Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List

Johnson's Russia List


September 2, 1999   
This Date's Issues: 3477 • 3478 • 


Johnson's Russia List
2 September 1999

[Note from David Johnson:
1. Reuters: Russian PM pledges happy New Year for countrymen.
2. International Herald Tribune: William Pfaff, The Great Swindle Along 
Russia's Road to Reform.

3. Jake Rudnitsky: Re: 3475-Backer/IMF's Lending Policies.
4. Peter D. Ekman: Bolshoi Corruption.
5. Moscow Times: Natalya Shulyakovskaya, Did Hamburger Haters Bomb 

6. Robert Chandler: Andrey Platonov.
7. Jerry Hough: shell game has been so successful.... 
8. Anne Williamson: An inconvenient history.] 


Russian PM pledges happy New Year for countrymen

MOSCOW, Sept 1 (Reuters) - Russian Prime Minister Vladimir Putin promised on 
Wednesday he would do all he could to make sure his countrymen enjoyed the 
arrival of the new millennium. 

The New Year, which this year will also bring in the new millennium, is 
traditionally Russia's biggest holiday when people all over the huge country 
indulge in long celebrations. 

``The night of January 1, 2000, should be one that all Russians will remember 
as a happy and significant event,'' Putin was quoted by Itar-Tass news agency 
as telling a committee that met to discuss the country's millennium 

He said Russia's federal government had set aside 300 million roubles ($12 
million) to fund celebrations of the event, and called on regional leaders to 
add more. 

He also noted the country would have a new parliament and president before 
the next year is out. 

Russia also faces worries about the Y2K computer bug, which some technology 
experts say could cause havoc in computers not equipped to adjust to the 
change of date. 

Russia has cooperated in the past with U.S. technicians to make sure its 
nuclear defences do not malfunction. Russian and U.S. officials say there is 
virtually no chance of an accidental nuclear missile launch, although there 
may be other problems. 

``Our generation has been blessed by history: we do not only witness the 
change of century and of millennium, but participate in it,'' he said. 

``The way we greet the millennium is the we will live it, so let us greet it 


International Herald Tribune
September 2, 1999
[for personal use only]
The Great Swindle Along Russia's Road to Reform
By William Pfaff, Los Angeles Times Syndicate, International Herald Tribune

PARIS - The Russian funds scandal challenges the claim that Boris Yeltsin's 
Russia marches to-ward reform and integration into the world community.
It reveals that the relationship between the West and those who dominate 
Russia today is a swindle in which both sides bear responsibility.

This government and people linked with it have swindled the Russian people. 
The international lending institutions and Western governments have swindled 
them as well, and also the Western taxpayers who provided the estimated $10 
billion in international aid money now diverted to private accounts in tax 

The worst is that nothing of this comes as a surprise. A former officer of 
one of the international lending agencies told me that when he first met 
officials of one of the banks allegedly involved in the scandal, at their 
fortified Moscow headquarters, he half expected them to take out their 
pistols and put them on the table in front of him. He went home to counsel 
his organization to have nothing to do with that bank. Other public and 
private banks made less prudent choices.

During the years since 1991-1992, Western officials and observers have 
recognized that money was being bled from Russia by the ''oligarchs'' who had 
profited from what were described as privatizations of Russian industry but 
were actually appropriations of Russia's state assets by people in power and 
their associates.

Nearly everyone assumed that Russia's current leadership, including people 
identified as reformers, was involved, as well as members of Mr. Yeltsin's 
immediate entourage.

It was clear that this was much more than a problem of ''crony capitalism,'' 
to use the exculpatory expression favored by those who de-fend Western 
policies toward Russia. Everyone thought this was the price to pay for 
Russia's economic reform and democratization.

Everyone was wrong. The scale of the swindle and the identities of the 
persons involved make it plain that this was spoliation of the Russian nation 
for private gain, conducted under Western eyes (the reference to Joseph 
Conrad is entirely appropriate) at the expense of democracy.

There has been a Western moral complicity in this. The central error has been 
Washington's persistent conflation of foreign relations with personal 
relations between individual leaders, disregarding the safeguards of 
traditional government-to-government relations.

The press has had much to do with promoting this, but mainly it has been a 
matter of self-aggrandizement by Western leaders, who wish to present 
themselves as personally responsible for conducting world affairs.

''Bill's'' friendship with ''Boris,'' and ''Al's'' with Viktor Chernomyrdin 
(the former prime minister and oligarch of Gazprom, the ''privatized'' state 
natural gas monopoly) served to identify them, in their own eyes and (they 
thought) the eyes of voters, as patrons of the new Russia and as men of state.

They used America's resources, and those of the international lending 
agencies dominated by the United States, to keep friend Boris Yeltsin in 
power - itself an inducement to corruption.

Ambition was involved. Strobe Talbott, the U.S. State Department's leader in 
Russian affairs, has wanted the reputation of an important influence on 
reform in Russia, a country that always intrigued him. Market economists in 
the universities have made or embellished reputations by assisting at the 

None would acknowledge that the collapse of communism in Russia began a 
process that the United States in particular, and to an extent the West in 
general, were not only unfit to resolve but even to fully understand, given 
the gulf between the West's historical experience and cultural outlook and 
that of Russia.

