There were three main factors in the rise of a criminal oligarchy during the presidency of Boris Yeltsin. Hyperinflaton, the process of privatization and criminalization.
Factor 1 – Hyperinflation
Januar 2, 1992 – Beginning of the Reforms
Yegor Gaidar – shock therapy – freed prices and predicted a rise of 3-5 x followed by a fall
In reality they rose in 10 months of 1992 by 25-30 x
March 1993: No money for funerals
A common scene in Russia as people had lost their life time savings in inflation
Pyramid schemes
to make quick easy money to cope with hyperinflation were deceptive
Enriching the few empoverishing the many
Path 1 to Wealth
Abuse government credits given at 10-25%
while the inflation rate was at 2500%
Intended to pay for salaries and materials
to support industry and factories,
the credits were invested elsewhere
for much higher interest
Profits were split
between bankers and factory directors
Path 2 to Wealth
Export license for raw materials
were a licence to print money
Buy at cheap internal price
Sell at high external price
Cost of licence – a bribe
Export Licences
Buy at cheap internal prices, sell at expensive external prices in dollar
Licence cheap, bribe expensive
Factor 2 – the Process of Privatization
This process started during perestroika
State officials took over state agencies and reorganized them as private businesses:
- Ministeries became concerns
- State distribution systems became commodity exchanges
- State banks became commercial banks
October of 1992
Distribution of vouchers to the population
Each voucher represents 10.000 roubles
People invited to exchange them against shares
People were not really sure what to do with these
Schemes to get vouchers from people
vagrant people buying up vouchers
Criminal groups organized these vagrant looking
buyers, impression that voucher worthless
Auctions – First legally created private property
Oleg Deripaska – 4.88% share of Aluminum factory
Became of the richest Russian oligarchs
Kakha Bendukidze – Ural-Mash – Huge Soviet factory with up to 50.000 workers – made tanks
He grabbed 18% with 130.000 vouchers presented minutes before the close of the auction.
1/3rd of Russia’s industrial base may have gone
for 1.3 billion dollars – a fraction of its worth
Privatization for CASH (Latter part of 1994)
Mikhail Fridman – Head of Alfa-Group
Oleg Deripaska
Vladimir Bogdanov – oil tycoon
Kakha Bendukidze
Vladimir Potanin
Became billionaires by appropriating state resources
with the help of corrupt state officials:
Mikhail Khordorkovsky – currency operations
Boris Berezovsky – automobiles
Vladimir Gusinsky – real estate
Alexander Smolensky – banking
Newly rich created banks, who were empowered to
handle government funds – used funds as free capital
to invest, ignoring rules that were not enforced
Meanwhile non-payment of salaries
became reality for many Russians
Second stage of CASH privatization
This group of new millionaires and banks bought up the mines and factories of Russia for a fraction of the price in auctions, that were in fact fake auctions, faking competive process
Factories sold for stunning prices
324 factories sold at average price
of less than 4 million dollars each
Uralmash – 3.7 million USD
Chelyabinsk Metallurgical Combinate – 3.7 million USD
Murmansk troller fleet – 2.5 million USD
Greater part of Russian funds sold for 5 billion USD
Valued 300 billion USD at most conservative estimate
Foreigners – don’t miss to invest !
Government stopped to print money
Launches the loans-for-shares program
Banks organized auctions and inevitably won
Then the state-owned factories became morgaged
When the government failed to meet obligations
the factories became property of the banks
Detailed description of the auction process
Norilsk Nickle factory
Onyx Bank aquired a 38% stake for 170 million USD.
Norilsk Nickle produces:
90% of Russia’s nickle
90% of Russia’s cobalt
100% of Russia’s platinum
In three weeks the Russian government placed companies producing a fifth of the federal budget
into private hands – creating a class of super-rich
oligarchs in return for almost nothing.
In 1995 the sale of 21 of the most precious Russian state owned enterprises brought only 690 million USD
a fraction of their real value
Russian oligarchs a well-established class by April 1996
Presented themselves as entrepeneurs, while in fact owing their wealth to theft.
