February 12, 1998   
This Date's Issues: 2058 •2059  • 2060

Johnson's Russia List (List Two)
#2060
12 February 1998
davidjohnson@erols.com

********

Date: Wed, 11 Feb 1998 
From: Anne Williamson <awilliamson@mcione.com>
Subject: Crime of the Century

CHAPTER EIGHT: LOCAL CUSTOMS (Part 2)

What GKI did was to value all state property at 150 billion rubles at 1991
prices and to divide that figure by a population of 150 million, leaving a
share worth 10,000 rubles to each individual, the voucher's face value .
Two thirds of the 150 billion whole was immediately excluded from
privatization entirely. The remaining third was then divided again.
Again, one half of that third was excluded. The remaining half of the third
was the property privatized in 1992-94, but it too was divided. Small
property - mostly municipal holdings - was auctioned for cash. Only what
remained of the last division was subject to voucher privatization as it
had been defined. However, of any single property privatized by voucher,
46% went to workers, 5% to management, 29% was sold at cash auctions and
the remaining 20% - at a minimum - was left in the state's hands, meaning
that at the end of the privatization process the state's largest
shareholding dwarfed others' claims and therefore was the controlling
shareholder of any "privatized" Russian asset. Who knew you could get
tenure at Harvard advocating that 80% is equal to a 100%?

Voucher privatization's deception alone cost US taxpayers $325 million.
But the original injury was compounded by a grievous insult; unregulated
voucher investment funds, which the privatizers encouraged the uncertain
Russian citizenry to patronize. Of course, hundreds and hundreds of
investment funds simply walked with their clients' vouchers, reselling them
to criminals, Red Directors and young Russian "voucher generals" who sold
them on to western investment banks. American taxpayers and Russian
citizens are now asked to believe that Harvard University do-gooders - a
subculture composed of people whose very reason to get out of bed in the
morning is to regulate you and me on our collective dime - acted as
responsible agents of US taxpayers and disinterested fiduciaries for the
Russian people when agreeing to fund with other peoples' money a program
which as its centerpiece advertised unregulated investment funds as
wealth-creating vehicles to an entire nation in which property had never
been distributed in its 1000 years of history. 

When the 18 month-long thieves' banquet concluded in July 1994, an
out-maneuvered Piasheva noted sharply, "The voucher Chubais designed, aided
and abetted by experts from Harvard University, was a very witty solution
to the problem of how to get ‘the people' out of ‘peoples' privatization'".

When the Funds did strike a good investment that had outside purchasers'
interest, the directors would create another company, sell the marketable
one to that company for a farthing, and then sell the shell company's new
property for the real profit. That's if they hung around - 100s skipped
town with money they received in return for their clients' vouchers. Not
that it mattered much in terms of return on investment. Two single voucher
investors in Alfa Kapital, one of the most aggressive funds, finally
received a dividend in early 1996 on their 1992 investment. The combined
take for both invested vouchers amounted to one U.S. dollar. 

A top Russian trader at CSFB confirmed Piyasheva's analysis, "So much was
stolen, you can't imagine," he paused and shook his head slowly side to
side as if conjuring up what he himself had seen with his own eyes once
more, "So much. It was Chubais's and Vasiliev's fault, they were so
careless. The lack of regulations and oversight, it was criminal." 

The aid community's constant mouthing of paeans to the process's
"transparency" was surreal it was so dishonest. One Russian fund adviser
laughed, "The only transparency in the process is its 100% criminality." 

Leonid Grigoriev sighed wearily and remarked, "The Western advisers were
basically, well, they were typical for Russia. At the time of Peter the
Great, sergeants of European armies came to Moscow to become generals, so
there is nothing new in the phenomenon." 

Secrecy also left the experts wide open to charges of self-dealing. Zavtra
jumped on Hay and others, fingering them as a CIA agents and Hay himself
as an insidious investor into the military industrial complex (as did
Polevanov's report). Aleksandr Prokhanov crowed that the "Western
experts'" failure to refute the charges publicly convicted them. When I
asked the IFC's Roger Gale why they didn't respond to the public charges,
he replied blithely, "Oh, we didn't think it was anything to bother with,
was it?". 

