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Russia: Ministers Discuss Their Brand Of 'Capitalism'

  • Floriana Fossato

Moscow, 6 March 1998 (RFE/RL) -- Public discussions about the future of Russia's 'capitalism' are not a novelty, but statements this week by some of the top figures involved in the discussions indicate that the issue is hotter then ever.

First Deputy Prime Minister Anatoly Chubais, regarded by many Western investors as one of the main guarantors of Russia's market reforms, said in lengthy interviews published this week in Russian newspapers that so-called "crony capitalism," marked by close ties between financial-and-business interests and government officials, puts the country at risk of an Asian-style economic crisis.

"I read the analysis about Indonesia, Thailand and South Korea and close my eyes - it is all so similar to us," Chubais told the daily "Kommersant."

Reports also quoted First Deputy Prime Minister Boris Nemtsov as saying, "Russia in the 21st century must become a country of popular capitalism." He added that Russian citizens should make clear their view in the next presidential election, scheduled for 2000.

Nemtsov is often seen as one of the potential presidential candidates from the so-called "party of power." He is seen as competing with Prime Minister Viktor Chernomyrdin and Moscow Mayor Yuri Luzhkov for the candidacy. All the officials have strongly denied, so far, presidential ambitions.

Chubais told "Kommersant" and another popular Moscow daily, "Movskovsky Komsomolets," that his on-going conflict with business tycoon Boris Berezovsky centers on the issue of the future of Russia's capitalist development. Chubais told "Moskovsky Komsomolets" that "the peculiarity of Berezovsky and his so-called business is that it is based on political influence." And in the "Kommersant" interview Chubais said that "we can see clearly what this leads to from Southeast Asia, where this kind of capitalism took hold, and where, after ten years of ten percent growth, the economy simply collapsed." Chubais said that the government is now facing a very tough task - to strengthen the state in areas, where its presence is essential. The alternative, he said, is a collapse even worse than that in South Korea.

The International Monetary Fund and other Western creditors have urged Russia's government to clean up corporate governance by establishing clear rules of financial management and control the influence of powerful financial lobbies.

Chubais accused Berezovsky and his allies, including media magnate Vladimir Gusinsky, of orchestrating "a carefully planned, multi-level campaign" against him in the wake of last year's controversial privatization of a key share in Russia's telecom giant "Svyazinvest." Gusinsky and Berezovsky, lost the bid, won by an international consortium led by their rival, Vladimir Potanin of "Oneximbank." The losers have said that the tender was biased in favor of "Oneximbank." Financial analysis, noting that the $1.9 billion sale brought much needed revenues for Russia's cash-strapped budget, have praised it as the fairest privatization deal in Russia so far.

The Chubais, Nemtsov comments closely followed those of American financier and philanthropist George Soros. Soros told a news conference in Moscow that Russia's seven top bankers and financial tycoons are "flirting with disaster," due to their infighting over the control of government assets. Soros said they fail to see that conditions have changed since the first years of Russia's market reforms.

Soros likened the seven Russia's top bankers and magnates fighting to divide state assets to seven men fighting in a boat, while they are approaching a waterfall. He said that "they were so busy fighting among themselves that they didn't hear the waterfall."

It should be noted that Soros' "Quantum" fund invested about 100-million as part of the "Oneximbank" led consortium, which won a 25 percent stake in the Svyazinvest sale.

But, in a surprise announcement, Soros said also that last June, shortly before the Svyazinvest tender, he lent the Russian government "several hundred-million dollars" to help it meet a July 1 deadline set by Yeltsin for the payment of back wages and pensions to public sector workers. "They were stuck" Soros told journalists after a lunch with business leaders, and added that "there was a one-week period when we did make a kind of bridge loan to enable the government to pay the arrears."

In early July, Russia received about $2 billion in revenues from an Eurobond issue that helped ease the government's financial crisis. Soros said his loan was "meant to bridge the few days period between the receipt of the Eurobond issue and the payment of wage arrears," promised by Yeltsin.

According to the London "Financial Times," Soros' loan "appears to be the first confidential borrowing by the Russian government from Western banks and financiers in moments of crisis." The "Financial Times" had previously reported the Russian government had borrowed more than $900 million from Western banks in November and December 1997. The loan had helped Russia overcoming the shockwaves of the Asian financial crisis and pay overdue wages. According to the "Financial Times," the IMF had been informed of the borrowing at the end of last year, but "it is unclear" whether the IMF had been informed about the Soros loan.

Soros said he had gained a "very favorable interest rate on the (June) loan." He added that the Russian government had turned to him again in December, but that he had refused a new loan, because he "did not want to make a habit of it."

Soros' statement on his June loan received wide coverage in Western media, but went virtually unnoticed in the highly politicized Russian press. A Russian observer told RFE/RL that "this may be because Russian media are more interested in Soros' future privatization plans, than in his past activities on the Russian market." Soros has said he might take part in a tender for a second Svyazinvest stake, expected this year, and that he will not take part in the much-anticipated privatization of big oil company Rosneft, expected shortly.