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RFE/RL NEWSLINE Vol. 3, No. 188, Part I, 27 September 1999
___________________________________________________________ RFE/RL NEWSLINE Vol. 3, No. 188, Part I, 27 September 1999 A daily report of developments in Eastern and Southeastern Europe, Russia, the Caucasus and Central Asia prepared by the staff of Radio Free Europe/Radio Liberty. This is Part I, a compilation of news concerning Russia, Transcaucasia and Central Asia. Part II covers Central, Eastern, and Southeastern Europe and is distributed simultaneously as a second document. Back issues of RFE/RL NewsLine and the OMRI Daily Digest are online at RFE/RL's Web site: http://www.rferl.org/newsline xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Headlines, Part I * RUSSIA PERSISTS WITH BOMBING OF GROZNY * POPULAR MINISTER AGREES TO HEAD NEW ELECTION BLOC * KAZAKHSTAN'S PARLIAMENT REJECTS DRAFT BUDGET End Note: THE LONG SHADOW OF THE SECOND ECONOMY xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx RUSSIA RUSSIA PERSISTS WITH BOMBING OF GROZNY. Russian aircraft continued to hit targets in the Chechen capital on 24-26 September, targeting the oil sector, destroying the television tower, and disrupting mobile telephone communications. On 26 September, dpa quoted Chechen estimates as stating that more than 30 people were killed and 60 injured in the raids. The same day, Ingushetia closed its border with Chechnya after admitting some 10,000 Chechen fugitives, saying it could not cope with a further influx. "Nezavisimaya gazeta" on 25 September quoted a North Caucasus Interior Ministry official as saying that Major General Gennadii Shpigun, who was abducted in Grozny in early March, is alive and being held in the Chechen capital (see "RFE/RL Newsline," 8 March 1999). LF RUSSIA'S FUTURE TACTICS STILL UNCLEAR. Russian Prime Minister Vladimir Putin said on 24 September that currently there are no plans for a large-scale ground offensive in Chechnya, but he did not exclude "precise" commando raid to target various field commanders. "Our task is to protect Russia from bandits," he commented. Two days later, Defense Minister Igor Sergeev declined to rule out a ground offensive, noting that several variants are under consideration. Sergeev, too, defined Russia's objective as eliminating bandits as well as creating a security zone along Chechnya's borders. Russian Air Force Commander Colonel-General Anatolii Kornukov told RTR television on 26 September that the bombing raids may last for one month, according to ITAR-TASS. Kornukov said that only high-precision armaments are being used in order to ensure civilian targets are not hit. The previous day, Kornukov had assured Interfax that the Russian military command has no plans to carpet-bomb Chechnya. LF CHECHEN PRESIDENT CALLS FOR RESTRAINT. Addressing the Chechen people on 26 September, Aslan Maskhadov said he is ready "for any political dialogue with the Russian leadership" in order to prevent a full-scale war, ITAR-TASS reported. Two days earlier, Maskhadov had called on Moscow to halt the air strikes against Chechen targets, which he termed "a waste of effort, means, and time" given that at some point, Moscow and Grozny will have to negotiate a settlement. However, he warned that Chechnya will never agree to "concessions that run counter to its constitution and the will of its people" to build an Islamic state. On 25 September, "Nezavisimaya gazeta" noted that Chechen military formations loyal to Maskhadov have been ordered not to open fire on Russian bombers. Also on 25 September, Maskhadov issued an appeal to international organizations to send inspectors to Chechnya to determine there are no guerrilla bases there. LF IRAN PLEDGES SUPPORT FOR RUSSIA'S NORTH CAUCASUS POLICY. Meeting on 25 September with Deputy Foreign Minister Grigorii Karasin, Iran's Ambassador to Moscow Mehdi Safari said Tehran condemns terrorism in all its manifestations and supports the measures taken by the Russian government to normalize the situation in the North Caucasus, ITAR-TASS and Reuters reported. Safari said Iran is prepared to cooperate with Moscow to prevent attempts by terrorists to destabilize the situation in Russia. LF RUSSIA AGAIN CASTIGATES GEORGIA FOR FAILING TO INTERCEPT CHECHEN MILITANTS... Georgian Ambassador to Russia Malkhaz Kakabadze was summoned to the Russian Foreign Ministry on 25 September to be informed of concrete evidence of Chechen and Dagestan rebels' use of Georgian territory, Interfax and ITAR-TASS reported. Russian officials told Kakabadze that Moscow is ready to intensify cooperation and the exchange of information with Tbilisi in order to curtail terrorist activities in the North Caucasus. They advised the Georgian government to liaise with the Russian Embassy in Tbilisi