Simple ignorance had a role. The French director of the International 
Monetary Fund, Michel Camdessus, told the Paris newspaper Libération on 
Tuesday that ''we did not see that dismantling communism meant the 
dismantling of the state.''

Any graduate student in political studies could have told him that the state 
in the Soviet Union was the facade of the Communist Party. That is why 
Mikhail Gorbachev tried to reform the Soviet Union by reforming the party, so 
as to render it law-abiding and accountable. The West scoffed.

Western policy toward Russia since 1990 has been dominated by this kind of 
amateurism, careerism and ignorance - and by the commercial interests of 
American corporations, which in the Clinton administration have exercised an 
influence unprecedented in American history.

The worst thing all this has done to Russia has been to re-install moral 
nihilism. The thieves themselves conducted themselves with contempt toward 
the West, claiming that it taught them to behave as they have behaved.

The best thing that has happened in Russia is that democratic values clearly 
have also become installed in Russian society, if precariously. Prosecutors 
and the institutions of justice, as well as the press, are investigating 
these crimes, against powerful resistance. The test is whether legality will 
prevail. The Russians themselves now will decide.


Date: Wed, 1 Sep 1999 
From: Jake Rudnitsky <> 
Subject: Re: 3475-Backer/IMF's Lending Policies

Paul Backer's comments on the state of IMF lending are right on. I would
like to add one little snippet. 

When a consumer's credit card gets stolen, the bank that issued the card
doesn't charge the consumer for any products bought with the stolen card.
Generally, if the bank has knowledge of unusual spending patterns, it takes
the initiative and cancels the card, or at least notifies the consumer of
the purchases, as it doesn't want to funnel money into a black hole.

Why should Russia be treated any differently? The money in the Bank of New
York scandal is widely suspected of coming from the IMF, as is the money
used to finance Yeltsin's 1996 campaign and the hundreds of millions used in
GKO speculations by Russia's Central Bank. The most outrageous aspect is
that Westerners as high up as Al Gore turned a blind eye to the massive
skimming off the top for misguided political reasons. 

Russian tax payers should not be held accountable for government corruption
that potentially stole billions in IMF dollars. In a perfect world, an
independent audit would determine just how much money disappeared, and
subtract it from Russia's debt burden. Of course, that is far to simplistic
a solution and will never happen, because it is much easier for the West to
blame Russian corruption instead of IMF incompetence. Nonetheless, it seems
logical that Russia, which needs any break it can get, should not be held
responsible for loans it never saw, any more than I would want to have to
pay for a TV that the guy who pinched my wallet bought. 


Date: Wed, 1 Sep 1999 
From: "Peter D. Ekman" <> 
Subject: Bolshoi Corruption

With so many Russian financial corruption charges flying around,
I was surprised to see the appeal by UNESCO for funds for the
Bolshoi theater on JRL 3473 (#3). Please understand that I
would love to see the Bolshoi brought back to it's former glory,
but it's very clear that the Bolshoi is giving away over 95% of
its ticket revenue. In this case, why should the West finance re-
construction of the Bolshoi, when it seems that the administration
will just find ways to give away the new money?
The Bolshoi's ticket revenues are given away in the following
fashion. Tickets are sold only at unannounced times to scalpers
for a few rubles, or at most, a few dollars. The scalpers then sell
the tickets for Western prices, say $30-$50.
It is almost impossible for an ordinary person to buy a 
ticket directly from the Bolshoi ticket office. My wife is the only
person I know of in Moscow who's done this. She chanced upon
a line forming at the box office early one Sunday morning, waited
all day in line, and finally managed to buy 2 tickets in the 3rd row
of the 3rd balcony for one weekday performance, for a few rubles.
That was the ticket sale for an entire month.
Why does the Bolshoi sell tickets this way? Who knows?
But it is clear that the few people who are informed about the ticket
sales, and who are allowed to buy more than a couple of tickets, are
raking in over 95% of possible ticket revenues. There has been one
apparent "reform" of the ticket selling process. Well-heeled buyers can go
to a private firm located in the Metropol Hotel, across from the 
Bolshoi, and order tickets for just about any performance at 
Western prices. It's clear that this is done with the knowledge of
Bolshoi management, but it's not clear that the Bolshoi shares 
in the extra revenue.
One of the Russian reactions to the recent financial scandals
has been "the West knew about this all along, you are responsible."
This reasoning is as corrupt and despicable as the financial corruption
itself, but there is half a grain of truth in it. Just about every visitor
to Moscow should be able to see corruption at customs as they
arrive at Sheremetova Airport, or in the taxi lines as they leave the
airport. The next stop for many visitors is the Bolshoi, where it
is difficult not to notice the ticket scam.
So why is UNESCO funding the Bolshoi theater, without 
demanding responsible financial management by the administration?
You might say that this is a small thing compared to the billions involved
in the recent financial scandals. I'd suggest that - if we can't do
the big aid projects properly, then stop them - and do some smaller
aid projects properly. Once the West learns to do the smaller projects
well, then we can return to the larger projects.
Peter D. Ekman
Dean, American Institute of Business and Economics in Moscow


Moscow Times
September 2, 1999 
Did Hamburger Haters Bomb Manezh? 
By Natalya Shulyakovskaya
Staff Writer

Officials investigating an explosion at the Manezh said Wednesday it could be 
linked to organized crime, Islamic terrorists or even to a leaflet found at 
the scene that states: "A hamburger not eaten to the end by the dead consumer 
is a revolutionary hamburger." 

