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Betting on Boris: The West Antes Up for the Russian Elections

By Fred Weir, Covert Action Quarterly, Summer 1996

YELTSIN'S POPULARITY IS FALLING AND THE COMMUNISTS ARE GAINING IN THE POLLS AS ELECTIONS IN RUSSIA NEAR. ENTER THE LEADERS OF THE FREE WORLD, ARM IN ARM, CHECKBOOKS IN HAND, EAGER TO ENSURE A VICTORY BY THE MAN THEY HAVE LONG RELIED ON TO CARRY THEIR FREE-MARKET WATER.

In the runup to Russia's June elections, Western leaders have broken normal diplomatic protocol to express strong public support for President Boris Yeltsin and have anted up a total of almost $14 billion in loans, much of which will be used to bankroll the incumbent's lavish campaign promises. Whether or not these elections take place as planned and there is much speculation about cancellation or postponement the extent of foreign influence is noteworthy.

Russia is scheduled to go to the polls on June 16 for the first round of elections to choose a new president. Some 17 candidates are registered, but none is expected to attract the 50 percent of votes required to win outright. The two front runners will face each other in a second round, probably on July 8, which will determine the final winner. Virtually all public opinion surveys predict that the second-round contenders will be Yeltsin and Gennady Zyuganov, leader of Russia's resurgent Communist Party, which led the polls in December's parliamentary elections.

Many in the West have reacted with alarm at the prospect of a Communist comeback in Russia barely five years after the collapse of the Soviet Union. But with Yeltsin's popularity eroded by economic and social decline, the Communist Party appears capable of winning the presidency if the vote is free and fair.

FREE AND FAIR VS. PRICEY AND PACKED

These elections are Russia's first experience with the full barrage of US-style campaign techniques, from professional PR operations to negative ads, from promises of universal prosperity to large infusions of cash distributed to key constituencies around the country. And as in the US, these costly tactics will play a large part in determining the outcome of the vote.

Yeltsin has taken to pork barrel politics like a tsar to caviar. He opened his re-election campaign with promises to pay 7.8 trillion rubles ($1.6 billion) in back wages owed by the federal government to public sector workers. He also pledged to make cheap credits available to Russian regions to help clear a staggering $4 billion backlog of unpaid salaries to workers in privatized industries.1

During March, the president signed a string of decrees to raise pensions and student benefits, finance cash-strapped educational institutions, fund scientific research, and rebuild war-torn Chechnya. The initial price tag for these promises has been variously estimated at between $9 and $16 billion. *2

On the campaign trail, as he throws money at potential supporters, Yeltsin mixes what the New York Times described as the hauteur of incumbency with carefully staged demonstrations of compassion and munificence. In early May, he promised a Tatar leader he met on the street $50,000 to open a new Muslim cultural center. During a visit to a Russian Orthodox convent he gave $10,000 from his treasury to help cover the nuns' housekeeping costs. *3

FRIENDS IN DEED

Although some of his promises are so much flimflam, others have been, or likely will be implemented. But even without additional expenditures, Russian state revenues were running far below projections as the country faces a crumbling infrastructure, a shredded social safety net, and mounting debts. Experts describe tax collection in Russia's lawless marketplace as abysmal. *4 Income from sales of Russian treasury bills is nowhere near expectations, despite interest rates on the six-month bonds of up to 165 percent. *5

To make up its gaping budgetary deficit and pay for campaign promises, the Yeltsin regime has turned to foreign sources of financing. And Western leaders have responded with almost unprecedented generosity. In February, German Chancellor Helmut Kohl visited Moscow and offered a special credit of four billion marks ($2.7 billion), three-quarters of which was extended without conditions on its use. *6 At the same time, he showed support for the current president. Under Boris Yeltsin's leadership, Kohl told journalists, despite all the difficulties, Russia has set out on the road to democracy, rule of law and a market economy. *7 Within days, French Prime Minister Alain Jupp provided Yeltsin an additional loan of two billion francs ($392 million), paid entirely into Russian state coffers.8

In May 1996, a Japanese consortium of major trading houses and shipping firms announced its first large-scale project in Russia since the fall of the USSR. With help from the Japanese and Russian governments, they plan a port development project in Russia's Far East. The aim, said Japanese officials, is to spur Russia's economy and support the Yeltsin administration ahead of the Russian presidential election scheduled for June. *9

Secretary of State Warren Christopher dispelled any doubt about where the US stands when he visited Moscow to lay the groundwork for the G-7 summit on nuclear safety held in the Kremlin in mid-April. In an interview with Russian journalists, he made Washington's views on the upcoming election crystal clear:

"I am sure that President Clinton will come here to follow basically the line that he has followed ever since the beginning of his presidency. That is to support the reforms and to support those who are enthusiastic about reform and who are carrying out reforms. That has brought him into strong support for President Yeltsin on prior occasions.10"

A few days later, on March 26, the International Monetary Fund (IMF) approved a three-year, $10.3 billion credit to Russia, front-loaded to deliver almost half the amount in 1996.11 The first installment, $350 million, was paid at the end of March.12 This IMF loan is the second biggest in history, after last year's $17.8 billion Mexico bailout. On May 1, the World Bank joined in and approved a $200 million loan aimed at bolstering Russia's social services. Although the US dominates the Bank and the IMF and often runs roughshod over the other members, in this case it did not have to twist arms. The industrialized countries formed a solid bloc behind Yeltsin.

