In January, 1989, Ronald Reagan handed down the presidency to his vice-president, George Bush. The 1988 presidential campaign had been more a referendum on Reagan's two-terms than on the contest between Bush and Michael Dukakis. Reagan left office with a 68 percent approval rating for his job performance. The economy was entering the sixth year of one of the longest peace-time economic expansions in American history. Nearly 19 million non-agricultural jobs had been created since 1983, a job growth rate that had reduced the unemployment rate by 5.5 percentage points. Income tax rates had dropped from a maximum of 70 percent, when Reagan took office, to only 28 percent when he left. Dukakis and the Democrats tried to capitalize on the long string of Reagan budget deficits, which totaled more than those in all the preceding presidencies combined, by blaming the Reagan tax cuts for tripling the federal debt. But the deficits had not brought the economy down, and calls for economic austerity and higher taxes to balance the budget were met with icy stares.

If the truth be known, Reagan's tax cuts were never the cause of the budget deficits. Tax revenue as a percent of GNP was larger in his last year in office than it been in 1979. The Reagan deficits were basically due to two items: interest on the government debt and national defense. The run-up in the government debt during the 1980 and 1981-1982 recessions, plus the high real rates of interest it took to finance that debt during the 1980s, made interest on the government debt, an essentially uncontrollable expense, the most rapidly increasing item in the debit column. The second most rapidly increasing category of government spending was defense. In 1979, defense expenditures were only 4.8 percent of GNP. They rose steadily to 6.5 percent in 1986 and remained over 6 percent though 1988. Reagan believed that the "evil empire" of the Soviet Union could be pushed into economic collapse if the United States forced them into an arms race. Reagan doubled the defense budget and then upped the ante with his Strategic Defense Initiative (the so-called Star Wars Defense). The reason Reagan was so popular was that the public truly believed that the end of the cold war was worth a tripling of the public debt.

The Soviet Union had already suffered an incredible debacle in Afghanistan. Soviet forces had plunged into the civil war in Afghanistan in December, 1979. It became a Vietnam-type guerrilla war they could never win. The war lasted a decade, killing 16,000 Russian troops and wounding 30,000. The combination of Reagan's arms race and the Afghan war sapped the Soviet Union's economy of resources which were meant to increase the Soviet citizen's standard of living. When the price of Russia's major export, oil, collapsed in 1986, its economy could no longer support its military. During the last year of the Reagan administration, the leader of the Soviet Union, Mikhail Gorbachev, accepted the inevitable and cut his losses. Starting on February 8, 1988, the Red Army began to bring its men home after nine years and two months of humiliation. The Soviet economy was bankrupt, and Gorbachev, faced with ethnic and labor strife at home, surrendered military superiority to the West.

During the hot summer of 1989 Eastern Europe exploded. Hundreds of East Germans took refuge in West German embassies in the Eastern Bloc. The end of the "cold war" began on September 12, 1989, when a non-communist government took over in Warsaw. No Soviet tanks rolled into Warsaw. No Soviet troops massed at the border. The "cold war" had worn the Soviets out. Mikhail Gorbachev essentially gave his permission for the disintegration of the Eastern Bloc. The Red Army withdrew from Europe. On the afternoon of Thursday, November 9, 1989, the East German government announced that travel documents were no longer necessary for East Germans traveling to the West. The Berlin Wall - the supreme symbol of the Cold War - had fallen. Berliners danced on the Wall, tearing it apart with hammers and selling the fragments as souvenirs. By the end of 1990, East and West Germany were reunited.

1989 was one of those watershed years that transform the world. Except for China - where the People's Army mowed down hundreds of students in Tiananmen Square - totalitarian communist governments gave way peacefully, if reluctantly, to democratic movements. The rejected leaders of the Eastern bloc satellites, abandoned by Moscow, stepped down and faded into oblivion. (The exception was the repressive communist dictator of Romania, Nicolae Ceausescu, who, together with his wife, was found guilty of genocide by the new Rumanian government and executed on Christmas Day, 1989.)

The final death throes of the Soviet Union played out two years later in the summer of 1991. Gorbachev's attempts to revive the Soviet economy with half-way reforms to move from a centrally controlled economy to a market economy were a disaster. With more than half of industrial production dependent on military spending in 1988, the Soviet Union was faced with the task of completely restructuring its economy. Gorbachev succeeded in destroying the old Soviet command system, but he did not put anything in its place. Prices were not allowed to rise to their market clearing levels, creating shortages. Lines for bread, cheese, milk and sausage at state-run stores grew longer and longer. Adding to the economic decline of the Soviet Union was a 1991 wheat crop that was nearly 30 percent below normal. But Gorbachev hesitated to move toward a genuine free market economy because that would require a sharp rise in the price of basic staples, something Gorbachev thought would be unacceptable to Soviet citizens.