The blast Tuesday evening in a video game arcade at the shopping center 
injured 41 people, including four children, most of whom were hit by shards 
of glass and metal. Thirty two people were hospitalized, five with serious 
burns and cuts, and 24 remained in hospitals as of Wednesday night. 

A 30-year-old Lebanese man suffered burns on 80 percent of his body, and 
doctors said his chances of surviving were slim. 

Politicians expressed outrage at the blast, and the Kremlin, which is next 
door to the Manezh, increased security. 

The investigation took its most bizarre twist Wednesday when an FSB spokesman 
said an obscure anti-consumerism group was possibly involved. Leaflets from 
the Union of Revolutionary Writers were found at the site of the explosion, 
spokesman Alexander Zdanovich said. Investigators were unsure how the leaflet 
made it there. 

"Acts like those taken today create a social engine that is still 
experimental but is gradually becoming a real social factor," wire services 
quoted the fliers as saying. 

"A hamburger not eaten to the end by the dead consumer is a revolutionary 
hamburger. Consumers: We don't like your life style. And it is not safe for 

The $350-million Manezh, a center-piece of Moscow Mayor Yury Luzhkov's 
efforts to remake the capital, is a three-level underground mall housing 
dozens of shops selling expensive fur coats, jewelry and cosmetics. 

"So far, for all that we know, this union exists only on the Internet," said 
Sergei Bogdanov, spokesman for the Moscow regional FSB office, which is 
leading the investigation. 

However, the founder of the group, Dmitry Pimenov, is a young writer known in 
Moscow's artsy circles for his flamboyant performances. 

He was still asleep at 2:30 p.m., when The Moscow Times called him to tell 
him about the FSB comments. He denied any responsibility. 

Pimenov f the author of several bizarre spy novels filled with Soviet 
symbolism, including "Murk. Revolution." f said he organized the Union of 
Revolutionary Writers in February 1998 as an "art project." 

"I work in a genre of revolutionary culture," he said. "I am an artist, I 
have not even served in the military. I can write texts, but I have no clue 
how to prepare explosives, and I don't know how to set them off." 

Nevertheless, Pimenov said that some of the rhetoric of the note quoted by 
the FSB was reminiscent of his own writings, and added that among the 70 
people who showed up for two congresses his group held last year were some 
people "connected to the anarchist movement." 

"Maybe they liked my themes. Maybe they knew some terrorists who decided to 
use my fliers to beautify their acts," Pimenov said. He confirmed that he did 
print some fliers, "but I definitely did not write anything about 
revolutionary hamburgers." 

Pimenov works closely with art dealer Marat Gelman, who is one of the 
organizers of "Unofficial Moscow," an alternative to the grandiose City Day 
celebration this weekend. 

Pimenov also was sued and fined last year for "insulting Moscow authorities," 
after he organized a demonstration to demand more social liberties. 

On evening television news, an FSB spokesman urged him to come in to clarify 
his group's involvement in Tuesday's blast. 

Citing sources from the Federal Security Service, or FSB, Russian television 
reported that the bomb was a plastic bottle filled with explosives and left 
near a video game machine. The explosives were not traditionally manufactured 

Prime Minister Vladimir Putin was particularly vague about possible motives 
behind the attack, saying they could be "either economic or political." 

Interior Minister Vladimir Rushailo pointed to a possible connection between 
the terrorist attack and the armed conflict raging in Dagestan, although FSB 
director Nikolai Patrushev said there was no clear evidence of a link. An FSB 
spokesman said the explosion could have resulted from a conflict involving 
mafia commercial interests. 

Moscow Mayor Yury Luzhkov hinted that the explosion, set off right before 
City Day celebrations, was intended to discredit his political movement in 
the eyes of voters. His Fatherland-All Russia political movement is expected 
to do well in December's State Duma elections. 

Luzhkov said that those who set off the bomb in a place crowded with children 
and teenagers "should face a firing squad." 

Meanwhile, Manezh shopping center opened as usual at 11 a.m. on Wednesday. 
Slightly nervous security guards and police lines cut off visitors' access to 
the bottom floor, where workers were cleaning up shattered glass and 
installing new ceiling fixtures. 

The FSB estimated the mall suffered damages of about $500,000. The owner, OAO 
Manezh Square, did not return phone calls. The mall is 87-percent municipally 
owned. The controversial structure, which opened with much fanfare in January 
1998, reportedly is losing money and trying to reschedule its $150 million in 
foreign debt. 

Business was down at the luxury stores Wednesday, sales clerks said. "Only 
about one tenth of our usual customer flow has passed through the store 
today," said Yegor, a manager of Daniel children's clothing boutique. "The 
only people strolling the gallery are teenagers who just want to stare at 
what is happening here." 

