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photo of boris fyodorov boris fyodorov

He is a former Russian Finance Minister (1993-1994).
...Ten years ago I think everybody was much more euphoric and enthusiastic because at that time things looked pretty simple. You just tried to create democracy and stock market reforms, and everything will be going like a knife into butter. But, unfortunately, all these basically naive, idealistic things were not proved true, and most things happened in a haphazard way, an ugly way with a lot of corruption, with a lot of bad things happening in between. So I'm much less enthusiastic, unfortunately, than I used to be 10 years ago.

Was anyone arguing that it wouldn't be that simple 10 years ago?

Nobody believed everything would be simple, you should understand that. The question is what people thought will be done, how fast and how civilized. And obviously, not many people expected, when they were supporting Mr. Yeltsin, that things would be done in a very uncivilized way with a lot of bad things happening, and this concept of "Family" being created, oligarchs, lots of corruption, lots of steps forward and then a lot of steps backwards. It's clear that nobody expected it to be that bad....

When we met and talked not long ago, you described to me what Russia faced in the winter of '91-'92. You said it was chaos. Can you explain that?

It was a very dismal situation in the sense that Soviet economy definitely was collapsing. Soviet ruble--it was not yet Russian--Soviet ruble was collapsing. Obviously, the black market was rampant. Everybody was trying to buy things at prices which had nothing to do with official prices. The black market for currency was on each corner. It was clear that in the state-owned shops, unless you had special rationing cards, you couldn't really get basically anything. And it was a situation where it was clear that the state was not functioning, but lots of enterprises basically stopped producing things because they couldn't sell them and they didn't know how to do it.

And at the same time, at the top level, people were constantly fighting political battles. It was clear that regions of the Soviet Union saw that the center [was] very weak, and were trying to become presidents and basically kings of the feudal kingdoms very, very quickly. And nobody paid much attention to the real needs of the country....

All of a sudden this world which they knew started collapsing when the policemen didn't really want to support the upper echelons of power [and] in the regions people started fighting centuries-old nationalist battles between Armenians and Azeris. It's clear that we never expected anything like that. For instance, about 20 years ago, if somebody fired a gun in Moscow, it would be such a big incident that people will be discussing it for a year. Now, all of a sudden, these gangster wars occurred and lots of assassinations, lots of criminal activities, which were never to be witnessed before. In the streets of Moscow, all these prostitutes and drug sales and things which were unimaginable [before were emerging]. I've lived all my life in the Soviet Union, and I didn't expect it to be that bad. And clearly, the authorities were not up to the task. They couldn't really cope with the problem and they showed their utter inefficiency, and they're still showing their inefficiency.

At that time, back in early '92, did Yeltsin understand the nature of the economy, and did he understand what was needed, what ought to change?

In my opinion, Yeltsin never understood anything about economy, and still doesn't understand, obviously, and he never understood what had to be changed. My personal view of Yeltsin, what I've seen in the last 10, or more than 10 years already, is that Mr. Yeltsin was just a political fighter. For him the only and predominant task was to get personal power. He happened to be at odds with Mr. Gorbachev, who was the boss. They were approximately the same age. Under Gorbachev, Yeltsin would never have become number one. He's a guts-feeling politician with lots of animal instincts, who wants to be a superior one, and clearly, he started fighting Gorbachev, and by doing it, he became an opponent of the regime. If he were in the shoes of Gorbachev, probably he would be fighting to preserve communism, and actually, I think the West would have faced many more problems if Yeltsin was in the shoes of Gorbachev. Probably Soviet Union would not have collapsed and Yeltsin would [have] liked to [have] preserved his power.

It is clear people don't like many things that happen in Russia.  People probably hate a lot of them.  But still, they don't want to go back to the old communist system. And dealing with economy, he showed a total lack of understanding. Only when the problems were most acute, when crisis was really heating everything, [did] Yeltsin look around and try to see whether there is anybody who is coming with any recipes for dealing with the crisis. That's how Mr. Gaidar appeared and that's why many other people, including myself, appeared in the government--not because Yeltsin understand us or knew us or liked us. He never did that. But clearly, when in times of need, you really have to fight something, then it's not enough to have cronies, who probably steal a lot, but don't know what to do. You have to deal with other people.

