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Russia's decade of tragedy

Print edition : Oct 27, 2001 T+T-

The Tragedy of Russia's Reforms by Peter Reddaway and Dimitri Glinsky; pages 745, $55.

Failed Crusade by Stephen F. Cohen, Norton; pages 304, $21.95.

RUSSIAN historian and activist Roy Medvedev's decription of the wild ride of Russia under President Boris Yeltsin was an insider's view. That is now substantiated by Peter Reddaway and Dimitri Glinsky with a more comprehensive study of the Russian economy in the period from 1991 to 2001, considered Russia's decade of tragedy.

When Mikhail Gorbachev was at the helm of affairs, grassroots organisations sprang up all over the country. These organisations could have built up a new institutional structure that would have sustained the economic reforms. A consensus was evolving for the reforms process as the economy had been stagnating for a long time. The discontent over the state of economy was not confined to the class of intellectuals; it was quite widespread. The authors say that 40 per cent of those arrested for dissent between 1976 and 1984 were employed as manual labour.

Gorbachev thought that he might be able to spur the authoritarian bureaucracy in the direction of change. He was also dependent on the change of attitude of the radical elements who were demanding far-reaching reforms unmindful of the ground realities. Gorbachev hoped that a state-minded third party of liberals would evolve and be of help to him. But his hopes were belied. He had to face irreconcilable social forces. Yeltsin, instead of playing the role of a statesman, encouraged the fissiparous tendencies and also made good with the nomenklatura which was eager to grab the state properties and exploit the new opportunities to aggrandise power and wealth.

The Western powers, especially the United States and West Germany, after extracting many concessions from Gorbachev, did not help him in tiding over the economic crisis. All efforts to keep the Union of Soviet Socialist Republic (USSR) intact were frustrated, as the government faced a cash crunch. It sold gold in the international markets and depleted the stocks. The Chairman of the USSR State Bank even announced that there was no gold in the government vaults. The crisis was so alarming that when Gorbachev went to Madrid in November 1991 for the West Asia peace conference, he and his retinue had to 'abscond' without paying the hotel bills.

The Yeltsin era started with a great deal of promise; the West hoped that he would bring about radical changes that would launch Russia on the course of democracy on the Western model. The U.S. was enthusiastic about replicating the American model. But Yeltsin turned out to be a demagogue. In fact, as the authors point out, as soon as Yeltsin achieved the status of a co-ruler with Gorbachev, government policies were made not by democratic parties and movements or by law-makers but through backroom negotiations and deal-making among various groups.

Both Yeltsin and his Russian (Chief of Staff Gennady Burbulis and Premier Yegor Gaidar) and American advisers were in such a hurry to introduce radical reforms that they did not wait to build the necessary infrastructure. Nor did they take into account the history of Russia or the social and political climate. In the West, economic ideology and practice evolved over a long period of time. Russia had a command economy which had generated some forces that were bound to put hurdles on or distort the new course. By criminalising politics and the economy, they brought ruin and misery to the people. The bulk of the middle-class people, who were supportive of reforms, suffered the most; their savings evaporated and they became sceptical of the West.

The national debt rose steeply, and there was no source that could increase government revenue. The currency came under great pressure. In 1991, Prime Minister Pavlov warned that foreign forces were engineering an organised attack on the rouble. Reddaway and Glinsky point out that in the prevailing atmosphere of euphoria, he was ridiculed. But now this attack on the rouble between 1989 and 1991 is a documented matter. Authors quote from a book by an American journalist, Claire Sterling, which gives details of the senseless traffic in roubles. She described how trucks and railway cars full of rouble notes were seen in France, Belgium, Holland, Germany, Switzer-land, Italy and Poland. The Soviet embassy in Rome was actively involved in the transportation and sale of these bank notes.

Sterling's book also describes a worldwide operation of currency dealers and money launderers involving several Western banks. Reddaway and Glinsky think that there must be more than profit-making to this criminal activity. They maintain that anyone interested in the break-up of the Soviet Union would also have a keen interest in subverting the Soviet currency. Furthermore, those involved in the narcotics trade wanted to invest in Russian property, and they wanted some front-men in Russia who could launder their money.

