#8 - JRL 7269
Moscow Times
July 31, 2003
Problems of Unstable Privatization Edifice
By Marshall I. Goldman
Marshall I. Goldman is associate director of the Davis Center for Russian and Eurasian Studies, Harvard University.

Give Anders Aslund credit -- he has no shame. After all the misleading advice he offered before the Aug. 17, 1998 crash ("How Russia Became a Market Economy"), he apparently has no hesitation in urging Western investors again to plunge into the Russian market.

More than that, in an article for The Moscow Times last week, he seems blind to the fact that as an adviser to some of the Russian reformers, he bears some responsibility for the flawed nature of the reforms and the current chaos. That 17 oligarchs should emerge as dollar billionaires simply because they managed to gain control of already existing state property while at the same time, one-quarter of the population has fallen below the poverty line does not seem to concern him. There are no Russian self-made Bill Gateses adding value to what they do, among the present 17. No wonder more than 70 percent of those polled in Russia are critical of the oligarchs and the privatization process. After the lamentable voucher and subsequent loans-for-shares programs, the owners of these privatized enterprises lack legitimacy.

Now because the foundation was poorly constructed, it is inevitable that there will be periodic cracks in the privatization edifice. Nor can we entirely rule out that some day there will be a crash. Sure, Russia is rich in resources, but that does not necessarily mean that future investors can be sure that future governments will accept the status quo and present ownership arrangements and refrain from efforts to reclaim ownership or institute new rents or taxes. This a condition fraught with uncertainty that investors, not only now but in the years to come, ignore at their peril.

I agree with Anders when he criticizes President Vladimir Putin (even though as recently as two months ago he praised him) and the Viktor Ivanov and Igor Sechin team (Putin's advisers and former KGB colleagues). Their behavior in this affair hardly differs from the way the KGB operated in the Soviet era. But to call a three-year statute of limitation on claims against privatization a "sensible suggestion." as Anders does, ignores the terrible way the reforms were implemented and the just anger the public has toward what they see as massive theft.

Perhaps the most unfortunate part of this sorry episode is that now that the damage has been done, there seem to be few remedies available except to undo the whole experiment and, of course, that would be just as disruptive. If he were more self-critical, Anders would have to acknowledge that having taken credit for helping with the reforms, he must now share the blame not only for the current but for future messes.