And once situation was becoming much more peaceful and relaxed, a lot of reformers were kicked out of the government, because you don't need these people when everything is more or less okay. That's why I don't think Yeltsin ever knew, really, what has to be done, and most of what happened was haphazard process, unorganized....

When we met, you gave me a vivid description of the time not long after prices were released, when you would walk through the streets of Moscow. . . .

Once the prices were liberalized, released, and there was even the slogan of the free trade adopted for a while, just for a few months . . . all of a sudden we have seen that millions of Russian citizens . . . went into the streets, and they started trading everything, from the old grandmother's shoes to packs of cigarettes bought somewhere wholesale and then trying to sell them. And there were places in Moscow, I remember quite vividly, where you couldn't really walk the street [because] there were so many people standing there, and everybody was selling something, the same I've seen in St. Petersburg.

And that showed that once there is freedom for people to do certain things, millions will try to do it. Not everybody will succeed, obviously. And I think government was absolutely right at that time to use this very, very unorthodox method of trying to build market economy, when you tell anybody can sell and buy anything. And for a while it was there. Probably it should have gone longer, so that many more people acquire a certain experience, but it was a dramatic change from queues in the state shops to basically everything overnight available, for a price, obviously. And this mass movement of the market, it established certain prices, because, obviously, very, very quickly people started understanding that, unless you give the right price, nobody will buy from you. They will go to the next corner of the street and find somebody who sell these Marlboros to you at the cheaper price. And then was a dramatic, dramatic change. Basically the first few months after January '92, was a dramatic change. It was the main achievement of Mr. Gaidar when he was acting prime minister. I think that was the time when reforms really started in Russia.

Do you think that change is now forever?

I think it's forever, because it's clear that these last 8, 9 years changed the situation and country dramatically . . . . It's clear that in these 8 years, hundreds of thousands, probably millions of people, bought their own flats and created their own houses. And a couple of million new companies were created in these years. And clearly people work there; they have something to lose. People sent their children to private schools. People bought their new cars. People now like to go to restaurants . . . .

It's clear that there are millions and millions of Russian citizens who probably will criticize the government while sitting in their kitchen at night and drinking a glass of champagne or something like that. But still, they have something to lose. It's clear that the millions have something to lose. Most of the elite have something to lose. It's a cynical thing, but it's clear that a lot of even those corrupt officials understand perfectly well that in the Soviet Union they would have never been able to live the way they do now. And it's clear that they will have been punished much quicker than they are punished now. So everybody has a vested interest in preserving it. Obviously, there are also millions of people, mostly pensioners, who would like dramatic change, but you cannot go into the same water twice. You cannot repeat history, and it's absolutely clear that there is not a single country in the world where the communist planned economy works. That's why I don't think we can go backwards. The question is: how fast we shall go forward and how quickly we can deal with the problems which the country faces today?

When we talked earlier, you told me [that] by the spring of 1993, the notion of reforms, just generally, things were at a deadlock.

I think that still in the spring of '93, the majority of people were still supporting reforms, because there was still a lot of this enthusiasm. Remember, this [was the] April '93 referendum where most people voted for supporting Yeltsin and reformist government, and I was at that moment in the government. It was clear that there was still kind of a feeling of elation, where people still believed that things will be improving. And we were trying hard--at least I can vouch for myself--that we were trying hard to do things, despite the resistance of my own government, despite the resistance of Yeltsin and parliament and so on and so on.

At that time there was still a kind of feeling that things could be done in the proper way... But, a lot of people deserted this reformist kind of feeling which existed at that moment. Some of them went to the more pragmatic way of just supporting any government for the sake of being with the government. And still other people were just not coming and voting. Partly it was due to the mistakes made by some of the reformists, because it's clear that the way privatization was organized and the way Mr. Chubais decided to have quite a few compromises with the oligarchs--with not very clean businessmen, I would say. That also damaged the reputation of reformers.

So [it] was the combined factors of Mr. Yeltsin basically not supporting reforms enough, parliament not understanding it, lots of members of the government being on the other side, and then the reformers themselves making very serious mistakes which led to lack of enthusiasm. That's why now those who were considered to be reformers in '92, '93 are not very popular . . . .

