SOURCE: The St. Petersburg Times
DATE: Issue #876 (44), Tuesday, June 17, 2003
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TITLE: Yakovlev Appointed as New Deputy PM
AUTHOR: By Vladimir Kovalev
PUBLISHER: Staff Writer
TEXT: President Vladimir Putin announced on Monday that Governor Vladimir Yakovlev is to be appointed as a deputy prime minister in the government of Prime Minister Mikhail Kasyanov with responsibility for overseeing reforms to Russia's communal-services sector.
The announcement, made at the two-day State Council congress that opened at the State Hermitage Museum on Monday, brought an end to months of speculation that a deal was in the works between Yakovlev and the Kremlin to provide him with a position in the federal government in exchange for his early exit from the governor's office.
Earlier rumors had Yakovlev slated for the post of Russia's ambassador to China but, in his announcement on Monday, Putin stressed Yakovlev's experience as governor in suggesting him for the task of reforming the country's municipal services and utilities sector.
"Much has been achieved in this city in this sphere, which is why I offered the State Council member this position," Interfax quoted Putin as saying on Monday. "He agreed and I signed the decree."
Yakovlev, as the governor of St. Petersburg, is automatically a member of the State Council.
While confirming that the federal government had made several overtures concerning a new position over recent months, Yakovlev denied on Monday that his new position was the result of any sort of deal.
"To be honest, I wasn't giving the question any consideration. We had to finish the preparations for the 300th-anniversary celebrations," Interfax quoted him as saying in an interview. "Of course there was no trade ... The president himself simply asked me to turn my attentions to this sector."
Yakovlev has already signed an order transferring his powers to Alexander Beglov, who had been the deputy governor and was responsible as chief of staff in Yakovlev's administration. Beglov will serve as acting governor until elections - most likely on Sept. 21 - are held to fill the post. The Legislative Assembly is slated to vote on Wednesday on a draft law introduced by the Unity faction to set the September date.
According to City Charter, elections should take place no later than three months after the resignation of the governor.
One candidate, Vice Governor Anna Markova, has already announced her intention to run in the elections, while Valentina Matviyenko, the presidential representative to the Northwest Region, is widely considered to be the Kremlin's choice for the post.
Neither Markova nor Matviyenko could be reached for comment on Monday.
Whether or not Matviyenko decides to toss her hat in the ring, analysts say that any Kremlin-backed candidate would be difficult to beat for the governor's seat.
"It doesn't matter if it's Matviyenko or just some John Doe. The main thing is the power resources to which such a candidate would have access. Resources will decide everything," Leonid Kesselman, a political analyst at the Sociology Department of the Russian Academy of Sciences, said in a telephone interview on Monday. "The scenario looks pretty clear now."
Beside overseeing planned reforms of Russia's communal-services sector - including heating, electricity, water, maintenance and garbage removal - Yakovlev's new responsibilities will also include transportation and architectural issues, as well as construction activities in some of Russia's larger cities.
According to anonymous sources inside Mikhail Kasyanov's government, the prime minister plans to shift some of these responsibilities to the new position created for Yakovlev from the deputy prime ministers who presently hold them.
Yakovlev's new responsibilities come in an area that has received much attention recently, particularly when Putin was quoted during a visit to St. Petersburg in April as branding the state of the housing and utilities sector in the country as a "complete mess."
"This is an acute problem, and none of us would envy a person in charge of this job," Putin said during the announcement on Monday.
Some political analysts went further, saying that the magnitude of the task of reforming the disastrous conditions in the housing and services sector was a recipe for failure, and that Yakovlev was being set up to fail.
Vladimir Yeryemenko, a former member of the pro-Yakovlev United City bloc in the Legislative Assembly, said that the nature of the appointment had a distinctly Soviet ring to it.
"It might look like a positive career move at first glance but, in reality, it's pretty clear what is happening, and that he was convinced to take the post," Yeryemenko said in a telephone interview on Monday. "[In Soviet times], officials who were removed from political positions were often assigned to posts in the agricultural sector. In the same way, Yakovlev is being given a position where he is destined to fail. I wouldn't be at all surprised if, in a year's time, he is fired for not having fulfilled his obligations."
Yeryemenko and others suggest that this is the final round of a battle between Yakovlev and Putin that began when the governor was elected to his first term in office in 1996.
Putin, who, like Yakovlev, served as a deputy under former Mayor Anatoly Sobchak, labeled Yakovlev a "Judas" after his win over his former boss.
Yakovlev's campaign, which was allegedly supported by Kremlin insiders, including Alexander Voloshin, the head of the presidential administration, and presidential security chief Alexander Korzhakov, portrayed him as a practical and down-to-earth candidate, while stressing an image of Sobchak as overly westernized and liberal.
Yakovlev's campaign slogan during the campaign was: "Big work lies ahead."
After gaining office, Yakovlev moved to consolidate his power in Smolny, making a number of moves to bring the local media and Legislative Assembly under his control - moves that drew fire from local liberal politicians.
In one of the most celebrated examples, a criminal investigation on charges of misappropriation of budget funds was launched into the activities of Legislative Assembly Speaker Anatoly Kravtsov, who had been the chief player in writing and passing the City Charter, which acts as the city constitution. The investigation by the City Prosecutor's office was only dropped after Kravtsov resigned from the post.
In a telephone interview on Monday, Kravtsov was ambivalent about the announcement.
"It better for St. Petersburg that he's gone," Kravtsov said. "But it will be worse for communal services in Russia. This is one of those decisions that undermines the government's authority. They should have simply let him retire."
Mikhail Amasov, the leader of the Yabloko faction and the head of the communal-services commission in the Legislative Assembly, was even more scathing in his comments.
"It's a surprise to me that Yakovlev is leaving to take the position to reform the communal-services sector considering the state that this sector is in in the city and that, during his years in power, nothing has been done to improve the situation," Amosov said in a statement released on Monday. "It's not particularly desirable to transfer St. Petersburg's experience to the national level. It could even be dangerous."
Yakovlev's fortunes began to wane with Boris Yeltsin's resignation as President on New Year's Eve, 1999, and Putin's subsequent victory in presidential elections in May 2000.
Putin appointed Viktor Cherkesov, a former KGB colleague, to the newly created post of presidential representative in the Northwest Region. Afterward, a number of senior officials in Yakovlev's administration, including five vice governors, came under investigation by the Prosecutor's office for various crimes. Smolny labeled the charges part of a political vendetta being waged by Cherkesov at the behest of the Kremlin.
Boris Nemtsov, the national leader of the Union of Right Forces party, said in an interview with Interfax that Yakovlev's appointment to the new post was the last step in the Kremlin's campaign to gain control of Smolny - "An attempt by the federal authorities to move a governor from their circle into office in the northern capital."
But at least one politician at the federal level was positive on the move.
"I wish him success, but I have to point out that, in this government, he's going to stick out like a sore thumb," Gennady Zyuganov, the head of the Communist Party, told Interfax.
TITLE: Yakovlev's New Job a Hard One
AUTHOR: By Alla Startseva and Peter Morley
PUBLISHER: Staff Writer
TEXT: Vladimir Yakovlev may soon be thinking that his old job as governor of St. Petersburg was a walk in the park compared with being deputy prime minister in charge of communal-services reform.
Yakovlev's new brief will be to tackle issues that have been ignored for decades - such as maintaining and repairing buildings and supplying basic services such as water, electricity, gas and sewage and garbage disposal - in a sector of the economy that President Vladimir Putin this year labeled a "complete mess."
St. Petersburgers are left without hot water for large parts of the summer for maintenance work that rarely seems to make a difference to the quality or reliability of the water supply; power and gas stoppages are a regular occurrence in some areas of the city; and garbage often piles up for months on end in city courtyards. And this is in Russia's so-called "Window on Europe," a city that, traditionally, sees itself as modern and advanced, at least by Russian standards.
Multiply St. Petersburg's problems onto a Russia-wide scale, factor in the country's chronic infrastructure problems, especially outside the big cities, and add in traditional bureaucratic obstacles - as well as the fact that the sector employs just 3.6 million people nationwide, each earning an average of less than $90 per month - and the magnitude of the task facing Yakovlev becomes clear.
The additional involvement of Russian Communal Services, or RCS, a consortium of some of Russia's biggest businesses, is likely to tie Yakovlev's hands further.
Led by Anatoly Chubais, the loans-for-shares architect who now heads UES, RCS is confident it can succeed where the government has failed, making the venture profitable enough to encourage investment in the sector.
Putin in April scolded the government for what he called "social tensions" resulting from "the lack of elementary order" the sector, and called for urgent action.
OVERDUE REFORMS
Reforms are already past due: The utilities and housing infrastructure is about 60 percent obsolete and the number of breakdowns has increased geometrically, reaching one breakdown per kilometer of the central heating system, or 30 times higher than in the West.
According to different estimates, between $2 billion and $17 billion is needed to modernize the sector, a sum that far exceeds the federal budget's capacity.
RCS was officially registered earlier this month with a charter capital of 1 billion rubles, which is divided into 10 million common shares worth 100 rubles each. UES and Gazprombank each own a 25-percent stake, while the other five members of the consortium each have 10 percent.
The consortium will establish 100-percent-owned regional subsidiaries that will take over all local housing-service functions, ensuring supplies of water, power, heat and gas, television and radio access, garbage collection, sewage service and general building maintenance.
The idea is to convince local mayors to turn over, say, all the heating infrastructure of their towns for 10 years or so in exchange for a promise to provide stable heat supplies and maintain and modernize the infrastructure.
The catch is that municipal authorities do not have the power to set tariffs for non-city-owned companies, so for the project to be profitable for RCS the consortium must be able to convince regional energy commissions, which are controlled by regional governors, to set tariffs at a level to its liking.
UES and Gazprom, in particular, stand the most to gain, as they hope to recoup billions of dollars owed to the sector by current communal systems providers by streamlining the massive bureaucratic machine in which they operate. All that is needed, Chubais says, is to decrease theft, cut expenses and install better management.
"We will put everything in basic order. Our team is able to manage this task," Chubais told reporters when he unveiled his plan in March.
Chubais' confidence is reflected by the amount of money RCS says it will invest in the project - up to $500 million - but half a billion dollars is just a fraction of what will eventually be needed. Experts say the industry has been underfinanced by about $2 billion per year over the past decade, and even the government admits that modernization will cost more than $15 billion.
UES and Gazprom say streamlining the industry will allow them to recoup the billions of dollars owed to them by current communal services providers. They also expect it to turn into a moneymaker.
HISTORY REPEATING?
The scheme seems eerily similar to the scandalous loans-for-shares deals of the mid-1990s, which temporarily bailed the government out of a fiscal hole while simultaneously enriching a clutch of well-connected insiders.
The potential pitfalls are enormous - but so are the potential profits. Public and private expenditures on communal services last year totaled more than $17 billion. However, where huge chunks of that money end up is largely anyone's guess under the current system, as is where Yakovlev fits into the picture.
According to a recent study by the presidential administration's auditing directorate, 73 percent of boilers and 65 percent of all pipe networks in apartment blocks are "depleted," resulting in as much as 60 percent of all residential heat supplies being wasted.
The Kremlin's financial watchdog also found that:
- the number of malfunctions has increased fivefold over the last decade;
- the national heating network suffered more than 1,500 failures last winter alone, a 20 percent increase on the year resulting in 75 "major" crises in 38 regions;
- for every 100 kilometers in the heating network there were on average 200 ruptures or other incidents requiring repairs last year;
And that's just heat. Equally crucial - and decrepit - is the water system. For example, more than a third of all the water supplied to households is officially considered "unhealthy," according to government estimates, while water waste due to faulty pipes is about 40 percent, or nearly three times the average for developed countries.
"The ineffective management of housing and utilities services and a lack of coordinated measures at the regional and federal levels are the main reasons behind the crisis in the sector," the presidential auditors said on the Kremlin's official Web site, www.kremlin.ru. "Creating the legislative basis, ensuring financial stability, budget support, tariff policy and the formation of a services market in the sector remain uncoordinated."
What is needed, the Kremlin watchdog said, is a new law on housing reform to create the legal mechanisms for competition.
LESSONS LEARNED?
The government tried this approach in 1993, but made little progress, save for grouping municipal housing and utilities departments into regional units. The sector never became competitive because the newly created regional companies retained control at the municipal level while federal and regional budgets continued to subsidize them.
But in a classic series of hide-the-budget-money moves, nearly all of the regional companies' municipal departments have changed their names and locations numerous times over the last five years, making them virtually impossible to collect debts from, let alone control.
The total bill for consumer services last year came to 554 billion rubles ($17.7 billion), about 60 percent of which was paid by residential customers, while federal and regional budgets covered about 30 percent, leaving some 60 billion rubles in cross-debts between customers, suppliers and middlemen.
What's more, the federal government says a large portion of these budget funds are either stolen or misused by municipal authorities, meaning local communal service providers rarely see a kopek for their services. As a result, the government says, 70 percent of all communal services companies are bankrupt and collectively owe more than 3.5 billion rubles in back wages. (In some regions, like Kamchatka, communal service workers haven't been paid since last summer.)
The debt maze has resulted in consumers' owing communal services providers about $6 billion, while the providers owe about $9 billion to energy suppliers, mainly UES, Gazprom and coal companies.
With the system spinning out of control, housing specialists say it is clear that something must be done quickly, which is why the government, having failed in the task, is turning to Chubais, as it has in the past when faced with a seemingly impossible task, to begin cleaning house.
FUNDING PROBLEM
In another twist, the head of the State Construction Committee said earlier this month that the government will not allocate any federal funds for the maintenance of housing and communal systems in those towns and cities that have signed contracts with the newly created RCS.
"In towns that conclude a contract with RCS, let RCS work there," Interfax quoted Nikolai Koshman as saying. "We will see how these projects will be realized. The government will not allocate budget funds for maintenance in these places."
Koshman said the State Construction Committee is urging the government to allocate 13.47 billion rubles ($440 million) in additional support for the coming winter, but none of the regions where RCS is active will see any of that money.
Chubais said, however, that RCS is not counting on the government's help.
"We have our own resources. If we grab these meager state funds I don't think it will do good at all," Chubais said. "The volumes and tasks in the housing sector are so big that if the State Construction Committee manages to allocate some funds ... it will have plenty of things to spend them on."
By law, local authorities alone are responsible for communal services. The federal government can only pass vaguely worded laws that are little more than recommendations to municipalities.
"Due to the differentiation of powers, municipal authorities are not obliged to obey federal laws concerning the housing sector," said Nadezhda Kosareva, president of the Moscow-based Institute for Urban Economics.
