All the regions
were put in charge of implementing social policies as early as
1994 - but only a few (the net "donors" to the federal budget,
or food exporters to other regions) were granted taxing
privileges.





As Kathryn Stoner-Weiss has observed in her book, "Local Heroes:
The Political Economy of Russian Regional Governance", not all
regions performed equally well (or equally dismally) during the
transition from communism to (rabid) capitalism. Political
figures in the (relatively) prosperous Nizhny-Novgorod and
Tyumen regions emphasized stability and consensus (i.e.,
centralization and co-operation). Both the economic resources
and the political levers in prosperous regions are in the hands
of a few businessmen and "their" politicians. In some regions,
the movers and shakers are oligarch-tycoons - but in others,
businessmen formed enterprise associations, akin to special
interest lobbying groups in the West.

Inevitably such incestuous relationships promotes corruption,
imposes conformity, inhibits market mechanisms, and fosters
detachment from the centre. But they also prevent internecine
fighting and open, economically devastating, investor-deterring,
conflicts. Economic policy in such parts of Russia tend to be
coherent and efficiently implemented. Such business-political
complexes reached their apex in 1992-1998 in Moscow (ranked #1
in creditworthiness), Samara, Tyumen, Sverdlovsk, Tatarstan,
Perm, Nizhny-Novgorod, Irkutsk, Krasnoyarsk, and St. Petersburg
(Putin's lair). As a result, by early 1997, Moscow attracted
over 50% of all FDI and domestic investment and St. Petersburg -
another 10%.





These growing economic disparities between the regions almost
tore Russia asunder. A clunky and venal tax administration
impoverished the Kremlin and reduced its influence (i.e., powers
of patronage) commensurately. Regional authorities throughout
the vast Federation attracted their own investors, passed their
own laws (often in defiance of legislation by the centre),
appointed their own officials, levied their own taxes (only a
fraction of which reached Moscow), and provided or withheld
their own public services (roads, security, housing, heating,
healthcare, schools, and public transport).

Yeltsin's reliance on local political bosses for his 1996 re-
election only exacerbated this trend. He lost his right to
appoint governors in 1997 - and with it the last vestiges of
ostensible central authority. In a humiliating - and well-
publicized defeat - Yeltsin failed to sack the spectacularly
sleazy and incompetent governor of Primorsky krai, Yevgeni
Nazdratenko (later "persuaded" by Putin to resign his position
and chair the State Fisheries Committee instead).

The regions took advantage of Yeltsin's frail condition to
extract economic concessions: a bigger share of the tax pie, the
right to purchase a portion of the raw materials mined in the
region at "cost" (Sakha), the right to borrow independently
(though the issuance of promissory notes was banned in 1997) and
to spend "off-budget" - and even the right to issue Eurobonds
(there were three such issues in 1997). Many regions cut red
tape, introduced transparent bookkeeping, lured foreign
investors with tax breaks, and liberalized land ownership.

Bikalova (IMF) identifies three major problems in the fiscal
relationship between centre and regions in the Yeltsin era:

"(1) the absence of an objective normative basis for allocating
budget revenues, (2) the lack of interest shown by local and
regional governments in developing their own revenues and
cutting their expenditures, and (3) the federal government's
practice of making transfer payments to federation members
without taking account of the other state subsidies and grants
they receive."

Then came Russia's financial meltdown in August 1998, followed
by Putin's disorientating ascendance. A redistribution of power
in Moscow's favor seemed imminent. But it was not to be.

The recommendations of a committee, composed of representatives
of the government, the Federation Council, and the Duma, were
incorporated in a series of laws and in the 1999 budget, which
re-defined the fiscal give and take between regions and centre.

Federal taxes include the enterprise profit tax, the value-added
tax (VAT), excise, the personal income tax (all of it returned
to the regions), the minerals extraction tax, customs and
duties, and other "contributions" . This legislation was further
augmented in April-May 2001 (by the "Federalism Development
Program 2001-2005").





The regions are allowed to tax the property of organizations,
sales, real estate, roads, transportation, and gambling
enterprises, and regional license fees (all tax rates are set by
the center, though). Municipal taxes include the land tax,
individual property, inheritance, and gift taxes, advertising
tax, and license fees.

The IMF notes that "more than 90 percent of sub-national
revenues come from federal tax sharing. Revenues actually raised
by regional and local governments account for less than 15
percent of their expenditures". The federal government has also
signed more than 200 special economic "contracts" with the
richer, donor and exporting, regions - this despite the
constitutional objections of the Ministry of Justice. This
discriminating practice is now being phased out. But it has not
been replaced by any prioritized economic policies and
preferences on the federal level, as the OECD has noted.