and the Russian army command in the North Caucasus. LF ...AS AZERBAIJAN STRENGTHENS BORDER CONTROLS. Meanwhile, the commander of Azerbaijan's border guards, Abbasali Novruzov, said after meeting with a senior Russian border official on 25 September that President Heidar Aliev has called for additional measures to prevent the transport of guerrillas, drugs, and weapons from Azerbaijan to Russia, ITAR-TASS reported. Novruzov said that Russian officials' charges that Islamic militants enter Russia from Azerbaijani territory are "irresponsible." LF CAUCASUS CONFLICT PUTTING PRESSURE ON BUDGET. The head of the Defense Ministry's budget and finance department, Colonel General Georgii Oleinik, told reporters on 24 September that because of the conflict in Dagestan, the government has boosted by 2.5 billion rubles ($99 million) the ministry's 8.3 billion ruble spending limit for September, according to Reuters. Oleinik said he hopes that as a result of the conflict, the amount of money allotted to defense in the 2000 budget will be increased by 25 billion rubles. On 16 September, deputy chief of the Russian General Staff Colonel General Valerii Manilov said some 2 billion rubles have already been spent already in Daghestan in operations that have resulted in the killing of some 2,000 Chechen insurgents, ITAR-TASS reported. JAC SOME REGIONAL LEADERS CRITICAL OF MOSCOW'S 'OPERATION FOREIGNER.' In an interview with "Novye izvestiya" on 25 September, Samara Governor Konstantin Titov blasted the Moscow city government for its policies vis-a-vis non- Muscovites, saying that Moscow Mayor Yurii Luzhkov "is hunting down Caucasians, has turned Moscow into a screening camp, and is eliciting a chauvinistic wave in this multinational state." Titov, who is also head of the Voice of Russia bloc, which is aligned with Right Cause and New Force, said that Luzhkov's policy "threatens the stability of Russia no less than terrorism." Two days later, Saratov Governor Dmitrii Ayatskov, who is a member of Our Home Is Russia, told ITAR-TASS that his region will "not allow civil rights to be infringed upon or people divided on an ethnic basis." The governor added that he is planning to meet with members of the local Chechen diaspora to discuss their involvement in settling the North Caucasus conflict. JAC DEFENSE OFFICIAL SAYS NATO-RUSSIAN TIES MUST BE 'MUTUALLY BINDING.' In an interview with Interfax-Vremya on 24 September, deputy chief of the Russian General Staff Colonel General Manilov argued that relations between Russia and NATO must be "mutually binding" so that Russia is able to influence decision-making related to European security. This is a condition for Moscow to restore relations with the Atlantic alliance, he noted, adding that the proposal is aimed at preventing the recurrence of such "unprovoked aggression" as that against Yugoslavia. Manilov added that if NATO does not accept this proposal, Moscow will "evidently have to seek other ways of developing a comprehensive European security system together with other countries." Relations between Moscow and NATO have been frozen since the bombing campaign against Yugoslavia earlier this year. JC POPULAR MINISTER AGREES TO HEAD NEW ELECTION BLOC... Emergencies Minister Sergei Shoigu told "Kommersant-Daily" on 25 September that he has agreed to head the new Unity (Edinstvo) bloc (see "RFE/RL Newsline," 24 September 1999). According to the daily, President Boris Yeltsin asked Shoigu to lead the new group when he bestowed on him the Hero of Russia award for dealing with a variety of natural and man- made disasters. The newspaper also claimed that Shoigu made his participation conditional on the new bloc's not being associated in any way with media magnate Boris Berezovskii. Berezovskii owns a controlling stake in "Kommersant-Daily." An unidentified source in Shoigu's ministry told ITAR-TASS the same day that Shoigu will not leave his cabinet post for the election campaign. Prime Minister Putin pledged the government's support for the new bloc, saying it can help stabilize the political situation in Russia. JAC ...AS BLOC'S SUCCESS SAID TO DEPEND ON MARRIAGE WITH ANOTHER GROUP. Mark Urnov of the Center for Economic Reforms told "Nezavisimya gazeta" on 25 September that if Unity "succeeds in obtaining the support of at least one reasonable and recognizable power, the bloc will immediately be able to win more than 5 percent of the vote" in the State Duma elections and might significantly decrease the number of nominees from [the Fatherland-All Russia alliance] in single-mandate districts. However, he noted that Moscow Mayor Yurii Luzhkov's Fatherland movement enjoys quite strong support nationwide. Sergei Markov of the Institute for Political Research agreed, noting that Unity's main chance would be through an alliance