Russia Watch: The Return of Big Red
Bernstein, Jonas
"Russia Watch" by Jonas Bernstein The Return of Big Red Are the reforms in Russia irreversible? Western businessmen and economists want badly to believe that they are, and so do...
...The military operation was accompanied by Soviet-style disinformation and at least one case of censorship on state television...
...Just three weeks later, Chubais was gone —thrown out along with other liberals such as foreign minister Andrei Kozyrev and presidential chief of staff Sergei Filatov...
...Two banks — Uneximbank and Bank Menatep—were deputized by the State Property Committee to accept applications and bids for the loans-for-shares auctions, and then used their position to disqualify rival banks from participation on dubious technical grounds...
...Phase two — privatization for cash—added insult to injury...
...he is one of the twenty richest men in Russia...
...t's easy to understand why the Communists have surged in popularity, and how privatization has become the object of public revulsion...
...JONAS BERNSTEIN iS a business journalist in Moscow...
...There have also been charges that government funds for the reconstruction of Chechnya, some of which have been deposited in Menatep, have been used for "other purposes...
...The Russian president," commentator Sergei Roy wrote in Moscow News, "cannot clean up the rot of incompetence, corruption, and outright crime that permeates the whole of the Russian army and state...
...Following the November sale of a third of the giant Norilsk Nickel to Uneximbank, which both organized and won the auction, Boris Fyodorov, the reformist ex-finance minister and World Bank official, reportedly said: "One more Norilsk and I'll vote for Zyuganov...
...The American Spectator March 1996 41...
...The company is virtually bankrupt, and its workers have not been paid since November...
...In fact heseems intent on beating the Communists in the economic illiteracy competition...
...The country's recession has almost bottomed out, and many analysts believe Russia could even experience growth this year— if the current policy holds, that is...
...The reforms are not irreversible, no matter how much people may wish to believe the contrary...
...Kadannikov seems a relatively enlightened industrialist...
...provinces...
...The Chechen conflict is turning into a war of unbridled ethnic hatred like Bosnia...
...They formally say they are not heeding us, but in essence, they are...
...At least he's open about it—and he may be one of the more moderate faces in a government stacked with the likes of ex-foreign intelligence chief Yevgeny Primakov, the new foreign minister, and former nationalities minister and Chechen war hawk Nikolai Yegorov, new chief of staff to Boris Yeltsin...
...The Russian president, he confidently predicted, would make the right choice, and key Westernizers such as Deputy Prime Minister Anatoly Chubais —who as head of the State Property Committee had launched Russia's ambitious privatization program—would retain their posts...
...At the same time, Chubais's replacement was announced —Vladimir Kadannikov, general director of AvtoVAZ, the maker of the Lada...
...We can see that the president and government are implementing our goals," he told the Inter-fax news agency...
...Such a lineup has weakened the optimist camp, and for good reason...
...RUSSIA WATCH by Jonas Bernstein 1.11.•,,tt/t/, t The Return of Big Red Are the reforms in Russia irreversible...
...The Chechens, having lost as many as 30,000 of their countrymen to Russian bombing, are out for revenge...
...Although Russia's 1996 budget looks fine on paper—the monthly inflation target of 1.9 percent is tough by current standards, and a new law preventing the Central Bank from issuing inflationary credits keeps a check on any spending excesses the government might be contemplating before June's presidential election—the Communist faction in the new parliament is preparing to amend it to increase minimum wages and pensions, and index those transfers to inflation...
...In an interview published the day he was appointed deputy prime minister, he denied that he receives Sioo for every car that rolls off the VAZ assembly line, but called rumors that the mafia controls that factory "somewhat exaggerated...
...Nonetheless, the tough monetary and fiscal polices over which Chubais presided have created the basis for economic stabilization, and, ultimately, trickle-down...
...in 1992 he was one of five candidates to become prime minister, but decided to back Yegor Gaidar, who lost out to Viktor Chernomyrdin...
...As Federal Security Service chief Mikhail Barsukov put it, ostensibly quoting a "respected Chechen" about his own people: "A Chechen can only kill, and if he cannot kill, then he is a bandit and a robber...
...controlling shares in these companies were effectively turned over to several leading commercial banks at bargain-basement prices...
...The Kremlin's response to Chechen brutality in Dagestan was both brutal and inept...
...If he cannot do even that, he steals...
...Just before the new year, Moskovsky Komsomolyets published a photograph of an alleged Finance Ministry document promising to deposit $50 million in Menatep...
...Yeltsin even denounced Chubais, and Moscow Mayor Yuri Luzhkov, a long-time Chubais critic, outdid even the Communists in calling for a criminal investigation into "privatization activities" carried out under his regime...
...Such moves suggest that a de facto coalition government with the Communists is already at work, and that's exactly how the Communists see it: following his election as speaker of the new State Duma, the parliament's lower house, former Pravda editor Gennady Seleznyov said that Yeltsin is moving in the right direction...
...At any rate, a terrorist act in Moscow would be a convenient excuse for declaring a state of emergency...
