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Yeltsin and Russia's transition to Capitalism

Boris Yeltsin was elected President of Russia in June 1991 – the first direct presidential election in Russian history. Two months later came the Communist hardliner coup, with Gorbachev under house arrest and Yeltsin on top of a tank speaking to a crowd about democracy. The coup failed, and in October Yeltsin as Russia's President announced his plan for a free enterprise economy. Russia's parliament was supportive, remembering with sentiment Yeltsin actions during the coup attempt. Gorbachev was President of the Soviet Union, and in late December Russia declared itself independent. So too did other Soviet republics, and the Soviet Union was no more.

President Yeltsin favored a sudden shift to a free-market economy — rather than a more careful, gradual approach such as first freeing small enterprises and letting his country adjust its laws to meet the new circumstances. Yeltsin assembled a team of economists who admired the economist Milton Friedman, referred to in Moscow as the "Chicago Boys." It was a move to be called "shock therapy." A Russian political scientist, Vyacheslav Nikonov, was to complain that there was no legal basis a free market had not been constructed (such as had been done across time in the capitalist West. In his book, Superpower Illusions, the US ambassador to the Soviet Union, Jack Matlock, writes that shock therapy "ignored the fact that there was no legitimate capital in the country" – in other words, holders of investments in wealth. Matlock describes the result:

Communist Party officials, senior military and KGB officer, and other privileged insiders join the criminals who had been running a black market steal what they could, as fast as they could. (Matlock, p. 111)
In her book The Shock Doctrine, Naomi Klein writes of the effect of the Shock Doctrine's disconnection with public opinion – the lack of democracy resulting from Yeltsin's dictatorial powers. Klein writes:
... 67 percent of Russians told pollsters in 1992 they believed workers' cooperatives were the most equitable way to privatize the assets of the Communist state, and 79 percent said they considered maintaining full employment to be a core function of government. (Klein, p. 224)

Yeltsin attempted to stabilize the economy and control of inflation by an austerity program and high-interest rates. He attempted to put state spending in balance with revenues by raising taxes and reducing government subsidies, and he made steep cuts in state welfare spending. It didn't work. Writes Wikipedia:

Through the 1990s, Russia's GDP fell by 50%, vast sectors of the economy were wiped out, inequality and unemployment grew dramatically, whilst incomes fell. Hyperinflation, caused by the Central Bank of Russia's loose monetary policy, wiped out many people's personal savings, and tens of millions of Russians were plunged into poverty.

By September 1993 (early on in the decline), Yeltsin was facing popular unrest. Yeltsin moved to dissolve parliament. Deputies moved to impeach him and barricaded themselves inside the parliament building. In October, Yeltsin secured the support of Russia's army and ministry of interior forces, and in a massive show of force in early October Yeltsin called up tanks that shelled the parliament building and crushed his opponents there. He closed opposition newspapers and banned political parties: the National Salvation Front, the Russian Communist Party, the United Front of Workers, and the Union of Officers.

President Clinton was standing by his friend, the champion of democracy, good ol' Boris. China was the only major power not to back Yeltsin. "We are deeply concerned about the recent bloodshed in Moscow," the Chinese foreign ministry said in a statement. "As a friendly neighbor, we hope to see an end to the conflict and a proper solution to the current situation in the interest of the stability, unity and economic recovery."

Yeltsin worked his way out of the crisis by proposing a national referendum (direct democracy), said to have flustered those organized against him. Yeltsin wanted a rewrite of the constitution, to replace the one from the Soviet period. The national referendum went his way, and in December a new constitution was approved, giving Yeltsin sweeping powers, guaranteeing private property and free enterprise and individual rights.

Meanwhile, the First Chechen War had begun, the Muslim Chechens wanting independence. Chechnya was within the Russian Federation rather than having been a republic within the Soviet Union, and the Russians were not in a generous mood. Guerilla warfare followed and frustrated the Russians. The Russian public's opposition to the conflict grew and led Yeltsin's government in 1996 to declare a ceasefire.

In 1996 Yeltsin was up for re-election as president. He began in fifth place among the presidential candidates, with only 8 percent support. The Communist Party's leader, Gennady Zyuganov, led with 21 percent. It is alleged that Russia's new capitalist oligarchs saw a Zyuganov win as a threat to their recently acquired wealth, and they rallied to Yeltsin.

