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What is happening in Russia?

Copyright: Iskra Research; By F. Kreisel, August 27, 1998

It would be correct to say that this events of the past ten days in Moscow evidence a total collapse of will and a spreading panic among the ruling circles. Let us recap the highlights:

August 17th: the Kiriyenko government announces a 90 day moratorium on repayment of foreign debts, a halt on trading in short-term domestic obligations and a de-facto devaluation of the rouble.

August 19th: the sale of a five percent stake in Gazprom is suspended even as the budget deficit gap widens. Kiriyenko asks Japan to speed up its promised loans to Russia. Dubinin, the head of the Central Bank, announces that the Bank had spent 4.8 Billion dollars defending the rouble. This means that all the fresh money which the IMF gave to Russia had disappeared into the deep pockets of the well connected bankers who have for years been runninng the giant dollar and rouble trade.

August 20th: a mysterious fire destroyes the Moscow headquarters of Unified Energy Systems and all its financial records.

August 21: the Fitch IBCA ratings agency announces that a large number of the largest Russian banks are on the verge of bankruptcy. The credit agency broadly hints that these banks influenced the government decision to put the 90-day maratorium in place.

August 23rd: Yeltsin sacks the Prime Minister Kiriyenko and his whole government and reappoints Chernomyrdin, whom he had sacked in March.

August 25th: The three top banks — Uneximbank, MOST Bank, and Menatep — announce a merger, hoping that together they might be saved while alone they would inevitably go belly up. In a separate development Incombank, Russia's second-largest, said it was merging with the smaller National Reserve Bank.
The French oil group Elf Aquitaine decided to abandon its planned acquisition of five percent of Sibneft. In one year the oil prices had dropped by 30 percent and much of the Russian oil industry is unprofitable. Earlier this year, Royal Dutch/Shell and British Petroleum also cut back on investment plans in Russia.
One ray of sunshine, hence it should be noted, the Italian Fiat said that it stands by its earlier decision to invest 850 million dollars in the ex auto giant, Gaz, in Nizhny Novgorod.

August 26th: the beleaguered Chernomyrdin flies to the Crimea, where the head of the IMF, Michel Camdessus, is meeting with Ukraine's President Kuchma. In talks lasting till 4 in the morning the Russian PM-appointee pleads for more money from the West. Camdessus told him that while the West will give him all the moral support he wants, there are no more dollars in the IMF cupboards.

August 27th: George Soros and his equity fund had lost over two billion dollars on their Russian speculations. The New York Republic bank announces that its Russian losses had wiped out all profits for the quarter and its stock prices sink.
Yeltsin has not been seen in public and strong rumors are flying that he is meeting with possible successors like the head of the misnamed Communist party, Ziuganov, and the former General and the present Governor of Krasnoyarsk, Lebed, in order to get assurances from them that he personally and his family will be allowed to keep their ill gotten loot when they decamp from the Kremlin.

Here are two such reports:


Russian President Boris Yeltsin has signed a letter announcing his intent to resign once Viktor Chernomyrdin is confirmed as prime minister, the US network CBS said Thursday.
The network said it was told by Kremlin sources that if and when Yeltsin's resignation takes effect, Chernomyrdin would become interim president and the country would prepare for new presidential elections within three months.


Political analysts said Yeltsin's resignation was only a matter of time, and that he would remain in office only until Kremlin aides had thrashed out a deal on a reasonably dignified exit.
Reports said the so-called package would set his official status, security arrangements, financial security for Yeltsin and his family, and include an immunity from prosecution over the war in Chechnya and his crushing of a parliamentary revolt in 1993.


Some of you, those who have followed the analysis on the World Socialist Web Site or read my short statement on Russia two months ago, may find it easier to make head or tail of this mad chase towards disaster. We can indeed proclaim with Homer that
"Those whom Gods would destroy they first drive mad".
However, the basic factors behind the spreading collapse of the Russian financial markets are two, and both factors can be comprehended by mere mortals.

The restoration of capitalism in Russia over the past ten to fifteen years had assumed an extremely criminal character. The Stalinist bureaucracy under Gorbachev had turned privatization into a vehicle for illegal appropriation and sale at distress prices of enormous chunks of the state economy under their care. In alliance with the openly criminal elements existing within the Soviet economy, and in a close union with the Western banking and trading interests, these Mafia bureaucrats looted the economy, ran all industries into the ground, stripped all assets of their value and stole and secreted their illegal gains.

For the past ten years or so the Russian economy ran a huge yearly trade surplus of some ten to twelve billion dollars. According to persistent reports by the World Bank and the Bank of International Settlements some 80% of this surplus was unaccounted for, i.e. stolen. By running down the factories, mines, pipelines and other stores of accumulated value, by refusing to reinvest in maintenance or renewal of stock, some of this "surplus" was used to maintain the living conditions of the masses of people. Admittedly, this level was very low and constantly worsening. Wage and pension arrears kept growing, work conditions, of those still working, kept getting worse, social benefits, public health, education, public transport, housing are all deteriorating as the government bodies at all levels exist with ever decreasing real budgets.

Deterioration spreads to all industries, including even the primitive agriculture. As the production of agricultural machinery declined, as gasoline and diesel fuel was diverted away from domestic and towards the foreign market, the agricultural production dropped and became even more primitive. Production of meat and milk declined, and this decline is only partly substituted by imports. A report in the business press told that about one third of the beets sold in Russia are now imported.

We have all read about the dramatic decline in the average life longevity, the drop in the birth rate and the alarming population decline in Russia and other ex-Soviet republics. All these have their roots in the enormous social and cultural decline experienced by the masses of people. By the way, reports on these social indices are not often published in the mass media in the West, the numbers are simply too alarming. The reader is welcome to peruse this report .

What are the alternatives?

There is no alternative to the integration of Russia in a world economy. However, capitalist economy only needs Russian raw materials and is prepared to pay a very low price for these. There is no room in it for the hundred million inhabitants of the large industrial cities and even no room for the primitive subsistence agriculture practiced today of necessity by millions of Russian families. Yesterday's "Financial Times" postulated that the present crisis has put the existence of Russia as a unified state under question. It is very likely that the ruling cliques of the various regions will try to make their own deals with foreign capitalists and declare their independence of Moscow.

This development will plunge Russia into a series of regional conflicts which will dwarf the one in Chechnia. We should be clear that all the present political groups in Russia, from Anpilov and Ziuganov on the "left" to Yeltsin, Chernomyrdin and Zhirinovsky in the "center" and "right" all have their roots in the Stalinist bureaucracy. None have an alternative to capitalism and production for profit. They have only episodic differences concerning the degree of state intervention in the economy. Their basic disagreement is over which of them will be in charge of looting the economy. Insofar as any future figurehead in the Kremlin tries to reimpose central control over the far flung provinces, this step will only result in an even swifter breakup of Russia. In fact, for the past few years, ever since the Russian Army had proved itself impotent to defeat the Chechen insurgents, Yeltsin has been forced to compromise with the regional leaders over the division of the loot.

The other alternative is to build a real socialist movement within the Russian working class. This movement must be built as part of an educational and theoretical campaign to learn the true history of October and of the Soviet state and of the fight of the true socialist and communists against Stalin. Such a movement would have as its long term perspective the integration of the Russian workers' state within the socialist world economy. It is only on the basis of a socialist world economy that the Russian, and the Ukrainian, Kazakh and other workers can have any future at all.

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