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Russia Report: February 19, 2001

19 February 2001, Volume 1, Number 5
GOVERNMENT FACES NEW, OLD TEST. Last year, one of the Russian government's chief accomplishments, by its own accounting, was pushing a balanced budget for 2001 through the State Duma. Last week, it became clear that the government would have to refight this battle this year. Following calls from presidential economic advisor Andrei Illarionov and former Prime Minister and State Duma deputy Yevgenii Primakov, Russian President Vladimir Putin agreed that Russia should make good on its debt payments to the Paris Club this year. As a result, the government has been forced to seek revisions in the 2001 budget, which was based on the assumption not only that the Paris Club debt would be rescheduled but also that other monies from international financial institutions, such as the IMF, would be forthcoming.

On 15 February, Deputy Prime Minister and Finance Minister Aleksei Kudrin announced that the government needs to plug a hole in the 1.193 trillion ruble ($42 billion) budget worth some $6.1 billion. Of this sum, Russia needs $3.675 billion to replace credits from international financial institutions as well as another $2.424 billion for payments to the Paris Club, according to "Kommersant-Daily" the previous day. The government proposed that the basic parameters of the budget not be touched but that the additional monies needed be found through using three-fourths of the 108 billion rubles ($3.8 billion) in projected extra revenues, conducting additional sales of state assets, selling new short-term treasury bonds, improving tax collection and limited borrowing from the Central Bank. The Duma's Budget Committee on 16 February rejected this plan and suggested instead that the budget's basic parameters be changed; that expenditures and revenues both be increased by 41 billion rubles; and that any additional revenues that come in be split 50-50 in terms of servicing the debt and providing for social needs such as raising state workers' wages. The government managed to forge a "last minute" compromise and persuaded the deputies on the committee that revisiting the issue of the budget parameters would take too long and creditors need to be dealt with immediately, according to "Kommersant-Daily" on 17 February. Instead, the two sides agreed that the first 41 billion rubles earned in extra revenues would go to servicing debts while any additional revenues would be split evenly between debt servicing and social needs. It was not immediately clear from news accounts how such an agreement would result in the government having the 183 billion rubles that it needs to pay the Paris Club.

After the agreement was announced, Duma Budget Committee Chairman Aleksandr Zhukov declared that the amendments to the budget have a good chance of being approved by the State Duma. Leader of the Duma's largest faction, the Communist Party, Gennadii Zyuganov was less positive, suggesting on 15 February that the government's decision to introduce such amendments represented "a declaration by the cabinet of ministers of their own incompetence." It should be noted, however, that the Communist faction did not support the budget in its original incarnation. The second largest faction, the pro-Kremlin party Unity, however, said that it will support the budget changes so long as the government promises to go ahead with the planned 20 percent increase in wages for public sector workers and allowances for servicemen starting on 1 September. The other factions have not yet announced their position, but Audit Chamber Sergei Stepashin's revelations on 12 February that the government's budget planning for the year 2000 was off the range of 30 percent may not help matters. According to Stepashin, the 2000 forecast for GDP and industrial output were both too high by some 33 percent, while investments in fixed assets turned out to be half their actual figure.

For some members of the government, the new budget battle may be eliciting feelings of deja vu. Last year when the government was battling to get the budget approved, it faced constant criticisms from Budget Committee Chairman Zhukov and others that it was underestimating possible revenues so that it would have a freer hand in distributing them. The government won its critics over by agreeing to designate in advance how it will distribute extra monies if they become available. With the 16 February compromise reached in the Budget Committee, that argument has been thrown open again. The difference this time round may be that now even the government's supporters are suggesting that a failure will result in the Duma holding a vote of no confidence. JAC

ARE KREMLIN'S TIES TO PROSECUTOR-GENERAL UNDER REVIEW? After consistently praising the work of the country's prosecutors, President Vladimir Putin last week gave his first indication that he might be open to the possibility that something is amiss with Prosecutor-General Vladimir Ustinov and his investigation of two high-profile cases (see "RFE/RL Russian Political Weekly," 22 January 2001). President Putin has issued a personal order to the Kremlin's Control Department to investigate how Ustinov obtained his Moscow apartment, Russian agencies reported on 12 February. Putin's order comes just a week after presidential chief of staff Aleksandr Voloshin added Nazir Khapsirokov, a former property manager at the Prosecutor-General's office, as one of his deputies (see "RFE/RL Russian Political Weekly," 9 February 2001). According to Interfax, the department must inform the president of the results of its inquiry within ten days.

