The Oligarchs, page 67
18 Dmitri Vasiliev, interview by author, September 16, 1999; November 20, 1999; and September 18, 2000.
19 Gaidar, interview by author, September 29, 2000; Chubais recollections from Privatizatzia . The auction was described by Fred Hiatt, “Russia Auctions Off State-owned Firms,” Washington Post, April 5, 1992, p. A1.
20 Gaidar, interview by author, September 29, 2000.
21 Gaidar, Days, p. 131
22 Vasiliev, interview by author.
23 Sachs had recommended Andrei Shleifer, a professor of economics at Harvard University. Along with Jonathan Hay, he played a key role in organizing Western help to support Chubais and Vasiliev. Among other activities, the Westerners helped design the Russian privatization vouchers, helped write the laws and decrees, and helped set up and carry out the great sell-off. Some criticism has subsequently been aimed at these efforts. The author acknowledges that this issue is beyond the scope of this book. However, the author believes it is mistaken to criticize the Westerners alone for what occurred in Russia. Many of the most fateful choices were made by the Russians, such as the decision to free prices, property, and trade before building the institutions of a free market. The Westerners often advised and encouraged them in the direction they took, but Yeltsin, Gaidar, and Chubais led the way.
24 Anatoly Chubais, interview by author, May 13, 2000.
25 Chubais, Privatizatzia, p. 34.
26 In the end there were three options. The first, proposed by Chubais, distributed 25 percent to the workers, who could then buy an additional 10 percent of the shares at 70 percent of the (low) book value of the enterprise, and management could buy 5 percent at the book value. This was effectively 40 percent to insiders. Option 2, proposed by the industrialists, allowed workers and managers to buy 51 percent of the enterprise at 1.7 times the book value. A third option for medium-sized companies allowed managers to buy up to 40 percent if employees agreed, but with restrictions. In the end, studies showed the overwhelming majority of enterprises were privatized using option 2, the one proposed by the factory directors. Anders Åslund, How Russia Became a Market Economy (Washington, DC: Brookings Institution, 1995), pp. 233–235.
27 There was a major debate within the privatization team on whether to model Russia’s privatization after the Czech or the Polish models, both of which were getting under way at the time. The Polish model involved large mutual funds in which people would obtain shares. The Czech variant was more open, using vouchers that people could dispose of as they wished. “From the political viewpoint, the signals coming from Poland and Czechoslovakia in 1992 made it clear that the Czechs were excited about privatization and involved with it, while the Poles were not. Choice made all the difference. Since popular involvement was deemed absolutely essential for the sustainability of Russian privatization, vouchers were a clear choice” (Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, p. 83).
28 Chubais made the claim at an August 21, 1992, press conference introducing the vouchers. He said he figured that the price of a secondhand Volga was only 2,000 or 3,000 rubles—this was the so-called residual price, after depreciation, which was sometimes used for selling off state property such as ten-year-old taxis to their drivers. It was not a real price. Since the face value of a voucher was 10,000 rubles, a voucher “could be sufficient to buy two or even three, and with luck even more Volga cars,” Chubais claimed. In fact, Chubais later acknowledged “errors” in his public relations pitch for vouchers. He said he was thinking at the time that a voucher might buy a share that would appreciate significantly. The two Volgas claim was one of Chubais’s biggest goofs and the butt of jokes for many years. Chubais, Privatizatzia, p. 191; Chubais press conference, August 21, 1992.
29 Celestine Bohlen, “Citizens of Russia to Be Given a Share of State’s Wealth,” New York Times, October 1, 1992, p. 1.
30 Chubais, Privatizatzia, p. 157.
31 Vasiliev, interview by author, November 20, 1999.
32 Paul Bograd, interview by author, March 26, 1999.
33 In Privatizatzia, Chubais recalled, “We had to make hundreds of thousands of people do something they had never done before. We had to fundamentally change their attitude to property.... I remember sitting with Gaidar at some regional meeting. There are, maybe, a thousand people in the audience. And I feel with my skin that we are like two Martians for them. Completely alien.... You had to adjust to their own way of thinking. You had to realize that you cannot make dozens of thousands of people all of a sudden understand the Martian language you are talking. You must speak their language” (pp. 144–145).
34 Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, p. 86.
35 Leonid Rozhetskin, interview by author, March 10, 1999.
36 Chubais, speech to the State Duma, April 12, 1994.
37 Chubais, Privatizatzia, p. 187.
38 Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, pp. 100–101.
