Let the Party Without Sin Over Russia Cast the First Stone

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Washingtons sudden concern and apparent shock over high-level corruption in Moscow is regarded with cynicism all across Russias political spectrum. The reason is that the U.S. had for years cheered on a "reformist" regime, reviled at home as corrupt and even criminal, as it presided over the pillaging of the countrys assets and their transfer to foreign bank accounts. And the distinctions being drawn in the Bank of New York investigation over whether the moneys that flowed through its accounts were ill-gotten gains or simply capital flight may not be particularly important to Russians, many of whom regard the capital of Moscows wealthy oligarchy as ill-gotten in the first place.

The current economic and political setup in Moscow dates back to the privatization policy, which Washington made the centerpiece of Russian reform in the early 90s. A trenchant New York Times analysis in August argued that the origins of Russias demise lay in the sell-off of the former communist regimes economic assets at breakneck speed, following the advice and urging of the U.S. government and its economists. Washington hoped that massive privatization would serve as the catalyst for the emergence of a strong market economy. But in an economy where most people who had any capital had accrued it through illegal activities during the communist era, the result was a massive transfer of state assets into the hands of a new class of millionaires who in many cases had questionable backgrounds.

Instead of putting their newly acquired booty to productive use, Russias new capitalist oligarchy immediately began a campaign of asset-stripping that saw somewhere between $200 billion and $500 billion in capital transferred out of the country in seven years. While "reform" had made the oligarchs impossibly rich, it had left ordinary Russians facing impoverishment on a scale worse than the impact of the Great Depression in the U.S.

By the time the 1996 election rolled around, the Russian electorate had had enough and looked set to boot out Boris Yeltsin (he started the campaign with less than 5 percent support in the polls). But that would have put the Communist party back in the Kremlin, and that was something neither the West, the oligarchs nor, in the end, the Russian voters were prepared to allow. To rouse the voters to go the polls and see off the Communist challenge, however, Yeltsin desperately needed the money and support of the oligarchs, who controlled much of the countrys media. The price of that support was an undertaking to hold a second fire sale of the Russian economy, putting some of the nations prime assets on the auctioneers block at discount prices and creating a "shares-for-loans" scheme that mortgaged more for peanuts.