SOURCE: The St. Petersburg Times
DATE: Issue #1197 (63), Tuesday, August 22, 2006
**************************************************************************


TITLE: Russia Wipes Out Paris Club Debt
PUBLISHER: Reuters
TEXT: MOSCOW — Russia completed on Monday paying off its Soviet-era debts to the Paris Club of creditor nations, drawing on its new-found oil wealth to seal a dramatic recovery from its 1998 financial crash.
Vnesheconombank, the state-owned bank which acts as Russia’s debt agent, said it had made an early repayment of $22.5 billion as well as servicing costs of $1.3 billion.
The Finance Ministry hailed the repayments, made to 17 Paris Club creditor nations from Aug. 15 to 21, a period spanning the eighth anniversary of its $40 billion domestic debt default and rouble devaluation.
“The early repayment to creditor nations was made possible by growth in the economic and financial might of Russia,” the ministry said in a statement.
Russia was forced to restructure the debts, assumed by Moscow after the collapse of the Soviet Union in 1991, twice in 1996 and 1999.
The Finance Ministry said the repayment would save over $12 billion in debt costs through to 2020 and reduce Russia’s foreign debts as a share of gross domestic product to just 9 percent.
“Repaying the entire sum ... will facilitate a strengthening of Russia’s international authority as a state with significant financial reserves and stable borrowing,” the ministry added.
Analysts said the repayment strengthened an already-strong case for international ratings agencies to upgrade Russia, with Standard & Poor’s tipped as the most likely to move next.
“It’s a very symbolic step for Russia as a country,” said Zsolt Papp, emerging markets economist at ABN Amro in London. “It strengthens the case for a ratings upgrade.”
S&P upgraded its sovereign rating on Russia last year to BBB with a stable outlook. Fitch rates Russia BBB+ and Moody’s Baa2, both with stable outlooks.
There was no immediate comment from the Paris Club.
Russian Eurobonds firmed on Monday in an otherwise quiet external emerging debt market, with Russia’s benchmark 30-year bond being bid higher. Yields on the bond fell 8.3 basis points to 5.861 percent, the lowest in five-months
The payment completes a breakthrough deal signed with the Paris Club in June and brings Russia’s total foreign debt redemptions in the past year to over $40 billion.
Russia, the world’s second-largest oil exporter, drew on a budget stabilisation fund set up in 2004 to make the repayment. It will knock about a third off the country’s foreign debts, which last stood at $70 billion.
The fund, stuffed with windfall petrodollar revenues, has become a hallmark of Russia’s economic revival under President Vladimir Putin after the chaos and hyperinflation of the 1990s virtually wiped out the central bank’s reserves.
The reserves last stood at $277 billion, the third largest in the world after Japan and China. That figure will fall when the repayment from the oil fund, counted as part of the reserves, shows up in the central bank’s weekly figures.
The biggest recipient is Germany, which will also receive the bulk of a $1 billion premium Russia agreed to pay in lieu of foregone interest, with France, Britain and the Netherlands to share the rest.
Germany held out for a premium after it had securitised part of Russia’s Paris Club debts in 2004 in the form of credit-linked notes. The “Aries” CLNs, backed by Russian debt payments, are now viewed by investors as straight German debt.
The repayment will also help insulate Russia’s economy from the impact of booming oil export revenues, which have boosted the money supply and driven up the price of property, stocks and luxury goods.
After the sovereign repayment, Russia still has some unfinished business dating back to the Soviet era. The Finance Ministry will next month offer to swap $600 million in debts to commercial creditors into Eurobonds.
The swap, the second since a $1.3 billion deal at a 35 percent discount in 2002, will further reduce the outstanding stock of foreign trade debts, estimated at up to $3 billion.

TITLE: 10 Killed in Moscow Market Blast
AUTHOR: By Dmitry Solovyov
PUBLISHER: Reuters
TEXT: MOSCOW — A bomb killed 10 people and wounded about 40 at a Moscow market on Monday.
Prosecutors said the attack was likely linked to organized crime, though terrorism could not be ruled out.
Moscow’s chief prosecutor Yury Syomin said the blast was caused by a homemade bomb of a force equivalent to up to 1.2 kilograms of TNT explosive.
“We are not excluding that it was a terrorist attack ... [but] most likely it was a business or criminal settling of scores that was behind the explosion,” he told reporters at the market.
Syomin said the bomb may also have caused a nearby gas canister to explode, giving rise to earlier reports that a gas leak was to blame.
Police detained two people on suspicion of involvement in the bombing, Interfax news agency quoted a law enforcement source as saying.
About 40 people were taken to hospital after the blast tore through the market — a densely packed maze of stalls in an east Moscow suburb dominated by traders from China, Vietnam and ex-Soviet Central Asia.
Earlier reports suggested eight were killed, but two of the wounded later died in hospital, said an Emergency Situations Ministry spokeswoman.
“It was terrible — I saw puddles of blood, it was literally everywhere. One body was without a head,” said one Central Asian trader, who gave his name as Alik. His white t-shirt was spattered with blood.
“It hit an area near a Chinese cafe. The whole place was soaked in blood. Dozens of wounded squirmed and moaned on the floor,” he said.
Footage broadcast by NTV television showed a two-storey arcade with roof panels blown off and the floor strewn with clothes and plastic packaging.
Prosecutors opened a formal investigation for murder, but not terrorism. It is common practice for Russian prosecutors to launch a terrorism investigation if there is suspicion that was involved.
Groups linked to an anti-Moscow insurgency in Russia’s Chechnya region have in the past set off explosions and taken hostages in Moscow, claiming dozens of lives. But the last such attack was more than a year ago.
Russian criminal gangs sometimes use small explosive devices in their struggle for control of markets in Moscow.
The blast happened in the Cherkizovo market complex, made up of rows of shipping containers stacked on top of each other with a makeshift roof covering the space between them.
It has a strongly Asian flavor with traders hawking everything from shoes and clothes to spices and freshly-gutted fish.

TITLE: HIV/AIDS Program Reaches Out to Sex Workers
AUTHOR: By Anastasiya Lebedev
PUBLISHER: Staff Writer
TEXT: KAZAN — Alfiya Novikova nears the women selling themselves by the side of the road. “Is Lena coming today, the chubby one?” Novikova says. “Tell her I have her HIV test results, and she’s clean.”
Novikova hands out condoms, brochures and business cards from Simona, the health center where she’s the administrator.
As the nation’s first full-service center for prostitutes — providing medical, legal and psychological care — Simona is breaking new ground in a country reluctant to confront AIDS head-on.
The center has a decidedly Western bent, reaching out to heroin addicts moonlighting as hookers and their pimps.
Many patients lack the insurance or documents to go to a regular clinic. They pay nothing for the services, and they enjoy anonymity.
And when they come into the four-room clinic, housed in a center for dermatological and venereal diseases, they are treated like human beings. No one tries to arrest or lecture them; no one is looking to abuse them. Coffee, tea and cookies are readily available.
“Here, doctors work not as they would with regular patients, but rather, with an eye toward encouraging safer behavior,” said Yulia Kuznetsova, who oversees the clinic at AIDS-Infoshare. AIDS-Infoshare is a Moscow organization that has been working with prostitutes, drug users and homosexuals for a decade.
Simona has two kinds of clients: the prostitutes employed by escort agencies and the streetwalkers.
On her most recent trip to the city outskirts, a trip she makes four times per month, Novikova met 14 streetwalkers.
The prostitutes are stationed along the road in groups of two and three. There’s a rhythm to their work: The cars slow down, the drivers haggle with the girls, the girls get in the cars, the cars drive away. Later, the girls emerge from the cars farther down the road, a few hundred rubles richer.
As Novikova doles out her materials, a young woman in black pants and a black, zip-down sweater runs up to her, a silver SUV waiting nearby. “What’s he want?” another young woman asks. The first replies: “A blow job for 300 rubles.” She gets her condoms and scurries back to the SUV.
Nearly all the women who work the street are drug addicts and only service enough clients each day to get one dose, or fix, of heroin, Simona employees say. The prostitutes do not disagree.
“We’re all addicts here,” said a young woman wearing bright pink lipstick and pigtails. “This is the only place where we can make money honestly, without stealing.”
Most women Novikova meets have heard of Simona, though not many have visited. One said she wanted to visit sometime, because she’d heard of the cordial treatment at the center.
Novikova asks the women to fill out a short questionnaire testing their knowledge of HIV. She routinely answers a barrage of questions: Can you really help me get a hospital stay? What if I don’t have a passport? Can I come get tested and bring my husband, too?
Novikova eyes a woman whose face is covered with reddish scabs. “What’s that on your face?” she says. “You’ve got something.” The woman cheerfully waves her off, saying it’s nothing.
The scabs look suspiciously like those in the photographs that Radik Gubaidullin, one of Simona’s two doctors, likes to show patients. The photographs — depicting ulcers, rashes, scabs and other disfigurations — are all of patients he’s treated with sexually transmitted diseases.
“Girls who’ve worked the road for ten years look at these, and their eyes pop out,” Gubaidullin said. “They get a completely different understanding of these diseases.”
After they learn that some sexually transmitted diseases, or STDs, can also be transmitted orally and that a few, including syphilis, can be transmitted through everyday contact, some women bring in their children to be checked out, he said.
The center’s work has been greatly helped by the cooperation of Tatarstan health officials. The republic provided Simona with its facilities, doctors and free STD tests.
“What’s most critical for us is that infections spread no further,” said Guzel Vafina, a doctor employed by the republic at the STD and venereal disease clinic where Simona is housed.
Tatarstan authorities have been looking to curb HIV infection rates among prostitutes for 15 years, Vafina said. While there is no official data, she said, unofficial estimates put the number of prostitutes at 1,500. She added that the rates of STD infection among prostitutes are exponentially higher than those in the general public.
Still, Simona has confronted some trouble with the police. Even though the higher-ups are generally supportive of the center, cops on the street have sometimes given the center’s employees a hard time when they try to meet with prostitutes.
There has also been some trouble prodding pimps into sharing information about the center.
While pimps have been eager to get their prostitutes treated, they have been less eager to let other pimps know about Simona, marketing their women as safer than those at other escort agencies.
“One guy told me, ‘I’m not telling the other agencies about it. Let their girls get sick and mine stay healthy,’” said Svetlana Kochetkova, the center’s deputy director. “So coming here actually gives them an extra competitive edge.”
The center nevertheless has managed to reel in many patients. Since opening at the beginning of this year, Simona has seen 150 patients, has had 252 visits total and has distributed more than 11,800 condoms.