And those federal laws that directly affect the sector and that local governments must adhere to only make matters worse for the most part.
CORRUPT AND FALL
The whole system seems custom built for corruption.
Here's how it works: municipal authorities are not allowed by law to manage communal properties themselves, so they are obliged to create a management company to take over all rights and responsibilities for those properties. But once that happens it becomes virtually impossible to take back these properties, even if a management company runs afoul of the local administration, because it can hold on to that property as long as it wants.
The catch is that the head of the municipal government has the power to hire and fire the director of the local management company, thus controlling the company's money flows.
Now, just as communal services workers have no incentive to work, these management companies have no incentive to square their accounts. It makes no sense to initiate bankruptcy proceedings against them because legally their assets are considered "socially significant," meaning they cannot be sold in any liquidation proceeding.
The bottom line is that nearly all of these companies are bankrupt even though they can never be declared so.
"In addition to corruption in the sector, there is complete muddle - both financially and legally," said Kosareva.
The system is literally communist - created by communists under communism - and it hasn't changed a bit legally, she said.
"All the relationships within the sector were built on administrative principles, not economic principles. That is why it is impossible to describe the structure of the sector from an economic point of view."
When Moscow allocates money to municipal administrations for their annual budget, that money is not earmarked, meaning local authorities can spend it on things it isn't intended for. (That is why it is not uncommon to see employees of the local water company decorating the streets with flags on national holidays instead of fixing broken pipes.)
For municipalities, which act as the supplier, middleman, customer and inspector all at once, the status quo is just fine.
Another disincentive for communal services providers to streamline their operations is that tariffs are set based on how much it costs to provide a service.
Although housing and public utilities tariffs, which are controlled at the regional level by special commissions, rose 20.7 percent in the first quarter of the year, or 3 1/2 times faster than inflation, service companies generally make no effort to reduce expenses by modernizing because the regional energy commission would react by reducing tariffs and thus their revenues.
This is the main reason private companies have no interest in the sector - there is no way to guarantee a return on their investment.
CHUBAIS TRIUMPHANT?
Conquering the housing sector while overseeing the world's largest electricity company would give Chubais unprecedented political power.
In addition, rebuilding the national power sector offers Chubais, who has been dubbed the most-hated man in Russia for his past privatization shenanigans, something of a last chance to put a shine on his tarnished historical record, and the housing sector represents the last mile of that quest.
Kosareva of the Institute for Urban Economics said that if the RCS project can succeed in a few regions, Chubais could regain the people's trust and get them to believe in his pro-market reform mantra again.
Dmitry Orlov, deputy head of the Center for Political Technologies, called the housing sector "the last enclave where Chubais can improve his image as a reformer because no one has tried to reform the sector before."
"If Chubais can manage to turn the sector around, he will wash away his image of a poor privatization master forever," Orlov said, adding, however, that he doubts Chubais will succeed.
But if he does, it would be a fitting accomplishment for the man who essentially created the oligarchs as a class and drove perhaps the final nail in the coffin of communism in the process.
"The housing sector is the only untouched socialist industry left in the country," Kosareva said. "All the political parties cherish and care for it because it gives them a wide area for populist activity."
Yakovlev's role in sorting out the current mess was unclear on Monday. However, the head of local power utility Lenenergo, Andrei Likhachyov - who originally declared he would run for governor, but subsequently withdrew his bid, saying he would back Valentina Matviyenko, presidential representative the Northwest Region - said that the future of communal-services reform is unlikely to depend on Yakovlev alone.
"A whole set of measures and efforts is imperative," Likhachyov said in an interview with the Vedomosti business daily, although he refused to comment on the specifics of Yakovlev's appointment.
TITLE: Duma Gives Go Ahead to Package of Tax Reliefs
AUTHOR: By Alla Startseva
PUBLISHER: Staff Writer
TEXT: MOSCOW - State Duma deputies overwhelmingly approved a tax-relief package the government says is crucial to meeting a presidential challenge to double the size of the economy by 2010.
In a vote last Wednesday observed by nearly every senior official in the Finance Ministry, deputies easily passed in the first of three readings amendments to the Tax Code that will end the controversial 5 percent sales tax and slice the value-added tax by 10 percent, beginning in January.
Deputies, who face Duma elections in December, voted to finance relief for retailers, consumers and manufacturers at the expense of natural-resource companies - mainly natural-gas monopoly Gazprom - by abolishing an intricate excise tax on natural gas while simultaneously introducing a tax on gas production and quadrupling the gas-export duty to 20 percent of customs value, all from next year.
The Duma also backed a hike on the oil-production tax to 357 rubles ($11.70) per metric ton from 340 rubles per ton.
"[Passing this package] is a strategic, timely and correct decision," First Deputy Finance Minister Sergei Shatalov said, according to news agencies.
The most controversial item on the agenda was the abolition of the countrywide sales tax, revenues from which are earmarked for the regions.
Adopted in 1999 as a stopgap revenue stream for the bankrupt federal government, the regions have become heavily reliant on the 5-percent tax. Originally scheduled to be phased out Jan. 1, 2004, regional leaders, including Mayor Yury Luzhkov, vowed to fight to prolong it, characterizing government promises to make up for the resulting shortfalls as empty.
Led by Luzhkov's Fatherland-All Russia coalition in the Duma, deputies originally wanted to keep the sales tax in exchange for cutting VAT from 20 percent to 16 percent, instead of the 18 percent urged by the government. But they abandoned their opposition after intense number-crunching and lobbying by the Finance Ministry, which pledged to find ways to fill budget holes.
Shatalov, the government's point man on tax reform, told deputies that abolishing the sales tax would cost regional budgets 60 billion rubles, which the government would make up for by transferring to the regions revenues from taxes on small and medium-sized businesses, excise duties on alcohol and up to 1 percent of the federal income tax.
The government will detail the exact mechanisms by which regions will be compensated by the second reading of the bills, Shatalov said.
Consumers may enjoy relief from inflation if the tax is indeed abandoned, because more than a dozen of the country's largest retailers made a promise last month to lower their prices by at least 5 percent if the tax is cancelled.
Manufacturers too, are poised to gain. According to government calculations, reducing VAT by 10 percent will free up more than 100 billion ruble ($3.3 billion) that enterprises can invest back into their businesses.
Finance Minister Alexei Kudrin said that the measure hiking taxes on Gazprom and other gas producers will bring an additional 17.5 billion rubles ($570 million) into the budget next year, but dismissed criticisms that it was unfairly singling out the industry.
"By raising the tax burden on the gas industry by 17.5 billion rubles from 2004, the government will only bring it back to the level seen in 2001," Kudrin said.
He said that tax revenues from the gas industry are lower this year than in 2001.
Kudrin said, however, that the gas-export-duty hike may be reduced before the second reading.
Shatalov said that the overall tax package passed on Wednesday will reduce the tax burden on the economy to about 27 percent of gross domestic product, from nearly 31 percent now, within three years.
He said that the government's tax-reform drive, which started with the introduction of the flat 13-percent income tax shortly after President Vladimir Putin took office, should be completed by 2006 and that there were no plans for further cuts after that.
If the situation is favorable, VAT could be cut to 15 percent begining in 2006, he said.
The Duma also voted to extend its summer session by one day to this Saturday, when it will vote on the tax cut bills in the crucial second reading that will lock details in place.
If passed, the third and final reading will be scheduled for the fall session.
TITLE: ElBaradei Urges Iran To Allow Inspections
AUTHOR: By Danica Kirka
PUBLISHER: The Associated Press
TEXT: VIENNA, Austria - The head of the UN nuclear agency urged Iran on Monday to allow more intrusive inspections of its nuclear-related facilities to ease concerns that it is developing atomic weapons.
Mohamed ElBaradei's appeal before the International Atomic Energy Agency's board came 10 days after an internal report claimed that Iran failed to honor promises to disclose its use of nuclear material. The United States wants the agency to declare Iran in violation of the Nuclear Nonproliferation Treaty.
ElBaradei asked Iran to accept a new protocol that will give the agency a chance to "provide credible assurances regarding the peaceful nature of its nuclear activities."
"I also continue to call on Iran to permit us to take environmental samples at the particular location where allegations about enrichment activities exist," ElBaradei said in his statement to the board. "This is clearly in the interest of both the agency and Iran."
Iran insists its nuclear program is peaceful and aimed at producing electricity for energy needs as oil supplies wear down. Suspicion about those claims prompted ElBaradei to tour Iran's nuclear facilities in February. The visit was intended to ensure that Iran's nuclear program was limited to peaceful, civilian purposes.
A copy of the report that followed, obtained by The Associated Press, revealed that Iran was building a heavy water production plant. Heavy water is used in nuclear power plants and can provide a method for producing plutonium for use in weapons.
The report also indicated that Iran failed to declare the importation of some nuclear material and its subsequent processing. The report said the quantities were small and the nuclear material would need further processing before it could be used in an explosive device.
But it cautioned that "the number of failures by Iran to report the material, facilities and activities in question in a timely manner as it is obliged to do ... is a matter of concern."
The U.S. ambassador to the agency, Kenneth Brill, described it as "a very serious and sobering report and we have to deal with it." The European Union's foreign ministers backed Washington's position, drafting a statement urging Iran to come clean on its nuclear energy program.
Iran's chief representative to the IAEA, Ali Akbar Salehi told reporters before the meeting that "this whole issue has been politically motivated and politically charged."
One of the more critical players in the debate is Russia, which is helping build a 1,000-megawatt light-water reactor in the Iranian southern port city of Bushehr that is worth $800 million.
Viktor Kozlov, the head of the state-run Atomstroiexport company, which is in charge of the reactor's construction, said that 3,900 Russian and Iranian workers were building the reactor. In April 2002, he said a total of 5,000 metric tons of equipment, including the reactor's body, had already been shipped to Iran.
Nuclear Power Minister Alexander Rumyantsev said last month that the Bushehr reactor was set to become operational in 2005.
Moscow has strongly urged Iran to sign an additional agreement with the IAEA that would put all its nuclear facilities under the agency's control. The government has said that Russia will still ship nuclear fuel to Bushehr even if that push fails, provided that Iran agrees to return all spent fuel to Russia.
"We hope that our point of view is heard in Iran," said Moscow's ambassador to the IAEA, Grigory Berdennikov. "We are working with Iran so that it would sign and ratify the additional protocol."
TITLE: Liberal Russia Group Chooses Berezovsky
AUTHOR: By Nabi Abdullaev
PUBLISHER: Staff Writer
TEXT: MOSCOW - One of the two warring factions of the Liberal Russia political party elected Boris Berezovsky as one of its leaders Sunday at a two-day conference called to map out its strategy ahead of December's parliamentary elections.
The rival faction, meanwhile, held a conference of its own Saturday and accused Liberal Russia co-founder Berezovsky and other oligarchs of trying to "privatize" political parties.
This group, led by the head of Liberal Russia's executive committee, Viktor Pokhmelkin, kicked Berezovsky out of the party in October for attempting to align the party with the Communists in a two-front offensive against President Vladimir Putin.
Berezovsky has offered to pour millions of dollars into Liberal Russia's election campaign and retained control of most of the party's regional branches.
The offer did not fall on deaf ears at the conference of 628 pro-Berezovsky delegates from 61 regions who met at the Kosmos hotel this weekend. They voted to reinstate Berezovsky into the party on Saturday and, after a marathon 20-hour debate, decided early Sunday to appoint him the party's co-chairman, news agencies reported.
Berezovsky addressed his loyalists via a video link from London, where he lives in self-imposed exile to avoid prosecution on fraud charges that he calls politically motivated.
He told the gathering that Liberal Russia should consider joining forces with any political party to ensure that it secures seats in the next State Duma.
"I believe it is acceptable to consider any alliance," he said in remarks carried by Interfax on Saturday. "First, we must overcome the split within the party, and then seek an alliance with the liberals, foremost with the Union of Right Forces and, if possible, with Yabloko.
"If this alliance does not work, we must consider a tactical alliance with the leftists," he said.
Recent polls show that Liberal Russia will get less than 1 percent of the vote in Duma elections. A party needs to get at least 5 percent of the vote to win seats in the parliament.
Also on Saturday, pro-Berezovsky delegates elected Mikhail Kodanev as the other co-chairperson and appointed members to leadership posts in various party committees.
In addition, they approved an earlier decision by the party's Berezovsky-controlled central council to expel Pokhmelkin and his backers from Liberal Russia, RIA Novosti reported.
Moreover, the delegates decided to adopt the name and image of former President Boris Yeltsin as the party's official symbols, Interfax reported. They sent an appeal to Yeltsin asking for his blessing.
In the meantime, Pokhmelkin and his supporters gathered at the Golitsyno conference center outside Moscow and decided to form a coalition between Pokmelkin's Movement of Russian Motorists - a group that lobbies the government on behalf of drivers - and the Republican party, led by former Finance Minister Boris Fyodorov. Representatives from 48 regions attended the meeting, Interfax reported. Pokhmelkin, whom Berezovsky has accused of destroying Liberal Russia from within on orders from the Kremlin, denounced the rival conference.
"The oligarchs are trying to privatize political parties," he told Rossia television on Saturday. "Our party was the first to get rid of an oligarch and is continuing to cleanse itself of his followers."
Pokhmelkin holds Liberal Russia's registration papers and the party's official stamp.
Until recently, the Justice Ministry, which registers political parties, has all but ignored Berezovsky's loyalists, sending representatives only to events called by Pokhmelkin's backers.
Ministry officials, however, met for the first time with Berezovsky's representatives on Tuesday and promised them that they would consider the legitimacy of their wing after the Saturday congress, Nezavisimaya Gazeta reported on Wednesday
TITLE: Hundreds Protest War in Chechnya
PUBLISHER: The Associated Press
TEXT: MOSCOW - Hundreds of demonstrators gathered in downtown Moscow on Monday to protest the continuing war in Chechnya.
Despite the threat of a downpour, about 500 people rallied on Pushkin Square, calling for peace in Chechnya and demanding that Russian journalists take a more critical line on the war.
Organized by a coalition of human-rights groups, and endorsed by a long list of Russian cultural and scientific celebrities, the rally was led by popular political satirist Viktor Shenderovich.
"We are a group of normal people who do not accept what the authorities are doing in our name in Chechnya," Shenderovich told the crowd.
Despite the small turnout, organizers insisted that the majority of Russians are opposed to the war in Chechnya.
Meanwhile, military officials announced that the Interior Ministry will take over command of the war in Chechnya from the Federal Security Service in September.
