#45 | August 13 - 26, 1998  

by Mark Ames

I remember when Edward Limonov and Grazhdanskoye Oborona singer Yegor Letov first publicly kicked off their "Buy Russian" campaign about four years ago. They were treated with mocking scorn by the press, and completely ignored by the Russian political mainstream. Their call to boycott foreign goods in favor of Russian goods was depicted, at best, as quixotic chauvinism that, thankfully, would never be taken seriously.

A July 23rd, 1994 article in the Moscow Times by Sander Thoenes, "Neo-Fascists Launch Boycott," began:

"A group of Russian neo-fascists claim to have found the solution to Russia's economic woes: Next time your child reaches for a Snickers or a Twix, give him a slap on the wrist!
"With slogans like these on posters plastered across the city and in some Russian provincial towns, the National-Bolshevik Party is calling on Russia's youth to boycott imported goods and produce.
"'Support Russian producers! Buy only Russian goods! Rubles - Yes! Dollars - No!' the signs read."

Today, of course, those bad ol' fascists look pretty conventional. Late last year, Yeltsin made a big public push to "Buy Russian," and last month, reformist pin-up model Boris Nemtsov belatedly jumped aboard the Limonov bandwagon. The Nemtsov campaign, naturally, was treated with more respect from the Times. The reason is that whenever a dangerous idea first appears on the fringes, it is never tolerated. Only later, when those ideas percolate to the top, do they become respectable. Compare the above depiction of fascist lunacy to the reasoned, calm rhetoric below:

"Wednesday, July 22, 1998
Campaign to Promote Russian Goods
By John Varoli
ST. PETERSBURG - In a drive seen as revving up Russian consumer patriotism, Deputy Prime Minister Boris Nemtsov gave his backing over the weekend to a campaign-effectively titled 'Buy Russian Goods' - and called for a policy of 'reasonable protectionism.'"

Okay, so now "Buy Russian" is considered safe. What about another "neo-fascist" policy of Limonov's-such as his party's call to default on all of Russia's foreign debts, as Lenin did in 1917.

On Tuesday, as Russian stocks continued their Indonesia-style freefall, Russian Eurobonds collapsed to unheard-of prices, and GKOs soared to pre-IMF bailout levels, Deputy Prime Minister Viktor Khristenko was forced to publicly respond to "rumors" that Russia is planning to default on its debt.

"Default is not an issue here," Khristenko was quoted as saying. Meaning, of course, that default is a BIG issue here. Khristenko was using a simple old rhetorical trope called "aposeiopesis," in which you bring up something unpleasant by way of pretending to drop the matter-ostensibly exculpating the speaker, while planting a seed in the listener's head. Obviously, if a reformist deputy prime minister is making public statements on defaulting, it's not because he got ahold of the latest NBP pamphlet and nearly suffered a stroke. Rather, it means that "default" has already effectively become an option.

In fact, debt default on a massive scale is inevitable, logical, and just. When we published our editorial, "Defaulting Now For Russia's Future" in our June 16th issue, we wrote, "The odd thing about our solution to the crisis is that we're not kidding. Russia really does have only one way out. And that way is to default immediately on all of its loans-and then train its entire arsenal of intercontinental nuclear missiles on Wall Street."

In theory, though, the nuclear missiles are already almost-trained on Wall Street, which is why, a few weeks after our editorial, the IMF hastily approved its sixth doomed Yeltsin-era bailout. The IMF is so dostupny, or loose, when it comes to spreading its legs for Yeltsin's borrowing needs that, in a mere six years, Russia has already soared into first place among IMF debtors, edging past second-place Mexico, which needed over fifty years of banging its tin cup on America's door to achieve a roughly similar level debt.

Russia should take all the money it can while the takin's good. Because very soon, it will become clear that Russia can't pay it back, no matter how much more it takes in. And then no one-not even the IMF-will be able to honor Borya's Platinum Card. At first, "rescheduling debt" will seep into the discourse, by way of denials, then hints, then an actual deal, much as the last bailout drama unfolded (indeed the last bailout does imply that some of this year's debts will be rolled over, and thus, rescheduled); since rescheduling the debt will, at best, provide only a tiny respite, the discourse will shift to giving the West the choice between writing off most of the $140 billion in Russia's foreign debt, or outright default.