Last year, Vladimir Gusinskii's NTV had reported that Ustinov had improperly received his apartment in 1998 from then Kremlin facilities directorate head Pavel Borodin (see "RFE/RL Newsline," 30 October 2000). The station, and others subsequently, implied that Ustinov's lack of vigor in investigating charges of money-laundering and the acceptance of bribes by Borodin was somehow connected with the apartment. [Ustinov's office dropped a long investigation of possible money-laundering and the acceptance of bribes by Borodin because of a lack of evidence last December (see "RFE/RL Newsline," 14 December 2000.)] At the same time, NTV and other critics have suggested that the prosecutor-general's aggressive pursuit of the case against NTV's parent company, Media-MOST, has in part been fueled by the station's earlier allegations regarding the apartment.

Last month, a Moscow city court upheld a libel claim by Ustinov against the station for that report. Ustinov's lawyer, Aleksandr Morev, told Ekho Moskvy that the court "clearly determined that the flat granted to Ustinov when he was still deputy prosecutor-general was granted legally and properly." "Kommersant-Daily"'s reporting on the matter in its issue on 13 February suggests that strictly speaking, Ustinov's apartment was obtained legally. Under two presidential orders, Borodin's department was authorized to obtain apartments in Moscow for specialists from other parts of the country; Ustinov had been based in Krasnodar. According to the daily, "the question of whether the prosecutor would be given a luxury apartment in central Moscow, or a small apartment on the outskirts, was decided by Borodin and Khapsiriokov." In 1998, Borodin authorized the payment of $430,000 from state funds for Ustinov's two-bedroom apartment on Moscow's prestigious Tverskaya Street.

By ordering the investigation, Putin is keeping a promise he made to NTV journalists last month, according to the daily (see "RFE/RL Russian Political Weekly," 2 February 2001). A lawyer for NTV, Aleksandr Bonner, told Ekho Moskvy that he welcomes the investigation but noted that "how profound this investigation will be, whether it will give an answer fully in accordance with the real facts of the case, is another matter." In an interview with "Izvestiya" on 13 February, first deputy head of the Control Department (GKU) Vyacheslav Ivanov said that he didn't forsee anything "complicated" about the investigation, adding that Putin "frequently asks the GKU to conduct checks of the legality of the activities of this or that state official." JAC

PROFILE: VLADIMIR USTINOV Ustinov, 47, was born in the Far East but has spent most of his professional life in Krasnodar Krai working as a prosecutor, the same profession as his father. His daughter is preparing to follow in his footsteps. He served in the Soviet army from 1972-1974, after which he studied law at university in Kharkov. In 1978, he began a 20-year-long stint working in differing capacities within the procuracy in Krasnodar Krai. In 1998, the office of the Prosecutor-General was looking for someone to oversee their operations in the North Caucasus, a job in Russia's "war zone" for which there were not many applicants, according to "Profil" on 26 June 2000. Ustinov volunteered, and it was in connection with this promotion that he was given the now famous apartment on Tverskaya Street.

Ustinov's name has routinely been linked with that of the so-called "Family," the coterie of supporters around then President Boris Yeltsin which included Yeltsin's daughter Tatyana Dyachenko and Boris Berezovskii. "Moskovskii komsomolets," which is close to Moscow Mayor Yurii Luzhkov, once printed what it claimed was a transcript of a telephone conversation between Berezovskii and Aleksandr Voloshin, the presidential chief of staff. He tells Voloshin that Ustinov "will be completely loyal and keep quiet." In July 1999, Ustinov was named acting Prosecutor-General; some 10 months later he was confirmed in the position by the Federation Council. At the time, some newspapers reported that Putin had wanted to name Dmitrii Kozak, who is currently deputy head of the presidential administration and who, like Putin, also worked for then Leningrad Mayor Anatolii Sobchak. The "Family" was reportedly pulling strings for Ustinov and won in the end. Kozak has never publicly commented on the rumors, according to "Profil."

