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Authors: Alex Goldfarb
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Communists in the Duma would kick up an incredible fuss once they found out that Channel One was being sold to Americans. Well, if that’s how it was, the strategic partner said, then even a loan would bring a huge political risk. The deal didn’t go through.
The only good news was that the success of the revamped Channel One exceeded all expectations. A new team headed by the liberal journalist Konstantin Ernst, a young intellectual with shoulder-length hair, revamped programming, changed the format and style ofthe news, and produced entertainment broadcasts targeted at young viewers. The network strove to create a vision of dynamic, prosperous, Westernized Russia, a place where you wanted to live, if only the Communists didn’t drag it back into the Soviet past. The ratings rose steadily, gradually overtaking NTV, but the main problem remained unresolved: the network continued to run huge losses. Boris constantly searched for money to keep it going. He thought he just needed to buy a year’s time, until the presidential election.
He was certain that after Yeltsin’s victory, foreign investors would line up to see him. Once, as we sat on the terrace of The Club drinking an incredibly good bottle of Chateau Latour, his favorite wine, I asked him what he would do if Yeltsin didn’t win. He looked at me as if I were an idiot. “What do you mean, not win? That can’t happen! Did you ever get into a fight when you were a kid?”
“No,” I admitted.
“Well, you cannot get into a fight thinking that you may be beaten. And not just beaten, but hung from a lamppost! Well, we can’t even think of losing. These aren’t your municipal elections in Cincinnati. This is a revolution, old boy!”
Chubais, despite his Davos speech, was still scrambling. His voucher program had privatized more than half of the economy, but in the form of a massive number of small and medium-size businesses. He had not yet touched the biggest companies: oil and gas, minerals, telecommunications, military industries. These enterprises were still operated by their former Soviet managers, many of whom were siphoning off funds through third-party sales outlets, laundering the proceeds or stashing them abroad in offshore tax havens.
The managers of these large state-owned enterprises were known collectively as “the director corps,” and they constituted a powerful lobby whose Kremlin advocate was Oleg Soskovets, a veteran of the Soviet military industry, who held the other first deputy prime minister portfolio and was Chubais’s chief rival in the Cabinet. Along with the Communists in the Duma, the director corps presented the principal obstacle to further privatization, as its members wereeager to reintegrate into a planned economy should the Communists return to power.
Chubais, who strove to make the Russian economy 100 percent private, felt that his time was running out, so at some point in mid-1995 he came up with an extraordinary strategy: the state should take its biggest industries and privatize them in one big push. Let capitalists take over these companies. Rather than deceitful managers skimming income, have the owners start paying corporate taxes. At best, the new owners could help Yeltsin fight off the Communist onslaught. At worst, let the Communists, should they win, try to renationalize private property.
But this time Chubais could no longer afford to give out privatization vouchers free to every Russian. He needed cash. At the time, state budget receipts were only $37 billion, whereas expenditures were $52 billion, generating nearly a 30 percent deficit. Oil exports at the price of $15 per barrel were not generating enough cash. Taxes were not collected, and salaries of state employees had to be paid. The war in Chechnya was costing more and more each month. Foreign investment trickled to a minimum. So he turned to the only place where one could find cash in the country: the emergent banking sector, where no Soviet holdovers
The only good news was that the success of the revamped Channel One exceeded all expectations. A new team headed by the liberal journalist Konstantin Ernst, a young intellectual with shoulder-length hair, revamped programming, changed the format and style ofthe news, and produced entertainment broadcasts targeted at young viewers. The network strove to create a vision of dynamic, prosperous, Westernized Russia, a place where you wanted to live, if only the Communists didn’t drag it back into the Soviet past. The ratings rose steadily, gradually overtaking NTV, but the main problem remained unresolved: the network continued to run huge losses. Boris constantly searched for money to keep it going. He thought he just needed to buy a year’s time, until the presidential election.
He was certain that after Yeltsin’s victory, foreign investors would line up to see him. Once, as we sat on the terrace of The Club drinking an incredibly good bottle of Chateau Latour, his favorite wine, I asked him what he would do if Yeltsin didn’t win. He looked at me as if I were an idiot. “What do you mean, not win? That can’t happen! Did you ever get into a fight when you were a kid?”
“No,” I admitted.
“Well, you cannot get into a fight thinking that you may be beaten. And not just beaten, but hung from a lamppost! Well, we can’t even think of losing. These aren’t your municipal elections in Cincinnati. This is a revolution, old boy!”
Chubais, despite his Davos speech, was still scrambling. His voucher program had privatized more than half of the economy, but in the form of a massive number of small and medium-size businesses. He had not yet touched the biggest companies: oil and gas, minerals, telecommunications, military industries. These enterprises were still operated by their former Soviet managers, many of whom were siphoning off funds through third-party sales outlets, laundering the proceeds or stashing them abroad in offshore tax havens.
The managers of these large state-owned enterprises were known collectively as “the director corps,” and they constituted a powerful lobby whose Kremlin advocate was Oleg Soskovets, a veteran of the Soviet military industry, who held the other first deputy prime minister portfolio and was Chubais’s chief rival in the Cabinet. Along with the Communists in the Duma, the director corps presented the principal obstacle to further privatization, as its members wereeager to reintegrate into a planned economy should the Communists return to power.
Chubais, who strove to make the Russian economy 100 percent private, felt that his time was running out, so at some point in mid-1995 he came up with an extraordinary strategy: the state should take its biggest industries and privatize them in one big push. Let capitalists take over these companies. Rather than deceitful managers skimming income, have the owners start paying corporate taxes. At best, the new owners could help Yeltsin fight off the Communist onslaught. At worst, let the Communists, should they win, try to renationalize private property.
But this time Chubais could no longer afford to give out privatization vouchers free to every Russian. He needed cash. At the time, state budget receipts were only $37 billion, whereas expenditures were $52 billion, generating nearly a 30 percent deficit. Oil exports at the price of $15 per barrel were not generating enough cash. Taxes were not collected, and salaries of state employees had to be paid. The war in Chechnya was costing more and more each month. Foreign investment trickled to a minimum. So he turned to the only place where one could find cash in the country: the emergent banking sector, where no Soviet holdovers
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