Johnson's Russia List
#5065
1 February 2001
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Excerpts from
The Tragedy of Russia's Reforms: Market Bolshevism Against Democracy
by Peter Reddaway and Dmitri Glinski
United States Institute of Peace Press [www.usip.org]
2001 768 pp./6 x 9
$29.95 (paper); ISBN: 1-929223-06-4 $55.00 (cloth); ISBN: 1-929223-07-2
[This passage from chapter 8 (pp. 512-513) sheds light on Yeltsin's
antidemocratic impulses in a little-known episode three months before the
1996 presidential election.]
The Stolen Victory
pp.512-513
The most surprising and perhaps the only positive fact about the 1996
election was that it took place on time. In September 1993, Yeltsin had
felt compelled to promise Russians and his foreign audience an early
presidential election to be held in June 1994though he soon broke that
promise. In 1996, he stood for
re-election, but as late as forty days before the first round, Korzhakov
publicly suggested that the vote be postponed. Not until all the major
polls registered Yeltsin ahead of all other contenders was it certain that
the election would take place as scheduled. Even after that, few observers
believed that Yeltsin was ready to accept an adverse outcome if the
government-funded pollsters turned out to be wrong. The headline of the
previously mentioned article by the influential analyst Lilia
Shevtsova“Yeltsin Will Stay, Even If He Is Defeated” caused no dispute,
because it captured the prevailing mood of resignation in the country.
Unlike in 1993, there was no force in sight (except, perhaps, the opinion
of Western creditors and investors but certainly no force to speak of
within Russia) that would have been able to compel Yeltsin to hold the
election on time if he had not been prepared to accept the possibility of
defeat.
There is little doubt that Yeltsin and his court would not have taken the
risk unless they had powerful weapons that virtually guaranteed their
victory. For instance, the hard-line faction in Yeltsin’s entourage, which
was widely held responsible for the Chechnya ordeal and had largely
alienated Yeltsin’s Western patrons, the media, and the financial elite,
was far from sure about Yeltsin’s chances for success. On February 27, Oleg
Soskovets, who was briefly in charge of Yeltsin’s re-election campaign
until the re-emergence of Chubais, told his American advisers: “One of your
tasks is to advise us, a month from the election, about whether we should
call it off if you determine that we’re going to lose.”
By March, Soskovets and Korzhakov had persuaded Yeltsin to postpone the
election, shut down the Duma, and ban the CPRF. At the time, a few sketchy
articles in the opposition press reported this, along with the news that
Yeltsin had then been prevented from executing his plan. Minister of
Internal Affairs Anatoly Kulikov had said that if the plan went ahead he
could not guarantee public order or the loyalty of his own police and
troops. Three years later, Kulikov gave a vivid, detailed,
two-thousand-word account of what happened, which none of the participants
has questioned.
To summarize: On March 17, Yeltsin summoned individually the ministers who
would have to carry out his orders. Kulikov found the president “in a
fired-up, self-confident mood.” With reference to the Duma’s renunciation
two days before of the agreement that dismembered the USSR, Yeltsin
declared: “‘I’ve taken the decision to dissolve the Duma, because it’s
exceeded its powers. . . . I need two years.’ (He repeated several times:
‘I need two years.’) ‘It’s necessary to postpone the election, we must ban
the Communist Party, and I’ve taken this decision. This afternoon, you’ll
get the decree.’”
Kulikov reacted with cautiously expressed skepticism and said he would
think it all through and report back with “my suggestions” at 5 p.m. He
believed that “society would react extremely negatively. We knew the
political moods of the citizens. At the time the prestige of the Communist
Party was rather high, and I, frankly speaking, was simply afraid of a
social explosion in the country.” Compared to October 1993, “popular trust
in the president was completely different.”
Kulikov went to consult with Prosecutor General Yuri Skuratov and
Constitutional Court Chairman Vladimir Tumanov about questions of legality.
Tumanov quickly revealed Yeltsin’s method: “The president told me that
Kulikov had agreed, Barsukov had agreed, and the prosecutor general had
agreed. How could I tell him that his plan was impermissible?” Kulikov’s
comment: “It turned out, as was later confirmed, that everyone who saw the
president was told by him that the others had agreed.”
Yeltsin’s capacity to tell big lies became clear early in his rule.
Sometimes they were fairly harmless, as when he claimed to have personally
written the text of the famous Decree No. 1400 of September 1993 that
dissolved the parliament. But this time, his lies were aggressively
manipulative and came close to causing tumult and, potentially, civil war.
At five o’clock, the three men told an angry Yeltsin why they advised
against his plan. Yeltsin interrupted Kulikov with the words, “I’m
dissatisfied with you, minister. The decree is coming, go and get ready to
carry it out.” On leaving, they met Ilyushin and the other aides who were
drafting the decree.
Kulikov repeated his speech and implored them to halt their work. They,
too, had been reassured by Yeltsin that Kulikov and the other ministers had
agreed to the plan.
It then turned out that neither Chernomyrdin nor Defense Minister Grachev
knew anything about Yeltsin’s intentions. Kulikov spoke with both of them
and explained his position.