One of Putin's first acts was to submit a package of laws to the
State Duma in May 2000. The crux of the proposed legislation was
to endow the President with the power to sack regional elected
officials at will. The alarmed governors forgot their petty
squabbles and in a rare show of self-interested unity fenced the
bill with restrictions. The President can fire a governor, said
the final version, only if a court rules that the latter failed
to incorporate federal legislation in regional laws, or if
charged with serious criminal offenses. The wholesale dismissal
of regional legislatures requires the approval of the State
Duma. Some republics insist that even these truncated powers are
excessive and Russia's Constitutional Court is currently
weighing their arguments.

Putin then resorted to another stratagem. He established, two
years ago, by decree, a bureaucratic layer between centre and
regions: seven administrative mega-regions whose role is to make
sure that federal laws are both adopted and enforced at the
local level. The presidential envoys report back to the Kremlin
but, otherwise, are fairly harmless - and useless. They did
succeed, however, in forcing local elections upon the likes of
Ingushetiya - and to organize all federal workers in regional
federal collegiums, subordinated to the Kremlin.

The war in Chechnya was meant to be another unequivocal message
that cessation is not an option, that there are limits to
regional autonomy, and that the center - as authoritative as
ever - is back. It, too, flopped painfully when Chechnya evolved
into a second - internal - Afghani quagmire.

Having failed thrice, Putin is lately leaning in favor of
restoring and even increasing the Federation Council's erstwhile
powers at the expense of the (incensed) Duma. Governors have
sensed the changing winds and have acted to trample over
democratic institutions in their regions. Thus, the Governor of
Orenburg has abolished the direct elections of mayors in his
oblast. Russia's big business is moving in as well in an attempt
to elect its own mayors (for instance, in Irkutsk).

Regional finances are in bad shape. Only 40 out 89 regions
managed, by February, to pay their civil servants their December
2001 salaries (raised 89% - or 1.5% of GDP - by the benevolent
president). Many regions had to go deeper into deficit to do so.
Salaries make three quarters of regional budgets.

The East-West Institute reports that arrears have increased 10%
in January alone - to 33 billion rubles (c. $1 billion). The
Finance Ministry is considering to declare seven regions
bankrupt. Yet another committee, headed by Deputy Head of the
Presidential Administration, Dimitri Kozak, is on the verge of
establishing an external administration for insolvent regions.
The recent housing reform - which would force Russians to pay
market prices for their apartments and would subsidize the poor
directly (rather than through the regional and municipal
authorities) - is likely to further weaken regional balance
sheets.

Luckily for Russia, the regions are less cantankerous and
restive now. The emphasis has shifted from narcissistic
posturing to economic survival and prosperity. The Moscow region
still attracts the bulk of Russian domestic and foreign
investments, leaving the regions to make do with leftovers.

Sergei Kirienko, a former short lived Prime Minister, and,
currently the president's envoy to the politically mighty Volga
okrug, attributes this gap, in a comment to Radio Free Europe,
to non-harmonized business legislation (between center and
regions). Boris Nemtsov, a member of the Duma (and former Deputy
Prime Minister) thinks that the problem is a "lack of democratic
structures" - press freedom, civil society, and democratic
government. Others attribute the deficient interest to a dearth
of safety and safe institutions, propagated by entrenched
interest groups.





Small business is back in fashion after years of investments in
behemoths such as Gazprom and Lukoil. Politicians make small to
medium enterprises a staple of their speeches. The EBRD has
revived its moribund small business funds (and grants up to
$125,000 loans to eligible enterprises). Bank lending is still
absent (together with a banking system) - but foreign investment
banks and retail banks are making hesitant inroads into the
regional markets. Small businessmen are more assertive and often
demonstrate against adverse tax laws, high prices, and poor
governance.

Russia is at a crossroad. It must choose which of the many
models of federalism to adopt. It can either strengthen the
center at the expense of the regions, transforming the latter
into mere tax collectors and law enforcement agents - or devolve
more powers to tax and spend to the regions. The pendulum
swings. Putin appears sometimes to be an avowed centralist - and
at other times a liberal. Contrary to reports in the Western
media, Putin failed to subdue the regions. The donors and
exporters among them are as powerful as ever. But he did succeed
to establish a modus vivendi and is working hard on a modus
operandi. He also weeded out the zanier governors. Russia seems
to be converging on an equilibrium of sorts - though, as usual,
it is a precarious one.