Lieutenant General Yevgeny Abrashin said that a deputy minister from the Interior Ministry will be appointed regional commander of the federal forces, and 15 regional Interior Ministry offices will be established in Chechnya, Interfax reported. Two military divisions will remain in Chechnya to provide assistance to Interior Ministry forces, Interfax said.
The move appears to be an attempt to portray the situation in the republic as stabilizing by shifting the focus to law enforcement duties.
However, fighting persists, and service personnel, Chechen officials, rebels and civilians continue to be wounded and killed daily.
In January 2001, President Vladimir Putin transferred control of the federal forces in Chechnya from the military to the Federal Security Service, saying the focus should be on providing security.
A delegation from the European Parliament arrived in Grozny on Monday for a five-day trip to investigate the situation in the region.
European institutions have expressed concern about human-rights abuses in Chechnya.
TITLE: Budanov Trial Hears Character Testimony
PUBLISHER: Combined Reports
TEXT: ROSTOV-NA-DONU, Southern Russia - The wife and sister of Colonel Yury Budanov, who is charged with murdering a Chechen woman, told a military court Monday how the war in Chechnya made Budanov broody and brutal.
"Kind and gentle," Budanov "became nervous and irritable and said brutal things he never would have dared to say before," said his wife, Svetlana Budanova. The character change came "after the death of 23 of his troops, killed by snipers," she said.
Budanov has admitted killing 18-year-old Heda Kungayeva in March 2000, but says he suspected her of being a rebel sniper and strangled her in a fit of rage.
Kungayeva's family said she was dragged from her home in a Chechen village, raped and murdered by soldiers.
Budanova, 39, said Budanov "regretted that he had killed" the young Chechen woman, but also offered evidence of the colonel's new "brutality."
She said that, in February 2000, while on a vacation in Siberia, Budanov almost threw his elder son out of a window because he believed his son had wounded his 3-year-old daughter. "He no longer realized that this was his son," she said.
Budanov's sister, Yelena Volyanik, 35, said she "no longer recognized" her brother that month. "He was silent, and no longer asked about members of his family or friends," she said.
A visibly angry Budanov interrupted his wife's and sister's testimony on several occasions.
"You're belittling me, and you'll answer for that," he shouted.
Also Monday, the court ordered a postmortem character assessment of the murdered woman, in response to a request by the Kungayeva family's lawyer, Abdullah Khamzayev.
In addition, the court introduced the team of medical experts chosen to conduct a fifth psychiatric examination of Budanov. Eleven psychologists and psychiatrists are expected to spend a month examining Budanov, court officials said.
(AFP, AP)
TITLE: Tsvetkov Murder Suspect Arrested
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW - Police have arrested a suspect in the killing of Magadan region Governor Valentin Tsvetkov a deputy interior minister said Monday.
Working jointly with Armenian police, Russian detectives and prosecutors arrested Artur Anisimov, a native of Yerevan, in March and charged him with complicity in the killing of Tsvetkov in April, First Deputy Interior Minister Rashid Nurgaliyev said.
Tsvetkov was gunned down in broad daylight on Novy Arbat last October in an assassination that shocked the political establishment.
Anisimov, 40, ran a private security company in Magadan whose clients included companies controlled by Tsvetkov's assistant, Viktoria Tikhacheva, Gazeta.ru reported. Tikhacheva was arrested in March on suspicion of embezzling $16 million worth of seafood.
Nurgaliyev did not elaborate on what role Anisimov was suspected of playing in Tsvetkov's death.
Deputy Prosecutor Vladimir Kolesnikov said Monday arrest warrants have been issued for several other suspects.
TITLE: Kasyanov Facing a No-Confidence Vote
PUBLISHER: Combined Reports
TEXT: MOSCOW - Prime Minister Mikhail Kasyanov last week defended his social and economic record before an agitated State Duma ahead of a no-confidence vote in his government, scheduled for Wednesday.
Yabloko and Communist deputies have banded together in a long-shot bid to topple Kasyanov's government for faults ranging from an alleged failure to rein in white-collar crime to an indecisive social policy.
But Kasyanov - who appears to have won President Vladimir Putin's trust and has served as prime minister for more than three years - looked confident as he stared down the Duma challenge.
"The lawmakers are trying to stir up politics," Kasyanov told reporters after his first speech before the Duma in months.
The Duma faces re-election on Dec. 7, and Putin has hinted the new parliamentary majority may decide the face of the new Cabinet.
And while Kasyanov listed his government's achievements - including keeping once-spiraling inflation in check - he also threw a bone to the opposition ahead of the no-confidence vote, conceding the government had made some mistakes.
"There are things for which the government can be blamed despite its achievements," he said. But he cautioned that the no-confidence motion "should be treated with attention, patience and tolerance."
Kasyanov also tried to brush aside rumors that economic and other policy rifts have opened up between him and Economic Development and Trade Minister German Gref, who has fought publicly with the prime minister in recent months.
"Everyone in the government is committed to the same goals," Kasyanov said. "The only matter of debate now is how we achieve them.
"Our main task is to raise living standards by implementing economic growth at a faster pace than our neighboring countries," he said.
Putin also struck an optimistic note and said that Russia was sailing through the peak year of its debt payments. The foreign debt due this year totals $17 billion.
"In recent years, many people said that 2003 would be not only the year of debt repayment, but a crisis year. And they asked, 'How will we live through this year?"' Putin told census-takers in a Kremlin meeting, Interfax reported. "We are living through it, and everyone, at least the experts, sees that the country has solved this problem."
Kasyanov said timely repayment of debts and other signs of economic health have brought growing foreign investment to Russia.
"In the first quarter of last year, capital flight was $1 billion a month," Kasyanov said in televised remarks. "This year, we have a net inflow of capital."
He said that foreign investment in Russia amounted to $6.3 billion in the first quarter, Itar-Tass reported.
Kasyanov's Duma briefing came one day after the lower chamber agreed to schedule a vote of no-confidence in the Cabinet for Wednesday.
The motion was submitted by the small liberal opposition Yabloko faction along with the struggling Communist Party, two groups that together with their allies can only expect to collect some 150 votes in the 450-seat chamber.
The tally falls far short of the 226 votes necessary for an official censure, and Western investors said they were confident Kasyanov would stay.
They said Kasyanov's government could fall only if Putin himself resolved to get rid of a leftover from the Boris Yeltsin era, when Kasyanov was deputy prime minister in charge of finance.
"We think that the no-confidence motion would fail without the support of the pro-Kremlin factions," the Aton investment house said in a research note.
"For Yabloko and the Communists the move is a smart piece of politicking as it allows them to draw attention to the government's flaws and to force other Duma factions to vote to retain an unpopular government," the note said.
Should the motion pass in two successive votes, Putin would either have to fire Kasyanov or keep his prime minister and disband parliament, calling new legislative elections.
Kasyanov has served as Putin's prime minister throughout the president's first term, and political analysts predict that Putin will not part ways with Kasyanov before the Duma elections.
Boris Nemtsov, the leader of the Union of Right Forces party, proposed on Wednesday that "the president should also take the position of prime minister" and "the government should be chaired by a person with an approval rating of more than 70 percent of Russia's population," Prime-Tass reported.
Kasyanov disagreed, saying that "to change something in the Constitution, especially things of such primary importance, today is just harmful and dangerous."
According to figures from the Economic Development and Trade Ministry, the economy grew by 3 percent in the first five months of 2002 compared to the same period the year before.
Kasyanov was also quoted as saying that industrial output growth hit 8.5 percent in the first five months of 2003, compared to the same period of 2002.
"The first months of the current year were characterized by quite a high rate of growth in industrial production and investment," Interfax quoted him as saying.
Many analysts say the economic growth is mostly a result of high oil prices.
But Kasyanov said a drop in oil prices "will not be able to shake the strength margin of the Russian economy," according to Itar-Tass.
(AFP, AP, Reuters, SPT)
TITLE: Russia Backs India Over Kashmir Issue
AUTHOR: By Rajesh Mahapatra
PUBLISHER: The Associated Press
TEXT: NEW DELHI, India - Foreign Minister Igor Ivanov said on Monday that Russia hoped Pakistan would continue to crack down on Islamic militants who cross into the Indian-controlled portion of Kashmir and inflict violence.
Ivanov, speaking after meeting with his Indian counterpart, External Affairs Minister Yashwant Sinha, said that Russia would not judge Islamabad by its public statements on Kashmir, but by its "real actions and deeds." This reflects India's concern that Pakistan has done little to dismantle militant camps on its territory.
"The leadership of Pakistan has recently undertaken a number of steps to curb terrorist activities in its territory. We hope this work will be continued," Ivanov told reporters.
Ivanov traveled to India after visiting Islamabad Sunday, where he met with Pakistani President Pervez Musharraf. After two years of tension, India and Pakistan have recently embarked on efforts to resume talks on Kashmir.
Ivanov said Sunday he received a pledge that Pakistan would not support Islamic guerrillas fighting for Kashmir's independence.
Russia "welcomes the intentions between the two states to start their dialogue," Ivanov said. "From its side, Russia will provide the utmost support to this dialogue."
During his one-day visit, Ivanov said he discussed bilateral issues with Indian officials and reviewed preparations for a Russia-India summit later this year.
Ivanov said that he also discussed issues relating to military exchanges with Indian Defense Minister George Fernandes.
"Military and technology cooperation holds an important place in our bilateral relations and we want further cooperation in this area," he said.
India had close links with the former Soviet Union, and has since maintained strong relations with Russia. India is one of Russia's biggest purchasers of military hardware, including fighter jets, tanks and other equipment worth billions of dollars.
Russian and Indian officials on Monday also were thought to have discussed setting up a mechanism for three-country dialogue between India, China and Russia on issues of common interest.
Such a dialogue might "prove instrumental in consolidating international and regional stability and rebuffing new challenges and threats," Deputy Foreign Minister Alexander Losyukov said Monday.
TITLE: Chechen Principal Shot, Building Explodes
PUBLISHER: The Associated Press
TEXT: VLADIKAVKAZ, North Ossetia - The principal of a rural high school in Chechnya was shot dead overnight and a nearly completed new traffic-police building in the region was destroyed by an explosion, officials said Saturday.
Gunmen broke into the house of Sirazhdin Zamayev and took him to the grounds of his school in the Vedeno region in southern Chechnya, where they killed him with automatic-weapon fire, regional officials said. The attackers escaped and their motive was unknown.
Also overnight, an explosion ripped through a traffic police building under construction in the town of Novogroznoye, in the Gudermes region east of Grozny, an official in Chechnya's Moscow-backed administration said on condition of anonymity. Nobody was hurt, the official said.
Chechnya's Interior Ministry said Saturday that two men claiming to have been members of rebel groups appeared before authorities over the past day to request immunity from prosecution, bringing the number to 41 since the State Duma approved an amnesty June 6.
Chechen Interior Minister Alu Alkhanov said nearly 200 other people have contacted authorities through relatives to ask about the terms of the amnesty, Interfax reported.
Colonel Akhmed Dakayev, chief of staff of the Chechen Interior Ministry, told Itar-Tass on Sunday that law-enforcement agencies were prepared to help those who surrender get jobs.
Some of them may be enrolled in law-enforcement departments in the republic, Dakayev, said, without elaborating.
Chechen Prime Minister Anatoly Popov said on Friday the authorities have commissioned a sand quarry and plan to offer jobs there to amnestied rebels.
On Sunday, unknown assailants shot and killed a man and a woman in separate attacks on their homes in a Chechen village, and a businessperson in Grozny was abducted from his apartment by a group of gunmen, the official in the pro-Moscow Chechen administration said.
Aset Idrisova, a businessperson from the village of Martan-Chu in the Urus-Martan district was shot in her home by unknown attackers, the official said. Isa Dukhayev, another resident of the village, was also shot and killed in his home early Sunday, the official said. It was unclear whether the shootings were linked.
In Grozny, businessperson Alikhan Sitayev was abducted from his apartment, the official said. Gunmen broke into the apartment early Sunday, tied him up and put him into a car that sped off, he said.
Meanwhile, a delegation from the European Parliament began a five-day trip to Chechnya on Saturday to investigate the situation in the region.
The Georgian Defense Ministry on Friday confirmed reports of Chechen rebel movements on the Russian side of the border with Georgia but said the size of the groups were exaggerated.
Aleko Mchedlidze, the ministry chief of staff, told a news conference that the reconnaissance data showed there was rebel movement, but not on the scale of 1,000 insurgents claimed a day earlier by the leader of the National Democratic Party. "It is mostly small groups on the border numbering about 100 rebels with weapons," Mchedlidze said.
TITLE: IN BRIEF
TEXT:
ST. PETERSBURG (SPT) - President Vladimir Putin visited the new Ladozhsky Station on Sunday and examined new railroad cars for regional and national services, Interfax
reported.
Railways Minister Gennady Fadeyev, with Putin on his visit to his hometown, said that more than 150 modifications had been made to the new cars over the past 2 1/2 years and that, as a result, the cars are superior to similar foreign cars. Fadeyev said that new safety systems, including computer-controlled cars, have made Russia's trains safer.
Governor Vladimir Yakovlev arrived for the improvised public event on one of the new trains, and said that the cars were both convenient and comfortable.
Putin also closely examined a compartment specially adapted for people with limited physical abilities.
Lease Extension?
ST. PETERSBURG (SPT) - The Foreign Ministry said that a possible extension on the lease of the Finnish-Russian Symensky Canal and Maly Vysotsky Island should be decided on the basis of economic expediency, Interfax reported Monday.
"The Russian position originates from the premise that the basis of any future decision needs to be situated on economic expediency," Interfax quoted a ministry statement as saying.
The ministry said that a bilateral agreement was made last Tuesday in the first round of negotiations between Russia and Finland over a possible extension of the bilateral treaty signed in 1962 between the then Soviet Union and Finland over the future of the canal and the island.
The next round of negotiations is scheduled for Nov. 4 and 5 in St. Petersburg, Interfax reported.
Energy Prizes
ST. PETERSBURG (SPT) - President Vladimir Putin on Sunday handed out the inaugural Global Energy Prizes at the Konstantinovsky Palace in the suburb of Strelna, Interfax reported.
The first recipients of the price were Gennady Mesyats, vice president of the Russian Academy of Sciences, Nick Holonyak, professor at the University of Illinois, and Ian Douglas Smith, of Titan Corp.'s Pulse Sciences Division.
In his speech at the event, Putin said that the prize was the first in the world to focus specifically on supporting and stimulating research to benefit all of humanity.
