Some years ago, in defense of his bank’s loans to uncertain sovereigns, the head of Citibank told his Wall Street colleagues that “countries don’t go bankrupt.” He was wrong. Russia now is bankrupt, with no money, no government, and, it would seem, no law and no hope.
The trip from beneficiary of an international bail-out to utter collapse took just two months, but in fact the sinking of the Russian economy should come as no surprise to anyone who has followed events in Russia in these pages or elsewhere. From the days of perestroika in the late 1980’s, to the wild “reforms” and hyperinflation under Boris Yeltsin’s first government in 1991-1992, to the almost systematic looting of the country during the 1993-1998 government of Viktor Chernomyrdin, Russia has at no time looked anything like a stable market economy.
The International Monetary Fund began lending to support a stabilization program in Russia in 1993, and the Russian economy has been under the supervision of the Fund and other international financial institutions ever since. Yet in recent years, as David Satter has reported, Russia’s own Ministry of Internal Affairs estimates illegal capital flight at $350 billion, an amount roughly equivalent to the country’s gross domestic product. It is as if an entire year of Russian production of goods and services, everything from missiles and sausages to haircuts and algebra classes, had been stolen and stashed abroad.
The Russian government, which ten years ago owned virtually all the large-scale assets in Russia, is bankrupt. On August 17, the government announced it could not pay its creditors, defaulting on its bonds and imposing a unilateral moratorium of ninety days on most foreign commercial debts. The banking system, which has few assets beyond government bonds, collapsed, and banks closed their doors to depositors. When they will reopen, and under what conditions, is still unknown.
The country’s political crisis compounds the economic uncertainty. Last March, Boris Yeltsin with no explanation fired Prime Minister Viktor Chernomyrdin and appointed in his place the unknown Sergei Kirienko. The fight over Kirienko’s confirmation lasted a month, with the Duma rejecting him twice before confirming him narrowly and reluctantly. Now in a bizarre reprise, President Yeltsin on August 23 dismissed Kirienko and re-appointed Chernomyrdin. Despite Chernomyrdin’s frantic efforts to cut a power-sharing deal with the Communist-dominated Duma, the Duma rejected his candidacy on August 31 and again on September 7.
If Chernomyrdin is defeated a third time, the Constitution allows President Yeltsin to dismiss the Duma and call new elections. He could also declare a national emergency and rule by decree for up to 90 days, by which time elections should have been held.