Russia - Crises in the former soviet union

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From Lutte de Classe #36 (published in Class Struggle #21 - Britain)
Summer 1998

At the end of May, the Moscow stock exchange collapsed, sending a wave of panic through financial and political circles, and not only in Russia. While the stock exchange index lost half of its value in the space of a few days, the prospect of a severe devaluation of the rouble took shape and there was a flight of some $10bn from the country. This state, which for years had been unable to raise taxes, counted on this money to provide for its everyday expenditure. The stock exchange collapse changed into a political-financial crisis against a background of public finance bankruptcy.

An expected crisis

This crisis was not a surprise. In April, the new Prime Minister, Kirienko, had seemed to predict it. In his programme speech, he had announced measures of constraint against the biggest tax debtors, adding that for want of being able to finance itself though taxation, the state was trapped in a spiral of debt, the burden of which was soon liable to absorb 70% of the country's resources, which would create an unmanageable situation.

It has become commonplace to hear Russian leaders alternate complaints with threats against large companies which refuse to pay taxes, but with no action ever being taken. This is part of a ritual, just like the reprimands on this subject issued to them by the International Monetary Fund (IMF), the World Bank and the main imperialist states, who are now promoted to the role of funders of the Russian state out of fear of what its collapse would lead to. So long as imperialist bankers keep providing the Russian budget with fresh funds, its bankruptcy may seem only virtual, although less and less so because Russia will have to pay back these stopgap loans one day.

This winter, with the approach of a debt repayment instalment which exceeded the available cash of the Central Bank ($15bn for $18bn due to be paid immediately, out of a total of $30bn due this year), the Russian stock market had begun to fall. Admittedly, the role of the Russian stock market in the economy is far more marginal than that in Europe, Japan or North America: it is no more than a casino, only slightly bigger than those which flourished in post-Soviet Russia, which gives some indication of the shallowness of the layer of Russian wheeler-dealers. But it is such people's lack of confidence in their own system which it began to display.

The Russians and foreigners who had taken advantage of the chronic cash shortage of the Russian state by lending to it over a period of three months at a rate of 40% (particularly by purchasing treasury bonds, or GKO's), ceased to cover the new GKO issues. In May, the Central Bank had to raise its short-term lending rate to 60%, and then to 150%! In vain. Worse, those who had been described as investors who would help the take-off of the Russian economy, massively withdrew their capital to move it to somewhere less risky.

At the end of May, the Russian state was no longer capable of making any payment. It could not even count on the expected $2bn from the sale of the Rosneft oil group: for want of purchasers, its privatisation had to be cancelled the day before the stock exchange collapse. And yet the operation was the first of its kind, with the state at last authorising foreign companies to take a majority share in a company described as a "gem of the Russian economy". However, in refusing the price demanded for this, the consortiums combining Shell, BP or Elf with the giants of the local economy seemed to indicate that for them too, the Kremlin had become a debtor who had lost all credit.

The "beggar state" at the G7 table

At the beginning of June, Yeltsin sent emissaries to Clinton, who assured him publicly of his support. The stock market nevertheless continued to fall. The world's financial circles, as the Financial Times put it, were "no longer content with declarations of intent, they wanted concrete results". The telephone calls from Yeltsin to Clinton and Kohl, asserting that "investing in Russia is risk- free" were not enough to move western investors. Still less could they bring back to Russia those who had just left it with billions of dollars in their pockets.

Going to Germany with a begging bowl in his hand, Yeltsin congratulated himself on Kohl's support, but received nothing more. As for Kirienko, he abandoned his resolution to stop soliciting loans which "a Russia which has to admit its poverty" could not afford. But his meetings with business circles, such as the French CBI in Paris, did not persuade these circles to risk their money in Russia. Kirienko must have brought smiles to more than one face when he started explaining that capitalism means taking initiatives and one should not always wait to receive everything from the state. Indeed, Yeltsin and Kirienko, despite their chic and expensively- tailored suits, are just hopeful supplicants if not plain beggars in the eyes of the western bourgeoisie. When they pretend to give them lessons or brandish the threat of selling Soviet atomic technology to Iran and other countries, or submarines to Colombian drug traffickers, the Russian leaders appear for what they are: the representatives of a state living off charity, even if those giving to the charity are extremely self-interested.