As is generally the case, IMF and World Bank support ensured special consideration by other lending institutions. A month after the IMF loan, the Paris Club, made up of Western European countries plus the US, Japan, and Australia, gave Yeltsin a boost with the largest rescheduling deal in the club's 40-year history. And instead of the usual maximum of 18 years, they gave Russia 25 years to pay back its $40 billion debt. The Club conditioned the agreement on Russia's compliance with IMF guidelines that effectively lock any future Russian government, even one led by the Communists should they win a presidential election in June, into a reform program. *13

The IMF agreement also spurred discussions between Russia and the 600 creditor banks which comprise the Club of London. In November 1995, this creditor group had rescheduled 25 years' worth of debt, inherited from the Soviet Union a total of $32.5 billion starting with a seven-year moratorium on repayments. After the IMF decision, the Club of London reopened negotiation for an additional round of rescheduling.14

IMF FUTURES

While these lenient terms and extensions give Yeltsin some breathing room to deal with economic crisis and mounting debts, the IMF is providing hard cash. Some of the Fund's money is earmarked for special projects, but the bulk goes directly into the state treasury, where it can be disbursed by Yeltsin and the Russian government any way they wish. It is extraordinary that this money is being rendered for discretionary spending by the government, rather than being linked to specific goals, writes Sergei Glazyev, leader of the left-wing Democratic Party of Russia.

And the speed with which it is coming into the country indicates that it will be available for Yeltsin to temporarily increase social spending before the election. *15

Yeltsin, for his part, saw the cash infusion as nothing less than his due after years of cooperation with US-designed economic reforms. Before the loan was finalized, he made clear he had expected the money: It would be treason for the World Bank and the IMF not to support Russia at this stage, he said in February.16

Michel Camdessus, the IMF chief, brushed aside suggestions the organization was favoring Yeltsin's candidacy in the upcoming election without actually denying it. Not to support Russia now also could be viewed as taking sides, and would be equally wrong, he said. It is our ... moral obligation to support this government. *17

Putting a finer point on it, Mr. Camdessus warned that the IMF money could be withdrawn if a Communist wins the June election. If they are consistent with a communist approach, he said, then indeed agreement would be impossible and then we would have to suspend our support. 18 He specifically warned that any attempts to re-nationalize private industry would halt the flow of IMF credit. The IMF's deal with Russia states clearly that the government will not re-nationalize or increase the share of the government in privatized companies, and that any attempt to do so would be a breach of agreement, he said.19

SECOND THOUGHTS

Limited re-nationalization is precisely what the Communist Party program calls for. Recognizing the enormous social and economic dislocation and the current disrepair of the economy, the Communists advocate placing raw materials and strategic industry under public ownership. They also propose subjecting some of the most questionable deals in Russia's two-year-old privatization campaign to legal review. These measures send chills through Russia's new economic elite, which not only has the economic clout to defend its status, but maintains well-armed private armies employing up to 600,000 men.20

Many Russian economists have pointed out that the Yeltsin privatization campaign, particularly its hasty and deeply corrupt second stage, transferred some of the country's richest assets to a tiny handful of well-connected plutocrats.

Even the original architect of Russia's shock therapy program, Harvard economist Jeffrey Sachs, recently decried privatization's second stage as "a remarkable plunder of state assets. ... The second stage of privatization appears to have delivered literally tens of billions of dollars in state assets in the oil, gas, and metals sector to powerful insiders in the government, the banks and the enterprises.21"

In an unprecedented comment to the English-language Moscow Times, the intellectual father of Russia's market reforms called for a reversal of last year's natural resource privatizations, on the grounds of social equity and rule of law. 21

By tying its support explicitly to the irreversibility of privatization, the IMF is setting conditions that alienate a wide swath of Russian public opinion, from outraged liberals to tough- minded Communists. Boris Yeltsin, who authorized the privatizations in a series of special presidential decrees, is the only force on the political spectrum with a clear interest in leaving the one-sided division of spoils in place.

But despite some queasiness, Washington is backing Yeltsin all the way. This episode is the latest in a long history of US interference in foreign elections: from Japan in the 1940s, to Italy in the 1950s, to Chile in the 1970s, to Nicaragua in the 1980s, to Russia today. Were the same level of financial and political aid used by a foreign power to exert pressure on a US election, it would be denounced as outrageous intervention. In Russia today, it appears to be just the way free and fair elections work or don't.

(Fred Weir is a correspondent for Canadian Press in Moscow where he has lived for the last ten years.)

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