39 Dmitry Vasiliev, press conference, July 13, 1999.
40 The voucher funds suffered from a crucial design error as well. Because Chubais and Vasiliev feared they could become too powerful, the funds were limited to owning 10 percent of any one company. This meant the funds were a weak voice in the boardrooms of the companies they owned. “The voucher funds failed because people feared they would become too powerful—and as a result we ended up with nothing,” one of the designers told me.
41 Hans-Joerg Rudloff, interview by author, September 7, 2000; November 10, 2000.
42 Boris Jordan, interview by author, October 1, 2000.
43 Rudloff, interview by author, November 10, 2000.
44 Steven Jennings, interview by author, March 3, 2000.
45 Chernomyrdin, press conference, Rossiiskie Vesti, December 16, 1992, p. 1.
46 Anders Åslund, “Why Has Russia’s Economic Transformation Been So Arduous ?” (paper delivered at the World Bank Annual Bank Conference on Development Economics, April 28–30, 1999); Åslund, “How Russia Became a Market Economy,” (Washington, DC: Brookings Institution, 1995), pp. 191–193.
47 Mikhail Berger, interview by author, October 10, 2000.
48 Arkady Yevstafiev, interview by author, March 7, 2000.
49 “Anatoly Chubais: Up to 80 percent of State Property for Vouchers,” Literaturnaya Gazeta, November 18, 1992, p. 10.
50 Chubais, interview by author, May 13, 2000.
51 Chubais, Privatizatzia, pp. 160–161.
52 I personally interviewed the intermediary, who asked to remain anonymous. When I asked Chubais about the contribution, he said, “Soros back then really played a positive role” but refused to discuss details.
53 Literaturnaya Gazeta, November 18, 1992, p. 10.
54 William Browder, interview by author, March 21, 2000.
55 Yulia Latynina, Sovershenno Sekretno, Moscow, August 1, 1999. Latynina added of Khodorkovsky’s buying binge: “No public funds would have been sufficient for so extensive a program, but, fortunately, a large part of the enterprises were purchased at investment competitions, at which the winner was the one that promised to invest more money in the enterprise. As a consequence of Menatep’s extreme attentiveness in regard to the government officials that organized the competition, and also to the ‘red directors’ in command of the enterprises, its promises were believed more often than those of others. Menatep was, generally, invariably courteous to the directors and would invariably toss them onto the garbage heap after the shares had been purchased.”
56 Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, pp. 109, 119.
57 Chrystia Freeland, Sale of the Century (New York: Crown Business, 2000).
58 “Sale of the Century,” Economist, May 14, 1994, p. 67. The article pointed out that the book value of Russian companies was fixed once, in January 1992, and was not adjusted even though Russian prices had risen 10,500 percent since then. The book value, which is based on the depreciated value of an enterprise’s capital stock and takes no account of property or intangible assets, was still being used as the basis for the voucher auctions. Jordan was quoted as saying that there were still big risks. “These are extraordinarily low asset values, but you must be careful about using the word cheap,” he said.
59 Chubais, interview by author, May 13, 2000.
EASY MONEY
1 Kadannikov interview, Profil, October 23, 2000, pp. 22–27. In Russian.
2 Bryan Brumley, “Factory Managers Back Privatization Plans, Criticize Financial Policy,” Associated Press, October 26, 1992. Kadannikov opened a one-day meeting with Gaidar and cabinet ministers in Togliatti, praising privatization but criticizing the Gaidar government on financial and tax issues.
3 Bella Zlatkis, interview by author, October 18, 2000.
4 International Monetary Fund, “International Financial Statistics,” quoted in Evolution of Monetary Policy Instruments in Russia, IMF Working Paper, December 1997, p. 17.
5 International Monetary Fund, Relative Price Convergence in Russia, IMF Working Paper, May 1995, p. 1.
6 Yegor Gaidar, Days of Defeat and Victory (Seattle: University of Washington Press, 1999), p. 80.
7 Yevgeny Myslovsky, Beware: Swindle Invest, A Guide for Law Enforcement Agencies (Moscow: Spas, 1996), p. 21.
8 Alexander Oslon, interview by author, May 29, 2000.
9 “Russian Car Alliance Starts Sales of Registered Stocks,” Business-Tass (Moscow), December 14, 1993.