TITLE: Petersburg Woman Killed In Japanese Cabaret Club
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: A 23-year-old Russian dancer, who was stabbed to death by a deranged male client at a cabaret club in Japanese town of Kobe last week, was identified as St. Petersburg resident Anastasia Shelepanova, formerly a student at the respected Vaganova Ballet Academy.
Shelepanova was fatally attacked in the late hours of Aug. 16 by one of the customers at Night Restaurant Academy, a club where she worked as a hostess.
“Officers said that the client, a 47-year-old man, stabbed the Russian dancer in the chest and in the neck with a knife while she was sitting with him,” Japanese newspaper Mainichi Daily News reported. “He then stabbed himself in the chest and stomach.”
The Japanese police have so far withheld the killer’s identity. 
The attack was originally seen by some Russian media as part of a vendetta or retaliation for the actions of Russian border guards who accidentally killed a Japanese fisherman during illegal fishing in Russian territorial waters earlier this month. As yet, no connection between  the two events has been established by the Japanese law enforcement agencies.
The dancer died on arrival at a Tokyo hospital, while the customer who stabbed Shelepanova survived his self-inflicted wounds and remains in a serious condition. Police have not yet been able to interview him and establish his motives.
The police reported that the attacker was a regular guest at Night Restaurant Academy and witnesses of the incident told them that the customer asked Shelepanova to sit with him before stabbing her. 
The St. Petersburg dancer was legally employed by the club. According to Fontanka.ru, Shelepanova was on her third contract in Japan since 2004. She previously worked for a club in Kyoto.
Although Shelepanova did not complete her studies at the Vaganova Academy, her case highlights problems facing many of the country’s classically trained dancers. 
The Vaganova’s artistic director, Altynai Asylmuratova, has been calling attention to the lack of work for dancers since taking up her position in January 2000.
Asylmuratova said today’s dancers have limited employment opportunities following the closure of numerous theaters in the post-Soviet era, forcing them to take jobs in clubs. 
Japanese authorities offered to cremate Shelepanova’s body but her parents requested that her body be returned to St. Petersburg for a funeral.

TITLE: Israel Slams Russian Arms Use
PUBLISHER: The Associated Press
TEXT: JERUSALEM — Israel has complained to Russia that Russian-made anti-tank missiles have reached Hezbollah guerrillas who used them against Israeli troops in south Lebanon, Israeli government officials said Friday.
An Israeli delegation traveled to Moscow last week to deliver the complaint, said Asaf Shariv, a senior adviser to Israeli Prime Minister Ehud Olmert.
The anti-tank missiles proved to be one of Hezbollah’s most effective weapons in combat with Israeli soldiers in Lebanon. Such missiles killed at least 50 of the 118 soldiers who died in the 34-day war that ended last week.
Israel does not accuse Russia of directly arming Hezbollah, but complains that Russia sold the weapons to Iran and Syria, known supporters of Hezbollah, who then passed them on to the guerrilla group.
Foreign Ministry spokesman Mikhail Kamynin said Russia maintained strict controls over its weapons sales, and that tight supervision “makes any inaccuracy in weapons destinations impossible.”
The Foreign Ministry said Saturday that it was counting on Palestinian groups to hold to a promise to suspend attacks on Israel.
On Friday, President Vladimir Putin hailed the implementation of a United Nations resolution that led to a cease-fire between Israel and Hezbollah.

TITLE: Body of Japanese Fisherman Returned
PUBLISHER: The Associated Press
TEXT: TOKYO — Russia on Saturday handed over the body of a Japanese fisherman killed by a Russian patrol boat that opened fire in disputed waters last Wednesday, spurring a diplomatic feud.
The shooting of the crab fisherman Wednesday was the latest flare-up in a 60-year dispute over several islands claimed by both countries.
Russia seized the fisherman’s boat, accused the crew of illegal fishing and took the three surviving crewmen to Russia for further questioning.
Japanese Vice Foreign Minister Akiko Yamanaka on Saturday morning received the body of Mitsuhiro Morita, 35, at Kunashiri Island, where the body had been kept, Japan’s Foreign Ministry said in a statement.
The body was transferred to a Japanese Coast Guard vessel, which arrived in the northern Japan port of Nemuro later Saturday.
The statement said Japanese officials also spoke for about 15 minutes on Saturday with Noboru Sakashita, 59, captain of the fishing boat Kisshin Maru No. 31, and with the two other surviving crew members.
The crewmen are in Russian custody, a Japanese Foreign Ministry Russian Division official said on condition of anonymity, citing ministry policy.
On Friday, Senior Vice Foreign Minister Yasuhisa Shiozaki was in Moscow to seek the release of the three detained fishermen, amid protests that Russia had overreacted to the alleged poaching.
Meanwhile, a Russian diplomat rejected as “inappropriate” Japan’s demands for compensation for the fisherman’s death, Interfax reported.
Deputy Foreign Minister Alexander Alexeyev also criticized Tokyo for linking Wednesday’s incident to the decades-old territorial dispute over four tiny Pacific islands, which has prevented the two countries from signing a peace treaty formally ending World War II hostilities.
“In our view, to put it mildly, it is hardly productive to link this tragedy to the problem of the peace treaty between our two countries,” Interfax quoted Alexeyev as saying after talks with Shiozaki.
The incident occurred off northeastern Japan near four disputed islands, called the southern Kuril Islands by Russia and the Northern Territories by Japan.
The Soviet army seized the islands near the end of World War II. Kunashiri Island, an island in the chain, is administered by Russia but claimed by Japan.
Each country claims the fishing boat seized Wednesday was in its own territorial waters at the time of the shooting.
Russian authorities have seized dozens of Japanese boats and injured several fishermen over the years, but this was the first shooting death of a Japanese national in the region since October 1956, Japanese Coast Guard officials said.

TITLE: Military Police Seen As Answer to Hazing
AUTHOR: By Simon Saradzhyan
PUBLISHER: Staff Writer
TEXT: MOSCOW — In an effort to combat violent hazing in the armed forces, the Defense Ministry has drafted regulations that would empower military commandants’ offices to perform military police functions, newspapers reported late last week.
The new regulations, which could be approved before the end of the year, provide for military police to serve in all branches of the armed forces. In addition to the Defense Ministry, other government agencies that have troops include the Interior Ministry, the Federal Security Service, the Federal Guard Service and the Emergency Situations Ministry.
Each military commandant’s office would have up to 90 military police officers, and would be provided with cars and armored vehicles, Gazeta.ru reported last Thursday. 
The offices would also operate gauptvakhty, or military detention facilities, which the Defense Ministry hopes will improve discipline in the armed forces.
The Defense Ministry’s press service on Friday declined to comment.
President Vladimir Putin said Jan. 31 that Defense Minister Sergei Ivanov was preparing to introduce a military police force to maintain order in the armed forces. Putin spoke after a high-profile hazing incident in Chelyabinsk, in which a first-year soldier, Andrei Sychyov, was forced to squat for hours, leading to blood clots and eventually to gangrene in his legs. Sychyov’s legs and genitals were subsequently amputated.
Ivanov responded to Putin’s announcement several days later, saying that if a military police force were created, it would report directly to the Defense Ministry. In April, however, Ivanov warned that military police would not provide a “panacea against hazing.”
At present, commandants’ offices are responsible for providing security during the transportation and deployment of military units and individual on-duty personnel, but they do not perform a full-time police function.
This function falls to officers and soldiers, who patrol their own units. If a suspect is detained, the unit commander conducts a preliminary investigation to determine the severity of the violation. In serious cases, the suspect is handed over to the local military prosecutor’s office, where investigators decide whether or not to open a criminal investigation.
This system is conducive to coverups of hazing and other crimes, because commanders are concerned that they may face punishment themselves if they report crimes in their units to prosecutors. Prosecutor General Yury Chaika suggested earlier this year that the resonsibility for conducting preliminary investigations be shifted from unit commanders to the military commandants’ offices.
Anatoly Tsyganok, head of the Center for Military Forecasting, said Friday that the military commandant’s offices would be incapable of putting an end to hazing and other crimes in the military if it were part of the Defense Ministry. He said the commandants’ offices should be attached to the Justice Ministry to provide greater protection against pressure from the military brass.
Military police would not be deployed in the barracks on a permanent basis, and would therefore be unable to prevent hazing effectively, Tsyganok said.
 An internal investigation of the Andrei Sychyov hazing case yielded no evidence of violence, Dmitry Zakharov, the acting commander of the security battalion at the Chelyabinsk Armor Academy, testified in court Friday, Interfax reported.
Prosecutors maintain that Sergeant Alexander Sivyakov forced Sychyov to squat for several hours and beat him last New Year’s Eve.
“As soon as Sychyov was admitted to the hospital, we conducted a routine investigation,” Zakharov testified. “We questioned all of the soldiers serving in the unit, each of whom made a written statement.”
Not a single soldier provided information about violent behavior toward Sychyov, he said.

