In this issue:

Sergei Glazyev Takes Leadership in People's Patriotic Union

Russia's Entry into WTO Postponed Until 2007

Russian Banks Dump Dollars

Russian Central Bank Said To Fear New Default

Russians Stress 'Return to Legality' in UN Security Council Vote

Sergei Ivanov Becomes First Russian Defense Minister To Visit Malaysia

Gazprom May Take Part in Qatar Natural Gas Projects

Gazprom Pursues Central Asia Projects

Chita-Khabarovsk Highway Will Be Opened in 2004

Iran Will Build a New Tunnel in Tajikistan

Armenia and Iran Seek Security Ties

From Volume 2, Issue Number 21 of Electronic Intelligence Weekly, Published May 27, 2003
Russia and Central Asia News Digest

Sergei Glazyev Takes Leadership in People's Patriotic Union

At a conference held May 19 under the title "From Confrontation to Social Responsibility," Russian economist and State Duma member Sergei Glazyev stepped forward with a major new political initiative. He will head a working group to develop an anti-crisis program for this year's Duma elections, while also taking charge of efforts to create a standing Unity Conference of Popular Patriotic Forces—within the next three weeks.

The conference participants issued a nine-point manifesto, which identifies the sickness of Russian society. It says, "We can and must put forward a plan to get Russia out of the crisis, based on the achievements of scientific thought and practical experience of patriotic economic managers." The manifesto calls for "mustering and revitalizing all the productive forces," while instituting principles of social justice and government responsibility for the interests of the population.

The May 19 event was convened under the aegis of the People's Patriotic Union, of whose electoral alliance Glazyev is co-chairman. The Communist Party of the Russian Federation (CPRF) has been the leading force in the PPU and various CPRF figures took part in the latest conference, but not CPRF leader Gennadi Zyuganov. Among other prominent participants in the May 19 deliberations was Gen. Leonid Ivashov.

Glazyev told Vremya Novostei that he wants the PPU to become a real alliance of organizations on an equal footing, not just an electoral bloc under the CPRF (Zyuganov's formula). In a May 16 interview with Radio Resonance, Glazyev forcefully motivated the need to break the pattern of an uninspiring, impotent opposition movement. "Unless the voters see a unified political force, expressing the interests of the entire society and seriously seeking to take power—not just to take part in the elections and surpass the 5% barrier [to be a group in the Duma], but to win and take power," he said, there will be nothing but demoralization. He said that "the enemies of our Fatherland have dragged us into a senseless war of all against all," but that he intends for this year's electoral campaign to unite all the patriots—"atheists and Orthodox, state sector people and entrepreneurs, pensioners and students."

In this interview, Glazyev identified the five threats to Russia's existence: demographic collapse, the destruction of science and education, the destruction of a technology-based economic powerhouse, the loss of national sovereignty, and the growing specter of huge industrial accidents due to the degradation of infrastructure. His elaboration of a solution, what he calls "a program of social justice and economic growth," follows from the policies that Glazyev, and his senior colleagues at the Russian Academy of Sciences, have put forward in recent years. These were the policies featured at the June 2001 State Duma hearings, where Glazyev hosted Lyndon LaRouche as keynote witness on the topic of rescuing national economies under conditions of global economic breakdown. Last summer, Glazyev polled 23% of the vote in the Krasnoyarsk gubernatorial election, using a version of this platform.

Glazyev continues to have a high profile in the media. Last month he presented on national television his idea that nations opposed to the spread of war beyond Iraq, should get together and declare a new monetary system. Yesterday, Glazyev spoke on Radio Resonance again, giving a detailed critique of President Vladimir Putin's May 16 State of the Federation message. He said that Putin had "declared correct and attractive goals," but offered no way to achieve them.

Russia's Entry into WTO Postponed Until 2007

At a press conference May 20, Deputy Minister of Economic Development and Trade Maxim Medvedkov, Russia's chief negotiator with the World Trade Organization, admitted that Russia's entry in WTO is postponed for four years or more. Russia has been negotiating about WTO membership for 10 years.

Russia's relations with the WTO merited one vague sentence in President Vladimir Putin's annual Message to the Federal Assembly, delivered May 16: "We have some progress in our movement towards WTO membership." Actually, according to major Russian papers, no progress has been visible for the last year and a half, as the Russian negotiators are reluctant to concede to the WTO's major demands, such as liberalization of the domestic market of fuel products (natural gas and gasoline), lifting state subsidies for agriculture, and opening the financial markets to foreign bankers and insurers.

It is noteworthy that at his press conference, Medvedkov referred to the miserable experience of those CIS countries which joined the WTO and lost most of their domestic productive facilities—Moldova, Georgia, and Kyrgyzstan. "I guess they opened the markets just for the reason that those markets were underdeveloped," he said, contradicting WTO authorities who try to describe the three unfortunate post-Soviet republics as success stories.