At 6 a.m. the next day, March 18, a glowering Yeltsin conducted a meeting
of selected officials in the style of an autocratic principal handling
naughty schoolboys. He was especially rude to Kulikov, who felt sure he was
about to be fired. It turned out that the plan included arresting the
members of the CPRF’s Central Committee, and that the Moscow MVD had lined
up police and troop units totaling sixteen thousand men, but needed ten to
twelve thousand more. Again Kulikov led the opposition, and again Yeltsin
refused to budge: “Yes, of course they must be dissolved. I need two more
years.”
However, at 8 a.m., the Duma, which had been sealed shut, was reopened.
Thanks to Kulikov, Yeltsin had at last seen sense. Without him, it probably
would have been different. Contrary to all the wishful thinking in the West
about Russian democracy, “Tsar Boris” had no qualms about throwing the
constitution out the window--something that not even the enemies of his
rival Zyuganov would seriously charge against the Communist leader. Even
now, many in the Yeltsin camp did not give up their efforts to violate
democracy. On April 16, Korzhakov conspired at length with Chernomyrdin
to this end.
-------
Shaky Foundations in the House of Yeltsin: Financial Collapse and the
Onset of Family Anxiety pp.595-622
[This extended excerpt from chapter 9 (pp. 595-622) shows the extent of
corruption and oligarchical influence in the final years of the Yeltsin
administration. It clearly depicts Yeltsin's fear regarding brewing
financial scandals and his attempts to choose a successor who would protect
him on that score. This section of the book also reviews the murky
events--including the deaths of 300 Russians in mysterious urban bombings
in September 1999--surrounding Yeltsin's selection of Vladimir Putin as
prime minister and heir apparent, as well as Putin's first several months
in office.]
The years 1998 and 1999 witnessed mounting political, financial, and
military problems, which remarkably did not destroy Yeltsin's system of
rule. They ended with the president's sudden resignation-a present to the
Russian people on the very eve of the new millennium. However, the
cynically conceived and brilliantly manipulated bequeathing of presidential
power to Vladimir Putin, an eight-month process sealed by his election on
March 26, 2000, appeared merely to reanimate the essence of Yeltsin's
system, if in a slightly different guise. Thus the exponents of market
bolshevism triumphed again. While observing the forms of a minimalist,
Schumpeterian democracy, they once more manipulated the electoral process
in ways that negated democracy's goals. Above all, they negated the Russian
populace's right to informed participation in the making of critical
decisions, such as launching a new war against the Chechens and the
selection of a new president.
The period shows an often physically ill Yeltsin to be heavily obsessed
with his personal power and private interests-and therefore unconcerned
about the national interest and devoid of new ideas on any topic except how
to manipulate people and events for his own ends. A succession of grand and
tactical political, economic, and legal bargains made earlier are now
showing their severely troubling consequences, and Yeltsin is under intense
pressures from many sides: the Duma, certain oligarchs, the miners, the
IMF, foreign investors, Swiss prosecutors, Russian prosecutors, militant
Muslims, Luzhkov and Primakov, even the Federation Council and the U.S.
government. His only possible domestic backers are the oligarchs, as
Berezovsky gleefully notes. However, Yeltsin sounds almost pathetic when he
helplessly appeals to "the big banks that bought important industrial
enterprises during privatization" to invest in the real economy out of
gratitude for the privileges he has given them. To enable them to invest,
the state has "promoted the concentration of financial and industrial
resources." Now, he begs, "society has the right to count on
reimbursement." Alternatively, he issues empty threats, telling Berezovsky
he may "drive him out of the country" if the oligarch does not stop his
intrigues aimed at putting his imprint on a new government.
On other occasions, though, Yeltsin brutally and impulsively wields his
presidential power. On March 23, 1998, for example, he suddenly
sacks-without giving a reason-his faithful prime minister of the past five
years, Viktor Chernomyrdin, and with him the government. Chubais, Nemtsov,
and Anatoly Kulikov depart for good. A month earlier, Chernomyrdin had made
statements in Washington that implied he might be Russia's next president.
These remarks were lèse majesté because Yeltsin had not yet decided whether
to run for a third term himself and was still periodically issuing
contradictory statements on the subject.
Yeltsin named as acting premier Sergei Kirienko, a man who met two criteria
of paramount importance to him: He was a provincial banker and oilman with
relatively little national political experience; as such, he would not pose
a threat to Yeltsin if the latter ran for re-election. Kirienko also was a
"young reformer" who would appeal to the West and thus keep Yeltsin in good
standing with his friends Clinton and Kohl. However, Kirienko was a
neophyte with no political base; he could not hope to persuade the Duma to
vote for IMF-type policies-and therefore would need to subvert democracy
even more than his predecessor by having Yeltsin rule through presidential
decrees. These factors apparently eluded Yeltsin's calculations on a
successor. Moreover, most of the political class registered sharp
opposition to the nominee: the Duma ignored Yeltsin's threat to dissolve it
and formally rejected Kirienko on April 10. But Yeltsin did not retreat and
seek a better candidate. He stubbornly schemed to get his way-at the
expense of Russia's being without a confirmed premier for more than a
month, and then getting one rammed down its throat.