TITLE: Confusion Reigns as Brother Of Doku Umarov Surrenders
PUBLISHER: The Associated Press
TEXT: GROZNY — Pro-Moscow Chechen officials said Friday that rebel leader Doku Umarov’s brother had surrendered in response to an amnesty for rebels who lay down their arms.
Officials initially said Umarov himself had surrendered.
A man who identified himself as Umarov’s older brother, Akhmad, told reporters he surrendered voluntarily on Friday.
“I have gotten fed up with hiding from authorities and want to return to a normal, peaceful life,” he said outside Chechen Prime Minister Ramzan Kadyrov’s residence in Gudermes, the second-largest city in Chechnya.
Further details of the incident — including terms of surrender — were not available. But authorities last month announced an amnesty for all fighters who turned themselves in. A total of 124 insurgents had turned themselves in under the amnesty as of Saturday, RIA-Novosti reported. 
Authorities have estimated that Chechen rebel forces number only around 500.
When asked if he would advise militants to turn themselves in, Umarov said he could not decide for them: “I can’t take responsibility for them, and I can’t advise them what to do.”
While the implications of Akhmad Umarov’s surrender were less significant than if Doku Umarov had done so, the move will put more pressure on the rebel leader. Chechen society is highly clan-based, and kinship ties are often considered more sacrosanct than loyalty to government or military unit.
Federal authorities and their Chechen allies have used clan ties in their fight against separatists, detaining or abducting relatives in order to force fighters to give up. The feared Chechen paramilitary run by Kadyrov reportedly detained relatives of Chechnya’s late former president and rebel leader Aslan Maskhadov in an attempt to induce him to surrender.
Akhmad Umarov told reporters that he wanted to search for his father, who was kidnapped by unidentified abductors a year ago.
Chechen officials first declared Friday that Umarov himself had surrendered, and later Chechen Interior Ministry spokesman Magomed Deniyev said that it was Umarov’s younger brother, Ruslan, who turned himself in.

TITLE: Klebnikov’s Brother Seeks Answers
AUTHOR: By Guy Faulconbridge
PUBLISHER: Reuters
TEXT: MOSCOW — The elder brother of slain U.S. reporter Paul Klebnikov is trying to renew pressure on Russian authorities to solve the case. “We want to find out who ordered this killing, which individual or individuals,” said Michael Klebnikov, 51. “We are very concerned about the pace of the investigation.”
Paul Klebnikov, the editor of the Russian edition of Forbes magazine, was shot four times as he left his office in central Moscow on July 9, 2004. He died of his injuries in an elevator that stalled at a Moscow hospital. Paul Klebnikov, 41, had delved into a serpentine world where Russian business, politics and organized crime overlap.
When asked who he thought killed Paul, his brother said: “This is the big question. And we are not convinced this is a question that has been tightly sewn up and buttoned up.”
A source close to the case said the investigation was now focusing on a possible link between Paul Klebnikov’s murder and his interest in the possible misappropriation of Russian funds intended for the reconstruction of Chechnya.
A Moscow City Court jury on May 5 found two Chechen men, Kazbek Dukuzov and Musa Vakhayev, not guilty of his murder. Prosecutors have appealed, as have lawyers for the Klebnikov family.
Prosecutors argued in the trial that Khozh-Akhmed Nukhayev, a businessman and former Chechen separatist commander, hired the two men to murder Paul Klebnikov because of a critical book the reporter wrote based on interviews with Nukhayev.
“That some second-rate or third-rate gang was hired to carry out a contract is not our priority,” Michael Klebnikov said. He said there were irregularities in the trial, which was closed to the public.
He said it was a remarkable coincidence that the same eight jurors acquitted the two men of charges that they had murdered Yan Sergunin, a pro-Russian former Chechen deputy prime minister, and attempted to murder a businessman, who gave evidence in court.
“We want to find out what happened outside of the jury and outside of the courtroom during the recent trial because there seem to have been very significant and as thus far unexplained irregularities,” Michael Klebnikov said. 
“If there was any kind of monkey business going on, we want to know why, how and who was responsible because that in and of itself may be very important information.”
Paul Klebnikov had been in touch with Sergunin, who was shot dead outside a Moscow restaurant two weeks before Klebnikov’s own murder.
The U.S. Senate has asked Russia to accept help in the investigation of Klebnikov’s killing. Prosecutor General Yury Chaika has said Russia can cope on its own. 
“Mr. Chaika’s public statements that he has the resources to solve the crime offer some reassurance to our family, although the fact that this case has not been solved after more than two years is troubling,” Klebnikov said.

TITLE: Putin, BASF Talk Large Plant
PUBLISHER: The Moscow Times
TEXT: Top executives of German energy and chemicals group BASF met for informal talks with President Vladimir Putin at his Sochi residence Friday, and told reporters that an agreement with Gazprom on the construction of the North European Gas Pipeline would be signed late August. 
Putin told the executives that he would discuss a plan for BASF to build “a large plant” in European Russia with German Chancellor Angela Merkel during a visit to Germany in October, Interfax and Itar-Tass reported.
BASF and Germany’s E.On are partners of Gazprom in the Baltic pipeline project and in Gazprom’s vast Yuzhny Russkoye gas field near Tomsk, which has a potential annual output of 25 billion cubic meters. 
In an asset swap deal with Gazprom, BASF in April acquired a stake of 35 percent minus one share in the Yuzhny Russkoye field. In return, Gazprom increased its stake in BASF’s gas distribution firm, Wingas, from 35 percent to 50 percent minus one share, and also won a stake in a BASF production subsidiary in Libya. 
BASF vice president Eggart Voscherau told reporters that his company was working on finalizing contracts with Gazprom on the asset swap “within the next few months.”
“We distribute Russian natural gas together on the West European market, and therefore we need to further develop our partnership, including Russia’s chemical industry,” Voscherau said.
E.On agreed with Gazprom in July to take a stake of 25 percent minus one share in Yuzhny-Russkoye in exchange for stakes of 50 percent minus one share in E.On’s Hungarian gas companies.

TITLE: Gazprom Increases Russia MSCI Share up to 12%
AUTHOR: By William Mauldin
PUBLISHER: Staff Writer
TEXT: MOSCOW — MSCI Barra boosted Russia’s share in its benchmark emerging markets index, largely because of the doubling of Gazprom’s weighting in the index. Analysts said Friday that fund managers would eventually need to buy more than $1 billion in Gazprom shares to ensure that their funds did not stray from the index.
“The magnitude of this adjustment is virtually unprecedented in the history of emerging markets,” Citigroup analyst Andrew Howell said in a research note.
As of Aug. 31, Russia will pass China, Brazil, and possibly Taiwan to become the second- or third-largest country in the MSCI Emerging Markets Index. At that point, Russia will represent 11.8 percent of the index, up from 9.2 percent, with Korea at 16.8 percent, Taiwan at 11.7 percent, Brazil at 10.8 percent, and China at 9.5 percent, according to estimates from Citigroup. 
Russia and Thailand are the only countries whose shares of the index will increase at the end of August, according to the estimates.
Gazprom’s increase, from 2.8 percent to 5.4 percent of the index, is the big reason for Russia’s increased share, according to figures from DataStream. MSCI Barra boosted Gazprom’s weighting because more shares are now available for foreigners to purchase. The index provider uses available free float — not market capitalization — as a basis for weighting the stocks in its portfolio. The rebalancing will boost Gazprom to the No. 1 spot for emerging market stocks, ahead of Samsung Electronics and LUKoil. With a market capitalization of more than $270 billion, Gazprom is the third-largest company in the world after ExxonMobil and General Electric of the United States.
Mutual funds and hedge funds around the world that use the emerging market index as a benchmark will purchase giant blocks of Gazprom shares to ensure that the funds continue to track the index. 
Citigroup estimates that funds will have to buy $1.3 billion worth of Gazprom shares, representing several days’ average trading volume.
Those purchases could boost Gazprom’s stock, perhaps temporarily, above its estimated fair value of $12.20, Howell said. The stock is currently trading about 5 percent below Citigroup’s price target.
Analysts said it was unclear exactly when portfolio managers would go about buying Gazprom, but said they expected few to start buying the gas giant’s shares until the index changes take effect, after the trading day on Aug. 31. Purchases of Gazprom and other Russian stocks could have a positive effect on the RTS and MICEX indexes, but probably not until September.
“You’re not going to get the big volume moves until everyone gets back after Labor Day in the U.S.,” said Erik DePoy, strategist at Alfa Bank, referring to the U.S. public holiday on the first Monday in September.

