Conor O'Clery - Moscow, December 25, 1991

Bill Clinton, who takes office as U.S. president some two weeks later, doesn’t know at first what to make of Yeltsin. His advisers warn him that Bush harmed U.S. interests by aligning himself too closely with Gorbachev, and he should avoid making the same mistake with his unpredictable successor. Clinton feels he has no choice but to support Yeltsin, “a proud beggar among the great nations,” as the best hope for democratic reform in Russia.

At their first meeting in Vancouver, Clinton observes Yeltsin downing alcoholic drinks through dinner without touching his food. Stories about the Russian’s mammoth drinking bouts begin to circulate at the highest levels. In Washington in 1993 Clinton is notified of a major security alert when Yeltsin, who is staying in Blair House across from the White House, is encountered by secret service agents in his underwear in Pennsylvania Avenue, trying to hail a taxi to go for a pizza. The next evening, again according to Clinton, Yeltsin is mistaken for an intruder as he drunkenly tries to exit through a basement and comes close to getting short. [319] 12 Branch, The Clinton Tapes, 198.

As Yeltsin’s health and insomnia worsen during his first term, he is less able to handle copious quantities of alcohol. On a trip to Germany in 1994 he grabs a baton to drunkenly conduct a brass band in the presence of Chancellor Kohl. During a stopover at Shannon airport in Ireland, he fails to get off his plane to meet the waiting Irish prime minister, Albert Reynolds. According to Korzhakov he is ill and, when not allowed off, sits in his underwear and cries. Naina on another occasion scolds Korzhakov for “making my husband a drunk,” to which Yeltsin’s drinking companion claims he retorted, “No, you brought him from Sverdlovsk an alcoholic!”

Throughout his first term Yeltsin is tormented by the cruel impact on people of the change from communism to capitalism. After January 2, 1992, when prices are freed, the rise in prices far exceeds the predictions of IMF economists. Hyperinflation wipes out life savings, turning millions of Russians into paupers and stoking discontent and resentment. Free for the first time in decades to sell what they like, lines of people appear on Moscow streets from every walk of life offering household items from spare shoes to ornamental clocks to make ends meet. With an insufficient money supply to meet everyday needs, conditions deteriorate. Crime increases, salaries go unpaid, and the gap between rich and poor widens. The birth rate falls, and the death rate rises.

Every sector of society feels the pain. Farms and factories lose their subsidies and cannot buy raw materials. In the first six months of rampant capitalism national income falls 20 percent, creating pressure on the Yeltsin team to reverse course. When Deputy Prime Minister Yegor Gaidar brings in a single exchange rate, the result is a collapse of the ruble and a huge demand for U.S. dollars to protect against inflation.

In March 1992, agitated by rumors of a global conspiracy to strangle Russian industry by liberalizing raw material prices, the Russian parliament blocks a plan to free domestic oil prices. Entrepreneurs who have acquired export licenses are able to continue buying Russian oil for next to nothing and sell it abroad for dollars. It is the start of a process that will lead to the emergence of the oligarchs.

Privatization minister Anatoly Chubais ends the state monopoly in property ownership with the largest privatization program in the history of the world. Ownership shares given to factory workers under privatization laws drawn up in collaboration with the International Finance Corporation in Washington are snapped up by industrial directors, most of them former stalwarts of the party, who become wealthy capitalists overnight. (E. Wayne Merry, head of the U.S. embassy political section from 1991 to 1994, complains to Washington that America’s “evangelical” attempt to remold Russia in its own image is enabling the rise of the oligarchs and initiating an era of crime and economic destruction.) Many of the new rich send their money abroad in hard currency for safekeeping. In the first two years of Russian independence, the Central Bank of Russia estimates that the flow of capital out of the country reaches $100 billion, more than the combined total of inward investment and international aid.

The nouveau riche gain a reputation for throwing their money around, spawning new anecdotes: A “New Russian” asks another how much he paid for his Rolex. On being told $5,000, he retorts scornfully, “I know where you can get one for $6,000.” Another anecdote concerns an IMF official who moans that “everything the communists told us about communism was a lie. Unfortunately, everything the communists told us about capitalism turned out to be true.” One of the first Russian billionaires is Yelena Baturina, who runs a construction company. She is the wife of Yury Luzhkov, who becomes Moscow’s mayor in 1992 and oversees a two-decade building boom.

The common Russian perception of Yeltsin’s economic team is expressed by Alexander Solzhenitsyn, who returns from exile in the United States three years after the end of the Soviet Union. The writer and Nobel Laureate says that Gaidar has “thrown into poverty tens of millions of his compatriots, wrecking their savings” and that Chubais enacted privatization “with the same blind madness, the same destructive haste as the nationalization of 1917–18 and the collectivization of 1930.” [320] 13 Brooke, “Alexander Solzhenitsyn and the Battle Between Good and Evil.” Eight weeks before his death in 2009, in an interview in Moscow for this book, Gaidar said he had no regrets about the decisions he made in December 1991, as they were absolutely necessary. “People were awaiting food catastrophe, and there was a danger of a breakdown in energy supply. Only by freeing prices did food return to the shops.” He admitted some tactical mistakes in the transition from a command economy to a free market, “but strategically I think we made the right decision to avoid a humanitarian catastrophe in a nuclear country.”

In the postcommunist chaos few escape the rapacious demands of the ascendant Russian mafiya. A financial report prepared for Yeltsin in his first year finds that four out of five of the banks and large private enterprises in Russian cities are paying more than 10 percent of their revenues to organized crime. Even smalltime street hawkers are victims. “For some time in 1992 we hang out at Arbat selling stuff,” recalls Olga Perova. “Local gangsters protect us so that we won’t get robbed, and we pay them kickbacks.” [321] 14 Interviews with Muscovites, February 2010. Contract killings became common. In 1993, 123 bank employees are gunned down or blown up. Privatization of state apartments results in a particularly ugly type of crime: Pensioners are persuaded to sell their living space and stay on rent free, and then are pushed under a bus.

To Gorbachev all this is confirmation that he was correct to oppose Yeltsin in breaking up the old order so brutally. He complains that the bloody shoot-outs in Moscow are worse than those in Chicago during the prohibition era and that the outflow of billions of dollars deposited in foreign banks to await the arrival of their gangster owners is made possible with the connivance, or inertia, of Yeltsin’s government. “Having beaten his way to power,” Gorbachev jibes in his 1995 memoir, “Yeltsin instantly forgot his wrathful speeches against abuses and allowed his associates to indulge in corruption and privileges such as the communist nomenklatura had never dreamed of.”

As living standards plummet, deputies in the Russian Supreme Soviet seethe with discontent. The shock therapy is increasingly seen as a Western imposition. Much anger is directed at the American and European experts who commute to Moscow to peddle their advice to the new government. The speaker, Ruslan Khasbulatov, attacks the “vile” monetarist policy imposed by the Americans. The demagogue Vladimir Zhirinovsky courts populist support by calling the United States “an empire of evil, the nucleus of hell” that conspires to rule the world.