Return



Russian Agriculture



In  Soviet times, Kremlinologists used to pore over grain
harvest figures to divine the fortunes of political incumbents
behind the Kremlin's inscrutable walls. Many a career have ended
due to a meager yield. Judging by official press releases and
interviews, things haven't changed that much. The beleaguered
Vice-Premier and Minister of Agriculture of the Russian
Federation admitted openly last October that what remains of
Russia's agriculture is "in a critical situation" (though he has
since hastily reversed himself). With debts of $9 billion, he
may well be right. Russian decision makers recently celebrated
the reversal of a decade-old trend: meat production went up 1%
and milk production - by double that.

But the truth is, surprisingly, a lot rosier. Agricultural
output has been growing for four years now (last year by more
than 5%). Even much maligned sectors, such as food processing,
show impressive results (up 9%). As the private sector takes
over (government procurement ceased long ago, though not so
regional procurement), agriculture throughout Russia (especially
in its western parts) is being industrialized. Even state and
collective farms are reviving, though haltingly so. In a
recently announced deal, Interros will invest $100 million in
cultivating a whopping million acres. Additionally, Russia is
much less dependent on food imports than common myths have it -
it imports only 20% of its total food consumption.

Despite this astounding turnaround - foreign investors are still
shy. The complex tariff and customs regulations, the erratic tax
administration, the poor storage and transport infrastructure,
the vast distances to markets, the endemic lawlessness, the
venal bureaucracy, and, above all, the questionable legal status
of the ownership of agricultural land - all serve to keep them
at bay.

Moreover, the agricultural sector is puny and disastrously
inefficient. Having fallen by close to half since 1991 (as state
subsidies dropped), it contributes only c. 8% to GDP and employs
c. 11% of the active labour force (compared to 30% in industry
and 59% in services). Agricultural exports (c. $3 billion
annually) are one fourth Russia's agricultural imports - despite
a fall of 40% in the latter after the 1998 meltdown. The average
private farm is less than 50 hectares large. Though in control
of 6% of farmland - private farms account for only 2% of
agricultural output.

Much of the land (equal to c. 1.8 times the contiguous US) lacks
in soil, or in climate, or in both. Thus, only 8% of the land is
arable and less than 40,000 sq. km. are irrigated. Pastures make
up another 4%. The soil is contaminated by what the CIA calls
"improper application of agricultural chemicals". It is often
eroded. Ground water is absolutely toxic.

The new law permitting private quasi-ownership of agricultural
land may reduce the high rents which (together with a ruble
over-valued until 1998) rendered Russian farmers non-competitive
- but this is still a long way off. In the meantime, general
demand for foodstuffs has declined together with disposable
incomes and increasing unemployment.

The main problem nowadays is not lack of knowledge, management,
or new capital - it is an unsustainable mountain of debts. Even
with a lenient "Law on the Financial Recovery of Agricultural
Enterprises" currently being passed through the Duma - only 30%
of farms are expected to survive. The law calls for rescheduling
current debt payments over ten years.

The sad irony is that Russian agriculture is now much more
viable than it ever was. Well over half the active enterprises
are profitable (compared to 12% in 1998). The grain harvest
exceeded 90 million tons, far more than the 75 million tons
predicted by the government (though Russia still imports $8
billion worth of grains a year). The average crop for 1993-7 was
80 million tones (with 88 million in 1997). But grain output was
decimated in 1998 (48 million tons) and 1999 (55 million tons).

Luckily, grain is used mostly for livestock feed - Russians
consume only c. 20 million tons annually. But by mid 1999,
Russian grain reserves declined to a paltry 2 million tons,
according to USDA figures. The problem is that the regions of
Russia's grain belt restrict imports of this "agricultural gold"
and hoard it. Corrupt officials turn a quick profit on the
resulting shortage-induced price hikes.

The geographical location of an agricultural enterprise often
determines its fate. In a study ("The Russian Food System's
Transformation at Close Range") of two Russian regions (oblasts)
conducted by Grigori Ioffe (of Radford University) and Tatyana
Nefedova (Institute of Geography of the Russian Academy of
Sciences) in August 2001, the authors found that:

"... farms in Moscow Province are more productive than farms in
equivalent locations in Ryazan Provinces, while farms closer to
the central city of either province do better than farms near
the borders of that province."

It seems that well-located farms enjoy advantages in attracting
both investments and skilled labour. They are also closer to
their markets.

But the vicissitudes of Russia's agriculture are of geopolitical
consequence. A hungry Russia is often an angry Russia. Hence the
food aid provided by the USA in 1998-9 (worth more than $500
million and coupled with soft PL-480 trade credits). The EU also
donated a comparable value in food. Russia asked for additional
aid in the form of animal feed in the years 2000-2001 - and the
USA complied.