Svetlana Volodina, 23, who was hospitalized with several deep cuts in her 
right ankle, was sitting in a cafe several meters from the arcade when the 
bomb exploded. 

"At first I just didn't understand what happened: I was thrown by the blast 
wave. Then I felt a terrible pain in my entire body. Everyone around was 
screaming and panicking, trying to get to the upper floors," Volodina, a 
chorus conductor, said. 

Her roommate in the Sklifosovsky emergency medical center, Lyudmila, 21, an 
economics student, also suffered an ankle wound. 

Lyudmila, who declined to give her last name for fear of upsetting her mother 
in Yekaterinburg, said blood was all over the place at the medical unit of 
the mall where the injured received first aid. 

"When my ankle was bandaged and I had a moment to look around, I saw all 
these guys with terrible burns and a girl with her eye missing, I realized 
how lucky I was," Lyudmila said. 

Five patients, aged 15 to 30, were hospitalized in the Sklifosovsky's burn 
center. The Lebanese citizen remained in critical condition Wednesday, Sergei 
Smirnov, the head of the burn center, said. 

"The prospects for him are not very favorable," Smirnov said. He suggested 
the Lebanese man was closer than anyone else to the homemade bomb when it 
went off. 

Oksana Yablokova contributed to this story.


Date: Wed, 1 Sep 1999 
From: Robert Chandler <> 
Subject: Andrey Platonov 

This year has seen an unusual number of important literary anniversaries.
One of the most important of them all, however, is being largely overlooked.
September 1 marks the centenary of the birth of Andrey Platonov - whom many
Russians now see as their greatest prose-writer of this century.

Readers in Moscow might like to attend a talk and reading at the ANGLIA
bookshop, Khlebny Pereulok 2/3 on 3rd September at 5.30 pm. It is very
central, near the bottom of the Novy Arbat. Other readers might like to read
the following.

The son of a railway mechanic who also gilded the cupolas of churches,
Platonov was born at the turn of the century - on September 1 1899 - and
between town and country, on the edge of the central Russian city of
Voronezh. A young man in 1917, a passionate believer in the new world to be
constructed by Science and Socialism, Platonov gives us a deeper insight
than any other writer into the horrors that were to be perpetrated by the
regime. Yet he appears always to have seen himself as a Communist, and to
have tried doggedly, though with only limited success, to be accepted by the
Soviet literary world. Much of his finest work remained unpublished in
Russia until the late eighties, nearly forty years after his death in 1951.
And yet he always wrote for publication, never Œfor the drawer¹.

More than Gorky or even Mayakovsky, Platonov is the poet of the 1917
revolution; he shows us the dreams of the builders of socialism in all
their inarticulate confusion, his sympathy not lessened by a clear awareness
of the consequences of these dreams. But Platonov writes with equal
perceptiveness about machinery, nature, and more everyday human emotions;
often, with a subtlety all the more striking for its apparent naivete, he
writes about nature in terms of human feeling, or machines as if they are a
part of nature: Œthe sky went still in exhaustion¹; ŒOn and on raged the
loudspeaker, like a blizzard¹.

Platonov¹s subject matter is varied, but a theme to which he often returns
is the search for utopia. Chevengur , set in 1921-22, is about an attempt
to establish communism in a small town in the steppe: a memorable image from
the novel is that of the quixotic Kopyonkin, knight-errant of the martyred
Rosa Luxemburg, patrolling the steppe on a cart-horse called ŒStrength of
the Proletariat¹. A later story, ŒAmong Animals and Plants¹, is about the
dissatisfied family of a railway worker in Soviet Karelia: the radio, and
the splendour of the passing trains, lead them to believe that utopia has
already been established in Stalin¹s Soviet Union - everywhere except in
their own remote hamlet.

Platonov¹s first mature stories were praised by Gorky. One story, by no
means his best, was translated in the thirties and praised by Hemingway.
Joseph Brodsky considered Platonov at least the equal of Joyce, Kafka, Musil
and Proust. And most Russians with an interest in literature look on him as
one of their two great prose-writers of the century, along with Bulgakov. 

(ŒThe Foundation Pit¹, Harvill, 1996. ŒThe Return and Other Stories¹,
Harvill, March 1999. ŒThe Portable PlatonovŒ, Glas, October 1999. The
short novel, ŒHappy Moscow¹ will be published by Harvill in 2000. )


Date: Wed, 1 Sep 1999
From: "Jerry F. Hough" <>
Subject: shell game has been so successful.... 

One of the great problems in understanding Russia is that the 
shell game has been so successful that it is very difficult to keep the 
pieces straight even when a huge scandal hits.

In the confusion, the press goes back to old cliches--mafia, 
gangsters, corruption, anarchy. In actuality, the fact that the 
wife of Kagalovsky was involved means this is something qualitatively 
different. It means Menatep was involved, and, as we have discussed, 
the people associated with Menatep were bag men for important people like 
Chubais and Primakov. This was the bank that took American agricultural 
aid money and lost it. This was the bank that was selling Americans 
forward currency contracts and defaulted. This was the bank that then 
shifted Yukos out to protect it from foreign suits over its defaults. 
(You would do your readers a great service if you reprinted the pieces 
you ran from the New York Times and Washington Post about the Yukos 
scandal, for I would not be surprised if some of those stung in that 
operation were not among the leakers today.)