As panic over food rationing set in, Soviet hardliners, who blamed Gorbachev's perestroika policies for Russia's economic collapse, attempted a coup d'etat. On August 18, 1991, Gorbachev and his family were placed under house arrest at his summer dacha in the Crimea where they were held incommunicado. The next day the coup leaders announced that Gennady Yanayer, the Vice President, would takeover of Gorbachev's presidential powers.

As the drama unfolded on CNN, Western leaders, including President George Bush and French President Francois Mitterrand, were extremely cautious in extending their support to Gorbachev. But in Moscow, Boris Yeltsin, the first democratically elected leader of the Republic of Russia in a 1,000 years, became Gorbachev's champion. President Yeltsin rushed to the White House of the Russian Republic in downtown Moscow to condemn the coup d'etat and called for resistance. When the State Committee on the Emergency Situation, the political front for the coup, ordered Russian troops to surround Russia's White House, thousands of unarmed citizens came to support Yeltsin. The crucial turning point came when a tank unit of the Tula division switched sides and joined the anti-coup forces. With all the world watching, the alcoholic, middle-aged, prime-candidate for massive heart failure, climbed atop tank number 110, the Russian Republic flag in his hand, and thundered "Any army against the people will not work." (It sounded much better in Russian.) The electricity of Yeltsin and the extra-ordinary power of the media created an irreversible shift to the anti-coup resistance. The coup by the hardliners collapsed, and on August, 22, Gorbachev safely returned to Moscow, rescued by a team sent for him by Yeltsin.

Euphoria over the defeat of the hardliners was brief. It was almost instantly replaced with bewilderment and chaos. Although Gorbachev regained power as President of the Soviet Union, it was only to preside over its final dismemberment. In a chain reaction, nine of the Soviet Union's fifteen republics declared their independence. First the Baltic states led by Lithuania, and then a me-too landslide stretching from Belorussia, on the border of Poland, to Kirgizia, just to the west of China. The end came swiftly. On December 24, Gorbachev gave its USSR seat in the United Nations to Russia. The next day, he resigned, and the Soviet Union ceased to exist. Almost overnight, half of the population and forty percent of GNP disappeared from the former state leaving only Russia - now one of the most ethnically homogenous states in Europe.

As the communist icon, the Soviet Union, crumbled, political pundits proclaimed the triumph of free-market capitalism and democratic governance. The political theorist, Francis Fukuyama, then working in U.S. state department, wrote an essay in a 1989 issue of the National Interest quarterly entitled, "The End of History." Building on the Hegalian notion that history was the human struggle to find the most sensible - or least noxious - political and economic system, Fukuyama declared that liberal democracy had vanquished its last possible challenger, and history had ended. With the fall of communism, liberalism (that is democracy and free market capitalism), now unresisted, would now quickly spread to the remotest corners of the world and unite all people under the universal umbrella of capitalism and democracy. President George Bush echoed this triumphalism, declaring "the day of the dictator is over. .. Great nations of the world are moving toward democracy through the door to freedom. Men and women of the world move toward free markets through the door to prosperity. The people of the world agitate for free expression and free thought through the door to the moral and intellectual satisfactions that only liberty allows." Ten years later it is clear that Fukuyama was wrong. The Hegalian dialectic did not disappear; it had just changed its form. History is alive and well.

Yeltsin proved to be a consummate politician who transformed the Russian republic into a society where free elections have been held on numerous occasions. The United States sent dozens of political consultants to manage Yeltsin's political campaign for the presidency. Despite suffering a heart attack just before the 1996 election, Yeltsin defeated the Communist candidate Gennadi Zyugan by 13 percentage points. Essentially, American policy toward Russia consisted of support for Boris Yeltsin on the one hand and a very extensive financial loan package designed to persuade him to adopt economic reforms that would move Russia to a free market economy. When Clinton first came into office, he promoted a very large package of $40 for Russia from the G-7. The deal would send lots of money into Russia from the West in return for promises that Russia would reform its economy. The money was transmitted through international organizations so that members of Congress would not get to vote on it. More recently, the IMF has come up with an additional $22.5 billion.