Ustinov is reportedly a devoted family man and "straight arrow" who never gets drunk and is unlikely to be caught frolicking on film with nude young women as was his predecessor, Yurii Skuratov (see "RFE/RL Newsline," 19 March 1999). Friends of Ustinov also report that he likes to entertain them with many Ukrainian songs in his pleasant tenor voice, according "Profil" on 26 June 2000. JAC

GOVERNMENT TO AGAIN MAKE TAX REFORM A PRIORITY? As the government is revisiting the issue of the 2001 budget, it may soon after turn to tax reform, judging by comments made last week by President Putin and Economic Development and Trade Minister German Gref. Addressing a national conference of tax agencies and the federal Tax Police Service on 13 February, President Putin promised that the Russian government will maintain a stable tax policy in the future and retain the 13 percent flat income tax for "years to come." According to Putin, more tax reforms in the future are essential, because simplifying the tax system and reducing the overall tax burden is a necessary basis for Russia's future economic growth.

Three days earlier, in remarks to members of Unity's regional branches, Minister for Economic Development and Trade Gref outlined the government's legislative goals for 2001, central among which were tax initiatives. According to Gref, the government will submit a law on income tax and profit tax, both of which will promote economic development and business growth, ITAR-TASS reported. At the same session, the leader of the pro-Kremlin Unity faction in the Duma, Boris Gryzlov, announced that his party has prepared a packet of laws that it will introduce designed to bolster citizens' property rights. Included in the package are draft legislation on introducing a moratorium on changes in the Tax Code. JAC

UNITY TRIES TO MAKE ITSELF USEFUL IN REGIONS. The pro-Kremlin Unity party held a seminar in Moscow on 10 February for its representatives in 81 local legislatures, the official purpose of which was to establish direct contacts between Unity members across Russia so that they can coordinate local and federal legislative efforts. Unity's leadership also appeared eager to enlist their regional counterparts in an effort to further President Putin's federation reforms. Unity leaders made it clear that they want regional deputies to help in President Putin's effort to create a single legal field throughout Russia, "Nezavisimaya gazeta" reported on 13 February. Unity's State Duma faction leader Boris Gryzlov called for the "liquidation of contradiction in the legal field at all levels." And he asserted that one mechanism for seeing that local legislation does not contradict federal legislation is the development of a strong party. According to "Segodnya," an unidentified source in the party's leadership pledged that the party will assist the presidential envoys to the federal districts in their efforts to bring regional legislation into conformity with federal. The source suggested that currently the envoys have to rely on local prosecutors, but Unity would like to strive for a "more civilized" way of reinforcing "vertical power."

"Segodnya," which is owned by Vladimir Gusinskii's Media-MOST Group, suggested that Unity is perhaps eager to prove its usefulness to the Kremlin. It reported that presidential chief of staff Aleksandr Voloshin and his deputy Vladimir Surkov did not show up at the seminar although they were expected. In addition, President Putin reportedly did not send his greetings to seminar participants. However, the president did send two of his envoys, presidential representative to the Federation Council Vyacheslav Khizhnyakov and presidential envoy to the Duma Aleksandr Kotenkov, both of whom addressed the seminar. However, Khizhnyakov appeared to scold some members of Unity when he noted that the new members of the Federation Council are only "very slowly taking up the affairs of the predecessors," "Nezavisimaya gazeta" reported. In his remarks, Unity party leader Sergei Shoigu noted that 17 of the 33 new members of the upper legislative chamber are members of Unity, according to Interfax on 10 February.

Unity's leadership is likely to face an uphill battle in trying to push its own agenda in local legislatures, since the regional representatives described local dumas as "sitting in the pocket of the local authorities," according to "Segodnya." Other factors may be the lack of discipline within the regional branches themselves and poor relations between Unity headquarters and its far-flung affiliates. In Udmurtia, for example, the head of the local branch there, Viktor Khoroshavtsev, claimed that the party's federal organ still has an outstanding debt to his local branch of some 75,000 rubles ($2,700), "RFE/RL's Kazan bureau reported on 9 February. Last October, the local Unity branch supported Prime Minister Nikolai Ganza in the ballot for president, while some analysts concluded that the Kremlin supported the incumbent Nikolai Volkov in that race (see "RFE/RL Russian Federation Report," 3 January 2001). JAC

