Moscow, December 25, 1991

by Conor O'Clery

  The country is humiliated by having to accept international charity. Rossiyskaya Gazeta reports that the residents of Vologodsky Province northeast of Moscow are receiving aid collected by the wives of Sweden’s richest businessmen. “The Americans were helping a little bit, the French a little bit, the Canadians a little bit. But all this compared to the needs was just a drop in the ocean,” recalled Gaidar. Few people can afford the prices at the peasant markets in Moscow, which are mostly controlled by the mafia. One chicken might cost a month’s wages. Adding to the intensity of this perfect economic storm, the price of oil, the main source of dollars, has plummeted on world markets, and the flow of oil dollars that kept the Soviet economy on life support has fallen to a trickle. The foreign currency bank has stopped all payments except for freight charges to import grain from Canada, animal feed from the United Kingdom, and other foreign food and medicines.

  There are, however, no shortages in the handful of shops reserved for holders of foreign currency. They are crammed with everything one might find in Western supermarkets but are patronized almost exclusively by expatriates, the real elite in the dying Soviet empire. These are the diplomats, business people, and correspondents who live in specially reserved apartment complexes, and whose children wake up this Christmas morning to find stockings crammed with confectionery and toys. They have purchased turkeys, plum pudding, and other savories for Christmas dinner from stores such as Stockmann’s of Finland, tucked away in a private section of GUM on Red Square. The nine million Muscovites are effectively barred from these hard-currency emporiums, as the ruble is not convertible. The stores discreetly conceal their wares—grapefruits, bananas, flour in several varieties, spaghetti, French wines—behind paint-coated windows, so as not to draw attention to this consumer apartheid, or to agitate the Muscovites hurrying past with empty string bags.

  The mayor demanded a week ago that Yeltsin give him special powers to overrule the city soviet so he can take executive action to prevent paralysis. Otherwise he will resign. The Russian president, unwilling to cede any of his powers to rule by decree, has refused. Popov has not yet quit and has sent Luzhkov to break the stalemate. As deputy mayor and city administrator, Luzhkov is the real chief executive of Moscow. The stocky former engineer facilitated the opening of the first private businesses, the cooperatives, in the city under Gorbachev’s reforms, and in August he helped rally ordinary city people against the coup. He tries to persuade Yeltsin that the mayor’s office must be free to take its own initiatives to prevent chaos. Moscow needs control over fuel supplies and power and gas networks, as well as the independent management of food stocks.

  After more than an hour of sometimes heated negotiations, Yeltsin signs a series of ten decrees giving Popov more power. Luzhkov returns with his group to the city hall. Popov decides to stay on. The mayor notes that the president has given an assurance that the city will receive “comprehensive assistance” to implement the transition. More importantly, Popov has consolidated mayoral rule. Pravda announces the news with the headline “The Resignation Farce Is Over” and accuses Popov of acting as a tool of the democrats and entrepreneurs who want to destroy the elected council.

  The shock therapy Yeltsin is applying to the ailing Russian economy was mooted more than a year earlier when Mikhail Gorbachev flirted with, then abandoned, a five-hundred-day plan to convert the floundering command system to a market economy. One of its authors, Grigory Yavlinsky, worked on the reform program with the help of Harvard experts Graham Allison and Robert Blackwill. They also sought advice from Harvard economics professor Jeffrey Sachs, who assisted the Polish government with its shock therapy.[199] Sach’s attitude, according to Chernyaev, was “If you don’t become like us, you’ll get no dollars.” Gorbachev vetoed the plan, and no dollars were forthcoming.

  Having persuaded the Russian parliament to give him special powers, Yeltsin is ready to make the leap to capitalism. He has given the task to a small and radical group of young economists, led by Gaidar, a devotee of the Chicago school of monetarist economics.