But Yeltsin did not achieve any meaningful shift to free markets. His cronies turned out to be old Soviet apparatchiks who now are Russia's new "oligarchs." The privatization process, pushed on the Russian government by the United States, turned over Russia's richest industries to newly created tycoons. Economic reformers always assumed that whatever corruption occurred in the initial stages of the privatization process would be quickly overwhelmed by the gains in efficiency from the workings of free markets and private ownership. Unfortunately, Russia got an unpopular privatization program, but it didn't get free markets.

One of the wealthiest of the new oligarchs, Viktor Chernomyrdin, became Yeltsin's right hand man. Chernomyrdin was one of the Soviet apparatchiks who ran the oil and gas industry during the Communist era. In 1989 he turned the Ministries of Oil and Gas into Gazprom, a highly successful state-owned business. In 1992, he became the prime minister of Russia and presided over the privatization of state property, enriching himself enormously in the process. Chernomyrdin forged a relationship with Vice- President Al Gore through the Chernomyrdin-Gore Commission, a forum for dialogue, which gave him access to the international financial authorities of the IMF and the World Bank. Cheromyrdin became the agent through which the Clinton administration and the IMF channeled financial assistance to Russia. But Chernomyrdin is a crook with an almost delusional disregard for the public.

In exchange for G-7 and IMF money, Yeltsin and Chernomyrdin agreed to austerity measures that would shrink the budget deficit and reign in inflation. The IMF formula of high interest rates and reduced government spending in exchange for a rescue package succeeded in stabilizing the value of the ruble and bringing the rate of inflation down from 2,500 percent in 1992 to 11 percent in 1997. But these harsh monetary and fiscal austerity measures inflicted an enormous cost on the real economy. Fiscal austerity often meant not paying government workers their wages. The Russian people suffered seven years of economic depression. Real Gross Domestic Product shrank fifty percent from the level in the last days of Communist rule. Life expectancy plummeted so rapidly that the Lancet, a respected British medical journal, said it was "without parallel in the modern era." The mortality rate for middle-age Russian men 40 to 49 years old rose seventy-seven percent during the five years since 1990. Only Afghanistan and Cambodia among the nations of Europe, Asia and America have higher mortality rates. The life expectancy of Russian men declined to 57.7 years from 65 in mid-1980s. The rise in mortality also coincided with one of the lowest birth rates on earth, producing a population decline that has been called "the Russian genocide." The Russian population shrank by 400,000 last year.

The IMF austerity measures did not pull Russia out of its economic crisis. The economy did manage to eke out a slight gain in 1997, but then the Asian economic crisis and the resulting decline in the price of oil and gas, accounting for fifty percent of Russia's exports, plunged the economy into complete collapse. The international price of crude oil eventually fell to only $11 a barrel in early 1999. The drop in oil prices created the most severe financial crisis in Russia since the disintegration of the Soviet Union. Faced with economic disaster and eager to blame a scapegoat, President Yeltsin dismissed Prime Minister Chernomyrdin on March 23, 1998, and he was succeeded by the young free-market reformer, Sergey Kiriyenko. But Kiriyenko could do nothing to extract Russia from the economic blackhole into which it was descending. The best he could accomplish was conning the IMF out more money. He made grand commitments to continue the IMF's flawed policies in return for major new funding. On July 13th, under great pressure from the Clinton administration, the IMF approved a rescue package amounting to $22.6 billion over 18 months. When the IMF's first installment of $5 billion was turned over to the Russian government, it disappeared overnight without any visible benefit to the Russian people. It was used to stabilize the ruble and to temporarily avoid a devaluation which was by that time unavoidable. Once the Russian government got the money, it did nothing to fulfill its promises of economic reform. The foreign exchange obtained from the IMF was used to finance a capital flight by Russian oligarchs. All the dollars that were poured into Russia flowed out as fast as water poured on a table.

On August 17, Russia thumbed its nose at the world financial community and defaulted on its debt. Kiriyenko unveiled a new rescue package which called for a forced restructuring of the ruble denominated debt, a moratorium on foreign loans, and new controls on capital movements. Russia became one of the biggest welshers on international debt of all time. It was a serious set back for the IMF's and the Clinton administration's efforts to force Russia to redo its antiquated economy. But Russia had found the IMF prescription much too painful. Huge amounts of money poured out of Russia into foreign bank accounts. Within days, the value of the ruble fell from six to the dollar to twenty, and the stock market fell to 10 percent of its year-opening value in terms of dollars. The ruble's collapse left Russians convinced that capitalism is a con game fixed by criminals in high places.