with an established party that has an organization, ideology, and electoral headquarters. Our Home Is Russia leaders have admitted that they are in talks with Unity (see "RFE/RL Newsline," 24 September 1999). JAC IMF ACCUSED PRIVATELY OF DELAYING TACTICS... On arriving in Washington, D.C. on 26 September for the annual meeting of the IMF and World Bank, First Deputy Prime Minister Viktor Khristenko told reporters that Russia is hoping to receive the next tranche of its IMF loan in the first half of October, Interfax reported. Khristenko was named Russia's director to the fund on 21 September. An unidentified Russian negotiator to talks with the IMF told Interfax on 24 September that the fund is thinking up new obstacles such as the continuing audit of the Central Bank's transactions with Russia's foreign banks and the investigation into the bank's and the Finance Ministry's handling of hard currency reserves. According to the negotiator, the IMF would like to send Russia on "a mission impossible." JAC ...AS G-7 RAPS RUSSIA FOR INSUFFICENT FINANCIAL CONTROLS. The same day, the Group of Seven finance ministers issued a statement citing the "critical need" for Russia to fight corruption and money laundering and insisting that future aid be granted only after the Russian government enacts stronger controls to prevent the misuse of funds, according to dpa. The IMF's Interim Committee sounded a similar note, telling Russia that it must strengthen the integrity of its financial system, RFE/RL's Washington bureau reported. JAC FSB ADMITS RYAZAN 'BOMB' WAS EXERCISE. Federal Security Service (FSB) Director Nikolai Patrushev told NTV on 24 September that the dummy bomb that police discovered the previous day in a Ryazan apartment house was planted by the FSB as part of a security training exercise (see "RFE/RL Newsline," 24 September 1999). He noted that "to the credit of Ryazan law enforcement officials and the local population, they responded." An FSB spokesman noted that similar exercises have been conducted in other cities but, unlike in Ryazan "in a number of places, law enforcement officials did not perform adequately." National newspapers were critical of the FSB: "Izvestiya" noted on 25 September that "exercises like the one in Ryazan make you uneasy, knowing that one day you might be thrown out of your own car [and] home or your movements will be 'temporarily restricted' for the sake of an exercise." JAC YELTSIN DEFENDED BY WIFE, SUSPENDED PROSECUTOR. Suspended Prosecutor-General Yurii Skuratov told Interfax on 25 September that there is no evidence linking President Yeltsin with the so-called Mabetex scandal, which involved a Swiss firm's alleged payment of bribes to top Kremlin officials. The next day, Yeltsin's wife, Naina Yeltsin, in a rare interview with Russian Public Television expressed her dismay that "not only the president but also his family is being publicly dragged through the mud." With regard to unfavorable articles in the press about her daughter, Tatyana, who is also a presidential adviser, Naina Yeltsin noted that "it is a shame that so many lies are being spread about Tatyana." JAC NUMBER OF UNPROFITABLE BANKS CONTINUES TO DECLINE. Twenty Russian commercial banks were operating at a loss in the first half of 1999, compared with 36 during the same period last year, Interfax reported on 26 September. Banks' net losses fell 25 percent during the first half of the year, compared with the same period in 1998. Last week, creditors of the once mighty Menatep voted overwhelmingly in favor of bankrupting the institution on 21 September, "The Moscow Times" reported the next day. The bank's temporary manager told reporters that "the most difficult part of our work has been trying to find Menatep's assets abroad." JAC RUSSIA CONSIDERS HOW TO FUND OIL PIPELINE BYPASSING CHECHNYA. Fuel and Energy Minister Viktor Kalyuzhnii told journalists in Moscow on 23 September that his ministry and the pipeline operating company Transneft are considering three approaches to raising the estimated $200-250 million required to fund construction of the oil pipeline bypassing Chechnya, which Prime Minister Putin recently called for (see "RFE/RL Newsline," 17 September 1999), Caucasus Press and Interfax reported on 24 September. Those options are that Transneft funds the project; an international consortium similar to the Caspian Pipeline Consortium is formed; or money earlier allocated for funding of the Baltic Pipeline Network is "borrowed." Kalyuzhnii said that the government is not abandoning plans for the Baltic network but that in the present political conditions it regards the pipeline circumventing Chechnya as a priority. LF MORE PROTESTS IN KARACHAEVO-CHERKESSIA. Responding to a threat by republican Interior Minister Aleksandr Volkodav to