And you told me that after the referendum in April '93, Yeltsin did the opposite [of what it called for]. Instead of taking this as a mandate, what did he do?

I think Mr. Yeltsin is a very controversial person, and he always did, after winning, for instance, a certain round of political battle, quite the opposite thing from what was expected of him. You can start even earlier. In '91, the so-called coup d'etat, Yeltsin wins; basically Russia becomes predominant. And what Mr. Yeltsin does? He goes on holiday to write his memoirs . . .

In '93 you have referendum. You win that referendum. And what do you do? You appoint to the government quite a few anti-reform-minded officials . . . . And the same happened in October '93. So he dismisses parliament with a lot of mistakes and some bloodshed . . . . So he won the battle. So the parliament, which was the main enemy of reforms, is out, but reforms do not really go much faster. Well, why? Because most of the people in the close Yeltsin circle basically are against reforms, and that's a very, very sad story. So Yeltsin was always doing the opposite [of what the reforms called for].

In the year of '99 when he won this impeachment battle, the impeachment fails so Yeltsin could start doing something. He doesn't do anything. So he brings a weak prime minister, he thinks. Then brings another prime minister. He thinks only about the succession to the throne, not about the needs of the country. And that's why Yeltsin will be in the history as a person who really changed Russia dramatically. But at the same time, he will always be remembered, I think, as a person who missed his opportunity to become a real reformer, to move his country really into the 20th century at that time. And that [is the] person with whose mistakes we shall be dealing in the next 4 to 10 years.

You told me that you think that most of his term, at least his second term, was just lost time in the country.

You know why a lot of people in Russia are enthusiastic about Mr. Putin? Not because they understand Mr. Putin, not because they like him, but because he's in his office on a daily basis. And Mr. Yeltsin, for the last four years, if he was [in] one day a month, one full day in the office and really dealing with problems, that would be a surprise.

People are sick and tired of not having a real boss in the Kremlin, not having real authority, because once you have the situation, there is a vacuum of power, and vacuum of power means that oligarchs are coming in. . . . It means that a lot of local governors and presidents of different subjects or federation of Russia, parts of Russia, become the feudal lords who do whatever they wish there, and this is a very dangerous situation.

And Mr. Putin is a welcome change because he is helping and he is in the office on a daily basis. That's already made a lot of people much more sympathetic to him, and that's what was the main problem of Mr. Yeltsin. If he didn't go and get elected in '96--and at that time there was a successor--I think Russia would have benefited tremendously, because the last four years of his term are basically lost, because nothing positive happened. Only problems accumulated. Only corruption was rampant. Only all these bogus deals with IMF were concluded. Russian external debt became bigger, and then Russia defaulted, and I don't think this is a very nice result of the second term, even if it had blessings of IMF and G-7.

And the United States government?

And United States government--because obviously everybody understands that IMF and G-7 is United States government--nobody fools one's self in this concrete question. Unfortunately, in my opinion, United States government was thinking only geopolitically--when Russia is not really a country, but a certain piece of the riddle, if you, for instance, [did] not support the current president, who would be potentially more dangerous globally in terms of military presence and so on? So that was the political decision probably from State Department. Just send them cash, make them keep quiet, and probably we can just go on to the next very, very easily.

It was a major, major mistake, because first, it destabilized Russia. It made corruption even higher. Now [the corruption has] reached United States, because Bank of New York, so far as I know, is situated in United States. It's clear that a lot of dirty money from Russia is flowing around American banks. It's clear that in the United States there are lots of properties acquired illegally by Russian residents, so hiding basically from the Russian tax man under the auspices of the American tax man, which is a very, very strange situation.

And it's clear that, in the end, all this strange geopolitical thinking of American administration led to what? That we have worse relations between east and West, that we have lots of conflicts and differences of opinion on anything from Kosovo to Chechnya. It's clear that this kind of honeymoon period between United States and Russia is long gone because, after all these efforts of United States government, many more Russians now dislike America than ever before, and that's sad....

And so . . . the geopolitical explanation is how you would explain the fact that the US Government stayed with Yeltsin no matter what he did? He was the reformer. He embodied reforms, even when there was evidence to the contrary.