...Suffice it to say that January's Kizlyar/Pervomaiskoye hostage crisis marked the final, inevitable transformation of the Chechen war into one of terror and counter-terror—something akin to the Algerian war of independence...
...Salary payments to state workers have been perpetually delayed, and Russia's move to privatization has been mired in corruption and insider dealing...
...Luzhkov made his announcement on the same day he joined Yeltsin's re-election committee...
...There are no other Chechens...
...In a move redolent of the Brezhnev days, Soskovets announced at the end of January that several dozen "workers' collectives" at large enterprises had asked Yeltsin to run again...
...Kadannikov meanwhile does alright...
...The reformers have plenty to answer for, and the declared reasons for Chubais's dismissal did not need to be manufactured...
...Western businessmen and economists want badly to believe that they are, and so do the Russian reformers themselves...
...What that amounted to was blatant collusion...
...Regrettably, he doesn't always get his pay on time...
...The newspaper Sevodnya estimated the cost of the program at 3o trillion rubles, or roughly $6 billion: about equal to the sum the IMF has given Russia over the last four years...
...There are indications that Yeltsin will go along with those moves...
...Phase one of the privatization began in 1992, when each Russian received a voucher representing his stake in the national wealth— io,000 rubles at face value...
...The real change in his life depends on whether he receives his wages in good time," Chubais said...
...The ruble printing presses will be working overtime...
...There is a growing belief here that Moscow's inability to suppress the Chechen resistance is not simply a matter of the army's incompetence and its destroyed morale...
...Although Yeltsin has not yet announced he is running, the committee is already in high gear...
...The loans-for-shares scheme elicited disgust even from members of the Moscow elite...
...Many people —analysts and ordinary Russians alike—are convinced that elements within the military-security establishment want to see the war continue because they have established a profitable business selling weapons to the Chechen side...
...Columnist Alexander Bekker of Moscow News put it bluntly: "Wishful thinking is a frequent cause of our failures...
...After the Communists made a comeback in last December's parliamentary elections, the head of a leading free-market Moscow think-tank told me that Boris Yeltsin had only two options—to continue down the reform road or opt for a "coalition government...
...The idea that it is just a matter of time before Chechen terrorism spills over into Russia's major cities is widely accepted...
...At his January 16 resignation, Chubais himself conceded that the achievements of the economic stabilization program—monthly inflation in 1995 dropped from 17 percent at the start of the year to 3 percent at the end, while the state's hard currency reserves grew from $1 billion to $12 billion—had changed nothing in the day-to-day life of the average voter in the provinces...
...its head is Deputy Prime Minister Oleg Soskovets, the main ally of the "red directors" — the captains of state industry and the military industrial complex...
...A great deal of hype accompanied the program: privatization officials predicted the vouchers would eventually be 40 March 1996 • The American Spectator worth a car or something equally substantial...
...The latest incidents have helped to weaken Chernomyrdin, who rightly or not is accused of having encouraged Chechen terrorism by negotiating with the Chechen gunmen who seized a hospital in southern Russia last summer...
...Ten Days of Pain, Incompetence and Shame," read the headline across Izvestia on January 19, referring to the Pervomaiskoye siege that ended in the indiscriminate bombingand destruction of the village...
...The government embarked on a "loans-for-shares" scheme, in which a consortium of banks was to "lend" the government money in return for "management" of shares in the crown jewels of Russian industry: oil companies, ports, and metals producers...
...Banks disqualified from the loans-for-shares scheme also accused Menatep of not paying out the $800 million it had promised to other privatized enterprises in which it had stakes...
...Under Kadannikov's stewardship, however, AvtoVAZ has been a model of Soviet-style inefficiency...
...Arkady Volsky, the industrialist who was Moscow's representative in the Russian-Chechen negotiations that foundered late last year, recently said that on several occasions the content of his confidential communications with the Kremlin were repeated to him the next day by his Chechen interlocutors...
...According to rival banks and Russian press reports, in fact, Menatep's success is the result of a rather peculiar twist: the bank has been using Finance Ministry money...
...Yeltsin announced a "presidential social reserve fund" that will accumulate funds equal to one month's wages of all state workers as well as those in the area of "material production," whatever that means...
...Bank Menatep grabbed a 78 percent share of Yukos — an oil company with estimated reserves higher than those of Exxon—even though its assets are thought to be only about $100 million...
...Yet at the same time, the government is unable to pay its workers on time—and so is paying the cost politically in the44 It's easy to understand why the Communists have surged in popularity...
...After hyperinflation, they were worth a couple of packs of Marlboros...
...D evelopments in the Caucasus are another reason for pessimism about Russia's course...
...Along with the increasing odds of a coalition government with the Communists, that may mean a new Russia not so distinguishable from the old one...
...If the Communists win in June, or if Yeltsin continues to co-opt their platform, Russians may once again get to watch their leaders turn an aquarium into fish soup...
Vol. 29 • March 1996 • No. 3