restore order by force, supporters of Cherkessk Mayor Stanislav Derev on 26 September ended the picket of the government building that they had begun three days earlier, ITAR-TASS reported. Derev's supporters had also temporarily blockaded the republic's television center on 24 September as part of their ongoing protest against the assumption of his presidential duties by Vladimir Semenov, who according to official data defeated Derev in the 16 May presidential runoff. LF CIS CUSTOMS UNION MEETS. Meeting in Astana on 24 September, the prime ministers of the five members of the CIS Customs Union (Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan) signed a protocol on developing trade and economic cooperation and simplifying customs regulations for the movement of goods between their countries. Russian Premier Putin said the union's most immediate objective is to reverse the decline in trade between its members by creating a free trade zone, according to ITAR-TASS. The customs union had originally pledged in November 1995 to create such a zone, "Izvestiya" noted on 23 September. Addressing the meeting, Kazakhstan's President Nursultan Nazarbaev deplored the continuing disintegration of the CIS, which, he said, is reflected in an almost 70 percent drop in trade between CIS states since 1991. Nazarbaev also noted that Kyrgyzstan's membership in the World Trade Organization has created "serious problems" for other members of the customs union, which are coordinating their terms for joining the WTO. LF TRANSCAUCASUS AND CENTRAL ASIA ARMENIAN MINISTER UPBEAT ON CHANCES OF WTO MEMBERSHIP. The prospects that Armenia will be admitted to the World Trade Organization by the end of 1999 are "pretty bright," Trade and Energy Minister Hayk Gevorgian told RFE/RL's Yerevan bureau on 24 September. He said bilateral talks in Geneva between an Armenian government delegation and the WTO are nearing completion and will be followed by multilateral discussions with WTO member states. Last month, a senior US trade official mentioned Armenia, along with Estonia, Georgia, Lithuania, and Moldova, as likely to win admission to the WTO when the next round of global trade talks takes place in Seattle in November. Gevorgian said WTO membership would be good for both foreign investors and domestic businesses. Armenia's trade and investment legislation is seen as among the most liberal in the former Soviet Union. LF EU TO FUND SAFETY PROGRAM FOR ARMENIAN NUCLEAR POWER STATION. Under the terms of a recent protocol, the EU will grant Armenia 10 million euros ($10.04 million) annually from 2000- 2006 to ensure the safe operating of the Medzamor nuclear power plant, Noyan Tapan reported on 24 September, quoting Armenian Energy Minister David Zadoyan. Zadoyan added that Armenia will abide by an earlier agreement with the EU to close down Medzamor by 2004 only if new generating capacities totaling 600 megawatts are available by that date (see "RFE/RL Newsline," 18 December 1998). Zadoyan said that a decision is likely to be made at talks with the EU in October on whether a new nuclear power plant should be built to replace Medzamor. LF AZERBAIJAN OPPOSITION CALLS OFF PLANNED DEMONSTRATION. Representatives of nine Azerbaijani opposition parties decided late on 24 September to cancel a mass demonstration planned for the following day, Turan reported. The opposition had picketed the Baku City Mayor's Office for days to demand permission to hold the rally. Participants in that meeting had intended to adopt a resolution condemning the Azerbaijani leadership's inability to resolve the Karabakh conflict and outlining its proposals for trying to do so (see "RFE/RL Newsline," 21 and 23 September 1999). Baku Mayor Rafael Allakhverdiev had refused permission to hold the rally in central Baku; on 24 September, he offered instead to make available a stadium on the city outskirts. Musavat Party chairman Isa Gambar told Turan on 25 September that the opposition decided to cancel the demonstration rather than risk a confrontation with the authorities by convening an unsanctioned rally in the city center. LF SUSPECT IN GEORGIAN PRESIDENTIAL ASSASSINATION BID DETAINED. Russian police in the North Ossetian capital, Vladikavkaz, have detained Nugzar Chukhua, a 44-year-old Georgian citizen, on suspicion of involvement in the unsuccessful bid to assassinate Georgian President Eduard Shevardnadze in February 1998, Caucasus Press reported on 24 September, citing a Georgian television report that was subsequently confirmed by the Georgian National Security Ministry. It is unclear whether Chukhua will be extradited to Georgia. Russian police are investigating the possibility that he may also have participated in the March 1999 terrorist bomb attack in Vladikavkaz, which killed dozens of people. If