Russian Banks Dump Dollars

According to Central Bank statistics, in March 2003 Russian commercial banks exported $260 million in cash—as much as in all of 1999—and imported only $119 million. Private bankers, cited by Vedomosti on May 19, explained this phenomenon with the sharp decline of demand for U.S. dollars on the part of the Russian population. As a result of massive selling of the U.S. currency, the amount of cash dollars available was so excessive that "it did not make sense to import dollars, with the exception of clients who operate with new notes", said MDM Bank's investment director Vasily Zablotsky. BIN Bank's vice president Oleg Kharitonov confirmed that flight from the dollar reached a new high in March. The reserves of the U.S. currency in banks became so relatively large, that the bankers were forces to sell them to traders specializing in import and export of cash, losing 12 kopeks (4/10 of a cent) on each dollar. Since that time, banks have tried to protect themselves by establishing a lower rate than the official course for dollars in their exchange offices.

The collapse of the U.S. dollar, which had been regarded as the most stable currency by the majority of the population, is likely to seriously damage millions of households, especially in the remote oil-rich regions of the North. On May 14, Vedomosti quoted Federal Reserve spokesman Ruth Cameron as saying that the dollars circulating in Russia amount to as much as 12% of all cash dollars in circulation.

On May 16, the Central Bank was forced to buy up about half a billion U.S. dollars, in order to mitigate the effects of a new dive of the U.S. currency, Kommersant reported May 17. Kommersant's author, analyzing recent currency market developments, noted that purchases of euros are slowly declining, too. "Russia Bets on the Ruble," said the paper's front-page headline.

Russian Central Bank Said To Fear New Default

The Russian RBC news agency's "Commentary of the Day" on May 19 concerned fears at the Russian Central Bank about a possible major new default in the country. "The situation on Russia's corporate borrowing market looks increasingly similar to the situation preceding the 1997 crisis on Asian markets," RBC said. "In order to prevent Russia from repeating the same mistake, the Central Bank will introduce restrictions for Russian companies that want to borrow on foreign markets."

There have been statements in recent days by Central Bank Deputy Chairman Oleg Vyugin and Deputy Finance Minister Sergey Kolotukhin, both warning that excessive borrowing by Russian companies on international markets is about to threaten the Russian economy. According to the Central Bank, the total borrowing of Russia's non-financial corporate sector has reached $40 billion. Another $14 billion has to be paid by the Russian government next year on its foreign debt services, bringing the country's short-term debt obligations to $54 billion. Probably in response to the Central Bank warning, the state-run Transneft just cancelled a planned borrowing from several foreign banks.

RBC Daily quoted a financial expert as saying: "Of course, the government is in no way responsible for the debts of private corporations, but, if they default on their debts, this will inevitably affect the entire Russian economy. And the threat of corporate default over the next few years is getting more and more apparent."

Andrey Makogon, vice president of Derzhava Bank, draws comparisons to the 1997-98 Asian crises: "The situation in South Korea, Thailand, and partly in Indonesia and Malaysia, before the 1997 crisis, was very similar to what we have in Russia now." Russian monopolies like Gazprom and Alrosa are aggressively borrowing on Western markets, as the Korean chaebols [industrial conglomerates] were doing until 1997. Gazprom, the Russian gas monopoly, plans to borrow about $4.2 billion on foreign markets this year alone. Alrosa, the diamond giant, has already issued $500 million in Eurobonds and plans to raise another $300 million this or next year. Makogon compares the role played by corporate debt securities in the present Russian economy to the role of the GKO government bonds in 1998. Within the next few years, "Russia will face a severe crisis. Assets of Russian companies might lose 20-40% of their value."

Russians Stress 'Return to Legality' in UN Security Council Vote

Speaking after the UN Security Council voted unanimously to lift sanctions on Iraq on May 23, Russian Foreign Minister Igor Ivanov said, "It should be stressed first of all that with regard to the Iraq issue, it is important to return into the legal sphere." Even though concessions were involved in the vote on a resolution put forward by the U.S. and the U.K., Defense Minister Sergei Ivanov said, "It has led us to the restoration of unity of the United Nations Security Council."

Foreign Minister Ivanov said international weapons inspectors should be sent back to Iraq. Regarding the UN envoy contemplated in the new resolution, he said his role "has an independent character," and that he will deal with not only humanitarian and economic issues, but also political questions, such as the formation of a government, which "must be approved by the international community."

The Foreign Minister told journalists that Iraq's debt "must be solved in the framework of international law on the basis of mechanisms of the Paris Club." He stressed the importance of an Iraqi government worth the name, saying Russia had "decided to support Resolution 1483" (the U.S.-U.K. resolution) because it proceeds "from the view that its implementation will open the way for an early formation of a lawful internationally recognized government of Iraq."