TITLE: LUKoil Eyes U.S. Refining Assets, Gas Station Chains
PUBLISHER: Reuters
TEXT: NEW YORK — The country’s biggest oil producer, LUKoil, is looking to buy U.S. refining assets as it pushes ahead with plans to ship Russian crude to the U.S. East Coast in the coming years, a company executive said.
LUKoil is also looking increase its U.S. gas station outlets to 3,000, from 2,000, LUKoil Americas CEO Vadim Gluzman said in an interview Thursday.
He said the company looked at individual U.S. outlets that were for sale and that it would be interested in a chain of gas stations.
LUKoil wants to ship crude from a terminal being built in the Timan-Pechora region to the United States where it could be processed into fuel for its gas stations in the U.S. northeast, he said, adding that production from Timan-Pechora would begin in 2007.
Gluzman said LUKoil was not in discussions to buy refining assets, and that it would make arrangements to process that crude once it had plans for shipments. “Our [ambition] is to expand our footprint in the United States — we are looking to buy more sites, more stations in the 13 northeastern states where we operate,” Gluzman said. 
“The next step is to integrate that with our long position on the crude production side.”
Gluzman said that LUKoil would be interested in assets of Citgo Petroleum Corp., the U.S. refining arm of Venezuelan state oil company Petroleos de Venezuela, or PDVSA.

TITLE: IPO Greater Than Pulp Fiction
AUTHOR: By Yekaterina Dranitsyna
PUBLISHER: Staff Writer
TEXT: The Ilim Pulp Enterprise has revealed its plans for an IPO. The timber company’s director outlined forthcoming steps they’ll take to finance technical modernization and development, Interfax reported Friday.
“We are considering all the possibilities of company development — IPO, strategic partnership — all the options. In fact, we can choose quite freely, because over the last three years we have issued the required reports audited according to International Financial Reporting Standards,” Interfax cited Zakhar Smushkin, Ilim Pulp chairman, as saying.
In operation since 1992, Ilim Pulp produces 60 percent of all cellulose and 50 percent of all cardboard produced in Russia. Last year the company produced 2.52 million tons of cellulose and paper — a 4.5 percent increase on the 2004 figures. This year production volume is also expected to exceed the previous year’s level.
Ilim Pulp is the world’s sixth largest forest tenant and one of the ten largest timber companies.
The corporation consists of St. Petersburg and Kotlassky paper plants, Bratsky and Ust-Ilimsky wood processing plants and 38 timber companies.
“The major modernization of production facilities at Ilim Pulp plants is forthcoming. We need investment, and so we will have to sell a part of our shareholders capital. An IPO is the most likely option,” Smushkin said to Interfax.
Marina Alexeyenkova, an analyst for chemicals and industrial construction at Renaissance Capital investment company, said that Ilim Pulp is likely to offer 10 to 30 percent of its shares in IPO.
“This IPO could be equally advantageous for the market and for the company’s owners. Paper companies rarely offer the free flotation of their shares, so the price is difficult to predict,” she said.
“This industry is unknown to investors. And any new opportunity is always welcome. Ilim Pulp is the largest company in the industry, so it can raise a very large sum of money,” she said.
Ilim Pulp revenue was about $1.5 billion last year, Alexeyenkova said, suggesting that market capitalization could vary between $1.5 billion and $2 billion.
“To undertake a successful IPO Ilim Pulp should consolidate its assets and introduce unified shares for all its companies. To evaluate capitalization is difficult, because the holding structure is complicated,” said Alexander Kleschev, managing director of LenMontazhStroi investment company.
For example, the shares of St. Petersburg Cardboard and Polygraph Plant, a subsidiary of Ilim Pulp, are traded in RTS at about $200 million, Kleschev said, while the company earned $105 million revenue and $12.1 million net profit last year.
Other subsidiary, Paper Plant Kommunar, earned $21 million revenue and $1.5 net profit but is traded at about $8 million, Kleschev indicated.
“Using these figures as indicators, we can evaluate the whole holding at approximately $1.5 billion to $2.7 billion,” he said.
“The ultimate assessment will largely depend on consolidation, transition to unified shares, and increasing transparency and openness for investors,” Kleschev said.

TITLE: EU Gives Nod to Evraz Deal
PUBLISHER: The Associated Press
TEXT: BRUSSELS — European Union regulators on Friday cleared the country’s biggest steelmaker Evraz to purchase 73 percent of U.S.-based Strategic Minerals Corp. 
Evraz Group announced in April that it would pay $110 million for Stratcor. 
Based in Danbury, Connecticut, Stratcor is one of the world’s largest producers of vanadium products, which are used in the steel, chemical and titanium industries. 
After the deal, most of the remaining shares in Stratcor will continue to be held by Sojitz Corp. of Japan. 
Evraz produces 21 percent of the world’s raw supply of vanadium, but it has no processing facilities to produce vanadium alloys and chemicals. The mineral is one of the ingredients for high-grade steel, which is used to make surgical tools and is also used to make titanium alloys for jet engines. 
The European Commission’s antitrust department cleared the deal under its accelerated procedure, indicating that it had no concerns the deal would impact the European market.

TITLE: IN BRIEF
TEXT: Voluminous Loans
ST. PETERSBURG (SPT) — The volume of consumer loans in St. Petersburg reached 60 billion rubles ($2.24 billion) in the first half of the year, RBC reported Friday. 
Car loans accounted for 5.5 billion rubles ($205.8 million), mortgages — for 6.7 billion rubles ($250.7 million).

At a Premium
ST. PETERSBURG (SPT) — Insurance premiums at Ingosstrkh’s St. Petersburg branch exceeded one billion rubles ($37.38 million) for the first seven months of the year, a 2.2 percent increase on premiums for the whole of last year, Prime-TASS reported Friday.
Insurance payments reached 352.7 million rubles ($13.18 million).

Cable Profits
ST. PETERSBURG (SPT) — St. Petersburg cable production company Sevkabel increased net profit by 80 percent up to 1.555 million rubles in the first half of the year, Interfax reported Friday.
Revenue increased by 68.2 percent up to 1.729 billion rubles, production costs — by 68.1 percent up to 1.604 billion rubles.

Endebted State
ST. PETERSBURG (SPT) — The total outstanding debt of the city’s state unitary companies increased by five percent up to 4.337 billion rubles in the first half of the year, Prime-TASS reported Monday. The debt to commercial banks decreased by 35.6 percent to 1.411 billion rubles.

TITLE: Gazprom Targets Asia With First LNG Sale
PUBLISHER: Reuters
TEXT: MOSCOW — Gazprom said Friday that it sold its first spot liquefied natural gas cargo to Asia, which was bought by Japan’s Chubu Electric. 
Gazprom, which has no LNG production of its own, said it had bought the cargo from Japan’s Mitsubishi, which in turn bought the cargo from Celt, a joint venture between Mitsubishi and Tokyo Electric, or TEPCO. 
The 145,000-cubic-meter LNG cargo was delivered to the Chita terminal. 
“Gazprom intends to take a solid position on Asian markets both in terms of pipeline gas supplies and LNG trade, which is a relatively new sphere of activity for the company,” Gazprom, which is seeking experience before starting to produce its own LNG, said in a statement. 
Gazprom aims to build large gas pipelines to China from East Siberia by the start of the next decade. 
Gazprom and TEPCO on Thursday signed a broad LNG deal, under which Gazprom agreed to sell spot LNG to TEPCO or buy surplus LNG from the Japanese utility.