Andrei Kortunov warned of the wide criticism of Chubais's reliance on
foreign advisers and of their role in general, remarking "It's troublesome
that Americans are supporting just one political power in the country,
because they become by definition meddlers. Influenced by only one
political group, the West's agents have a very limited understanding about
what is going on in the country since not all American agencies have the
necessary expertise to make the best decisions here. Quite often a
political group or a structure which happens to be the first recipient of
American funds tend to monopolize its contacts with these American
institutions from which it gets the funds and moreover to act as a broker
between the American institution and Russian society.

"The American experts and media focus on people who speak fluent English
and have an understanding of how American systems operate, but this is a
very small part of the picture and it distorts the whole. The whole social
disintegration of Russia demonstrates graphically the failure of the
Western media and of Western academia to go beyond a very small group of
well-known Western-oriented Moscow academics. I belong to this group
myself so I must confess that these people are calling me again and again.
All other political actors are deprived of such attention and so they are
put into an unequal position in comparison with their rivals. The media is
able to talk to some authoritative academics or some politicians who might
be very articulate, who look great on Nightline, but they really ignore or
they do not see the real masters of the game."

More ominously, Kortunov concluded, "I understand that if an agency uses
the money of American taxpayers, then it must serve their interests. But
if you look at the American taxpayers' interest in the longer perspective,
then probably this program is misguided. Not everything which seems to be
nice right now is really nice in the longer perspective. I would even say
that in some ways the Western presence here is counter-productive, that it
makes more probable the pendulum will go further in the opposite direction
eventually." 

What the West did, by narrowing its focus so that Harvard's agents might
increase their influence with one group - their selected "reformers" - was
to smother other democratic interests in the society, which were in
competition with the Gaidar/Chubais block for power and influence. The
competition was overwhelmed by the $100s of millions Chubais controlled
through HIID which ultimately had the perverse result of leaving the CPRF
as the only viable opposition. Credible and capable people, classical
liberals like Larisa Piyasheva, Grigori Yavlinsky, Boris Fyodorov, Leonid
Grigoriev and democratic socialists like Boris Kagarlitsky, were simply
shouted down by American money. Yavlinsky, however, had managed to attract
a political constituency, one of whose members was Yury Boldyrev, a
co-founder of Yavlinsky's party, Yabloko.

Today Boldyrev is deputy head of the government's Counting Chamber - an
agency comparable to the GAO [Government Accounting Office] - which he
battled to establish by statute over Yeltsin's vetoes, but at the time of
our meeting, he was a member of Russia's Federal Assembly - the upper house
of parliament. Boldyrev wasn't surprised when GKI's report on voucher
privatization arrived in the Duma marked "Top Secret" since it was as the
head of the Yeltsin administration's Accounting Department from March 92
through March 93 when he had achieved national prominence in the struggle
against corruption. Even though Yeltsin dismissed him at the request of
Mayor Lyuzhkov, since Popov's appointed successor had found several
corruption investigations Boldyrev was conducting of the mayor's Moscow
operations to be inconvenient, things did begin well. Working with a staff
of 115, Boldyrev had weekly meetings with Yeltsin and led "about 40
investigations, most of which brought results." Corrupt officials were
disciplined or removed, buildings illegally seized by officials were
recovered, and disadvantageous import/export operations political leaders
took upon themselves with public funds were exposed along with other unique
abuses and scams. However, documents sent to the Procurate for the
preparation of criminal cases came to nothing, Boldyrev complained, "The
procurate was not subordinate to us and we never knew the result." 

On the day of our meeting, Yeltsin had submitted for the third time the
name of Alexei Illushenko as his nominee for Procurator General. Believing
Illushenko to be deeply corrupt, the Federal Assembly had withheld its
approval twice before and planned to do so again. A year later, when the
Acting Procurator General was caught out in a complicated oil export scheme
that benefited his relatives and involved Gazprom and Chernomyrdin, the
legislators' caution was vindicated. But the nomination of Illushenko on
the heels of investigative reporter Dimitri Kholodov's still unsolved
murder had left Boldyrev particularly bitter. Illushenko had done nothing
with the criminal evidence Boldyrev's committee delivered to him concerning
illegal weapons sales and shady deals within the Western Forces Group
stationed in Germany - the very story Kholodov was pursuing at the time of
his brutal death. 

Alternately forlorn and furious about the Yeltsin administration's
high-handed illegality, Boldyrev fumed, "The nomination [of Procurator
General] is the Federal Assembly's to make, not the President's. Two
months ago the president issued a decree in which he ruled that it is he
who appoints the head of administrations of the regions, but according to
the constitution the regions' representative bodies have the right to
decide their system of public authority. Yeltsin is constantly violating
his own constitution. Yet Americans consider Mr. Yeltsin to be the main
stabilizing force in our country who is leading us on the path to reform.
It's unbelievable."

