Tainted Transactions: An Exchange

National Interest, The, Summer, 2000 by Jeffrey D. Sachs, Anders Aslund, Marek Dabrowski, Peter Reddaway, Igor Aristov, Wayne Merry, Michael Hudson, David Ellerman, Steven Rosefielde

Based on discussions I had with U.S. global investors during the 1990s, I think I am in a good position to point out why many of them preferred to see major Russian companies pass into just a few corrupt hands. If a few Russian insiders could buy out Russian oil fields and other firms at only 1 or 2 cents on the dollar, they probably would be willing to sell their takings to U.S. and other international investors for 2 to 4 cents. This would enable them to double their money, while providing foreigners with what they wanted: inexpensive ownership of Russia's potentially lucrative mineral wealth and public utilities, as well as its real estate (or, more specifically, its land).

Thus, one reason the U.S. government welcomed the Chubais-HIID mode of "reform" was because of pressure from large investors. If Wall Street investment bankers wanted to take an investment position in Russia, they could do so most easily--and at a much lower price--if only a few "oligarchs" gained ownership of Russia's prize assets. However, if the Russian government or other parties retained control over these assets, they would not be sold as rapidly, and probably would be sold at a higher price.

And so a symbiosis developed between the largest U.S. investors and Russian oligarchs. The largest U.S. investors realized that the kleptocrats for their part wanted to transfer their fortunes abroad. This is what all thieves want to do, for a simple reason: if they keep their money at home, it can be seized by true market reformers. Hence, Russian appropriators sought to move their money to Cyprus, Switzerland and other offshore banking centers, topped by the United States.

To do this, they needed security from Western prosecution. The traditional way to achieve this is to go into partnership with well-placed Westerners. Partnership agreements accordingly were sealed by selling part of their stock ownership to Western investors. Such sales in fact were the only way in which the privatizers were able to realize financial value for their control, for there was no purchasing power within Russia itself to buy their shares. To raise money off the shares they had obtained, Russians needed to sell abroad.

This was well recognized by international investors. It explains why they turned a blind eye to the abuses by Chubais and other insiders, for they knew that they themselves would be the beneficiaries.

Was the subsequent economic devastation directly intended, as a means of "hurting Russia" and thereby disabling it from posing a future threat to the United States and other counties? I believe not. Rather, it was the consequence of the game plan by Western investors (mainly in the United States) to get rich quickly off Russia. The shrinkage of the Russian economy in consequence was a form of "collateral damage", not the intention of the programs themselves. It is the same sort of damage caused by IMF austerity programs imposed on hapless Third World debtors.

My conclusion is that the U.S. government is guilty of gross negligence as to the consequences of the reformers' privatization plans it backed. It didn't mean to kill Russia. It just wanted to take its money and property. Russia's economy got killed in the process. I suppose you might call this second or third-degree murder, not first-degree murder. But that is all that Wedel's article claimed, in my reading.