According to Wikipedia, the businessman Anatoly Chubais,

recruited a team of financial and media oligarchs to bankroll the Yeltsin campaign and guarantee favorable media coverage on national television and in leading newspapers. In return, Chubais allowed well-connected Russian business leaders to acquire majority stakes in some of Russia’s most valuable state-owned assets.

The pro-Yeltsin media campaign alleged that if the communist Zyuganov were elected, Russia would return to days of Stalinist repressions, including the gulag and tthere would be civil war.

According to GlobalResearch.ca There was US meddling in the election. Unsurprisingly the Clinton administration favored a Yeltsin win over Zyuganov.

Yeltsin won a six-year term as President and it was his job to selected the prime minister to run the government. Remaining as prime minister was Viktor Stepanovich Chernomyrdin, the first chairman of the Gazprom energy company, and prime minister since 1992.

Now came more economic trouble. The Asian financial crisis in 1997 and declines in demand for crude oil and nonferrous metals impacted Russian foreign exchange reserves. Also, Moscow was in conflict again with the Chechens, and the cost of the war was another burden. In March 1998, President Yeltsin, responding to his declining support, dismissed Prime Minister Chernomyrdin and his entire cabinet and named his Energy Minister, Sergei Kiriyenko as acting prime minister. There was an attempt to improve Russia's economy using International Monetary Fund credits. Kirienko's cabinet defaulted the loans which led to devaluation of the Russian ruble. The life-savings of tens of millions of Russian families suddenly vanished. Inflation in 1998 reached 84 percent. Many banks closed.

Yeltsin fired Kirienko and appointed a compromise figure who was accepted by parliament. This was Yevgeny Primakov, who was able and scholarly and also had a KGB background. Prime Minister Primakov produced some reforms and was popular, but he lasted only eight months, Yeltsin firing him on 12 May 1999. Some analysts believe that Yeltsin was afraid of Primokov's popularity and some would say that Yeltsin viewed Primakov as too close to the Communist Party.

An attempt in the Duma to impeach Yeltsin on 15 May 1999 failed to achieve the required two-thirds vote. Former prime ministser Primakov was considered a frontrunner for the presidency, and Yeltsin feared that he might prosecute him and his "Family" (a small group of advisors that included his daughter) on a charge of corruption, Primakov having suggested that he would be "freeing up jail cells for the economic criminals he planned to arrest."

Yeltsin appointed Vladimir Putin as temporary prime minister, and in August he named him as his candidate to head the new government. Yeltsin went so far as to declare that he saw Putin as his successor as president, and the Duma narrowly voted to confirm Putin as Prime Minister.

In September, Russian politicians created a new Unity Party, with the goal of attracting votes away from the communists and former prime minister Primakov. The United Party registered in October. Prime Minister Putin endorsed it, and he was winning approval for his moves against the Chechen "terrorists." Apartment bombings across Russia killed hundreds and injured thousands. The bombings were blamed on the Chechens, with Putin having positioned himself as a strong and aggressive leader capable of dealing with the Chechen threat.

In the Parliamentary elections on December 19 the Unity Party finished second with 23 percent; the Communist Party was first with 24 percent. The Union Party, supported by the still unpopular Yeltsin, formed a coalition with the Union of Right Forces and secured a majority in the Duma. Yeltsin's prime minister, Putin, meanwhile had risen in popularity, with 42 percent saying they would vote for him for President. An agreement was in the works between Yeltsin and Putin. On December 31, Yeltsin addressed the nation, saying he was "resigning ahead of time" because "Russia must enter the next millennium with new politicians, with new personalities and with new smart, strong and energetic people." Putin, acting as president on the day of Yeltsin's resignation made it a law that Yeltsin could not be charged with corruption.

"THE RUIN of RUSSIA,"  
     by Joseph Stiglitz,
     the Guardian.com

An election in March 2000 was won by Putin, with 53.4 percent of the vote. The Communist Party's Zyuganov was second with 29.5 percent. The Chechen War figured prominently in the campaign. Putin having flown to Chechnya on a fighter jet, claiming victory.


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