His committee's mandate to monitor and evaluate anti-monopoly and
privatization procedures was frustrated because of Chubais's failure to
co-operate, despite his and Yeltsin's repeated assurances the work would
begin soon. After a year of such promises, Boldyrev gave up even
telephoning Chubais. As a result, he maintained, there was no opportunity
to monitor privatization properly because without Chubais's co-operation it
was impossible to follow the process. The results of privatizations of
large raw material complexes involved in export were never announced. No
one knew with whom such enterprises had contracts or the terms.

"The methodology of our reforms is that of a tiger swallowing kittens.
Privatization as conducted represents a complete victory for our vulgar
liberals. The reformers decided the country needed a fast, primary
accumulation of capital and this should be achieved by all means. And they
did this with a full understanding that there was no other source for the
initial accumulation of capital other than robbing their own country. And
as we know from the experience of Latin American countries, big capital is
not interested in liberal reforms, preferring protectionism, corruption and
authoritarianism. If we want reforms, we should rely on the middle class,
but how can we create one when they lose more than they receive? And no
one is protecting the citizens' interests generally?," Boldyrev asked.

Boris Fyodorov had told me that the IMF's 1992-93 lending was designated
within the budget for imports and agricultural subsidies, yet in 1993,
Gaidar's crowd had decided - illegally - to give the right to distribute
that money to an organization known as AKKOR. Though Boldyrev's committee
had asked for this decision to be reversed, nothing was done and six months
later the responsible ministers merged with AKKOR to form Russia's Choice,
Gaidar's political party, taking the money with them. "Not a single
representative of the government or of Russia's Choice has replied to the
public accusation of thieving aid money," Boldyrev said, adding that after
"challenging Chubais to a public debate about the real course of reform,
not the declarative course," his challenge went unanswered.

Boldyrev was cool concerning foreign aid, "We are not receiving any
serious technical aid. The Americans are right in their own way. Their
aid programs are designed to support their own specialists who study a
market and its opportunities, and at GKI the Americans are gathering
information of great value to their commercial interests. The Americans
are right to do so, if the Russians are such fools as to not make use of it
themselves. It is another matter that I can not approve of this behavior
of my government.

"Chubais is supported by the international experts who are working here on
good salaries. For instance, speaking at Carnegie Hall, I met with a
former expert from HIID, Anders Aslund. I heard from him the whole
standard collection of what I call the vulgar liberal thesis. Chubais
privatized 15,000 enterprises! So what? Do we have a numerical goal that
stands alone as an achievement? But, if these enterprises are not
functioning, if they are receiving no investment, if the property of these
enterprises has been stolen and their products are lost on the market, then
who are the owners of those enterprises? Where the control package of
stock has been concentrated in a single set of hands, we know as a rule it
was done by fraud. These owners have no intention of putting their money
into the enterprise. These experts, having prepared such black soil for
their ideas now expect flowers to grow. Is this beneficial?". 

Nor was he pleased with American investment, which he thought mostly
represented firms that "have already learned how to kick open the door to
GKI with bribery. I can give you a number of examples when large
enterprises were bankrupted deliberately even though they were viable.
Already there exists an American enterprise which is to purchase such an
enterprise at an investment contest at a ridiculous price in comparison
with its true value. They have fine relations with GKI and they lobby
their interests in the Duma." He noted that when firms like Lockheed
commit bribery, it is usually because the firm is merely trying "to realize
their production, but we have a completely different situation. We are
bribing in order to steal something. It is not a mistake. Because if I am
an official of GKI and I am subject to no controls, then why do I need Ford
or General Motors? They will give nothing to me personally. I am
interested in those firms which will give something to me."

Like a lot of people, Boldyrev was simply confounded by the West's
inability to see who or what cause, in fact, Gaidar and Chubais served,
"Five or six percent of the reformers are fanatical true believers who know
just what to do. Never mind that just a handful of years ago they were
dedicated Marxists. But even a large number of these people at some time
or another must begin to understand what is going on, what they have done.
And then there is an inner voice, a thought inside of you. Sometimes it can
whisper that maybe not everything is so correct, but if you go on with such
policies many people will be grateful to you. The majority will not be
grateful since they are poor people. But some will be very grateful. How
grateful I cannot tell nor to what extent. But the majority of them are
aware people who understand perfectly what they are doing. And when the
American Congress awards Chubais a medal for excellent leadership, I think
it may be considered only as an insult. It can be compared to, if it is
possible to compare it at all, with the unanimous support by the American
and European leadership of the bombing of our parliament.

