---------- Forwarded message ---------- Date: Thu, 3 Sep 1998 12:14:08 -0600 From: "Emilie F. Nichols" <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] Subject: How did Russia GET plumdered? Forbes - September 7, 1998 Russia used to live off its commodities exports. When a handful of privateers got control, the country went bankrupt. "Tomorrow they will take up arms" A chat with Russia's former trade minister Oleg Davydov by Paul Klebnikov THE YELTSIN GOVERNMENT allowed the cream of the Russian economy to fall into the hands of a tiny group of adventurers who, instead of growing their businesses, shipped the profits abroad. In this "privatization" the government received almost nothing. Oleg Davydov occupied top trade ministry posts in both the Soviet and the Yeltsin governments. FORBES interviewed him in Helsinki recently. FORBES: How did Russia let itself be plundered? Our Western advisers and the IMF told us that the state had to abandon all its business activities, that government revenues had to come only from taxes. But it was a utopian vision. We privatized all the biggest companies, all the most profitable ones, the biggest exporters. The government thought it would get strategic investors from the West. Instead, we got some kind of offshore companies [really owned by Russians]. Look at the aluminum industry. Not one strategic investor appeared. Not Alcoa. Not Pechiney. Instead we got the Chernyi brothers [shady metals traders]. They gained control of aluminum exports at a time when aluminum cost $2,000/ton on world markets but could be bought at $500/ton inside Russia. All the producers became deeply indebted to the brothers, who made deals with the plant directors to acquire aluminum at the Russian price. Which they then sold at the world price. The tragedy is that if the privatized companies were state enterprises today, they would be recording good profits, they would be paying taxes, paying workers' wages, investing in their plant and equipment. But these so-called owners arrived, and what happened? There are no profits. No tax payments. The plant and equipment are getting worn out. And the money goes abroad. Did privatization go too far, too fast? Why did they [the "reformers"] have to privatize the alcohol monopoly? Vodka production is by far the most profitable part of the economy. In the U.S.S.R. it used to account for 23% of government revenues. Another mistake was to immediately dismantle all the government foreign trade monopolies. These organizations had decades of experience and representatives all over the world. They charged 0.5% commission and remitted all the difference [between domestic commodity prices and world prices] to the government. When these legal channels became inconvenient [for Russia's new businessmen], there appeared a huge mass of foreign entrepreneurs, mostly crooks like Marc Rich, who began to teach us various ways of taking the money out through offshore companies. That is what bred our whole system of corruption and criminality. How did they do this? Natural resources were very cheap in Russia. I remember when oil cost $40/ton domestically, but was sold for $110 on the world market. Typically, the director of an oil company struck a secret deal with traders [to divide up the profits]. We managed to break apart the old trade monopolies, all right, but we didn't create a new system of control. In theory, 100% of the export revenues had to be converted back into rubles. But the Bank of Russia found that in 1992, 50% to 70% of export revenues were not transferred back to Russia; in 1993—30% to 40%. The money just disappeared. I often posed this question to Norilsk Nickel: Why don't you trade on the London Metal Exchange? You deposit your metal in a warehouse, hire a broker or place your own broker on the exchange, and every day you trade your metal there. Your operations are completely transparent. You have an exchange; you have a price; you have an official account where the money goes; you have a paper trail. Everything is legal and civilized. Why do you hire some middleman who makes some kind of deals directly with the buyer? Clearly, they didn't want transparency. People today are saying: Where is our oil? Where is our gas? Today they [striking miners] have blocked the railroads. Tomorrow they will take up arms.
