Boiled crow ought to be on the breakfast menu of a good many western commentators on Russia for the next month or so. Where now, pray, are all those confident declarations that last year's surge in portfolio investment in Russia heralded the arrival, at long last, of that unicorn, that chimera of our time, The Coming Russian Boom? How long will it be before the horns of the hunt for this animal are heard once again, as always just over the horizon?
The financial crisis in Russia demonstrates the rotten nature of contemporary Russian economic fundamentals-and political and moral ones too. It should also be a warning not to allow economic reporting to be too heavily coloured by the inconstant passions of the markets and opinions of "experts" who may have a personal stake in talking up the markets concerned.
The enthusiasm of those markets for Russia last year was the product of a mixture of factors, none of which had much to do with the Russian economy: Yeltsin's 1996 election victory; high oil prices; a booming economy in much of the west combined with a crisis in east Asia. As a result, there were huge quantities of portfolio investment looking for a quick buck.
The relationship between the contemporary Russian economy and the international price of oil reveals most cruelly the failure of the Yeltsin regime to transform the Soviet-Russian economy in a positive way. In the wake of the Arab and Opec price moves of the 1970s, it was the soaring price of Soviet oil on world markets which was largely responsible for keeping the Soviet economy, and the Soviet empire, going; and it was the slump in oil prices at the end of the 1980s which helped doom Mikhail Gorbachev and the Soviet state itself.
Under the Soviet Union, the profits of Soviet oil were largely squandered as far as ordinary Soviet citizens were concerned. They went to the Soviet military, nuclear armament, the Soviet Union's bankrupt ideological allies around the world and intervention in Afghanistan.
Today, the renewed slump in oil prices underlies both the Russian fiscal crisis and the loss of investor confidence. Moreover, under Yeltsin, the distribution of profits from the high prices of the past five years has been no better than in Soviet times, as far as ordinary citizens are concerned. It was above all manipulation of the price of oil, gas and other raw materials by state managers and middlemen-buying them at low, state-fixed domestic prices and selling them illegally abroad for hugely higher ones-which created the private fortunes on which the power of the new Russian elites and their "financial industrial groups" are based.
The power of the great magnates over the extraction industries was confirmed by the "loans for shares" deal in the autumn of 1995, when a handful of individuals were given control of most of Russia's profitable oil and minerals firms for a fraction of their market price. The terms of "loans for shares" explicitly excluded foreign firms from serious participation in the privatisation of these companies.
The hostility of the communist and nationalist-dominated parliament to foreign ownership played a role in this exclusion, but Yeltsin's presidential powers allowed him to overcome this resistance if his administration had the will to do so. The problem is that the regime's chief financial supporters have also so far been hostile to foreign investment, because it would threaten their power.
The public agreement was that in return for shares in Russia's mineral wealth, they would lend money to help tide the government over the growing budget crisis; but it has been widely-and accurately-reported that the real agreement was that in return for this, the magnates should support Yeltsin in the 1996 presidential elections.
"Loans for shares" dealt a savage blow to the state exchequer; to this was added the new political power of the magnates, which they have used to avoid taxes. Together, they provide much of the background to the present fiscal crisis. Even if-as is likely-the Yeltsin administration gets through this emergency without devaluation, the weakness of its revenue base means that the problem has only been deferred. And the government thinks that devaluation has to be avoided at all costs because it would bring renewed inflation. This would finish off Yeltsin's plans to run for the presidency in the year 2000.
There is even talk in Russian government circles of renationalising the oil companies, as a last desperate move to raise revenue to cover the budget gap and invest in economic growth. It is difficult to imagine this happening-the resistance from the magnates would be ferocious-but that it should be talked about at all is a sign of the bankruptcy of the Yeltsin regime.
The melancholy fact is that since 1993, when they defeated the hardline communists and nationalists, Yeltsin and his administration do not have a single important achievement to their credit-other than bringing down inflation, which they achieved largely by not paying workers. Nor, perhaps, was it ever likely that they would achieve much. Yeltsin has created a constitutional system in which central powers lie in the hands of the president-who has proved both unable and unwilling to use those powers in any positive way. The west would be crazy to back this man in the year 2000.