"America has certain demands for its constitution but different ones for
ours. In America, the Americans rely on democratic mechanisms and
instruments, but in our country they seem to rely on a civilization that
does not exist. 

"Recently Peter Brook's Lord of the Flies was screened on television.
That is reality. All the rest is civilization, which must be supported by
the same delicate instruments everywhere. If civilization breaks down, if
conscious civilization breaks down, then you will receive the same results
that are in that film and nothing else. The unrestricted power of our
president is destined to become the power of the mafia, which is a
breakdown of civilization. But I would like to ask, where is the English
officer in the nicely pressed uniform who will come to rescue us?".


Copyright 1998 by Anne Williamson
_______________________________________________________

Footnotes:


1. Walter Coles, who was head of USAID's Russian program's Washington
office, assured me in the summer of 1994, "This office is proud to support
the Russian reformers, the ones who understand [reform], and they are
Chubais and Dimitri Vasiliev at GKI and Sergei Orekhov over in the
President's office, who is Yeltsin's chief legal adviser, and then others
scattered around......We ought to to be pouring money to Chubais, so he
can build a constituency." It's amazing that Coles knew just who the true
reformers were out of a population of 150 million people and that it never
occurred to him that other people might also be pouring money to the man
who was in charge of the dispensation of all of Russia's assets. George
Washington University's Janine Wedel reported in her pathbreaking
articele, "Clique-Run Organizations and U.S. Economic Aid; An
Institutional Analysis", Demokratizatisiya, Volume IV, No. 4, Fall 1996,
that USAID's Thomas A. Dine said, "If Maxim Boyko tells me that X, Y, and
Z are reformers, I believe him." 

2. "Aktsii Pod Kontrolem Chubaisa", Moskovsky Komsomolets, October 10, 1994.
"Za Chto Chubais Poluchil Povyshenie", Moskovsky Komsomolets,
November 8, 1994.
"Kak Vy Deshevo Prodayotes", Moskovsky Komsomolets, November 11,
1994. 

3. "Spetssluzhby Nazyvayut Fakty" and "Tseli Privatizatsii Byli
Izvrascheny Nekompetentmi i Namerenny Deistviyami", Rabochnaya Tribuna,
January 24, 1995.
Zasursky, Ivan, "Te Zhe i Polevanov", Nezavisimaya Gazeta, January
25, 1995.

4. One institute chief whose son I know "privatized" his institute by
renting out 3 sections of the building; one to a German supermarket,
another to a Russian commercial bank and the third to an Australian
company. The man's income was approximately $12,000 a month at a time
when Doctors of Science in his Institute were being paid the ruble
equivalent of $40. 

5. Hays, Laurie, "Soviets Tackle Mystery of Party's Hoard", The Wall Street
Journal, October 15, 1991.

Clines, Francis X., "Soviet Aide Asserts Gold Reserves Were Sold Off",
The New York Times, November 24, 1991. 

Burns, Jimmie and Tett, Gillian, "Probe Into Capital Flight From Soviet
Union Shelved", Financial Times, February 7, 1994

"Wall Street's Private Eye", Financial Times, October 18, 1994.

The appropriations snowballed several months before the August coup and
losses in that time period are rumored to include as much as $50 billion,
60 tons of gold, 150 tons of silver and 8 tons of platinum. Since no one
knew how much more the Party skimmed from sales of oil, coal, diamonds,
gold, and platinum, and the man who had the answers - Nikolai Kruchina,
business manager of the CPSU's Central Committee, who chose to leap from
the window of his seventh-floor apartment to his death not ten days after
the August 1991 putsch instead of trusting to the forgiveness of the
Russian people, a quality for which he pled in his suicide note - was no
longer available, Kroll Associates in New York was hired to go on the hunt
for the Soviets' cache of riches. Two and a half years later, the firm's
founder, Jules Kroll, confessed to UK regulators at a conference in London
that when his firm turned the fruits of their labors over to Russian
security officials in order to gain information needed to name and locate
those individuals and entities who had looted the Soviet treasury, "We
came up against a roadblock". To add insult to injury, the Russians
stiffed Kroll for its fee, said to be $4.7 million. Once the West had
stepped forward with the funds to ameliorate the damage the Bolshie
bandits had caused, its largesse destroyed whatever will the new Russian
government had to assert its claims, which, in turn, signaled looters and
would be looters that they might proceed with impunity.