Amidst the chaos on foreign exchange markets, Yeltsin fired Kiriyento as prime minister and renominated Viktor Chernomyrdin. But now Chernomyrdin was regarded as one of the causes of the economic crisis - part of the problem, not the solution. The Communist-dominated Duma twice rejected Chernomyrdin's appointment. Under the Russian constitution, if the Duma rejects the president's nominee for prime minister three times, the president can dissolve the Duma, appoint a new prime minister, and call for new parliamentary elections. But Yelsin was not ready for parliamentary elections. Rather than risk a third vote (and possible dissolution of the Duma) Yeltsin nominated Yevgeny Primakov on September 10, a past chairman of the KGB and the General Secretary of the Communist Party from 1982 - 84. The Duma quickly confirmed Primakov, but only a few months into Primakov's tenure, Yeltsin fired Primokov and appointed Sergei Stepashin, the former head of the FSK, one of the successor agencies to the KGB. Yeltsin, just as suddenly, stunned Russia again on August 9, 1999, when he fired Stepashin and named ex-KGB spy, Vladimir Putin, prime minister. For the fourth time in 17 months, Boris Yeltsin had fired a prime minister and appointed another, and the life time of his governments are getting shorter and shorter.

Yeltsin and Americans are now hated in Russia. More than two-thirds of the Russian people think Boris Yeltsin should resign immediately. The Communist-dominated Duma came very close to impeaching him. Not only is the Kremlin living from hand to mouth from IMF bailouts, Yeltsin's foreign policy is increasingly seen as Russia's humiliation, strengthening a nationalistic backlash against the West. Most Russians were outraged by the NATO air strikes on Yugoslavia. Russia has always had close ties with the Serbs, and despite Russian disapproval of Slobadan Milosevic, most Russians feel the Rambouillet accord, authorizing NATO to launch the massive air strikes against Yugoslavia unless Milosevic conceded to its demands, was unjust. The Rambouillet accord demanded not only broad autonomy for Kosovo, enforced by NATO ground troops, but also the right for NATO to conduct military operations anywhere on Yugoslavian soil without authorization of the Yugoslavian government. Any crimes committed by NATO troops against civilians would be tried in NATO military courts, not Yugoslavian courts. Madeleine Albright essentially admitted that the Clinton administration intentionally set concessions so high that Milosevic had no choice but to reject the agreement. Even the Kosovo Liberation Army did not initially sign the agreement; it did so only after being assured by the U.S. that Milosevic would refuse to sign, and the NATO bombing would begin. In the end, Yeltsin and his ambassador, Chernomyrdin, played an important role in persuading Milosevic to sign a surrender to NATO forces. In the eyes of most Russians, Yeltsin needed the IMF funds and sold out to the U.S. over Kosovo in order to get loan guarantees.

Russia's current political turmoil could hardly have come at worse time. Russia has its own trouble with ethnic conflict. At the time of his firing, Stepashin was in Dagestan overseeing the Russian response to an Islamic uprising. On August 7 Islamic revolutionaries crossed the rugged border between Chechnya and Dagestan, seized several villages, and declared an "independent Islamic state." Led by the infamous Shamil Basayev, the attack brought back memories of Russia's failed war in Chechnya. Eighty thousand people died in that war. Although Russian forces quickly occupied the lowlands, they could never flush the rebels out of their strongholds near the snow-capped peaks of the Caucasus Mountains. In Chechnya, mountain roads are still cluttered with the burnt-out hulks of Russian tanks, silent testimony to a failed assault on Chechen positions. So long as the Chechen rebels held the highland, Russia's control of the lowlands was never secure. The Chechens eventually captured the capital of Grozny in August, 1996, and the Russian's signed a cease-fire agreement soon after that called for a Russian pull-out. The humiliated Russians remain bitter about that loss. Shamil Basayev is particularly hated for his role in the conflict. He earned the designation of Russia's most wanted criminal for a murderous raid on a hospital in the Russian town of Budyonnovsky which led to the death of more than a hundred people.