The mathematics are simple. Russia will have to come up with at least $40 billion by the end of the year to service both interest and principal on its debt. That doesn't include back-wages owed to government employees, pensioners, etc, industry expenditures, social spending and so on. Last month, according to Oberfuhrer Tax Chief Boris Fyodorov, tax receipts improved to a whopping $1.9 billion dollars. Let's take out our abacus. If the Russian government is lucky, it might collect another $10 or $15 billion between now and the end of the year. And it needs more than $40 billion just to service its debt. The only way to fill that huge hole will be... envelope please!... to borrow even more! Tchya, right. As the markets show, bankers today would be more willing to loan money to Michael Bass than buy Russian debt instruments.

In a darkly comic article in this week's issue of Novaya Gazeta, Sergei Mavrodi, famous for creating the MMM pyramid scheme that bilked millions of Russians out of their savings, wrote that he wouldn't be caught dead with a fistful of GKOs, which he described as a low-tech version of his own MMM scam. Foreign investors clearly agree with Mavrodi-that's why the IMF bailout was, for them, little more than a selling opportunity, a quick spike that allowed the smarter speculators to dump their holdings on the last suckers in the pyramid scam, then split town.

There are several reasons why Russia will sooner rather than later force the West to either write its debts down to a fraction of their present value, or else outright default. One, of course, is that Russia simply doesn't have the money. But on a moral or political level, it will become even fashionable to advocate defaulting because those loans should never have been approved, were never controlled once approved, and thus, were wasted. The creditor was as careless as the debtor-and the taxpayer is expected to clean up their mess. For example, the World Bank loaned $500 million to Russia to help restructure its coal industry and retrain miners. Instead, most of the money went into lining the pockets of chinovniki, factory directors and the like. Even Moscow's World Bank Deputy Director, Vadim Vorodin, admitted that there was "never proper control" and the money went missing. So why should Russian taxpayers cough up their money to an irresponsible banker-the World Bank, in this case-whose main aim was to prop up a friendly, though corrupt management team (the government) at the expense of the company shareholders and employees (Russian taxpayers)? If this scenario were to play out in the Western corporate world, the shareholders would sue both board and bank, and not just win, but have their children and their children's children living in barrels, subsisting on bread and water, just to pay back those debts. Here, it's the other way around.

The most recent $22 billion loan package offers the sick and dying Russian patient a classic hot dose. Consider this: most countries this century have learned that you grow your way out of an economic crisis either by deficit spending, massive tax cuts, or currency devaluation (which leads to increased exports). The IMF, ossified in late 80s monetarist theory, is prescribing exactly the opposite: Scrooge-like deficits, King George III-sized tax hikes, and a rock-solid currency reflecting a quicksand economy. The goal is to stabilize the ruble, on the alleged fear that a devaluation might topple Their Man, Boris Yeltsin. However, I seem to remember several devaluations this decade, none of which led to street protests. Which makes me wonder-is it really for "the people" that the ruble is being defended so fiercely? Of course not. The problem is that the banking sector and ruble-denominated debt instruments-both areas where foreign investors are heavily exposed-could be crushed by such a devaluation.

The IMF loan was approved purely for political reasons: the Clinton Administration was terrified that Yeltsin might fall from power, to be replaced by some Gary Oldman-like super villain, which would mean pizdets for the Democratic Party come election time. U.S. Treasury Secretary Robert Rubin, and Deputy Treasury Secretary Larry Summers, who essentially run the global economy, underlined recently how vital Russian financial stability is to American interests. "Our interest in successful political and economic reform in Russia is compelling," U.S. Treasury Secretary Robert Rubin wrote to Newt Gingrich two weeks back while pleading for more IMF funds. Last week, Summers told a conference of American governors that the success of the Russian government in carrying out its reform program is of the "utmost importance economically and politically" to the global economy. Indeed, there has been much talk that the IMF's very solvency and legitimacy is at stake here in Russia.