those suspicions prove correct, Chukhua will stand trial in Russia on terrorism charges. LF GEORGIA WANTS COUNCIL OF EUROPE TO HELP CLOSE RUSSIAN BASES. In an address to the Parliamentary Assembly of the Council of Europe Mikhail Saakashvili, who heads the parliamentary faction of the Union of Citizens of Georgia, appealed for help from the Council of Europe in securing the closure of Russia's four military bases in Georgia, Caucasus Press reported on 24 September. Saakashvili claimed that those bases serve to destabilize the internal situation in Georgia and that the use of the Russian ruble at those facilities negatively impacts on the stability of the Georgian currency (see "RFE/RL Newsline," 20 September 1999). He also said that personnel at those bases "sell arms to the hot spots in the Caucasus." That statement is at odds with Georgian Foreign Ministry denials that any arms are entering Chechnya or Daghestan from Georgian territory (see "RFE/RL Caucasus Report," Vol. 2, No. 38, 24 September 1999). LF SOUTH OSSETIA ACCUSES GEORGIAN LEADERSHIP OF SABOTAGING TALKS. In a statement issued on 24 September, Merab Chigoev, who heads the government of Georgia's breakaway Republic of South Ossetia, accused the central Georgian government of reneging on a previous agreement on providing economic aid and electricity to South Ossetia, Caucasus Press reported. Georgia cut off power supplies to South Ossetia on 1 September because the local government had failed to pay its debt for previous energy supplies. Chigoev said that move risks jeopardizing the ongoing talks on defining relations between the central authorities in Tbilisi and the former autonomous region. LF KAZAKHSTAN'S PARLIAMENT REJECTS DRAFT BUDGET... As anticipated, both chambers of Kazakhstan's parliament rejected the government's proposed draft budget for 2000 at a joint session on 25 September, Interfax reported (see "RFE/RL Newsline," 24 September 1999). That draft cuts social spending in a bid to reduce the budget deficit from 3.6 percent to 3 percent of GDP in 1999, according to Reuters. But the draft also allocated about 570 million tenges ($4.1 million) for the needs of the Kazakh parliament, a sum that lower chamber speaker Marat Ospanov said is exorbitant, RFE/RL's Kazakh Service reported. LF ...PROMPTING PREMIER TO CALL FOR NO-CONFIDENCE VOTE. Prime Minister Nurlan Balghymbaev responded to the rejection of the budget by calling for a vote of confidence in his cabinet, the second time he has done so within just over three months (see "RFE/RL Newsline," 22 and 24 June 1999). If the required two-thirds of deputies in both chambers fail to vote no confidence in the cabinet, the budget is automatically passed. Balghymbaev explained to deputies that the budget must be passed within the next week in order to secure a new IMF loan on which the government is counting in order to pay off external loans as well as wage and pension arrears, Reuters reported. Kazakhstan failed last month to reach agreement with the IMF on a new loan (see "RFE/RL Newsline," 11 and 12 August 1999). Meanwhile, on 27 September, the tenge was trading in Almaty at 143 to $1, down from 137.5 last week, RFE/RL's bureau in the former capital reported. LF KAZAKH, RUSSIAN PREMIERS MEET. Balghymbaev and Vladimir Putin expressed satisfaction at the present state of bilateral relations following talks in Astana on 24 September. Putin told journalists later that agreement was reached on settling mutual debts, including the rent Russia pays for the Baikonur cosmodrome, Interfax reported. He added that Russia will increase the quota for oil that Kazakhstan may export via Russian pipelines. In return, Kazakhstan acceded to a Russian request to open more consulates in the northern, predominantly Russian-populated oblasts of Kazakhstan, "Nezavisimaya gazeta" reported on 25 September. The two premiers also signed an agreement on cooperation in guarding Kazakhstan's borders. Under that accord, Moscow will provide two coast-guard vessels to patrol Kazakhstan's sea border. LF SITUATION STABILIZING IN SOUTHERN KYRGYZSTAN. Kyrgyzstan's Prime Minister Amangeldy Muraliev told journalists in Astana on 24 September that the situation in the south of the country has stabilized and that all approaches to the guerrillas' bases are blocked, ITAR-TASS reported. Meeting with Muraliev on the sidelines of the CIS Customs Union session (see above), Russian Prime Minister Putin assured him that Moscow fully supports Bishkek's actions against the guerrillas. Uzbekistan's President Islam Karimov conveyed similar assurances in a letter to his Kyrgyz counterpart, Askar Akaev. Also on 24 September, Akaev telephoned with Japanese Premier Keizo Obuchi to promise him that Kyrgyzstan is continuing to do everything in its power to secure the release of