Election time …
13 oligarchs published a letter vaguely threatening
any attempt of “unprincipaled” politicans
be aware that we will step in if communists come back
Economic collapse as a consequence of the pilaging of the country
1992-1998 – Gross domestic product fell by 50%
Millions spent months or years without being paid
People went to grow their own crops to get fed
Demographic catastrophy
Male life expectancy was 57 years by 1998
Vertical rise of death rate shocking when not at war
750.000 fewer Russians per year
Financial collapse of August 1998
Short-term government obligations – 3-6 months term
1994 – 3 billion USD // 1996 – 42 billion USD
1997 – 64 billion USD
Interest rate worsens with government ability to pay back – sometimes reaching 160%
Mid-1998 – interest reaches 1 billion USD a week
July 1998 – government devalued the currency
defaulted on 40 billion USD of debt
and stopped servicing commercial debt
Factor 3 – Criminalization
Cooperatives became the only privately run business in the Soviet Union during perestroika
They had no police protection as they were not state owned, private security guards not allowed
Gangs appeared, staked out territories – anyone on the territory had to pay tribute – DAN
These gangs were called – krischa – roof
By 1992 all shops on market made pay-offs
Gangs were based on ethnic groups or regions
Gangs had mediating function at vstrelkas / meetings between gangs – peaceful, but appearing armed
The most important gangs had own adminstration, wire tapping people including their own members, they had lawyers, equiped with the best weapons from the armed forces
marketing specialists to identify most lucrative targets
Casinos, gas stations, market places …
8 billion turnover on biggest moscow outdoor market
Government budget even bigger source of wealth – gangs saw people getting hyper rich – wanted to take over the businesses – hundreds of business owner, banker and other becoming victims of gang murders
Contract murders – 1993 – 35 bankers murdered
Soon murdering stopped, each side needed the other: economy, adminstration and criminal gangs
Yeltsin and democracy
First 21 months – rising tension between president and parliament
March 15 1992
Demanding resignation of reformers
Yeltsin responded by getting more administration
Y opposed by 2/3rd of parliament
Y drunkard and
Motion for impeachment … failed
April 25th – new motion
Y victory – helped by Soros
Deputes stunned by victory of Yeltsin
Y continued to rule by decree, even though permission ran out
Budget deficit appeared – totally wreckless
Yeltsin – visit army – doubled and tripled salaries
Yeltsin proposal – ban court, submit main prosecutor
Raising Y alcoholism issue
Made a gesture towards Yeltsin – reported to Y
September 21 – decree 1400
abolish supreme soviet
November new constitution
Article about removal of president, replace by vice-president
Vice-president took oath of office
Deputes stay in parliament
March 2020
Putin 54
runner up 30
people had elected a man of whom they knew nothing
Factor 3 – Moral degradation
Rise of oligarchy and creation of authoritarian system affected public consciousness
Blurring of moral distinctions
growth of irrationality
disregard for the value of human life
Blurring of moral distinctions
Otari Kvantrishvili
Vice president … singer Joseph Kobzon
21st Century Association, an organisation ostensibly dedicated to funding sports but was widely regarded as a front for racketeering. During the chaotic transition to capitalism in the early 1990s, Kvantrishvili became something of a public face for the mafia, befriending politicians and celebrities such as Joseph Kobzon while also acting as a mediator between various underworld factions, including the thieves in law and Slavic and Chechen mobsters – and he had connection with goverment, with Yeltsin and his daughter
Anatoly Bykov
During the 1990s, Bykov gained prominence in Krasnoyarsk Krai and Krasnoyarsk as an entrepreneur, who was the chairman of the board of the world’s largest aluminium company RUSAL’s Krasnoyarsk aluminum plant (KrAZ)
Alexander Solonik
Russian gangster, known for his reputation as a notorious hitman in the Russian criminal underworld. Also known as Sasha Makedonsky, Valerianych and Superkiller, Solonik was involved in Russian Mob activity for much of the 1990s until disappearing after his second escape from prison. Solonik was found dead in Athens, Greece, in 1997.
Svetlana Kotova – girl friend of Solonik – found dead also in Greece
Couple murdered strangled in Greece villa in January 1997
Occultism and Esoterism – Irrationality on the Rise
Healing Sessions – during the late perestroika period and following the collapse of the Soviet Union on TV
Occult Services
Change behavious of people
Businessmen consulted sorcerers
Russian church became part of it
Japanese dooms day sect – world ends in 1997
Became connected with Russian security council
Sarin attack in metro
Devaluation of human life
1990s – 40.000 murders per year – 3x times more than in 1990.
5x traffic accidents
25x poisoned
7x suicide
54x murdered
Appartment racket – death warrant
1992 – walked outside, found a note
Life-time care for single person in return for legal ownership of appartment
“Are you ill and alone? We are ready to help.”
only telephone number – death warrant
100s and 1000s of victims
Era of cheap alcohol
Trauma of losing a wordview, however false, that gave them meaning
In response removing restriction on sale of alcohol
Cheap alcoholism, soothed pain about pilage of country, but cost on health.
Government failed to finance health system
Privatisation of medicine – people giving up in masses
5-6 million of unnecessary death in Yeltsin years
Transplants souls to replace the old non-market sould
with new pragmatic market-like approach
Change in economy – reason for change not given
Change intolerable – people losing will to live
Yeltsin had a unique chance
thought that democracy was only economic
restoration universal values
establishment of the rule of law
Y to P: Take care of the country …