. . . I think the main idea of this position was very, very simple. So we are the only super power. These guys over there also think they're probably super power. They have, unfortunately, a couple of dozens or thousands of nuclear warheads, and potentially they're quite dangerous. So the main thing is not what exactly they do in their own country, but to try to basically buy time with certain sweets, like you know, bully child in the street, give him a few sweets and he keeps quiet for a while; not much noise comes out of it. So I think it was a very, very primitive thing.

And [the West] misjudged Yeltsin in the original battle with Gorbachev, because, remember, the West always misjudges the Russian politicians. So the West was supporting Gorbachev when Yeltsin was already much stronger, probably much more positive originally to Russia [than Gorbachev was]. When Yeltsin was already not a very positive thing for Russia, the West didn't really show its hand. And in this instance basically blessed what was happening in Russia, keeping a blind eye to corruption, all these scandals, perfectly knowing, obviously, because I guess United States has CIA and diplomats and other sources of information. [They] turned a blind eye to many things, ugly things happening in Russia.

And in the end, I think it was a very big misjudgment. I think those who are considered to be advisors to Bill Clinton were not very good advisors, because they never understood Russia in the first place. And then they led United States to look very bad in the eyes of Russian citizens, and probably in the eyes of American citizens, because a lot of money was wasted and results are not really there.

Let me take you back again to '93, which we were talking about and then left. What you've said basically is that by the fall of '93, you were fighting harder against some people inside the government than you were against the parliament, in terms of the economics?

Absolutely. When I was Minister of Finance in '93, and Deputy of Prime Minister and the same actually even in '98, [I] was not fighting parliament. It was not communists. It was always my own government, my own prime minister, my own president and his advisors . . . The spending habits of Mr. Yeltsin were quite strange, because he used to publish like a decree on additional spending something somewhere, like basically on a weekly basis. I once managed to go to him and convince him to publish a decree which will stipulate that no further decrees of himself will be published on spending. It didn't help much, but for a month probably he was sitting quietly there, not really trying to spend more.

And all the time I had to fight agricultural minister and industrial ministries. They wanted only one thing. They wanted to spend more. They didn't care whether money comes in, and they didn't care how wisely this money is spent . . . . It's clear that most of the members of government, unfortunately, never had reform agenda. Probably a lot of them had personal agenda--trying to steal a lot. I remember again perfectly well that in a couple of cases, information which I could provide on certain things, which in my opinion are very suspicious, was not acted upon. Sometimes even documents sent to prosecutor general's office were never acted upon.

I remember when I was already not in the government, . . . I had an interview with Yeltsin one-to-one, and there was lots of talk about fighting corruption. But then I said, "I can give you my service. I can help you. I will identify for you like 10, 20 government officials, who I know 100 percent where to look and how to investigate them." And he never used my service. And that's clear that in the face of fighting your own government, this parliamentary thing is of secondary importance . . . .

You've said that you, at least in trying to push economic reforms, [have been] fighting your own government more than the parliament. So what was the struggle with parliament about? When [was] the idea of dissolving the parliament first mentioned, become something that people were talking about, even if quietly?

My personal opinion is that the battle with parliament was not really specifically even about economic course. Obviously, people were saying that these guys are for reform. These guys are against reform. But when you look at it carefully and analyze, I think it was mostly them and us. Whatever they do is always wrong, whatever we do is always right. And clearly it was the battle for power, and since the majority of parliament basically hated the guts of Mr. Yeltsin really seriously. And he didn't act to alleviate these problems, because, obviously, president and government should work harder to cooperate with the parliament in any country. Personally, I tried, but it was very, very difficult, because most of the government didn't want even to talk to [parliament].

So after a while, parliament was getting a feeling that they could do anything and Yeltsin will not act, because there was no history of any violence. If you look even now, not a single of [Yeltsin's] opponents is in jail, and not a single newspaper was closed, even if some of them should have been closed.

So [Yeltsin's government was] more and more getting heated up over this independence of the parliament....For instance, organizing their own security force, and having stocks of even arms inside the parliament, Yeltsin doesn't act. They tried to spend more money on themselves. He doesn't act. They talk more and more tough. He doesn't act. They adopt certain laws which were ludicrous, like for instance, declaring that Sevastapol is Russian city . . . .

