by Peter Kysel
“Incredible story. Within two decades a girl was catapulted to the top of society, just to be dumped into poverty when her looks faded.”
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Moscow Muggers
Michael tensed and whispered
“We are being followed. Don’t look around now. Let’s cross the road and join that group of tourists opposite.” I followed his instructions. When we reached the tourists, I dared to glance behind me. Four men in black leather jackets stood on the Embankment, pretending to be gazing at the river. Michael reassured me,
“They look like common muggers.” I took his word and asked,
“How do you avoid being mugged?” Michael had a ready explanation.
“Watch people in the street, but never engage in eye contact. Always get out of the way and melt into the crowd. Walk with purpose, preferably not alone. If you are visible and draw attention, the Russians see it as challenge. They respond aggressively, especially to foreigners. In a quiet street, listen to steps behind you. If they get closer, cross the street, always keep a distance.” Michael may sound paranoid, but he is taking care of himself I thought, and he added,
“I was taught by the Russians.” I turned and looked towards the river. The men in leather jackets were following a couple of tourists. I moved, with intention to warn them, but Michael stopped me.
“The tourists may lose a few hundred dollars. If we challenge the muggers, we may all be shot. Criminals in Russia use guns.” I changed my mind. We slipped back into the tourist group and walked with them into the Kremlin. Before parting, I suggested
“We are giving seminars to businessmen and government officials. Join us. You’ll make some useful contacts.” After that afternoon, I adopted the same precautions as young Michael on all my walks.
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Anna
On my last day in Moscow, I took Anna out for a coffee.
“I wanted to thank you. Onegin was delightful. I am grateful that you saved me from being mugged. I was impressed. I would not be at all surprised if you were with the KGB.” She looked at me hard for a long time and asked,
“Do you need information?” I nodded.
“Would it be difficult?”
“If you pay, it’s possible.”
“I want to understand how the communist regimes crumbled.” Anna visibly relaxed.
“Those files have low security ratings. Anyone with clearance at Lubyanka can get them.” I assumed that she was referring to the intelligence service files.
“It’s for my own personal interest.”
“Each report will cost about five hundred dollars.”
“I can’t take them with me on a flight from Moscow.”
“I could bring them to Prague, or to London. I’ll be in touch.” A colleague was coming to join us. I gave Anna my business card and left.
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Intellectuals
Leading Western intellectuals and artists had been extolling the virtues of the Soviet Union for seventy years. They turned generations of young idealists against liberal democracies. They muddled my head too for years. It took just brief exposure to the Soviet reality to shatter anyone’s illusions about socialism. The physical decay of Moscow, the crude manners of its people and their daily humiliations were transparent and shocking.
Why did Jean Paul Sartre, Louis Aragon, Simone de Beauvoir, Andre Malraux, Antonio Gramsci, Herbert Marcuse, Bertrand Russell, Pablo Picasso, Charles Chaplin, George Bernard Shaw, Peter Ustinov or Harold Laski peddle their deceits? In Lenin’s former suite at the Moscow hotel, I jettisoned my residual respect for them. I addressed the Bolshevik leader aloud
Vladimir Ilyich, I’ve seen your reality, it stinks. I understand why you called western left-wing intellectuals, the useful idiots.
Chapter 8
Free Advice to Oligarchs
In the early 1990s Western organisations arranged investment seminars for businessmen and government officials in eastern Europe. They felt good about sharing their superior knowhow. I noticed that our altruistic seminars were impractical. When participants realised that I spoke Russian, they approached me for more informal chats. Their comments were all similar.
“Angliyskiy bankir (English banker) your recommendations are so difficult to understand.” It was obvious that our lectures on best Western practices were disconnected from the local reality. I tried to avoid responding and changed the subject.
“It’s Na zdraví in Czech, Na zdorovje in Russian and Cheers in English,” I said, and they repeated it, laughing.
“At least it breaks the ice here,” I thought, knocking back Stolichnaya.
“You’re a Slav, like us, angliyskiy bankir. We like you. How is golden Prague? We want to visit,” they shouted and ordered more drinks.
After a seminar in Moscow in March 1991, a short, balding businessman in his mid-forties, took the lead in our bar discussion. Boris was showing off to the other biznesmeny by speaking rapid and tortured Russo-English, while they respectfully listened. Michael joined our seminars. I introduced him to the group as a bright young angliyskiy bukhgalter (English accountant).
“We know how to do privatisation in the Soviet style.” Boris Berezovsky was referring to using corruption and violence to acquire the state’s assets, by eliminating competing bidders. The others nodded approvingly, but I challenged him.
“Your methods won’t work in the long term. You have no certainty of legal title. One day your assets could be confiscated by other biznesmeny. You or your family may be killed.” When Boris paused before responding, I expected a macho put down, but he nodded instead
“I know angliyskiy bankir, it’s chaos here. That’s why we need to find a smart way to be like you, biznesmeny in England and America,” he said, putting his heavy arm with its huge wristwatch, on my shoulder. He knocked back a glass of vodka. I was surprised by his open admission. The cunning operators wanted free advice. They waited for my response. I articulated slowly, “You’ll need to privatise legally. The country must have laws, which give owners the rights to the privatised assets. The privatisation process must be transparent. Property rights must be enforced.” They went quiet, obviously thinking about it. After a few minutes, they realised what they needed to do and how. They laughed and ordered more drinks, but I was troubled.