  Short, chubby, intellectually gifted, and nicknamed Guboshlyop because of the way his lips flap when he talks, the thirty-five-year-old Gaidar is to be found on the evening of December 25, 1991, in the long, whitewashed Hall of Meetings, where a drugged and distressed Yeltsin was brought from his hospital bed four years ago to be shamed by party leader Mikhail Gorbachev for daring to challenge his leadership and privileges. He is working there with Jean Foglizzo, who arrived in Moscow shortly before as representative of the International Monetary Fund.

  “I had a lot to do,” Gaidar recalled. “The state of the economy was catastrophic.” Imports of sugar, tea, cereals, and soap from the other republics have fallen by more than three-quarters. Machine building and construction has come to a standstill. For some months the Soviet government has been unable to gather taxes. The USSR has exhausted its foreign currency reserves and has debts of $30 billion. “In other words,” said Gaidar, “the Soviet Union was bankrupt.” His problem is that while the old system is broken, there is as yet nothing to replace it.[200]

  Gaidar had converted readily to liberal democratic ideology after a spell as an economics writer for Pravda. The son of a celebrated Pravda military correspondent and the grandson of a famous children’s author, Arkady Gaidar, he is strongly in favor of Russia breaking with the other republics so that he can experiment with the “free market” libertarianism principles advocated by Milton Friedman. Friedman is known in Russia for his record on engineering a transformation from communism to capitalism on another continent. In the 1970s the economic guru trained a group of Chilean economists in the University of Chicago—who became known as the Chicago Boys—to help President Pinochet undo the Marxist economy of Salvador Allende. A Russian version of the Chicago Boys has now emerged from the ranks of the young radical economists around Boris Yeltsin.

  Yeltsin’s mandate to Gaidar is to abolish the centralized economy, and Gaidar believes the conditions are ideal for what he refers to as major surgery on the economy without an anesthetic. The country is relatively tranquil; the military is demoralized; the hard-line communist opposition has been defanged. But speed is important. He needs to make the reforms irreversible by wrecking the old system. Then, the reformers assume, goods will quickly appear on the shelves when the market rather than the government sets the prices. His fellow deputy prime minister Anatoly Chubais has been given the task of privatizing state assets—in a country where practically everything, from bread shops to automobile plants, is owned by the government. Chubais predicts to Gaidar that whatever the result, he will be hated as the person who sold off Russia. Gaidar knows that he too will have to drink from that poisoned chalice. As Burbulis warns, they belong to a kamikaze government whose members will be discarded by the public after they have rammed through necessary but unpopular measures.

  The Russian reformers fret that when goods reappear in the regular stores, there will be serious inflation. But the American advisers are sanguine. Thomas Wolf of the IMF assures Russian economics minister Andrey Nechayev, during a meeting on the afternoon of December 25, that prices on most important consumer items will only rise by 70 percent in the first month of free pricing.[201] (Nechayev is skeptical—with good reason: Prices soar in January by 245 percent and keep rising after that to 2,500 percent.)

  A contemporary IMF working paper admits, “There remains some suspicion of foreign advisers, together with a reluctance, natural in a former superpower, to admit there are things to be learned.”

  One of those who has cooled on the American-inspired therapy is Alexander Rutskoy. Even as Yeltsin is trying to work out a deal with Luzhkov to keep Popov on board, his vice president is holding forth to journalists in an office nearby about how “we now have anarchy instead of democracy.” Rutskoy is in favor of Russian “sovereignty” within the Union but is against breaking up the USSR, and he has hung a map of the Soviet Union behind his desk to make the point. The Russian presiden
t and vice president are no longer on good terms, partly because Yeltsin refused to make him prime minister, a position he has kept for himself in addition to the Russian presidency.

  Rutskoy once told Yeltsin, according to Korzhakov, “Boris Nikolayevich, I will never let you down. I will be the guard dog at your throne.” To Yeltsin his vice president has become just a “loud-mouthed soldier.” Rutskoy has a particular aversion to Gaidar and his team, whom he describes as “boys in pink shorts, red shirts and yellow boots who had decided to run Russia.” He complains that the conditions are not right for the gigantic experiment they are conducting with the country. A free market can only be introduced in a legal, democratic state, he tells the reporters, but “today, there is neither power nor democracy in Russia.”