In other words, the loans are offered to Russia not because, as in a normal banker-borrower situation, they make economic sense, but rather political sense. They are payoffs intended to uphold American hegemony, which is our "compelling interest." We need a pliant, defanged Russia so that no one fucks up our action, and we're willing to spend money to pay for that crippled animal's life support system. We call our payoffs to the Yeltsin regime "loans" because, well, it just sounds a little more palatable than "payoffs." And, if the Russians are stupid enough, they might actually pay back those payoffs-with interest-meaning that they'll pay us for services rendered to us. But that won't happen. The default is inevitable. Especially now. Like all dangerous ideas, once the words "default" enter the mainstream discourse, it's only a matter of time before it becomes policy. And I'd even be willing to bet that, like "bizness" and "offshorny," "dyet difalt" will become another one of those Russified English words entering the modern lexicon, although it won't be treated with the same kind of whimsical condescension in Western circles. A big step in that direction, from the underground ideology-mills of an extremist like Limonov to mainstream political discourse, has already been made. The Communist head of the Duma Committee for Legislation and Judicial Reform, Anatoly Lukyanov, told Interfax two weeks ago that loans unconfirmed by the lower house may "not be considered Russia's state debt" and that parliament will not take any responsibility for those loans. The IMF loans have not been approved by the Duma, and thus, their legality is in question. (Of course, coming from a Communist, you have to take that threat with a grain of salt: they're about the most pliant "opposition" party in the world, more government-loyal than, for example, the Democratic Congress was to Clinton between 1992 and 1994.)

In the recent bailout packages for South Korea and Indonesia, Western banks agreed to reschedule and write off billions of dollars in crippling loans. The same thing happened in Latin America in the 1980s. The reason is simple: in the end, the lenders are just as "guilty" as the borrowers for making stupid loans, and so, logically, they should share the pain when the game is called. The fact that talk of "debt default" has traveled so quickly up the political ladder in recent weeks from Limonov to Lukyanov to Khristenko shows that momentum is building.

The big question now is, what will happen if Russia defaults on its debt? Nothing much. It's like telling an AIDS patient that if he doesn't take a certain expensive medicine, he'll get athlete's feet. Big deal. Foreign investors over the past seven years have shown that they can't do anything to help Russia's economy-even AmCham President Bruce Bean could only point to 13,000 Russians who'd learned how to smile at McDonald's as the great achievement of foreign investment. Now that they've trashed the place, they're packing up the motorhome and Snagglepussing out of town: exit, stage left, even. If Russia defaults, foreigners can't "pull out" much more than they have. In other words, things really can't get much worse.

Besides, foreigners will come back if there's money to be made. Anytime, under any circumstance. They'll work with any regime in the world so long as there's money to be made. Particularly if Russia ever does start growing, foreigners will be back in droves.

When oil producing countries like Iran and Venezuela started renegotiating their production-sharing agreements with the Western oil companies fifty years ago, all sorts of wild threats about embargoes and economic collapse were made; when the oil fields were nationalized, the threats were nothing short of warlike and hysterical. But look at what happened: those same oil companies are still there, buying oil from wells that were once "theirs" and selling it through their networks, still making their happy profits in spite of the nationalization. The same will happen here post-default, and paradoxically, Russia stands a better chance of finally growing and attracting big investments only when the IMF stops forcing upon Russia its insane, dystopian advice, and when they toss in the towel on debts and say, "Sorry, guys. We're broke."

What about Lawrence Summers and Rick Rubin-how will they react to the upcoming default? They'll fight it tooth and nail, of course, but in the end, they'd probably offer the island of St. Kitts to Russia if it meant keeping Yeltsin in power a couple more years-long enough to get Gore into office. On the scale of things, what's a debt write-off compared to the chance that Russia might bow out of the neo-liberal board game that those two run, setting up a competing board game of their own, with an entirely different set of rules. That would mean ideological competition, which, according to their neo-liberal model, isn't supposed to happen ever again. Competition in business may theoretically be healthy; but ideological competition is by definition a fight to the death.

Limonov's party has been preaching nationalism for five years now. At first, they were denounced as fascists and extremists for openly using the word "nationalist." Now, with Luzhkov and Lebed leading to replace Yeltsin, "nationalism" is not the dirty underground word it once was. How long will it be until, for example, talk of uniting Russian-speaking territories in Ukraine, Kazakhstan and Estonia with Russia become part of the mainstream discourse?

For now, let's just stick with "dyet difalt". The rest will come later. And probably won't derive from English origins.