Finally, the IMF decided to release the loan which it had previously decided to freeze until the Russian state had put its tax situation in order. Not that the situation had improved in this respect, but now it was a matter of emergency. The US deputy Treasury secretary had just sounded the alarm, asserting: "Russia's problem has the potential to become Central Europe's and the world's". The American state, had offered its guarantee to persuade the IMF to make a gesture. Immediately afterwards, the club of the seven richest countries in the world, the G7, decided to consider emergency help to Moscow. Russia was of course represented, but there was no talk of a G8, even though Yeltsin is mightily proud to be part of the "club of the big eight": this would have underlined too clearly that having been the world's second greatest power less than ten years ago, this state is now reduced to begging for enough to survive on.

Crisis, "integration" and disintegration

Will this crisis be overcome? And if so, for how long and at what price? While Kirienko has already announced the laying off of more than 200 000 public sector workers and a reinforced austerity plan for the populations, the imperialist powers have refused to disclose the details of the steps they have taken to prevent the bankruptcy of the Russian state. However, one can at least ask one question: why this crisis, what does it reveal?

The first observation is the most obvious one: it reflects the integration of Russia into the world financial system. At the same time, however, the origin of the crisis and the course it has taken show the limits of this integration. Of course, it is now possible to invest money in Russia and withdraw it just as easily, something which would have been unthinkable in the Soviet era. But who are the people who do this, and for what purpose?

First of all there are the "nouveaux riches". These are the people who plunder the economy and the state and who export, legally or otherwise, everything they can lay their hands on: raw materials, industrial and agricultural products, gold, diamonds, hard currency and art treasures. The money obtained from what they sell abroad is known to have been a boon to certain tax havens and the luxury property business, from the French Riviera to Florida. This plundering of Russia is estimated at no less than $100bn since the collapse of the Soviet Union.

However, this "export plundering" is just one aspect of a more general and much greater internal plundering of the state and the economy. This plundering is carried out by the top-level bureaucrats, who were already, in the days of the Soviet Union (or who have since placed themselves there) at the head of the big industrial corporations and financial conglomerates which constitute the bulk of the country's economic power. These bureaucrats have laid their hands on a source of economic wealth formerly or still belonging to the state. And whether they have privatised these companies or whether they still belong to the state does not make any difference, for the problem is a social one and not a legal one. But while these top bureaucrats/businessmen were supposed to be maintaining the state, they are the first to default on taxes and in the long run to financially throttle the state, that is their state. The irony, however, along with the cause of this situation, is the fact that those ministers or regional governors who lament the insolvency of a state whose public finances have been bled dry, are the same people (or it is their friends or relatives) who plunder the state budget by refusing to pay their taxes and exonerating their companies from export taxes and duties. Chernomyrdin himself provided an extreme example of such behaviour. As Prime Minister, he spent six years condemning tax debtors, including Gazprom, the world's biggest gas company.. which he had run and still run through one of his men.

Obviously, being unable to declare itself bankrupt or to keep the bureaucrats' hands out of its coffers, the Russian state had no choice: it had to obtain funds by other means. Outside the country, as we know, it begs from the IMF, the World Bank and anyone else who can help it out. Within Russia itself, the state has also found the means to escape from its financial impasse, at least on a day-to-day basis. It does so firstly by doing what all states do in such circumstances: by selling off its gold reserves and printing money as fast as possible, issuing government bonds, GKO's and other types of treasury bonds. And even the privatisation of a number of companies have less to do with ideological or "reformist" considerations (in the sense that they are meant to drive a capitalist transformation of society) than with the need for the state to find fresh money as quickly as possible, even by selling off its companies at knock-down prices.

The results of this financial "cavalry charge" were immediately visible: it led to galloping inflation with, as always in such cases, the resulting impoverishment of the working population and rapid enrichment of those closest to the minting machine.

To obtain takers for its much-vaunted GKO's, even for only three months, the state had to offer astronomical interest rates even before the crisis broke out. To attract lenders, local or otherwise, who had the means to invest their funds in western Europe or America, the Russian state had to compensate for its lack of credibility by the promise of colossal and almost immediate gains. This meant entering a vicious cycle, because in borrowing at ever more prohibitive rates from the very people who were bleeding it dry, the state could only increase its deficit and itself accelerate the plundering of public finances.