Then they adopt by the beginning of September such a strange type of law . . . saying that whoever doesn't implement what the parliament says should be criminally charged, up to basically being shot. So capital punishment for not implementing crazy orders of the parliament. And since the constitution was not detailed enough, and there were gray areas as to what has to be done in certain situations, obviously, we were becoming closer and closer to a real crisis.

And clearly, Mr. Yeltsin was on the verge of dismissing parliament, already somewhere in March '93 or April '93, and then went with referendum. That saved a few months more for the parliament. But since parliament was getting uglier and uglier in its demonstrations and talking tough and threatening basically everybody, and since there were a lot of governors in the regions who were basically communists aligned, so there was in the making a real...coup d'etat.

There was a question what to do in such a situation. Obviously, you could do nothing, and then there will be like half of the country supporting the president, half of the country supporting parliament, like in Britain--Charles and Cromwell. I think it's a dangerous situation. Yeltsin finally made a decision he wants to dismiss parliament because these guys were preparing to take over....

Yeltsin started acting, but he never prepared it perfectly well. He never informed even the full government. I think out of the government, probably minister of defense, security and foreign affairs knew about it. I didn't know, and I guess even prime minister was not really fully aware of all the ramifications of this plan.

And then once he made this decree dismissing the parliament...they didn't know what to do next...and the president didn't know what to do next. And we're sitting there in the government discussing the situation, and it's clear that nobody....It was a very, very bizarre few days and weeks, late September, beginning of October.

And then obviously crazy people on the part of the parliament started [going] around the country--basically, mercenaries with arms--and they started shooting. And once the shooting started, obviously things changed.... Quite a few people were beaten up, and it was getting to a stage where it was dangerous, and parliament published a list of politicians--I don't remember how many of them, but I remember perfectly well that I was somewhere in the second dozen--those will be immediately arrested.

So I asked myself, "I have never broke any laws-- I was working very hard--so these guys want to put me to prison for what?" Yeltsin didn't even inform me about this dismissal of the parliament, and obviously, my personal reaction was that I don't want to be in prison, and obviously, such crazy people should not be allowed to stay there. And that's why...I support Yeltsin's decision to dismiss parliament. And since he immediately announced new elections, it was not like usurping power and creating dictatorship, but it was also a referendum on new constitution. I would argue that obviously it's not perfect--the constitution and lots of things should have been done differently. At least my opinion was not listened [to]. I have submitted as minister of finance certain clauses on the finance to the constitution. They never adopted a single one, which was very stupid of them I think because they were good ones.

But it was clear that things were coming to a certain situation, and obviously, I think it was a very bad thing that there was a real fighting with these tanks on the bridge shooting at the parliament. That was stupid. I think if we had a better minister of defense, interior, security, they could have done it differently without loss of life, but it looks like in Russia, whenever there is a crisis, those who are supposed to deal with the crisis, always act indecisively and stupidly.

I think that if everything went into the hands of the parliament, it would have been even worse, because then there would be revenge, there would be more bloodshed, much less democracy. [Under] Yeltsin, basically after a few months, everybody was freed, whoever was fighting him. Not a single person is in jail, even those who were fighting and shooting people at the time. Personally, I thought it was morally wrong to give the amnesty to everybody who was with arms fighting, but Yeltsin is like that. So he acts very strangely, and he was very, very peaceful. And that's why I think basically he made the right decision, but the implementation was awful....

Let's skip ahead to another event or a series of events, Loans For Shares. You were very critical at the time about what was happening. Why?

It's very clear to me that once you start giving the crown jewels to cronies, it never helps, first, the image of the country. Second, it doesn't help the budget, because not enough money comes into it. Third, it doesn't help prevent the crisis, because if something is ill gotten, it isn't really cared for the same way as if something is really bought with your own hard cash. And it's clear that [Loans for Shares] was a disgusting exercise of a crony capitalism, where normal investors were not invited, where even among Russian so-called investors, only those who were friends of certain people in the government were invited. And there's a big suspicion that no real cash came to the government....And since everybody knew that these loans will never be returned, clearly it was a kind of a gimmick how to circumvent parliament in this case, and how to circumvent normal ideas of privatization....

