The Piratization of Russia: Russian Reform Goes Awry

The author gives us a good picture of the club of greedy criminals who have hijacked an entire country and wrecked it. Their real money-spinner was grabbing pieces of Russia's immensely rich natural resources under the Loans for Shares [...]. For a fraction of their market value, the capitalists offered to look after the shares that the government put up as collateral for the loans, `managing' the state's stake in the energy companies in exchange for loans to the deficit-ridden state. This allowed them to claim that the nation's assets were not being sold off. In these corrupt insider deals, the Yeltsin government let the new capitalists take the companies from their directors, buying Yeltsin their support against the communists. The government could not repay the loans. The capitalists then sold the shares to themselves very cheaply, as repayment for the loans, through offshore companies. The government used companies' book values as fixed in January 1992, before the great inflation, as the basis for the voucher auctions. Yeltsin's Deputy Prime Minister, Yegor Gaidar, freed prices in January 1992, causing 2500% inflation, wiping out workers' life savings, 70 million accounts in the state-owned Sberbank alone. In November-December 1995, the government auctioned 12 of Russia's biggest companies. A tiny handful of banks ran the auctions, disqualified their rivals, excluded foreigners, bid in the auctions and won the bids. The capitalists admitted that they paid 40 times less than the enterprises were worth. In a closed auction run by his own bank, Uneksimbank, Vladimir Potanin (the deputy prime minister in charge of finance) bought, for just $170.1 million, Norilsk Nickel, the world's biggest producer of nickel and platinum, whose profits that year were $1.2 billion. The bank disqualified a rival bid of $350 million on a technicality. Potanin also bought oil companies at non-competitive prices and then sold the products at below market prices to trading companies he owned. He sold Gazprom, the natural gas monopoly, for $228 million, a thousandth of its value. Potanin sold 51% of the Sidanco oil company, for which he loaned the government $130 million. Then he bought the company for $130 million in the auction: in 1997, BP paid $571 million for just a 10% stake. Not surprisingly, Potanin's bank was the biggest winner from the Loans for Shares [...]. Capitalists created parasitic subsidiaries, whose profits they divided amongst themselves, not with the shareholders. They exploited arbitrage opportunities between low Russian prices and high world market prices, particularly in gas, oil, gold, platinum and other precious metals. They profited from the Central Bank's negative real interest rates, and speculated in currencies, mainly against the rouble. The capitalists' government took barely any taxes: in 1995-96, Gazprom paid $3.5 million tax on $2 billion earnings. Anatoly Chubais, head of the State Privatization Committee, said of Russia's capitalists, "They steal and steal and steal. They are stealing absolutely everything and it is impossible to stop them." By 1999, 38% of Russia's people existed below the poverty line. 90% of the people endured worsening conditions, while the handful of arrogant capitalists made colossal profits by theft and corruption. If you want a picture of 'free enterprise' in action, here it is!