“I should have charged you a huge consultancy fee for that advice,” I said as we were leaving. They laughed again. Boris was in a jovial mood. He motioned to Michael.
“You are a bright young man. Here is my card. You want a job? Come and see me” and then he turned to me.
“Nash angliyskiy bankir, I want to talk to you again. We’ll meet at my club. You come to my party” and gave me his card. I was downhearted and wondered whether I should bother to see him again.
#
Soviet Privatisation
I went to bed enlightened. Biznesmeny will join the new society by corrupting my free advice.
Communist state structures, including the civil service, judiciary, police and political networks, remained in place. They offered a platform for corrupt privatisation. Under the old regime, corruption was punished by death. Such constraints had now vanished.
As I expected, biznesmeny hired smart lawyers and bribed politicians to pass convenient laws. State officials were bribed to offer privatisation deals. Judges were paid off to legalise the deals. The police and the state prosecutors were paid to enforce privatisation deals and to harass business rivals. The process went a step further.
Biznesmeny set up banks, which lent them money for privatisations. Politicians sought biznesmeny with offers of lucrative public contracts in exchange for financing election campaigns and their future pensions. Ordinary people received benefits from the redistribution of ownership, through voucher privatisation, to keep them docile. These were sobering thoughts, but I kept reassuring myself.
The one thing worse than privatising corruptly, is not to privatise. Socialist economies will disintegr
ate. Without privatisation, ordinary people would lose their jobs. Corruption will slow down when privatisation is completed.
With these mildly encouraging thoughts, I fell asleep.
#
Emerging Oligarchs
My curiosity won and I decided to go to Berezovsky’s party. In the meantime, I checked him out. His company LogoVAZ imported Mercedes cars from Germany. They were mostly insurance write-offs. Boris bought them for a thousand dollars and imported them as spare parts, at low customs tariffs. Cars were cannibalised, patched up and resprayed for a few thousand and then sold on for $20,000 in Russia. Boris also distributed Zhiguli cars, manufactured by AvtoVAZ in southern Russia, using thirty-year-old Fiat designs. He was already a wealthy man with influence.
The party was in a full swing when I arrived at the nightclub. Boris greeted me effusively and introduced me as nash (our) angliyskiy bankir. His guests were biznesmeny, politicians and young girls. Their wives had been left at home. After our one and only meeting, I felt embarrassed at being paraded as a western trophy at a party for his associates. Circulating and drinking with them during the evening, I realised that this was an insiders’ group. I was the sole foreigner. At 1 am, the young biznesman Mikhail and I were propping up the bar.
“I started the business by running a coffee shop just four years ago. Now I am an investment manager like you,” he said proudly. Mikhail Khodorkovsky was in his late 20s and was happy to talk. Another guest joined us and smirked.
“I am Vladimir Vinogradov. Mikhail and I were Komsomol apparatchiks (administrators). He now manages Komsomol’s (communist youth organisation) assets. Mikhail co-founded his management fund jointly with the central committee of the communist party of the USSR.” I was amazed by young Mikhail’s connections and said,
“It’s rumoured that the party is worth $10 billion. You have very powerful backers” They seemed impressed that I was so well informed. They asked, laughing,
“Why, are you, angliyskiy bankir, looking to invest here? We all want to move money abroad” I nodded and laughed with them.
“It’s your time now, to do business. My time will come later. For now, I need to get to know the people who matter.” They accepted that. Mikhail pointed to Vladimir, who was in his mid-thirties.
“He founded Inkombank, the first private bank in Russia, two years ago.”
“You have come to the right party to meet influential people” they agreed, and we swapped business cards.
“Don’t call us, we’ll call you when we need respectable English bankers. At the moment we are doing business with more flexible bankers from Sweden, Latvia, Estonia, Cyprus and Bahamas,” they giggled.
The initial phase of messy capitalism was unfolding. Flexible bankers are in demand to launder money. A more honest way of doing business will, hopefully, come later.
“Our flexible bankers don’t question where the money comes from or what it’s used for,” confirmed Vladimir to explain his current business, between glasses of vodka.
“We buy foreign passports for our preferred clients and diplomatic passports for our special clients. Our clients find their Soviet passports inconvenient. It’s a good business, for which we need flexible bankers.”
It suited me to project the image of a detached Western banker. I couldn’t conceive of doing business here. Our investment rules barred me from using their methods. I was thinking This society is a swamp. Insiders rule. It amused me to think that the Communist Party paid these guys to rob it.
I tried to define our different attitudes These biznesmeny are young, hard risk takers. They ignore the rules. Like the original capitalists in the West, they are greedy. Some of them will become very rich. I obey the rules and try to be smarter than my competitors. I won’t get rich, but I’ ll live longer than many of them. At three in the morning, when I decided to leave, Boris insisted that, as his gift to me, and to seal our business bond, I should take a girl to my hotel.