I think it was a very bad exercise. It damaged the reputation not only of Russian government, but of some reformers like Mr. Chubais, make him even more hated by the population. It put a lot of dirt on people like me who never participated in it, but since we are looked upon as basically the same generation--all reformers. So I have to suffer for this, for something which I was criticizing vehemently. Clearly, it led us to losing a few years in real privatization, because I think that even if it were called Loans For Shares, but it was organized on a honest basis with invitation of all investors to participate, the results for Russia would have been tremendously better. And it was not done, and Russia lost a lot in the process....

There is absolutely nothing which will preclude me [from] saying that it was basically stealing. The appearances could be Loans For Shares, some schemes, but the was it was done, a bulk of assets was basically stolen. For instance, if something is worth $100, and you basically pay 20, you can call it bona fide purchase. But at the same , everybody understands that if only you were allowed to make this purchase, this is basically corruption, it's stealing. And this is a major, major black spot on the reputation of Russian reforms forever.

Is this the moment, during the series of these Loans For Shares, so-called options...that everyone now refers to as [when] the oligarchs are created?

I think oligarchs were created by this process, plus the role they played during the presidential campaign in 1996, because obviously they got a lot of these assets. They got them because they wanted basically the cash flow, especially the export oriented enterprises. So you don't do anything, but you control the cash flow, and already you have much more money.

And then they got together and started supporting Mr. Yeltsin during the elections, and for their supposed help, they got even more assets, because we remember about the jobs. Some people got in the government like Mr. Putin and [became] the first deputy prime minister of Russia. Some people got Russian television. Some other people got agricultural bank and so on and so on. So this combined process of '95, starting with Loans For Shares in '96 presidential elections, that's what created the oligarchs and the absence--or the vacuum of power. Because immediately after '96 elections, Yeltsin was basically gone from real politics.

And this vacuum was filled to a major degree by the so-called oligarchs, who became super rich, using basically government resources, and then filled the vacuum of power using the mass media instruments to influence everybody.

So officially the deal was, we'll let you steal for us if you give us some of what you've gotten back?

In Russia nobody gives money for politics, for the sake of politics. It's not United States where millions of people send their 5, 10 dollar checks, and participate in these dinners with a 100 or 500 dollar a plate. Clearly, such things are absolutely unknown and non-existent in Russia. Ninety-nine point nine percent of all political money in Russia is obtained via deals, deals which are very, very simple. We help you, you help us. We give you a government order for this type of goods. We allow the bank accounts of this government order to be in your bank. We give you certain privileges on exports. We give you export quotas. We give you a special deal on taxes. We close the eyes that you are not paying taxes. . . And then you just share with us.

So for instance, if the worth of a certain privilege is $100 million, who would be so stupid as to not give 20 million out of it for political purposes, because it's business? So most of it was business and it was very, very ugly.

And in '96, the government, the presidential entourage, they became so cynical at it, that it forever changed the type of Russian politics, because we've seen already in '99 that elections are no longer about ideas, principles, political programs. It's about how much money you have and how many spin doctors you can hire, and how much TV time you really control. Nobody even hides this any more, any longer. And we have seen that it works.

Back in '96, the US was sort of in on this as well, weren't they? Weren't there lots of IMF loans that were released during the time that would help [the Yeltsin campaign]?

In '96 I can't really blame the West, because clearly the choice in '96 was between Yeltsin and Zyuganov, the communist party leader, and at that time we were selecting between the worst and just very bad. It was no choice between good and bad. And at that time, I think it was quite natural that anybody with any brains would support Yeltsin in principle, even looking at all those dirty things happening.

But supporting in general doesn't mean that you should close your eyes to certain things. If somebody is a thief, and even if this thief supported somebody whom you supported, it doesn't mean that the thief is your friend, and that's my principle. And in '96, I personally voted for Yeltsin, because the other alternative was even worse....

During loans for shares...should the West have known what was going on?

I think the West knew everything. Second, obviously, it's internal matter, and governments of other countries should not interfere, but governments of other countries could have opinions....