These specifically internal factors fuelling speculation (the state speculated on income from the GKO's - investing the equivalent of $74bn worth in the country - while the bourgeoisie speculated on a rapid rise in GKO rates) have been exacerbated by those referred to as "western investors".

It must be noted that estimates of foreign investment in Russia, and more generally in the states of the former Soviet Union, tend to vary considerably. One of the reasons for this is the volatility of most of these investments. But then the credits of international organisations and exclusively financial investments are also frequently mixed in with those concerning production. While official statistics rarely make the distinction, only a very small percentage of foreign capital entering Russia is intended for productive investment. And even on the rare occasions where this is the case, the aim for the capitalists is almost always to buy up existing companies with very little modernisation with the aim of using them to win a share of the local market. And it is no coincidence if Procter and Gamble, Nestlé-Perrier and Ricard have thus invested in the buying up of companies manufacturing household detergents, vodka, or bottles of mineral water: these are products which will also find buyers, even under the precarious conditions of consumption in Russia. There is no certainty, moreover, that such productive investment will last. In many countries in the Third World, western corporations have done the same thing and then allowed companies which became unprofitable to rot: it did not cost them much to abandon something which had not cost them very much but which had given them handsome profits while it lasted.

It is true that the gas, oil and mineral sectors attract western investors. But this only to a certain extent, as indicated by the postponed sale of Rosneft: the fall in the price of raw materials makes their plundering less profitable, especially as they require heavy investments in equipment which may take years to pay off. With the GKO's, on the other hand, it only takes three months to get the initial investment inflated by at least 40%. To invest in production, it is also necessary for capital holders to have confidence in the future and in a growth of solvent consumption. This is obviously not the case in the West. In Russia, there is also the fact that these capitalists need to have a minimum degree of confidence in the state's ability to guarantee them a certain institutional stability and a legal framework for investment, in short, a "legal state" as western journalists say. Then there are those regions where chronic disorder or even war would discourage even the boldest among them.

Thus the bulk of capital necessarily goes into speculative investment. In the speculators' panoply, the GKO's play roughly the same role as "junk bonds" in the West, which, as every one knows, are true to their name. Investing capital in junk "financial products" is obviously less risky in the United States than in Russia. But it is also less profitable. Hence the brief popularity, in these circles, of the Moscow stock exchange... shortly before its collapse.

When this collapse happened, commentators drew a parallel with what had just happened on the Asian financial markets, a take-off followed by a crash. The same scenario took place in Moscow, on a smaller scale, but in an accelerated form. In 1997, after the Asian crisis had broken out, some of the mass of speculative capital which moves from one country to another in search of quick profits was transferred to Russia, attracted by the highest yields on state bonds in the world. Obviously, the risk was proportional to the expected profit. Thus, as soon as the first cracks appeared, the speculators fled immediately. The invested billions, which were merely speculative capital, disappeared in no time! But only after leading the country to the edge of bankruptcy within a few months by emptying the state's coffers.

Russia's integration in a world dominated by imperialism essentially operates at this level: plundering of the state and the economy.

What has just happened essentially concerns the Moscow summit of the Russian economic-financial pyramid and a few isolated places in the sun. For the rest, however, the Russian economy - or rather what is left of it after production has fallen 50% in six or seven years - functions in a different way.

It should not be forgotten that in the days of Soviet planning all companies had formed close links with each other, sometimes over decades, and that these links, which were partly broken by the abolition of state planning, did not disappear everywhere overnight. And there was a simple reason for this: for want of being able to access a market - locally non-existent or reticent in the case of western suppliers faced with companies which the western press and consular chambers describe as "insolvent" - quite naturally the former Soviet companies sought to restore the former links between themselves which had been destroyed, and consolidate those which still existed. And they did so through a kind of barter economy which is a living fossil of the old bureaucratic planning, already mixed in with all kinds of scheming and misappropriation, which was so characteristic of the Brezhnev period. This situation is in no way marginal or limited to a few companies. It seems, on the contrary, to apply to the whole of the country and of what remains of an economic fabric which still functions neither within the framework nor on the basis of the "market".