four Japanese geologists taken hostage by the guerrillas five weeks ago, Interfax reported. LF TAJIK PRESIDENT PARDONS OPPOSITION PRISONERS. Imomali Rakhmonov on 24 September issued a decree pardoning 22 members of the United Tajik Opposition who were serving prison sentences ranging from eight to 14 years. Presidential press secretary Zafar Saidov told ITAR-TASS that the pardon is intended to promote trust and the process of national reconciliation. Also on 24 September, Tajikistan's Communist Party voiced its support for Rakhmonov's bid for re-election in the 6 November presidential poll, AP reported. LF END NOTE THE LONG SHADOW OF THE SECOND ECONOMY by Paul Goble Russia's second or shadow economy is now so large and pervasive that it is likely to define whatever kind of legal economic arrangements do emerge in that country in the future. That is the unsettling conclusion of a recently published study prepared by the Russian Academy of Sciences' Institute of Socioeconomic Problems of the Population. According to the authors of the study, the earlier conviction in both Moscow and the West that "the scale of the shadow economy would diminish and the legal economy would grow as the country moved in the direction of capitalism" has not proved to be true. Instead, they suggest, "just the opposite has taken place." In 1990-1991, 10-11 percent of the country's GDP was produced by the shadow economy, but the illegal or semi-legal second economy accounted for 27 percent of GDP in 1993, 46 percent in 1996, and quite possibly more than 50 percent in more recent years. Because of the size of this sector of the economy and because it is so interwoven with the legal economy, the new study argues that the rules of the game within the shadow economy are far more likely to define behavior within what will emerge as the legal economy rather than be fundamentally transformed by that legalization. And because this is so, the study suggests, it is critical to understand both where the shadow economy came from, what the current rules of the game are, and how these are likely to play a role as Russia moves to legalize many economic activities that are now part of the second economy. According to the study, the second economy was relatively small during most of the Soviet period. Its authors cite a Western study that found that the shadow economy produced only 3-4 percent of Soviet GDP in 1973--a percentage far smaller, the study notes, than in many developed market economies. Until nearly the end of the Soviet period, the shadow economy performed two fundamental functions: it compensated for shortcomings in the functioning of the official legal economy, and it provided a field of activity for entrepreneurs who could not easily fit into Soviet institutions. With the collapse of communism, these two functions fused, particularly under conditions of what many have described as "incomplete" marketization, a system in which the role of the state or at least of its agents remained large and hence the social space for illegal activities actually grew. The Moscow study suggests that the shadow economic system now has six defining features: close ties between bureaucrats and entrepreneurs, continuing interference by the state in the economy, preservation of many old monopolies and the growth of new ones, high and repressive taxes that are easy to avoid, the impoverishment of much of the population, and the absence of a legal framework for the economic transformations that have occurred. The study continues by observing that even though "approximately two-thirds of all enterprises are almost unaffected by the shadow economy in their activities, those firms that are involved are heavily so." Moreover, the behavior of these firms casts a long shadow on all the others, in many cases because the shadow economy produces higher incomes for those who are involved it. And the report draws three conclusions: First, until legal economic activity produces more wealth than the semi- legal or illegal activities of the shadow economy, many people will continue to turn to the shadow economy to seek their livelihood. Second, the percentage of the country's GDP produced by the shadow economy will begin to fall only when the country enters a long period of stable economy growth, during which enterprises will be able to renew their technologies and thus generate real wealth on their own. And third, even when this change takes place in Russia-- and the authors are optimistic that it will--many of the values and patterns of the shadow economy will help to define the values and patterns of the future legalized market economy there for many years to come. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Copyright (c) 1999 RFE/RL, Inc. 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