The Duma's rising anger at Yeltsin was clear enough from the fact that
General Rokhlin, head of its Defense Committee, had announced on March 31
that it now possessed enough materials to start impeachment proceedings
against the president. Stung by this announcement and by the rejection of
Kirienko, Yeltsin decided to renominate the young businessman and this time
openly use the weapon of bribery. On April 13, he announced that he had
told his lieutenant, Pavel Borodin, who handled perquisites like cars and
apartments for deputies, to take care of deputies' needs, providing they
showed "a constructive approach" to Kirienko's nomination. He added that he
had told Borodin not to deal with deputies' requests before April 17, the
date set for debating the nomination. Yeltsin said pointedly that deputies
would understand his remarks.
However, the Duma responded by rejecting Kirienko even more forcefully than
before, by 271 votes to 115. Only later, when Yeltsin nominated him yet
again and the critical third vote neared, did the bribery work its magic,
coming on top of deputies' fears of losing their seats if Yeltsin exercised
his right to dissolve the Duma. This time, many of the Duma's
parliamentarians were absent or abstained, and about forty Communists
reportedly broke ranks, taking ad-vantage of the secret ballot and voting
"the right way." On April 24, Kirienko's previous crushing defeat suddenly
became a crushing victory-by 251 to 25. As the media noted in a variety of
derisive formulations, the deputies "saved their apartments and their cars."
In many ways, however, the president's crude use of carrot-and-stick
lobbying rendered his eventual victory Pyrrhic. The humiliated Duma refused
to cooperate with him, press criticism of him escalated, and Russia's
far-flung miners launched myriad protests, including the demand that he
resign. Their delegates organized a tent city in the middle of Moscow,
where Mayor Luzhkov quietly gave them moral and material support. In
addition, Korzhakov ratcheted up to new heights his criticism of his former
boss, casting an ironic light on the ceremony in which the two men had once
sworn eternal loyalty to each other in their own blood. Yeltsin, he said,
"is causing Russia only harm." Part of the reason, he implied, was that the
evil genius Berezovsky had suborned the president with a payment of several
million dollars in phony "royalties" for his book.
At this moment of political isolation, Yeltsin evidently felt the need to
in-stall two strong-minded allies and clan leaders in senior positions,
thus restoring some balance to the seesaw. First, he appointed Berezovsky
(whom he had fired only five months earlier) to be the executive director
of the Commonwealth of Independent States, a position that gave the
oligarch plenty of opportunity to combine government business with personal
business as he traveled incessantly around his domains. Then, on May 5,
with Yeltsin's clear approval, Chubais became a full-blown oligarch himself
upon assuming the powerful post of chairman of the board of the electricity
monopoly United Energy Systems.
Abroad, Western leaders were increasingly worried by the state of Russia's
economy and were pressing the Kremlin for corrective action. On April 1,
both U.S. Deputy Treasury Secretary Summers and IMF head Michel
Camdessus went further than before in their criticisms, suddenly discovering
problems that other observers had been writing about for several years.
Camdessus identified a "crony capitalism" in Russia that was similar to the
"incestuous relationships" between government and business in the East
Asian countries whose financial systems had recently crashed. Summers
divined that the challenge for Russia was no longer to make government
weaker, but to make it stronger so that it could perform the crucial
functions required by an effective state. In his opinion, there could be
"no worse news to come out of Russia than that, after years of throwing off
one defunct economic model, it was on the verge of entrenching another
questionable one." It seemed as though the two men had only just seen
through the facade of economic success erected by Russian officials, a
facade neatly summed up by an associate of the young reformers when he
said: "Under Chernomyrdin, programs were drafted just to be shown to IMF
officials. They were, so to speak, an export commodity. Nobody really
intended to implement them. . . ."
On the political side, the U.S. government was still operating in full
Panglossian mode. Even though Yeltsin's impulsive, vengeful replacement of
Chernomyrdin by the unknown Kirienko was causing profound consternation in
Moscow, Ambassador-at-Large Stephen Sestanovich considered the event to be
"a small milestone for Russia watchers. It was a turnover in which nobody
was accused for disloyalty or treason. It was just said to be time for a
change. One has to be impressed with the calm nature by which this
constitutional transition has taken place. We should also remember what
President Yeltsin said were the reasons for the change: a new government
will have a mandate to move quickly and increase the pace of policy making."
Almost immediately, however, financial markets began to signal their lack
of faith in the ability of Kirienko's government to maintain the value of
the ruble. The Kremlin panicked and sent Chubais-now head of the
semiprivatized electricity monopoly UES-on a late May mission to
Washington, where he went straight to the homes of Summers and Strobe
Talbott. Having trumpeted for a year that Russia had weaned itself off IMF
assistance and no longer required it, Chubais begged the two men to press
for an emergency loan, a loan that had to be much bigger than any of its
predecessors. Promptly, on May 31, President Clinton issued a statement
that the United States "endorses additional conditional financial support"
for Russia from the IMF and the World Bank.
The subsequent negotiations were long and difficult. As in the past, when
Yeltsin feared the loan spigot might at last be turned off, he started
proclaiming that Russia was in imminent danger from extremist forces, and
that whatever doubts the West might have about him, it should rush to his
support nonetheless, lest the extremists take over Russia. However, having
long ago house-trained the Communists, he could provide no evidence. The
negotiations were definitely not helped along by the arrival in the United
States of Veniamin Sokolov, the parliamentary leader who had tried to
mediate between the parliament and the government during the crisis of 1993
and had later been chosen as an auditor of the Accounting Office.