Russia's imports are an important prop to the economies of its
immediate and far neighbors. Russia is also a major importer of
American agricultural products, such as poultry (it consumes up
to 40% of all US exports of this commodity). It is a world class
importer of meat products (especially from the EU), its
livestock inventory having been halved by the transition. If it
accedes to the WTO (negotiations have been dragging on since
1995), it may become even more appealing commercially.

It will have to reduce its import tariffs (the tariff on poultry
is 30% and the average tariff on agricultural products is 20%).
It is also likely to be forced to scale back - albeit gradually
- the subsidies it doles out to its own producers (10% of GDP in
the USSR, less than 3% of GDP now). Privileged trading by state
entities will also be abolished as will be non-tariff
obstructions to imports. Whether the re-emergent center will be
able to impose its will on the recalcitrant agricultural
regions, still remains to be seen.

A series of apocalyptic economic crises forced Russian
agriculture to rationalize. Russia has no comparative advantage
in livestock and meat processing. Small wonder its imports of
meat products skyrocketed. It is questionable whether Russia
possesses a comparative advantage in agriculture as a whole -
given its natural endowments, or, rather, the lack thereof. Its
insistence to produce its own food (especially the High Value
Products) has failed with disastrous consequences. Perhaps it is
time for Russia to concentrate on the things it does best.
Agriculture, alas, is not one of them.





T H E   A U T H O R





SHMUEL (SAM) VAKNIN



Curriculum Vitae

Click on blue text to access relevant web sites - thank you.

Born in 1961 in Qiryat-Yam, Israel.

Served in the Israeli Defence Force (1979-1982) in training and
education units.


Education

Graduated a few semesters in the Technion - Israel Institute of
Technology, Haifa.

Ph.D. in Philosophy (major : Philosophy of Physics) - Pacific
Western University, California.

Graduate of numerous courses in Finance Theory and International
Trading.

Certified E-Commerce Concepts Analyst.

Certified in Psychological Counselling Techniques.

Full proficiency in Hebrew and in English.






Business Experience

1980 to 1983

Founder and co-owner of a chain of computerized information
kiosks in Tel-Aviv, Israel.

1982 to 1985

Senior positions with the Nessim D. Gaon Group of Companies in
Geneva, Paris and New-York (NOGA and APROFIM SA):

- Chief Analyst of Edible Commodities in the Group's
Headquarters in Switzerland.
- Manager of the Research and Analysis Division
- Manager of the Data Processing Division
- Project Manager of The Nigerian Computerized Census
- Vice President in charge of RND and Advanced Technologies
- Vice President in charge of Sovereign Debt Financing

1985 to 1986

Represented Canadian Venture Capital Funds in Israel.

1986 to 1987

General Manager of IPE Ltd. in London. The firm financed
international multi-lateral countertrade and leasing
transactions.

1988 to 1990

Co-founder and Director of "Mikbats - Tesuah", a portfolio
management firm based in Tel-Aviv. Activities included large-
scale portfolio management, underwriting, forex trading and
general financial advisory services.

1990 to Present

Free-lance consultant to many of Israel's Blue-Chip firms,
mainly on issues related to the capital markets in Israel,
Canada, the UK and the USA.

Consultant to foreign RND ventures and to Governments on macro-
economic matters.

President of the Israel chapter of the Professors World Peace
Academy (PWPA) and (briefly) Israel representative of the
"Washington Times".

1993 to 1994

Co-owner and Director of many business enterprises:

- The Omega and Energy Air-Conditioning Concern
- AVP Financial Consultants
- Handiman Legal Services
   Total annual turnover of the group: 10 million USD.

Co-owner, Director and Finance Manager of COSTI Ltd. -  Israel's
largest computerized information vendor and developer. Raised
funds through a series of private placements locally, in the
USA, Canada and London.

1995 to 1996

Publisher and Editor of a Capital Markets Newsletter distributed
by subscription only to dozens of subscribers countrywide.

Managed the Internet and International News Department of an
Israeli mass media group, "Ha-Tikshoret and Namer".  Assistant
in the Law Faculty in Tel-Aviv University (to Prof. S.G.
Shoham).



1996 to 1999

Financial consultant to leading businesses in Macedonia, Russia
and the Czech Republic.

Collaborated with the Agency of  Transformation of Business with
Social Capital.