TITLE: Domestic Fuel Prices Hikes Outpace U.S.
PUBLISHER: Reuters
TEXT: MOSCOW — Domestic fuel prices jumped in the past month, Industry and Energy Ministry data showed Friday, as traders said oil firms sought to offset lower export gains, which are curbed by high oil and product export duties.
The government said last week that it was concerned by the recent spike in local fuel prices, which could put at risk its inflation target for this year, and called on oil firms to curb the growth or face antitrust scrutiny.
Wholesale gas oil prices from all refineries, excluding the Far East, rose by 2.5 percent to 16,684 rubles ($622) per ton as of Aug. 10, from 16,285 rubles ($608) per ton as of July 13.
Wholesale prices for low-octane gasoline A-80 rose 5 percent to 17,551 rubles ($655) per ton while prices for higher-quality A-92 and A-95 soared by 7.8 percent and 10 percent respectively to 20,295 rubles and 22,043 rubles.
Retail prices for high-octane gasoline grades A-92 and A-95 rose to 17.72 rubles ($0.66) per liter and 18.92 rubles ($0.71) per liter as of Aug. 10, from 17.05 rubles ($0.64) and 18.26 rubles ($0.68) per liter as of July 13, respectively.
“You cannot expect oil firms to sit and wait for lower export duties. They need to earn money to fund their operations and redeem loans. So they squeeze the last ruble out of the local market,” one trader said.
 Others said inflation on other goods and services had long outpaced refined products price increases and that oil firms had only recently decided they would no longer cap prices on their production on the local markets.
Gasoline and gas oil prices reach their peaks in August during the summer driving and agricultural season. Oil firms often cap prices later but they have so far not returned to pre-summer levels. Domestic prices have this year outpaced prices in the United States.
The government revises its crude oil and refined export duties every two months based on global oil prices, which have been steadily rising in the past year. Record high export duties have made sales on the local market often more profitable than crude or products exports, traders say.
Fuel oil prices, which typically decline during the summer, also rose in the past month on the back of major refinery repairs, traders said.
Wholesale prices for fuel oil rose by 5.8 percent to 6,466 rubles ($241) per ton as of Aug. 10, from 6,113 rubles ($228) per ton as of July 13, the data showed.
 The wholesale price for liquefied petroleum gas in the domestic household market will double starting Oct. 1, Bloomberg cited the Federal Tariff Service as saying. 
The tariff will rise to 2,700 rubles ($100) per ton, from 1,350 rubles, the service said Friday on its web site. The price will rise again, to 3,500 rubles per ton, on Jan. 1, 2007, the service said.

TITLE: Gordeyev Calls U.S. Demand To Ease Meat Barriers ‘Unfair’
PUBLISHER: Bloomberg
TEXT: MOSCOW — Agriculture Minister Alexei Gordeyev on Friday said U.S. demands to ease meat import barriers were “unfair” and that Russia would continue to boost its own meat output to end dependence on foreign countries.
Russia has already offered the United States “very large concessions and preferences” on poultry imports compared with other nations, Gordeyev told Rossia state television.
“I am surprised by the position of the U.S., demanding more and more concessions from Russia, creating preferences for themselves,’’ Gordeyev said. “I think it’s unfair.”
Russia on Saturday threatened to tighten import barriers on U.S. meat unless an agreement were reached by October on Russia’s World Trade Organization bid. President Vladimir Putin has been seeking WTO accession to gain greater recognition of Russia’s role in the world economy.
Gordeyev rejected concerns that imports would disappear, driving prices higher. Russia currently imports 45 percent of its poultry needs, down from 70 percent four years ago.
“The government isn’t going to act blindly and close poultry imports; that is not our goal,” Gordeyev said.
Russia is seeking to ensure its food security by boosting poultry production, Gordeyev said. Output has been growing at about 15 percent over the past four years, he said.
Production will increase by 180,000 tons this year and 220,000 next year, he said, without giving the percentage of growth. Russia’s goal is to meet at least 80 percent of its own poultry demands, he said. “Another three or four years and the problem will be solved,” Gordeyev said. 
“Then we won’t have to ask ourselves each time what will happen if some country doesn’t deliver us meat.”

TITLE: Rosneft, Gazprom Buy Oil Licenses
PUBLISHER: Bloomberg
TEXT: Rosneft and Gazprom on Friday bought oil field licenses in the Evenkia and Krasnoyarsk regions, respectively.
Rosneft will pay 1.5 billion rubles ($56.1 million) for the Kulindinsky block in Evenkia, which may hold as much as 200 million tons of oil equivalent, company spokesman Nikolai Manvelov said. 
Gazprom won an auction for the Tetersky oil field, which may have 150 million tons of oil equivalent, the company said in a statement. The company did not say how much it was paying. 
Vedomosti earlier reported that Gazprom would pay 156 million rubles ($5.8 million) for the field, citing the Krasnoyarsk Territorial Agency for Natural Resources Use.
The companies have nine years to survey the areas and another two years to start exploiting the reserves, Vedomosti said, citing the Krasnoyarsk agency. The licenses are both for 25 years.
No one at the Krasnoyarsk Territorial Agency for Natural Resources Use could be reached for comment.

TITLE: Declarations of Love Embrace the Textual Touch
AUTHOR: By Yelena Andreyeva
PUBLISHER: Special to The St. Petersburg Times
TEXT: Margarita Vasilieva, general director at Paprika Branding, has always been in love with words. Having started her career as a journalist twenty years ago, she soon moved into the advertising business where she launched successful campaigns for many foreign and Russian brands and eventually started her own agency.
Born in Leningrad, Vasilieva studied physics at St. Petersburg State University, combining her studies with work as an editor at the university newspaper. Soon after her graduation Vasilieva gave birth to her son and started working as a journalist at the regional and factory newspapers. 
“At that time I had no professional education but just the inherent intuition and love of words,” Vasilieva said. “I’ve always loved words and it has been a mutual feeling. I like to play with words and, as a result, I create something.”
In 1987, Vasilieva sought a qualification to go with her passion and accordingly began night classes in journalism at her previous university, spending six years in “a sense of deep happiness.” “It was the time of Gorbatchev’s perestroika, when the university program changed and we could  enjoy new subjects in the humanities and read books that were previously not allowed,” she said. 
“It was very interesting for me to study there and I even wrote term papers and not just my thesis but those of several other students as well.” 
In her thesis, Vasilieva chose to study the psycholinguistic and sociolinguistic aspects of advertising texts. 
“When I started collecting the material for my thesis, I realized that I could write much better texts. Soon I was recruited as a copywriter at the advertisement newspaper “Shans” (“The Chance”). 
At her new workplace Vasilieva had to correct the advertisements and then persuade the clients that her versions were better than theirs. “It was a very good experience. I had to be creative at work and convincing with clients. I got paid three rubles for each corrected ad that was approved by the client,” Vasilieva said.
Having gained professional experience in copywriting, Vasilieva started to give seminars in the language of advertisement texts at St. Petersburg State University. It was after a seminar in March of 1993 that she received an offer to join the Russian branch of Saatchi & Saatchi advertising agency. 
“Although I was eager to work with a global network with interesting clients, I was afraid of huge responsibility but, nevertheless, could not let such a chance slip by,” Vasilieva said. 
Vasilieva soon impressed her new employers with her productive creativity and, besides copywriting, took charge of the casting of actors and the dubbing of foreign commercials. 
However, after a successful year in the city, the Saatchi & Saatchi office moved to Moscow while Vasilieva had to stay behind for personal reasons. For the next three years she worked at Ri-Vita DDB. 
“It was exciting to work with a Western advertising network, to learn branding and marketing strategies that were absolutely unheard of in Russia,” she said. 
While working at DDB, she had a three-month internship in Paris where she “strengthened her professional skills”. “I had a great time in Paris and I now know it as well as my native city of St. Petersburg. I improved my professional skills and learned a lot, especially that, unlike in Russia, you can’t miss deadlines. ” 
It was while working with foreign networks that she was taught to focus not on a product but on a brand. “The advertisement is bad when you remember it but forget its brand,” she said. 
 In Vasilieva’s opinion, rhyming slogans, various types of competition, and in general anything that establishes a dialogue with the customer are the most successful. “When I created a rhyming slogan competition for the Pyatyorochka supermarket chain, they received 8 million letters every month from customers who sent in their versions of the slogan,” she said. 
In general, Vasileva thinks that advertising is responsible for the forms and culture of the modern Russian language. That is why it is very important for copywriters to develop a professional attitude to their work. 
“My father said that every professional should be able to create five thousand versions of the thing he or she is working on at that moment. So if you are making an ad, you need to have five thousand versions of it in advance,” Vasilieva said. 
On meeting Andrei Nadein, in 1996, Vasilieva found not only a husband but a reliable business partner as well. In the same year they founded a magazine “Reklamnye Idei/Yes!” (“Advertising Ideas”) and soon Vasilieva established her own branding agency, “Paprika,” which has collaborated with such brands as Kodak, Citizen, Libero, Nokian, Multon, Velux, Rive Gouche, and “Pyatyorochka.” 
“I think that advertising is a declaration of love for a brand,” Vasilieva said. “I would never advertise a brand that I am not in love with,” Vasilieva said.