AMERICAN advisers and officials from the International Monetary Fund (IMF) and the World Bank held complete sway over the Russian government under Yeltsin, after the disintegration of the Soviet Union. According to the authors, American economist Jeffrey Sachs personally edited Yeltsin's decrees. A U.S.-funded institute and a young American lawyer, Jonathan Hay, drafted numerous Russian laws and regulations. Lawrence Summers, who was Deputy Treasury Secretary of the U.S., used to send Anatoly Chubais, Vice-Premier and Finance Minister, letters virtually giving instructions on how to conduct the Russian economic policy. In one such letter Summers even gave detailed comments on and instructions with regard to the implementation of the government agenda in 1997. A government report was drafted by the Moscow office of the IMF and signed by Prime Minister Sergei Kirienko. When Viktor Chernomyrdin took over as Prime Minister in 1994, his article for The Financial Times was drafted at the IMF office. All these facts were leaked, and this degraded the Russian government in the public eye. Some of these foreign advisers invested in Russian stocks and bonds using inside information and were able to get 200 per cent yield annually. They, of course, sold them in time to avoid the effects of the crash in the market.

International loans that were sanctioned were tied to the purchase of goods in the West. So the money actually went to the Western countries, and Russia ended up paying the interest and principal.

The Gaider-Chubais team had a tremendous superiority complex. It had utter contempt for the Russian people. Its mental attitude is graphically described by Pyotr Aven, who was Minister of Foreign Economic Relations during 1991-92. Aven says that the mission of carrying out economic reforms fell to those, " who were actually far from liberalism, superior, self-confident, with no respect for other people's opinions - people who arrogated to themselves the right to make up stories and lies. Lies about achievements, including about issues the reformers themselves considered important." Aven also says that these people had no respect for private property although they advocated privatisation. Otherwise, he says, they would not have confiscated people's savings in 1992 and the capital of the banks in 1998.

This adventurism of Yeltsin and his cronies ruined the economy: wages could not be paid regularly in various sectors; people had to resort to bartering; strikes and violence became the order of the day; crime rate went up considerably; and there was runaway inflation. The country had borrowed heavily in hard currency, but $2 billion was sent to the foreign countries each month. This was more than the loan advanced to Russia.

Reddaway and Glinsky have also described the political situation in detail. Yeltsin fired his Cabinet Ministers whenever he found himself at the receiving end. The elections and the referendum were manipulated. But there was no effective opposition. Yeltsin was adept in wheeling and dealing. He struck deals with the leaders and thus made them ineffective. When Parliament was defiant, Yeltsin had no compunction in bombarding it.

The last days of Yeltsin in power were passed not in salvaging his country but himself and his family. Many instances of the record of crime and corruption of Yeltsin's family members had come to light. In 1999, Prosecutor-General Skuratov was persistent in his investigation of the criminal activities of the high-ups, including Yeltsin and his family members. With the help of the Swiss authorities, he gathered a good deal of material against the Yeltsin family. Yeltsin's attempts to throw Skuratov out failed because Parliament stood by him. The Russian mafia controlled 300 firms in Switzerland at that time. Among them was the Mabetex construction company, which had provided Yeltsin and his daughters unexplained funds. Yeltsin, as is his wont, tried to reach a deal with Skuratov, but he failed. He wanted to dissolve the Duma (Parliament) and dismiss the Ministry. He even bribed various members of the Duma to the tune of $5,000 each to oppose the threatened impeachment. When he could not achieve his objective, he had to find a safe way to step down. He deftly handled the situation by selecting Vladimir Putin as his successor. At that time, Chechen rebels were on the offensive. Putin launched an offensive against the rebels and thus gained the confidence of various parties. After he took over as President, his first decree was to give protection to Yeltsin and his family against all prosecution. Thus ended the Yeltsin era, which was turbulent in more than one sense.

No doubt, the Russian leadership must share the responsibility for this debacle, but the West, especially the U.S., and the international financial institutions cannot escape blame. Stephen F. Cohen's tone is rather acerbic but it is justified. He has criticised severely the evangelic attitude of the U.S. government, economists and journalists. His point is that although Yeltsin and his team were mainly responsible for the debacle, the U.S., the IMF, the World Bank and mediapersons brought pressure, as they were keen to replicate the American model in Russia. Cohen has made out a case against these advisers, with enough material to substantiate his arguments. He wants the Russian government to find its own way of democratic socialism by giving incentive to private enterprise but not losing the initiative to intervene. Cohen is against the extension of the NATO to the Baltic States.

The damage is already done. It is now up to the Russian statesmen to put their house in order.