Some of the questions we need to answer will never be clear 
now. Menatep was being used to provide off-budget subsidies, and its 
people were skimming off a certain percentage for themselves. It will 
be very hard to distinguish. I hypothesized that Menatep had 
responsibility for off-budget financing of foreign intelligence, and if 
so, the money going through New York may not have been corrupt or private 
capital outflow, but official government money. Someone in Congress or 
government needs to look closely at where the money was going. The 
government did a close study of the American corruption associated with 
the Harvard project. I would assume that the Bank of New York, which 
obviously hired the wives knowing they would bring in money of 
doubtful cleanliness, still kept a wall between itself and corruption and 
satisfied itself with normal profits. But the money trail to other 
Americans or American firms may be very illuminating about other American 
corruption, which conceivably could make the Harvard project look like 
insignificant peanuts.

The question that can be answered is whose banks received the 
deposits of various kinds of aid. American agricultural aid was 
deposited in Menatep. Where was IMF money deposited? European, etc. 
If some official investigation lays this out, it may be very revealing.

Finally, with Menatep involved, we should not be obsessed with 
the IMF money. The big fleecing that occurred after 1995 was of 
American private investors. A pyramid game was deliberately created 
that its organizers knew would collapse. The state banks like 
Menatep that were called private to permit them to go bankrupt were a 
deliberate part of the ponzi game. Much of the money went to subsidies, 
but some of it stuck on other hands, and that which stuck to other hands 
went abroad on one path or another. Bank of New York is a likely 
channel for part of it, but there were others. Duke's endowment rose 10 
percent last year instead of 25 percent because it was in Russian paper (you 
can see which professor they don't consult). Harvard apparently took a
bath. A lot of banks took baths. But some presumably got out before
the pyramid collapsed. Perhaps some private law suits, added to government 
investigations, will help us get to the bottom of this.

Finally, the question is what we do now. McFaul continues to 
damn Luzhkov and Primakov, and this must be a sign that the US government 
opposes them. But who in heavens name is it supporting? Is it going 
with Yabloko, a party without a chance that has lived off foreign money 
and is another example of the corruption of the aid program, although 
presumably on a minor level? Does it have a military coup scenario with 
a candidate in mind? Or does it still just have its head in the sand? 

The Asian countries that did not release restrictions on foreign 
currency--India, China, Hong Kong, and Taiwan--did just fine in the 
so-called Asian crisis. Those that liberalized too much are beginning 
to recover nicely. But, the IMF complains, this is not real because 
they did not restructure--that is, they did not liberalize further. 
Thank God. Let us hope they strengthened controls. The IMF is like 
the Comintern of 1928-1934. It is going to continue defending its mad, 
failed ideology to the end. Stalin was smart enough to change Comintern 
policy in 1935 when he brought in Dimitrov. When is the American 
government going to force a change in IMF policy? I assume it takes a 
new president, but I cannot imagine how Gore thinks he will win the 
nomination, let alone the election, if he does not associate himself with 
dramatic change instead of his 7 years of head in the sand.

But the place to change policy is not in Asia, which has leaders
wise enough to change policy, but in Russia. The words are "investment,"
"fertilizer" for crops and "pesticides" for locusts, "agricultural reform,"
"investment," "a government investment policy," "the American economic 
model of January 1942," "investment." The scandal is that the Russians
sent their corrupt money abroad, and did not invest it at home like 
American crooks did in the 19th century and Asians in the 20th. Corruption
is the normal engine of growth in the periods of fastest growth in early
and middle capitalism. An investigation that focuses on corruption in
Russia alone, that pretends that it can and should be ended, and that
serves as a reason to avoid a change of policy will be an entertaining 
circus and useful for scholars. It may serve the useful 
purpose of electing an American president who does not have the old 
ideologies, but it would be far more useful if the change of policy did 
not have to wait until January 2001.


Date: Wed, 1 Sep 1999 
From: "Anne Williamson" <> 
Subject: The truth about those bums.....:-)

SEPTEMBER 01 1999 
An inconvenient history 
By Anne Williamson
Anne Williamson has written for the Wall Street Journal, The New York
Times, Spy magazine, Film Comment and Premiere. An expert on Soviet-Russian
affairs, she is currently working on a book, "Contagion: How America
Betrayed Russia." 
© 1999 