TITLE: Only Patience Can Serve Shocking State Of Supply
AUTHOR: By Anna Shcherbakova
TEXT: “While I was on my way to the real estate agent the price of the flat I was after rose by $500,” claimed an acquaintance. According to her, the agent’s office was crowded with people all in a mad rush to buy property, so that a bidding war broke out and prices rose beyond the means of savings or even loans. I told her that such demand would not last forever and the “supply shock,” which is probably down to the developers, will soon be over. Furthermore, if the margins on construction are so high, then new players will enter the market and some sort of competition will inevitably force firms to lower their prices. 
$1,500 per square meter for an undecorated flat in a new residential building on the outskirts of the city is an incredible price considering the average monthly wage is less than $500. 
I passed on a few other clever tips based on the rules of macroeconomics. Fortunately for my acquaintance she was decisive and did not hang around. It was the end of April and since then the price of her apartment has increased by a good 20 percent. 
Estate agents and property developers recite the mantra that prices should not decline. According to them, the cost of construction materials, like cement or bricks, as well as labor, is just getting more and more expensive. On top of that, the industry lacks new plots to develop, which is, of course, the local authorities’ fault. 
Nevertheless, I’m absolutely convinced that prices will start to fall because I trust in market forces, for instance, that of competition. 
There is sense and there is sensibility. My colleague might understand with her brain that something weird is going on, but it is hard to keep calm and wait patiently until things improve, especially when the deal is on your only piece of capital
But while there are still queues of agitated buyers, fueled by mortgages, prices will continue to rise. 
It is surprising that the authorities are in agreement with me on this issue. The General Prosecutor’s Office has said that there is no reason why prices for residential property in Moscow and St. Petersburg should be so high and have asked the Antimonopoly Authorities to investigate if construction firms are violating antimonopoly regulations. This was announced on Aug. 11, and it might well have spoilt the building industry’s professional holiday, Den Stroitelya,  celebrated two days later. 
Yet the constructors under suspicion remain calm. Even if they made some agreement to keep prices artificially high or withhold sales to create a deficit for the same purpose, it will be very difficult to find proof of such activities. Presumably they did not compile minutes. Rather they are just implementing the same strategy by taking advantage of the deficit and the growing buying power of the population. What is there to find fault with? 
For me the significant thing is that the authorities are interfering with the market and regulating it. Will they manage to protect people from developers’ greed? Vice-governor AlexanderVakhmistrov, who is responsible for construction, asked prospective buyers to wait for the agitation to pass. Exactly what I advised my colleague in April. 

Anna Scherbakova is the St. Petersburg bureau chief of business daily Vedomosti.

TITLE: Stability the Key to Convertibility
AUTHOR: By Alexander Smirnov
TEXT: A national currency is not just an instrument to facilitate trade, but also to promote economic development and raise a country’s profile in international relations. Therefore, the establishment and maintenance of a convertible currency should therefore be a priority.
Recent topics for debate about the ruble have included the State Duma’s decision to entrench the ruble’s position in legislation by prohibiting officials from quoting economic figures in any other currency. We’ll have to see how far this goes.
Making the ruble fully convertible requires the adoption of effective economic measures. Patriotic calls to raise the ruble’s prestige by discriminating against the dollar and the euro won’t do the trick, and they contradict Russia’s obligations under the charter of the International Monetary Fund.
For this reason, it is interesting to look at the country’s previous experience in introducing a fully convertible ruble, which is exactly what was attempted by the Soviet Union’s first commissar of finance, Grigory Sokolnikov, in the early 1920s.
The main result of the reform was that in a short space of time the government acquired a new instrument of power — a strong national currency. The currency, the chervonets, laid the foundations for financial stabilization and the country’s economic development and began to fulfill money’s two basic functions: squeezing foreign currencies out of the domestic market and gaining recognition on global financial markets. 
The country’s second attempt at moving to a fully convertible ruble began on July 1, when the Central Bank lifted the last restrictions on currency operations. Earlier, the bank scrapped its requirement that Russian citizens and companies convert into rubles part of their foreign-currency income.
But convertibility is not the whole story. Stability is also of major importance, and this is bound up with the question of price stabilization. Unfortunately, the government has so far failed to come up with effective measures to bring down inflation, which has yet to come close to the targets set out in the federal budget. The target for last year was 8.5 percent, while the actual figure was 10.9 percent.
Dealing with this issue requires a broader vision and a profound comprehension of the problem. In comparison with the government of the 1920s, which tied the basic measure of the national currency’s value to a base fixed on the actual size of the economy, the present government is trying to achieve financial stabilization without having settled on a basic measure of the ruble’s worth.
At present, the ruble is tied to a basket of two currencies, with a 60-40 split between the dollar and the euro, respectively. Their exchange rates fluctuate on international currency markets and are dependent on the interest-rate policies of the Federal Reserve and the European Central Bank. In other words, the ruble is extremely vulnerable to external factors, and does not reflect the real economic value of what is produced in the Russian economy.
In addition, the role of the dollar and euro in the economy is a major factor contributing to inflation. The Central Bank’s refinancing rate does not play the main role in regulating the money supply because in domestic circulation foreign currency acts as security in ruble exchange operations. Consequently, the Central Bank’s money and credit policy should be corrected to reduce the influence of external factors as sources of inflation and to increase the role of the refinancing rate in determining the money supply.
The federal budget has not helped battle inflation, with this year being no exception. The rate for the first seven months of the year was 6.9 percent, while the official target for the entire year was set at 8.5 percent. This can be explained by a number of factors.
The simplest of these is the fact that increased government spending has far outstripped GDP growth, fueling inflation. The tax structure doesn’t help either, as 54 percent of taxes are indirect. Because indirect taxes are based on prices, they are automatically indexed by inflation rates, unlike direct taxes, which are more subject to inflationary depreciation.
Policy with regard to utilities and residential maintenance remains a weak spot for the government. In 2005, food prices accounted for 47.1 percent of inflation, while growth in the residential charges and public-transport prices made up 29.4 percent. This points to the lack of an effective competitive environment and shows that the main burden of inflation is borne by those with low incomes.
But there are some factors on the positive side of the balance sheet in the transition to full convertibility. Russia’s immense gold and foreign currency reserves, the fourth largest in the world as of June 1 at roughly $244 million, certainly provide the ruble with some strong backing. The launch in June of oil and gold futures trading on the RTS, Russia’s premier stock market, are also tied to convertibility, as the value of invested rubles will be determined by the price of gold and oil on global markets.
So full convertibility presents the government with a very tricky task, but it should be able to meet the challenge. The trick is finding an effective par value for the national currency, which should reflect the actual economic worth of what is produced by the economy. As the economy grows, the value of the ruble should grow with it. Further liberalization of currency and goods markets should also be in the offing as increasing commercial activity creates greater demand for the ruble.
The recognition and acceptance of the ruble on international currency markets will be influenced to a significant degree by the country’s economic and political development. But the biggest factor with regard to trust in the ruble will continue to be inflation.

Alexander Smirnov is an associate professor in the finance department of the International Slavic Institute in Moscow.

TITLE: Russians Ever Fearful of Default
PUBLISHER: Bloomberg
TEXT: Eight years of prosperity haven’t persuaded Russians that good times are here to stay.
Almost half of the nation’s 143 million people think a financial crisis is possible in the next 12 months, ignoring a planned $56 billion budget surplus for next year, according to a poll published Thursday by the Moscow-based Levada Center.
Millions of Russians had their savings wiped out on Aug. 17, 1998, the third time in less than a decade, when the government defaulted on $40 billion in domestic debt as oil tumbled to less than $14 a barrel. Since then, oil has risen more than five-fold, driving economic growth that has averaged 6.7 percent a year from 1999.
“Russians are pessimistic by nature and don’t expect anything good to come from life,’’ said Nikolai Zlobin, director of Russian and Eurasian programs at the Washington, D.C.-based World Security Institute. “No one believes in the quality of management of Russian authorities or in state statistics.’’
Forty-seven percent of the 1,600 people surveyed across 46 regions of Russia said another default was possible within the next year, according to the Levada poll carried out on July 14 through 17. Thirty-eight percent said it’s unlikely. The poll has a margin for error of plus or minus 3 percent.
The percentage of citizens expecting an imminent default has held steady at around half since 2002, when the center began polling citizens on the issue.
Russians are more trusting of their own currency now than before, after the ruble surged 7.6 percent against the dollar this year. Half of those surveyed recommended holding cash savings in rubles, nearly double the level in 2002. Trust in the U.S. dollar has plummeted, with 9 percent recommending holding the dollar, down from 33 percent in 2002.
Russian currency reserves held at the central bank leaped $10.1 billion to $277.0 billion in the week to Aug. 4, the bank said Thursday. That increase is about 70 percent as large as the country’s total reserves eight years ago, when they stood at $14 billion. Foreign debt will tumble to 9 percent of gross domestic product by the end of the year, a smaller proportion than any of the Group of Seven industrialized nations.
Russians’ distrust of statistics heralds back to Soviet days, when managers cooked the books to show they had fulfilled or surpassed state production plans amid fear of reprisals.