TITLE: Full Steam Ahead for Rail Line
PUBLISHER: Combined Reports
TEXT: SEOUL, South Korea - South and North Korea opened their heavily militarized frontier briefly on Saturday for a symbolic reconnection of railroad links, a key project with significant ramifications for Russia that was agreed at an inter-Korean summit in 2000, but delayed by diplomatic friction.
Commemorations of the third anniversary of the June 15, 2000 summit have been overshadowed by North Korea's pursuit of nuclear weapons and by revelations of a covert $500-million cash transfer from South to North just before the historic Pyongyang meeting.
In a show of goodwill, 50 delegates from each side of the Korean peninsula gathered for a ceremony to relink railroad ties across the Demilitarized Zone, the world's last Cold War frontier.
But with work on the North Korean side of the DMZ far from finished, the restoration of rail links severed since the Korean War of 1950 to 1953 was merely symbolic and trains are not expected to start running before the end of the year.
"Trains are not actually running, but we hope this will be an opportunity to affirm mutual will to complete the reconnection of railways and roads as soon as possible," the South Korean Unification Ministry said in a statement.
Reconnecting the Kyungui line from Seoul to North Korea's border with China, as well as another line up the east coast of the peninsula to Russia, would link South Korea to Europe by rail, boosting trade and cutting shipping costs.
South Korea has completed almost all work on its side of the border, even constructing passenger stations, but the North is still building, said Seoul's Unification Ministry.
Senior Russian officials and transport experts have said that the diplomatic breakthrough not only bodes well for world peace but could also alter the balance of world trade by allowing Russia to finally complete its most important transportation project since the country was united by the Trans-Siberian Railroad more than 100 years ago.
Moscow has been negotiating with North Korea for years on an ambitious $3.3-billion cargo project to link Western Europe to the massive South Korean deep-water port of Pusan via the Trans-Siberian and Trans-Korean railroads.
The project could generate billions of dollars per year in transit fees for Russia and position the country as a key cog in the wheels of world trade.
"This might become the major event of our lives," Vitaly Yefimov, head of the transport committee of the Russian Chamber of Commerce, said last week.
Work on the Russian side is nearly completed, but until now it had been anyone's guess when the mercurial North Korean leader Kim Jong Il would allow his country's infrastructure to be tied to South Korea's.
The Trans-Siberian, which sprawls across 10,000 kilometers, handled 375 million metric tons of cargo last year, including 55 million tons of international cargo. However, only 1.6 million tons was transit trade, 70 percent of which was between South Korea and Europe, with the rest going to and from China and between Japan and Europe and Central Asia.
The main route of cargo from the Asian Pacific region is by sea via the Suez Canal. Taking that route can take up to 40 days and costs about $2,700 per container, while using the Trans-Siberian for shipping takes two weeks and costs $400 less.
(SPT, Reuters)
TITLE: Consumer Credit Rings Changes at Cash Register
AUTHOR: By Valeria Korchagina
PUBLISHER: Staff Writer
TEXT: MOSCOW - Nearly every major Western news outlet has run a story in recent months on the consumer-lending "boom" taking hold in Russia. But outside a handful of large cities, usury is still considered an alien activity tantamount to sin.
Even in Moscow, by far the richest city in the land, this boom equates to annual aggregate per-capita borrowing of just $20, compared to about $18,000 in the United States, according to Natalya Zagvozdina, retail and consumer goods analyst at investment bank Renaissance Capital.
In fact, the number of borrowers is still so marginal nationwide that polls cannot be done to measure personal debt trends, says Marina Krasilnikova, the head of the living standards department of the All-Russia Public Opinion Research Center, or VTsIOM.
And the limited data on consumer sentiment that VTsIOM has managed to collect suggest that roughly half of all Russians still believe in the communist doctrine that equates usury to the plague.
"And this is an improvement," Krasilnikova says. "Back in 1999, 70 percent were in favor of avoiding debt at any cost."
In extreme circumstances, she says, when people are forced to borrow money, the vast majority will turn first to their relatives and friends to avoid dealing with a financial institution. Surprisingly, she adds, it is not because they want to avoid paying interest - most informal loans involve some sort of charge - it is that they just do not want to deal with banks."
Nonetheless, the concept of "enjoy today, pay later" that has driven growth in the developed world for decades has finally, seemingly irreversibly, started taking root in Russia.
Major city dwellers can now own any number of long-wanted but barely affordable commodities, everything from stereos to homes, thanks to lending facilities provided by a handful of banks.
But the concept is indeed a novelty. And while industry insiders trumpet the emerging sector as a trendy and profitable niche for banks, many pioneering consumers are already experiencing the painful truth of the old Russian saying: "You borrow other people's money for a short time. You pay back with your own cash and part with it for good."
The old folk wisdom is as true now as ever, given the incredibly high interest rates and service charges that are the hallmarks of a lack of competition.
Nevertheless, within the tiny niche of retail lending, business is indeed booming.
For example, for MIR, which specializes in home appliances and is one of the leading retail chains in Moscow, every third sale comes from borrowed money. Customers can walk over to the Russky Standart booth inside each MIR outlet and apply for immediate credit under a system that the bank has worked out to assess risk despite the lack of a nationwide credit rating system.
Since March 2000, Russky Standart, the market leader, has issued 900,000 consumer loans totaling $375 million through a number of stores in Moscow. The loans, however, come at hefty cost - an annualized interest of at least 29 percent plus additional service charges.
Unlike most developed countries, where mining customer data is virtually an art form, Russky Standart says it does not have readily available statistics on the number of repeat customers it has.
Anecdotal evidence suggests that while many Russians are willing to explore the novelty of easy credit, that novelty wears out quickly once the true cost of borrowing becomes clear.
"I bought a car stereo with a loan from Russky Standart some months ago - I had a new car, and it is just impossible to drive a new car without a new stereo," says Dmitry, a manager at a medium-sized company.
Dmitry says that he had learned a lesson about the true costs of borrowing and he "probably will not do it again."
Under an average deal at current rates, buying a stereo that retails for 20,000 rubles ($655) requires a 4,000-ruble downpayment, plus six monthly payments of about 3,200 rubles, which includes a service charge and interest. In the end the stereo costs about 23,200 rubles, or 16 percent more than the retail price.
For Russky Standart and a handful of other banks trying to cash in on the trend, such as Pervoye OVK and Alfa Bank, the returns are quite healthy, which should be expected when weighed against the risks associated with lending money to people with no credit history.
But Richard Hainsworth, banking analyst at Renaissance Capital, says that Russians are paying too much, even with their lack of credit history. Current rates are about 9 percent above what is acceptable, given Russia's corporate risk as judged by international ratings agencies. As a result, the few banks involved in small-scale consumer lending are earning "supernormal" profits, he says.
And the situation will not change until a number of big banks step into the market, says Andrei Ivanov, retail analyst at Troika Dialog.
"Right now it's all about just netting profit," he says. "Once two or more large banks move in, current players will have to either drop their interest rates or leave the market."
These changes are already being seen in the automobile loan market, Ivanov says.
But it will be two to three years at least before a true lending boom arrives- provided no financial shocks hit the country and the service expands into the regions, according to a new report by Ernst & Young.
By about 2006, Ernst & Young says, the volume of funds borrowed by individuals every year to purchase household goods, cars or property will rise to between $1 billion and $2 billion from about $300 million per year now.
TITLE: Local Bank Sector Gets Grades
TEXT: Yekaterina Trofimova, a ratings analyst specializing in the Russian banking sector for Standard & Poor's Paris office, visited St. Petersburg last week to participate in the International Banking Congress, giving talks on mortgages and Russia's transfer to international accounting standards. Angelina Davydova spoke to Trofimova about the latest trends in the sector and the outlook in the region for the future.
Q: How would you describe the current situation in the Russian banking market?
A: We're looking very carefully at everything that is happening in the Russian banking sector - both by observing our clients and assigning credit ratings, and by looking at the situation in general. We believe that the Russian banking sector has developed significantly over the last three years, since the [August 1998] crisis. The time when we only talked about the negative aspects of Russian banking has passed, and now the market is focusing on building up the banking sector.
At the same time, there are numerous weaknesses. The banking sector is still very small. It is dominated by Sberbank, which according to different estimates accounts for between 30 percent and 60 percent of the banking market. Sberbank is also developing aggressively in the corporate sector, which interferes with the competition, making life more difficult for other commercial banks. It also disturbs the pricing environment in the Russian banking sector.
On top of that, credit risks remain at very high levels. There's also a worrying tendency to concentrate risk. For instance, for the six largest banks rated by S&P, the 10 largest loans account for 60 percent of total lending, which is over 100 percent to 140 percent of banks' equity base, which gives a high risk concentration. At the same time, the Russian economy itself is much too concentrated, both in terms of capital and risk. If you look at the market capitalization of the Russian equity market, you see that the 10 largest companies, the so-called blue chips, account for 80 percent of market capitalization.
As a result, the concentration in the banking sector is just a reflection of the concentration in the economy itself.
Q: What are the key trends in the sector that have been evident recently?
A: First of all, bottom-line profits are still at a very high level - the nominal return on equity of the largest banks is often double the profitability to be found in the rest of Eastern Europe. This should be very attractive for investors, but, nevertheless, they refrain from investing, mainly because of the high credit and high corporate governance risk.
Secondly, Russian banks are not efficient - I would estimate that very few Russian banks are profitable under International Accounting Standards. That's very different from the evaluations of the Russian Central Bank, which believes that over 90 percent of Russian banks are profitable.
For these reasons, I would say that the Russian banking system is still going through a process of transformation, although I don't see any structural changes in the sector. Sberbank and certain other state-owned banks remain the most important players, and the role of the state is still crucial in the sector. This state of affairs has certain weaknesses for the market, reducing efficiency and the potential for government-directed lending.
Q: How would you characterize the St. Petersburg banking market?
A: One trend is consolidation, with the leading market players becoming more easily identifiable. Most banks have identified their market roles in a clearer way. The options for banks in the regions always concern geographical expansion. Some banks, like Menatep St. Petersburg or, to a lesser degree, Industrial-Construction Bank, are looking for a multi-regional status by expanding out of St. Petersburg. Other banks are positioning themselves as purely regional players. But even among these regional players, we can distinguish various different degrees of regional expansion.
I would mention the International Bank of St. Petersburg as an increasingly important regional player, positioning itself as a bank serving large corporate clients within the Northwest region. Bank St. Petersburg is another notable example.
Another trend in St. Petersburg is an increase in the presence of Moscow banks, which have always believed St. Petersburg to be the first target in their diversification. The mass entry of Moscow banks on the local market, following the [August 1998] crisis, took place in 2000, and now half the major Moscow-based banks are represented in St. Petersburg.
It's also becoming increasingly clear which banks are strong here, and which will have to leave sooner or later. I think that Alfa Bank's position in St. Petersburg is relatively good, and that MDM Bank is also doing quite well, while the acquisition of Petrovsky Narodny Bank helped it a great deal. MDM has been very successful in retail banking, and it further developed its position in St. Petersburg by acquiring Vyborg Bank and Inkasbank, both of which it has recently sold on, having gained a number of corporate clients in the process.
The second group of Moscow banks in St. Petersburg is Uralsib Bank and Rosbank. Foreign banks, such as Raiffeisen Bank and International Moscow Bank, appear to operate quite successfully in the car-loan and consumer-credit sectors. For consumer credit, I would also mention another Moscow-based bank, Russian Standard, which should be seen as a major niche player.
Q: In what way are the Russian banking and industrial sectors interacting with each other?
A: Essentially, the banking sector should support the corporate sector in its financial needs, payroll services, and so on. The banking sector also acts as an intermediary in the financial market for the corporate sector.
In Russia, however, the relationships between banks and corporations have always been more than that. It has always been a question of support, capital investment, ownership, sometimes even political lobbying.
Also, banks in Russia tend to act as front offices for financial-industrial groups, carrying out representative functions. Banks used to be the flagships of the financial-industrial groups, before the [August 1998] crisis, and they still act as such in many ways.
At the same time, although the banks are very important, they are often neglected and considered to be assets of lesser value within the group. For that reason, many banks were sacrificed during the crisis - none of the financial-industrial groups helped their banks to survive, and there was no capital investment to support banks during the crisis. Some banks survived, but not because they were saved by their owners. And even after the crisis, the banks that survived and the new banks that developed were only able to do so as a result of internal capital generation and very high profitability.
I can only think of two cases where corporations injected capital into their banks - LUKoil investing $120 million in Petrocommerce Bank immediately after the crisis, and Alfa group investing $100 million in Alfa Bank since 2000. Sberbank also managed to raise capital from the stock market.
We'd like to see more interest from corporations in banks, but, as an analyst, I realize that this is something of a dream.
Q: Which banks have you adjusted the ratings for recently and what plans do you have for the future?
A: In March 2003, we upgraded the rating for Menatep St. Petersburg to CCC+ from CCC. For Alfa Bank we've revised the outlook to positive, and the bank has a B- rating at the moment. We've assigned a B- rating to Russian Standard and upgraded the rating for UralSib from CCC+ to B- recently.
Q: What are your predictions for the development of the banking cards market?
A: I believe that, in Russia, this is still a supplementary service, and sometimes it's just an advertising product for banks. I wouldn't say that it is a profit-making product in its own right. With most of the cards being used merely for the withdrawal of cash, I don't think that banking cards are of much importance for the banking business as yet.
TITLE: Reforms in the Banking Sector Needed in Order for Gains of the Boom Years To Be Preserved, Extended
TEXT: Russia is halfway home to finishing an unprecedented fifth consecutive year of robust growth, fourth of budget surpluses and third of early debt payments to international creditors. Everyone agrees the economy is in the midst of a fantastic bull-run, but less widely acknowledged is the role luck has played in the dramatic recovery - and what will happen if that luck runs out. Ben Aris reports.
In his address to the country earlier this year, President Vladimir Putin acknowledged that most of Russia's good fortune over the last five years has been "due to external circumstances." He also said that the "pace of reform is too slow," and challenged the government to find ways to double the size of the economy by 2010, which would require average annual growth of about 8 percent; a growth that is threatened by the double whammy of inflation and ruble appreciation.
That dual threat prompted the Economic Development and Trade Ministry at the beginning of the year to predict lower growth this year, 4.3 percent, compared to last year's 4.5 percent.