  The vice president insists he doesn’t want confrontation with Yeltsin—“Why, that’s not logical!”—but things must be put in order first and privatization must not be carried out by robbery and cheating. Gaidar for his part has only contempt for Rutskoy, commenting that behind the “dashing facade of the mustachioed man-at-arms” lies a vacillating and insecure personality intent on avoiding responsibility for unpopular decisions.

  The speaker of the Russian parliament, Ruslan Khasbulatov, is also sliding back to the old Soviet way of thinking, in line with the many conservative deputies. He feels “it might be time to propose that the president dismiss his virtually ineffective government.”

  Already Yeltsin’s hold on power is becoming tenuous, and divisions are deepening in the Russian parliament that in less than two years will lead to a bloody showdown.

  There are also the first stirrings of a popular revolt against price rises. Demonstrations have already begun. On Sunday between 5,000 and 10,000 people carrying portraits of Lenin and Stalin gathered near the Kremlin and banged teaspoons against empty pots and pans as they formed a “hungry line” to represent a queue at a soup kitchen. Coming across the demonstration, Ted Koppel saw how they were already nostalgic for the iron-fisted control of rigid communism and that they had contempt for both Gorbachev and Yeltsin. Koppel tells his ABC viewers, “The teaspoon striking on an empty pot may yet prove to be the most powerful symbol in this new and uneasy commonwealth.”

  The leader of the demonstrators is Vladimir Zhirinovsky, head of the neofascist Liberal Democratic Party, who tells his followers that the only reason Americans want to come to Russia to give aid is to scan the territory so they know where to drop their bombs. He threatens that when he gains power, he will fill outer space with weapons pointed at the United States, make Afghanistan a Russian province, sell off western Ukraine, and blow radioactive waste across the Lithuanian border to kill the population with radiation sickness.

  There are other sinister characters discussing, on the day the Soviet Union comes to an end, how to capitalize on the country’s chaotic state. Just outside MOSCOW, in a dacha in the hilly Vedentsovo region, several individuals concerned with the country’s future financial structures are wrapping up a secret three-day meeting. From December 22 to 25, some thirty men of different nationalities, mostly Russian, Ukrainian, Georgian, Armenian, and Chechen, have been conferring on how they should divide the former Soviet Union into zones of influence. They are members of Vorovskoy Mir, or Thieves World. Each person in attendance is a vor v zakonye, a thief-in-law anointed by fellow inmates in the country’s prisons as a supercriminal and bound together by a code of loyalty. They have traveled from all across the disintegrating Soviet Union to discuss the new opportunities opening up for control of a vast black market in commodities, ranging from caviar and gold to automobiles and spare parts. In the vacuum created by the collapse of the command economy, they are already able to operate a crude capitalist form of supply and demand. Their reach is so extensive that they control an estimated 15 percent of the movement of all goods in Russia. Now they are poised to make vast profits from the sell-off of state assets that will come in the New Year.[202]

  Organized crime has become a serious problem in the dying Soviet Union. With the unleashing of state assets into private hands, it is about to become a major phenomenon in postrevolutionary Russia.

  Already in the last months of the Gorbachev era there are illicit and semilegal fortunes to be made. Unregulated privatization is developing rapidly. Former communist directors are leasing to each other prime industrial properties in preparation for taking them over and enriching themselves when the law permits. Much of the Communist Party asset base that Yeltsin nationalized has already been transferred into the hands of private owners.

  Rampant corruption in the oil industry has resulted in the wholesale issuing of export licenses, allowing entrepreneurs to buy oil for rubles and sell it abroad for hard currency. These stamped pieces of paper, Gaidar said later, were “a sort of philosopher’s stone that could almost instantaneously transform increasingly worthless rubles into dollars.” The oilmen and the corrupt members of the nomenklatura whom they bribe are shifting money abroad as fast as they can.