The current conflict in Dagestan is galling for Yeltsin. He once admitted that the Chechen war was his worst policy mistake. Stepashin and Putin were both ruthless hawks during the war. Russia appears to be committed to a showdown in Dagestan. Though resource-poor, to the south lies Azerbaijan and its huge oil reserves. With the closing of the oil pipeline through Chechnya, Dagestan is now the main overland route for Caspian oil. And a successful Islamic revolution here would probably trigger the final disintegration of the Russian federation as regions far away from Moscow realize that the Kremlin can no longer threaten them with military power nor bribe them with subsidies.

The Russian financial collapse of last August shattered all illusions of transforming Russia's economy into a free market economy. Russia is on its way to becoming a "failed state", incapable of carrying out the core functions of a modern state. If it were not for its nuclear arsenal, it would matter less geopolitically than most third world countries in the scheme of things.

Every time the increasingly erratic Boris Yeltsin fires a prime minister, the world either questions his sanity or ponders presumed Machiavellian motives for his actions. Primakov, Stepashin and Putin all come from the nation's powerful security networks. Intelligence agencies now rule Russian politics. After all, in a past era, KGB agents were the "best and the brightest" of their generation. They were also the diggers of dirt - a crucial weapon in today's Russian political campaigns.

Yeltsin and Americans are now hated in Russia. More than two-thirds of the Russian people think Boris Yeltsin should resign immediately. The Communist-dominated Duma came very close to impeaching him. Not only is the Kremlin living from hand to mouth from IMF bailouts, Yeltsin's foreign policy is increasingly seen as Russia's humiliation, strengthening a nationalistic backlash. Most Russians were outraged by the NATO air strikes in Yugoslavia. Russia has always had close ties with the Serbs, and despite their dislike of Slobadan Milosevic, most Russians felt the Rambouillet accord, authorizing NATO to launch the massive air strikes against Yugoslavia unless Milosevic conceded to its demands, was unjust. The Rambouillet accord demanded not only broad autonomy for Kosovo, enforced by NATO ground troops, but also the right for NATO to conduct military operations anywhere on Yugoslavian soil without authorization of the Yugoslavian government. Any crimes committed by NATO troops against civilians would by tried in NATO military courts, not Yugoslavian courts. Madilein Albright essentially admitted that the Americans intentionally set concessions so high that Milosevic had no choice but to reject the agreement. Even the Kosovo Liberation Army did not initially sign the agreement; it did so only after being assured by the U.S. that Milosevic would refuse to sign, and the NATO bombing would begin. In the end, Yeltsin and his ambassador, Chernomyrdin, played an important role in persuading Milosevic to sign a surrender to NATO forces. In the eyes of the Russians, Yeltsin needed the IMF funds and sold out to the U.S. over Kosovo in order to get loan guarantees.

Yeltsin has created an oligarchy where the business of government is to enrich the "family": Yeltsin, his relatives, his aides and ministers, and the "tycoons" that support him. He has divided the spoils of communism: the country's huge natural resources, owned by everyone, and no one. But there is always a continuing fight over who will get the most, and especially how to make their gains permanent. As a constitutionally lame-duck president, Yeltsin must fear that the next president may initiate criminal proceedings against his family and his dubious associates.

Russians may pay dearly for their "little" war in the Caucasus. It may be the pretext for a loss of political freedom. Yeltsin has promised to obey the constitution, hold parliamentary elections in December, and step aside when his second term ends in the summer of 2000. But many skeptical Russians believe he may use the Dagestan conflict to declare a state of emergency, allowing him to cling to power by cancelling December's parliamentary election. Yeltsin is in bad physical shape. His zombie-like public appearances reinforce fears about his state of mind. He has lost all popular support. But Yeltsin will cling to power until he can assure the safety of his "family." A state of emergency may be his only choice.

The Clinton administration's continuing support for Boris Yeltsin may now have created political conditions that lead to a backlash by anti-democratic and anti-freemarket forces. In the end, Russians must choose their own form of government; it cannot be imposed on them by the United States. Although Russia is experiencing a quiet economic recovery from last year's financial collapse, thanks to higher oil prices and more competitive exports due to the devaluation, Yeltsin's government is still living from one IMF loan to another. Wouldn't it have been better for the IMF to step aside and leave the Russian government to negotiate on its own with its foreign creditors? For too long the Clinton administration has confused America's strategic interest with the success of Boris Yeltsin. Now that Yeltsin's era is coming to an end, at the very least, the United States should use its influence to encourage Yeltsin to remain within the constitution and transfer power to his successor.

Mac Williams
Cosmos Mariner
Destination Unknown
© August 20, 1999

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