Under the heading "It is now quite possible to pay only in exchange vouchers", the Russian newspaper Izvestia on March 13, devoted its front page to an article describing how companies practice barter among themselves: "Since the beginning of the nineties, exchange vouchers have become solidly anchored in the lives of the country's production companies as a remedy against insolvency. In conditions of total absence of any means of payment, recognition of a debt providing for deferred payment in goods or services acts as a mode of payment between them, as a substitute for money". Giving the example of the automobile giant KamAZ, the newspaper reported "the opinion of specialists who consider that 45 to 60% of payments in the country are made in a non- monetary form". This is an enormous amount, especially if one considers that in Moscow, which concentrates 50% of the country's wealth and 80% of foreign investment, payments are obviously made in a quite different form.

Obviously, western press correspondents make little or no mention of this. Out of conformism and ignorance, perhaps, and probably also because many of them do not have the imagination to wonder how the vast majority of the country might live outside Moscow, where they reside.

In the capital and in the big cities in the regions, there are probably more banking agencies than anywhere else in the world. But the banking system in the final analysis does little to serve the real economy and finance production. On the other hand, and this is the reason why there are so many "exchange banks", it serves the bureaucrats and the "nouveaux riches", who can be seen gathering at all hours of the day in front of the panels displaying hard currency prices. Outside the country, this system is even more useful for bureaucrats keen to discretely put aside what they have plundered at home. As for the capital which this might channel into Russia, as we saw at the time of the crash, this capital is mostly volatile speculative investment.

This spring, after years of presence in the former Soviet Union, at its annual general meeting, the BERD - a bank set up by imperialist states to promote the "market" in East European countries - drew the conclusion that in Russia, as in the Ukraine and Kazakhstan, it needed to increase its loans considerably if it wanted productive investment to be made. This may or may not happen, but what can be seen seven years after the disappearance of the Soviet Union is that the free movement of capital into and out of the country is not leading to the building of factories, but rather to their destruction.

An old problem

Only a few years after this crash and its financial consequences for the state, it was revealed that a sixth of the 1997 budget had disappeared, but in quite different circumstances. The chairman of the Russian Audit Commission revealed to the press that in 1997 the equivalent of $20bn, including considerable credit for industry, had disappeared through corruption and "bad management".

This inability to master public finances and the economy is nothing new: its fundamental cause is the weakness of the Russian state, a weakness in relation to its own bureaucracy and more especially in relation to the individual bosses and cliques who divide it. This weakness is the major problem which Russia poses for imperialism. It is the source of its political fear that the country will sink into generalised anarchy, and is at the root of the economic attitude of the different bourgeoisies with regard to a country where they refuse to invest, so uncertain does its future appear. But this does not prevent these bourgeoisies, or rather their states, from subsidising the Russian state in a sense. For it is one thing to invest, and quite another thing to pay in the hope that this will avoid the development of generalised and uncontrollable anarchy in the largest country in the world.

We shall not discuss again here the different stages of the decomposition of the Soviet and then Russian state apparatus. But it must be underlined that, over the past ten years, the most notable feature of this process has been the fact that this decomposition has been accomplished through the blows dealt to the central government by the clans of the bureaucracy who wanted to obtain an increasingly large share, less and less controlled by any central authority, in the plundering of the country.

This process of decomposition was legally ratified at certain stages, such as the dissolution of the Soviet Union and the forming of the Commonwealth of Independent States (CIS) in December 1991, but these have in no way frozen the process. The process went on unabated, as witnessed for Russia by the adoption of a status of extended autonomy for the "89 subjects of the federation" in 1993, or the "bilateral treaties" which several of them (republic of Sakha in 1992, Tatarstan, Bachkortostan, the republic of the Kabards and the Balkars in 1994, North Ossetia in 1995) imposed on the central government.

However, in Chechenia and certain republics, Russian or otherwise, in the Caucasus, this decomposition has accelerated and seems to be endless: the authority of the local government is contested from all sides by the leaders of armed bands who impose their rule and terror on populations.

Where this process of breakdown of power has been interrupted is in cases where the local government has been strong enough to impose its authority on the whole bureaucracy and all its cliques in a region, to force the central government to abandon in practice all control (fiscal, legislative, institutional, financial, economic, and sometimes even diplomatic) over the local bureaucracy and its leader.

In an article entitled "Bachkortostan, a small business with a tyrannical boss", the French daily, Libération, recently described such an example: that of the former Bashkiria, under the iron rule of Rakhimov, the former president of the local Supreme Soviet in the days of the Soviet Union, who has become president of this republic in the Urals under the name of "Father of the Bashkir nation".