6. Tyler Cowen, "The Marshall Plan: Myths and Realities," in U.S. Aid to
the Developing World: A Free Market Agenda, Doug Bandow, ed.
(Washington, D.C.: Heritage Foundation, 1985), pp. 61-74. 

7. Thus did foreign assistance shut down initial market forces. Instead,
foreign businesses got the USAID, TACIS, PHAERE, IFC, EBRD and other
implementation contracts the advisers projects' required, which enabled the
international business set to foist their considerable start-up costs off
on G-7 taxpayers.

8. When Nizhny purchasers sought bank loans, they learned - along with the
IFC - that they had been auctioning what were only 5-year leases, which the
banks refused to take as collateral for business loans.

9. Boyko, Maxim and Shleifer, Andrei and Vishny, Robert, Privatizing Russia,
The MIT Press, Cambridge, Mass., 1995, p. 5.

10. A more likely explanation for Chubais's leverage in getting the Supreme
Soviet to approve his tardy and much-flawed privatization program emerges
from the fact that all political actors were under serious pressure to
deliver on the previous year's privatization mandate. 

11. Boyko, Maxim and Shleifer, Andrei and Vishny, Robert, op. cit.

12. Shleifer, Andrei, "The Enemies of Russian Privatization", The Wall
Street Journal, June 4, 1992.

13. Pyasheva, Larisa, "The Post-Battle Landscape: How ‘The Master' Was
Created in Russia", The Observer, #5, 1994.

14. The only transparent aspect of USAID's effort was shameless
self-promotion. Another one of its programs supposedly developed to
provide succor for an independent media amounted to an attempt to ensnare
Russian journalists in its own public relations campaign with the U.S.
Congress. The program picked up the expenses of Russian journalists
invited to accompany Congressional delegations' trips to Nizhny-Novgorod,
a perennial stop, and other venues for such events as Ambassador Pickering
cutting the ribbon on military housing projects for which US tax dollars
were responsible - at a time when the New York Times ran a front page
story whose subject was the high number of US military families, forced by
cutbacks, to apply for food stamps. When asked who made up the largest
part of her clientele, the proprietess of the "Vikha" cafe at one the
collective farms the IFC privatized in Novogorod oblast responded
thoughtfully, "Children and American politicians and journalists, in that
order." Most of the slew of articles from the Russian media I was handed
by a USAID public relations officer had a witheringly disdainful, slightly
mocking tone regarding America's allegedly good deeds.

15. Hay's legend is that he turned up in Leningrad in the late 1980s, got
friendly with Pyotr Filipov, who was running a flower company at the time.
Chubais was the company's Chief Financial Officer and was active in
municipal government alongside Anatole Sobchak, once a popular mayor who
was sacked in the last election and is in a self-imposed Parisian exile, a
more pleasant arrangement than being grilled by official investigators on
suspicion of corruption. Hay was useful to Chubais's reform mafia even in
Leningrad for his ability to write legal documents. At first, the Russians
thought him to be a student of independent means kicking around between
school courses. Later, Hay's mysterious comings and goings, his
comfortable financial position and his predilection for buying up Soviet
defense plants and then shutting them down, led Filipov to wonder if Hay
wasn't a CIA agent, I was told. When he confessed his concern to his
colleagues, they shrugged and said, "So what? The CIA is just an agency
of the US government and so is the Library of Congress. Besides, we're all
on the same side." Privatization Minister Vladimir Polevanov's report
also listed Hay as a CIA agent. If true, then the CIA should be shut
down at once. Whatever the truth, Hay's past and motives are murky, at
best. After seeking gainful employment unsuccessfully in 1991, Hay then
signed on with Chubais's mafia in Moscow. And after making another
attempt with the same disappointing results in the winter of 1995, Hay
reaffirmed his commitment to Dimitri Vasiliev at the Russian securities
commission. What is really intriguing is that on 5 October 1992, the then
GKI chief, signed Order No. 188 giving Jonathan Hay and Maxim Boyko veto
power over all GKI projects.

16. When asked about Boldyrev's criticism, Aslund had a sissy fit and
dismissed it by characterizing it as "primitive". 

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