These Loans For Shares unleashed a wave of corruption like never before, and the West, especially IMF, kept quiet. It's clear that now IMF--for instance, there a deal in Ukraine, and IMF says, "Well, you have to do it this and that way"--the mythological plan. Why IMF and others didn't say anything at that time, that's surprising, because obviously, even if you do not interfere, you could have [to] make a statement saying that this we frown upon, this is not a perfect practice. If you want our support you should do it differently with inviting proper financial advisors, with freedom of access to the program for everybody, and so on....And this is one of the big mistakes I think the West has done at the time....


Given all of this that we've talked about...all of the disappointments over the last 10 years, tell me now what the result is.. economically? You are both clear and you give good examples in people's lives about where Russia is now.

I think Russia is definitely on the way to be normal market economy and democracy.... These 15 years of transition are not yet finished, so we have another 5 to 10 years of transition, but it's clearly in the right direction, and now nobody believes that there can be u-turn, so this is a positive thing.

It's clear that in Russia, despite all these scandals and ugly things, there is different type of life where people have their own houses and flats, where a lot of businesses basically thrive, where people drink more and more mineral water and less vodka, which is also a good sign, where lots of people try to get education outside the country. In the Soviet Union it was absolutely impossible to meet anybody who [had been] in the West, outside obviously, the realm of KGB agents. But now you have hundreds and hundreds of young people go around Moscow in the job market with CVs full of very interesting credentials, and thousands of children and young people are now starting in the West....

People are building houses. People are creating businesses. People are thinking differently, and demographics work in this way. That's way I'm moderately optimistic medium-term, because definitely we go more or less in the right direction. The question is the pace. The question is the cost. The question is the price that the older people who cannot adapt themselves to the new situation pay, and that's not very nice, definitely.

I think that obviously Russia faces quite a nice future in the 21st century. Twentieth century was not our century. We only [had] all these wars, civil wars, revolutions, purges, collectivizations, scandals, corruption. Probably this century will be the century of Russia, and I don't believe all these dismal predictions that Russia will never get out of it, because it's absolutely clear that our country can rejuvenate itself, regenerate, even with the losses of millions of people died with that century or emigrated. We feel that there is new life is coming, and if we were more civilized and do thing better, probably more people would see it. But the way we go, I think finally we'll be at the right stage.

Aren't lots of people terribly disillusioned now, and don't lots of people live very badly now?

What people feel and what they think is sometimes different from what actually is there, because you can be very disillusioned with certain things, but you are already at a different level of it. I once was at the military industrial factory, and people were very disillusioned, but when I asked them to raise their hands who had a car in the Soviet Union period, there were like two or three hands. And then [I] ask just who has a car now when you're disillusioned, and there were like 30 or 40 [hands]. So it's a different level for many people.

People always get accustomed to good things much quicker than they get accustomed to bad things, and they have new needs. And it's clear that with the older people it's a real problem. It's a shame how the state has treated the pensioners, the veterans. This is one of the major social issues still.

But as to what people really think, I think it's a matter of a big debate, because if you look at the level of striking activity in Russia, you will not find many strikes. When you look at the official reporting, for instance, on CNN, you hear, [at] this enterprise, the wages were not paid for six months. And then you look at some of the people who were not paid wages for two months, and they look not so thin and not so despondent and sometimes well dressed. And you ask yourself just, "They have not been paid wages. They should have been dead already. Why are they still alive?" Well, for the very simple reason that probably only 10, 15 percent of all income of people is visible, and the rest comes from elsewhere, and it's not taxed, and it's not visible, and it's not--it doesn't go to any statistics. A lot of Russian economy-- I would think that at least more than 50 percent--is invisible. And a lot of income is distributed in invisible way. If all wages in the Moscow City from tomorrow would be paid officially as wages--and they're not paid because of the payroll taxes--I think that probably the average wage in Moscow would increase 5, 10 times if everything was visible....

That's why I think disillusionment sometimes makes people probably...less go to the voting booths, not participate in politics, don't believe any politicians. But still people care for themselves, for their own house, for their own family. They like to travel. They like to build something. They want to earn more money. They want their children to have better education. They understand now more and more things. That's why even with the level of disillusionment which basically, obviously exists, nobody expects communists to win. If everybody was disillusioned, Zyuganov tomorrow would be president of Russia....

It is clear that people don't like many things that happen in Russia. People probably hate a lot of them. But still they don't want to go back to the old communist system. And with all their disillusions, they will be criticizing government, they will be criticizing the president, but they don't think that the basic direction is wrong. That's my opinion.