TITLE: WTO Talks Are a Whole Diffferent Ball Game
AUTHOR: By Anders Aslund
TEXT: Soon after becoming president in 2000, Vladimir Putin energized Russia’s previously half-hearted attempts to enter the World Trade Organization. At the time, he said the country was committed to acceding to the WTO by 2003. Today, in 2006, Russian officials have returned to the stock phrase of the 1990s: that membership will be achieved within the next year.
Russia needs to improve its approach to WTO negotiations to get there.
Admittedly, it took China 14 years to manage to become a member of the WTO, in 2000, and Russia will only hit the 14-year mark next year. But it should have been much easier for Russia than China because Russia has been recognized as a market economy for years, while China is still not.
Perhaps Russia does not really need the WTO? After all, it mainly exports oil and gas, which everyone is almost desperate to buy, so there is very little threat of protectionism in this sector. Further, Russia has suffered little from protectionism in recent years — a mere 1 percent of Russia’s exports are subject to anti-dumping measures abroad — but the situation is likely to change quickly when the current long-term commodity boom finally ends. About one-fifth of Russia’s exports consist of metals and chemicals, both of which are highly sensitive to protectionism.
As long as Russia remains outside the WTO, it has no legal protection when it comes to its exports. It can never win an anti-dumping case because the WTO is the international arbitration court for trade, handing down judgments and issuing penalties that are honored all over the world.
Today, Russia is the largest economy in the world that has yet to become a member of the WTO, which has 149 members at present. In all likelihood Ukraine will end up joining the WTO before Russia does, since Ukraine’s new government under Viktor Yanukovych has declared its strong intention to gain accession before the end of the year.
Russia’s problem is not that WTO demands are overly severe or that the Russian economy is all that distorted. On the contrary, the demands being presented to Russia for WTO entry are far less severe than those China faced. The problem is much more one of perception: The Kremlin has simply misunderstood the nature of WTO negotiations in five vital regards.
First, the WTO is a club, and any applicant has to conform to the rules of that club as they are interpreted by its current members. Therefore, Russia cannot throw its weight around, as is the case in other negotiations, and gain any advantage through its traditional negotiating methods. The present WTO members can ultimately demand that Russia accepts the WTO standards, which is something the Kremlin just does not seem to get.
Second, Russia, as a strong power, is used to demanding and obtaining special — meaning better — treatment. The WTO might be unique in that it poses greater demands on big than on small countries. Any member country can ask an applying country for a bilateral accession protocol for market access. Russia has to conclude such agreements with no less than 68 countries, while only 50 nations are looking for such special agreements with Ukraine. More countries worry about the impact of and market access to a big economy, while few cared about Kyrgyzstan or Georgia when they joined the WTO. Time and again, you hear Kremlin officials exclaim: “You cannot treat Russia like that!” But the WTO does discriminate against big economies in its accession negotiations. China accepted that, and the sooner the Kremlin does as well, the earlier Russia can accede to the WTO.
A third Kremlin illusion is that Russia can hope for better conditions in the future by prolonging the negotiations. The problem is that the opposite is true with the WTO: The longer you wait to join the organization, the greater the number of parties that impose demands, meaning that the number of conditions increases all the time. Unable to understand this, Russian officials raise complaints about foul play when new conditions are raised. If Ukraine were to enter the WTO before Russia and have its accession ratified, which takes about a year, it could solve all its many trade disputes with Russia by presenting them in the form of ultimatums governing Russian WTO accession.
Fourth, a standard Kremlin complaint about U.S. demands is that they are all political. In fact, they are all commercial. Nobody, with the possible exception of the Kremlin, is trying to politicize Russia’s entry to the WTO. The U.S. negotiators have their backs against the wall when facing the U.S. Congress and the manifold business interests behind it. If the U.S. trade representative concludes an agreement that U.S. business interests are unwilling to accept, Russia’s WTO accession will most likely be blocked by Congress. Such an embarrassment must be avoided.
Finally, Putin appears to have made a spectacular misjudgment in his bilateral meeting with U.S. President George W. Bush in St. Petersburg in July. Apparently, he — or his advisers — thought that they could get Bush to accept phytosanitary rules — dealing with plant health — that would allow Russia to block imports of pork and beef from the United States at will. Congress would thwart any U.S. president who endangered the country’s agricultural interests in this way. The Kremlin does not seem to understand that Bush faces even more constraints than does Putin.
All of the WTO’s members have repeatedly stated that they want Russia to join the organization, but it is up to the Kremlin to face up to reality and learn to play by the rules of the game.

Anders Aslund is a senior fellow at the Institute for International Economics in Washington.

TITLE: Emerging From Andropov’s Shadow
AUTHOR: By Richard Lourie
TEXT: I remember being surprised by the reaction of some members of the Russian intelligentsia when, in late 1982, Yury Andropov, then head of the KGB, was named leader of the Soviet Union. Many expressed relief that Leonid Brezhnev, the doddering embarrassment, was finally dead and that the country would now be ruled by the former head of the KGB which, whatever its faults, was at least informed and efficient. That belief was never really put to the test because Andropov, who suffered from chronic kidney disease, died after little more than a year in office.
Andropov did not rule long enough to disappoint the high expectations many had of him. He did, however, rule long enough to establish the precedent and prototype of the intelligence chief turned national leader that President Vladimir Putin is developing further today. (There’s nothing exclusively Russian about this: former U.S. President George H. W. Bush had, among his many credentials, the title of former head of the CIA.)
In a long article on the 90th anniversary of Andropov’s birth, Nikolai Patrushev, current leader of the FSB, successor to the KGB, painted an idealized portrait of Andropov as a fighter against corruption, an advocate of winning the people’s trust and a firm believer that the “KGB is not an exceptional agency” — meaning not above the law. This is another part of the image of the intelligence chief attaining political power — the spy who turns out to be more liberal than might have been expected. It was excessive liberalism in dealing with East Germany that led to a workers’ uprising that caused the downfall of Lavrenty Beria, the head of the secret police under Stalin. Perhaps Stalin’s daughter Svetlana was wrong about Beria leading her father astray; maybe Stalin corrupted Beria, who affected intelligentsia manners and wore a pince-nez.
Putin’s career mirrors Andropov’s, but the proportions are reversed. Putin was head of the FSB for only a little more than a year but has been president for six. Andropov was head of the KGB for 15 years but Soviet leader for just 15 months. To a considerable extent, Putin has made good on Andropov’s promise. Andropov inherited a Soviet Union bloated after the long years of stagnation under Brezhnev, but he didn’t live long enough to reshape it. Putin, who inherited an enormous mess from Yeltsin, has been quite successful in restoring stability, prosperity and international respect for Russia. Putin has been helped mightily, of course, by the jump in oil and natural gas prices but luck has always been a sign of the favor of the gods. “All of my generals are good,” Caesar was supposed to have said before important battles. “Tell me which ones are lucky.”
Putin has thus validated the image of the tough intelligence chief turned national leader. Opinion polls put his support at 70 percent. Of course, most Russians are savvy enough to realize that “yes” is the best answer when asked if you support the president. But my own informal polling, taken by hailing gypsy cabs on the streets of Moscow and St. Petersburg and chatting with the drivers, who are poor enough to need the extra rubles, supports the assessment of Putin’s popularity by polling agencies.
It may well be that Putin’s two most obvious heirs apparent, First Deputy Prime Minister Dmitry Medvedev and Defense Minister Sergei Ivanov, are simply providing a diversion while the real successor is being selected from among the FSB leadership. Patrushev himself may be a candidate. After all, Putin himself was essentially plucked from obscurity, so he can’t have any reason not to trust that approach. Will that successor prove more authoritarian or more liberal?
Andropov’s ailing kidneys led him to travel to the south of Russia for the mineral waters. His host there was a dynamic young local party leader who later became his protege — Mikhail Gorbachev.

Richard Lourie is the author of the “Autobiography of Joseph Stalin” and “Sakharov: A Biography.”

TITLE: Saddam Genocide Trial Opens
PUBLISHER: The Associated Press
TEXT: BAGHDAD — Saddam Hussein opened his second trial with a show of defiance Monday, refusing to enter a plea on charges of genocide and war crimes connected to his scorched-earth offensive against Kurds nearly two decades ago. 
The trial opens a new legal chapter for the ousted Iraqi leader, who once again faces a possible death penalty for the killings of tens of thousands of Kurds during the Iraqi army’s “Operation Anfal” — Arabic for “spoils of war.”
The 1987-88 crackdown was aimed at crushing independence-minded Kurdish militias and clearing all Kurds from the northern region along the border with Iran. Saddam accused the Kurds of helping Iran in its war with Iraq.
Kurdish survivors say many villages were razed and countless young men disappeared.
They also accuse the army of using prohibited mustard gas and nerve agents, but the trial does not deal with the most notorious gassing — the March 1988 attack on Halabja that killed an estimated 5,000 Kurds. That incident will be part of a separate investigation by the Iraqi High Tribunal.
Saddam, wearing a black suit and white shirt, was the first defendant called into the court as the trial’s first session began Monday morning. When Chief Judge Abdullah al-Amiri asked Saddam to identify himself for the record, Saddam retorted: “You know me.”
Al-Amiri said it was the law that defendants had to identify themselves.

TITLE: IN BRIEF
TEXT: JonBenet Suspect Arrives
LOS ANGELES (Reuters) — The American schoolteacher suspected of murdering child beauty queen JonBenet Ramsey arrived on Sunday night in the United States, where he will face questioning about the 1996 killing. 
John Mark Karr, 41, landed in Los Angeles at around 9:30 p.m. after traveling for 15 hours in business class from Bangkok, Thailand, with U.S. law enforcement officials.
“He was treated like a VIP,” said Sanjay Chowdhury, a passenger who sat in front of Karr aboard the Thai Airways flight. “He was actually quiet. He was talking to the guy next to him, who was a U.S. Marshal.”