Sergei Ivanov Becomes First Russian Defense Minister To Visit Malaysia

Russian Defense Minister Sergei Ivanov's mid-May three-day visit to Malaysia was a followup to Prime Minister Dr. Mahathir bin Mohamad's trip to Russia earlier this year, during which Malaysia negotiated the purchase of 18 Sukhoi Su-30MK jet fighters in a deal estimated to be worth $900 million, Malaysian Defense Minister Najib Razak announced at a joint press conference with Ivanov; he added that the original Su-30MK fighters would be "modified in terms of technical applications to meet Malaysia's own requirements," hence, renamed Su-30MKM. The modifications included adding "suitable weaponry," he said, without elaborating.

Ivanov also spoke to the press May 19, saying, "I believe what matters is not the value of the contract, but that it shows that Malaysia and Russia are for military cooperation in the long term. With the upcoming closure of the deal, this shows that Russia is ready for serious cooperation with Malaysia and will supply Malaysia with military technology and know-how."

Najib said the purchase is part of Malaysia's military upgrading process. "We recognize the need to have multi-role combat aircraft and we have decided that the Sukhoi is a suitable aircraft to fulfill our requirements," he added.

Gazprom May Take Part in Qatar Natural Gas Projects

Izvestia reported May 15 that in talks with Energy Minister Igor Yusufov in Moscow, OPEC president Abdallah al Atyyah (Qatar's Energy Minister) addressed the Russian side with a proposal for large-scale cooperation in extraction and refining of Qatar's natural gas. The proposal includes a pipeline, connecting Qatar with the oilfields on the shelf of the Persian Gulf, and a gas refining plant. The cost of the combined project, named Dolphin, is estimated at $10 billion.

Gazprom Pursues Central Asia Projects

CEO Alexei Miller of the Russian natural gas giant Gazprom met in Moscow May 14 with Kazakstan's Prime Minister Imanghali Tasmagambetov. Russian press reported that the two sides discussed plans for bilateral cooperation on modernization of the "Central Asia-Central Russia" gas pipeline network, including a new gas transport link to be started in the next year. Miller and Tasmagambetov also agreed to sign a long-term bilateral agreement on gas transit across Kazakstan, along with a long-term contract for delivery of Kazak gas (extracted from the Karachaganak gas deposit) to the Orenburg Refinery (Southern Urals).

Imanghali Tasmagambetov was attending a conference on "Russian-Kazak Cooperation in the 21st Century: Problems of Security and Protection from Terrorist Threats." In the framework of the conference, Kazakstan's President Nursultan Nazarbayev presented his book, "The Critical Decade," focussed on most significant problems of global and regional security. Nazarbayev writes that the struggle against terrorism should entail a comprehensive social, economic, and information policy. Use of military force alone can't solve the problem, as violence would always provoke violence, Nazarbayev believes. A large part of the book is focused on the Caspian Region, as a site of possible conflicts originating from various geopolitical games around the Sea's energy resources.

Chita-Khabarovsk Highway Will Be Opened in 2004

In early 2004, the Russian Transportation Ministry will open a new highway connecting Central Siberia with the Far East, Gazeta reported on May 21. The project for this Chita-Khabarovsk highway was approved already in the early 1960s, but construction work was resumed only in 1999. In 2002, however, it was stalled again, as the Defense Ministry, one of the co-funders of the strategic highway, decided to divert the earmarked funds into improvement of the living conditions of military officers and their families. Ultimately, the Transport Ministry had to borrow from the European Bank of Reconstruction and Development in order to implement the vitally necessary project, reports Gazeta.

Iran Will Build a New Tunnel in Tajikistan

According to IRNA, a new tunnel through Central Asia will facilitate transit through Afghanistan and Pakistan, and into Iran. The 10-km "Anzab" tunnel project, to be financed by an Iranian loan for $25 million, was finalized by the Iranian Foreign Ministry economics representative Mohammad-Hossei Adeli, and Tajik Economics and Trade Minister Hakim Salehof.

Armenia and Iran Seek Security Ties

Ettelaat of May 22 reported on the previous day's meeting of Armenian security chief Gen. Haik Hartounian with Iran's Ambassador to Armenia Mohammad Farhad Koleini, on the possibility of a bilateral security pact. Hartounian stressed Iran's important role in preservation of peace and security in the region and reiterated the importance of security cooperation between the two nations, IRNA reported. Hartounian called for cooperation with Tehran in combatting terrorism, narcotics trafficking, and organized crime. The Iranian ambassador also alluded to the importance of collaboration between Iran and the Caucasus states under UN auspices.

Koleini conferred earlier in May with the Vice Speaker of the Armenian Parliament, Tigran Torusian, who welcomed the plan proposed by Iran for reinforcing security in the region. This is the regional security plan, dubbed "3 plus 3" by Iranian Foreign Minister Kharraz. The proposal calls for Iran, Russia, and Turkey, along with three countries in the Caucasus region (Armenia, Azerbaijan, and Georgia), to collaborate to restore security in the region.

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