Growth is increasingly being driven by small and medium-sized enterprises (SMEs), but SMEs only account for about 8 percent of gross domestic production (GDP) in Russia, a fraction of their contribution to the economies of Central Europe. The ministry was worried that a combination of a stronger currency and rising prices could stunt the emerging SME sector and take the edge off growth.
The ministry has already admitted that its self-imposed 2003 inflation target of 12 percent will likely be missed, and the Central Bank has likewise said that it is powerless to prevent ruble appreciation while oil prices remain so high, currently over $25 a barrel versus historical averages of $18 to $19.
"If inflation rates climb above about 22 percent, then we should get nervous," says Peter Westin, an economist with the Aton brokerage. "But, thanks to the momentum among the small- and medium-sized enterprises, we can cope quite comfortably with inflation in the range of 12 percent to 15 percent," he said, adding that Central Europe's economies grew strongly with much higher inflation, "thanks to SMEs."
The ministry upgraded its forecast after it became clear that the ruble's strong appreciation was being offset by the dollar's fall against the euro and investment was rising much faster than everyone expected. Rapidly rising incomes are also more than compensating for inflation.
One of Russia's quirks is that almost all of its trade is denominated in dollars, despite the fact that half of its trade is with the euro zone and must be financed in euros. While the ruble has appreciated 9 percent against the dollar in real terms since the start of the year, it has depreciated 4 percent against the euro, which in turn has held back imports and given domestic producers more breathing space.
AN ECONOMIC PHOENIX
The ruble's rescue by the euro is just the latest in a string of fortunate coincidences. The ball started rolling with the domestic debt default and devaluation of August 1998. A blessing in disguise, the devaluation lowered the value of an overpriced ruble that was in turn smothering domestic industry. A dirt-cheap currency immediately fuelled a domestic production boom and remonetarized an economy that had been mired in barter and non-payments.
As the wheels of industry began to turn, a sustained period of high oil prices provided the cash to prime the pump: the government's budget went into surplus in March 2000 - and has stayed there - while oil companies' investment capital quickly trickled down to the rest of the economy, throwing fuel on the consumer-spending fire.
The election of President Vladimir Putin in 2000 promised - and delivered - political stability, giving the recovery legs. The horizons of corporate-investment plans rolled out from six months to several years and now run into decades.
As fortune would have it, just as Russia's economy really started to surge, the rest of the world economy (China excluded) began a steady contraction, prompting central banks everywhere to slash interest rates in an effort to stave off recession and even deflation. Russian blue chips pounced on the opportunity.
WHEN FORTUNE FADES
What would happen if one, or all of these happy coincidences reversed? It could happen like this: America gets Iraq's oil fields pumping toward capacity faster than anyone expected and prices permanently fall to $10; the global economy quickly recovers and interest rates rise again; and the euro plunges against the dollar, making both Russia's high inflation rate and strong ruble bite into corporate profits.
In a nightmare scenario where all these things happened at once, would Russia face another crisis? Most economists say the short answer is: yes, but the crisis will not be as bad as in 1998. A crisis of some sort is brewing, but given the economy's strong performance over the last five years, the consensus is that the next crisis will be corporate, not sovereign, and won't happen for a few years.
"While the experience of 1998 will not be repeated, that does not mean that Russia or the markets are now immune from economic logic," says Roland Nash, head of research at Renaissance Capital.
"The Russian economy may be booming, but that doesn't mean that a flawed banking sector and weak institutions are capable of efficiently dealing with an oil-inspired liquidity boom," Nash says. "Although information, understanding and statistical transparency have improved significantly since 1998, that will not prevent perception and reality parting ways if negative real interest rates fuel a classic emerging-market feeding frenzy."
ANOTHER BANKING CRISIS?
Another banking crisis is possible, although not as likely as in 1998, as the medium-sized banks that stepped into the shoes of the household names that went bust in the wake of devaluation have been trying to build up real businesses. However, with banking reforms progressing at a glacial rate, they still remain vulnerable to a sharp economic slowdown.
If oil did fall dramatically (or a slow down was caused some other way), government-budget surpluses would be wiped out, the current excess liquidity would evaporate, demand would fall and interest rates would rise, at which point inflation and the strong ruble would make themselves felt again. As a result, small businesses would start going bust and the credits banks have begun to offer willy nilly would start going bad.
Borrowing on the domestic capital markets has doubled every year since 2001 and the growing pool of liquidity, fed by rising oil production and exports, has lead to banks lending at negative real interest rates; it is better to lend at the current 7 percent to 8 percent than leave cash to depreciate at the current 14-percent-plus rate of inflation.
At the same time, companies have been issuing larger and longer ruble bonds, which typically mature after three years, even though the projects they are funding typically have a payback period of seven years to eight years.
Buying corporate bonds and lending are relatively new businesses for most banks, so it is assumed they are not very good at assessing risks. The danger is that, if there is a sharp downturn, loans will turn bad so fast that one of the commercial banks goes bust, causing the public to loose confidence in the banking system. A run on deposits would reduce a bank's resources further, and already shaky balance sheets would become even wobblier.
And it gets worse. Under the Central Bank's prudential rules, banks are supposed to retain 10 percent of their capital as a provision against bad debt. However, in order to attract customers, most banks artificially inflate their capital through dubious schemes.
Alfa Bank estimates that up to a third of Russia's banking capital is "virtual money." If lots of loans go bad, then the cushion that should break the fall will quickly disappear and the problems could become systemic as banks start defaulting on loans to each other.
THE SBERBANK PROBLEM
The country's retail-banking monopoly, Sberbank, is particularly vulnerable, as it has ramped up its corporate lending over the last few years, with loans concentrated among very few companies, increasing risk: at the beginning of March, Sberbank's two biggest loans to Gazprom and Rosneft accounted for just under half of the bank's equity.
As the situation spirals out of control, Sberbank's mismatch between its lending and obligations makes itself felt: Sberbank has broken one of the golden rules of banking: "match your assets with your liabilities," or in other words, rubles collected from the population should be lent to consumer and rubles collected from companies should be lent to companies.
Individuals account for 80 percent of Sberbank's deposits and corporate clients only 13 percent, but corporates make up 91 percent of Sberbank's loan portfolio, while consumer credits account for only 9 percent, according to Hermitage Capital Management.
At several points in this story the government can step in to stave off disaster. With gross international reserves passing a record $60 billion this year the state has plenty of money to play with. It could comfortably come up with the several dozen billion dollars a wobbly Sberbank would need without printing rubles and making the inflation problems worse. It would also lead to a fall in the value of the ruble, further easing the pressure.
Nevertheless the "Sberbank problem" - the concentration of lots of assets in a few questionably run banks - remains real, and the slow pace of reform means that despite banks' capital rising by a third each year and companies' demand for investment capital rising even faster, bank loans have remained stuck at about 5 percent of total invested capital since growth began in 1999.
THE LOANS BOTTLENECK
Bankers say that the Central Bank is aware of the "loans bottleneck," but lacks the political will to push through reform that could widen the spout.
"From the outside, everything looks very positive. The assets and capital of banks have grown by about a third over the last year and will continue to grow this year, thanks to the economic situation in general," says Vladimir Rashevsky, chairperson of MDM Bank in Moscow. "However, the problems in the banking sector remain the same as always. The assets of the whole sector are about $120 billion and total capital is about $17 billion - this is the same as one top 20 U.S. bank."
The sector remains dominated by state banks and there are only six or seven commercial banks with any sort of retail network. "We need reforms now, while the economy is growing, because it will be impossible to reform in a downturn," Rashevsky says.
BREAKABLE BONDS
If a banking crisis is unlikely, a ruble-bond default is an almost certainty.
If a company defaults on its bond, the market, which has been happily buying nearly every piece of paper put on sale (with banks holding 80 percent of the total), will suddenly become antsy about quality - companies that were planning to roll their bonds over will be unable to, or will have to pay more.
The mismatch between bonds' maturity and the projects they are funding will show up and projects that would have been profitable at the low cost of the initially invested capital, will suddenly become loss-making.
"The quality of debt is deteriorating, and we need more transparency in the market," says Alexander Kotcherguine, MDM's managing director of international business. "A default will happen - it is just a matter of time."
Just how much damage a default and the subsequent credit crunch will do depends on how the bankruptcy is handled and if one bank has over-exposed itself to that particular bond.
"What happens if someone defaults on their bond? The danger is that they will try and wriggle out of bankruptcy and, if they get away with it, this will seriously damage Russia's investment-credit rating and image," says Nash of Renaissance Capital. "It isn't clear at the moment if the bankruptcy laws can be made to stick."
If the company is broken up in an orderly fashion and an attempt is made to pay off creditors, bankers will likely mark the experience down to the normal growing pains of a capital market.
"Bankruptcies are a normal part of developing a capital market and they are even necessary as part of the process of clearing out the deadwood to make an economy more competitive," says Eric Kraus, the head of research at Sovlink.
BUSINESS CYCLE NO. 2
For the time being, it appears, all these problems are far away and each month that passes with the same favorable external economic climate makes the Russian economy better able to cope with a painful slowdown. In particular, no one expects oil prices to fall much and, thanks to four years of investment, oil companies are much better able to cope with low prices.
"The cost of finding and producing a barrel of oil in Russia is about $5, so even if the price falls to $15 there will be less money and less investment, but it won't kill the economy," says Peter Boone, head of research at UBS.
Initial productivity gains after the 1998 crisis were made from simply putting people back to work in the existing factories. By the middle of 2002, production lines were fully staffed as companies began to run up against capacity utilization ceilings, bringing an end to Russia's first business cycle. The resulting slowdown was enough of a slap on the wrist to make increasingly competitive companies act.
Arguably, Russia is now at the start of a second business cycle. Since the start of the year, firms have begun to sack workers and use the lake of liquidity to invest in new and more efficient equipment.
Capacity ceilings have been raised as firms cash in on strengthening demand. Things like the advent of consumer credit and rising incomes are only fuelling this virtuous circle. And attention is already turning to the deadwood state-owned industries in the middle of the so-called "Soviet Sandwich."
"Everything in the private sector is doing well and everything in the state-owned sector isn't," says Boone. "However, the private companies are already cannibalizing state assets, and they are being bought piece by piece."
This year's productivity gains are real and Al Breach, chief economist at UBS, estimates that they are now growing twice as fast as they were in the years immediately following the crisis - buying new equipment boosts efficiency faster than simply hiring more workers.
"There are two things happening at the moment. Emerging markets as a whole are benefiting from the low interest rates in the U.S.A. and the perceived credit risk in Russia has improved dramatically, thanks to the Kremlin's solid macroeconomic policies," Breach says.
TITLE: Talks on Deutsche Bank, UFG Deal Nearing End
PUBLISHER: Combined Reports
TEXT: MOSCOW - Germany's largest bank, Deutsche Bank AG, is closing in on the purchase of a significant stake in United Financial Group, sources familiar with the talks said.
Reports that Deutsche Bank is interested in buying at least a blocking stake in UFG have been circulating since last year, but over the past week the deal has been the talk of the market.
If concluded, it would be the first major Western investment in the investment-banking sector since it was gutted during the 1998 economic crisis.
Both sides of the deal declined to comment, but a top manager with a major investment bank said that a deal between Deutsche and UFG, one of the few investment houses to survive the 1998 crisis and preserve its independence, is close.
A source familiar with the negotiations said that the deal would give Deutsche Bank more than a blocking stake, but less than a controlling stake.
"They are selling a blocking stake at least," said an analyst with another major investment company. "If they haven't closed the deal already then they have at least reached an agreement."
Boris Fyodorov, a former finance minister and deputy prime minister who founded and owns about 40 percent of UFG, has said that he wants to leave the business and return to politics.
In May, the Republican Party, which Fyodorov co-chairs, announced the creation of a pre-election bloc with Viktor Pokhmelkin's Liberal Russia party and the Russian automobilists movement.
"I am thinking about moving into more state-related activities," Fyodorov said at the time. He could not be reached for comment.
Created in 1994, UFG, which regularly ranks among the best investment banks in Russia in industry polls, posted a net profit of $11 million last year and has assets estimated at $127 million.
Analysts say that a 40-percent to 50-percent stake in UFG could fetch as much as $60 million to $90 million.
NAUFOR, the National Association of Stock Market Participants, said that such a deal - assuming it takes place - would have a healthy impact on the market. "We don't have enough players [like Deutsche Bank]," NAUFOR Management Chairperson Alexei Savatyugin said.
For Deutsche, a stake in UFG would expand its equity activities in Russia as it moves to establish a presence in emerging markets such as Turkey, Mexico and the Philippines, Reuters reported.
UFG was No. 4 in terms of trade volume in the fourth quarter of 2002, handling 72.5 billion rubles' worth of transactions, according to NAUFOR.
Only Aton, Brokerkreditservis and Troika Dialog were busier.
UFG is the nominal holder of 6 percent of Sberbank and owns 6.9 percent of Gazprom in the interest of its clients. UFG acted as consultant for BP in its acquisition of 50 percent of TNK International and was the co-manager for LUKoil's ADR placement on the London Stock exchange last year.
(Vedomosti, SPT)
TITLE: Time Is Already Running Out for Banking Reforms
AUTHOR: By Christof Ruehl
TEXT: The liquidity and capitalization of Russia's banking system have improved over the last few years, and lending to the private sector is rising rapidly. Market observers tend to look at the increased liquidity of Russia's banks with satisfaction. However, there is a small but rising chorus of dissenting voices - more audible in the private than in the public sector - warning of overheating, excess liquidity and instability. Unfortunately, the critics have a point.
A simple observation clarifies the problem. Foreign-investment inflows into Russia have more than doubled since 1999, to almost 6 percent of GDP last year. But the different components have grown at very different rates. Foreign direct investment - liked by everyone because it is stable and transfers technology as well as capital - has declined since the crisis, reaching a low of 1.2 percent of GDP in 2002; while more volatile flows such as commercial credits and corporate-bond investment have ballooned. In 2003, this trend accelerated.
Much of this money comes from countries such as Cyprus, the United Kingdom and the Netherlands. But the UK money comes from the Channel Islands and the Dutch money from the Netherlands' Antilles, also an offshore center. In other words, this is Russian money coming home.
Data on flight capital confirms this conclusion. Since the crisis, net capital outflows have decreased steadily. This bane of the early transition years fell from almost 10 percent of GDP in 1999 to 3 percent in 2002. In the first quarter of 2003, Russia re-established a positive net foreign investment position. Good news, it would seem: Russian money is being repatriated to finance business here, and capital outflows are diminishing drastically.