Italy to Lead UN Force 
BEIRUT (Reuters) — A truce between Israel and Hezbollah guerrillas entered its second week on Monday as Italy emerged as potential leader of a beefed-up UN force charged with helping keep the peace in southern Lebanon. 
Israeli Prime Minister Ehud Olmert, due to host senior UN envoys in Jerusalem later, spoke to Italian Prime Minister Romano Prodi late on Sunday and said he would be happy to see the Italians in charge.

Egypt Train Crash
QALYOUB, Egypt (Reuters) — A train crash killed scores of people and injured more than twice as many on Monday in a Nile Delta town north of Cairo, in the worst rail disaster in Egypt since 2002. 
Early casualty figures varied widely. A security source said 80 people had died and 163 were injured, while the state news agency MENA said 51 people were killed, and the pan-Arab Al Jazeera satellite television news reported 65 dead.
There was no formal word on the cause of the crash, but an official at the scene said an investigation was under way.

Man in Chocolate
KENOSHA, Wisconsin (AP) — It might sound like a chocoholic’s dream, but stepping into a vat of viscous chocolate became a two-hour nightmare for a 21-year-old man Friday morning. Darmin Garcia, an employee of a company that supplies chocolate ingredients, said he was pushing the chocolate down into the vat at Debelis Corporation because it was stuck. But it became loose and he slid into the hopper. 
“It was in my hair, in my ears, my mouth, everywhere,” said Garcia, who has worked at the company for two years. “I felt like I weighed 900 pounds. I couldn’t move.”

Photographer Dies
SAN FRANCISCO, California (AP) — Photographer Joe Rosenthal, who won a Pulitzer Prize for his immortal image of six World War II servicemen raising an American flag over battle-scarred Iwo Jima, died Sunday. He was 94.

TITLE: Russians Rally To Beat U.S. Sprinters
AUTHOR: By Paul Logothetis
PUBLISHER: The Associated Press
TEXT: BIRMINGHAM, England — Russia won the four-team Birmingham International track meet Sunday despite a dominating performance from the American sprinters. Behind its strong female distance runners, Russia took the victory with 349 points. The United States was second with 312.5 points, followed by Britain with 269 and China with 158.5. 
American sprinters Allyson Felix, Brianna Glenn and Wallace Spearmon couldn’t rally the U.S. team despite impressive runs. Felix pushed through a swirling crosswind and won the 200 meters in 22.19 seconds, second-fastest in the world this year. 
“It’s been a rough season for me this year,” Felix said. “I went home recently and just got my mind together to get it right on the track. I had to focus on my race as there were some people who could beat me out there if I didn’t take care.” 
American Sanya Richards finished second in 22.52, with Yuliya Gushchina of Russia third in 23.10. 
Glenn, a last-minute replacement for the injured Torri Edwards, beat Irina Khabarova at the finish line in the 100, crossing in 11.34 — 0.07 ahead of the Russian. Joice Maduaka of Britain was third in 11.42. 
 “I was just supposed to be here for the relay but I figured, hey, here’s a chance to run 100 meters,” Glenn said. “And so I am very happy with the performance. A win’s a win.” 
Spearmon eased to his fifth victory of the year in the 200, winning in 20.30 to beat Marlon Devonish of Britain by 0.19. Yang Yaozu of China finished third in 20.92. 
The Americans said the failed doping tests of Marion Jones and Justin Gatlin weren’t a distraction. 
“It’s unfortunate and it’s a tough time for the sport to have two such big blows like that,” Felix said. “Most of us who are out there running are running hard and running clean.” 
Jones tested positive for the banned performance enhancer EPO at the U.S. championships in Indianapolis in June. 
Gatlin had been expected to lead the American relay team in Birmingham, but the 100 co-world record holder was dropped after testing positive for testosterone or other steroids after a relay race in Kansas in April. The Olympic and world champion has denied knowingly using banned substances. 
Bernard Lagat won the 3,000 in 7:50.49, more than a second ahead of Britain’s Mo Farah. 
It was an impressive debut for the Kenyan-born athlete, who was running in his first team race for the United States. 
The Russian women relied on their domination of the track over the longer distances, with European 800 champion Olga Kotlyarova winning in 2:02.09 — 0.22 better than Jemma Simpson of Britain. Lilya Shobukhova of Russia won the 3,000 in 8:38.42.

TITLE: New Pro Wins Open
PUBLISHER: The Associated Press
TEXT: NAKHABINO, Russia — Spain’s Alejandro Canizares won the Russian Open by four strokes Sunday for his first European tour title, closing with a 6-under-par 66 for a tournament-record 22-under 266. 
Canizares, the 23-year-old son of former Ryder Cup player Jose-Maria Canizares, turned pro two months ago. He birdied two of his last three holes at Moscow’s Le Meridien Golf and Country Club and beat the tournament’s previous top score of 19-under 269. 
“I didn’t expect to win at all,” he said. “I was confident in my abilities but I didn’t think my first victory would come so quickly.” 
“This is unbelievable. This means everything,” Canizares added. “I was trying to get my card through exemptions and now I have done it by winning my third event, so this is way beyond my expectations. Now I can focus on winning more. I hit the ball great this week and my rhythm and timing with my irons was perfect. This is probably the best that I have played. 
“I spoke to my father last night and he told me to  keep my confidence high and not to think of anybody else out there. He told me to beat the golf course not my opponents because you have no control over your opponents but you do have control over what you do on the course.” 
David Drysdale of Scotland was the runner-up after a 69 for 270. Defending champion Mikael Lundberg of Sweden, who had a hole-in-one on the 197-yard, par-3 8th hole, tied Gary Murphy of Ireland for third place at 271. 
Drysdale repeatedly missed short birdie putts and fell behind after a bogey on the par-3, 11th. 
“I played all right today,” he said. “I just didn’t make any putts. But, to be honest, some of the iron shots he [Canizares] had today were fantastic.” 
The $1 million Russian Open became a full European tour event this year for the first time in its 13 years.

TITLE: Malkin Emerges in L.A., Commits to Penguins
PUBLISHER: The Associated Press
TEXT: MOSCOW — Yevgeny Malkin, the hockey player at the center of a trans-Atlantic dispute, says he was “very offended” by the pressure put on him by his Russian team. 
The Pittsburgh Penguins’ 2004 draft pick slipped away from his club, Metallurg Magnitogorsk, during training camp in Finland and vanished last week. He skated Thursday with about 20 NHL players at the Los Angeles Kings’ practice rink in El Segundo, California. 
The 20-year-old forward agreed less than two weeks ago to a one-year contract to keep playing for Metallurg. 
The deal circumvented a previous one that ran through 2008. 
Asked why he signed with Metallurg, Malkin told the Russian daily Sport Express: 
“I signed it because they were strongly pressuring me. I explained to them endlessly that I wanted to play in the NHL, that as a player it’s necessary for me to grow, that I promised Pittsburgh,” he said. 
“But no one wanted to listen to me. They pushed their own arguments.” 
“You understand that they promised [last year] to let me go in a season,” he added. “They promised. And here’s the politics. I was very offended.” 
The Russian team has threatened to sue, though previous legal attempts by Russian teams to get back players who jumped to the NHL were thrown out of U.S. courts. 
Metallurg general manager Gennady Velichkin has called this dispute “sport terrorism.”

TITLE: Mourinho Pleased With Chelsea After Thrashing Man City 3-0
PUBLISHER: Reuters
TEXT: LONDON — Chelsea coach Jose Mourinho was delighted with his side’s roaring start to the defence of their Premier League title on Sunday but worried they might not be able to sustain such intensity with three games in a week. 
The English champions ran rings around Manchester City at Stamford Bridge to win 3-0. 
“We did not play well, we played very well,” the Portuguese coach said following goals from captain John Terry, Frank Lampard and Didier Drogba. 
“We were perfect defensively...the quality of our passing game was very, very good. We dominated and we beat a good team. My only doubt now is are we fit enough to play three matches in a week?” 
Mourinho has lamented the short time his multinational side, gunning for a third successive title and a European assault, have had to prepare for the season after World Cup duty in June and July and international friendlies last week. He said Germany captain and new signing Michael Ballack, who has been suffering from a hip problem, could be fit for Wednesday’s game at Middlesbrough as could fellow midfielder and World Cup runner-up Claude Makelele. 
But Chelsea, who also face Blackburn away next Sunday, will still be without first choice goalkeeper Petr Cech, midfielders Joe Cole and Geremi and defender Robert Huth. 
Mourinho said there had even been a doubt before the game over the fitness of Terry, who was injured in training, but that the new England captain was such a “competitive animal” he could not miss the first match of the season. 
Striker Andriy Shevchenko, bought in June from AC Milan for $57 million, had a quiet Premier League debut after scoring in last week’s Community Shield. 
Mourinho was unperturbed. “He has to score winning goals for us — not when we are 3-0 up,” Mourinho said.