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Mayhem in Moscow: 1997 in Review

© Jeffrey Deutsch

It's been an interesting year in Russia.

The big issues have been privatization scandals, the so-called "media wars" (in which political leaders with large stakes in media outlets use them as propaganda mouthpieces), literal bankrolling of same by banking blocs (which also seem to have rather sticky fingers with regard to state customs accounts) and - perhaps most ominously - persistent budgetary problems that make America's look paltry by comparison:

Bluntly, not only can't the government agree on restraining spending increases (and the budget itself is being held up as a result)...but also tax collections are abysmal. There is a tough bankruptcy law on the books for government receivership of companies that don't pay their taxes, but it's rarely enforced. An extraordinary tax commission headed by First Deputy Premier (and, until recently, Finance Minister) Anatoly Chubais condemned two oil firms that were far behind on their taxes, but even this has since been tabled by Premier Viktor Chernomyrdin. In the meantime, the government is relying on heavy borrowing and privatization sales to meet its short-term needs.

This isn't just an economic problem: it's a political problem. The Russian state has a hard time collecting taxes as well as protecting people from crime. Russia isn't Rwanda (yet?), but the state has a hard time making its word stick. (An illuminating article - Stephen Holmes, "What Russia Teaches Us Now: How Weak States Threaten Freedom," The American Prospect no. 33 [July-August 1997]: 30-39 - is here.)

And it doesn't help that this means the Kremlin, in turn, is in serious default on its obligations, most notably months of wage arrears. Worse still, this includes the military: never a group you want to get behind on your payments to.

At the street level, stories abound on the "Russian Mafia" - really a collection of gangs which sometimes offer better police protection than the underpaid and demoralized police and army. In the Kremlin, various politicians have linked up with banking and media blocs to form their own empires. Boris Berezovsky's power hasn't disappeared with his ouster as deputy head of the Security Council, courtesy of Chubais and First Deputy Premier Boris Nemtsov. Berezovsky also owns an 8% stake in ORT (Russian Public TV), pays the salaries of many of its top executives, and also has large stakes in companies...including Sibneft, which owns one of the refineries condemned by Chubais and the tax commission.

He also has a strong financial interest in MOST Media group (a banking-media bloc), which was the loser in the auction for the government's shares in Svyazinvest, the telecommunications giant. (In fact, people have alleged that on the eve of the auction, he, Vladimir Gusinsky [head of MOST Media] and Vladimir Potanin [chair of Oneximbank, one of Russia's largest banks and the auction winner...and First Deputy Premier between 10/96 and 3/97] met privately with Chubais in France on the eve of the auction.)

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