DUMA DEPUTIES SAY NO TO APPOINTING GOVERNORS... Last week, State Duma deputies approved three bills and rejected four others. Half of the bills dealt with regional issues, the most controversial of which was one proffered by Unity faction member Vitalii Lednik that would have made the position of governor an appointed rather than elected office. Lednik's bill was not supported by the Unity faction or any other faction except for the Liberal Democratic Party and received only 32 votes in favor on 15 February, according to ITAR-TASS. Voting against the bill were 242 deputies. Unity faction leader Gryzlov earlier condemned the legislation; however, after the vote, deputy speaker and Unity member Lyubov Sliska told Interfax that personally she supports the appointment of governors and said that she believes that within 3-4 years, such a system will be in place, despite the failure of Lednik's bill. She explained that "we wanted to make the transition to democracy too quickly, although not always positive results [come from] such a transition." On 14 February, State Duma deputies approved legislation providing for the deliveries of essential supplies, such as heat and energy, to the population living in the Far North, ITAR-TASS reported. The next day, 305 deputies voted in favor of a bill that would establish a system of two rounds for regional leaders' elections. Seventy-eight deputies opposed it, while only one abstained. Under the bill, a second round is required if no candidate receives more than one half of the votes. The same day, deputies rejected a bill proffered by People's Deputy deputy Evgenii Ishchenko which would have prohibited regional leaders from using the title of president. (Typically, the heads of ethnic republics are called presidents.) Ishchenko said that he believes that "there should be only one president in our country" and that "integrity of our government [depends] on this," according to ITAR-TASS. JAC

...AND NO TO REVIEWING NORILSK NICKEL PRIVATIZATION. On 14 February, deputies rejected a bill in the first reading calling for a review of the results of the past privatization of Norilsk Nickel. The bill envisaged canceling the results of the privatization due to "the breach of legislation during the preparation and implementation" of the privatization of that company, according to Interfax. The bill was sponsored by Aleksei Mitrofanov of the Liberal Democratic Party. Only 55 deputies voted in favor, 161 voted against while two abstained, according to ITAR-TASS. Before the vote, Duma Property Committee Chairman (Communist) Yuri Maslyukov urged deputies to reject it, noting that it violates the Constitution as well as the Civil Code. On 15 February, deputies rejected a bill that would have amended the Civil Code, prohibiting companies unpaid wages to workers from creating a sister company. JAC

Legislation Name of the law__________Date approved____# of reading
Law on Northern Deliveries_____14 Feb.______1st
Law on adopting four__________14 Feb.______1st
amendments to articles of agreement__________
with IMF
Law on two-round election_____15 Feb._______1st
system for regional leaders

COMINGS & GOINGS OUT: Sergei Samoilov, head of the Main Territorial Administration in the presidential administration, has been dismissed from his post. Taking his place will be Andrei Popov, according to a presidential decree of 16 February. Samoilov had reportedly spearheaded a bureaucratic turf battle with the presidential envoys to the seven federal districts (see "RFE/RL Russian Federation Report," 31 January 2001 and 20 December 2000). Now his department of 105 people will be reduced by 40, as some of these personnel are transferred to the envoys' office and to the Main State Legal Department, according to ITAR-TASS. On the same day, Putin appointed Aleksandr Kosopkin to head the presidential administration's domestic policy department.

OUT: President Putin dismissed on 16 February Andrei Zadernyk as head of the Federal Energy Commission; he will be replaced by Georgii Kutovoi, who has been deputy chairman of the commission for the last four years, according to ITAR-TASS.

IN: Lev Shcherbakov was named on 12 February head of the secretariat for Deputy Prime Minister Valentina Matvienko, replacing Viktor Cherepov who has been "transferred" to another job, according to Interfax.

POLITICAL CALENDAR 22 February: Duma to consider revised 2001 budget bill in the first reading, according to Interfax on 15 February (see item above).

24 February: Foreign Minister Igor Ivanov to meet with U.S. Secretary of State Colin Powell in Cairo, Egypt.

21-22 March: Duma will consider the law on political parties in its second reading, according to "Vremya MN" on 13 February.

25 March: Putin will meet with Japanese Prime Minister Yoshiro Mori in Irkutsk.

26 March: Duma Security Committee will hold hearings on the topic of capital flight

May: The government of Prime Minister Kasyanov will submit a draft law on investment activities and package of laws aimed at accelerating banking reform, including a law on the Central Bank, according to Economic Development and Trade Minister Gref.

11 April: Putin will meet with German Chancellor Gerhard Schroeder in St. Petersburg.

29 June: Gazprom annual shareholders' meeting.