As mentioned in the discussion of the loans-for-shares scheme, this
independent government body quickly established a track record for careful
investigation and honest reporting on numerous cases of incompetence and
corruption. It had earned a reputation among close observers as the only
official body that could gain access to official documents as it tried to
monitor objectively the legality of executive branch operations. Its reward
for doing so was a deafening silence about its reports, which received
little attention from the justice system and virtually no media coverage
except in the small opposition sector of the press.
Abroad, the Western allies of the "young reformers" conducted a campaign of
innuendo regarding the Accounting Office, claiming that its work was
"unreliable" or "biased." Sometimes they went further; Anders Aslund, for
example, dismissed all its work in one sentence, claiming it was
"controlled by the communist-dominated parliament." In fact, the auditors
are chosen to represent all the main factions in parliament's two houses.
When Aslund was challenged on his claim, he did not reply.
During Sokolov's visit, he met with the IMF, the World Bank, and
congressional bodies, supplying them with details of the Russian
government's financial corruption. He also reported in a New York Times
op-ed piece that, for example, of $3 billion appropriated by the Russian
parliament for Chechnya's reconstruction after the first war, "less than
$150 million reached Chechnya." Sokolov also claimed that several years
after the World Bank had lent $30 million to compensate victims of Russian
bank frauds and pyramid schemes, "audits showed that not one victim had
received the money." He also pointed out that fraud and corruption had led
to massive state borrowing, which was "strangling the economy. Forty-five
percent of state revenue is now used to service that debt."
One would think that these points, made at the right time and place, might
have persuaded the IMF not to throw good money after bad. However, the
concerns of some of its analysts were swept aside when the U.S. government
put heavy pressure on the organization's leadership and persuaded it to
give priority to propping up the ruble and helping to ensure that Yeltsin
and his cronies stay in power. On July 20 came the announcement that a
package of $17.1 billion in new money for Russia had been assembled by the
IMF, the World Bank, and the G-7 governments; the IMF's share alone was
$11.6 billion, the first tranche of which was hastily transferred a week
later.
At this point, the Kremlin apparently tipped off the top oligarchs that it
was nonetheless going to devalue soon, prompting them to sell their big
holdings of government bonds for rubles, exchange the rubles for the
government's new shipment of dollars, and send the dollars abroad to
American banks. Three weeks after the tranche transfer, on August 17, the
ruble crashed, ending up with a value of about a quarter of its previous
worth. The prior warnings of some observers that devaluation was inevitable
even if the new loans were granted were thus vindicated. The government
also announced a ninety-day moratorium on payments by banks and businesses
on overseas debts and a restructuring of the government's massive
short-term bond commitments. The latter action meant that, before long,
foreign and domestic bond holders would find their securities to be worth
only five to ten cents on the dollar. For the population as a whole, the
overall outcome was that prices rose sharply and most people suffered
another precipitous decline in their standard of living.
After the dust settled, how did the big banks and their small depositors
come out of the whole episode? According to a pioneering study by some
investigative journalists in the fall of 1999 (prior to the crash), "The
Central Bank blew a total of $9 billion in a fruitless attempt to prop up
the ruble. Russia's major banks were able to pay six rubles for every
dollar." And after the crash: "the price was nearly twenty rubles. Those
banks paid only $1.2 billion on their debt to foreigners. And according to
Moscow economist Andrei Illarionov, $2.9 billion of the net hard-currency
purchases are effectively unaccounted for. Some of it almost certainly
remains in offshore accounts. And some may have gone to help capitalize new
"bridge banks" that SBS Agro, Oneksimbank, and Bank Menatep have since set
up. Many creditors owed money by the three believe that the new bridge
banks now house performing assets that were shifted from the old insolvent
banks. If true, those assets are now effectively-and illegally-shielded
from stiffed lenders and depositors."
The study's authors also recount how, on August 20, the top oligarchs
started to put enormous pressure on the Kremlin to grant them special
credits. Before long, the subsequent Primakov government gave in and
provided cheap loans worth about $1 billion at the prevailing exchange rate
to "a handful of insolvent but politically powerful banks."
The poor judgment of the IMF, the World Bank, and the G-7 governments in
granting the new loans may have been induced in part by the apparent fact
that Chubais and the Kirienko government expressed confidence that they
could avoid a devaluation with the new loans. In any case, Chubais
dubiously claimed three weeks after the crash that the lenders had forgiven
the Kremlin for whatever deception was involved: "Today in the
international financial institutions, despite everything we've done to
them-and we cheated them out of $20 billion-there is an understanding that
we had no alternative." When these words provoked a storm of controversy,
he tried to amend the record, and the effort was tinged with the
deceptiveness reminiscent of his lies during the 1996 episode of the
intercepted Xerox-paper box containing $538,000. Chubais did not claim that
he was misquoted, nor that what he said was an unintentional error.