“She is a good friend of my ljubimaja devushka (girlfriend). They are like sisters. You’ll be like my brother,” he insisted, and his girlfriend promptly responded with a quick smile. I noticed that the girl, who had been sitting next to Boris on the sofa throughout the party, hardly said a word. A champagne cocktail remained untouched before her. Her eyes were blank and her smile, when she was addressed, was just a flicker. Guests steered clear of her, to avoid annoying Boris. He had a fiery temper. Guests were now looking at me. I had been put in a corner. Embracing Boris, I mumbled,
“Dear Boris, I’m drunk and exhausted. No girls for me tonight, thank you. You must excuse me.” He didn’t like my response, but waved his arm magnanimously and proclaimed,
“The Russians are made of much stronger stuff. We know how to make girls happy. Come, moja devuschka (my girl). He motioned his girlfriend to leave, while the guests laughed at my expense. We left the party together. To my relief our bond wasn’t forged. I still expected retribution, but none came. I escaped, by allowing Boris to seem more macho than nash angliyskiy bankir. As his male vanity was publicly gratified, he showed magnanimity. Our party leaving episode lived on and was subsequently quoted to me many times. Boris must have retold the story for general amusement. Simply knowing him, made me a respected person in Russia in the nineties. Berezovsky catapulted into great prominence, as a media tycoon, an oil oligarch and the shadow eminence in financing the elections of two presidents.
Privatisations in eastern Europe took different routes. They involved risks. I realised that on my way to the Metropol hotel.
In the Soviet Union the risks of being robbed are too high. Institutional investors, who have to play by Western rules, stand no chance of succeeding. Privatisation will be rough and fraudulent. Participants will be swindled. Some won’t live. Red wolves and vultures rule this swamp. There is no chance for us. Our reputation would be at huge risk. Losing our investors’ money in this country could easily result in litigation against the bank. We should monitor the situation but stay away. I prefer to stay alive and out of jail.
#
Privatisation Minister
The leading economic reformer in Russia, Anatoly Chubais, was thirty-seven years old. He was about to be appointed minister and chairman of the privatisation committee. Chubais originally stood against voucher privatisation. When he realised the size of his task, he began to waver. In early 1991 he came to our OECD seminar in Moscow and joined the discussion on proposed Czechoslovak reforms.
“Angliyskiy bankir, I agree that privatisation is urgent, but I doubt that the voucher system will work,” he told us, and I tried to reassure him.
“It will be successful, and it will benefit the people. It should be part of a comprehensive privatisation programme. First of all, sell small firms for cash. Private shops will improve daily lives and eliminate the frustration of Soviet shopping. The majority of state enterprises should be auctioned off through the voucher programme. Strategic companies should be sold to Western multinationals thus generating revenues for the state and making the economy efficient. Rapid privatisation will limit corruption and bankruptcies,” Anatoly responded, measuring his words.
“Our academic advisors disagree. But then they have no practical knowledge. You witnessed Thatcher’s privatisations. You are the only person in Moscow today with direct experience of privatisation. Your advice is more practical. We need to consider all suggestions and see which are politically acceptable.”
He returned the following day.
“Decisions will be made swiftly. We’ll get a mandate for economic reforms. It will be my responsibility to deliver them.”
“I will be giving a similar presentation at the OECD seminars in St Petersburg. Do you have contacts there?”
“I managed the mayoral campaign for Anatoly Sobchak. You should think of inviting him to your seminars.” I then introduced Michael and we parted company.
It appeared that our discussions bore some influence. On 11th June 1991, the Supreme So
viet (parliament) approved voucher privatisation. In a fit of nationalistic paranoia, parliamentarians dismissed all suggestions of selling state assets to foreigners. Their populist decision undermined the economy. Its unintended consequence was massive corruption and the creation of the oligarch class.
Voucher privatisation was implemented by Yeltsin’s decree on 19th August 1991. It coincided with the attempted communist coup d’etat. Still, reforms had begun, and the economic tectonic plate was poised to shift, but a large part of the economic swamp would not be drained.
Chapter 9
Influential People
Dejection prevailed among people in Central and Eastern Europe, reflected in the poorly stocked shops, dilapidated infrastructure and general neglect. I sat in cafes in Budapest, Prague, Bratislava, Warsaw, Moscow, St Petersburg, Riga, Tallinn, Vilnius, Tashkent, Almaty, Baku and Kiev, watching the glum, shabbily dressed people. The further east I travelled, the poorer the conditions. I remembered pre-war photos of fashionably dressed people walking in much the same streets. Just half a century later, the people and their surroundings looked so much worse off.
Post-communist governments had no capital to invest. Their people lacked savings. They could take out foreign loans and waste them on state owned firms as they drifted towards bankruptcy. Rapid privatisation with foreign participation was going to be a better way forward.
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Candidate Ambassador
A few weeks after my meeting with president Havel I had a telephone call. My secretary said,
“It’s the Czechoslovak Minister of Foreign Affairs for you.”
“Jiří Dienstbier here. It’s in connection with the conversation you had with Mr president at the CBI lunch,” the Foreign Minister said.