A lot of people that I've talked to since we've been here, who are for Putin, either believing or wishfully thinking that he's going to change--that he's not going to be Yeltsin, he's going to clean up the corruption... a lot of the problems that we've talked about today.

The hope is human, the same as to err is human. And it's clear that most people hope that he will be different, and it's very natural. First, he is 47. He is not 70. He's not ill. He's healthy. He's in office daily basis. The other guy was not in the office. This person worked for many years with foreign investors in St. Petersburg, dealt with country things, nitty-gritty of the day-to-day routine, work. Yeltsin for dozens of years probably never saw Russian currency, and he never saw money even in the Soviet period, because he was such a big boss for so long. It's clear that people should hope, but they know perfectly--and they don't like to talk about it--that Mr. Putin was created by Yeltsin. He's part and parcel of his group. He is the product of the family. Most people understand that once Putin is strong, he probably will try to get rid of most of this family. But it doesn't mean that anybody today in Russia thinks that Putin is great reformer, that Putin is great democrat, that Putin is ideologically motivated idealist or anything like that, because clearly he's not. But compared to Yeltsin, he's a huge progress already.

And that's why again, we probably do not select among the best and the better. We select now from between the bad, which is Mr. Zyuganov, for instance, and probably something in the middle. We don't know even if there will be a really good, probably mediocre, I don't know. We hope that it will be better. But that shows that still people don't really want to go [toward communism], and that makes me more optimistic. It's clear that nobody is fearing Putin to close down the country, to really dismantle democracy and so on, despite some of the talk which is always in the press.

I read recently where you had analyzed--as you know, not many people know exactly who Mr. Putin is...his ideology based on his KGB background. Can you talk to me a bit about that?

I think we should not be wearing any kind of pinkish glasses looking at Mr. Putin, because if a person decides voluntarily to serve in KGB, he's of certain type of mind. He is part of the Soviet system, but he was not working in KGB during the Stalin reprisals. He was not working ideological department. So I would say that given his background, he's clearly not an ideological reformer, democrat or anything like that.

It's clear that he is much more in favor of strong state and law and order, which is good, because that's what people really want today. It is clear that he is young enough, and at the same time has seen enough in the past 10 years, not to be willing to go with the Soviet methods of ruling the country, economy....But we should not forget that if the person served in a certain type of body to expect too much of him. It would be just stupid.

But I would advise not to expect too much. Understand that it's much better than Yeltsin, but it's not ideal. And he has yet to prove his credentials as reformer, because too many people now are just running around crazy with enthusiasm, so I think it's better definitely, and I will vote for him, because I don't see any other candidates who can really win and be better than Yeltsin. But clearly, we should wait and see and bide our time for the real progress, not to exaggerate the immediate changes.

So you don't agree with President Clinton and his Secretary of State, who are telling the world that Mr. Putin is a well-known reformer in Russia?

We've heard these guys say the same about Yeltsin and about many other people. And what I think about Mr. Putin will never be determined [by] what Mr. Clinton or Madeleine Albright think, because I disagree with them on most foreign policy items like Kosovo or Chechnya and their view of Russia, and I think they're mistaken again. They're just spreading the wrong information. So Putin is better than Yeltsin, but to say that he is reformer, it's stretching the truth. You have to wait and see. He will be going generally in the market economy direction and basically democracy, but to call him reformer at this stage, that's too much.

And when...Yeltsin resigned on New Year's Eve, he essentially apologized to the country. What was your reaction when you heard that apology? What did you think? What did you think that he should apologize for?

Since his speech was a very short one, I don't think any of his apologies should be taken seriously, like any apologies of any politicians anywhere. If he were to apologize I can help present probably like 1,000 pages of things he should apologize for, but I don't think he will ever apologize or understand them.

So he's a great man and changed Russia dramatically, but at the same time, he's obviously missed his opportunity ... he [destroyed] Soviet Union, but he never built a new Russia in a perfect way.

That's why my attitude was very skeptical. Everybody expected something happen-- nobody knew when. So he managed to surprise us, obviously, with the timing. He's always good at that. But I don't think anybody took his apology seriously.

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