Instead, in the following passage from his letter to the Moscow Times, he
quoted some of the relevant words and claimed: "I expressed the view that
even despite the enormous damage suffered by investors-and we cheated them
out of $20 billion (a reference to the moratorium on repayment of $16
billion in loans by Russian banks and $4 billion by other commercial
banks-note by A. Chubais), there is an understanding that we had no
alternative."
While quoting himself in this passage, Chubais left out the first part of
his original sentence: "Today in the international financial institutions,
despite everything we've done to them" and substituted the phrase quoted
above: "even despite the enormous damage suffered by investors . . ." (whom
he de-fined as banks). Clearly, he changed the meaning of what he had said
without admitting he was doing so. He also lambasted an American newspaper
for reporting what in fact he did say.
How did the West's policies in the whole episode appear to ordinary
Russians? If the West had declined to make the new loans, Russian coal
miners, teachers, health workers, scientists, and other groups that had
been striking through the summer would have known the West was listening to
them. By indulging Yeltsin, however, it conveyed the opposite message: that
it knew nothing of the polls showing, for example, that the percentage of
Russians prepared to support anti-Yeltsin demonstrations was growing fast
and that Yeltsin's approval rating had fallen to the low single digits,
while his negatives had soared to the vicinity of 80 percent.
Predictably, the president reacted to the currency and bond crash by
punishing a scapegoat. On August 23, 1998, he sacked Kirienko and appointed
as acting premier none other than the man he had fired as prime minister
five months earlier, Viktor Chernomyrdin. This time, however, even though
Yeltsin defiantly announced on August 28 that he would not resign, his
usual battery of carrots and sticks availed him naught. The Duma saw the
appointment as a desperate ploy to defend the personal interests of Yeltsin
himself and of Berezovsky and other oligarchs; sensing the new public mood,
it voted down Chernomyrdin on August 31 and September 9 by wide margins.
The Duma had, at last, genuinely rebelled. The Communists had finally
concluded that Yeltsin would probably be forced to accept the nominee
favored by them and most other Duma factions, Yevgeny Primakov-the foreign
minister and former head of the Foreign Intelligence Service-and that
Yeltsin probably would not dare to dissolve the Duma and thus deprive them
of their cherished perquisites.
They were right. The president saw that he did not have enough support to
beat the legislature into submission. Moreover, Yeltsin could tolerate
Primakov because, although this prospective premier would surely indulge
the Communists too much, he was quietly but firmly opposed to Yeltsin's
early retirement; Primakov believed that the polity was too fragile to risk
its possible consequences. Thus on September 11, the Duma approved him by
the sweeping margin of 317 to 63.
The West, by contrast, tended to disapprove of his appointment at first,
labeling Primakov "a former spymaster." Russians, however, remembered that
he had got this unenviable job from Gorbachev after the abortive hard-line
coup of 1991, partly because he had been one of only two members of the
Security Council to oppose the junta. At that time, the intelligence
agencies were being dismembered and Russian democrats were at the peak of
their influence; had they doubted Primakov's liberal credentials, they
could have blocked his appointment.
Yet Primakov's political viability was secondary to the central fact that
he was the first Russian leader since 1993 to enjoy broad-based legitimacy;
only the Kremlin and Zhirinovsky's ultranationalists had opposed him for
the premiership. Given the unpopularity of his predecessors, Primakov's
appointment was a major step toward representative democracy. His popular
approval ratings had consistently surpassed those of all other Russian
politicians, mainly be-cause most Russians viewed him as a statesman who
did not put his personal interests above the nation's. He also represented
that small, enlightened section of the elite that abstained from
participating in the orgy of capital accumulation, thus preserving its
independence from the crony capitalists.
Partly for these reasons, partly because Yeltsin reassured President
Clinton-in a letter that was subsequently leaked to the media-that Primakov
was the man Russia needed, and partly because Primakov maintained his
reputation of being a predictable defender of Russia's national interests,
the West gradually came to accept him. And this trend suffered no
reversal-not even after the famous March 22, 1999 episode in which Primakov
ordered his plane to turn around over the Atlantic to protest NATO's air
raids on Belgrade while he was en route to visit Clinton. Indeed, that
decision deepened the West's respect for him. This respect had become
apparent earlier, when U.S. secretary of state Madeleine Albright gave him
her conditional blessing and when German chancellor Gerhard Schroeder went
further, perceptively noting that, "Stabilizing Russia now means
stabilizing Primakov's government."
We should note here that Yeltsin's letter to Clinton was probably leaked by
a highly placed official, not because it revealed anything secret (it did
not), but because it demonstrated the startling contrast between the way
the Russian president conducted foreign policy and the way he acted at
home. To his subjects he was the imperious Tsar Boris, who dispensed
goodies when his mood was good and cruelly scolded his ministers in public
when he needed a scapegoat. By contrast, Yeltsin's behavior toward Clinton,
from whom he hoped to receive IMF loans and a seat on the world stage,
reverted to the ingratiating style of the servile CPSU secretary from
Sverdlovsk that he once was, trying to wheedle extra funds out of Moscow
for a new Party sanatorium.
Korzhakov, too, did not pass up the new chance-given Yeltsin's
unprecedented political isolation-to torment the man who had abused him in
1996. As we noted earlier, Korzhakov declared that he knew "the number of
the foreign bank account in which he [Yeltsin] keeps his 'savings,'" which
now amounted to "more than five million dollars" and came from phony
royalties on his memoirs. Moreover, according to Korzhakov, the oligarchs
had purchased the west European real estate we mentioned earlier for the
use of Yeltsin and his family. No one charged Korzhakov with inaccuracy.