However, there is a catch. Russian capital parked abroad amounts to between $200 billion and $250 billion, by conservative estimates. This doesn't include capital transferred out of the country before 1991 or the sizeable returns that have been generated by funds held abroad. Last year's inflows from this source were approximately 5 percent of GDP. With total funds outside the country amounting to three-quarters of GDP or more, future inflows are likely to dwarf current ones. Annual inflows exceeding 10 percent or even 15 percent of GDP are conceivable, if political and economic stability prevails and so long as the rest of the world has little to offer by way of investment opportunities.
And this liquidity is not the only source of future inflows. Russia, as a natural-resource exporter, will continue to have a sizeable current account surplus; the rest of the world looks set to suffer from large excess liquidity looking for investment opportunities elsewhere; and in Russia itself, people are just starting to rediscover the convenience of holding money in the bank rather than under the mattress. There is, in short, a potential avalanche of liquid funds out there ready to hit Russia's financial sector.
Russia's banking sector, however, is not prepared to be hit by an avalanche. It has no capacity to absorb these funds or facilitate their efficient allocation. The banking sector is dominated by a few large banks, owned not just by the state but by the Central Bank (i.e., the agency that is supposed to supervise the banking system), while there are more than 1,000 small banks, many of which engage in dubious activities. If one could construct a balance sheet for the commercial-banking sector as a whole, it would already be saddled with a dubious loan portfolio and exposed to currency and maturity mismatches.
Now this sector is being exposed to a rising tide of liquidity, which looks set to accelerate.
What usually happens in such circumstances is that banks try to cope with the influx of liquidity by increasing lending and investment. Typically, this carries the danger of creating a bad loan portfolio - a credit bubble - and of bidding up asset prices, i.e., creating an asset price bubble. Among the telltale signs are when faith in repayment replaces credit checks, and investment in fixed assets (housing, stocks, etc.) ceases to be based on the expected future income generated by the assets, but on expected increases in their capital value instead. Once this is under way, loans will be serviced and assets bought and sold at ever-rising prices just as long as everyone believes the boom will continue. In the end these bubbles burst, with minor events sometimes being instrumental, and this leads to asset-price deflation and credit crunches as loans can no longer be serviced.
Short of restricting capital flows, the only protection against this danger is to build a banking and financial sector strong enough that it is fortified against the temptations of "easy money." This is difficult even in the best of circumstances.
Fortunately, the Central Bank is now pushing this agenda. What needs to be done is known and straightforward -but the reform agenda is proving hard to implement and valuable time has been lost due to complacency. Preparation has been slow for the introduction of international accounting standards; the law on deposit insurance has just been delayed again (testimony to the lobbying power of those opposed to change); and the introduction of effective supervision and licensing procedures by their very nature will take years.
So is a boom and bust cycle inevitable? Has it already started? There is no crisis imminent in Russia. The banking sector is so small that even if it were wiped out tomorrow, the consequences would be manageable. However, as the tide of liquidity keeps rising, the sector will grow and the quality of its balance sheet gives no cause for optimism.
Moreover, the environment for lending in Russia remains difficult. The lack of legal enforcement and access to collateral, the absence of credit bureaus, rating agencies and credit history - all these factors create conditions under which credit is likely to grow and collapse rapidly. The often-heard argument that the recent private credit-repayment record in Russia is so excellent as to justify "easy" credit is in itself an indicator of an unsustainable boom.
Eurobond prices have escalated, housing prices in the capital are soaring, and equity prices are set to follow suit. In Moscow, it is now possible to get uncollateralized consumer credit. These may be early indicators of overheating. Yet, just a few kilometers outside Moscow, trees are growing through factory roofs and roads are crumbling. Throughout the country, there is huge demand for infrastructure and other financing, be it public or private. In most parts of the country, it is still difficult to find financing to set up a small business.
Ironically, although today's problems are driven by private capital inflows, in one essential aspect Russia differs from Asia prior to the 1997 crisis. In Russia, the problem is not that credits are being used to build the 101st golf course that no one really needs. Here, there is a genuine and considerable need for public and private financing.
The sad truth is that the banking sector in its present shape is the bottleneck preventing funds from flowing into the areas - geographical and sectoral - where they would be of most use. While asset prices in Moscow have started to soar, elsewhere people can't get the money to open a shop.
But in this tragedy lies opportunity: There really is no alternative but to speed up banking reform. The Central Bank has realized this and is certainly trying. If reforms are rapid and decisive, the expected capital inflows could create new productive capacity instead of inflating prices for existing assets. This would effectively lessen the present danger. But if the tide of liquidity continues to rise faster than banks' capacity to learn how to mediate the incoming resources effectively, there will be a problem.
If reforms do not start in earnest, the race will have been lost before it has even started.
Christof Ruehl, the chief economist of the World Bank's Russia country department, contributed this comment to The St. Petersburg Times.
TITLE: Confidence in What?
AUTHOR: By Andrei Piontkovsky
TEXT: On Wednesday, the State Duma is scheduled to consider a motion of no confidence in the government of Mikhail Kasyanov. Raising such a question is entirely natural, and moreover, is a necessary step to preserve the political face of our parliamentary system.
The model of Russian capitalism that took shape under former President Boris Yeltsin and has been consolidated and institutionalized under President Vladimir Putin is incapable - due to congenital defects - of providing either stable economic growth or the impetus for Russia to make a breakthough into the post-industrial era.
The motion of no confidence was initiated by Yabloko and the Communist Party, and it is interesting to note the reactions of other parties in the Duma to this initiative. The four-headed "party of power," whose election campaign is built around criticism of the government - voiced by the leaders of the party, who happen to double as members of the very same government - is in a quandary. To support the government now would mean to abandon its labored election strategy for the upcoming parliamentary elections. However, to support the no-confidence motion without the Kremlin's sanction would be completely inconceivable.
The Union of Right Forces has a different problem. Competing with Yabloko for the "democratic" vote, SPS, by definition, cannot support the initiative. Thus, on the one hand, SPS leaders argue that the government is not really so bad, as it is "implementing many of SPS' progressive ideas."
But, on the other hand, it is, of course, a disgrace, although that is to miss the point. The government is but a cog in the system of executive power - the "cleaning lady" in the words of SPS leader Boris Nemtsov. The presidential administration is the root of all evil - and it's the general director, not the cleaning lady whom you should be censuring, but the timid Yabloko faction cannot bring itself to do so.
However, this line of argument is not convincing. A motion of no confidence in the government is the only political - and not public relations - instrument provided for in the constitution that the parliament can use to express its disagreement on a matter of principle with the executive branch, including the president.
The government is formed by the president, and can be sacked by the president at any moment by a simple stroke of the pen. Until he does that, the president formally shares responsibility with the government for its actions. In fact, Yabloko has never been afraid to criticize the authorities - and not only over economic policy, but also over Chechnya and treatment of the mass media.
But let's return to Nemtsov's comparison of the government with a cleaning lady. This particular cleaning lady, on a daily basis, makes decisions to the tune of billions of rubles - and sometimes billions of dollars - which have a huge impact on the country's economy. Nonetheless, in one respect, Nemtsov is undoubtedly right. In terms of its accountability to the public, the Kasyanov government, conveniently taking cover in our constitutional system behind the term "technical government," is indeed not dissimilar to a cleaning lady. But where then is the general director who can be held to account for the country's capitalization?
In our political system, the president is a celestial being, responsible for foreign policy, security issues and other such vaunted policy areas. His forays into economics, which are made once a year, boil down to exhortations to the government to be more ambitious and demands that GDP be doubled.
As a result, in matters of economic policy, we have an irresponsible government and an irresponsible president. And I am not talking about Mikhail Mikhailovich Kasyanov and Vladimir Vladimirovich Putin, but the official posts, as defined in our constitution and by our political
traditions.
Our constitution is copied from that of France's Fifth Republic. However, in France, with its developed system of parties ready to replace one another in power after parliamentary elections and to form a government, the constitution works very differently. In France, the leader of the party that wins the elections becomes prime minister and enjoys full power over, as well as taking full responsibility for, matters of economic policy. As a result, France is a presidential republic in the area of foreign policy and a parliamentary republic in the area of economic policy.
Russia, on the other hand, is a presidential republic in matters of foreign policy and security, while it is "nobody's" republic as far as economic policy is concerned. Therefore, it is no surprise that, as presidential economic adviser Andrei Illarionov recently related to us, "jackals are tearing the Russian economy to pieces." And why shouldn't they if the country is nobody's? The motion of no confidence should apply not just to specific individuals in Kasyanov's Cabinet, but also to the existing system of irresponsibility and unaccountability.
Can the political elite find a solution? In the absence of a developed party system, a parliamentary republic is not going to work on Russian soil. We would be better served by a system in which the president is also the head of the government and bears responsibility, inter alia, for the economy; while the parliament enjoys much broader oversight functions. Then, presidential elections would have much more substance, as every four years we would not be voting for the person who knows best how and whom to wipe out in the outhouse, but for the person who proposes the best program for the country's economic development.
Andrei Piontkovsky, an independent political analyst, contributed this comment to The St. Petersburg Times.
TITLE: Yakovlev's Ambivalent Departure
TEXT: "Keep your friends close, but your enemies closer" could be the rationale behind President Vladimir Putin's decision to give his arch-foe Vladimir Yakovlev a seat in the federal government in exchange for his resignation from the post of St. Petersburg governor. Rather than become Russia's next ambassador to China as previously expected, Yakovlev, with the rank of deputy prime minister, will now steer the reforms of Russia's bloated and ineffective housing-service sector from a downtown Moscow office.
Yakovlev didn't quite display transformational management skills during his eight-year tenure and one may doubt whether he is qualified to reshape this Soviet-era colossus with feet of clay into something both effective and affordable for average Russians. In fact, Putin may have planned this all as a kamikaze mission for the man who edged Anatoly Sobchak and his then advisor Putin out of the St. Petersburg mayor's office in 1996. Come the December returns of the State Duma elections, Putin might remember the vague promise to form a cabinet based on a parliamentary majority, which he made in his annual state of the nation address, and fire both Yakovlev and other top dogs from the government.
Since it is likely that elections to determine Yakovlev's replacement will be held in September, there is every chance that Putin will have been able to help someone from his own circle to run his hometown. But, given the often ineffective nature of Yakovlev's administration and the lingering accusations of financial abuses that have plagued its members, St. Petersburg's gains through addition by subtraction could very well be the entire country's loss - period. Given his track record, you have to wonder why anyone would pick Yakovlev to supervise reforms to a sector that affects the life of each of Russia's 145 million residents, including more than 37 millions that live below the poverty line.
The political goal to be able to determine who will run regional governments shouldn't come at the cost of buying off those who have proved to be far-from-effective public servants in their previous jobs with executive-branch posts at the federal level. Making Yakovlev a deputy prime minister is an example of the same strategy that saw disgraced Primorsky region governor Yevgeny Nazdratenko move from the governor's office to a job as head of the fisheries ministry, only to be bounced to the security council after proving unfit.
It's still too early to say whether Yakovlev's exit is St. Petersburg's gain, but it's hard to avoid the sense that the manner of his exit will be Russia's loss. It sends the message to the rest of the elite that incompetence, mismanagement and worse will be rewarded with prestigious positions rather than punished by unemployment, ignominy or prison.
TITLE: Open Society And Its New Opponents
AUTHOR: By Alexei Pankin
TEXT: Journalists are wont to call the billionnaire George Soros a financier and philanthropist. Soros was in Moscow over the past week to reflect on 15 years of philanthropic work in Russia as his foundation winds down its activities here.
Soros, with whom I had occasion to talk quite a lot during his trip, is blessed with a kind of foresight in that he can see certain positive or negative trends in world development before they take shape. Philanthropy for him is not simply an abstract act; it is always a means of realizing some grander strategy.
I remember, for example, how, on the morning of Aug. 19, 1991 - the first day of the coup - I charged over to the offices of Russia's first independent wire agency, Postfactum.
When I got there, fax machines ensured that information about what was happening came in, was compiled, edited and dispatched to the outside world. Perestroika gave us freedom of speech, while Soros - whose first charitable venture in the Soviet Union involved giving photocopiers and fax machines to nongovernmental organizations and media outlets - gave us the tools to realize that freedom.
Now, Soros is more concerned about the threats to an open society in the United States. In particular, he is extremely critical of a recent U.S. Federal Communications Commission decision that significantly weakens restrictions on concentration of media ownership. In Soros' view, the potential for media-ownership concentration represents a threat to pluralism and freedom of speech, and thus to democracy.
Thus, in a strange way, the topic of media and elections, which has bored everyone to death in Russia, is acquiring a new resonance in the United States.
At another meeting Soros had with journalists and human-rights activists, concern was voiced on the Russian side about closer relations between Russia and the United States and Europe. One participant said, "We always hoped that if our authorities acted in a completely outrageous and arbitrary manner, then we would get support and help from the West. But, now that Putin has become the best friend of many Western leaders, they are no longer much interested in our problems."
To which Soros responded: "That is exactly why I am shifting the focus of my foundation's activities to the United States."
How times have changed. In the pre-Gorbachev era, the intelligentsia prayed for detente, because any warming of relations with the West led to a broadening of freedoms.
During the years of perestroika and glasnost, America and Western Europe were perceived as natural allies in the fight to democratize our country. There was a time when Russian people had much more respect for George Bush Sr. and Helmut Kohl than for Gorbachev and Yeltsin, and were not against them taking a more active role in "guiding" our leaders.
Is open society at risk in America? And is it the temporary consequences of the events of Sept. 11, 2001, or an inevitable corollary of the globalization process?
What answers will Soros find to these questions and what ways to influence the situation?
And will they be as effective as those fax machines in Postfactum in the dark days of the August coup?
Alexei Pankin is the editor of Sreda, a magazine for media professionals. Last year, he also worked as director of the Open Society Institute's Media Support Program.
TITLE: Chris Floyd's Global Eye
TEXT: Broken Light
Although much of the mail this column receives comes in the form of frothing, barely literate invective from Bushist Homelanders, occasionally a more plaintive cry will slip over the transom. "It's easy to be negative, to say what's wrong with the world," these anxious readers write. "But what do you think should be done about it? What's your answer to all these problems?"
To which the only reply is, of course: "What makes you think there is an answer?"
If we can just get it right somehow, do the right thing, then all will be well - is that the idea? If we get the right politician in office, the right regime installed on top of this or that arbitrary accretion of tribes and wanderers (i.e., every country in the world); if we get right with God, say the right prayers, adopt the right economic system, read the right books - then death, deceit, treachery, greed, cruelty, stupidity, fanaticism, bloodlust and delusion will simply vanish from the face of the earth, right?