10 The founders, according to Leonid Valdman, deputy general director of AVVA, were Avtovaz, 25 percent; Logovaz, 15 percent; Forus Holding, a Swiss firm of Berezovsky’s, 15 percent; the Russian Federal Property Fund, 15 percent; Obedinennie Bank (close to Berezovsky), 10 percent; Kuibyshevneft, an oil company, 10 percent; Samara Oblast administration, 5 percent; and Avtovazbank, 5 percent. The data accompanied a Valdman interview that was published November 4, 1994, in the magazine Kommersant Vlast.
11 “Car Consortium to Run Lottery,” Moscow Times, February 18, 1994.
12 Yuri Zektser, interview by author, October 30, 2000.
13 Avtovaz was privatized by option 2, which meant 51 percent for workers and managers, 27 percent in voucher auctions, and 22 percent in an investment tender.
14 Yuli Dubov, Bolshaya Paika (Moscow: Vagrius, 2000), pp. 247–275. Many details described by Dubov are corroborated by other evidence, including news reports and AVVA annual reports.
15 Translations of the MMM commercials are from my own tape. However, I benefited from a superb analysis of the MMM advertising campaign as soap opera in Consuming Russia: Popular Culture, Sex, and Society Since Gorbachev (Durham, N.C.: Duke University Press, 1999). See chapter 3, Eliot Borenstein, “Public Offerings, MMM, and the Marketing of Melodrama” (pp. 49–75).
16 James Meek, “Russian Investment Firms Head for the Rocks,” Guardian (London), April 28, 1994, p. 12.
17 Mary Darby, “In Ponzi We Trust,” Smithsonian Magazine, December 1998.
18 Mikhail Dubik, “MMM: Is Seeing Success Believing?” Moscow Times, May 19, 1994.
19 Carey Goldberg, “It’s Risky Business in Russia,” Los Angeles Times, June 9, 1994, p. 1.
20 Golubkov was played by an actor, Vladimir Permyakov, who related his own rags-to-riches story. “I came from Siberia and dragged out a miserable existence playing occasionally at a small Moscow theater. I had no money and very little hope to succeed as an actor, but my work with MMM turned everything around.” Mikhail Dubik, “Lyonya in the Flesh: A Tale of Rags to Riches,” Moscow Times, August 25, 1994.
21 Depositor’s information sheet, provided by Yevgeny Kovrov, director, Federal Fund for the Defense of the Rights of Depositors and Shareholders.
22 Goldberg, “Risky Business.”
23 Yevgeny Kovrov, interview by author, April 28, 2000.
24 Helen Womack, “Gamblers Push MMM’s Share Price Up Again,” Independent (London), July 29, 1994, p. 12.
25 Russia’s Itar-Tass news agency reported September 26, 2000, that investigators were still seeking Mavrodi’s whereabouts.
26 Goldberg, “Risky Business.”
27 Yevgeny Myslovsky, interview by author, October 10, 2000.
28 His comments were made on an NTV documentary, Independent Investigation, produced by Nilcolai Nikolayev, broadcast March 16, 2000.
29 Zektser, interview by author. He said AVVA had fulfilled the obligations of the investment tender, which called for $111 million to be invested in the factory by the end of 1995, but it is hard to see how AVVA accomplished this.
30 “Interview with the President of AO Avtovaz: V. Kadannikov,” Trud, November 2, 1994. In Russian.
31 “Information Report about the General Meeting of Shareholders of the AOO All-Russian Automobile Alliance,” Ekonomika i Zhizen, May 20, 1995. In Russian.
32 Kadannikov continued to mask the events years later. In an interview in April 2000, when asked whether he had used AVVA to seize Avtovaz, he replied, “I cannot quite understand why anybody would need a plant; why seize it? It’s hard work, low profit. And what’s the use in just making do with the turnover? You can do it for a couple of months, and then what?” He also blamed the government, saying it had “eaten up the people’s money very fast.” Vedomosti, April 5, 2000, p. A5.
33 Berezovsky interview, Moscow News, May 16, 1996.
34 Speculation finally came to an end in mid-1995 when the government and Central Bank announced a ruble-dollar “corridor” that limited currency movement and thus crimped the superprofits of traders.
35 Smolensky, interview by author, August 30, 1999.
36 Yegorov made the comments to the seventh congress of the Association of Russian Banks. “Chubais Tells Banks to Focus on Industry,” Moscow Times, April 23, 1997.
37 “Learning to Lend,” CentreInvest Securities, October 24, 1997, p 7.