Meanwhile, Primakov's government was proving that, while it did not have a
coherent economic strategy, it could avoid the financial disasters that
many critics had forecast by printing some rubles to get desperately needed
cash circulating in the economy and by pursuing cooperative relations with
the Duma. Indeed, because of the government's good relations with the
parliament, whose political composition it roughly reflected, and because
its ultimate goal was creating a humane "social market," it could actually
proceed to draft and enact a more IMF-friendly budget for 1999 than had
ever been passed before. However, the IMF-badly burned by the August
collapse and roundly criticized for this and other sins-did not approve of
the budget. Thus future loans to Russia remained problematic. They became
even more so a few months later, when an audit by PricewaterhouseCoopers of
the Russian Central Bank's dealings with the Channel Islands investment
firm FIMACO showed that the Kremlin had committed the serious offense of
misrepresenting its currency reserves to the IMF to the tune of about a
billion dollars.
The most intriguing feature of Primakov's rule was the tense maneuvering
between his government, the president, and the oligarchs. The prime
minister understood that to improve Russia's situation in any substantial
way, he had to cautiously acquire for the government a measure of the power
the president and his oligarch allies possessed. With Yeltsin, he tried to
work out a variety of power-sharing agreements, but to little avail. Even
when chronically ill, Yeltsin was allergic to signing away any of his power
vis-à-vis the government or the Duma. As for the oligarchs, the picture
looked more promising, because while only a few of them suffered severely
from the August crash (only Vladimir Vinogradov's Inkombank went completely
out of business), most of them were set back by it to one degree or
another. Nonetheless, as a group, they fought Primakov tooth and nail.
Primakov wanted to change a system in which, as one oligarch had said, "the
most profitable business is politics" and, as another had admitted,
personal merit was not the key quality. "To become a millionaire in our
country," Pyotr Aven of the Alfa group had noted, "it is not at all
necessary to have a good head or specialized knowledge. Often it is enough
to have active support in the government, the parliament, local power
structures, and law enforcement agencies. One fine day, your insignificant
bank is authorized to, for instance, conduct operations with budgetary
funds. Or quotas are generously allotted . . . for the export of oil,
timber, and gas. In other words, you are appointed a millionaire."
To combat such a system, Primakov had to reduce the support the oligarchs
had purchased in the structures Aven listed. To do that, he could try to
keep them away from his own government, but it was almost impossible to
reduce their easy access to the Presidential Administration. Indeed,
Berezovsky had just strengthened his presence in that key institution by
having its head-his former employee Valentin Yumashev, a central, pivotal
figure in Yeltsin's extended "Family"-hire as a deputy a notoriously shady
associate of Berezovsky's, Aleksandr Voloshin. Before long, Voloshin rose
further, eventually heading the Presidential Administration himself.
To undermine this nexus of presidential and oligarchic power in the
Presidential Administration, Primakov evidently decided that his government
had to demonstrate to Yeltsin and the nation the criminal nature of at
least one of the top oligarchs. Official actions began in January against
both Berezovsky and Smolensky. While the latter soon managed to halt the
escalating pressures against him, Prosecutor General Yuri Skuratov opened a
criminal investigation against Berezovsky for illegal business dealings.
Evidence suggested that, among other things, Berezovsky and a colleague may
have illegally appropriated money belonging to the airline Aeroflot. On
February 2 and 4, heavily armed Federal Security Service agents raided two
companies closely associated with Berezovsky-Aeroflot and the private
security firm Atoll-and took away numerous documents.
Starting at this time-the first few weeks of 1999-and ending with Yeltsin's
resignation on December 31, Russian politics becomes more intense than at
any other time since the country gained independence (except perhaps the
fall of 1993). Certainly, it becomes more complex. Here we can present an
analysis of only the main threads, some of which run through the whole year:
· The prosecutor general's investigation of Berezovsky.
· The investigation of Pavel Borodin, the Yeltsin family, and others by
Swiss and Russian prosecutors in the so-called "Mabetex case," and the
attempts by the Yeltsin entourage to get Prosecutor General Skuratov fired
and the Mabetex case shut down.
· The joint U.S.-Russian investigation of alleged money-laundering
transfers from Russia of tens of billions of dollars to Russians' accounts
in the United States, particularly in the Bank of New York.
· Yeltsin's dismissal of two premiers, Primakov and Sergei Stepashin, and
appointment of a third, Vladimir Putin.
· The rise and fall of serious political opposition, led by Primakov and
Luzhkov, to Yeltsin's extended "Family."
· The Kremlin's secret search for pretexts to launch a new war against the
Chechens and the mysteries surrounding the murderous apartment bombings in
Russian cities that produce the crucial pretext.
· The cautious prosecution of the new war in Chechnya and neighboring
Dagestan.
· The last-minute rise of a new establishment party, and the victory of
this party and (despite their political inertia) the Communists in the Duma
elections.
· The propulsion of Vladimir Putin toward the presidency.