Economic commentator in "Nova Makedonija", "Dnevnik",
"Izvestia", "Argumenti i Fakti", "The Middle East Times",
"Makedonija Denes", "The New Presence", "Central Europe Review"
, InternetContent, United Press International (UPI), other
periodicals and in the economic programs on various channels of
Macedonian Television.

Chief Lecturer in courses organized by the Agency of
Transformation, by the Macedonian Stock Exchange and by the
Ministry of Trade.

1999 to 2001

Economic Advisor to the Government of the Republic of Macedonia.

2001-

Business Correspondent for United Press International (UPI)

Web Activities

Author of extensive websites in Psychology ("Malignant Self
Love") - An Open Directory Cool Site

Philosophy ("Philosophical Musings")

Economics and Geopolitics ("After the Rain")

Owner of the Narcissistic Abuse Announcement and Study List and
the Narcissism Revisited mailing list (more than 3400 members)

Editor of mental health disorders and Central and Eastern Europe
categories in web directories (Open Directory, Suite 101, Search
Europe).

Weekly columnist in "The New Presence", United Press
International (UPI), InternetContent, eBookWeb.org and "Central
Europe Review".


Publications and Awards

"Managing Investment Portfolios in States of Uncertainty", Limon
Publishers, Tel-Aviv, 1988

"The Gambling Industry", Limon Publishers., Tel-Aviv, 1990

"Requesting my Loved One - Short Stories", Yedioth Aharonot,
Tel-Aviv, 1997

"The Macedonian Economy at a Crossroads - On the way to a
Healthier Economy" (with Nikola Gruevski), Skopje, 1998

"Malignant Self Love - Narcissism Revisited", Narcissus
Publications, Prague and Skopje, 1999, 2001

"The Exporters' Pocketbook", Ministry of Trade, Republic of
Macedonia, Skopje, 1999

"The Suffering of Being Kafka" (electronic book of Hebrew Short
Fiction)

"After the Rain - How the West Lost the East", Narcissus
Publications in association with Central Europe Review/CEENMI,
Prague and Skopje, 2000

Winner of numerous awards, among them the Israeli Education
Ministry Prize (Literature) 1997, The Rotary Club Award for
Social Studies (1976) and the Bilateral Relations Studies Award
of the American Embassy in Israel (1978).

Hundreds of professional articles in all fields of finances and
the economy and numerous articles dealing with geopolitical and
political economic issues published in both print and web
periodicals in many countries.

Many appearances in the electronic media on subjects in
philosophy and the sciences and concerning economic matters.


Contact Details:

palma@unet.com.mk
samvak@briefcase.com

My Web Sites:
Economy / Politics:
http://samvak.tripod.com/guide.html

Psychology:
http://samvak.tripod.com/index.html

Philosophy:
http://samvak.tripod.com/culture.html

Poetry:
http://samvak.tripod.com/contents.html


After the Rain
How the West Lost the East


The Book

This is a series of articles written and published in 1996-2000
in Macedonia, in Russia, in Egypt and in the Czech Republic.

How the West lost the East. The economics, the politics, the
geopolitics, the conspiracies, the corruption, the old and the
new, the plough and the internet - it is all here, in colourful
and provocative prose.

From "The Mind of Darkness":

"'The Balkans' - I say - 'is the unconscious of the world'.
People stop to digest this metaphor and then they nod
enthusiastically. It is here that the repressed memories of
history, its traumas and fears and images reside. It is here
that the psychodynamics of humanity - the tectonic clash between
Rome and Byzantium, West and East, Judeo-Christianity and Islam
- is still easily discernible. We are seated at a New Year's
dining table, loaded with a roasted pig and exotic salads. I,
the Jew, only half foreign to this cradle of Slavonics. Four
Serbs, five Macedonians. It is in the Balkans that all ethnic
distinctions fail and it is here that they prevail
anachronistically and atavistically. Contradiction and change
the only two fixtures of this tormented region. The women of the
Balkan - buried under provocative mask-like make up, retro
hairstyles and too narrow dresses. The men, clad in sepia
colours, old fashioned suits and turn of the century moustaches.
In the background there is the crying game that is Balkanian
music: liturgy and folk and elegy combined. The smells are heavy
with muskular perfumes. It is like time travel. It is like
revisiting one's childhood."



The Author

Sam Vaknin was born in Israel in 1961. A financial consultant
and columnist, he lived and published in 11 countries. An author
of short stories, the winner of many literary awards, an amateur
philosopher - he is a controversial figure. This is his tenth
book.


End of this Project Gutenberg Ebook of Russian Roulette: Russia's
Economy in Putin's Era, by Sam Vaknin