38 Bank Menatep (Group), Independent Auditors Report, Arthur Andersen, 1995.
39 Former Menatep vice president, interview by author.
40 Vladimir Vinogradov, interview by author, June 28, 2000.
41 Yulia Latynina, “Mikhail Khodorkovsky: Chemistry and Life: Unknown Pages from the Life of a Superoligarch,” Sovershenno Sekretno, August 1, 1999, pp. 3–5.
42 Victor Huaco, interview by author, April 14, 1999.
43 “MMM Deflates Shares, Russia Weighs Action on Stock Scandal,” Agence France Press, July 29, 1994.
44 Grigory Satarov, a one-time adviser to Boris Yeltsin and president of INDEM, the Information for Democracy Fund, Mark Levin, an economics professor, and M. L. Tsirik, a graduate student, lay out this argument in their analytical study, “Russia and Corruption: Who Is Doing What to Whom?” prepared for the Council on Foreign and Defense Policy, Moscow, 1998. They concluded that among the most important reasons for corruption in the new Russia, aside from historical ones, were “the rapid transition to a new economic system that was not supported by the necessary legal base and legal culture; the absence during Soviet times of a normal legal system and the corresponding cultural tradition; the collapse of the party control system.”
45 “Diagnosis: Corruption: Is It Possible to Kill the Illness of Russia?” Vechernaya Moskva, October 18, 1999, p. 3. A roundtable discussion, in Russian.
THE MAN WHO REBUILT MOSCOW
1 Ryszard Kapuscinski, “The Temple and the Palace,” The New Yorker, May 23, 1994.
2 Vladimir Mokrousov and Valentina Mokrousova, interview by author, November 3, 2000. In another sign of his caution, Makrousov submitted the mock-up twinned with another, the St. Georges Cathedral.
3 Flore Martinant de Preneuf, “The Historical and Political Significance of the Reconstruction of the Cathedral of Christ the Savior in Moscow” (M.Phil. thesis, Oxford, 1997), an excellent recounting of how the cathedral was rebuilt in the early 1990s.
4 De Prenuef, “Historical,” p. 29.
5 Vasily Shakhnovsky, interview by author, November 26, 1999.
6 Mokrousova interview, November 3, 2000.
7 When I interviewed Luzhkov on February 5, 2001, he handed me a thirty-fourpage response to questions I had posed in advance. Of the cathedral, he said, “I always believed that the revival of Russia must not begin with demagoguery on macroeconomic subjects but with spiritual revival. I thought the restoration of the cathedral—barbarically destroyed—was a symbol of this revival.”
8 Andrei Zolotov Jr., “Resurrecting the Past,” Moscow Times, August 19, 2000, p. iv; Mikhail Ogorodnikov, interview by author, November 2, 2000. Ogorodnikov is spokesman for the Fund for the Restoration of the Cathedral of Christ the Savior.
9 De Preneuf. This story is attributed to an engineer-metalworker interviewed on the site.
10 Ogorodnikov interview. In his written answers to my questions about the Cathedral, Luzhkov said, “Investments in the construction of the cathedral are voluntary contributions. Do you really think that people would have invested so much money for construction of more down-to-earth projects?” He claimed neither the city nor the federal government suffered “losses” as a result of the reconstruction. The project created thousands of jobs and boosted Moscow tourism, he noted.
11 Larisa Piyasheva, interview by author, March 23, 1999.
12 Popov news conference, December 19, 1991.
13 Luzhkov, interview, Komsomolskaya Pravda, November 26, 1997.
14 Luzhkov, interview, Komsomolskaya Pravda.
15 Valery Simonov, “Moscow Does Not Believe in Rubles?” Komsomolskaya Pravda, November 24, 1993, p. 1.
16 Luzhkov, written answers.
17 Luzhkov, interview, Komsomolskaya Pravda.
18 Chubais press conference, March 23, 1994.
19 Yeltsin news conference, June 10, 1994.
20 John Lloyd, “Russian Investment ‘To Surge,’” Financial Times, July 5, 1994.
21 Andrei Shatalov, interview by author, February 14, 1997.
22 Luzhkov, interview by author, February 5, 2001.
23 Yaroslav Skvortsov, Kommersant Vlast, April 29, 1997.
24 Obid Jasinov, deputy general director, and other officials of Moscow Mechanized Construction no. 5, interview by author, February 12, 1997;“Moscow Construction: Together on the Path of Creation,” Moskovskaya Pravda, January 29, 1997, p. 9.