Of course there is no "answer." Death won't stop, murder won't desert us, the biochemical frenzies that lurk in the mud of our monkey brains - in every single one of us - won't go away because some gregarious backslapper buys, lies or fast-talks his way into office, or because some angry exile in the British Library overdoses on Hegel, or because some caravan trader or carpenter's son begins hearing voices. You can surrender your will and your mind to anybody or anything, to any set of beliefs, sacred or secular - but that surrender will leave you in the same black hole of ignorance and fear you started from. Not one of those beliefs will make everything "right."
So do we counsel fatalism, a dark, defeated surrender, a retreat into bitter, curdled quietude? Not a whit. We advocate action, positive action, unstinting action, doing the only thing that human beings can do, ever: Try this, try that, try something else again; discard those approaches that don't work, that wreak havoc, that breed death and cruelty; fight against everything that would draw us down again into our own mud; expect no quarter, no lasting comfort, no true security; offer no final answer, no last word, no eternal truth, but just keep stumbling, falling, careening, backsliding, crawling toward the broken light.
And what is this "broken light"? Nothing more than a metaphor for the patches of understanding - awareness, attention, knowledge, connection - that break through our darkness and stupidity for a moment now and then. A light always fractured, under threat, shifting, found then lost again, always lost. For we are creatures steeped in imperfection, in breakage and mutation, tossed up - very briefly - from the boiling, chaotic crucible of Being, itself a ragged work in progress toward unknown ends, or rather, toward no particular end at all. Why should there be an "answer" in such a reality?
This, and this alone, is the only "ideology" behind the column, which tries at all times to fight against the compelling but ignorant delusion that any single economic or political or religious system - indeed, any kind of system at all devised by the seething jumble of the human mind - can completely encompass the infinite variegations of existence. What matters is what works - what pulls us from our own darkness as far as possible, for as long as possible. Yet the truth remains that "what works" is always and forever only provisional - what works now, here, might not work there, then. What saves our soul today might make us sick tomorrow.
Thus all we can do is to keep looking, working, trying to clear a little more space for the light, to let it shine on our passions and our confusions, our anger and our hopes, informing and refining them, so that we can see each other better, for a moment - until death shutters all seeing forever.
Post Script
And what about the charge of rampant "negativism," the lack of "positive ideas?" It doesn't hold water. A 900-word weekly newspaper column dealing with current events, aimed at a general audience, would be a ludicrously inappropriate venue to offer detailed prescriptions for the complexities of public policy, which, in any case, require extensive input, cooperation and compromise from many different sectors of society - not a fiat from a journalist.
However, a journalistic forum can be a particularly effective tool for puncturing the lies, hypocrisies, corruptions and machinations of the powerful. If Leader A says X, and X is not true, then it doesn't take a great deal of space to expose that fact. If Leader B receives financial benefits from advocating policy Y, pointing out that connection is a relatively brief, straightforward affair.
And if a concerned citizen of the world (and of the United States, in the case of the present writer) discerns what he believes to be highly dangerous implications in the actions, pronouncements and ideologies of the American ruling clique - a clique that now holds a position of unprecedented dominance in the world - then is it not his duty to point out these implications, as strongly and "negatively" as possible?
In a surgeon's hands, a knife or a needle becomes a "positive" implement for restoring health. The same principle - though on an infinitely less important scale - applies to "negative" press criticism of dangerous rulers in times of upheaval and extremity. To "inoculate the world with disillusionment," as Henry Miller put it, is a positive act.
For annotational references, see the "Opinion" section at www.sptimesrussia.com
TITLE: WORLD WATCH
TEXT: Seniors Service
CANBERRA, Australia (Reuters) - An Australian brothel is offering pensioners a 5-percent discount in what it boasts is a world first.
Neil Campbell, the owner of the Viper Room in the east coast city of Brisbane, said that men over 60 were among regular visitors to the brothel, but many complained it was a drain on their pensions.
"All other businesses offer pensioners a discount, so we thought if we also offered pensioners a discount they might come more often," Campbell said on Monday. He said that the offer of a 5-percent discount on the usual hourly fee of A$210 ($140) would initially apply only on Sundays, but the offer would be extended if it proved successful.
Prostitution is legal in some parts of Australia but brothels need to meet certain standards to earn a licence.
Electric Deal
HARTFORD, Connecticutt (AP) - General Electric Co. and the two largest U.S. labor unions at the company reached tentative agreements on new four-year contracts, hours before the previous contracts were set to expire.
The company and the unions, which could have gone on strike beginning June 26 under the contracts that expired at midnight Sunday, said that the proposed agreements would improve wages, pensions and benefits.
Terms of the new contracts with the International Union of Electronic Workers-Communications Workers of America and the United Electrical, Radio and Machine Workers of America were not released. The contracts would apply to more than 24,000 workers at the two unions and a number of local unions at sites across the country.
Union leaders were to meet Tuesday and Wednesday to review the contract proposals and submit them to union members for ratification votes, which were expected this week and next week.
Recovery Pact
HONG KONG - Hong Kong and China will sign a free-trade pact on June 30 that could help Hong Kong's economic recovery, top leader Tung Chee-hwa said on Monday.
Tung, Hong Kong's chief executive, said that he expected the pact, discussed during meetings earlier in the day with officials in the neighboring mainland province of Guangdong, to benefit a wide array of industries.
"I believe this will greatly help Hong Kong's recovery and give Hong Kong new economic momentum," Tung said. "This is something that many countries or regional economies in the world dream about, and Hong Kong will have it very soon."
Many hope that the long-expected deal will help boost the moribund economy. The recent SARS outbreak devastated tourism, hitting service industries hard.
Prime Location
LAS VEGAS (Reuters) - Two of the United States' biggest hotel companies are vying to get their names on this city's famed 8-kilometer Strip.
Marriott International and Starwood Hotels & Resorts have aligned themselves with joint ventures hoping to persuade creditors and a federal bankruptcy judge that their bids contain all the right numbers to turn around the struggling Aladdin hotel-casino.
Marriott wants to plant a Renaissance on the potentially lucrative property, and Starwood is planning a Sheraton on the site across from the Bellagio and next door to Paris-Las Vegas resort.
A hotel operation at the Aladdin would allow the companies to offer their reward program members access to the Strip, which has evolved from a gambling Mecca to a destination spot for vacationers.
TITLE: Protests in Iran Raise Tensions With U.S.
PUBLISHER: Combined Reports
TEXT: VIENNA - The UN nuclear watchdog agency began a meeting Monday that will take up the sensitive issue of Iran amid fears that the global treaty that seeks to prevent the spread of atomic weapons is unraveling.
With reports that Iran may be trying to develop a nuclear arsenal, along with worries about North Korea, experts are questioning whether it's really possible to stop countries - let alone terrorists - from acquiring such weapons.
The week-long meeting of the board of governors of the International Atomic Energy Agency began 10 days after an internal report claimed that Iran failed to honor promises to disclose its use of nuclear material. The United States wants the agency to declare Iran in violation of the Nuclear Nonproliferation Treaty.
Just before the closed-door meeting began, Iran's chief representative to the IAEA, Ali Akbar Salehi, said that he was optimistic the issue would be resolved, but described U.S. pressure as counterproductive.
"It's very obvious that this whole issue has been politically motivated and politically charged," Salehi said.
The U.S. Ambassador to the agency, Kenneth Brill, described the internal report as "a very serious and sobering report and we have to deal with it."
The meeting comes at a time of growing concern for the control of nuclear material.
Iran insists that its nuclear program is aimed at producing electricity for energy needs as oil supplies wear down.
Suspicion about those claims prompted Mohamed ElBaradei, director-general of the Vienna-based IAEA, to tour Iran's nuclear facilities in February. The visit was intended to ensure that Iran's nuclear program was limited to peaceful, civilian purposes and that the facilities were safe.
A copy of a report that followed indicates that Iran failed to declare the importation of some nuclear material and its subsequent processing.
It cautioned that "the number of failures by Iran to report the material, facilities and activities in question in a timely manner as it is obliged to do... is a matter of concern."
"The Iran regime's nuclear weapons program is very serious and advanced. They want the bomb by 2005," said Alireza Jafarzadeh, a Washington-based leader of the National Council of Resistance of Iran, on Sunday.
Meanwhile, on Monday, Iran said that it had sent an official protest to the United States over what it called blatant interference in its internal affairs after Washington cheered six nights of pro-democracy protests.
"We sent an official note to the Americans through the Swiss embassy and objected to their actions," Foreign Ministry spokesman Hamid Reza Asefi told a news conference. "Their remarks are a blatant interference in Iran's internal affairs."
Switzerland has looked after U.S. interests in Iran since Washington cut ties with Tehran after Iranian students took U.S. diplomats hostage during the 1979 Islamic revolution.
On Sunday, U.S. President George W. Bush hailed the protests as a positive development.
"America is waging a psychological war against Iran," newspapers quoted Intelligence Minister Ali Yunesi as saying.
(REUTERS, AP)
TITLE: Diplomatic Pressure On N. Korea To Intensify
AUTHOR: By Sang-Hun Choe
PUBLISHER: The Associated Press
TEXT: SEOUL, South Korea - South Korea's official in charge of relations with North Korea said Monday that intensifying pressure on the communist state would force it to accept a U.S. offer for multilateral talks on its suspected nuclear weapons programs.
North Korea has insisted on one-one meetings with the United States, hoping to win security guarantees and economic aid in exchange for giving up its nuclear programs. Washington considers Pyongyang's nuclear ambitions a regional threat and says that any talks on the crisis should include China, Japan, South Korea and possibly Russia.
"Various forms of pressure on North Korea - I wouldn't call them sanctions but rather diplomatic pressure - would get the North to change its mind," said South Korean Unification Minister Jeong Se-hyun in an interview with Seoul's CBS radio.
Jeong said talks including Japan and South Korea are "the North's only option."
In recent weeks, the United States and its regional allies, most notably Japan and Australia, vowed to crack down on the North Korean trade in illicit drugs, weapons and counterfeit money.
TITLE: Egypt Summons Palestinian Militia Groups To Peace Talks
AUTHOR: By Ibrahim Barzak
PUBLISHER: The Associated Press
TEXT: GAZA CITY, Gaza Strip - Egyptian mediators summoned all Palestinian militias on Monday in a final push to persuade them to halt attacks on Israelis, and Palestinian officials said that they expect a truce to be declared very soon.
The Egyptians told militia leaders that they have American guarantees that Israel will halt targeted killings of Palestinians suspected of involvement in violence, participants in the talks said.
The armed groups have said that they will only consider laying down their arms if Israel promises to halt military strikes, including targeted killings.
Officials at the U.S. Embassy in Tel Aviv declined comment on whether Washington has given such guarantees.
Israeli Prime Minister Ariel Sharon reiterated on Sunday that there will be no blanket promises. Sharon said that Israel would not initiate military strikes in the event of a cease-fire, but would continue targeting "ticking bombs," a term widely understood as referring to militants about to carry out attacks.
However, Israeli officials later said that Sharon is defining "ticking bombs" much more broadly and that it includes those who send bombers and other attackers. This would lower Israel's threshold for continuing with targeted killings.
Israeli Foreign Minister Silvan Shalom on Monday rejected the idea of a deal with Palestinian militant group Hamas, saying Palestinian security forces have to dismantle militias, as required by a U.S.-backed plan, the "road map" to Palestinian statehood by 2005.
Palestinian Authority officials said Monday that they expect a cease-fire to be declared soon, and sources close to the talks said such an announcement could be made within 48 hours.
"We are optimistic about reaching an agreement," said Palestinian Information Minister Nabil Amr, but declined to say how soon it would be reached. Egypt has tried repeatedly in recent months to work out a truce, a so-called "hudna," but was rebuffed each time by Hamas, the largest and deadliest of the militias, whose lead the other armed groups have followed.
The latest talks come after a bloody week in which more than 60 people on both sides were killed in bombings, shootings and missile strikes, and Hamas threatened multiple attacks in Israel, in retaliation for Israel's failed attempt to kill one of the group's leaders, Abdel Aziz Rantisi.
The United States is trying to salvage the road map, and intense U.S. and Egyptian pressure came to bear on Hamas after the surge in violence.
A senior U.S. State Department envoy, John Wolf, was to meet with Israeli officials later Monday to discuss the implementation of the peace plan. Wolf heads a group of officials from the CIA and State Department who arrived over the weekend to supervise progress by both sides.
U.S. President George W. Bush, meanwhile, lashed out at Hamas, calling on the world to cut off its funding. "It is clear that the free world and those who love freedom and peace must deal harshly with Hamas and the killers," he said.
The Egyptian mediators, assistants to Egyptian intelligence chief Omar Suleiman, held separate talks with various Palestinian factions, including Hamas, in Gaza on Sunday. On Monday, the mediators convened all groups for a joint meeting.
TITLE: Spurs Down Nets for NBA Championship
AUTHOR: By Greg Beacham
PUBLISHER: The Associated Press
TEXT: SAN ANTONIO - Somewhere between the court and the locker room, Tim Duncan got hold of his wife's video camera.
The NBA's most dominant player was drenched with sweat and champagne from the defining game of his career to date, but he had one more task to complete, one more moment to capture.
"Dayyy-vid Robinson!" Duncan shouted, pointing the camera at the smiling man coming up the hallway one last time.
Robinson's grin grew even wider.
"You know what you still are, don't you?" he asked. "Young fella!"
For six years, the San Antonio Spurs have been led by this matchless duo of easygoing big men. Their partnership produced hundreds of victories, a legacy of class and grace - and now, two championships.
Duncan carried the Spurs to their second league title with an 88-77 victory over the New Jersey Nets in Game 6 of the NBA Finals Sunday night. With 21 points, 20 rebounds, 10 assists and eight blocked shots, he easily captured his second finals MVP award.
And Robinson, who's never had a problem sharing his success, roared into retirement with 13 points and 17 rebounds, playing a key role in his final victory.
"My last game, streamers flying, world champions," Robinson said. "How can you write a better script than this? It's unbelievable. I'm going to end my career on the highest of highs."
Robinson and Duncan hugged on the bench as the final seconds ticked away, and they hugged again as confetti poured from the rafters and their families celebrated with them.
"For a second there on the court, the last couple of seconds, I really thought, 'You know what? I'm not going to play with this guy again,"' Duncan said. "'I'm going to have to come out on this court without him.' It's going to be weird."