· The constantly disorienting uncertainty about Yeltsin's health and
political intentions, culminating in his sudden resignation and Putin's
decree granting him immunity for life from criminal prosecution.
THE YELTSIN INVESTIGATION
In January-February 1999, observers noted that two of these threads came
together in the office of Prosecutor General Skuratov. With help from Swiss
officials, Skuratov had been investigating numerous cases of corruption
that implicated both Berezovsky and, separately, Borodin, the Yeltsin
family, and others. The origin of these two investigations apparently lies
in the fall of 1997, when Swiss prosecutor general Carla del Ponte was
given police reports showing that the Russian Mafiya now controlled more
than three hundred firms in Switzerland and that a Swiss businessman of
Kosovar Albanian origin, Behgjet Pacolli, who headed the Mabetex
construction company, was providing unexplained funds to Yeltsin and his
daughters.
In December 1997, del Ponte and Skuratov met. Over the next four months
they drew up and signed a memorandum on assisting each other with their
investigations. In May 1998, del Ponte asked Skuratov if he would like to
receive documents concerning corruption in Yeltsin's entourage. According
to Skuratov, he replied that "everyone was equal before the law and that I
would look into it." Back in Switzerland, del Ponte was soon visited by
Felipe Turover, a man of Russian-Spanish background who had left the USSR
in 1983 at age 19 and had recently been working as a debt collector for the
Gottardo Bank in Lugano, Switzerland. He had an enormous amount of
information that he gave to the Swiss and also, in the fall, to Skuratov's
staff. In September, del Ponte's documents reached Skuratov. He could not
get an appointment to see Yeltsin about them but informed Prime Minister
Primakov, who told him "to go ahead in accordance with the law." By now,
Skuratov had details on twenty-three apparently corrupt Kremlin officials
and thirty-two Swiss checking accounts in their names.
On January 22, 1999, del Ponte led a search of the Mabetex offices in
Lugano, first giving Pacolli a copy of Skuratov's request for Swiss
assistance in the case and then interviewing him. He had files of records
of credit card payments on behalf of dozens of Russians, including small
payments for Yeltsin and much bigger ones for his daughters. (Turover later
said that the total for the three of them was "about $600,000.") When del
Ponte asked Pacolli to name the beneficiary of a $1 million deposit that
moved from his private account to Borodin's account to a bank in Hungary,
he answered that the money was "for the president. At that time he was on
an official visit to Hungary, and needed money for small expenses."
Likewise, the credit card payments for the president and his daughters were
for "small expenses."
It also seemed that Pacolli had paid kickbacks to Borodin for construction
work contracts on the Kremlin and other buildings. In addition, he did not
explain why he had gone on paying large sums to Mercata Trading and
Engineering in Geneva, even after Mercata had completed its work as a
subcontractor to Mabetex for Kremlin restoration work. Mercata was owned by
Viktor Stolpovskikh, a former copresident of Mabetex, an influential but
low-profile member of "the Family," and an associate of, in particular,
Viktor Chernomyrdin, Russia's prime minister at the time. In the mid-1990s,
Stolpovskikh, nicknamed "Moneybags" (he paid $15 million in taxes in 1998
alone), allegedly received a commission of some $8 million from Pacolli,
which he may have divided up among a large number of Russian officials. He
also reportedly registered in his own name the mansion bought for the
Yeltsin family in Garmisch-Partenkirchen.
On January 22, del Ponte called Skuratov to inform him of the results of
the Mabetex search and, evidently, Pacolli informed his former Russian
clients about it. At about the same time, two other things happened:
Skuratov opened his criminal investigation of Berezovsky and prepared for
the raids on his two firms. Also, what appears to have been a complex
operation to compromise Skuratov came to fruition, apparently masterminded
by Federal Security Service director Vladimir Putin with important help
from Aleksandr Lebedev, head of the National Reserve Bank.
A man resembling Skuratov was lured into frolicking with two women in a
room equipped with a concealed camera. Dyachenko then showed the resulting
videotape to her father and was said to have obtained the desired angry
reaction. On February 1, the prosecutor general, having created too many
powerful enemies, was summoned before the head of the Security Council,
Nikolai Bordyuzha, and asked to resign. Without confirming anything about
the tape, he wrote a letter offering to resign "on grounds of ill health"
but pointed out that only the upper house of parliament, the Federation
Council, had the power to remove him. He then admitted himself to a
hospital for a week. Before doing so, however, he instructed his deputy to
proceed with two politically charged cases: that of former Central Bank
head Sergei Dubinin concerning the collapse of the Kremlin's bond market
pyramid in August, and that of Berezovsky. The raids on the
Berezovsky-connected firms began the next day.
In subsequent weeks, the political temperature in Moscow soared as the
Federation Council three times rebuffed Yeltsin's efforts to have it vote
Skuratov out of office. This unprecedented rebellion by the normally
compliant council showed the extent of its alienation from the president
and the rising determination of many of the regional leaders to demonstrate
their increased political power both now and also later in the Duma
elections in December.