As newspapers blast details regarding what will prove to be the tip of
a Russian money laundering pyramid, U.S. policymakers and the West's Russian
advisers are tap-dancing madly across America's editorial pages in order to
stay one step ahead of public accountability. Professing to be as shocked as
Claude Raines ever was by the goings on in the Russian casino that their
careerism, opportunism and criminal stupidity built with taxpayers'
billions, this crowd is simultaneously adopting a world weary and
sophisticated attitude. 
After all, everybody knew, or so they imply, that corruption is
rampant in contemporary Russia. What could self-advertised market wizards or
earnest public servants possibly do to restrain the Russians' destructive
behavior? Conveniently -- just days before the revelations of Aug. 19 -- a
profusion of well-tailored journalistic memoirs recalling seven years of
Russian reform inspired by the anniversary of Russia's Aug. 17, 1998,
meltdown appeared. All the big papers ran major articles. Two of these
efforts in particular deserve a close look. 
The Washington Post trotted out eminence grise, Robert Kaiser, the
Post's Moscow bureau chief in the early 1970s, whose piece did get its
headline right, "Pumping Up The Problem." The New York Times shrewdly hired
the job out and imported a Brit for their write up. John Lloyd, who was the
Financial Times' Moscow bureau chief from 1991-1994, delivered a drab story
with no new information, a real disappointment coming as it did from one of
journalism's most astute observers of Yeltsin's Russia. 
Worse, the Time's story showed just how clever Western handlers were
to keep their "eager young reformers" available to potentates of the
self-reverential "quality press." Ironically, the one Lloyd selected for his
story's bittersweet coda turned out to be none other than Konstantin
Kagalovsky, a well-known opportunist and Russia's first representative to
the IMF, whose connection to the $15 billion Bank of New York money
laundering operation the Times was compelled to report on its front page
just four days later. 
Kaiser, however, being an eminence grise, did contact two now retired
State Department officials, E. Wayne Merry and Thomas Graham, who reported
sordid details regarding U.S. policymakers' ends over means approach to
Russia. They told how cables filled with information of what was really
going on in Moscow were blocked by higher-ups at the Moscow embassy and by
emissaries from Washington. Lloyd reminded the public of Albert Gore's
nixing of CIA reports detailing Russian corruption involving his best
Russian pal, Viktor Chernomyrdin, and that Sweetheart of Harvard Yard,
Anatole Chubais. Thomas Graham told Kaiser that the Gore-Chernomyrdin
Commission was "Sovietized" immediately, meaning its success was declared
mandatory. Diplomats, policymakers, pundits, aid consultants and contractors
were told to put a happy face on all aspects of U.S. policy. 
Western journalists in Moscow played along, using the government's
basic methodology; any information that questioned the success of the reform
effort was squelched, ignored or downplayed. Any alarming developments were
massaged away by members of the "aid community" in Moscow, and by
assistance/policy/government retreads stashed at various think tanks in
Washington and Moscow. Journalists built their stories based on quotes and
information from these active players and shapers, from whom their editors,
in turn, sought their views in published editorials. Russian dissenters were
tagged with the "Communist" label and dismissed. In these ways, the party
line was woven into a web of almost seamless propaganda despite none of
Russia's complicated reality actually corresponding to the parallel universe
U.S. policymakers, Washington pundits and collaborating journalists inhabit. 
But the Post's and the Times' stories were important as signals; it is
now permissible to discuss U.S. failure and the collapse of the "Washington
Consensus." About bloody time. Having been given many billions and years of
freedom to pursue their ideas without scrutiny or accountability, Clinton's
foreign policy apparat has delivered the world a debacle. But citizens
should be cautious in evaluating today's increasingly unavoidable
revelations; many shoes are left to drop. As one CIA man put it, "Clinton
made sure they all got something and then they all stole something more, so
nobody wants to get to the bottom of what really happened." 
The current spin is to fob blame onto the banking oligarchy whose
members the "reformers" in the Kremlin selected and whose development
Western lending fed and nurtured. It's helpful too to hurry past the crime
of voucher privatization, which Harvard economist Jeffrey Sachs and his team
designed in cahoots with Anatole Chubais in 1992. Better to focus on the
secondary stage of privatization, the loan-for-shares scheme, an insiders'
feast of Russia's juiciest assets, which was cooked up mostly by the
Russians themselves. Most especially, a wise memoirist skips any discussion
of Russia's market in short-term government bonds, GKO instruments. 
The improbable yields (290 percent on three-month paper at one point)
on Russian GKOs were paid with U.S. taxpayers' money via IMF loans. Guess
where all investment went? By yielding those kind of non-market returns, the
bond market insured that all the country's resources and all that it was
capable of attracting went to the support of the state, just as Czarism and
Communism had done previously. 
So lush were the bond market's rewards that dubious market
participants included the Russian Central Bank itself through an off-shore
firm known as Fimaco. The involvement of the Harvard Institute of
International Development's (HIID) honchos in the same conflict-of-interest
activities has already been admitted publicly and remains the object of a
Boston grand jury's scrutiny. The Harvard Management Corporation, which
invests the university's endowment, was also an avid purchaser of Russian
bonds, a dubious and unsettling history since there is no legal separation
of HMC and the university itself. According to the Russian Interior
Ministry's Department of Organized Crime, Western employees of Russian
banks, Western bankers and consultants, Russian bankers and anecdotal