San Antonio trailed for most of Game 6 before embarking on an overpowering five-minute stretch of the fourth quarter. With 19 straight points, the Spurs left no doubt about their worthiness to be called champions despite an NBA Finals dampened by mistakes and ineptitude from both teams.
"I'm just thrilled that David ends his career with a game like that," Spurs coach Gregg Popovich said. "I'm happy for this whole team ... It's an eclectic group. They are all the strangest backgrounds you can imagine, both individually and basketball-wise."
"There is one common thread," he said. "They're all very competitive."
Well-traveled guard Stephen Jackson shook off a horrible series to score 17 points, including three 3-pointers in the fourth quarter. Backup point guard Speedy Claxton scored 13 points and led the fourth-quarter charge, and emerging Argentine star Manu Ginobili added 11 points.
The Spurs' locker room was a madhouse from the moment Kevin Willis entered, clutching the trophy above his head.
"It was light. Everything feels light," Willis said. "All the love I have for the game, and all the work it took to get here, it was worth it."
After 19 NBA seasons, Willis won his first title. So did Danny Ferry, a 13-year veteran, and 12-year pro Steve Smith. Steve Kerr added a fifth ring to his collection.
The Spurs' youngsters also helped the celebration along. Tony Parker got his turn with the trophy - and along with his brother and girlfriend, sang a rousing chorus of "We Are the Champions" in French.
Jason Kidd had 21 points and seven assists for the Nets, who played three outstanding quarters, but were simply overwhelmed by San Antonio's late surge. New Jersey shot another poor percentage (34.5), including a 3-of-23 effort from leading playoff scorer Kenyon Martin.
"I thought it all started on the defensive end with them," said New Jersey coach Byron Scott after losing his second straight trip to the finals. "They really started being a bit more physical, and we got out of our flow. We started rushing shots, and we started taking bad shots."
Scott was criticized last season for pulling his starters in the final minute of the Lakers' final victory while it was still a close game. His moves in the fourth quarter of Game 6 were even more debatable.
Kerry Kittles, who had 16 points, and Richard Jefferson were stuck on the bench while struggling reserves Lucious Harris and Rodney Rogers played during San Antonio's overwhelming run. The Nets didn't have the skill or the personnel to counteract the most dominant stretch of play by either team in this mistake-filled series.
It was the fifth straight NBA title for a Western Conference team, and the second straight disappointing finish for the Nets, whose recent efforts have only underlined the West's superiority.
At least Kidd had a strong game - one that might further impress the Spurs, who are expected to pursue the free agent this summer.
"I've got a lot to think about," Kidd said. "The door's open, and I've got to play my free agency out. I would love to be a Net, but I've got to look at all my options."
But on Sunday night, the Spurs weren't thinking beyond the present. Bruce Bowen, wearing a net around his neck, interrupted an interview for Jackson - who responded by pouring champagne over Bowen's head. At the same moment in the hallway, Duncan wistfully videotaped Robinson's final moments as a player.
"Normally, I don't drink champagne," Robinson said. "I wear champagne."
TITLE: Family Man Furyk Takes U.S. Open
AUTHOR: By Rick Gano
PUBLISHER: The Associated Press
TEXT: OLYMPIA FIELDS, Illinois - When Jim Furyk walked off the 18th green as the U.S. Open champion, the most important people in his life were there to share his finest moment as a golfer.
He was greeted by his wife, infant daughter, mom and - most fittingly - by his dad, the only coach he's ever had.
What better way to say "Happy Father's Day" than to use what he was taught, take one of the game's most unorthodox swings and parlay it into his first major championship.
"It's hard to try to rate where everything sits or falls, but this is the most special day," Furyk said. "This means the most to me right now."
Furyk shot a 2-over 72 on Sunday at Olympia Fields for an 8-under 272 total and three-stroke victory over Australia's Stephen Leaney. The winner matched Tiger Woods, Jack Nicklaus and Lee Janzen for the lowest 72-hole score in the 103 years of the U.S. Open.
Woods shot 12-under 272 three years ago at Pebble Beach, which played as a par 71, and remains the only player to finish a U.S. Open in double digits under par.
Leading by three strokes going into the final round, Furyk said he woke up Sunday morning knowing he would win. Even tougher than settling his nerves was composing himself to tell his father Mike Furyk: "Happy Father's Day."
"I had a difficult time even speaking to him," Furyk said. "He's always been there for me in all parts of life. I just told him, 'I know you'll be out there with me today. Let's go get 'em.'"
And Furyk did, playing the same solid golf that had helped get to 10 under through three rounds. Nothing distracted him, not even a woman who bared her breasts on the 11th hole.
As he got ready to walk to the 18th green, the significance of his accomplishment and all the work he'd put in started to sink in while an ovation built.
"I lost it at the point emotionally," he said. "I knew I could pretty much do anything on that green and still win the tournament. I just wanted to get it over with and win."
He ended with a bogey but it didn't matter. He was too far ahead to be caught. The label as one of the best players never to win a major disappeared.
"I was never consumed by it," he said. "I said Saturday night that if I played my entire career and never won a major championship, I could live with that. And I meant it."
Leaney, three shots back after three rounds, fell five strokes behind at the turn and couldn't catch up. He closed with a 72, but his runner-up finish assures him a PGA Tour card for next year.
The only other players under par Sunday when a warm day finally firmed up the greens were Masters champion Mike Weir (71) and Kenny Perry (67).
Defending champion Woods finished off a disappointing week with another disappointing round, a 72 that left him well back in the pack at 3-over 283.
For the first time since 1999, Woods does not hold any of the four major championship titles.
"It's not like I'm playing and can't hit a shot," Woods said. "I'm hitting good shots and it's a matter of making some putts."
When Leaney holed an 8-meter birdie putt on the 13th to get to 6 under, he said he thought he could still win. Furyk had bogeyed the hole, leaving him only three strokes ahead with five holes to play.
"I really believed that I was actually going to win," Leaney said. "I thought I could bring it back, but it just wasn't to be. ... He didn't make enough mistakes that really gave me a chance."
When Leaney bogeyed the 17th, he accepted that this title wasn't meant to be his in his first shot at a major title.
"I've had a wonderful week," he said. "I got my U.S. tour card for the next two years, which is what I wanted. So I guess there are good things to come out of it."
But Furyk's week has been great, too. Sensational, in fact.
His first-place check was for $1.08 million, the largest of his 10-year PGA Tour career. And his name will always be mentioned with other winners of major championships.
"I'll sit down 40 years from now and think back. It will definitely be the best part of my career," Furyk said. "My name is going to be on the trophy. It's always going to be on there. You can't take it off once they engrave it."
TITLE: N.Y.'s Baseball Fans Enjoy Father's Day
PUBLISHER: The Associated Press
TEXT: ANAHEIM, California - Steve Trachsel pitched his second career one-hitter and rookie Jose Reyes hit a grand slam for his first major league home run as the New York Mets beat the Anaheim Angels 8-0 on Sunday.
David Eckstein lined a two-out single to right field in the sixth inning.
"I wasn't really disappointed at all. It just shows how hard it is to do," Trachsel said. "I wasn't even thinking about a no-hitter at that point."
"Maybe in the eighth inning you think about it. But with that lineup, I'm just trying to go one out at a time," he said.
Trachsel (5-4) earned his sixth shutout and 17th complete game in 292 career starts.
The right-hander ended a personal two-game slide just 10 days after the Milwaukee Brewers hit four home runs against him at Shea Stadium.
"The biggest difference today was that the ball was down in the zone and I pretty much had an idea where it was going," Trachsel said. "In the Milwaukee game, I was pretty much relegated to throwing the fastball because everything else was belt high."
Trachsel threw 119 pitches in the first complete game for the Mets this season. His other one-hitter came on May 13, 1996, for the Chicago Cubs when he gave up a leadoff double to Houston's Brian Hunter.
This was the 20th one-hitter by a Mets pitcher, and the first since Shawn Estes did it April 26, 2002, a 1-0 victory against Milwaukee at Shea. They have never had a no-hitter.
Eckstein's hit came on a 1-2 curveball.
"It was an emergency hack, to tell you the truth," Eckstein said. "He did a great job of locating his pitches and mixing them up. He kept us off-balance the whole day. He was trying to hit the outer half and then come in on the inner half and throw the splitter and every once in a while mix in a curveball."
Eckstein continued to third when the ball got past Roger Cedeno, but was stranded as Jeff DaVanon popped out to first.
"The pitch was supposed to be in the dirt, and I didn't get it down. But it was a good piece of hitting," Trachsel said. "This team doesn't strike out, so I was really concentrating on trying to get them to hit my pitches."
Jeromy Burnitz drove in three runs with a pair of homers against Jarrod Washburn (6-7). The floundering Mets took two of three in the first interleague series between the teams.
Washburn lost his fourth straight at home, allowing seven runs and six hits over 5 1-3 innings in his shortest outing of the season. The left-hander, who led the Angels' staff last season with 18 wins, fanned four of his first six batters before giving up a single to Vance Wilson and a walk to Tsuyoshi Shinjo that loaded the bases for Reyes.
The switch-hitting shortstop, playing in only his sixth big league game after Tuesday's promotion from triple-A Norfolk, pulled a 3-2 pitch into the lower seats in the left-field corner to give the Mets a 4-0 lead.
N.Y. Yankees 5, St. Louis 2. Mike Mussina pitched eight sharp innings and Robin Ventura hit a two-run double that sent the New York Yankees over the St. Louis Cardinals 5-2 Sunday for a three-game sweep in their first meeting since the 1964 World Series.
The Yankees have won four straight - including Roger Clemens' 300th career victory - since manager Joe Torre held a team meeting after a record six Houston pitchers combined for the first no-hitter against New York in 45 years.
"I don't think I told them anything that they didn't know," Torre said. "They were pretty embarrassed by that game - we all were. You find out about your character."
Albert Pujols homered for the Cardinals, who have dropped four of five.
The Yankees patiently worked six walks from control artist Woody Williams, matching his career high. The right-hander had issued only 16 free passes all season coming in.
Mussina (9-4) retired his final 13 batters and allowed four hits, winning his second start in a row after losing four consecutive decisions. He walked one and struck out five, giving him 99 Ks this season and passing Clemens for the AL lead.
The Yankees are back to playing crisp baseball after six mistake-filled weeks that saw them go 16-24 following a 20-4 start.
"It was just a good, solid game for us," Mussina said. "That's what this team did the whole month of April."
Mariano Rivera needed only three pitches in the ninth to earn his ninth save in 10 chances.
Williams (8-2) entered second in the NL with a 2.33 ERA but struggled against the streaking Yankees.
Taking one close pitch after another, Jason Giambi and Jorge Posada walked to start a four-run sixth. Williams went to a 3-2 count on Ventura, who got on top of a high fastball - the 10th pitch of the at-bat - and lined a two-run double to right-center for a 3-2 lead.
"You have enough at-bats like that and you have a pretty good chance," Ventura said. "He's a guy that makes you swing at a lot of pitches that run off the plate. I think we were patient enough today."
TITLE: New Jersey Celebrates Devils Win
AUTHOR: By Jeff Linkous
PUBLISHER: The Associated Press
TEXT: EAST RUTHERFORD, New Jersey - Outside the arena where the New Jersey Devils won their third Stanley Cup, thousands of fans celebrated the new champions with a rousing tailgate party.
Comedian and New Jersey native Joe Piscopo hosted the event, which honored the Devils in the Continental Airlines Arena parking lot for winning the Cup in seven games over the Anaheim Mighty Ducks earlier this week.
"This may be a parking lot, but it's the only parking lot that's got the Stanley Cup," Piscopo said.
The loudest cheers were reserved for the Devils, who were each introduced to the fans. Defenseman Scott Stevens and goaltender Martin Brodeur were favorites. Fans chanted "MVP, MVP, MVP!" as Brodeur stepped on stage. Moments later, the cup was unveiled under bursts of red, white and blue confetti.
One of the biggest fans in the crowd was Nancy Roepke. A hat topped with Stanley Cup replicas with the years 1995, 2000 and 2003 was perched on her head.
"Soon as they won, I started working on it," Roepke said. "The night they won, we stayed until 3:30 in the morning until they came out. They brought out the Cup. We touched the Cup."
The celebration could be fans' last at Continental Airlines Arena. The Devils and Nets are part of the YankeeNets conglomerate, which has been trying for several years to reach a deal to construct a new professional sports arena in downtown Newark.
TITLE: Roddick, Maleeva Take Titles At the Wimbledon Warm Ups
PUBLISHER: The Associated Press
TEXT: LONDON - Andy Roddick enjoyed a commanding victory leading to Wimbledon, beating Sebastien Grosjean 6-3, 6-3 on Sunday to win the Queen's Club title.
This was the second title of the year for the hard-serving American following last month's win at St. Poelton, Austria. He will be a strong contender when Wimbledon starts June 23.
"I feel I'll be better prepared than I ever have been for Wimbledon," he said. "I'm probably more confident than I ever have been, but you have to guard against that, against overconfidence. I felt pretty good going into Paris as well, and I don't want to talk about that."
Roddick lost in the first round at the French Open three weeks ago.
On Sunday, the third-seeded Roddick had 10 aces but won with a little help from a net cord. He was on his second match point when his backhand clipped the net and dropped on the other side with Grosjean unable to make a return.
Grosjean, a Frenchman who, like Roddick, is based in Boca Raton, Florida, was quicker but had no answer to Roddick's serve. On Saturday, Roddick equaled the world record with a 238-kilometer-per-hour serve in beating Andre Agassi.
The opening set was decided by a single break when Grosjean double-faulted to give Roddick a 4-2 lead. In the second set, Roddick broke to love to lead 2-1, and closed his 59-minute victory by breaking in the final game, when the ball clipped the net.
In Birmingham, England, Magdalena Maleeva beat unseeded Shinobu Asagoe 6-1, 6-4 in the final of the DFS Classic on Sunday for her 10th career title.
The third-seeded Bulgarian took 65 minutes to win on grass for the first time in her career in a tuneup for Wimbledon. She has reached the fourth round the past two years at Wimbledon.
Maleeva dominated the final from the start. Asagoe, who beat 16-year-old rising Russian star Maria Sharapova in the semifinal, had no answer to Maleeva's driven forehands and crisp returns in her first final of her career.
"I never thought I could come back to the top 20 after my shoulder surgery [five years ago] but now I have a chance of the top 10 ," Maleeva said. "I think I am a better player now than before. I am very motivated and have a little bit more variety and I am very fit."
Maleeva converted break points in the fourth and sixth games with backhand returns of serves. She broke again in the third game of the second set and went on to win.