The financial crisis in Russia is Boris Yeltsin's fault. The west would be foolish to back him at the next electionby Anatol Lieven / July 20, 1998 / Leave a comment
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,…