  As the Russian president assumes command in the Kremlin, commentator Ilya Milshtein issues a warning to him in an article in Novoye Vremya (New Times). The country Yeltsin is taking over, he writes, is “depraved to the core, a state rotten from top to bottom, a great power of fast thieves and bribe takers.”[203]

  Yeltsin doesn’t have to be told by the media. At the end of December, two former KGB officers write to him alleging that top party officials are siphoning off immense quantities of money and gold and depositing them in foreign bank accounts. Gaidar manages to get $900,000 from state funds to hire the international security and detective agency Kroll Associates to investigate the allegation. It comes up against a wall of noncooperation from inside the new Russian ministry of security. After a month the contract is not renewed.

  Chapter 21

  THE CENTER CANNOT HOLD

  Yeltsin’s drunken promise that Gorbachev would “stay” in some capacity in the future arrangements for the Soviet Union was soon broken.[204]

  On December 6 the Russian president came to Gorbachev’s Kremlin office and told him he was going to Minsk, the capital of Belarus, the next day. There, he promised, he and the republic’s leader, Stanislau Shushkevich, would try to persuade Ukrainian president Leonid Kravchuk to stay in a new union.

  Yeltsin emerged from the meeting to tell reporters, “Every effort must be made to convince the Ukrainians to sign the union treaty.” He added, “If that doesn’t work, we’ll have to consider other options.” He didn’t say what those were.

  Knowing the Russian leadership was tired of having any center at all, Gorbachev sensed that treachery was afoot. He told Chernyaev that he suspected Yeltsin and Kravchuk had decided to collapse the Union from both sides.

  Chernyaev had already thrown in the towel in his own mind. He was going through the motions of feeding Gorbachev documents to sign, such as agreements between the USSR and other countries on an Islamic conference in Dakar, but it was all “bullshit.” As he wrote in his diary, “It is hard to realize that only Mikhail Sergeyevich needs me, not the country.” Thinking of his wife and mistress, he wondered, “How will my women react to this?”

  Pavel Palazchenko predicted that the outcome of the meeting in Belarus would be determined by the fact that, for reasons of their own, all three hated Gorbachev.

  Shortly after 3 p.m. on December 7, 1991, a Russian government plane carrying Boris Yeltsin touched down at Minsk, four hundred miles southwest of Moscow. Accompanying him were deputy prime ministers Gennady Burbulis and Yegor Gaidar, foreign minister Andrey Kozyrev, and legal counsel Sergey Shakhrai. They were guarded by twenty burly members of the Russian security service armed with assault rifles, under the command of his chief guardian, Alexander Korzhakov.

  The plane took off again in the same direction and after thirty minutes landed at a military airport outside Brest. From there, a small convoy of vehicles took the Russians deep into Belovezhskaya Pushcha, one of the last remaining primeval forests in Europe. As a
thick, soft snow fell, they raced through the town of Pruzhany and continued almost as far as the Polish border. The cars pulled up at Viskuli, a mansion with square pillars framing the entrance built in the 1970s for Brezhnev’s hunting pleasure, with adjacent bathhouses, cottages, hunting lodge, and service block.

  Everything was done in the utmost secrecy to ensure that the three leaders representing Russia, Belarus, and Ukraine could meet without interruption by journalists or other more dangerous forces. Belarusian KGB head Eduard Shidlovsky had deployed heavily armed patrols in the forest from early morning and sealed off approach roads. He assured Shushkevich that “everything is all right; we are in close connection with the Russian special security service and there will be no problems.” The enemy they feared were reactionary elements of the Soviet forces who might be tempted to prevent what they were about to do.

  Shushkevich and Kravchuk and their top officials had already arrived, having flown together from Minsk late that morning. The Ukrainian president and his prime minister, Vladimir Fokin, had immediately gone hunting. The fifty-seven-year-old, white-haired Kravchuk did not want to be seen hanging around waiting for the Russian leader. Nicknamed the Crafty Fox for his political cunning, the former party ideologue turned nationalist once joked that he never carried an umbrella since he could slip between the raindrops. In August he initially cooperated with the coup, then quit the Communist Party, and reinvented himself as a democrat and nationalist.