evidence, other likely participants include certain employees of the U.S.
Treasury, of the multilateral agencies (most especially the World Bank's
Moscow offices), of bilateral aid agencies, and policy and program
consultants acting through accounts established in their wives' maiden names
with non-U.S. reporting brokerages in Moscow. Even the Ford Foundation's
Moscow office sponsored its own internal Russian bond shop for which the
unthinking Russian managers once asked this reporter to drum up U.S.
But Russia needed direct investment, not speculative debt traders. Why
then did international lending and bilateral aid programs work
overwhelmingly to the international debt merchants' benefit? Actually, all
aid programs are meant first to advance globally the Fed's money monopoly
through IMF lending and the private banking sector and secondarily, the
subsidized expansion of U.S. firms into foreign markets. 
Unsurprisingly, it was George Bush who got the money monopoly's ball
rolling in Moscow. In early 1992, the "Bankers Forum" project was wheeled
into place by a former New York Fed chief, Gerald Corrigan, who at George
Bush's direction sent in a group of experts from the Fed, commercial banks
and the Volunteer Corps on an off-the-books mission to teach the Russians at
the Central Bank the bond game. The Western banker who explained the
project's background remarked, "Basically, when Corrigan asks, I guess no
one turns him down, because people reacted instantaneously. It was done by
private investors, who were doing a public service, who were asked by a
person you can't say no to" (my emphases). 
But from the first day of Clinton's presidency, the new president's
administration worked aggressively to capture the political support of the
financial sector, offering up heretofore unseen gobs of government favor. (A
disproportionate number of firms receiving Overseas Private Investment
Corporation guarantees, Export-Import bank lending, and participation from
International Finance Corporation and Russian Enterprise Fund were
high-dollar contributors to both Clinton campaign coffers and the DNC.) The
basic formula was simple, it's not rocket science as Russia's Harvard
advisers would like the public to believe: The bread and butter of all
equity markets are bonds. Wall Street wanted a debt market. You build it and
we'll come, they said. 
The aid program delivered best it could what was in reality a flimsy
contrivance, which -- in turn -- was really only an exotic venue through
which to pass public funds to select Russians of the Clintons' and HIID's
choosing and to Wall Street investment banks the Clintons hoped to entice
permanently into their orbit of supporters and contributors. In short, the
Russian bond market was influence peddling at the highest levels, not unlike
the Arkansas Development Finance Authority, a public fleecing machine the
Clintons built to benefit their political supporters and contributors years
ago in their home state. 
The Clintonites' new spin admits that many Russians have the idea
their current misfortunes are the intentional work of the U.S. Allowing that
the Russians' theory "is built on a certain logic," Kaiser still managed to
conclude that the "catastrophe was probably made inevitable by the policies
adopted by the last Soviet government, but Russians rarely grasp the subtle
points of economics." 
Say what? Subtle points of economics? Looting and political
racketeering are hardly subtleties apt to confuse any Russian, though
American taxpayers were certainly misled successfully. 
The Clinton apparat is quick to whine that somebody had to keep the
communists at bay. But there were no communists in Russia by late 1991, only
nascent investment bankers looking to nail down a stake any which way.
Communism had evaporated by late 1987, the year in which the Russian people
were allowed to hold convertible foreign currencies. Overnight, the power of
money displaced the power of ideology. 
Bill Clinton's foreign policy is best understood not as a collection
of new era efforts at "nation building," but instead as an utterly
irresponsible form of colonialism. It's mind-boggling just how opportunistic
U.S. economic policies were in Russia. 
What a free lancing Harvard economics professor, Jeffrey Sachs, and
his team of flying graduate students managed to set in motion in 1992
insured that absolutely nothing was ever going to work to the Russians'
benefit no matter what they tried. The possibly intentional sabotage of
Russian reform was the result of three egregiously wrong-headed policies; a
forced inflation, tariff reductions and voucher privatization. 
In late 1991, vast amounts of gaseous blathering were published
regarding something called "the ruble overhang," describing the burden of it
and the urgent necessity of doing something about it. This was all nonsense,
of course, since the dreaded ruble overhang was nothing more insidious than
the collective national savings held by Russian households. The Soviet
economy focused almost entirely on the defense sector, leaving nothing for
the people to buy. Therefore, the Russian people had accumulated a large
stock of savings. 
In July 1991, the Supreme Soviet passed legislation mandating the
privatization of the Russians' national legacy. Despite that, the
Harvard-connected advisers reasoned just months later that since there was
nothing to buy immediately, the national savings -- that pesky "ruble
overhang" -- would have to be eliminated. Free market types went blue in the
face pointing to the national property fated for the auction block as the
most useful and appropriate sponge for the people's savings, but to no avail. 
Hang on, free market economics Harvard-style gets even nuttier. 
Yegor Gaidar insists to this day, John Lloyd was good enough to remind
us, that "he had no choice but to let prices rise to increase supply and to
scrap trade barriers so that foreign commodities could begin to fill store
Say, huh? The Soviet Union was economically self-sufficient except for
bananas, coffee and coconuts. Foreign commodities weren't required to fill
Soviet shops. And even though the ruble was not convertible, that
characteristic had nothing to do with the sudden shortages in late autumn
1991, which were only slightly worse than those normally encountered in the
last sputtering years of Gorbachev's perestroika. 