In this oil republic, says Libération, "the key petrochemical sector is entirely under his control," like nearly all the rest of the economy. "Concerned to keep his financial resources at home, Rakhimov has prohibited the entry of the big Moscow banks (...) Privatisation had hardly begun, the big companies have been converted into shareholding companies but no capital has been invested. The result is that the "privatised" companies are on the brink of bankruptcy and the state is talking of renationalising them."

From Moscow, Rakhimov obtained the right for his republic (and here the word "his" is to be taken in the literal sense, since Bachkortostan is his property, that of his family and his clan) to be the exclusive owner of its natural resources and to renegotiate each year what it does or does not pay into the federal budget. How did he obtain this? By presenting himself as the guarantor of stability and order. Opposition press is effectively banned. Opponents are liable to be jailed for "insulting the president". The district heads, who ought to be elected according to the Constitution, are designated by Rakhimov. And it is these people he relies on to hold the country and the population under his sway. Rakhimov "has posed as a protector of the people threatened by the "uncontrolled transition" being conducted in Moscow" (the privatisations), says Libération, he "has maintained the social net of communism", and "introduced free public transport". In short, implies Libération, the population ought to consider itself lucky by comparison with what it happening in the neighbouring regions.

In exchange for what Yeltsin has conceded to him, Rakhimov, who "has had no qualms about playing on national feelings", offers him unyielding support in national elections. And even though he has ignored a decision by the Russian Supreme Court ordering him to accept, as candidates in the local presidential election, three known dissidents disqualified by his services, the Kremlin has said nothing because "it is grateful to him for the stability of the republic".

Looking for support alternately from Moscow and from the population, and thus firmly holding onto his republic and the economic sources of the local bureaucrats' privileges, the Bashkir Bonaparte has learned to do things by the book. In a great western victory, he has managed to have himself re-elected as president with "only" 70% of the vote, having found a token opponent among his ministers for this election.

He is not the only person in this situation: "kinglets" of the Russian regional bureaucracy, who had begun or spent their whole career in the nomenklatura, are now discovering the charms of "democracy", after the fashion of a latter-day Mobutu. For, like any self-respecting dictator, Rakhimov knows that there is no better opposition than a gagged one.

Naturally, given the chaos which reigns in Russia and the weakness of the Russian central government, someone like Rakhimov might seem the ideal solution for those in Moscow who periodically call for a "strong government" with an uncompromising figure to embody it. But although Rakhimov has succeeded in imposing a power which is free of all control from the population, he has also freed this power from all control from Moscow. And if only from the point of view of the taxes which Moscow will not be able to collect on Bashkir oil, the strong power in Oufa makes even more remote the prospect of reinforcing that of the "centre" over Russia as a whole.

Naturally, in the course of its political, economic, stock market and military crises, the former Soviet Union is constantly sinking into ever deeper chaos. And of course, it is above all the working classes who are paying the price. Even before the stock market crash revealed the insolvency of the state, this insolvency was no mystery for the country's workers who for years have been receiving their wages several months late, and who often have no alternative but to go on strike and block the country's lines of communication - as the miners did in April - to obtain part of their due.

The disintegrating bureaucracy has clearly led and is continuing to lead the country into an impasse from which it is impossible to see how it will escape. On the contrary, we are seeing the extent to which the promise of "modernisation" of the economy, directed towards the restoration of capitalism, has led only to a wholesale collapse of the economy and in fact of the whole of society. This collapse is such that the most ardent optimists, those of the IMF, for example, no longer seem to believe that they can do much about it. If it continues in this direction, the only things awaiting Russia and the whole of the former Soviet Union will be increasing poverty, plunder and chaos.

Only the working class could lead the former Soviet Union out of the dramatic impasse into which the bureaucracy has led the whole of society; lead it out of what is already turning into hell for the whole population, even before the completion of the counte-revolution initiated a few years ago, but which has still not been carried through to the end.

Will the working class be able to pick up this challenge? Can it find within its ranks the men and women who will enable it to offer the only possible way out of the multi-form crisis afflicting the former Soviet Union of the bureaucrats on its way towards the restoration of capitalism? Only time will tell. Once again, however, this is the only possible way out. And this is what we must hope for, for the workers and, behind them, the whole of the former Soviet society.