Feeling itself under intense siege, Yeltsin's "Family" decided, after the
council refused to dismiss Skuratov for the first time on February 17, that
it must re-verse course on the matter of the prosecutor general and try
something risky. According to a plausible account by a reliable reporter,
Leonid Krutakov, the family decided to negotiate secretly with Skuratov,
offering to help him prosecute Berezovsky in return for Skuratov's dropping
the Mabetex investigation. Proceeding with this plan on March 4, Yeltsin
proved his bona fides by dismissing Berezovsky from his position as CIS
executive director and berating him for "repeated actions" that exceeded
his powers. Two days later, Kommersant-Daily reported that the Yeltsin
family was angry with Berezovsky for using the Atoll company to record its
cellular telephone calls, and that Dyachenko re-sented press reports about
her financial dependence on him.
However, Skuratov dug in his heels and refused to deal. In March, more
detailed reports about Mabetex reached him from the Swiss. He ordered them
to be checked out by his staff. Later, senior investigator Georgi Chuglazov
said that he had done the checking and "At least 90 percent of what has
been published is true, and the investigation has all the appropriate
documents." As to the scale of Mabetex's bribing of highly placed Russians,
Skuratov said that del Ponte's figure of $10 million "seems to be a
realistic estimate, although it has to be proved."
Skuratov's stubbornness now forced the family to reverse course once again
and go all out to oust him. A few hours after the Federation Council voted
again on March 17 to back the prosecutor general, the state television
channel RTR showed a videotape of a man by the name of Yura in the intimate
company of two prostitutes. Berezovsky had worked hard to have copies of
the tape sent to all the bigger television networks, but only RTR agreed to
show it.
It is not clear whether Yeltsin had supported this move, because the next
day he received Skuratov and Prime Minister Primakov. They proceeded to
show him documents received from the Swiss, documents that were frank about
the bribery they revealed because Swiss law does not penalize the bribing
of foreign officials. Reportedly, Yeltsin was enraged and later dressed
down his daughter Tatyana. He also ordered the Security Council to
investigate the Mabetex information and the apparent violation of
Skuratov's privacy. This appeared to presage the second U-turn on Skuratov
within a month, and other members of the Yeltsin family swung into action
to counter it. They quickly persuaded the president that the squalid public
exploitation of the tape was the fault of Security Council head Bordyuzha.
So Yeltsin fired him.
The next day, March 19, the president appointed Vladimir Putin to take
Bordyuzha's place and also asked him to remain head of the FSB. Born in
1953, Putin had first been a KGB intelligence officer specializing in
Germany. He lived for five years in its eastern half, the German Democratic
Republic. As a colonel, he moved in 1991 to St. Petersburg to work for
Mayor Anatoly Sobchak and rose to become his principal deputy, mostly
handling city development issues and relations with foreign firms. After
Sobchak's ouster in 1996, Putin worked in the Presidential Administration
on property and then regional matters before being appointed in 1998 to run
the FSB, the successor to the secret police divisions of the KGB.
After his further elevation, Putin at once led a new charge to replace
Skuratov. On April 2, the Moscow Procuracy started a criminal case against
Skuratov, alleging that he was the figure on the videotape and that the
services of the women represented illicit payment for professional favors.
This decision gave Yelt-sin a pretext to suspend Skuratov and appoint an
acting prosecutor general. True, on April 6, the Kremlin did not block the
issuance of an arrest order against Berezovsky, but this was its last
concession. Nine days later, the order was revoked-not coincidentally,
perhaps, five days after a major explosion shook the FSB's headquarters.
The salient lesson of this whole sordid affair was not lost on tens of
millions of ordinary Russians: Once again, the limitless impunity of the
upper orders was preserved. But there was more to come.
On the eve of the third vote on Skuratov, Yeltsin personally lobbied
members of the Federation Council. Suggesting he was ready to renegotiate
the government's power-sharing agreements with many of Russia's regions, he
blatantly pandered to their representatives in the council: "I am insisting
that you, and not the federal government, have priority, that you come
first. So we will give you more independence than is set down in the
bilateral agreements we have signed. Let us gradually revise these
agreements."
This sale of federal power for governors' votes was doubly contemptible
because it directly sabotaged Primakov's active strategy of rebuilding
federal power by curbing the long-running power grab by the governors. The
next day, April 21, Presidential Administration head Voloshin read aloud an
ingratiating letter from Yeltsin to the council before the vote, which
expressed certainty that its decision would "calm society and stabilize the
political situation in the country," thus removing a weapon from "criminal
elements and unscrupulous politicians." But too many of the senators
refused to take the bait. In closed session, they listened to Skuratov's
report on high-level corruption in the still unpublicized Mabetex case and
then supported him by 79 votes to 61. It was a crushing defeat for
Yeltsin's clique. As Leonid Krutakov commented, "The fight of 'the family'
for the post of [prosecutor general] cost the country its stability."
Motivating this fight, of course, was the real fear of Yeltsin, his family,
and many of his associates that an ongoing joint Swiss-Russian
investigation of some of their misdeeds could quite conceivably lead to
their ostracism from in-ter-national society, to bans on their entry into
certain countries, and even to their trials and prison terms. Getting
someone appointed prosecutor general who would cut off the Swiss
investigation was imperative.
[to be continued]
******
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David Johnson
home phone: 301-942-9281
work phone: 202-797-5277
email: [log in to unmask]
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Web page for CDI Russia Weekly:
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