No one had stopped producing, so why were shops suddenly nearly empty?
Producers had begun hoarding, as had fearful consumers, but why? Yeltsin did
announce in November 1991 that the government intended to free prices, but
he also announced the exact date on which prices would be freed.
Predictably, producers withheld their product from market and rubbed their
hands together like flies awaiting the coming feast which Yeltsin's newly
announced policy guaranteed. Within a week of the ill-considered speech,
Muscovites' needs were being rationed. 
However, Gaidar really was under pressure, but the pressure was coming
from the West to open Russia to unrestricted imports in return for
multilateral lending. Gaidar soon delivered a trade policy that was 100
percent back-to-front, accommodating as it did the self-serving demands of
both the West and Russia's nascent banking oligarchy; Russian manufacturing
was to take the brunt of unrestricted foreign competition, but domestic
banking was to be protected from competition! Even Russian Central Bank
Chairman Viktor Gerashchenko protested, but Yeltsin's boys got what they
wanted and the IMF continued lending. So much for the "leverage" foreign
policy elites claim foreign assistance programs provide the U.S. 
In 1991, there was no hope whatsoever that wheezebag Soviet industries
could compete with the West's shiny, alluringly-packaged and, to Russians,
exotic products. For decades, prices were set by Gosplan (State Ministry of
Central Planning), any enterprise profits were claimed as Soviet tax
revenues, all customer bases were guaranteed and therefore no enterprise had
a financial incentive to compete. Without competition, there was never any
need to improve quality. 
How could freeing prices alone change this equation? Free prices only
work to the benefit of consumers when producers compete with one another in
the marketplace to satisfy customers' demands, leaving consumers positioned
to reap the most benefit at the lowest price. Clearly, an equitable and
transparent privatization that would have delivered property widely to
Russia's many eager hands should have preceded the freeing of prices. And
during privatization, native producers should have enjoyed some
protectionism at least, as did developing American industry and manufacture
in the 19th century. 
But why was banking alone protected from foreign competition? Could it
have been because the former Communist Youth League or "Komsomol" leaders
who'd been selected to become the captains of Russian banking were the
private-sector allies and beneficiaries of Yeltsin's "eager young reformers"
and their HIID advisers? 
Competent advisers would have known Russia never did develop an
effective banking sector and system of credit in 1000 years of her history.
The story of Russian banking -- ancient and modern -- always has the same
plot, only the names and the dates change. S.Y. Borovoi's easily obtained
history of 18th century banking outlines a typical episode involving a
certain "Suterland, who received 2 million pounds for transfer to London,
but instead lent the sums to Prince Potyomkin (800,000), Finance Minister
Vyazemsky, Foreign Minister Bezborodko and even to the future emperor Pavel.
The debt of these honorable people was, according to the custom, forgiven
and paid by the state." 
Certainly eager Western banks should have been given admission to
Russia. By working initially with more developed and well-capitalized
Western banks and later by competing with them, Russian banks could have
developed quickly and today be mediating capital responsibly and profitably.
No good economic purpose was achieved by foisting subsidized billion dollar
loans onto Russia for the purchase of Western consumer goods and the
sustenance of Yeltsin's Komsomol pirates and parasites. 
When Chubais and his Harvard pals belatedly turned their attention to
privatization, no one asked how it would be possible to privatize property
in a country without property rights. (A similar error was once made by the
Soviet aid establishment, which trained railroad engineers for Laos, a
country with no railroads.) In fact, it wasn't possible. 
There was no privatization, but instead a very expensive, exhausting
and destructive program of paper title transfers. At best, a manager could
gain personal control of an income stream, but he could not function as a
responsible proprietor. Consequently, asset-stripping was and is rampant.
And Yeltsin, a Soviet usurper masquerading as a democrat, saw to it that the
paper property titles were transferred to key citizens, institutions and
long-term cronies so they would have a vested interest in sustaining his
But what about that troublesome "ruble overhang"? Jeff Sachs let the
cat out of the bag on a spring night in 1991 when he told a colleague from
the Hoover Institution and his wife that it was his and Yegor Gaidar's
intention to remove from the market all "competing claims," meaning the
people's savings. How then to do it? 
Easy. In the Soviet Union's monopolistic economy, freeing prices
guaranteed that state monopolists would raise prices without restraint. On
Jan. 2, 1992, Yeltsin freed prices throughout all of Russia. Poof! The
subsequent 2,500 percent inflation Russians suffered in 1992 dissipated
those noisome "competing claims" with an efficiency that the Russians hadn't
seen since Adolf Hitler's blitzkrieg 50 years earlier. Tellingly, property
auctions gained steam only in 1993. 
The only investment capital of which any country can be certain is the
national savings. Why then did Harvard-connected advisers set about building
a market economy by first removing the only money Russians had to
participate, thereby leaving foreign and Russian criminal wealth to command
the new market? And why was the follow-on to put the Russian Federation's
property, the legacy of the long-suffering Russian people, up for sale to a
population made kopeckless by the four-digit annual inflation the Harvard
advisers' first reform initiated? 
Imagining the consequences isn't necessary; impoverished Russia is
reeling still. 
Yabloko leader Gregory Yavlinsky once mused aloud, "Any child could
see what would happen. Why then didn't the Harvard professor?" Good question. 
Rocket science, anyone?



Return to CDI's Home Page  I  Return to CDI's Library